ByLawyers News and Updates

Bits and pieces

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Property law has been the subject of three legislative pronouncements in 2010, although the changes have tended to tinker around the periphery rather than impose radical change.

Act 1 introduced the following changes:

  1. an Owners Corporation Certificate must be sealed with the owners corporation seal. This section has not as yet been proclaimed;
  2. a tenant may remove buildings and fixtures. This is not a new provision, rather a transfer of this right to the Property Law Act from the Landlord and Tenant Act, which has been substantially repealed and;
  3. permitting transfer of deposit held as stakeholder between legal practitioners, conveyancers and estate agents. This is simply a rewording of an existing provision.

Act 2 proposes the following changes:

  1. permitting an estate agent to purchase a property from a vendor provided that the vendor and a legal practitioner, conveyancer or accountant representing the vendor provide written consent to the transaction. This replaces the current procedure requiring prior consent from the Director, although notice of the transaction must be given to the Director;
  2. increasing the maximum permissible deposit in an off-the plan contract from 10% to 20%;
  3. requiring a WARNING to be added to the front page of an off-the-plan contract advising that the amount of the deposit may be negotiated and that a substantial period of time may elapse between the contract and settlement and that the value of the property may change in that time and;
  4. removing the exception to the cooling off right when a purchaser has obtained independent legal advice. This last proposed amendment (not yet passed) seems inexplicable. It is true that estate agents do use the present exception to remove the cooling off right, but surely the consumer protection objective of the right is satisfied when the purchaser has had legal advice? Typically an agent will ensure that advice is obtained when a sale close to auction date (but more than 3 days before) is proposed. Removing this device will make vendors reluctant to sell prior to auction or introduce the uncertainty of ‘subject to contract’ transactions. It is consumer protection gone mad. As this proposal has not as yet been passed, common sense may prevail.

Act 3 introduced the following changes (effective 1 May 2010):

  1. entitles the Registrar to NOT produce a paper title if the ‘person entitled to receive’ the title requests that no title be produced. Presumably a mortgagee could make such a request;
  2. removes the ability of the Registrar to record the age of a minor;
  3. removes the requirement that lost title applications be advertised;
  4. removes the right to deposit a deed of trust. A trust cannot be recorded on title and the anomalous right to deposit the trust has now been removed;
  5. simplifies the procedure associated with obtaining a vesting order – such as where a transferor cannot be located;
  6. simplifies the procedure associated with obtaining a discharge of mortgage when the mortgagee cannot be located;
  7. repeals s 48, which allowed the adoption of Table A;
  8. prohibits a variation of mortgage varying the length of the term of the mortgage;
  9. changes the period that the Registrar must wait before removing a caveat under s 89A from 35 days to 30 days;
  10. repeals the search certificate and stay orders procedure that appear to have never been used in Victoria and;
  11. amends the ‘Queens Caveat’ provisions by referring to a caveat on behalf of the Crown (rather than ‘Her Majesty’) and specifically empowering the Registrar to remove such a caveat.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Deterioration – State of the premises

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

The law is objective – based on principles enunciated in cases and set out in legislation, but clients want subjective answers to their immediate problems. Nowhere is this more evident than the simple legal environment of the common or garden conveyancing transaction. It’s easy for the law to proclaim that the property includes fixtures, but not chattels. What the client wants to know is – is the dishwasher a fixture or a chattel?

Unfortunately clients generally cannot afford to have their subjective inquiries answered by a Court. The law is an expensive beast to engage and by and large these disputes typically involve hundreds of dollars, at best. But for the client, this is a big issue and the lawyer is expected to provide the answer.

Dishwasher

Fortunately, one client was prepared to put up the money to find out whether a dishwasher is a fixture or a chattel. Before Farley v Hawkins the generally accepted view was that a dishwasher was a chattel, much the same as a washing machine. But that case decided that when the dishwasher is built into a kitchen bench and its removal will leave a gap in the façade, then the dishwasher is a fixture.

Two recent Victorian cases have also addressed relatively minor issues relating to specific circumstances to provide us with guidance as to how a Court might determine similar disputes in the future.

Major structural defect

Contracts of sale commonly allow a purchaser to obtain a building report as to the condition of the premises and include a special condition making the contract conditional upon the report revealing that the property is not subject to a ‘major structural defect’. Simple enough to say, but what does it mean? Clarke v Mariotis considered this in a conventional house sale when the building report revealed a ‘major concern’ with dampness under the floor of the residential building. The purchaser argued that this was a ‘major structural defect’ within the meaning of the special condition and that the purchaser was therefore entitled to avoid the contract. The vendor disagreed.

The Court accepted that dampness was a matter for concern and could, if unchecked, lead to a major structural defect. Rusting of structural support and rising damp in brickwork were probable consequences. It did not matter that the full extent of those consequences had not as yet manifest or that there might be steps that could be taken in the future to avoid those consequences. The present damp state of the sub-floor was, of itself, a ‘major structural defect’. The purchaser was therefore entitled to avoid the contract on the basis of the special condition.

Deterioration

Another common area of dispute arises after the purchaser undertakes a final inspection of the property in anticipation of settlement. Any one or more of a veritable plethora of complaints can arise from this exercise: broken windows, dirty carpets, abandoned furniture, overgrown garden, a frog pond instead of a swimming pool, the list goes on. These complaints, by definition, arise in the last few days before settlement and the client needs answers. The contract usually requires the vendor to deliver the property ‘in the same condition it was on the day of sale, except for fair wear and tear’ but what does that mean in the circumstances of any particular contract?

Perpetual Trustee Co. Ltd v Lindlirum P/L may assist in answering that question. This was the sale of a commercial property and a fence at the front of the property was removed by a third party between contract and settlement. The usual condition requiring the vendor to deliver the property in the condition sold was not included in the contract, as it was a mortgagee sale; however the purchaser argued that the vendor was obliged to deliver the property in the pre-contract condition as the fence was a fixture. The Court held that the purchaser’s only ‘right was to compensation, if anything’.

Whilst the absence of the usual condition requiring the vendor to deliver the property in the pre-contract condition means that this case is not direct authority for such cases, the Court’s dismissal of the purchaser’s complaint as only giving rights to compensation is indicative that Courts are unlikely to allow a purchaser to use a minor deterioration in the property to avoid the purchaser’s contractual obligation to settle.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Deterioration – A matter of degree

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Disputes often arise in conveyancing transactions as the matter approaches settlement and the purchaser is dissatisfied with the condition of the property. These disputes typically arise after the purchaser has conducted the final inspection allowed by Condition 15 and discovered that the property is not in the condition that the purchaser expected, or that the vendor has not fulfilled a requirement of the contract. Three typical scenarios are complaints by the purchaser that:

  1. the vendor has not removed the ubiquitous car body proudly standing in the driveway or that departing tenants have left assorted furniture and rubbish on the property ;
  2. a window is broken or the air conditioner does not work; and
  3. the vendor has not complied with a special condition requiring the vendor to replace a dilapidated fence or to ensure that all chattels and fixtures are in working or, in the context of a new home, has completed landscaping or touch-up painting.

Whilst these three scenarios sound similar, the results are different and careful analysis of the facts and the applicable law is necessary. General Condition 2.2 requires the vendor to deliver the property to the purchaser at settlement in the condition that it was on the day of sale, with the important exclusion for fair wear and tear. In the first scenario, the property is in an identical condition to how it was on the day of sale. The car body held pride of place in the driveway when the purchaser inspected, or the tenants were in possession in all their glory (including their sundry furniture and accoutrements).

No doubt the purchaser expected the car body to be removed or the tenants to clean up after themselves, but the contract only requires the property to be in the same condition, not a better condition. With hindsight, the purchaser should have demanded a special condition that the car body be removed (but see scenario 3 in this regard).

Scenario 2 is also governed by General Condition 2.2, but the purchaser will need to establish the threshold fact that the window was not broken at the time of contract or that the air conditioner was working at that time. The vendor may well argue that the window was broken last year or the air conditioner hasn’t worked for 2 years and the purchaser bears the heavy burden of establishing that the property is not in the same condition that it was on the day of sale. Video evidence might be conclusive, but is all too rare. Relying on recollection or worse, the evidence of an estate agent, is fraught with difficulties, but assuming that it can be established that the property is not in the same condition, what are the purchaser’s rights? There is authority for the proposition that if the deterioration in the property is of sufficient significance the purchaser may claim compensation by way of a deduction from the purchase price or require the vendor to reinstate the property and refuse to settle until the vendor does so. However most deterioration, including a broken window or non-operative fixture, would not be of sufficient significance to justify deduction or non-settlement and the purchaser would be left with the unsatisfactory remedy of having to sue the vendor for damages for breach of contract after settlement. The purchaser is not entitled to unilaterally make a deduction from the purchase price in respect of such minor matters, although the parties might agree to such a deduction by way of compromise of the purchaser’s right to sue after settlement.

The third scenario goes beyond General Condition 2.2 as the parties have specifically agreed that the vendor has an active duty in respect of the property, not just a duty to maintain it in the condition that it was. If the vendor fails to fulfil that duty, will the purchaser be entitled to make a deduction from the price or refuse to settle? The purchaser would argue that the mere fact that the parties have gone to the trouble of specifically agreeing to this condition shows that the condition must have been important to the parties and so the courts should enforce it. On the other hand, the vendor would argue that terms such as a requirement that chattels or fixtures be in an operative condition at settlement are not essential terms and that the purchaser’s remedy should be limited to an action for damages after settlement.

It is suggested that it is unnecessary to introduce this new test of ‘essentiality’ and that the test applied in scenario 2 in relation to the general condition should also be applied in relation to any special condition. A purchaser ought to be able to enforce its rights, either by way of deduction or delay, if the breach relates to a matter that is of sufficient significance in the context of the transaction. If the matter is not of sufficient significance the purchaser will be required to settle and pursue its rights against the vendor after settlement. This objective test will require subjective application and in relation to any particular case it will all be a matter of degree.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Subdivision – Off the plan sales – Not so solid

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

The case of Clifford v Solid Investments Aust P/L (Solid) has thrown a scare into Victorian developers. Off the plan sales are an important tool for a land or apartment developers. Such sales allow a developer to undertake a development sure in the knowledge that buyers are waiting to complete settlement of some (or all) of the lots being developed upon completion of the project. Indeed, for most developers, a percentage of off the plan sales is a pre-condition for approval of finance in respect of the project.

Until 1985 off the plan sales were prohibited. The Sale of Land Act required plans of subdivision to be registered at the Land Titles Office before a contract of sale could be entered into. Developers argued that this acted as a brake on development and pointed to the ‘pre-sale’ boom in places like Queensland as proof that presales encouraged development. This industry pressure secured amendments that permitted pre-sales in 1985, subject to the requirement that the plan be registered within 12 months of the contract. This was extended in 1989 to 18 months (the present default period) and in 1991 greater flexibility was granted by allowing the contract to set “another period” in lieu of the default period of 18 months.

Since those amendments pre-sales have indeed boomed and the legislation has found a compromise between protecting off the plan purchasers (particularly in respect of the deposit) and encouraging development. However, as is their want, developers have tended to ‘push the envelope’ and Solid is a timely reminder that statutory rights of purchasers cannot be whittled away by contractual terms.

The contract in Solid sought to give the developer the best of both worlds. It allowed for pre-sale by purporting to comply with s 9AE, but rather than being satisfied with the default period of 18 months, the contract nominated a period of 30 months for registration. Certainly that was authorised by the section, which allows for “another period” and theoretically that period could be any period, for instance 10 years. Market resistance might militate against such an extended period, but 5 year construction period contracts do exist.

However the contract included an additional clause purporting to give to the vendor the ability to extend the date for registration beyond 30 months if the project was subject to any of a variety of delaying factors, including inclement weather. Such clauses are indeed prevalent in pre-sale contracts and it was this clause that the purchasers attacked when the project did go beyond the specified period and the vendor sought to extend for delay.

Bongiorno J. concluded that s 9AE was designed to trade off the developer’s desire for flexibility with the purchaser’s need for certainty. The developer carries the risk of the project but pre-sales allow for risk minimisation. In return the purchaser has a degree of certainty in respect of completion and deposit protection in the meantime. As consumer protection legislation, the contract could not remove or reduce the purchaser’s right to avoid and Bongiorno J. held that the additional condition was in conflict with the fundamental purpose of the section and therefore unenforceable. The condition purported to ‘transfer the risk’ of the project to the purchaser and undermined the certainty that the section was designed to provide for the purchaser. The consequence was that the purchaser was entitled to terminate the contract when the 30 month period expired and to demand a refund of the deposit (or return of the bank guarantee), notwithstanding that the vendor had purported to extend the date for registration of the plan beyond the 30 month period.

The Solid contract altered the ‘default’ registration period from 18 months to 30 months. Most contracts adopt the default period, either by not adopting any other period or (unnecessarily) by confirming the 18 month period within the contract. The very interesting question is whether the decision applies not just to contracts that vary the default period, but also to contracts that adopt the default period (either specifically or by default).

The Solid decision was based on principle. That consumer protection principle had recently been affirmed and may, in respect of s 9AE, be described as entitling the purchaser to ‘certainty’ in respect of the completion date. A condition in a contract that allows the vendor to unilaterally extend that date destroys that certainty and offends s 14, whether the construction period is the statutory default period of 18 months or a period other than the 18 months default period (as in Solid). Otherwise a contract that was silent and thereby adopted the 18 months construction period by default could have an extension condition, but a contract that specifically adopted an 18 months construction period, could not. The offence is not what construction period has been adopted (18 months or some other period) or how it has been adopted (specifically or by statutory default) but rather whether the vendor has the ability to unilaterally extend that period, thereby destroying the purchaser’s right to certainty. Such conditions are offensive, irrespective of the construction period and irrespective of how that period was chosen.

The case was confirmed on Appeal.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Bankruptcy and other options

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By O’Brien Palmer

INSOLVENCY AND BUSINESS ADVISORY

First published on the website, www.obp.com.au

This article summarises the basic information conveyed in conference to insolvent individuals (‘debtors’) who, as a means of solving their debt problems, need to decide between becoming a bankrupt or entering into an arrangement with their creditors.

Bankruptcy

Introduction

Bankruptcy is a legally declared inability by an individual to repay debts. The applicable legislation is the Bankruptcy Act 1966 (‘the Act’). It applies to individuals, partnerships, joint debtors and deceased estates. The bankruptcy is administered by a Trustee in Bankruptcy who is either the Official Receiver (a public servant) or a private trustee.

Becoming a bankrupt

There are two ways a debtor can become bankrupt, namely:

  • Debtor’s petition – Where the debtor presents his or her own petition to the Official Receiver; or
  • Creditor’s petition – When a creditor presents a petition to the court, a sequestration order may be made against the estate of a debtor.

For a petition to be presented, the debtor will need to have committed an act of bankruptcy, the most common being noncompliance with a bankruptcy notice, and be indebted to the creditor for an amount of at least $5,000.

In the case of a debtor’s petition, the debtor can nominate a trustee as compared with a creditor’s petition where the creditor can nominate a trustee. The role of the trustee is to investigate the financial affairs of the bankrupt; realise all available assets including transactions that may be voidable, and distribute to creditors realised funds in accordance with the Act without undue delay.

The period of bankruptcy

A bankrupt is automatically discharged three years from the date the bankrupt files with the Official Receiver a statement of affairs. However, if the conduct of the bankrupt is unsatisfactory, then the period of bankruptcy can be extended by up to five years upon an objection being lodged by the trustee. Alternatively and at any time before discharge, the debtor can:

  • seek an annulment pursuant to section 73 of the Act by submitting a proposal to creditors;
  • seek an annulment pursuant to section 153A of the Act by paying out all creditors in full plus the costs of the bankruptcy; or
  • in the case of a creditor’s petition, seek an annulment pursuant to section 153B of the Act by making an application to the court.
Consequences of bankruptcy

The main consequences of becoming a bankrupt include the following:

  • A bankrupt will be recorded on the NPII (National Personal Insolvency Index) for life;
  • A bankrupt’s credit rating will be affected for seven years;
  • Creditors are unable to commence or continue any further action for recovery of their debts against the bankrupt;
  • A bankrupt’s property including after-acquired property will vest in the trustee during bankruptcy and continue to vest with the trustee after discharge if the property remains unsold. Certain property of the bankrupt is excluded from vesting in the trustee;
  • A bankrupt is required to make contributions from income to his or her estate if the income exceeds prescribed limits;
  • A bankrupt cannot, without disclosing that he or she is an undischarged bankrupt, obtain credit (including the lease or hiring of goods) for an amount greater than an indexed amount;
  • A bankrupt cannot carry on business alone or in partnership under a name other than their own unless he or she discloses their real name and the fact that he or she is an undischarged bankrupt;
  • A bankrupt is allowed to travel overseas but only with the written consent of the trustee. However the bankrupt is required to deliver his or her passport(s) to the trustee;
  • A bankrupt is disqualified from acting as director and managing a corporation;
  • On discharge from bankruptcy, the debtor is released from all debts provable in the bankruptcy including secured debts. There are a number of exceptions such as fines imposed by a court and debts incurred by fraud.
Property the bankrupt can retain

The bankrupt is able to retain certain property including:

  • Property held in trust for another person;
  • Necessary clothing and household property and such other household property that creditors may resolve;
  • Items of sentimental value, including awards of sporting, cultural, military or academic nature, as creditors may resolve;
  • Property that is used by the bankrupt in earning income by personal exertion whose aggregate value does not exceed an indexed value and such other equipment as the creditors may resolve or the court may order;
  • Property used primarily as a method of transport up to an indexed value;
  • Subject to certain conditions, life assurance and endowment assurance policies and proceeds from the policies in respect of the bankrupt and the bankrupt’s spouse and the bankrupt’s interest in superannuation policies and proceeds thereof;
  • Any right of the bankrupt to recover compensation, damages and right of action for the death, personal injury or wrongs to oneself, their spouse or any family member;
  • Property purchased from the proceeds received from endowment and annuity policies, compensation/damages claims or rural adjustment schemes.
Income contributions

If the debtor receives or is deemed to have received income above indexed amounts, then the debtor is liable to make contributions to his or her bankrupt estate. The definition of income is quite broad and includes income from personal exertion, certain benefits provided by third parties, income from trusts and superannuation funds, loans and so on.

The amount of the contribution is calculated by using the following formula:

Assessed Income – income tax – a statutory threshold amount – child support payments

Arrangements with creditors

There are three types of arrangements that debtors can make with their creditors, namely:

  • formal arrangement under Part X of the Act;
  • formal arrangement under Part IX of the Act;
  • informal arrangement.

Part X – Personal insolvency agreements

Introduction

Part X of the Act offers an alternative to bankruptcy by providing a debtor in financial difficulty with a formal but expensive mechanism to reach a binding arrangement with his or her creditors. The arrangements are individually tailored to suit the debtor’s unique financial circumstances. The debtor is able to negotiate a settlement with creditors that most likely involves the payment of less than 100 cents in the dollar. A typical arrangement will usually provide for money to be paid by the debtor or on account of the debtor either by way of lump sum or by instalments over a certain period of time. The arrangement can also provide for sale of specified assets with the remaining assets to be retained by the debtor.

The process

The provisions of Part X are invoked by the debtor signing what is called a section 188 authority, authorising either a registered trustee, a solicitor or the Official Trustee (who is then referred to as the controlling trustee) to call a meeting of his or her creditors and to take control of his or her property. At the same time, the debtor must provide the controlling trustee with a proposal, including a draft personal insolvency agreement (‘PIA’), and a statement of affairs outlining all known assets and liabilities of the debtor. A PIA takes the form of a deed and must include specified terms as set out in the Act.

The controlling trustee immediately takes control of the debtor’s property and undertakes certain investigations into the affairs of the debtor. In addition, the controlling trustee is required to issue a report to creditors detailing the results of his or her investigations. This report is also required to contain a statement as to whether or not the PIA proposal is in the best interests of creditors.

The meeting to consider the debtor’s proposal must be held not more than 25 working days after the appointment or 30 working days if the appointment was made in December. At the meeting, creditors may resolve by special resolution that the debtor be required to execute a PIA. Under the Act, a special resolution requires 50% in number and 75% in value of creditors present at the meeting voting in favour of the motion. If the proposal for the PIA is not accepted by creditors, then the most common outcome is for creditors to pass two special resolutions: one that the debtor presents a debtor’s petition within seven days, and the other that the debtor’s property be longer subject to control.

In the event that the proposal is accepted by creditors, then the deed must be executed by the debtor and the controlling trustee within 21 days from the day on which the special resolution is passed. Once all the terms of the deed are satisfied, the PIA is terminated. The Act also provides for the termination of the PIA if the debtor defaults on its terms. Alternatively the PIA may be varied. In addition and in specific circumstances, the court may also set aside a PIA and make such orders as it sees fit.

The effect on the debtor

Obviously, on signing a section 188 authority, the debtor will lose control of his property. Control of property that is excluded under the PIA will revert to the debtor on execution of the PIA. In addition and pursuant to subsection 206B(4) of the Corporations Act, a person is disqualified from acting as a director of a corporation if that person has entered into a PIA and the terms of the agreement have not been fully satisfied.

The effect on creditors

The effect of appointing a controlling trustee is that creditors are unable to commence or continue any further action for the recovery of their debts from the debtor until the outcome of a subsequent meeting of creditors is known. The rights of a secured creditor remain intact.

Once the PIA has been signed, creditors, whether present at the meeting or not, are bound by the terms of the PIA and cannot take any action to recover their debts outside the PIA.

Commentary

Unfortunately, entering into a PIA will not be an appropriate alternative for all debtors, especially those with no resources (or access to limited resources) and relatively nominal debt exposure. The main reason for this is that the cost of proposing an arrangement under Part X of the Act can be prohibitive. In this regard, the controlling trustee is obligated to carry out the tasks detailed earlier herein and will incur significant time charge in doing so. As there is no guarantee that the proposal will be accepted by creditors, the prospective controlling trustee will normally seek a cash advance (or some other form of security) to meet his estimated costs in acting in that role. Furthermore, the debtor will need to fund the cost of preparing a formal deed setting out the provisions of the arrangement.

In considering whether or not to put a proposal to his or her creditors, a debtor should also take into account the likelihood of the proposal being accepted, bearing in mind that under the Act a special resolution is required being 50% in number and 75% in value of creditors voting on the motion. From experience, we have found that some creditors will vote against a proposal on the basis of policy, notwithstanding the commerciality of the proposal.

Nevertheless, entering into a PIA does have its advantages, some of which are summarised hereunder:

  • The debtor avoids the stigma of bankruptcy;
  • A PIA provides for the flexible administration of the debtor’s affairs including the opportunity to carry on business, which is difficult for an undischarged bankrupt;
  • The execution of a PIA avoids court process;
  • The return to creditors under the PIA is invariably greater than that if the debtor was made bankrupt;
  • Subject to the terms of the PIA, there is no requirement to contribute after-acquired property or income;
  • The PIA will normally terminate within the short to medium term.

Part IX – Debt agreements

Part IX of the Act provides another alternative to bankruptcy by providing debtors who have a relatively low income, minimal assets and low debt levels with an inexpensive mechanism to reach a binding arrangement with their creditors to release them from their debts. This part of the Act is only available to be utilised by those debtors who have:

  • not, within the previous ten years, been bankrupt, a party to a debt agreement or given an authority under section 188 of the Act;
  • unsecured debts that are below the specified threshold amount;
  • property, which would be divisible among creditors in a bankruptcy, that is below the threshold amount;
  • after tax income that is below the adjusted threshold amount in the year beginning at the proposal time.

The current threshold amounts are set out in the table below.

Unsecured debts $92,037.40
Property $92,037.40
After Tax Income $69,028.05
The process

To initiate a debt agreement, a debtor must give the Official Receiver a proposal for a binding agreement between the debtor and his or her creditors. Any such proposal must be in the approved form and identify the property to be dealt with under the agreement; specify how it is to be dealt with; and authorise the Official Receiver, a registered trustee, or another person, to deal with the property as specified.

The proposal must be accompanied by a statement of the debtor’s affairs. If the proposal is accepted by the Official Receiver, the Official Receiver must write to creditors asking them whether the proposal should be accepted. The proposal is accepted if the majority in value of creditors who reply state that the proposal should be accepted.

The debt agreement ends when all the obligations that it created have been discharged. At that time the debtor is released from all debts that would be provable in a bankruptcy. This release from debts will not occur if the debt agreement is terminated by the debtor, creditors or the court, or if the debt agreement is declared void by the court. The Act also provides a mechanism to vary a debt agreement.

The effect on creditors

All creditors with provable debts are bound by the debt agreement, even those who voted against the proposal. While the debt agreement is in force, creditors cannot take or continue action against the debtor for recovery of their debts. A debt agreement does not affect the rights of a secured creditor to realise or otherwise deal with the creditor’s security.

Commentary

Readers requiring further information about the administration of debt agreements should access the web site maintained by the Australian Financial Security Authority at https://www.afsa.gov.au/.

Informal arrangement

An informal arrangement is simply an arrangement not made under the Act that a debtor makes with his or her creditors to settle his or her debts. Normally an adviser such as the debtor’s accountant would firstly write to creditors summarising the debtor’s financial position and putting forward a settlement proposal. Follow up contact by either the debtor or the advisor is recommended, with the aim of addressing any concerns creditors may have and reinforcing the benefits of the proposal. Preferably any agreement reached with creditors should be documented by way of deed.

Informal arrangements are more likely to proceed in circumstances where there are a small number of creditors involved and some goodwill still exists between the parties. The difficulty is that just one hostile creditor can make the arrangement unworkable.

Solicitor – Executor’s commission 2 – A fiduciary duty

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Most property lawyers will also be involved in the administration of deceased estates and, on occasions, may in fact act as the executor of a deceased estate. This is entirely appropriate, as there will always be clients who do not have a close friend or relative who they can appoint to fulfil this role and would prefer to appoint their solicitor, rather than an impersonal trustee company.

Rule 10 of the Professional Conduct and Practice Rules 2005 requires a lawyer to inform the client in writing before the will is signed that the will entitles the lawyer to charge commission and that the client could appoint an executor who might not charge commission. Signing of the will after receipt of that advice operates as client consent to the charging of commission, thereby negating any potential conflict of interest. However, like many other examples of the lawyer-client relationship, simply establishing the relationship on a solid footing does not ensure that problems will not arise thereafter. The recent case of Walker v. D’Alessandro [2010] VSC 15 confirms that the lawyer continues to owe duties to the client and the estate.

The lawyer was appointed as executor of the estate and was authorised to charge commission. The estate consisted largely of cash accounts valued at approximately $1.6m and all of the six beneficiaries were nieces and nephews of the deceased with legal capacity. As the time for distribution approached the lawyer wrote to the beneficiaries advising that, subject to two minor matters, the estate could be finalised and an interim distribution of $1.4m could be made. This letter sought consent from the beneficiaries to the charging of commission at the rate of 3%.

The alternative was for the beneficiaries to require the executor to apply to the Court for an order authorising commission, in which case commission of up to 5% could be awarded. The estate would be liable for the costs of this application and the lawyer was ‘unable to say with any degree of accuracy’ when the distribution might be made.

In these circumstances the beneficiaries all returned the signed consent forms and an interim distribution was made. However some of the beneficiaries thereafter had second thoughts and issued these proceedings to overturn the claim for commission.

The duty owed by the executor to the beneficiaries is perhaps the purest example of the concept of a fiduciary duty. The beneficiary depends entirely on the executor to well and truly administer the estate and distribute the proceeds upon finalisation of the estate. The task of the executor in fulfilling these trust obligations was regarded by the common law as an honorary one, but statutes regulating the administration of estate have long recognised an entitlement to commission to compensate the executor for ‘pains and trouble’: s65 Administration and Probate Act 1958. Importantly, the object of the payment is compensatory, rather than profit-based and the Courts take seriously their supervisory role.

The Court suggested that the lawyer/executor must:

  1. detail the work performed as executor;
  2. differentiate between work performed as executor and legal work;
  3. fully explain the right to have a Court assessment; and
  4. insist upon independent legal advice.

The Court concluded that the executor has failed to satisfy three of these four requirements and had thereby failed to fulfil the fiduciary obligations owed to the beneficiaries. Criticism was also made of the inappropriate use of the potential for delay that an application for Court approval might have caused. There was nothing preventing the executor making an interim distribution pending approval, but the contrary was suggested. This also undermined the beneficiaries’ consent.

The agreement that 3% commission be paid was set aside. This was one of the orders that were initially sought by the beneficiaries and the one which became the focus of the hearing. However the beneficiaries had also sought an order that the lawyer provide an itemised bill of costs in relation to legal work performed for the estate. These costs were in the region of $16-17,000 and whilst one of the obligations propounded by the Court was the need to differentiate between estate work and legal work, no further comments were made in relation to these costs.

However the inherent conflict facing a lawyer in this situation was described In the Matter of the Will and Estate of Mary Irene McClung [2006] VSC 209 as having the lawyer ‘on the horns of a dilemma’. An executor/lawyer who is wearing two hats and seeks to charge the estate in both capacities may expect close scrutiny if challenged before a Court. Whilst it is possible to differentiate between the work performed in those two roles, it is fair to say that a Court will require clear evidence that there is no overlap in charging. Arranging and attending a clearing sale is undoubtedly an executorial role, but arranging a discharge of mortgage is merely legal work. Keeping a clear demarcation line between the two roles and maintaining separate records is an absolute minimum that will be expected if an assessment is undertaken and any suggestion of ‘double dipping’ will be disallowed.

The times they are a’ changing.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Executor’s commission 1 – Executor’s commission and the professional executor

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By Roz Curnow

A number of recent cases have highlighted the need for care where executor’s commission is sought by a ‘professional’ executor such as a legal practitioner, in particular where the will makes no specific provision for the payment of commission.

A useful starting point for a discussion of a claim for commission by any executor is section 65 of the Administration of Probate Act 1958 which provides that ‘It shall be lawful for the court to allow out of the assets of any deceased person to his executor, administrator or trustee for the time being such commission or percentage not exceeding five per centum for his pains and trouble as is just and reasonable.’

It should be noted here that executor’s commission is effectively an exception to the general rule that a fiduciary cannot profit from his position as executor or trustee, and therefore the courts scrutinise such agreements very closely, are ‘extremely cautious and wary’ in upholding them, and will refuse to enforce them at the slightest sign of unfairness or undue pressure and, in practice, a full five percent overall is rarely awarded. See Bray & Anor v Dye & Anor (No 2) [2010] VSC 152.

Where there are two or more executors, the total commission percentage awarded will be shared between them; although this will not necessarily be evenly distributed between those executors, but may be dependent upon their respective contribution(s).

Then we move on to consider what is meant by ‘pains and trouble’ in terms of section 65. There are many cases containing reference to this: see Re Estate of Zsusanna Gray [2010] VSC 173 for recent commentary. It has been explained by the court in the following terms:

  1. ‘pains’ relates to the responsibility, anxiety and worry generated by the executorial function; and
  2. ‘trouble’ relates to the administration of the estate.

It has also been stated by the court in Patterson v Halliday [2003] VSC 298 that in assessing commission ‘at least’ the following should be considered:

  • the work and judgment involved in the realisation of assets and earning income,
  • the extent of administrative activities,
  • the responsibility generally,
  • the amount of work done not reflected in financial terms,
  • how long the estate was administered,
  • the size of the estate and its capacity to pay,
  • the work of a non-professional character not undertaken by the applicant and performed by professionals, and
  • (the) executors’ pains and troubles relative to the result.

So we can gather from this that an application for commission by any executor is by no means a simple process, and detailed consideration needs to be given to all of the above aspects.

Then we move to an additional overlay of duties imposed upon a legal practitioner who seeks the payment of executor’s commission; including points 3 and 4 below which are particularly relevant where the payment of commission is sought by way of the consent of sui juris beneficiaries rather than by order of the court:

  • A higher level of fiduciary duty: see Dimos v Skaftouros & Ors [2004] VSCA 141.
  • The absence of ‘double dipping’*.
  • The absence of unfairness or undue pressure on beneficiaries*.
  • Evidence that the beneficiaries are ‘fully informed as to any potential benefit to be made by the fiduciary before [they] … give an informed consent to the fiduciary receiving that benefit’ – Bray & Anor v Dye & Anor (No 2) [2010] VSC 152 and cited with approval in Legal Services Commissioner v Hession (Legal Practice) [2010] VCAT 1328 – with disclosure taking into account the beneficiaries’ sophistication, and including at a bare minimum:
    • The work that (the executor) has done to justify the commission. This should be done with particularity i.e. by assessment: Re Estate of Zsusanna Gray.
    • If (the executor) is invoicing the estate for legal fees and disbursements he ought to identify with particularity what constitutes the basis for same i.e. providing the beneficiaries with such information as is necessary to enable them to distinguish between legal work and the performance of executorial functions: see Re McClung (dec’d) [2006] VSC 209. Only then can a beneficiary accurately measure the ‘pains and troubles’ occasioned to the executor beyond the subject matter of those legal fees and disbursements.
    • That the beneficiaries are entitled to have this court assess his (the executor’s) commission pursuant to s 65 of the Act. This needs to be explained fully.
    • That it is desirable that the beneficiaries seek independent legal advice as to their position on this issue of consent. In many cases where the beneficiaries are unsophisticated people and the issues are complex he (the executor) ought to insist upon them receiving independent legal advice and ought not enter into any commission agreement until they have.

* See the cases Re Estate of Zsusanna Gray [2010] VSC 173 and Bray & Anor v Dye & Anor (No 2) [2010] VSC 152 in particular.

We must also note particular professional rules and regulations within the context of the above:

  1. Where a legal practitioner draws a will appointing the practitioner or an associate of the practitioner as an executor, the client must first be informed in writing of any entitlement of the practitioner/the practitioner’s firm/associate to claim executor’s commission; of the inclusion in the will of any provision entitling the aforementioned to charge legal costs in respect to administration of the estate; and, if there is an entitlement by the aforementioned to claim executor’s commission, that the testator could appoint an executor who might make no claim for commission: rule 10, Law Institute of Victoria Limited Professional Conduct and Practice Rules 2005, as emphasised in the Registrar of Probates’ recent Notice to Practitioners “Receiving a benefit under a Will or other instrument” and Re McClung (dec’d) [2006] VSC 209;
  2. Where a legal practitioner receives instructions to prepare a will under which any of the aforementioned may receive a substantial benefit (other than any proper entitlement to commission if applicable, and reasonable professional fees) then the legal practitioner must decline to act and offer to refer the person concerned to an independent legal practitioner: see rule 10 supra, including some very limited exceptions; and, for completeness, see also reference to preparation of any other instrument under which the aforementioned may receive a substantial benefit in addition to reasonable remuneration; and
  3. Relevant information must be included in the (firm’s) Register of Powers and Estates in respect to trust money: regulation 3.3.32 Legal Profession Regulations 2005.

Finally, but not least, any executor, administrator or trustee needs to consider the aspect of personal liability should he or she fail in his or her duty towards the estate. This duty will generally be assessed at a higher level should that executor, administrator or trustee be a ‘professional’ such as a legal practitioner, accountant and the like; and consequently a higher potential for liability may also arise.

Tip Box

Whilst written for Victoria practitioners this article has interest and relevance for practitioners in all states.

Solicitor – Executor’s commission 1 – Horns of a dilemma

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Lawyers face difficulties as regards charging costs and/or commission when acting as a lawyer to, and executor of, a deceased estate.

Traditionally lawyers practicing in all but large city firms would dabble in property law and wills and estates.

And despite moves during the past couple of decades for lawyers to build practices by concentrating on specific areas of law, these areas remain important income sources for many practitioners in small to medium size firms. However, practitioners who do not deal exclusively in those areas need to be aware of changes brought about by greater regulation of practice standards and supervision by the courts and other authorities.

One such development is the effective prohibition on lawyers acting as both lawyer to, and executor of, a deceased estate and charging both professional costs and executor’s commission. A useful summary of the law in this area was provided in an article in the LIJ in September 2002 at page 77 called “The solicitor-executor”.

Undoubtedly, it was common practice in the past for lawyers to be asked by their clients to act as executor of the client’s estate. The euphemistic reference to “the senior partner for the time being” is well known to lawyers, as is the practice of including a provision that the firm preparing the will would be appointed to act for the estate. However, just as such a provision is unenforceable (Nowakowski v Gajdobraski, unreported Vic Sup Crt, 12 April 1996) so too the habit of appointing a lawyer as executor is subject to much greater scrutiny – at least in relation to the financial consequences of that appointment.

That courts are more prepared than ever to closely scrutinise the lawyer’s role in this area was reinforced in a recent decision (In the Matter of the Will and Estate of Mary Irene McClung [2006] VSC 209) that warned that “[t]he occasion on which a solicitor receives instructions for the preparation of a will for a client by a solicitor can place the solicitor on the horns of a dilemma if the solicitor is asked to act as executor under the will” and described such a situation as giving rise to a “very real potential for a conflict arising between the interests of the client and the interests of the solicitor”.

This scrutiny also extends to the retention of estate funds, with the case of Hill v Roberts, unreported, 21 October 1995 having established that trust funds ought not lie in trust for longer than 14 days.

It is not only the courts that are taking a greater interest in such matters. The Professional Conduct & Practice Rules now require a practitioner to disclose to a client details of any commission or costs clauses included in a will and to advise the client that the client could appoint an executor who might not claim commission (r10.1.1-3.)

It may be concluded that great care must be exercised if a lawyer seeks to act as executor. Given that it is not permissible to charge both commission and costs, consideration should be given to instructing another firm to administer the estate and complete details of all “pains and trouble” should be kept to support a claim for commission.

Alternatively, the executor/lawyer’s firm undertakes the legal work and no claim is made for commission.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Solicitor – Liability for commercial advice

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Lawyers are not financial advisers but, when acting for a client in a commercial transaction, lawyers will be liable for the advice that they give, or fail to give, in relation to the commercial consequences of the client’s decisions.

Two recent Victorian cases have considered the extent of these duties in the context of two reasonably common scenarios. In both cases the lawyers were assisted in their defence by the LPLC, which presumably therefore assessed the lawyers’ conduct as blameless, however in both cases the lawyers were held liable to the client in contract and tort. Whilst both decisions may appear to be ‘harsh’, the lesson to be learned is that lawyers advising clients in commercial transactions must be alive to possible commercial consequences of those transactions and ensure that the client is adequately advised in respect of those consequences. This may not require the lawyer to give that commercial advice, but it will require the lawyer to ensure that the client is aware that the client must seek that commercial advice from experts, such as accountants.

Spiteri was a claim by a client arising from an ‘investment’ transaction whereby the client proposed to lend money to a company undertaking a residential development in the expectation of receiving a share of the profits arising from that development. The development failed and the client sued the lawyer for his losses. The key issue was the security provided to protect the investment. The lawyer’s initial advice was that the security, being shares in the development company, was inadequate. Additional security by way of shares in an associated company, said to have $4m ‘equity’ in another development was offered and an agreement, referred to as a Joint Venture Agreement, was signed. Ultimately both developments failed and the shares and personal guarantees of the directors were worthless.

Undoubtedly the best security in such situations is a mortgage over the land. That this was not available was a red light. Additionally, the loan proposal had morphed into a Joint Venture Agreement. Finally, the ‘equity’ in the other project was never investigated. In describing the retainer the Judge said ‘the solicitor is not expected, nor required, to advise the client about the financial or commercial viability of, or risks associated with, the transaction’ however ‘that advice was “inextricably intermingled” with the obligation of the defendant to exercise reasonable care to advise the plaintiff as to the adequacy of the security’ and that the client ‘should first seek expert advice’ as to the value of the security. In other words, whilst the lawyer is not obliged to give financial or commercial advice, the lawyer is obliged to warn the client that the client should seek such advice from others expert in that field. In Spiteri the lawyer had made it clear that he was not giving that advice, he simply failed to warn the client that such advice was necessary. The ‘equity’ in the second project should have been investigated to ascertain whether it did in fact provide security for the client’s ‘loan’.

Snopkowski was an even simpler fact scenario. The client instructed the solicitor to transfer a half share in a property owned by the client to the client’s wife. The practitioner, aware that such a transaction was exempt from stamp duty, did so with alacrity and rendered a nominal bill. However, as a result of the transaction, the client was obliged to pay Capital Gains Tax and claimed that ‘loss’ from the lawyer. Whilst accepting that the lawyer was not obliged to give taxation advice, the Tribunal concluded that in such circumstances ‘a legal practitioner would advise the client to seek advice from an accountant’ and that ‘[A]t the very least she should have asked whether he had obtained any advice from the accountant concerning Capital Gains Tax and if receiving a negative response should have advised him to do so’.

It is the nature of our society that the extent of a lawyer’s duty to the client, both contractual and tortious, will expand. One response might be to attempt to limit the contractual duty by entering into ‘limited retainers’ but the likely outcome of any such contractual reduction will be a judicial extension of the tortious duty – a yin & yang relationship. Indeed it may be that the duty even extends to informing the client that the tooth fairy does not exist, as a recent NSW case has concluded that ‘the solicitor nonetheless, as part of its duty of care to the client, was obliged to caution the client against the extraordinarily unrealistic rate of return which they expected on their proposed investment’. The client had been promised a return of $275,000 per annum on a capital investment of $150,000. It is not enough to tell the client that the lawyer is not giving financial or commercial advice; the lawyer must recognise situations that expose the client to loss and warn the client that the client must seek advice from other experts.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

An overview of the Victorian Relationships Act 2008

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By Roz Curnow, Nolch and Associates

The purpose of the Victorian Relationships Act is to establish a Victorian relationships register for domestic relationships, provide for relationship agreements, provide for adjustment of property interests between domestic partners (repealing part IX Property Law Act 1958), and to provide for rights of domestic partners to maintenance.

The latest default implementation date is 1 December 2008; or in respect to items 25 (re Freedom of Information Act 1982) or 69 (re Consumer Credit (Victoria) Act 1995) of Schedule 1, 1 July 2009. Regulations pertaining to fees, forms, penalties, and anything necessary for the purposes of the Act, may be made by the Governor in Council. See s 71; and ss 72-75 for transitional provisions and interim fees.

There are a number of main ‘arms’ to the Act, and note that there are different definitions of ‘domestic partner’ and ‘domestic relationship’ contained in the Act, depending upon the chapter – for example, s 35 contra s 39.

Registration of domestic relationships

A ‘registrable relationship’ is a relationship (other than a registered relationship) between two adults ‘who are not married to each other but are a couple where one or each of them provides personal or financial commitment and support of a domestic nature for the material benefit of the other, irrespective of their genders and whether or not they are living under the same roof, but does not include a relationship in which a person provides domestic support and personal care … for fee or reward; or on behalf of another person or organisation …’ See s 5.

There are various preconditions to registering a registrable relationship, such as not being in another inconsistent relationship/marriage, being domiciled or ordinarily resident in Victoria, and providing the prescribed documentation/information: see sections 6-8. If the application is not withdrawn, then within the prescribed periods the Registrar of Births, Deaths and Marriages must either register or refuse to register the relationship on the relationships register: see ss 9-10.

Note: there appears to be no required length of time for the parties to have been in a relationship before being able to register, compared with the two-year requirement in relation to property and maintenance orders pertaining to an ‘unregistered’ relationship.

Searches of the register appear to be similar to other searches at births, deaths & marriages – the privacy of the persons concerned is protected, and a proper reason needs to be given for the search: see ss 20-24.

A registered relationship will be revoked by the death of either party, or the marriage of either party (to each other or someone else); and it can also be revoked upon application by either party – see ss 11-13 – which application can be withdrawn: see s 14. The Registrar must revoke the registration after the expiry of 90 days after the revocation application has been lodged, unless it is withdrawn or a court or tribunal directs otherwise; and a court can order revocation on application by an interested person or on its own motion: see ss 15-16.

A person whose interests are affected by a decision of the Registrar can apply to the Victorian Civil and Administrative Tribunal (VCAT) for a review. See s 28; also see s 33 re extension to Evidence Act 2008 re the Registrar taking statutory declarations required for the above purposes.

Relationship agreements

First, there are a number of definitions to be taken into account – see s 35 (chapter 3, part 3.2), contra s 39 (chapter 3, part 3.3):

  • A ‘domestic partner’ is a person with whom the (first) person is or has been in a domestic relationship, or with whom they are contemplating entering into a domestic relationship.
  • A ‘domestic relationship’ is:
  1. A registered relationship, or
  2. A relationship between two persons not married to each other but living together as a couple on a genuine domestic basis, regardless of gender, or
  3. The relationship between two adults ‘who are not married to each other but are a couple where one or each of them provides personal or financial commitment and support of a domestic nature for the material benefit of the other, irrespective of their genders and whether or not they are living under the same roof, but does not include a relationship in which a person provides domestic support and personal care … for fee or reward; or on behalf of another person or organisation …’

And a number of listed factors are to be taken into account in determining the current or past existence of a domestic relationship:

  • ‘Financial matters’ relate to one or more of the following: the maintenance, income or property, or financial resources of one or both of the domestic partners. See further definitions in s 35 of ‘financial resources’ (very broad, including prospective claims or entitlements, pensions, and ‘valuable benefit’) and ‘property’ (again very broad, including real and personal, estates, interests, causes of action, et cetera).
  • A ‘relationship agreement’ is an agreement, whether or not there are other parties to it, made before, on or after commencement of the Act in contemplation of entering or during a domestic relationship, or in contemplation of terminating or after termination of a domestic relationship, which provides for financial matters, whether or not other matters are included.

These agreements are subject to and enforceable pursuant to contract law, and may be varied or set aside, wholly or in part, by a court in certain circumstances – for example, in instances of fraud or duress. See ss 36 and 37.

If a relationship agreement requires one of the domestic partners to pay periodic maintenance, then on the death of the first partner the requirement to pay maintenance is unenforceable against that person’s estate unless the agreement provides otherwise; and on the death of the second partner is unenforceable by their estate, with a saving for arrears then due at the death of either partner. However, unless provided otherwise in the agreement, terms relating to property and lump sum payments are enforceable by the surviving partner against the estate of the deceased partner.

Property and maintenance

Again, some definitions – see s 39, noting some other definitions revert back to s 35:

  • A ‘child’ is one born as a consequence of sexual relations between the partners, or a child of one of them of whom the other is presumed to be the father (per part II of the Status of Children Act 1974), or a child adopted by the partners.
  • A ‘domestic partner’ is ‘a person with whom the person is or has been in a domestic relationship’.
  • A ‘domestic relationship’ is:
  1. a registered relationship; or
  2. a relationship between two persons who are not married to each other but who are living together as a couple on a genuine domestic basis (irrespective of gender) …

A court has the power to make a declaration in respect to property, as broadly defined – see s 35(1) – including orders for possession, orders for adjustment of interests and/or granting of maintenance. Sections 45 and 46 concern the numerous factors to be taken into account, and also adjournments if there is a likelihood of a significant alteration in circumstances (including future entitlement to property under s 48) or contra Family Court proceedings; and ss 51 and 52 concern orders for maintenance). There are certain additional requirements in respect to unregistered relationships such as domicile, and that the parties have lived together in the relationship for at least two years or there is a child of the domestic partners or accepted by the domestic partners as a family member or serious injustice would result in not making an order: see ss 40 – 42, and s 42 in respect to unregistered relationships.

There are time limits for making applications – essentially two years from the date on which the relationship ended – but with the court having power to grant leave for an extension: see s 43. The court is to make orders where possible to determine the financial relationship and avoid further proceedings: see s 44.

Property interests – If a party to property interest proceedings dies before an application for an order is determined, the application may be continued by or against the legal personal representative, and a court may make an order against the deceased’s party’s estate; and if a party dies after an order is made against them, the order may be enforced against their estate. See ss 49-50.

Maintenance – In respect to maintenance, the Act sets out an extensive number of factors to be taken into account, and provides that if either party dies before the application is determined then the application abates. See s 51. A court also has the power to make an order for interim maintenance. See s 52. If the domestic relationship ceases, then an application for maintenance cannot be made by a domestic partner who at the time of the application is in a domestic relationship with someone else or who has married or remarried. See s 53. A maintenance order ceases on the death of either party, on the marriage or remarriage or on the registration of a registrable relationship of the party having the benefit of the order, with various provisions for adjustment and interest, recovery of arrears and variation orders for periodic maintenance. See ss 54-57.

There are also some general provisions in respect to property adjustment and maintenance orders:

  • Courts with jurisdiction are the Supreme Court, County Court, and Magistrates’ Court, depending upon jurisdictional limits; with provisions for the transfer of proceedings, and a stay or dismissal of proceedings where proceedings have been instituted in more than one court in relation to the same person. See ss 65-69.
  • A court has numerous powers including ordering the sale or transfer of property, execution of documentation (and if the party fails to execute it, an officer of the court or other person can be directed to do so in lieu – see s 60), payments of periodic or lump sums, appointment or removal of trustees, granting injunctions, and making consent orders: see s 58. In exercising its powers, a court must not make an order or do anything inconsistent with the terms of a relationship agreement between the parties if the agreement is in writing and signed by the party against whom it is to be enforced, and each party was given a legal practitioner’s certificate (covering the stated matters – refer also to Legal Practitioners’ Liability Committee publications, particularly check issue no. 40, September 2008) at the time of signing the agreement and which accompanies that agreement. See s 59.

However if a court is not satisfied that all of these requirements have been met, the court can make an order as if there were no relationship agreement, although the court may have regard to its terms; and the court is not required to give effect to the terms of a relationship agreement if it is of the opinion that the parties have revoked or agreed to revocation of the agreement, or the agreement has otherwise ceased to have effect, or it is wholly or partly varied or set aside by the court under other provisions of the Act – that is, under s 37.

  • Ex parte applications may be made in cases of urgency. See s 61.
  • A court can vary or set aside a section 45 (adjustment of property interests) or s 51 (maintenance) order if the court is satisfied that there has been a miscarriage of justice because of fraud, duress or false evidence; that circumstances have arisen making the order or part of it impracticable; that parties have failed to carry out obligations under the order, and so on: see s 62.
  • Transactions to defeat claims can be set aside, and costs orders made, with regard being had to the interests of any bona fide purchaser or other interested person. See ss 63 and 64. A court may order that a person who may be affected by an order be given notice of the proceeding, or on application be made a party to it; and if a party against whom an order is sought is married, the applicant must give notice of the proceeding to that party’s spouse. See s 64.
  • A court can make orders requiring bonds, payment of penalties, handing up of documents, and so on, where the court is satisfied that a person knowingly and without reasonable cause contravened an order or injunction (other than an order for payment of money). See s 70.

Acts affected by this Act

In addition to the repeal of part IX of the Property Law Act 1958, there are presently sixty-nine affected Acts – subject to any further additions/amendments. These affected Acts cannot all be listed here. However, some Acts that may be frequently encountered by readers are:

Accident Compensation Act 1985

Administration and Probate Act 1958 – including amendment to section 51A of that Act Conveyancers Act 2006

Conveyancers Act 2006

Consumer Credit (Victoria) Act 1995

Crimes Act 1958

Duties Act 2000

Equal Opportunity Act 2010

Estate Agents Act 1980

Fair Trading Act 1999

First Home Owner Grant Act 2000

Freedom of Information Act 1982

Guardianship and Administration Act 1986

Land Acquisition and Compensation Act 1986

Land Act 1958

Land Tax Act 2005

Landlord and Tenant Act 1958

Legal Profession Act 2004

Partnership Act 1958

Payroll Tax Act 2007

Residential Tenancies Act 1997

Retirement Villages Act 1986

Sale of Land Act 1962

Superannuation (Portability) Act 1989

Trustee Companies Act 1984

Wills Act 1997

Wrongs Act 1958

A final note: as pointed out by Adrian Stone and Kathryn Downs in ‘Going separate ways’ (Law Institute Journal, September 2008, page 34), the operation of this Act may yet be affected by an Act resulting from the Federal Family Law Amendment (De Facto Financial Matters and Other Measures) Bill 2008.

Note: This article was first published in The Legal Executive November-December Volume 2008 Issue No. 6 (save for minor corrections), and is reproduced with the permission of the author and The Institute of Legal Executives (Victoria). Readers should note that further Federal legislation has since been implemented, affecting the operation of certain parts of the Act; and are also referred to a subsequent article, More about the Relationships Act 2008.

Tips

Whilst written for Victoria practitioners this article has interest and relevance for practitioners in all states.

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