In Check Issue 77 | December 2017

12 December, 2017
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Thorne v Kennedy on financial agreements

The recent High Court case of Thorne v Kennedy [2017] HCA 49 further illustrates why family law financial agreements are fraught with risk. In that case, Kiefel CJ, Bell, Gageler, Keane and Edelman JJ held two substantially identical financial agreements voidable due to undue influence and unconscionable conduct. Nettle and Gordon JJ found that the agreements should be set aside for unconscionable conduct but not undue influence.

The parties met online and the wife, an Eastern European woman, moved from the Middle East to Australia to marry. The husband was a 67-year old property developer who had substantial assets and was divorced with three adult children.

The wife received independent legal advice from an accredited family law specialist that the first agreement was ‘entirely inappropriate’ and she should not sign it. Despite that emphatic advice, she signed the agreement four days before the wedding at the husband’s insistence. He said the wedding would not go ahead if she failed to sign the agreement. By that time, the wife’s family had travelled to Australia for the wedding.

The wife then signed the second agreement in similar terms a month after the wedding, despite again being urged by her lawyer not to sign it.

The court upheld the primary judge’s findings that ‘every bargaining chip and every power was in (the husband’s) hands’ and the wife was powerless to act in any way other than to sign the agreements. If the relationship ended she would not be entitled to remain in Australia and she had little to return to overseas.

Notably, the majority of judges found the primary judge was correct to consider that a party signing a financial agreement where its terms were grossly unreasonable can be an indicium of undue influence.

The court unanimously agreed that in the circumstances the wife was under a special disadvantage and the husband engaged in unconscionable conduct in procuring her assent to the agreements. The fact that she received independent advice from a family lawyer that the agreements were terrible and she should not sign them reinforces these findings.

This case serves as a reminder that financial agreements can be vulnerable to challenge:

  • even where both parties received independent legal advice
  • particularly where they are grossly unfair
  • when entered under pressure shortly before a wedding.

Further information on the risks of preparing financial agreements can be found in LPLC’s practice risk guide Focusing on family law.


Cyber security – what if the fake email is from your firm?

In our last cyber security bulletin we told you it was no longer safe to transfer money to a client’s account based solely on an email from the client giving you the bank account details. You need to speak to the client to confirm the email really was from them.

A new variation on this scenario is the fake email coming from the firm to the client, instructing the client to deposit money in the fraudster’s account. To avoid these claims tell your clients at the start of the matter what your bank account details are and if they receive an email from the firm during the matter containing different payment details, they should call you to verify the details.


Plan to improve

As the new year is fast approaching, it is a good time to think of new year’s resolutions. For many of us the start of the year is not so busy and a good time to review the systems, processes and precedents we have and look at ways to improve them.

Think about the things that slowed you down this year such as the repeat tasks that could be automated or precedent letters written. How can the checklists and workflows be improved? Taking the time when things are quieter to work on improving systems will save you time later and ensure you don’t miss anything when it really counts.

What is your new year’s resolution? How will you improve your practice of law in 2018?


Common GST questions

Our website has many GST FAQs you should check when you have a GST issue before you use our GST hotline enquiry service as the answers to many of the enquiries can be found in the FAQs.

Charitable organsiation and farming mixed supply 

Q: I act for a charitable organisation which is selling a rural property. The property has been operated as a working farm, but part of it is leased for non-farming or residential purposes. The lease will expire before settlement of the sale and the property is being sold with vacant possession. The annual rental for has been approximately $52,000. The sale price of the property is $1.5M.

Will the farming exemption in section 38-480 of the GST Act apply to the sale of the property?

A: If the farming operations were carried out on a business-like basis, then the fact that the entity is a charitable organisation should not matter as the charitable status of an organisation is determined by the end application of the proceeds of its activities rather than whether or not each component activity operates at a profit.  There is no reason why the farming activities could not be a ‘farming business’ for the purpose of  section 38-480.

The lease sounds like a significant application of the property and not merely a use peripheral or ancillary to the main purpose and if so the supply ought to be treated as a mixed supply – part GST-free and part taxable.

Where the supply of a property is a mixed supply:

  • The price should be apportioned between the two components of supply.  Ruling GSTR2001/8, dealing with mixed supplies, states (at paragraphs 25-27) that any reasonable method of apportionment that is supportable is permitted and that records of the apportionment should be kept available (against any future audit). It is preferrable that contracts specify in a special condition: the respective areas, the value attributed to each and the basis on which the attribution has been made. Methods include: sworn valuations, written appraisals and apportionment in proportion to rents achievable for the various areas.
  • Insert ‘plus GST’ in the relevant box in the particulars of sale if the GST payable is to be borne by the purchaser in addition to the sale price; otherwise, the vendor would have to absorb any GST and, in that case, you would want to apply the margin scheme.

What’s new on LPLC website

Updated practice risk guides

Looking after leases

Small business big risk

Law Institute Journal articles

Three articles have been published since the September issue of In Check.

Why apologise (December 2017)

Minimise your risk (November 2017)

Audits add value (October 2017)

Risk video bites

Three new risk video bites were released.

Supervision

Delegation

Cyber Security

One new risk video bite series will be posted on our website, LinkedIn and Twitter on the first Friday of every month and emailed to everyone who receives In Check. The email will replace the normal Friday email for blog subscribers.


Risk Management seminars

Our Calendar of events for 2018 will shortly be available on our website to help you plan your CPD year.


Changing your email address?

If you change your email address don’t forget to tell us so you will continue to receive our newsletters, emergency bulletins and seminar brochures.


Office closure over New Year

LPLC’s office will close at 4.00pm on Friday 22 December and re-open on Tuesday 2 January 2018.  We wish you all a very safe and peaceful festive season and New Year.

The GST hotline service will not be operating between 25 December and 1 January. The normal GST Hotline service will resume with Derry Davine at dc.davine@bigpond.com on 2 January 2018.