Agreements and their challenges

In Scotland, many married couples who have separated manage to resolve their financial issues without having to ask a Court to deal with them. Their agreement is then usually written into a binding contract, known as a Separation Agreement or Minute of Agreement. Couples who intend to marry can also enter into pre-nuptial contracts, in order to regulate aspects of their relationship together. If a relationship is in difficulty but the couple are not at the point of actually separating, sometimes they will enter into a postnuptial contract.

The purpose of these various agreements is to be as clear and unambiguous as possible. The aim is to provide reassurance and certainty of outcome. However, under our legislation (section 16 of the Family Law (Scotland) Act 1985), it is possible in certain circumstances to challenge the terms of such an agreement, or part of it, if it can be shown that the agreement or any term of it was not fair and reasonable at the time it was entered into.

In the leading case of Gillon v Gillon, (No.) 1995 SLT 678, the court set out the principles to apply when looking to challenge an agreement.  They are as follows:

• It is necessary to examine the agreement from the point of view of both fairness and reasonableness;
• Such examination must relate to all the relevant circumstances leading up to and prevailing at the time of the execution of the agreement including amongst other things the nature and quality of any legal advice given to either party;
• Evidence that some unfair advantage was taken by one party of the other by reason of circumstances prevailing at the time of negotiations may have a cogent bearing on the determination of the issue;
• The court should not be unduly ready to overturn agreements validly entered into; and
• The fact that it transpires that an agreement has led to an unequal and possibly very unequal division of assets does not by itself necessarily give rise to any inference of unfairness and unreasonableness.

Gillon set a very high test and is not easy to challenge agreements.  This must always be borne in mind when deciding whether or not to agree to the terms of an agreement.  There have been various cases since this decision.

The recent case of D v D [2021] CSOH 66 is quite unusual.  It did not involve a Minute of Agreement.  Instead, it related to negotiations in the lead up to a proof (full evidential hearing) in a Court of Session divorce case.   The defender’s agent sent an email to the pursuer’s agents setting out the terms of the agreement.  The pursuer’s agents replied to acknowledge the defender’s email had set out the agreed terms of settlement.  This was because the pursuer had instructed her solicitor and her Advocate to accept the defender’s increased offer.  The pursuer then changed her mind. The issue was whether a binding agreement which had been reached in pre-proof negotiations should be set aside in terms of section 16, on the basis it was unfair and unreasonable.  The pursuer tried to argue that it should be set aside.  She was unsuccessful, with the court holding that section 16 “should not be regarded as the final port of call of parties who simply have second thoughts and wish to re-litigate the past”.

This case illustrates how very important it is that parties fully understand the implications of reaching an agreement.  The judge held that there was no issue in the quality of the legal advice provided to the pursuer by her solicitor and her Advocate.

Section 16 can also be relevant when looking at an agreement entered into in a foreign jurisdiction, such as a prenuptial agreement entered into by parties when they were living somewhere else and before moving to Scotland.  Scots law will apply lex loci contractus or, law of the place where the contract is made.  So, if parties entered into a French pre-nuptial agreement and then moved to Scotland where they subsequently separated, the agreement would be interpreted in accordance with French law.   Advice would need to be obtained from French lawyers.  However, the court in Scotland would still be entitled under section 16 of the Family Law (Scotland) Act 1985 to set aside the pre-nuptial agreement (or parts of it) if the court held that the agreement was not fair and reasonable at the time it was entered into.  So, if one other party raised that issue then it might be necessary to look at the wider context and circumstances in which the agreement was made.

Where we are being asked to prepare an agreement we always check whether there is any prospect of advice being required from a different jurisdiction.  An example of that would be where parties were living in Scotland but part of the agreement related to an asset held in a different jurisdiction or, in the context of pre and post-nuptial agreements, if there is a possibility that at some future point the couple might move away from Scotland.

Getting the right advice is key to ensuring an agreement properly reflects what you want to achieve.