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Thursday, 5 February 2009
Page: 566

Mr NEUMANN (1:09 PM) —I rise to speak in support of the Federal Justice System Amendment (Efficiency Measures) Bill (No. 1) 2008. This bill makes a number of important amendments, but I will deal with two particular schedules: schedule 1 and schedule 5. Schedule 5 deals with the Black v Black amendments. I will go through the first one in a cursory way and the second one in detail.

The first schedule deals with the Federal Court’s powers, and there are a number of important measures which will approve the efficiency of the operation of the Federal Court. The idea of appointing a referee to do a report is a good initiative because much of the litigation in the Federal Court is complicated. Issues like native title, trade practice, bankruptcy and other areas are very complex. In addition, the Federal Court has a wide jurisdiction in its administration of law, dealing with all manner of federal law that is passed by the Australian federal parliament. So it is important that the Federal Courts, which deal with our Australian citizenry each and every day, be as efficient, effective, flexible and transparent as possible. The idea of appointing a referee to do a report to assist the effective management of litigation is a good initiative. In fact, it is quite common to do this. The idea of even going further and having, for example, an independent valuer on property issues or an independent expert on medical issues—a single expert—has been common in civil jurisdictions in the state courts as well as in the Federal Court, the Family Court and the Federal Magistrates Court. So it is very common to do this sort of thing. It is a very good idea to have a referee to assist in management if we are able thereby to reduce costs, come to an agreement and reduce the time that judges actually spend in court. It is a great cost to the Australian taxpayer to have a court sitting. It is not just the litigants, but also the Australian taxpayers who have to pay lots and lots of money.

Resolving commercial disputes as quickly and as efficiently as possible is a good thing for our businesses, particularly in this difficult time. Getting expert advice in the sciences and trades, in native title and in other areas is crucial to aiding a judge’s understanding. Judges are often lawyers, and lawyers like to think they are experts on everything, but they are not. And I have to confess that I am not. Many lawyers think they know everything about everything, but they do not, and the truth is that judges need help. Judges are not experts in areas of, say, medicine, trade or science. They are not experts on native title. They need assistance, and referees are important. Judges have practised in various areas—commercial and criminal—as barristers or solicitors, but they often do not have expertise in very difficult areas that involve expert knowledge of other areas of our community. But, of course, judges need to retain that discretion when they deal with these types of reports, and that discretion is crucial in terms of their legal effect. The idea of permitting single judges to make interlocutory orders in circumstances when the full court would otherwise sit is simply a sensible and cost efficient way to do things. In fact, in some courts, there are delegated registrars to do these sorts of things. It surprises me that we have not done this earlier. So this is a good and efficient way to deal with the management of our courts system, and that is what is dealt with in schedule 1.

Schedule 5 deals with what I have described as the Black v Black amendments, which are to do with binding financial agreements. The decision of Black v Black caused a lot of media comment, a lot of comment by the Law Council of Australia and a lot of comment by family lawyers generally. It was an interesting decision and I will turn to it. This particular bill amends, in effect, the Black v Black decision. It deals with the validity of binding financial agreements made under part VIIIA of the Family Law Act. Those types of agreements have been in our legal system since December 2000. They are commonly known as prenuptial type agreements, but lawyers who practise in this jurisdiction call them BFAs—binding financial agreements.

The average person who used to come into my law practice and ask about these sorts of things would ask me for a prenuptial agreement. But there is a problem caused by this decision, because it effectively makes the whole operation of binding financial agreements more murky and more difficult. It puts lawyers at risk in terms of law claims and it puts certainty of the resolution of property settlement and spousal maintenance matters at peril. So Black v Black is one of those decisions which the full court of the Family Court, in my view, got wrong. I think the judge in the first instance got it absolutely right. This legislation overcomes the Black v Black decision by allowing binding financial agreements to have a degree of flexibility to ensure there is confidence that if there is a technical problem in the agreement it can be overcome. The binding nature of those types of agreements is restored by this piece of amending legislation.

The bill amends the Family Law Act to ensure people who have made informed decisions, got legal advice and come to an agreement before they cohabitated or before they married could then have certainty that if they separate there is a resolution as quickly and efficiently as possible. It takes out the rancour, the disputation and often a lot of the anger. So, for a lot of people, having a binding financial agreement is what they want. Having certainty is important in terms of the resolution of property settlements but also in terms of child support. People who dispute about property settlements often dispute about spousal maintenance, about where the children live, about who has contact with the children and about issues of child support. So taking the emotion out of these types of disputes as much as possible is a good thing and it is good for families who interact with the family law system in Australia and with the Child Support Agency. The family law section of the Law Council of Australia was consulted in the drafting of these amendments and they agree with what the Attorney-General is suggesting in the circumstances.

I have got a bit of a confession to make: I do not much like binding financial agreements. I will tell you why. In my experience, binding financial agreements tend to result in a fair degree of injustice to the weaker financial party, often the woman. I was called upon to draft many of these agreements by some very wealthy individuals—usually males, mainly businessmen—often with millions of dollars, sometimes tens of millions of dollars, worth of assets. They wanted to protect those assets in the event that they separated from the woman they were going to live with or whom they married. Under the old property law act, de facto relationships and cohabitation agreements were the same as binding financial agreements under the Family Law Act, in effect. I was consulted on many occasions to draft these types of agreements, and I did. I drafted dozens and dozens of them over the years.

I was often consulted, particularly by women, who would seek my advice as to whether they should sign these agreements. Almost invariably I advised them not to do so, because circumstances change. When someone marries another person they think that everything is going to be rosy and they do not expect to end up consulting someone like Shayne Neumann at his family law practice, I can assure you. But the truth is that we have a situation in this country where about a third of first marriages end in separation and divorce and about half of second, third and fourth marriages end in separation and divorce. We are in a position where these people who go through the unfortunate circumstances of separation and divorce confront the resolution of property and children’s issues. How do we support the children? Who looks after the children? How do we sort out the property settlement? Most people do it using part VIII of the Family Law Act. Many people, particularly high-wealth individuals, have sought the protection of binding financial agreements under part VIIIA, which was introduced into this House many years ago and passed with the consent of both sides.

As I say, circumstances change in relationships. Sometimes there are three or four children of the relationship. Sometimes someone has sacrificed whatever career they have on the altar of parenthood. They have effectively ceased to work as a schoolteacher, a lawyer, an engineer or a doctor and they have taken full-time care of their children. That is their choice, and they are not to be criticised for that. Their husband has gone on, advanced in his career, and he leaves the relationship with a high-earning capacity. So he is in a high-earning capacity situation. There are a lot of assets—a lot more than they thought they would have at the end. He has brought in more at the beginning. She is left with two, three or four children to support. If provisions have already been made in a binding financial agreement that say, ‘This is how it should be resolved in the circumstances,’ it often results in an injustice to the woman, the mother of those children, because she gets less out of the property settlement than would otherwise be the case. I have yet to see too many binding financial agreements that are very generous to women in those circumstances. Sometimes they are quite generous but not often.

So binding financial agreements allow people to opt out of the family law system, but the provisions under section 79 of the Family Law Act, which talk about the contribution a person makes not just of a financial and nonfinancial nature to the acquisition, conservation and improvement of matrimonial assets but as a homemaker and a parent, are effectively ignored in the circumstances of binding financial agreements. The section 75(2) factors are also ignored—age, health, entitlement to a pension, superannuation, care of children. All that is ignored with binding financial agreements. But they are here to stay, and whilst they are here to stay we have to make sure that there is clarity and certainty and precision with binding financial agreements. Black v Black left the law murky. It was the wrong decision. It has created mayhem for 18 months or two years. We have seen a lot of problems as a result of that decision.

People can get out of binding financial agreements. It is not like it is the law of the Medes and the Persians that cannot be changed. You can always change them if the factors come within section 90K(1) of the Family Law Act—for example, if the agreement was obtained by fraud, if there was an intention to defeat a creditor. That is the Jodee Rich-type provision put in there by the previous government, with our support. You can also change the agreement if it is void or voidable. That is the Natasha Stott Despoja amendment. It was really quite otiose. There was no need to put that subsection in there because, if it is void or voidable, it is out anyway. You can also change the agreement if there is unconscionable conduct or if there is a material change in the circumstances relating to the care, welfare and development of a child of the marriage, but that has been interpreted quite narrowly by the courts. For example, there is judicial authority that, if somebody comes to a property settlement and later on the children go and live with the other party, and there is a weightage under section 75(2) of the Family Law Act in favour of that person, you cannot simply overturn it on the basis that the kids decided to up and move their place of residence. That provision has been interpreted quite narrowly.

Significantly, under part VIIIA the court has no power to vary financial agreements, so there is no power of rectification. So an ineffective agreement must be set aside and the matter remitted under section 79 for consideration as a normal property settlement. So the stakes in these circumstances are as high as they come for people. When you consider the hundreds of thousands of people that interact with the family law system and the Child Support Agency in this country every year, and the billions of dollars that get paid in child support, you can see this is a very serious matter for the Australian population.

So what happened in Black v Black? In 2006, Justice Benjamin, in the Family Court at Hobart, was asked to consider Mr Black’s application to set aside a financial agreement executed by the parties in September 2002. It was a short marriage, of 18 months, during which the parties had entered an agreement. The husband was 42 years of age and his earning capacity was affected by a back injury, for which he had received a damages claim. The wife was 41 years of age, worked part time and received a disability pension for injuries she had sustained in a motor vehicle accident. The wife had not yet received any damages for her injuries. The husband brought into the marriage approximately $200,000, which was used to purchase the former matrimonial home. When the parties separated, the total pool of assets amounted to about $347,000.

When the terms of agreement were negotiated—you have to seek legal advice in relation to these sorts of matters—the husband’s solicitor signed the certificate of independent legal advice and then his client signed the certificate. The wife consulted a solicitor and they amended a clause and then signed the certificate of independent legal advice. The wife signed the agreement and gave the amended document to the husband, who took it back to his lawyer for some advice and then to have his signature to the amendment witnessed. But he was not provided with a further certificate of independent advice.

At the date the agreement was signed, the wife had commenced a common-law personal injuries action. The agreement provided for an equal division of the existing property and of any funds received by the wife in future for the personal injuries claim. Unexpectedly, the wife received only $41,000 from her common-law claim, a much lower figure than anyone had anticipated—certainly lower than the husband had anticipated. Given his superior pre-marriage contribution of $200,000, if he had gone to the Family Court or the Federal Magistrates Court he could have expected to get a lot more than fifty-fifty.

So what did he do? He argued that the agreement was flawed in a number of respects. He said that his solicitor had not recertified the documents in light of the additional advice, the certificates were not annexed to the agreement and the agreement did not contain within its body a statement of independent legal advice. This was a very technical argument at law. Justice Benjamin, to his credit, dismissed the application. He considered the legislature had made it very clear that binding financial agreements were to be set aside in only limited circumstances or where the parties had not obtained legal advice. He declined to entertain the husband’s application, and he told the husband to go away.

The husband appealed the decision and it then went to the full court of the Family Court, who overturned Justice Benjamin’s decision, construing section 90G in the most strict legal sense. They made a number of comments about the stringent requirements under the legislation. The implications to practitioners in the area and to people who had signed binding financial agreements were really stark. If you neglected to include a statement of independent legal advice in the body of the agreement, the binding financial agreement had a fatal flaw in it and it could be overturned. You could get out of it that way. So all the tens of thousands of Australians that had signed binding financial agreements since 2000 were at risk if their lawyer had stuffed up or if they had just made a little technical error. It is very difficult to support the full court’s decision, when you look at good policy, certainty and precision, in the area of family law. Because they cannot rectify it, what we are doing here is allowing flexibility and amendments.

I have gone through in very great detail what the decision was and what it was necessary to do in the circumstances. I will not go through what we are actually doing in detail, but we are overcoming the problems in this area by allowing flexibility and certainty. We are responding to what the Law Council of Australia asked the federal government to do in May 2008 in terms of legislative intervention to overcome the decision in Black v Black, minimise the risk to the Australian population, minimise the risk of law claims, bring certainty to the system and ensure that we have got a fair and just system and certainty in the area of family law. I commend the bill to the House.