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Why the model contracting out agreement is useless

Yes Member: or why the model contracting out agreement is useless

Thursday, October 11 2001 Stephen Franks Articles -- Governance & Constitution

On 12 July 2001 the Government gazetted a model agreement for opting out of mandatory sharing under the Property (Relationships) Act 1976. Section 21E of the Act provided for it. The model is utterly useless. This paper sets out why s 21E was recommended by the Justice and Electoral Select Committee. It reviews problems with the model form. It records that the relationship of the Select Committee and Parliament with the Minister and her officials determined the outcome, rather than any rational analysis, legal, or sociological or economic.

Section 21E states:

21E. Regulations Prescribing Model Forms of Agreement ' (1) The purpose of this section is to minimise the legal expenses of people who wish to enter into an agreement under section 21 or section 21A or section 21B.

(2) The Governor-General may, by Order in Council, make regulations prescribing model forms of agreement for the purposes of section 21 or section 21A or section 21B.

(3) Use of a prescribed model form of agreement is optional.

The gazetted form relates only to s 21. It is not for settling differences under s 21A, or settling proceedings under s 21B.

The form deals only with items specifically scheduled. It does not deal with future property. Property acquired partly out of the proceeds of the listed property is covered uncertainly, if at all, only by application of underlying law. It does not deal with wills, to preserve the parties' testamentary intentions against being overridden. It can not reallocate property already in the separate ownership of a party.

There are numerous other omissions.

A witnessing lawyer would be negligent to let it be used other than by a couple who expressly insist that all they want to do is record the separate ownership of particular assets and to share the rest under the Act.

Regulation 6 says the model form has no special status or effect just because it is prescribed by law, and that it must be treated in the same way as an agreement not based on the form. Just in case it is missed, the explanatory note to the Regulation repeats that disclaimer and warning.

Nothing in the regulation or the form will reduce legal expenses. The parties still each need a lawyer. There are none of the usual mechanisms for reducing costs. No checklist of considerations. No menu of alternatives. There is nothing to reduce the risks that drive lawyer behaviour. No standardised advice or warnings to comfort the anxious lawyer otherwise driven to back-covering overkill. No safe harbour recommendations on process.

In short there is nothing that a lawyer could not get more safely and conveniently from a commercial precedent library.

Why has the Government produced such an utterly useless piece of paper? Was this what Parliament had in mind in passing section 21E? Why did the Minister not produce a model form to satisfy the stated purpose "to minimise the legal expenses of people who wish to enter into an agreement . . ."? Are the Regulations ultra vires, given that they satisfy no element of subs (1)?

This is indeed a deliberate act by the Executive to frustrate the intent of Parliament. It is contempt for the legislature. As an opposition Member of Parliament, not privy to governing caucus discussion, I cannot be conclusive about who is primarily responsible, but the Hon. Margaret Wilson, the Associate Minister of Justice, had the conduct of this law change.

The Regulations are just the last petty act in a pattern. The Bill only got a Select Committee review following a backbench revolt after the Minister secured an initial vote to bypass the Select Committee.

In opposition I might be expected to feel that the outcome is less than desirable. But I believe that during the Select Committee process members on both sides of the table were concerned that submissions would be disregarded.

There was an early and vivid demonstration of resistance by officials. The Select Committee requested, but failed to receive, any empirical or other research evidence of the extent of the mischief addressed by the Bill, or from which the Committee could evaluate the materiality of unintended consequences. Public debate at that early stage had focused on the headline issue of whether the Bill should include same-sex couples. For most of the Committee that was a side issue. We were more concerned the effects of unwanted interference in the infinite variety of arrangements people have, which exist outside marriage. We particularly wanted to know what had been done to evaluate the likely effects on family formation and break up.

National members discovered that only $60,000 had been allocated for a public education campaign. All members of the Committee were alarmed about people being caught without adequate warning and time to contract out.

Submitters confirmed our simple intuitions that some stable and presumably mutually beneficial relationships could break up if the partner with most to lose could not be assured of maintaining the status quo.

Witnesses set out hard cases: older women concerned about the prospect of losing their carefully protected house to a "partner" living in the house for companionship; long-term student flatmates with occasional intimacy, but no intention of long-term mutual support; elderly people with grown-up children from earlier relationships, concerned that the offspring of the first to die could be dispossessed by the law overruling a will.

We endeavoured to get estimates from officials of the numbers who might want to opt out, and of the asset-holding circumstances of different categories. None was provided. An influential article by Sandra Coney prompted more inquiry. Apparently no such empirical work had been attempted by the Ministry of Justice or any proponent of the Bill. We asked for demographic evidence, to find out how many of the assumed target couples actually had assets that would be worth dividing.

The Committee explored ways to mitigate the effects and its report alludes to some of this work.

The commencement date was pushed out. Government agreement to this may have been partly for political reasons, to avoid a stream of high profile Court cases in election year, highlighting the intrusiveness of the legislation.

We explored converting to a contracting in basis for people in existing relationships. In other words, treating those who commence relationships after the Act comes into force as having been warned of the consequences, but not unilaterally changing the arrangements and expectations of competent adults in existing relationships.

We considered a different qualifying period from marriage so that, for example, a de facto relationship might have to last for five years before the Act applied. This appealed on the grounds that marriage is distinguished by clear consent to a property regime, and a documented commencement date. There was favour for this from both sides of the Committee table, especially after we heard of Australian studies showing that most de facto relationships broke up within five years.

It was plain that contracting out might be no simple matter. Submissions highlighted the risk for lawyers who treat contracting out advice lightly. The party to a disadvantageous contract, or whose contract was voided by the Court, would have every incentive to sue the lawyers. We heard that lawyers would need to keep a careful record of advice.

Law Society representatives suggested a cost range of between $300 to $2000 for advising two parties without particular drafting or negotiation to reflect complicated dispositions.

There were conflicting submissions on the real impact of the changes to contracting out law in s 21. Law Commissioner Donald Dugdale considered that the new s 21 would make it easier to upset contracting out agreements. Most of the lawyers pointed to the words "serious injustice" and opined that it would be harder.

The Committee debated changing the wording to emphasise the need for certainty if people were to feel confident in entering relationships, and to remove the 'change in circumstances' ground for voiding, given that circumstances always change.

A clear majority of the Committee wanted Parliamentary Counsel to work on proposals to ensure that contracting out was more inexpensive and certain.

Several individual lawyers favoured this in thoughtful submissions. Lawyer organisations did not. They claimed that people's circumstances were so infinitely various and potentially complicated that it would be dangerous to provide for a "one size fits all" contracting out arrangement. People wanting to stay as they were must have the benefit of bespoke legal advice.

The incredible illogicality of their position seemed lost on these lawyers. They were simultaneously strongly urging the prompt passage of a "one size fits all" unilateral change to all existing relationships, without any prior examination of individual circumstances, or any advice.

That there might be a civil liberties objection to overriding arrangements entered into by freely consenting competent adults was not urged by any lawyer group, or the Human Rights Commission.

Committee discussion took some way a proposal that would have given special status to a form of agreement that simply made it clear that the parties wished to preserve the status quo, after being given a plain language summary of the effects of the Act, including warnings that the less wealthy partner would lose by agreeing. Officials opposed this. They claimed that no simple summary could do justice. They cited their paradigm case ' the woman who could be bullied out of protection. But they ignored concern about the alternative victims ' those whose relationships would end, or never mature to the qualifying period, because of unassuageable fears from the other party of venal motives for the relationship.

Plainly, expected legal costs were a function of unavoidable back-covering by prudent lawyers, even where they were confident that informed parties knew what they wanted.

Initially there was a Committee consensus that what is now s 21E might include some liability protection for the advising lawyers where a model form was used. Full draft provisions were prepared. The protection would not have extended to bad faith, or where the lawyer ought to have been put on notice that a standard contracting out form was unsuitable.

The climate on the Committee then changed. Diane Yates MP appeared on the Committee. She had a mysterious influence. I found her contribution largely incomprehensible but one thing she made plain ' the Bill should not be materially changed. It became apparent that government members had been party whipped. Discussion of most alternatives ceased.

The Committee remained determined, nevertheless, to make contracting out more simple and inexpensive. Officials played the last card. Although there were adequate drafts on the table, the chairman and government members were persuaded that it was "inappropriate" for a committee to try to finalise "complex drafting". The Committee agreed to leave it to regulations. Section 21E is the result.

This story does not reflect credit on anyone involved, including the writer. It is a story of ignorance, arrogance, cynical manipulation, and incompetence.

' All involved were wilfully ignorant of the likely real effects of the law, because no practical impact research was done.

' The arrogance was in the ideological drive by the Minister, supported by the majority of lawyer submitters, to override the free choices of competent adults, without any simple economical way to reaffirm their wish to stay as they were.

' The cynical manipulation lies in the collusion to placate the Select Committee with a section that has now been nullified.

' The incompetence is displayed in the outcome, law that mystifies, when all Select Committee members were aware of the problems but allowed themselves to be manoeuvred into pushing law through without insisting on solutions.

Ultimately the useless form shows contempt for ordinary New Zealanders. They will pay for it: in legal fees, in the misery of avoidable disputes, and in having reasonable expectations dashed.

For more information visit ACT online at http://www.act.org.nz or contact the ACT Parliamentary Office at act@parliament.govt.nz.

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