Binding Financial Agreement: What happens where there is misrepresentation (non-disclosure of assets) or fraud?

by Andrew Lind on 14 June, 17

BINDING FINANCIAL AGREEMENT: NON-DISCLOSURE OF A CALIFORNIAN PROPERTY

Adame & Adame [2014] FCCA 42

In this case, Mr Adame owned property in California that he did not set out in the Agreement. An email to his solicitor revealed an intention to conceal his interest.

There was a clear implication in the Agreement that all of the parties’ assets were detailed in the Agreement.

An agreement may be set aside under section 90K(1)(a) where an agreement was obtained by fraud. Fraud under this section may be constituted by non-disclosure.

The Agreement between the parties was set aside because it was entered into on the basis of a misrepresentation by Mr Adame as to his assets.

Lesson

It is important to make full and frank disclosure of your financial circumstances if entering into a Binding Financial Agreement.

 

BINDING FINANCIAL AGREEMENT: OMISSION MAY AMOUNT TO FRAUD

Blackmore & Webber [2009] FMCAFam 154

The husband provided his solicitor with a full statement of his assets and liabilities. In preparing the Binding Financial Agreement, his solicitor excluded certain of these assets and liabilities.

It is possible that the exclusion or non-disclosure of relevant matters, such as the financial position of each party, may constitute fraud: Stoddard v Stoddard [2007] FMCFam 735. Fraud is a ground for setting aside a Binding Financial Agreement under s 90K(1)(a).

In this case, the Binding Financial Agreement was set aside on the basis that it did not fully disclose the husband’s financial circumstances.

Lesson

There must be full and frank disclosure by each party of their financial circumstances.

 

BINDING FINANCIAL AGREEMENT: WHERE THE WIFE DID NOT REVEAL HER SUPERANNUATION INTEREST

Ainsley & Lake [2016] FCCA 2132

The Binding Financial Agreement signed by the parties in this case did not include the wife’s superannuation interest worth $35,000.

Under s 90K(1)(a), a Binding Financial Agreement may be set aside where it has been obtained by fraud. Fraud may be constituted by an omission, such as the non-disclosure of the financial position of a party.

A difficulty with non-disclosure is that it renders the independent legal advice provided to the other party in relation to the Agreement (as required by s 90G) unsound as it would be based on incorrect information.

In this case, the Binding Financial Agreement was set aside due to the wife’s failure to disclose the value of her superannuation at the time the Agreement was signed.

Lesson

There must be full and frank disclosure by each party of their total financial position.

 

COMMON MISTAKE

BINDING FINANCIAL AGREEMENT: MISTAKE AS TO A DEVELOPMENT THAT TURNED OUT TO BE A FRAUD

Phak & Xu [2015] FamCA 939

Ms Phak and Mr Xu had advanced $420,000 to a group of developers who promised them two units worth more than double that amount in return on completion of the development.

Ms Phak and Mr Xu subsequently entered into a Binding Financial Agreement with one another. Ms Phak wished to retain the two units, which was reflected in the Agreement.

The group of developers never started the development. It was clear that Ms Phak and Mr Xu were at all times the victims of a fraud.

Where both parties were mistaken about an underlying and fundamental fact at the time of making the Binding Financial Agreement, the BFA may be rendered void and set aside under s 90K(1)(b). However, it must be noted that this provision is not designed to facilitate a party escaping what proves to be a bad bargain.

In this case, the Court found that both Ms Phak and Mr Xu were mistaken as to the nature and value of the two units which made up a significant part of Ms Phak’s interest under the BFA. The BFA was set aside.

Lesson

A BFA may be set aside where both parties were mistaken about an underlying and fundamental fact at the time of making the Agreement.

 

UNABLE TO BE CARRIED OUT

BINDING FINANCIAL AGREEMENT: WHERE THE WIFE TOOK THE HUSBAND’S SUPERANNUATION FUNDS

Gregory & Gregory [2014] FCCA 106

The Binding Financial Agreement in this case included a term that the wife could not make a claim against the husband’s superannuation interest.

After making the Agreement, the wife intercepted a cheque from the husband’s superannuation fund. She banked the cheque into their joint account and then withdrew the money so it was beyond his reach.

The wife now has no money to reimburse the husband.

A BFA may be set aside under s 90K(1)(c) where circumstances have arisen since the agreement that make it impracticable for the agreement to be carried out. In Sanger & Sanger (2011) FamCAFC 210 it was said: “There is a material distinction between an agreement which is unable to be put in practice and is thus impracticable, and an agreement which, although producing a potentially different outcome to that for which a party hoped, is able to be implemented or put into practice.”

In this case, the Court decided that the BFA could not be put into practice due to the fact that the wife accessed the husband’s superannuation funds and now had no funds to repay him. The BFA was set aside.

Lesson

A BFA that is unable to be put into practice by a change of circumstance may be set aside.

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