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Pascot & Pascot [2011] FamCA 945

Categories: Binding Financial Agreement, Pre-Nuptial Agreement, Proceedings to Alter Property Interests, Property, Property Settlement
Tags: , , , , , ,

Judge Name: Le Poer Trench J
Hearing Date:
Decision Date:21/12/2011
Applicant: Mr Pascot
Respondent: Ms Pascot
Solicitor for the Applicant: Doolan, Wagner & Callaghan
Counsel for the Applicant: John Lloyd SC
Solicitor for the Respondent: Parry Carrol Lawyers
Counsel for the Respondent: R Maurice
File Number: SYC 3678 of 2007
Legislation Cited: Family Law Act 1975 (Cth)
Cases Cited: Alati v Kruger (1955) 94 CLR 216Australian Woollen Mills v Commonwealth (1954) 92 CLR 424Black & Black (2008) FLC 93-357Blomley v Ryan (1956) 99 CLR 362Bridgewater & Ors v Leahy & Ors (1998) 194 CLR 457Clifton & Stuart (1991) FLC 92-194Commercial Bank of Australia v Amadio and Anor (1983) 151 CLR 447Dupont & Dupont (1980) FLC 90-881Fevia & Carmel-Fevia (2009) FLC 93-411Gardner & Gavin (No. 2) [2010] FamCA 125Goldsborough Mort & Co v Quinn (1910) 10 CLR 674Green & Kwiatek (1982) FLC 91-259Holland & Holland (1982) FLC 91-243Kostres & Kostres (2009) FLC-420La Rocca & La Rocca (1991) FLC 92-222Louth v Diprose (1992) 175 CLR 621Lowe & Harrington (1997) FLC 92-747Newlands v Argyll General Insurance Co Ltd (1958) 59 SR(NSW) 130O’Brien & O’Brien (1981) FLC 91-094Public Trustee (as an executor of the estate of Gilbert) & Gilbert (1991) FLC 92-799Rolfe & Rolfe (1979) FLC 90-629Ruane & Backman-Ruane [2009] FamCA 1101Senior & Anderson (2011) FLC 93-470Simpson & Hamlin (1984) FLC 91-576Sullivan & Sullivan [2011] FamCA 752Taylor v Johnson (1983) 151 CLR 422Turner v Wendover [1993] NSWSC 1147Upper Hunter County District Council v Australian chilling & Freezing Co. (1968) 118 CLR 429Whitford & Whitford (1979) FLC 90-612
Jurisdiction: Family Court of Australia
Parental Responsibility Outcome: Not Relevant
Residential Outcome: Not Relevant


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Orders

The Agreement made between the parties on 28 March 2001 is set aside.

Each of the parties is to file and serve by the end of January 2012 a minute of the orders for property settlement they seek.

The matter is to be listed by the Docket Registrar for further directions and a conciliation conference as soon as practicable.

When the Docket Registrar is satisfied that the matter is ready to proceed further before me she is to arrange for a further listing.

IT IS NOTED that publication of this judgment under the pseudonym Pascot & Pascot is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

REASONS FOR JUDGMENT

Introduction

Ms Pascot (hereafter “the wife”) seeks a declaration that the agreement entered into between herself and Mr Pascot (hereafter “the husband”) on 28 March 2001 (hereafter “the Agreement”) is not binding on the parties as it is not a Financial Agreement made pursuant to Part VIIIA of the Family Law Act. Alternatively she seeks the Agreement be set aside pursuant to either, secs 90K(1)(b), 90K(1)(d) or 90K(1)(e).

There are a number of limbs to the wife’s case as the application forewarns. These include allegations that the wife’s solicitor gave her incorrect advice as to the effect of entering into the agreement. Annexed and marked “A” to the affidavit of the wife’s former lawyer Mr D is a copy of a letter dated 9 February 2001 in which paragraph 4 states as follows:-

Generally speaking, this type of Agreement, commonly referred to as a Pre-Nuptial Agreement, is entered into between a prospective husband and wife prior to their marriage being an agreement to determine how financial matters are dealt with during the marriage or in the event of a separation. The Family Court will not allow such agreements to bind the Court’s discretion although such agreements will certainly operate so as to influence a Court in relation to the financial relationship between husband and wife.

It is the wife’s case that the effect of providing that advice establishes a failure to comply with sec 90G(1)(b).

At the time of signing the agreement the wife was pregnant with the parties’ second child. Following the signing of the agreement there were two further children born. The marriage continued until January 2007. The parties lived under the same roof until 2009.

An unusual facet of the agreement is that its effective date of commencement of the Agreement is stated to be 22 February 2001.  As will be seen, that was a date selected by the husband as the day before the settlement of the purchase of the property at C Street, Sydney Suburb W (hereafter “the W property”). That property became the family home. The acquisition of that property is central to both parties’ reasons for entering into the Agreement.

The wife mounts a case in the alternate that the agreement is void, voidable or unenforceable. The basis upon which she contends the agreement should be set aside on those grounds is that she says there is evidence to support a conclusion that there has been unilateral mistake; undue influence; misrepresentation and unconscionability. There also appears to be suggested a case, on behalf of the wife, that there never was a contract between the parties as the agreement the wife offered was not accepted by the husband.

It is the wife’s case that the amendments to the Act contained in sec 90G(1A) and 90G(1B) should not operate to save the Agreement and cause the court to make a declaration as provided for in sec 90G(1B).

The wife challenges the Agreement’s operation under sub-sections 90K(1)(e) and 90K(1)(d).

The wife contends there are provisions of the agreement which are unenforceable. In particular she points to a provision in the agreement which provides for the parties to split any future superannuation. The wife says that following the legislation which amended a raft of superannuation legislation and the Family Law Act, it is impossible to implement that provision without an order of the court made pursuant to sec 90MT of the Act. If the agreement is a valid financial agreement pursuant to the Act then the wife argues that there is no jurisdiction for the court to exercise power under part VIII of the Act. I note sec 90MT is found in Part VIIIB. The scope for the making of an order under sec 90MT may lie within the provisions of secs 90G(2) or 90KA of the Act. I will consider those matters as I proceed to determine the matter should it be necessary to do so.

I note, in relation to the superannuation provisions of the Agreement, sec 90MH was introduced as an amendment to the Act by Act number 61 of 2001, becoming operational on 28 December 2002. The section was amended again in 2008. A question arose as to whether the section applies retrospectively to a date prior to the making of the subject agreement on 28 March 2001. Later in these reasons I consider this matter and specifically have regard to the transitional provisions within the amending Act. Those provisions excluded any application of the section to Financial Agreements entered into prior to the amendment coming into force.

The Husband moves on his Amended Application for Final Orders filed 4 August 2008. In that application the husband seeks orders relating to property and financial matters. His primary application is that the wife’s application to set aside the Binding Financial Agreement entered into by the parties on 28 March 2001 be dismissed. In the alternative the husband seeks property orders as set out in his application.

It is the husband’s case that the wife has not made out a case for the Court to set aside the Financial Agreement entered into between them.

The matter was listed for hearing on the threshold point, namely the wife’s application to set aside the financial agreement. The parties agree that if the wife is successful in her application then directions should be made to prepare the matter for hearing as a defended property hearing.

The documents relied upon by each party

The wife in her case summary document, filed 27 June 2011, identified the following documents she relied upon:

·            Further Amended Response  of wife filed 15 January 2009

·            Affidavit of wife filed 15 January 2009

·            Financial Statement of wife filed 23 February 2010

·            Affidavit of wife filed 16 January 2009

·            Affidavit of Mr D filed 15 January 2009

·            Amended notice of particulars, filed 15 January 2009

The husband in his case outline document relied upon the following documents:

·   Amended Application for Final Orders filed 4 August 2009

·   Affidavit of the husband sworn 9 February 2009

·   Affidavit of Ms G sworn 4 March 2009

In the husband’s case outline document filed 20 June 2011 he provided a response to the wife’s amended notice filed 15 January 2009. I note from the husband’s response that there is no admission of substance.

Orders Sought by each Party

The wife sought orders relative to property matters. She seeks as her first order a declaration that the agreement dated 28 March 2001 is not binding upon the parties. Otherwise she seeks that the agreement be set aside. If she was successful in either of those primary applications, the wife would then press for orders to be made pursuant to sec 79. She then sets out the orders she would seek pursuant to sec 79 of the Act.

The husband in his Amended Application for Final Orders seeks primarily that the wife’s applications be dismissed. If that application is unsuccessful the husband seeks orders pursuant to sec 79 of the Act.

Analysis Of The Pathway to be Followed by the Court in Determining the Orders Sought by Each Party.

The Full Court decision in Senior v Anderson (2011) FLC 93-470 provides guidance as to the manner in which a case such as the present is to be approached. I draw from that decision a sequence of issues to be addressed in order. Those are:

(a)          Is there an agreement (contract) between the parties?

(b)          Is there an agreement which qualifies as a “financial agreement”? In this case that requires compliance with section 90C of the Act.

(c)          Is the “financial agreement” binding on the parties and the court as set out in section 71A(1)? To qualify for that description the financial agreement must comply with section 90G.

The segments of the Full Court decision in Senior v Anderson which give rise to the above conclusion by me are set out below. In Senior v Anderson the Full Court split with Strickland J delivering a judgment, with which Murphy J agreed in all but one respect, May J dissenting. Murphy J and Strickland J did not agree in relation to the transitional provisions relative to the amendments made to section 90G with Murphy J saying:

I respectfully differ from his Honour in only one respect, namely the view expressed at paragraph 91 of his Honour’s reasons as to the relevance of a consideration of the transitional provisions of the Federal Justice System Amendment (Efficiency Measures) Act (No 1) 2009 (Cth) (“the Amending Act”) to the determination of this appeal.

Between paragraphs 83 and 94 of the judgment of Strickland J, he set out the legislative framework applicable to the creation of a financial agreement which is binding. I do not repeat that framework in these reasons.

At paragraphs 94 to 96 inclusive Strickland J set out a discussion dealing with the relevant sections. I here set out those paragraphs.

94. The Act in effect draws a distinction between agreements which are financial agreements (s 4, s 90B, s 90C, s 90D) and those financial agreements which are binding (s 90G). Financial agreements can, like any other agreement, govern the actions of the parties to them and bind the parties to obligations, but do not oust the jurisdiction of the court. Parties to an agreement that satisfies the definition of “financial agreement” are bound by its terms (or not bound as the case may be), just as they would be bound (or not bound) by any other agreement (s 90KA) (see generally Australian Securities and Investment Corporation and Rich & Anor).95. Section 90G is irrelevant to the contractual rights and remedies of the parties to an agreement that satisfies the definition of “financial agreement”. That section only becomes relevant when the issue is whether an agreement that satisfies the definition of “financial agreement” is effective for a specific statutory purpose, namely to operate as a bar to claims by either party pursuant to Part VIII of the Act (s 71A). It will be so, if and only if, it is “binding” within the meaning of s 90G.96. If an agreement, including an agreement that satisfies the definition of “financial agreement” under the Act, fails to effectively bar Part VIII claims (because of its failure to comply with the requirements of s 90G and, as a result, is not “binding” within the meaning of that section) the financial agreement can nevertheless have an affect. However, an agreement’s failure to be “binding” in the s 90G sense renders its use in Part VIII proceedings to be very limited; specifically it does not operate as a bar to orders made under that Part (see e.g. Woodland and Toddat paragraphs 37 – 39).

At paragraph 106 and 107 Strickland J said:

106. In my view, the “principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts …” (s 90KA) are applicable in deciding whether (a) there is an agreement and (b) the application of s 90B, s 90C and s 90D to that agreement. Thus, as an example, principles familiar to the law of contract relating to the sufficiency of a written note or memorandum emanating from Statute of Frauds requirements may well apply to the requirements of s 90B, s 90C or s 90D for a written agreement. Specifically I am of the view that the doctrine of rectification can apply, in circumstances when its requirements are made out, to the agreement and to the requirements of s 90B, s 90C and s 90D. Thus I consider that to this extent his Honour was in fact correct.107. It is true that those sections can be said to be central to the question of whether a financial agreement as defined exists. However, that is no bar to the remedy; rectification is available “where the debate is whether a contract exists at all” (R Meagher, D Heydon and M Leeming, Meagher, Gummow and Lehane’s Equity Doctrines & Remedies, 4th ed. 2002 at [26-035] citing Sindel v Georgiou(1984) 154 CLR 661 and Heyward v Planet Projects Pty Ltd[2000] NSW SC 1105).

Justice Strickland at paragraphs 110 and 111 set out the following:

110. As previously set out, for there to be a financial agreement there must be an agreement, and to determine that, the principles of law and equity apply, and such an agreement is subject to equitable remedies such as rectification. This is reinforced by s 90KA, but noting again that that section refers to “financial agreements” as to distinct to “agreements”. However, that does not affect the force of the argument.111. The relevance of this is that in applying the principles of rectification the intention of the parties is all important, ( Pukallus v Cameron(1982) 180 CLR 447 per Brennan J at 456; Australian Gypsum Ltd v Hume Steel Ltd(1930) 45 CLR 54 ; Ryledar Pty Ltd & Anor v Euphoric Pty Ltd[2007] 69 NSWLR 603 per Campbell JA at 660), and thus it was quite appropriate for his Honour to have regard to this, but only so far as his Honour was dealing with the mis-description of the section pursuant to which the financial agreement was made (i.e. s 90C instead or s 90D).

Earlier, in the decision of Fevia & Carmel-Fevia (2009) FLC 93-411 Murphy J had outlined an approach which he considered was required in that case, dealing with validity of and the binding nature of a Financial Agreement which had been entered into in 2001. He outlined the approach he considered appropriate as follows:

121.    First, by reference to the principles of contract (or equity), there may, in fact, be no agreement between the parties (despite claims to the contrary by one of the parties).  That there must be an agreement before there can be a “financial agreement” is made clear by the definition of “financial agreement” in s 4 of the Act.  The ordinary and natural meaning of “agreement” is, in my view, an agreement which is otherwise effective and enforceable at law.  That this meaning of “agreement” is contemplated by the Act is, in my view, underscored by s 90K(1)(b) and s 90KA.

122.    Secondly, the court can make Part VIII orders in the face of an agreement if, by reference to the Act, there is no “financial agreement”.  These particular forms of agreement are creatures of the Act, provided for in the circumstances set out in ss 90B, 90C and 90D (relevantly s 90B).  An agreement otherwise valid, effective and enforceable at common law may be a “financial agreement” for the purposes of the Act if the conditions of those sections, relevant to the circumstances (here s 90B) are met.

123.    The relevant pre-conditions for an agreement otherwise valid and effective at law being a “financial agreement” for the purposes of the Act, are contained within (relevantly) s 90B.  The section prescribes who may be parties to such an agreement (“people who are contemplating entering into a marriage with each other” and “one or more other people”);  the form of agreement (it must be “a written agreement”) and the matters which  must be the subject of the agreement (“the matters mentioned in [s 90B(2)”].  Further, the section excludes certain people from being parties to such an agreement (“spouse parties” who are parties to another agreement pursuant to ss 90B, 90C or 90D with respect to any of the specified matters).

124.    Thirdly, the court can make Part VIII orders in the face of an agreement that is a “financial agreement” if conditions specified by the Act are met (s 90K) and the financial agreement is set aside by the court.

125.    It will be appreciated that, in each of the situations just described, the court’s power to make Part VIII orders occurs independently of the provisions of s 90G of the Act.

126.    The court’s power to make orders arises in each case from factors connected with matters referable to contractual (or equitable) principles and/or the provisions of the Act independent of s 90G.  Such a result emanates from the fact that if a contract is not “binding” within the meaning of s 90G it can, nevertheless, be an “agreement” and a “financial agreement” within the meaning of the Act.  So much is made clear by the provisions of ss 4 and (relevantly) s 90B and, conversely, by the fact that, although s 90G specifies when a “financial agreement” is “binding”, there is, in terms, no such thing under the Act as a “binding financial agreement”.

127.    If a contract, or agreement is a “financial agreement”, but is not “binding”, it can, if valid and effective as such, have the effect, in relation to Part VIII of the Act, as set out in Woodland and Todd (2005) 33 FamLR 177.

128.    If the agreement is a “financial agreement” within the meaning of s 4 and, relevantly, s 90B, and is “binding” within the meaning of s 90G, it precludes the court applying Part VIII to the extent that the financial agreement deals with those matters (s 71A).

To the extent it is relevant, it should be noted that the decision in Fevia & Carmel-Fevia pre-dated the amendment to section 90G which inserted sub-section (1A).

Background Facts

The husband’s evidence is, and the Financial Agreement recites at cl. 3, that the parties commenced cohabitation in November 1996 in a rental property in Sydney Suburb B. The wife asserts cohabitation commenced in 1997.

The parties were cohabiting by April 1998. They lived overseas from April 1998 until December 1998 in accommodation provided by the husband’s employer, I Company.

On returning from overseas in December 1998, the parties resided in the Wife’s property in Sydney Suburb A from December 1998 until about May 1999.

The parties were married in May 1999.

About the time of the marriage the parties moved to a rental property at R Street, Sydney Suburb W.

The first child of the parties, L, was born in September 1999.

When the wife was pregnant with the parties’ second child the parties looked at properties to purchase as a home for the growing family. They looked at the W Property. The husband proposed to buy that property.

The parties are at issue in their recollection of discussions between them leading up to the purchase of the W Property. I will refer to those matters later as I consider each party’s case.

The husband exchanged Contracts to buy the W Property on 1 December 2000.

The husband’s evidence is that he engaged Mr M, solicitor, on  5 December 2000 to represent him in the drawing and execution of a Financial Agreement. The agreement was to be signed prior to his purchase of a property for the family to reside in. As stated earlier, exchange of contracts for the W Property had occurred on 1 December 2000. This may be an important matter to consider given the wife’s evidence as to the representations the husband made to her prior to the execution by her of the Agreement. The exchange of contracts created legal obligations on the husband and failure on his part to complete the contract may have led to the forfeiture of the deposit paid or a suit for specific performance or other remedy. If the contract was the subject of “cooling off” conditions which enabled the husband to change his mind and withdraw from the contract, it is clear that he chose not to exercise those rights after he saw his lawyer on 5 December 2000.

On 4 February 2001 the husband handed the wife a draft form of “Financial Agreement” for her to consider. Sometime between that time and 9 February 2001 the wife instructed Mr D, solicitor, to act for her in relation to the agreement.

On 9 February 2001 Mr D signed a letter which was addressed to the wife and was later received by her. The fourth paragraph of that letter stated the following:

Generally speaking, this type of Agreement, commonly referred to as a Pre-Nuptial Agreement, is entered into between a prospective husband and wife prior to their marriage being an agreement to determine how financial matters are dealt with during the marriage or in the event of a separation. The Family Court will not allow such agreements to bind the Court’s discretion although such agreements will certainly operate so as to influence a Court in relation to the financial relationship between husband and wife.

As will be seen later there is contradictory oral evidence from Mr D as to whether he ever changed the advice given to the wife by him in the abovementioned paragraph of his letter to her. It will be seen the advice was wrong in two important areas.

The letter of 9 February 2001 from Mr D to the wife also details reservations he had in relation to the agreement. In particular, the absence of acknowledgement of the wife’s contributions in the Agreement; the need for future property to be dealt with in the agreement; and the fact that the husband had listed his superannuation as his property. The letter concludes:

We believe that there should be some considerable compromise with regard to the Agreement and unless the foregoing matters are properly addressed we could not properly discharge our professional responsibility to you by advising you to enter into the agreement.

The wife met with Mr D on 7 occasions between 9 February 2001 and 28 March 2001 in relation to the proposed Financial Agreement. This evidence is derived from paragraphs 6 and 10 of the Affidavit of Mr D sworn 13 January 2009. I note there is an apparent disconnect between some of the provisions of paragraphs 6 and 10 of the affidavit and the detail contained in annexure “B” to the affidavit. Annexure “B” is a copy of the invoice issued by Mr D for the work performed on behalf of the wife.

Mr D set out in paragraph 5 of his affidavit the following:

In the first meeting [the wife] presented as a stressed style of person and on numerous occasions throughout the conferences that I had with her she said things to the effect:

“My husband is insisting.”.

“He’s preparing to sell his home and purchase another one but he did not want to finalise that until there was a Binding Financial Agreement.”.

“If I don’t sign this he says he won’t buy us a home.”.

On 23 February 2001, the husband completed the Contract to acquire the W Property. The husband and wife moved into this property between 23-25 February 2001. The Agreement recites in paragraph 9 that “[The husband] has contracted to purchase property known as [W] (“the[W Property]”) in the sum of $610,000 and settlement of that purchase is due to occur on or about 23 February 2001.” Notwithstanding that provision, as will be seen later, it is the wife’s assertion that at that time she still accepted the husband’s assurances that he would cancel the purchase if she did not sign the Agreement.

The Agreement is dated 28 March 2001. Annexure “B” to the affidavit of Mr D demonstrates the Agreement was signed by the wife on 23 March 2001. The “Certificate of Independent Legal Advice” was signed by Mr D on 28 March 2001. The Agreement was specified to be effective from 22 February 2001. The husband in his oral evidence explained why that was the case. That date was the day before the husband completed the purchase of the W Property.

The second child of the parties, A, was born in May 2001.

The wife’s evidence is that, at the time she signed the agreement, she had not anticipated having a third child.

The third child of the parties, Y, was born in December 2005.

During the cohabitation it is the wife’s case that she cared for the children almost exclusively. The husband was not prepared to concede that was the case, however, he did concede that at the time the agreement was signed the wife was the primary homemaker and parent to the children and she wished to remain so.

The wife has set out detail of the contributions she made to a property at P Street, Sydney Suburb W between 1974 and 1998. She set out detail of the work she carried out to the W Property from the time of the purchase of the property to the date she left the property in 2007.

During the period from 2001 to the date the wife left the property in 2007 she worked from time to time and earned income. That income was spent in part on the education of the children. The wife paid $27,776 for the children’s schooling at S School over 4 years.

The husband worked throughout the cohabitation and submits he was the principal breadwinner.

Each party asserts they have made contributions falling for consideration within sec 79(4) of the Act.

The parties separated 1 January 2007, but remained living under the same roof until 17 September 2009, at which time the wife and children moved out of the W Property.

The Amended Application for Final Orders was lodged by the husband on 4 August 2008. It sought orders in relation to both parenting and financial matters. The orders sought in relation to the  Agreement were:

4.           That the wife’s Application to set aside the Binding Financial Agreement entered into by the parties on 28 March 2001 (“the Agreement”) be dismissed.

The husband also sought orders for property settlement in the alternative.

The Agreement

The Financial Agreement entered into on 28 March 2001 was marked as exhibit X1. The important provisions of the agreement for the purpose of this case are as follows.

The agreement firstly recited what was described as “agreed facts”. One of the stated agreed facts included in paragraph 14 was the following:

“Before [the husband] and [the wife] each signed this Agreement, each received separate and independent legal advice from a legal practitioner as to the following:

14.1 The effect of the agreement on that party’s rights.”

There are two matters of particular note under the heading “Purpose of this Agreement”.

16. [The husband] and [the wife] wish so far as is possible to contract out of the provisions of Part VIII of the Act if the marriage breaks down irretrievably, and to enter into a Financial Agreement under Section 90C of the Act providing how:

16.1 In the event of the breakdown of the marriage, their property and financial resources at the date of this agreement, or at a later time, and before the dissolution of the marriage, is to be dealt with;”

17. [The wife] took voluntary redundancy on 19 December 1997; she began to study for a Post Graduate Masters degree in February 1997 and [the husband] has supported her fully since April 1998.”

Under the heading “Effective Date” the following appears:

“The parties agree that the agreement set out in this document takes effect from 22 February 2001.”

Thereafter the following provisions particularly noted :

·            The property owned by each party individually will remain that parties property and the other can make no claim in relation to same nor are they to be required to make any contribution to the others property.

·            In relation to the W Property, that is to be the home for the parties and their children. That home may be sold and another home purchased. The home is to be provided by the husband. It is to be his financial responsibility. The wife can only make a financial contribution with the agreement of the husband. Any such contribution will be treated as a debt between the parties.

·            The wife was to be primarily responsible for caring for the children and the domestic aspects of family life. She was permitted to work with the underlying stipulation that she continued to be responsible for the care of the children. Conversely the suggestion is that the husband would financially support the wife and the children. However no detail is given of same and it is not clearly spelled out. The only words which may be interpreted to show this are:

“[The husband] will give her every support and encouragement in that regard” [at paragraph 23]

·            The wife was clearly expected to put a hold on her career advancement to care for the children. No requirement of similar nature was specified for the husband yet the agreement makes no provision to compensate the wife for that sacrifice.

·            Upon separation each of the parties is to retain their separate property and divide equally any “future property”.

·            If the “relevant legal provisions governing family law matters and superannuation have been amended to allow for equal division of superannuation funds” then the parties are to split superannuation so as to divide equally any total increase in the parties collective superannuation entitlements from the effective date of the Agreement.

·            Each was required to execute a will in favour of the parties’ children. The wife was to be permitted occupancy of the home during her lifetime upon conditions.

Having regard to the content of the Family Law Act and the jurisprudence associated with the implementation and application of the Act by the court at the time the agreement was entered into the agreement appears to favour the husband considerably. The wife’s case has highlighted the aspects of the Agreement which are said to be very unfair to her.  The wife says the Agreement is such that any experienced family law lawyer reading of the document would ask “Why would the wife enter into such a one sided agreement?” There are a number of provisions which stand out as particularly unfair. Those are as follows:

·            There appears to be no provision which allows for the type of adjustment a party to property proceedings in the court might normally expect to receive from a court considering a sec 79 application, namely an adjustment found to be appropriate after consideration of the provisions of sec 75(2).

·            There is no provision for spouse maintenance.

·            There is no provision which would have regard to indirect contributions by the parties.

·            There is no provision to compensate the wife for sacrificing her career prospects to enable the husband to pursue his. The Agreement provides for the wife to be primarily responsible for the care of the children and the domestic aspects of the family.

Ultimately the relevance of this perceived unfairness within the agreement may not be relevant to the considerations the Court needs to take into account in determining an application to set aside such an agreement. After all, the fact that a party would enter into an agreement which treated them unfairly, notwithstanding the legislative requirement to have a mandatory provision of legal advice before signing, is also a matter for consideration. On the other hand, the very fact that such a circumstance exists may add to a party’s claim of duress, undue influence and/or unconscionable conduct.

Parties’ Credit

Each of the parties gave oral evidence, as did the wife’s former lawyer Mr D.

The wife gave her evidence with a very flat, quiet and expressionless presentation. She looked troubled. A lay observer of the wife in the witness box may well have said she looked as if she might be suffering from some form of depression. There is no medical evidence before the Court relating to the wife. She appeared to carefully consider the questions she was asked and appeared to answer the questions to the best of her ability. She said she had clear memories of some matters about which she was questioned and no recollection of other matters. I did not consider the wife was being dishonest in her oral evidence nor did I consider she was attempting to evade questioning.

The presentation of the husband in the witness box was diametrically opposite to that of the wife. He presented as a confident, assertive and clear minded businessman. He gave his evidence in a professional manner. By that I mean he had a presentation which the Court might expect to see from an expert witness who was very accustomed to giving evidence in court proceedings. There is nothing in the evidence to suggest the husband is accustomed to giving oral evidence in court cases.

There was nothing about the presentation of the husband or the content of his oral evidence which caused me to consider he was not being truthful with the court or that he was seeking to evade questions. There were some questions he could not answer because he said he did not recall. I accept that was the case. He was careful not to specifically deny allegations unless he had a clear recollection in relation to same. He answered a number of questions with the words “I don’t remember that” or like words to indicate he had no recollection of such event occurring.

The wife’s former solicitor Mr D gave oral evidence. He appeared to me to give his evidence in an honest manner. I did not think he was endeavouring to mislead the Court. His answers to some questions caused me to be concerned he may be guarding his own position and vulnerability to future litigation from each of the parties.

I was concerned about the evidence given by Mr D. Firstly, he gave evidence about events which occurred a decade ago in a matter where he gave no reason to suggest that he would have remembered fine detail of same. One annexure to his affidavit was his memorandum of fees which he sent to the wife. That memorandum was dated 22 July 2003. That is more than two years after the work was performed for which the charges were made. As can be seen from a letter annexed to the husband’s Affidavit of 9 February 2009, the rendering of an account to the wife for the work which had been performed by Mr D had been overlooked by him. I think it a reasonable inference that he would have had to construct the account from a combination of searching the file he kept for the transaction and whatever recollection he could summon.

The deed itself was signed at a time when the amendments to the Act which recognised and enforced financial agreements, of the nature described in sections 90B and 90C of the Act, were only months old. Section 90G was inserted in the Family Law Act by Act number 143 of 2000. That section became operative on 27 December 2000.

The advice given in writing by Mr D in his letter to the wife of 9 February 2001 was, so far as paragraph 4 thereof is concerned, is clearly in error. Notwithstanding that clear error Mr D would have the court accept that he had corrected that error by oral advice. It is clear that at no time did he provide a written confirmation of that changed or corrected advice.

I cannot accept that a competent lawyer would firstly give clearly wrong advice in writing and then, having apparently discovered his error, fail to correct that advice by further written communication. As can be seen later in these reasons when I review his evidence, he gave contradictory evidence. He stated (I believe accurately) at times that he had no recollection of certain events about which he was questioned, yet, he stated he had an independent recollection of having given specific advice. I regret to say I have no confidence that his evidence was accurate in those respects.

I was further concerned by the apparent contradictions in the oral evidence of Mr D. In his oral evidence in chief he confirmed that the advice he gave the wife at the time she signed the agreement on 28 March 2001 was consistent with the written advice he had given her via letter to her dated 9 February 2001. That is that he had reiterated to her what he had set out in the last sentence of the fourth paragraph of that letter.   He also said he had advised the wife at the time she signed the agreement that “it treated her fairly harshly”.

In cross-examination he was asked “Notwithstanding your response to my learned friend in respect of paragraph 4, the passage commencing “Generally speaking” did you, nonetheless, give specific advice to [the wife], that, in her instance, in relation to the agreement that you considered it was fair and reasonable, that she was entering into a binding financial agreement?” To which he replied “yes”. In relation to that question and answer I cannot accept, given some of his other oral evidence where he clearly could not remember distinct details of conversations with the wife, that he could distinctly remember the matter referred to and, giving him the benefit of the doubt, I am prepared to believe that he was relying, for the answer he gave, on his recall of customary professional advice and behaviour which he might adopt in current times, when he answered the question.

Should it be the case that he really did consider that the provisions of the agreement the wife was to enter into on 28 March 2001 was, in light of the circumstances which were at that time reasonably foreseeable,  fair and reasonable, then it calls into question his ability to give competent advice to clients in Family Law matters. Details of this last conclusion are set out later in these reasons.

Mr D’s independent recollection of the facts surrounding the signing of the agreement by the wife was further tested in cross-examination. It was clear to me from his answers that his recollection was poor in relation to that time. I accept that he may remember very distinctive and unusual aspects of the transaction such as a client who was asking him to assist her entering into an agreement which she said she did not wish to enter into.

In the circumstances of this case I consider it would be unsafe for the Court to accept the evidence of Mr D otherwise than where it is corroborated in writing (such as the letter to the wife of 9 February 2001) and to the facts set out in paragraphs 1 to 6 inclusive and paragraphs 10 and 11 of Mr D’s affidavit. I also consider the oral evidence he gave in chief that the advice he gave the wife, at the time she signed the agreement, was no different to the advice he had set out in paragraph 4 of his letter to her dated 9 February 2001, was most likely correct.

Wife’s Case

The wife submitted a case summary, received by the Court 27 June 2011.

In that document the wife set out the orders she is seeking:

·            A declaration that the Agreement between the husband and wife dated 28 March 2001 (“the Agreement”) is not binding on the parties as it is not a Financial Agreement made pursuant to VIIIA of the Family Law Act 1975.

·            Alternatively, that the Agreement be set aside pursuant to sec 90K(1)(b); and/or

·            Alternatively, that the Agreement be set aside pursuant to sec 90K(1)(d); and/or

·            Alternatively that the Agreement be set aside pursuant to sec 90K(1)(e).

In her Case Summary Document the wife identified four issues for determination. They are as follows:

a.        Whether the subject document is a Financial Agreement pursuant to Part VIIIA of the Family Law Act 1975 as asserted by the husband – s 90G(1)(b);

b.        If validly made, whether the Agreement is void voidable or unenforceable (s 90K(1)(b)) and/or;

c.        Whether a party (the husband) to the Agreement engaged in conduct that was, in all the circumstances, unconscionable, and so the agreement should be set aside (s 90IK(1)(e) and/or;

d.        Whether since the making of the agreement, a material change in the circumstances have occurred relating to the care, welfare and development of a child and, as a result of the change, the child or Applicant having care and responsibility for the child (the wife) will suffer hardship if the Court does nor set aside the Agreement (s 90K(1)(d).

I will deal with each of these identified issues later in these reasons although, for the reasons stated earlier, I will deal with those matters in a different sequence, as suggested by the Full Court in Senior v Anderson.

The wife submits that the question of whether a financial agreement is valid, enforceable or effective is determined according to principles of law and equity which are applicable in determining the validity, enforceability and effect of contracts. In this case the wife says the Court will need to consider the principles relative to unilateral mistake, undue influence, misrepresentation and unconscionability.

In my view there is another important matter to determine. It relates to the provisions of section 90G and its subsections. Section 90G has been amended since the parties’ agreement was signed in 2001. It is necessary to consider the transitional provisions, in relation to those amendments, in order to determine which of the provisions of the section, as it is presently stated, apply to an agreement entered into in March 2001. I will address this later in these reasons.

Section 90G(1)(b) requires, as part of the necessary steps to render a financial agreement binding, that each spouse, before signing the agreement, is to be provided with “independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party”. Because of the particular facts of this case the following issues are also raised, by the wife, for determination:

(i)          What rights needed to be addressed in the legal advice?

(ii)         If the advice given is wrong in relation to a very significant right of a party, what is the consequence so far as compliance with section 90G(1)(b) is concerned? Does it render the agreement not binding and thereby not exclude the court from making orders under Part VIII of the Act?

The wife drew the Court’s attention to the case of Black and Black (2008) FLC 93-357 and in particular, the strict requirement that all elements of sec 90G(1) be met. The wife argues that the Financial Agreement is binding “if, and only if,” the dual requirements of advice being provided and a certificate being given are satisfied. She submits that the advice she was given, by her solicitor Mr D, in relation to the binding nature of the agreement was incorrect and as such this strict requirement is not met. The wife says the words “legal advice” must, in the circumstances be read as “correct legal advice”. It is clearly her case that to consider the words as having any other meaning would be to circumvent that which the legislature is clearly intending to create, namely, where people enter into arrangements which oust the jurisdiction of the court they have been provided with independent advice as to the legal consequences of entering into such an agreement.

The wife submits, in relation to the declaration sought by her, that the agreement is not binding, the Court must be satisfied that the wife received accurate advice from Mr D in relation to the binding nature of the agreement and her rights under that agreement, or otherwise, before declaring the Agreement was a binding financial agreement. The wife submits that this did not occur. The Court’s attention was drawn to the evidence of Mr D, and in particular his evidence:

So prior to the wife signing the agreement, did you say anything different to her to the advice which appears in paragraph 4 of the letter being annexure A? … Did you give any advice different to that set which is set out in paragraph 4? — No.

The wife further submits that the mandatory legal advice, which is required as one of the ingredients necessary to oust part of the Court’s jurisdiction, must be accurate advice and that incorrect legal advice should be seen as no advice having been given.

Husband’s Case

The husband has submitted limited material in relation to the case he is putting forward, other than an itemised response to documents relied upon by the wife.

In the Orders the Husband is seeking, he included an order that:

4.           That the wife’s Application to set aside the Binding Financial Agreement entered into by the parties on 28 March 2001 (“the Agreement”) be dismissed

The husband submits that, in relation to sec 90G, there is no justification for a finding that the wife was mistaken as to the effect of the agreement into which she was entering.

Relevant Law

The Act provides in Part VIIIA that parties may enter into Financial Agreements. The Part provides for differing types of Financial Agreements. The agreements can be entered into before marriage (sec 90B), during marriage (90C) or after divorce (90D). There are other limitations imposed on the effectiveness of Financial Agreements in certain circumstances by sections 90DA, 90DB, 90E and 90 F. Such agreements may become “binding” if they comply with section 90G of the Act. Financial Agreements which are “binding” have the effect of ousting the courts jurisdiction to make orders under part VIII of the Act. It is sec 71A of the Act which causes that ousting.

FAMILY LAW ACT 1975 – SECT 71A

This Part does not apply to certain matters covered by binding financial agreements

(1) This Part does not apply to:

(a) financial matters to which a financial agreement that is binding on the parties to the agreement applies; or

(b) financial resources to which a financial agreement that is binding on the parties to the agreement applies.

(2) Subsection (1) does not apply in relation to proceedings of a kind referred to in paragraph (caa) or (cb) of the definition of matrimonial cause in subsection 4(1).

I have referred earlier to the description by Strickland J in Senior v Anderson (see paragraphs 83 to 94 of that decision) of the framework of the relevant legislation and I will not repeat that here.

The following addresses the sections relevant to this dispute.

Section 90C

The particular type of Financial Agreement purported to have been entered into in this case is described in section 90C of the Act. That section provides as follows:

FAMILY LAW ACT 1975 – SECT 90C

Financial agreements during marriage

(1) If:

(a) the parties to a marriage make a written agreement with respect to any of the matters mentioned in subsection (2); and

(aa) at the time of the making of the agreement, the parties to the marriage are not the spouse parties to any other binding agreement (whether made under this section or section 90B or 90D) with respect to any of those matters; and

(b) the agreement is expressed to be made under this section;

the agreement is a financial agreement . The parties to the marriage may make the financial agreement with one or more other people.

(2) The matters referred to in paragraph (1)(a) are the following:

(a) how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of the spouse parties at the time when the agreement is made, or at a later time and during the marriage, is to be dealt with;

(b) the maintenance of either of the spouse parties:

(i) during the marriage; or

(ii) after divorce; or

(iii) both during the marriage and after divorce.

(2A) For the avoidance of doubt, a financial agreement under this section may be made before or after the marriage has broken down.

(3) A financial agreement made as mentioned in subsection (1) may also contain:

(a) matters incidental or ancillary to those mentioned in subsection (2); and

(b) other matters.

(4) A financial agreement (the new agreement ) made as mentioned in subsection (1) may terminate a previous financial agreement (however made) if all of the parties to the previous agreement are parties to the new agreement.

Section 90G

In considering whether a financial agreement is binding, section 90G of the Family Law Act is relevant.

Section 90G(1) provides:

90G – When financial agreements are binding

(1)  Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:

(a)       the agreement is signed by all parties; and

(b)       before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and

(c)       either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and

(ca)     a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and

(d)      the agreement has not been terminated and has not been set aside by a court.

As stated earlier, not all of the provisions of section 90G(1), as it currently stands, are applicable to an agreement signed in March 2001.

Part VIIIA, which deals with financial Agreements, was inserted in to the Family Law Act in 2000, coming into effect on 27 December of that year. That Amendment included not only the provisions contained in 90G but also a definition of “financial agreement” in sec 4 of the Act.  In its original form, sec 90G provided:

90G        When financial agreements are binding

(1)          A financial agreement is binding on the parties to the agreement if, and only if:

(a)          the agreement is signed by both parties; and

(b)          the agreement contains, in relation to each party to the agreement, a statement to the effect that the party to whom the statement relates has been provided, before the agreement was signed by him or her, as certified in an annexure to the agreement, with independent legal advice from a legal practitioner as to the following matters:

(i)          the effect of the agreement on the rights of that party;

(ii)         whether or not, at the time when the advice was provided, it was to the advantage, financially or otherwise, of that party to make the agreement;

(iii)        whether or not, at that time, it was prudent for that party to make the agreement;

(iv)         whether or not, at that time and in the light of such circumstances as were, at that time, reasonably foreseeable, the provisions of the agreement were fair and reasonable; and

(c)          the annexure to the agreement contains a certificate signed by the person providing the independent legal advice stating that the advice was provided; and

(d)          the agreement has not been terminated and has not been set aside by a court; and

(e)          after the agreement is signed, the original agreement is given to one of the parties and a copy is given to the other.

Note:       For the manner in which the contents of a financial agreement may be proved, see section 48 of the Evidence Act 1995.

(2)          A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary

It is under these provisions that the agreement between the parties was signed.

There has since been an amendment (commencing 14 January 2004) to the provisions in sec 90G, in which the matters relating to legal advice necessary to meet requirements were amended. This amendment is not relevant to the current matter. Of significance is the Federal Justice System Amendment (Efficiency Measures) Act (No. 1) 2009, which came into effect on 4 January 2010.

Item 8 of Sch 5 of that Amending Act emphasises that the pre-2004 provisions of sec 90G(1) are to be applied when considering financial agreements entered before the commencement of the 2004 Amendments. The relevant paragraph of that item states:

For a financial agreement made before 14 January 2004, paragraph 90G(1)(b) of the Family Law Act 1975, as inserted by item 2 of this Schedule, does not apply and the following paragraph 90G(1)(b) of that Act is taken to have been inserted by that item and to apply instead:

(b)           before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about:

(i)       the effect of the agreement on the rights of that party; and

(ii)         whether or not, at the time when the advice was provided, it was to the advantage, financially or otherwise, of that party to make the agreement; and

(iii)         whether or not, at that time, it was prudent for that party to make the agreement; and

(iv)          whether or not, at that time and in the light of such circumstances as were, at that time, reasonably foreseeable, the provisions of the agreement were fair and reasonable; and

In considering sec 90G(1), the Court has placed emphasis on the phrase “if, and only if”, the position being that the section should be construed narrowly as a result of this phrase. In Black and Black (2008) FLC ¶93-357, the Court held that as Agreements under secs 90B, 90C and 90D acted to oust the jurisdiction of the Court, the Court required a higher standard of compliance to the legislation in regard to these provisions. The Court in Black stated:

[40] The Act permits parties to make an agreement which provides an amicable resolution to their financial matters in the event of separation. In providing a regime for parties to do so the Act removes the jurisdiction of the court to determine the division of those matters covered by the agreement as the court would otherwise be called upon to do so in the event of a disagreement. Care must be taken in interpreting any provision of the Act that has the effect of ousting the jurisdiction of the court.

In spite of the amendments to the Family Law Act by the Federal Justice Systems Amendment (Efficiency Measures) Act (No.1) 2009, the court has continued to follow the narrow interpretation set out in Black. The amendment of the legislation has effectively served to insert remedies that the Court may exercise in certain circumstances, rather than relax the standards by which Financial Agreements are assessed.

Section 90G(1A)

Following the Full Court’s decision in Black & Black, the Family Law Act was amended by the Federal Justice Systems Amendment (Efficiency Measures) Act (No.1) 2009 (Cth), which introduced a significant change to sec 90G. The amendment introduced subsection (1A), which provides:

(1A)  A financial agreement is binding on the parties to the agreement if:

(a)  the agreement is signed by all parties; and

(b)  one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the agreement; and

(c)  a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and

(d)  the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and

(e)  the agreement has not been terminated and has not been set aside by a court.

The Explanatory Memorandum of the Amending Legislation set out the government’s intention in introducing the new subsection. The purpose of the amendment was to:

“…relax certain technical requirements that must be strictly satisfied for financial agreements and termination agreements to be binding.  These amendments will respond to the concerns about the binding financial agreement provisions of the Act that have arisen following the decision of the Full Family Court in Black v Black.”

The court is empowered, by the inserted subsection (1A), to declare any non complying agreements to be Binding Financial Agreements. The Full Courts decision in Kostres v Kostres (2009) FLC 93-420  states [at 165]:

One of the effects of the amending Act  is to provide additional protection for parties who enter into financial and termination agreements by enabling a court to declare, in enforcement proceedings, that an agreement is binding despite a failure to meet the procedural requirements relating to the making of the agreement if the court is satisfied that it would be unjust and inequitable if the agreement did not bind the spouse parties (disregarding any change in circumstance from the time when the agreement was made).

Section 90K

In the event that the agreement is found to be a Financial Agreement and/or declared to be a Binding Financial Agreement under sec 90G, the wife submits the Agreement should be set aside on grounds specified under sec 90K(1). This subsection deals with the circumstances in which court may set aside a financial agreement.

90K  Circumstances in which court may set aside a financial agreement or termination agreement

(1)  A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:

(a)          the agreement was obtained by fraud (including non-disclosure of a material matter); or

(aa)     a party to the agreement entered into the agreement:

(i)          for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or

(ii)         with reckless disregard of the interests of a creditor or creditors of the party; or

(ab)          a party (the agreement party) to the agreement entered into the agreement:

(i)          for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or

(ii)         for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM, or a declaration under section 90SL, in relation to the de facto relationship; or

(iii)       with reckless disregard of those interests of that other person; or

(b)    the agreement is void, voidable or unenforceable; or

(c)          in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or

(d)          since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or

(e)           in respect of the making of a financial agreement—a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or

(f)          a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or

(g)          the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB.

(1A)  For the purposes of paragraph (1)(aa), creditor, in relation to a party to the agreement, includes a person who could reasonably have been foreseen by the party as being reasonably likely to become a creditor of the party.

(2)  For the purposes of paragraph (1)(d), a person has caring responsibility for a child if:

(a)  the person is a parent of the child with whom the child lives; or

(b)      a parenting order provides that:

(i)          the child is to live with the person; or

(ii)        the person has parental responsibility for the child.

(3)  A court may, on an application by a person who was a party to the financial agreement that has been set aside, or by any other interested person, make such order or orders (including an order for the transfer of property) as it considers just and equitable for the purpose of preserving or adjusting the rights of persons who were parties to that financial agreement and any other interested persons.

 

Section 90KA

Section 90KA is a section which provides for the application of a specific body of law to the determination of disputes relating to the validity, enforceability and effect of a financial agreement or a termination agreement. The wife in this case also relies on the powers contained in this section in the order she seeks.

90KA  Validity, enforceability and effect of financial agreements and termination agreements

The question whether a financial agreement or a termination agreement is valid, enforceable or effective is to be determined by the court according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts, and, in proceedings relating to such an agreement, the court:

(a)          subject to paragraph (b), has the same powers, may grant the same remedies and must have the same regard to the rights of third parties as the High Court has, may grant and is required to have in proceedings in connection with contracts or purported contracts, being proceedings in which the High Court has original jurisdiction; and

(b)          has power to make an order for the payment, by a party to the agreement to another party to the agreement, of interest on an amount payable under the agreement, from the time when the amount became or becomes due and payable, at a rate not exceeding the rate prescribed by the applicable Rules of Court; and

(c)           in addition to, or instead of, making an order or orders under paragraph (a) or (b), may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court.

DISCUSSION

In determining whether a Binding Financial Agreement is in fact a binding or a Financial Agreement, the Full Court in Senior & Anderson, as stated earlier in these reasons, set out the three questions that must be satisfied. They are, in summary:

(a)          Is there an agreement (contract) between the parties?

(b)          Is there an agreement which qualifies as a “financial agreement”? In this case that requires compliance with sec 90C of the Act.

(c)          Is the “financial agreement” binding on the parties and the court as set out in section 71A(1)? To qualify for that description the financial agreement must comply with sec 90G.

The questions are progressive, in that it would not be possible to consider the latter questions unless the preceding questions have been answered in the affirmative.

THE EVIDENCE IN THE CASE

The wife’s case is that in 2000 she and the husband commenced looking for a “home” for the family. A number of properties were looked at. The W Property was chosen by them as the most suitable, in the circumstances, for them. The wife says that the husband said to her about that property : “I really like the house but I won’t settle on it unless we’ve got an agreement in place”. The evidence does not establish when that conversation took place relative to the exchange of contracts for the purchase of the property in the husband’s sole name which occurred on 1 December 2000. He engaged his solicitor Mr M to act on the preparation of a Financial Agreement on 5 December 2000.

The wife says that the husband also said to her “I won’t put a roof over the children’s head and I will pull out of the settlement on [the W Property] if you don’t sign.” Again it is unclear exactly when this statement was made other than it occurred after an exchange of contracts for the purchase of the W Property and the signing of the Agreement on 28 March 2001.

It is the wife’s case that the parties moved into the property on about 25 February 2001, it being an agreed fact that the husband completed the contract on about 23 February 2001.

The wife’s evidence is that between the date the parties moved into the house and the date of the signing of the agreement by her the husband had said to her words to the effect: “I will pull out of the settlement of [the W Property] if you don’t sign.”

In cross-examination it was put to the wife that at the time she first saw Mr D in early February 2001 she knew the husband had already exchanged contracts on the purchase of the W property. She denied that was the case. She now knows that was the case. She first learnt of that fact when she read the draft Financial Agreement.

The wife agrees that when she signed the Agreement she was living in the W Property. She denied, however, that she knew at that time the purchase had been completed. She believes from documentation provided by the husband for this litigation that she had been living in the house for about two weeks.

In cross-examination the wife conceded she had purchased property in 1985 and 1997.  She agreed she understood the process of exchange of contracts and completion. She also agreed that through reading a draft of the Financial Agreement she learnt the purchase of the W Property had been settled on 23 February 2001. Consequently she knew the sale had been settled at the time she signed the Agreement. She was then asked about the “cooling off period” referred to in her affidavit evidence. She said the husband had spoken to her about that concept during January, February and March 2001. She had not sought any advice from Mr D about the contract for the purchase of the property.

In relation to the signing of the final Agreement, in her cross-examination the wife said Mr D “didn’t go through it in great detail.”    She denied he had explained the effect of that agreement on her rights in respect of the Family Law Act. She said he had not clearly explained the advantages and disadvantages of entering into the agreement. She did not ask him to make it clear. She denied he had explained whether it was prudent for her to enter the final Agreement. She did think that she had left him with the impression she had understood whatever he said about the Agreement. She did deny he had told her he thought the agreement was fair and reasonable for her.

The wife was asked about her assertion in an affidavit sworn by her that on the night of 28 March 2001 when the husband returned home he asked her “Have you signed the Agreement?” She said “yes I have”. She had said in the affidavit that in response to her answer “He literally danced a jig”. It was put to her that he did not “literally dance a jig” however she insisted that he did.

The wife was asked when she and the husband decided to have a third child. She said “probably mid 2003”. She confirmed that the husband spends time with the children pursuant to Court Orders and that he is paying child support as assessed by the Child Support Agency. The children are well apart from the eldest who suffers from a condition for which he receives treatment.

When asked directly whether she understood the Agreement was binding on her at the time she signed it she replied that she understood it was not binding. She confirmed she was mistaken about the effect of the agreement. She had believed the agreement was not binding upon her. When asked why in those circumstances she would be concerned about having to sign the agreement she said “because he was at me every night.”

The wife conceded there was correspondence between Mr D and the husband’s solicitor relating to alterations to the first draft of the Agreement. She agreed she had spoken to Mr D about provisions in the agreement which she was not happy with. She claimed that many of the matters Mr D sought incorporated in the Agreement were not incorporated in the Agreement which she signed.

The wife agreed she had signed the Agreement in the presence of her solicitor. When asked if she expressed to him at that time her desire not to sign the document she said “All I expressed to him was that I have to sign it”.

The wife agreed that she had complained about the Agreement after the marriage broke down.

It was put to the wife that immediately before she signed the Agreement she knew she had rights under the Family Law Act. She said she was not familiar with those rights. She said they had not been conveyed to her in detail. At the time of signing the Agreement she said Mr D had said to her “it’s still not acceptable, in terms of the document; it still needs to be negotiated”. The wife said she told him “I have to sign it”. She said he had told her, in words to the effect, many aspects of the Agreement were still unjust and unfair. At the time he signed the certificate attached to the Agreement the wife said Mr D had read it out to her. She denied he had told her at that time he considered the Agreement “fair and reasonable”.

The wife was asked what she understood by the term “cooling off period” as related to contracts for the purchase of land at the time the W Property was purchased. She said it was “a term used for being able to withdraw from the point of sale.” She agreed it was a period following exchange of contracts to purchase.

It was put to the wife that she knew, post 23 February 2001 that she had an opportunity to not execute the Agreement. She said “No not given the circumstances.” She said that although she was in the W Property home she did not understand that was secure. She said she was told that if she did not sign the Agreement “there would be no roof.

The wife’s evidence was that at the time the acquisition of the property was occurring she was pregnant with the parties’ second child. She says she was unwell at the time. There was no medical evidence led to establish that was the case, however, the husband, who was absent during some of the period travelling with work, did not dispute that she may have been unwell.

At the time the Agreement was entered into the wife had not been working for some months and was financially dependant upon the husband.

The wife’s evidence also states that she did not know the dates of the exchange of contract for the W Property and as such was reliant on the husband’s representations in relation to the purchase.

Mr D’s evidence tends to support the evidence of the wife. At paragraph 5 of his affidavit, he says:

In the first meeting [the wife] presented as a stressed style of person and on numerous occasions throughout the conferences that I had with her she said things to the effect:

“My husband is insisting.”.

“He’s preparing to sell his home and purchase another one but he did not want to finalise that until there was a Binding Financial Agreement.”.

“If I don’t sign this he says he won’t buy us a home.”.

The evidence of the wife contradicts the facts in some respects. It is agreed by both parties that the husband exchanged contracts for the purchase of the W Property on 1 December 2000, with the purchase completed on 23 February 2001. The parties agree that they moved into the property at about that time, and that they signed the Agreement on 28 March, over one month after moving into the property.

The husband denies making the representations alleged by the wife, but his evidence is also that he does not remember conversations between the parties at the time that the Agreement was made. The evidence of Mr D tends to support the wife’s allegation that he did make such representations.

The wife said:

“I was told the cooling off period on the settlement was about to expire. I was of the clear understanding that there was a cooling off period on the settlement despite the fact that we had moved into the home.

[The husband] continued to tell me: ‘I can still pull out of this – there is a cooling off period.’”

The wife’s evidence is that at the time that the Agreement was being created, she was quite isolated from her family and friends as she felt that she was unable to talk to anyone about the Agreement. She said “I did not tell my family what was going on”, and “I was scared, I was two months away from giving birth and I had a medically demanding one year old with no family or friends local to me, no job and the threat of insecurity”. The husband’s evidence is that the wife spoke often on the telephone with her family, but he did not recall what the wife spoke of with her family. He was also absent from the family for periods at about that time because of work commitments.

The husband gave oral evidence and was cross-examined. He freely conceded that entering into the Financial Agreement was his idea. He agreed his solicitor had recommended Mr D as a solicitor to act for the wife.

The husband agreed that in relation to the purchase of the W Property the wife had no contact with the solicitor who acted for him on that purchase. He agreed the wife had no involvement with the funds used to acquire the property. He agreed that his intent in entering into the Agreement was to keep the W Property and the other assets he had brought to the marriage out of the reach of any claims by the wife in the event of a marriage breakdown.

The husband agreed that at the time of the Agreement being signed the wife was the primary carer of their child and she was pregnant with their second child. He agreed he had travelled at about that time with two overseas trips. He agreed he left for a three week overseas trip on 4 February 2001.

The husband denied the wife was under stress at the time. He now knows that around that time she had seen a counsellor at a hospital because she was feeling depressed. He said it was not apparent to him. He claimed the wife had about 100 calls per month to her family. He was unaware of what she discussed.

The husband agreed he had told the wife at the time that he would fund her legal representation for the signing of the Agreement. The husband did not deny he said to the wife when she raised the question of the Agreement with him “It’s the only way it’s going to happen”. He did not remember the words.

The husband agreed that on the day he left for a three week trip overseas (4 February 2001) he handed the wife a copy of the draft Agreement. He denied she cried when he did that. He said she was just “matter of fact”. He agreed he said to her words to the effect of “we can negotiate changes through our solicitors”. He denied that suggested she was unhappy with the form of the agreement.

The husband disputed that the wife was upset by the presentation of the Agreement to her and that she demonstrated that by refusing to takes his calls from overseas although he stated he did not know whether she was pleased or displeased by his requirement for a Financial Agreement.

It was put to the husband that three days after he provided the Agreement to the wife she had told him in a telephone conversation she was so upset about that matter that she did not know if she would be there when he returned. It was put he had responded to those words with words to the effect “Don’t leave me. It will be okay. I’m just protecting my interests”. He initially answered that question by saying “I would have said something but I don’t recall that was- that were-that those were my words”. When the question was put to him again he replied “I don’t recall that. I don’t think it is the truth.”

Pausing there, I record a finding that I accept the evidence of the wife on this aspect. That is the circumstances of how she came to be given the draft agreement, her reaction to it, her words to the husband in the days thereafter and what she says his response was. In the confines of an apparently happy marriage on the point of acquiring a home for a growing family, the husband would have the Court believe that either the wife showed no emotion when presented with the draft Agreement nor did she express any emotion or opposition to the requirement for her to sign it in the days that followed.

The husband conceded he could have said words to the effect of “I promise everything will work out okay. We can negotiate the terms of the agreement”.

The husband denied he made the provision of the home dependant on the signing of the Agreement. He said “The intent was for the financial agreement to document what assets were [the wife’s] going into this agreement and what assets were mine.” He denied the agreement had its operative date back dated as something he wanted. He said it was something his solicitor wanted. He said his solicitor had told him it was “too hard to change the schedule”.

The husband conceded he wanted the agreement to protect his assets including the home. He denied he wanted it back dated for that purpose. He agreed that prior to 23 February 2001 he did not own any real estate.

The husband agreed that it did matter to him whether or not his W Property could be the subject of a claim by the wife on a marriage breakdown. He said that if the wife had not signed the agreement “I don’t know what course of action that we could have taken.” He denied he had pressure on the wife to sign the agreement.

In relation to the Agreement itself the husband was asked about the provision for the division between the parties of any increase in their superannuation. He agreed the Agreement provided for an equal division of any increase in their superannuation entitlements. He agreed on that basis he would have to pay some funds to the wife. He agreed he had done nothing to comply with that provision. He claimed that was because the wife had disputed the agreement.

The husband was asked about the provisions of clause 24 of the agreement. In particular it was put that the words “she will be responsible during the marriage for homemaking duties and parenting duties and tasks in relation to the home and [the wife] will not seek compensation for those tasks from [the husband]” were inserted in the Agreement at his instigation. He denied that and initially sought to suggest it had come from the wife. He then conceded it didn’t “sound like her” and it may well have come from him.

I pause here to note the significance of paragraphs 23 and 24 of the agreement. It is trite to say that in many property cases, heard by this court, the significance placed by the court on a parties contributions to the marriage, as a homemaker and parent, (as required by sec 79(4)(c)) is notorious. In this regard see Rolfe & Rolfe (1979) FLC ¶90-629 at pp 78,272–78,273 per Evatt CJ (approved by Wilson J Mallet v Mallet

(1984) 156 CLR 605):

“The purpose of s79(4)(b) [the precursor to s79(4)(c)] in my opinion, is to ensure just and equitable treatment of a wife who has not earned income during the marriage, but who has contributed as a homemaker and parent to the property. A husband and father is free to earn income, purchase property and pay off the mortgage so long as his wife assumes the responsibility for the home and the children. Because of that responsibility she may earn no income or have only small earnings, but provided she makes her contribution to the home and to the family the Act clearly intends that her contribution should be recognised not in a token way but in a substantial way. While the parties reside together, the one earning and the other fulfilling responsibilities in the home, there is no reason to attach greater value to the contribution of one than to that of the other. This is the way they arrange their affairs and the contribution of each should be given equal value.”

Consequently, in a circumstance where the parties had one child and were expecting another, the contributions the primary carer of the children and the primary provider of domestic services to the family was to provide would normally be seen as extensive and not uncommonly assessed by the court to be equal to the income earned and contributed to the family by the parent who was free of those tasks and able to pursue income from employment and advance a career. As a result, what the wife gave up by that provision was a very considerable right of real value.

The husband agreed further that the provisions of paragraph 21 of the Agreement reposed in him the final say about any acquisition of another home for the family. The wife was to be consulted. He agreed that paragraph 22 gave him the right to sell the home and buy another as he chose.

It was put to the husband that objectively the wife had nothing to gain by entering into the Agreement. The husband acknowledged that the wife had cared for the three children as primary caregiver right to the date of separation. He has conceded she has done so since the separation. He acknowledged that the provision of paragraph 24 of the Agreement was to apply irrespective of how many children she was to be primary carer for (and, I add, how that may consequently impact upon her capacity or ability for work outside the home, which she was permitted to undertake subject to condition).

The husband acknowledged that although the Agreement provided for the possibility of dividing “future property” there was no such property to divide.

The husband agreed that the division of property under the agreement ignores the relative incomes of the parties at the date of division, the parties’ respective obligations to care for and financially support the children, the state of each party’s health and the entitlements of the parties to financial resources.

Mr D was required for cross-examination.

In evidence in chief Mr D was taken to annexure A to his affidavit, which was a copy of a letter of advice he had provided to the wife. He was asked whether prior to the wife signing the agreement “did you say anything different to her to the advice which appears in paragraph 4 of that letter being annexure A.” He did not apparently understand entirely that question and so he was asked “Well did you give any advice different to that which is set out in paragraph 4?” To which he replied “No”.

I pause here to refer back to the words of paragraph 4 of the subject annexure A to the affidavit of Mr D which appear in paragraph 2 of these reasons.

Mr D was cross-examined by the husband’s counsel.

Mr D was taken to annexure B to his affidavit, which was copy of the Memo of Costs he issued for the work performed for the wife. He was taken to an entry dated 15 February with an entry “Perusal research – Family Law Act Part VIIIA Amendments”. He said that related to the research he carried out for this matter.  He said he had an independent recollection of having to advise the wife about the following matters:

(a)          The effect of the agreement on the rights of the parties;

(b)          The advantages financial or otherwise and the disadvantages of entering into the agreement;

(c)          Whether it was prudent at the time for her to enter into the agreement; and

(d)          In light of the circumstances as were reasonably foreseeable at the time, the provisions of the agreement were fair and reasonable.

Mr D was then asked “Now can His Honour take it that, having regard to those matters which you understood were your obligations, that you did form the view that in light of all the circumstances which were reasonably foreseeable, that the provisions of the agreement were, in fact, in all the circumstances, fair and reasonable, consistent with your certificate?” To which he answered “Yes, that’s correct.” The question was asked again because it may have been misleading. The question was put thus “in all of the circumstances that were known to you, did you believe, at the end of the day, by 28 March 2001, that the provisions of the agreement were, in fact, fair and reasonable?” The witness answered “Yes”. He was then asked “Can his Honour then be satisfied that that view that you formed was relayed to [the wife]?” To which he answered “Yes”.

Mr D was asked about the research he had done on Part VIIIA of the Act on about 15 February 2009. He said he could not remember what it was he looked at as it was ten years ago. He was asked if he had an independent recollection of appraising himself with what the law was then, “at least in terms of the contents of the Family Law Act, that such an agreement … can be binding upon the parties?” to which he answered “yes.” He was asked to look at the fifth paragraph of his letter dated 9 February 2001 to the wife. He was then asked “In your subsequent discussions with [the wife], did you inform her that the agreement that she was entering into subsequently on 28 March, potentially, would bind her to the agreement contained therein?” He replied “Yes”. He was further asked “And that there were certain circumstances which could potentially give rise to the agreement being set aside?” to which he answered “Yes”.

Mr D was then asked a series of questions about circumstances pertaining to the parties and statements which may have been made to him by the wife at the time he witnessed her sign the Agreement or shortly before. He clearly had no recollection of those matters or little recollection of same. That then calls into question how he could have a clear independent recollection of the matters about which he was asked as recorded above.

Mr D was asked whether at the time the wife signed the Agreement he formed a view she was entering into the agreement under some form of duress. He said he could not recall forming that view. He could not recall if she was showing signs of distress at the time she signed the Agreement.

Having considered the evidence of Mr D I record I have grave reservations about the accuracy of that evidence. I do not conclude that he was deliberately untruthful. I do however consider that he relied on what he would regard as his current practice were he required to provide independent legal advice to a client seeking to enter a section 90C Financial Agreement. I cannot accept that any competent lawyer, with even fleeting knowledge of the Family Law Act and the jurisprudence that arises there from, could have advised the wife in this case, as at 28 March 2001, that the Agreement she was entering into was “in light of such circumstances as were, at that time, reasonably foreseeable, fair and reasonable”. For the reasons pointed out by the wife’s counsel, the agreement was blatantly unfair to the wife in this case. A mere sample of provisions, or lack thereof, which spoke of the unfairness are as follows:

·            The wife was to be responsible for the homemaking duties and parenting duties and tasks in relation to the home and she was not permitted to seek compensation for those tasks from the husband. Consequently she was to be given no credit for the very significant contributions she might be anticipated to give in the marriage.

·            There was no provision to take account of the wife’s contribution towards the conservation of the husband’s property, specifically the W Property in which the parties lived. Likewise there was no provision to take into account her indirect contributions towards the husband’s property. He was free to work and earn income from a full time, career building position. The income from that remuneration was available to service his assets, in particular the W Property.

·            While she was permitted to work during the marriage it was to be subject to her commitment to the children of the parties. It is hard to see how she could work in a meaningful way so as to promote a career, as the husband was free to do, and still be the primary caregiver for the children and be responsible for the domestic duties in the home.

·            Given that her ability to work was minimised so her ability to build superannuation was likewise limited. The agreement did provide for a splitting of any increase in superannuation entitlements between the parties, however, she was starting from a much smaller base than the husband.

·            The agreement did not provide for any adjustment having regard to each party’s responsibilities into the future so far as the children are concerned. As it has transpired (and this should have been reasonably predictable at the time the agreement was signed) the wife has continued with the major burden of caring for the children post separation. It is true that the husband pays child support assessed against him, however, that is not compensation for the wife’s losses as a result of not being able to work full time.

·            The effect of the duration of the marriage on the future earning capacity of the wife is not considered. Her career prospects diminish as her time out of the work force increases with the requirement to care for the children.

·            No allowance is made for deterioration in the health of either party so as to impact upon their capacity to earn an income.

·            The relative financial circumstances of each party and their ability to access resources are ignored by the agreement.

·            Each party gave up their rights to spouse maintenance for no apparent trade off of benefit other than not being required to answer litigation in this court on that subject. On balance it was reasonably predictable that this was likely to work hardship on the wife rather that the husband.

·            If the husband chose to sell the family home and buy another he could do so irrespective of the wife’s wishes or views about the sale of the home or the purchase of another home.

Is there an agreement (contract) between the parties?

The preliminary matter in relation to determining whether a Binding Financial Agreement exists is to determine if there is an agreement/contract. The court then considers whether that Agreement or contract is one which is not void, voidable or unenforceable.

In order to create a valid contract the following ingredients are required:

·            At least two parties.

·            A clear offer.

·            A clear acceptance.

·            Consideration.

Offer and Acceptance

The primary question to ask in relation to whether there is an agreement is whether the parties are ad idem as to the agreement they are entering?

The learned authors of Cheshire and Fifefoot’s Law of Contract (9th ed.) provide this definition of an offer:

An offer is a clear statement of the terms by which the person making the offer is prepared to be bound.

The terms of the Agreement offered by the husband were that he would not withdraw from the purchase of the W Property if the wife would enter into a Binding Financial Agreement which provided for what would happen in the event of a marriage breakdown and to a limited extent what were the obligations of the parties during the subsistence of the marriage. I use the term “would not withdraw from the purchase” as it was not within the husband’s power to offer the purchase of a house at the time he made his offer to the wife. It should also be noted the agreement did make provision for the husband to provide a home for the family.

Alongside the above stated offer of the husband was a clear indication that the offer was subject to negotiation. As such, the offer changes its character and becomes an invitation to treat. (see paragraphs 85 to 88 of Sullivan & Sullivan [2011] FamCA 752)

The husband exchanged contracts for the purchase of the W Property on 1 December 2000. He visited a solicitor on 5 December 2000 in order to have a financial agreement drawn up. In that circumstance, the husband could not claim to be contracting that he would provide a home, as his behaviour indicates he had acted to do so before he sought to enter the Financial Agreement. He could, nonetheless, have withdrawn from the contract prior to settlement had he chosen to do so however it is unlikely he would have been able to achieve that without penalty to his own financial position.

The agreement was given to the wife on approximately 4 February 2001. The handing over of the agreement was the husband’s invitation to treat to the wife.

As to the wife’s acceptance of the husband’s offer, the learned authors of Thomson’s Principles of Contract Law (2nd ed.) state (at 3.75) that:

An acceptance is an unqualified assent to the terms of an offer.

The wife first saw Mr D on 9 February 2001. The letter of Mr D following that meeting indicates that there were inequities in the contract which needed addressing, and advised the wife not to sign the agreement until that was done. Her agreement to this proposition of her legal representative, and the fact that she acted upon it, is therefore a rejection of the offer of the husband in its original form.

Instead, the wife made an offer that she would sign the Agreement (as amended by her solicitor) in return for the husband not backing out of the purchase of the W Property. Again that specific provision was never put specifically in writing however the final agreement did provide for the husband to provide a home for the family to live in.

The evidence of both parties is that negotiations continued between the two parties through their solicitors until 28 March 2001. Those negotiations being a series of counter offers with no acceptance given by either party. There is no evidence before the court which establishes what those negotiations were.

The situation between the parties changed on 23 February 2001, that change affecting the terms of the contract able to be offered by the husband. On 23 February, the husband completed the purchase of the W Property and the parties moved in to the property very shortly thereafter.

At that point in the negotiations, the husband’s offer of “refusing to back out of the purchase” ceased to have any real effect, had the true position been known to the wife, as he was no longer in a position to back out of the purchase. The negotiations, however, continued as though this change had not occurred. The wife continued to act as though the original offer (or more properly described as an invitation to treat, albeit with amendments to the terms of the financial agreement) was still on foot, and it is her evidence that the husband continued to represent to her that he was still capable of backing out of the purchase of the W Property.

This difference in each party’s understanding of what was on offer has an effect on whether the parties were ad idem as to what they were agreeing to. At the time the wife signed the agreement, she was agreeing to sign the agreement in return for the husband not backing out of the purchase of the W property; the husband was offering that the wife sign the agreement for essentially no consideration relevant to the provision of that particular property as a family home for the family.

It is perhaps a semantic argument that the completion of the purchase of the W Property had the effect of ensuring that the husband met his side of the bargain. The fact of the matter was that it was not in the wife’s interest to sign the document. She was at the time of signing the agreement legally entitled, in the event of a marriage breakdown, to make a property claim which included a share of the house.

By signing the agreement, the wife was aware that action would have some impact on any future action in the Family Court (although she was of the belief that the impact would be indirect by way of the Court taking the agreement into consideration). Her interest in signing the agreement was to ensure “a roof over the children’s heads”. Her acceptance referred back to the husband’s offer not to pull out of the purchase of the property, so as to ensure that outcome. At the time she signed the agreement, a “roof over the children’s heads” was assured, rendering her objective met without the need for a contract to be signed. It is possible that had she not signed then the husband may have changed his offer to include a statement that “he would offer not to sell the [W Property] and make it available for the family to live in if she signed the agreement”.

Given the negotiations between the parties and the fact that they both signed and apparently exchanged the agreements on 28 March 2001 it seems that the most probable construction of offer and acceptance is that on that day the wife offered to sign the agreement in exchange for the unwritten offer of the husband not to withdraw from the purchase of the W Property. That was a promise he was incapable of making (unless fraudulently) on that day because he already held the title to the property. There was therefore no offer capable of being accepted and had the wife known the real circumstances she may well not have signed the agreement in the first place.

The fact that the wife considered that the agreement would not be binding upon her and consequently would not prevent the Family Court considering and making orders under Part VIII of the Family Law Act adds another dimension to the problem. It raises the issue of whether the wife understood she was entering into a contract at all.

Given that the offer was no longer capable of being offered, and was therefore not offered, it is not possible for there to be acceptance by the wife. The parties were not ad idem over the contract being entered and consequently could not be said to have reached agreement.

The formulation of the offer as above set out raises the issue of whether the offer had to be in writing. In the decision of Sullivan & Sullivan Young J said:

RELEVANT CONTRACTUAL PRINCIPLES

80.          Under the Act to be a financial agreement an agreement must be a written agreement (see s 90B(1)(a), s 90C(1)(a) and s 90D(1)(a)) and to be binding it must comply with the relevant form of s 90G applicable to the agreement which includes the requirement that the agreement be signed by all parties (see above s 90G(1)(a) at paragraph 71).

81.          An agreement may be oral, written, partly written and partly oral or implied by conduct. The requirement for an agreement to be in writing will apply where the parties agree that the agreement is to be in writing or where a written agreement is required by statute (see Neill v Hewens (1953) 89 CLR 1 at 13 and Pianta v National Finance & Trustees Ltd (1964) 180 CLR 146 at 158). In such circumstances an agreement that is partly written and partly oral may exist but it will be unenforceable (see Gray v Ellis [1925] StR Qd 209). If the Agreement between the parties is partly oral and partly written, it may still constitute an agreement at common law, but it will be unenforceable.

82.          In ASIC v Fortescue Metals Group Ltd & Anor (2011) 190 FCR 364 Keane CJ, Emmett and Finkelstein JJ agreeing, in relation to framework agreements between Fortescue Metals Group and Chinese companies for the construction of a mine, port and railway connection said by Fortescue to be binding, stated at paragraph 122 that:

“It is well-established that the courts strive to uphold bargains: Hillas & Co Ltd v Arcos Ltd (No 2) (1932) 147 LT 503. To that end, the courts will construe the terms of an agreement with an inclination to give effect to the intention of the parties, even if that intention has been obscurely expressed: Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98, esp at [6]-[8]. Further, the courts may, where circumstances permit, apply objective standards of reasonableness to prevent the intention of the parties being defeated…”

83.          Although that decision occurred in the context of a commercial contract, the above principles of construction and objective approach to the intentions of the parties were clearly stated by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 where the majority stated:

“This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.” (footnotes omitted)

I conclude in this case the Court can have regard to the oral evidence of the parties in order to determine exactly what was being offered by the husband to the wife at the time she signed the agreement. The court can do so notwithstanding that the particular terms of the offer were never made in writing and did not appear in the document the parties ultimately signed.

It is difficult in the circumstances of this case to determine what the consideration passing between the parties is. It may be said to be the creation of certainty in the future for each of the parties in the event of a breakdown of their marriage. It also specified each of their expectations and obligations during the continuance of the agreement. At least to that extent it can be said to have consideration passing between the parties. The fact that it was a very poor bargain for the wife would not mean there was no consideration which passed between the parties as a result of entering into the agreement.

The High Court decision in Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 illustrates the part played by consideration in the making of a contract. The following is extracted from the decision of the Court:

“In cases of this class it is necessary, in order that a contract may be established, that it should be made to appear that the statement or announcement which is relied on as a promise was really offered as consideration for the doing of the act, and that the act was really done in consideration of a potential promise inherent in the statement or announcement. Between the statement or announcement, which is put forward as an offer capable of acceptance by the doing of an act, and the act which is put forward as the executed consideration for the alleged promise, there must subsist, so to speak, the relation of a quid pro quo. One simple example will suffice to illustrate this. A, in Sydney, says to B in Melbourne: “I will pay you £1000 on your arrival in Sydney”. The next day B goes to Sydney. If these facts alone are proved, it is perfectly clear that no contract binding A to pay £1000 to B is established. For all that appears there may be no relation whatever between A’s statement and B’s act. It is quite consistent with the facts proved that B intended to go to Sydney anyhow, and that A is merely announcing that, if and when B arrives in Sydney, he will make a gift to him. The necessary relation is not shown to exist between the announcement and the act. Proof of further facts, however, might suffice to establish a contract. For example, it might be proved that A, on the day before the £1000 was mentioned, had told B that it was a matter of vital importance to him (A) that B should come to Sydney forthwith, and that B objected that to go to Sydney at the moment might involve him in financial loss. These further facts throw a different light on the statement on which B relies as an offer accepted by his going to Sydney. They are not necessarily conclusive but it is now possible to infer (a) that the statement that £1000 would be paid to B on arrival in Sydney was intended as an offer of a promise, (b) that the promise was offered as the consideration for the doing of an act by B, and (c) that the doing of the act was at once the acceptance of an offer and the providing of an executed consideration for a promise. The necessary connection or relation between the announcement and the act is provided if the inference is drawn that A has requested B to go to Sydney.”

On the face of it I conclude that there was no agreement properly constituted between the parties on the basis that the husband was purporting to offer something which he could not. That is he could not withdraw from the contract to purchase the W Property because he had already settled the purchase and the title had passed to him.

Assuming there was an otherwise valid contract was there Misrepresentation?

The wife claims that she was induced into signing the Agreement between the parties due to the misrepresentation of the husband.

According to the learned authors of LexisNexis’ Carter on Contract, misrepresentation is defined (at [20-010]):

A misrepresentation is a false statement of a material fact made by one person (the representor) to another (the representee) in order to induce.

From this definition, the learned authors draw the following elements, which I have summarised:

·            The representation must be factual;

·            The representation must be false;

·            The representation must be relied upon (that is, the representation must induce the representee into entering the contract); and

·            The representation must be material .

As to the first element, the wife asserts that the husband’s misrepresentation was in relation to the settlement of the purchase of the W Property.

A fair summary of the misrepresentation of the husband is the statement attributed to the husband by the wife:

“I won’t put a roof over the children’s head and I will pull out of the settlement on [the W Property] if you don’t sign.”(or words to that effect).

I accept that the husband did say the words attributed to him by the wife, or words to that effect. I also accept that he continued to make statements to her after the parties moved into the W Property, sometime after 23 February 2001 right to the date the agreement was signed. I accept that the wife was of the belief, induced by the husband’s statements to the effect, that he still retained the capacity to withdraw from or cancel the purchase of the W Property. As I have said earlier, the husband presents as a confident and well informed, “world-wise” person. The wife presented with almost diametrically opposite qualities. Given that circumstance I consider it is well within the bounds of reasonable conclusions to accept the wife when she says she believed at the time that notwithstanding the purchase of the property had been completed on 23 February 2001, the husband still had within his power the capacity to set aside, withdraw from, or cancel the contract.

Having accepted the wife’s evidence in relation to the husband’s statements I conclude that the husband for his part knew that the statements were wrong, he saw that the wife did not understand that the statements were wrong, he persisted with the statements until the Agreement was signed. He knew that it was his threat to not continue with the purchase of the property or to withdraw from the sale which caused the wife to sign the Agreement.

An issue that may arise is whether the husband’s statement is in fact a statement of intent rather than a statement of fact. Statements of intent are not considered to be misrepresentation unless they are made fraudulently, that is, if the party making the representations never entertained the representations as truthful reflections of their intent.

The learned authors of Cheshire and Fifefoot’s Law of Contract (at 11.14):

A statement of intention cannot normally be said to be true or false, unless it is made fraudulently. Consequently, statements made of intention are not normally actionable as misrepresentations and must be embodied in a promise to attract a contract remedy. But when one states his or her intention fraudulently, it is actionable. The reason for this is that the courts will brook no excuse from a liar, though the reason given is that to tell a lie is to misrepresent a fact, namely the state of one’s mind.

The wife asserts that the husband’s misrepresentation as to his intention to withdraw from the purchase continued after the parties had moved into the W Property. At that point in time, the purchase had settled and the husband was not in a position to carry out such an action. In such circumstances such a threat could not have been carried out by the husband as the title had already passed to him. He must have known in those circumstances that it was not possible to achieve that which was stated by him.

As to the second element, there was no evidence put forward that the husband ever took any steps toward withdrawing from the purchase of the property. The husband’s evidence is that he first saw a solicitor in relation to drawing up a financial agreement several days after he exchanged contracts for the purchase of the property. The wife was presented with the first draft of the Agreement some days before her 9 February meeting with Mr D, which in turn was only 13 days before 23 February settlement date of the purchase. Negotiations in relation to the Agreement continued until 28 March, one month and six days after the settlement of the purchase of the W Property.

There was no evidence that the husband had sought advice in keeping with his stated intention of backing out of the sale before the settlement date. There was no evidence that he would have been prepared to lose his deposit or face an action for specific performance. After the settlement date, withdrawing was obviously not an option. I therefore conclude that the husband’s representation was false. I also find that any statements that relate to intent were never really entertained by the husband (because he understood the wife accepted the threats were real) and were therefore fraudulently made.

The third element of misrepresentation is that the other party must rely upon the false representation when entering into the agreement. The husband submitted that the wife had known of the settlement of the contract for sale, or at least that she ought to have been aware of the settlement date as she had knowledge of the process involved in buying property. I note I have made findings in relation to the wife’s beliefs relative to the husband’s ability to withdraw from the purchase following the settlement. I find that she did truly believe he could do that. I find the husband well knew that was her belief. I find he knew that belief was incorrect.

The judgment of Asche SJ, Lindenmayer and Nygh JJ in Green & Kwiatek (1982) FLC ¶91-259 dealt with the issue of inducement. In that instance, the wife had misrepresented her interest in a business, but the trial judge had found that the husband was aware of that interest and the misrepresentation had not influenced his action. On appeal, their Honours said (at 77457):

We will deal with the question of inducement first. Assuming that the wife had an intention to induce the husband’s action, it is still a defence that he was not in fact induced to act because he was not misled: Coaks v Boswell (1886) 11 AC 232 at 236 and the as yet unreported decision of Waddell J in Kahlbetzer v Cincotta, Supreme Court of NSW, 30 April 1982. His Honour did in fact find that the husband was not misled because he was, at the relevant time, aware of the wife’s involvement in the “Bombay Bazaar”. That is of course a finding of fact, but it was assailed by the husband on two grounds:—

(a)           that his Honour failed to apply the heavy burden of proof which lay upon the wife once he found her to have committed a deliberate misrepresentation; and

(b)           that his Honour failed to apply the proper degree of knowledge that the wife had to establish existed on the part of the husband before it could be found that he had not been induced.

As to the first point, counsel for the husband relied upon the statement made by Hutley JA in Australian Steel and Mining Corporation Pty. Limited v Corben [1974] 2 NSWR 202 at 210, where his Honour said:—

Once the party setting up deliberate misrepresentation has succeeded in establishing it, the burden upon the person responsible for the false representation is bound to be heavy. He can of course discharge it by proving that the misrepresentation had absolutely nothing to do with the result …

In my opinion that burden was not, nor could have been, successfully undertaken here. The fact that the representations were without effect can rarely be established, otherwise than by admissions from the person to whom they were made either in the court or on other occasions. No admissions were obtained in this case.

As to the second point, counsel for the husband relied upon the remarks of Burt J inSinclair v Preston [1970] WAR 186 at 191 where his Honour said:—

I might say in passing that I do not agree, that if a person to whom a misrepresentation of fact inducing in character has been made subsequently, but before agreement, finds out that the statement is not wholly true, that it must follow that he was not induced by such statement to enter into the agreement. The question whether a person has been induced by a statement made to him to enter into an agreement is, in my opinion, a single issue of fact. No doubt pre-contractual knowledge that the statement made is not wholly true has a very direct bearing upon the resolution of this question of fact but it does not of itself necessarily provide the answer. To say that it does is to formulate a different question.

That statement, as we read it, does not however state that proof of full knowledge is necessary. It merely says that proof of partial knowledge which gives rise to grounds for suspicion is not necessarily enough by itself. The representee is not in other words bound to make his own enquiries even on suspicion.

The situation appears to be as follows: If it is proved that the defendant made a statement of such a nature as would be likely to induce a person to enter into a contract and it is proved that the plaintiff did enter into that contract, it is a fair inference of fact that the plaintiff was induced to do so by the statement: Smith v Chadwick (1884) 9 AC 187 at 196 per Lord Blackburn.(emphasis added)

The evidence of the wife is that the husband said words to the effect:

“I really like the house but I won’t settle on it unless we’ve got an agreement in place.”

“I won’t put a roof over the children’s head and I will pull out of the settlement on [the W Property] if you don’t sign”.

The wife further said the husband stated to her he could still withdraw from the purchase of the house, even when they had moved into the property after 23 February 2001.

The husband put forward evidence as to the date the parties moved into the house, and asked the Court to draw the inference that the wife was at all times aware of the settlement of the purchase of the house. However, I conclude that the husband took advantage of the wife’s naivety relative to property law and her lack of understanding that the husband could not withdraw from the purchase once it had been completed.

There is another matter to consider here which for me adds further strength to the wife’s case that the husband was seriously pressing her to sign the Agreement and that the pressure being applied by him was to not complete the purchase of the property or withdraw from the purchase even following the completion date. In his cross-examination he was asked what he would have done had the wife ultimately refused to sign the agreement. He said that if the agreement had not been signed he did not know “what course of action we could have taken”.  It was clear to me from that answer the husband was not simply going to do nothing about a circumstance where the wife had ultimately not signed the agreement. I accept that such a circumstance, and the husband’s determined stand on the matter, would have been very apparent to the wife and that she had good reason to believe that if she did not sign that agreement the husband would take some action relative to the house or the marriage. I accept the husband knew at that time the Agreement was signed that any action he proposed to take would not include cancelling or withdrawing from the already settled purchase of the W Property.

The husband does not satisfy the ‘heavy burden’ of proof in establishing that the wife knew he could not withdraw from or cancel the purchase of the property.

I find that the representation of the husband was false. I find the representation was material. I further find that the representation was likely to and did induce the wife to enter into the Agreement. I find the wife did enter into the Agreement accepting the misrepresentation to be accurate. I therefore find that there was misrepresentation.

I now turn to consider the remedies available to the Court where misrepresentation has been established.

The remedy for misrepresentation is rescission. That is, the representee may cancel the contract as if it had never been, and consequently, that the parties be placed in substantially the same position that they were before the contract was signed. There are generally no damages for common law misrepresentation, as rescission includes the consequence that the contract never was. There are some such remedies under statute (such as the Australian Consumer Law), however they are not relevant here.

The election to rescind is that of the representee, not the representor. This is explained in Alati v Kruger (1955) 94 CLR 216 at 224 (Dixon CJ, Webb, Kitto and Taylor JJ):

Rescission for misrepresentation is always the act of the party (representee) himself: Reese River Silver Mining Co Ltd v Smith (1869) LR 4 HL 64 at 73. The function of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a purported disaffirmance as an act avoiding the transaction ab initio , and, if it is valid, to give effect to it and make appropriate consequential orders: see Abram SS Co Ltd v Westville Shipping Co Ltd [1923] AC 773 .

In this case the effect of rescission is to set aside the agreement which is the order sought by the wife. Accordingly I would make that order if this were the only ground supporting the making of the order.

Mistake

In the wife’s submissions, the Court was directed to the contract principle of mistake in order to meet the requirement of “void, voidable or unenforceable

The wife submits that the agreement is void, voidable or unenforceable due to mistake.

The mistake in question is that the wife relied upon the incorrect advice given by Mr D. The wife submits that if a person is mistaken as to not just the terms of an agreement but the actual agreement itself, they can hardly be bound by that agreement. The wife concedes that she received advice, but submits that the advice has to be competent, accurate and in terms she can understand, or it is no advice at all.

In order to consider this challenge to the Agreement it is necessary to consider what advice and information Mr D gave to the wife during the time she instructed him and particularly at the time she signed the agreement. I have already reached conclusions about those matters which may be summarised as follows:

·            That the Agreement was not binding on the parties. Consequently the Agreement did not oust the jurisdiction of the court to make orders under Part VIII of the Act.

·            That the agreement was in the light of such circumstances as were, at that time, reasonably foreseeable, fair and reasonable for the wife.

·            In the alternative to the previous point, in the event that Mr D did not make that statement to her, then on balance it would seem he did not address the question at all or in any meaningful manner in light of the wife insisting that whatever the provisions she had to sign.

The matter of relevance arising from the advice of Mr D is as to the real nature of the agreement. Was she entering into an agreement which “the Family Court will not allow to bind the court’s discretion” as stated in Mr D’s letter of 9 February 2001 to the wife or was she entering into a Financial Agreement which ousts the jurisdiction of the Family Court of Australia to make any order under Part VIII of the Family Law Act?

Having considered the evidence in this case I consider the wife understood she was entering into a financial agreement with the husband which would not oust the jurisdiction of the Court to make orders under Part VIII of the Act. She was therefore fundamentally mistaken as to the force and effect of the Agreement at the time she signed it.

There are three main heads of mistake that the mistake in question could possibly fall under: unilateral mistake, mutual mistake and mistake as to legal effect.

In Cheshire and Fifefoot’s Law of Contract (9th ed.), the authors explain the difference between unilateral and mutual mistake:

In unilateral mistake, only one of the parties is mistaken. In legal discourse a pure unilateral mistake, that is, where one party is mistaken and the other is unaware of the mistake, is of no consequence. Accordingly, the use of the expression ‘unilateral mistake’ means that the other knows, or must be taken to know, of the first person’s mistake. Suppose, for instance, that A agrees to buy from B a specific picture that A believes to be a genuine Streeton but which is in fact a copy (and B knows this). If B is ignorant of A’s erroneous belief, the case is one of mutual mistake, but, if he knows of it, of unilateral mistake (in the sense just described). Often a unilateral mistake must be known to the other party because of the circumstances surrounding the clinching of the agreement. Thus, in the above example, B may not know precisely how or why A is mistaken but must be aware that there is some mistake because of the price that A is prepared to pay.

The main facet of either unilateral or mutual mistake is that the mistake in question must be a mistake of fact rather than a mistake as to law, as illustrated in the above example. Mistake as to the law is a separate issue that I will deal with later. A mistake as to fact relates to one or both of the parties misunderstanding a fact or circumstance surrounding the transaction being carried out between the parties.

In this instance, I find there is no unilateral mistake. The wife in this instance claims to have been mistaken as to the nature of the agreement that the parties were proposing to enter, in particular, the binding nature of the Agreement and its impact on the jurisdiction of the Family Court. Her mistake was a mistake as to the law, rather than a mistake as to a fact in the set of circumstances, and therefore the mistake does not attract the principle of unilateral mistake.

Even were I to find that the wife’s mistake was a mistake as to fact which would attract the principle of unilateral mistake, there is a second arm to the test that must be met for the wife’s case to be made.

Under the principles unilateral mistake, it is not sufficient to show that a party made a mistake as to an aspect or fact of the agreement which they were entering into. It is also essential that the other party knew of this mistake and yet acted in such a way as to take advantage of that mistake. In essence, there must be some degree of unconscionable conduct in the actions of the party who is not mistaken. The principle authority relating to this issue is found in the judgment of Taylor and Johnson (1983) 151 CLR 422, in which their honours Mason ACJ, Murphy and Deane JJ  stated [at 432]:

[A] party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension.

The judgment of Taylor and Johnson on this principle was followed in the Full Court’s judgment (Ellis, Lindenmayer and Chisholm JJ) of Lowe & Harrington (1997) FLC ¶92-747. In that matter, a husband a wife were entering into consent orders in relation to property, and the wife became mistaken as to the agreed division of the property. The husband knew of this mistake, but continued with the completion of the orders, to the wife’s detriment. The Full Court made a thorough examination of the case law surrounding the principle espoused in Taylor and Johnson and concluded:

Having regard to these matters, we would prefer to state the principle relevant to these proceedings in the following way:

A court of equity may grant relief e.g. by way of recission, in respect of a contract mistakenly entered into by one party if the other party knows of that mistake.

In our view, that is an accurate statement of the law and is in substance the principle that was adopted by the trial Judge.

In this instance there was no evidence put before the Court that the husband was aware of the mistake of the wife in relation to the binding nature of the Agreement. Indeed, the wife’s evidence suggests that she was upset by, and ashamed of, the idea of the financial agreement being made and did not talk to anyone about the issue except her solicitor.

There was similarly no evidence that the circumstances were such that the husband ought to have suspected the mistake. Notwithstanding the fairness or otherwise to the wife of the terms of the Agreement, the Agreement was what the husband proposed it to be. Both parties were independently represented, and negotiations as to the terms of the Agreement continued for nearly two months. This was not a set of circumstances which should have indicated to the husband that the wife was mistaken as to the effect of the contract.

Accordingly, unilateral mistake is not made out.

It does not appear to be a case of mutual mistake, either. Again there is the issue that the wife’s mistake was one of legal effect and not one of fact. However, even were the mistake one of fact, the principle of mutual mistake is not a broad principle that encompasses any divergence of interpretation. According to the learned author of LexisNexis’ Carter on Contract at [22-020]:

This is a very narrow category and it is doubtful whether there are any cases which illustrate genuine cases of mutual mistake operative as a distinct legal doctrine … where the mistake relates to the terms of a contract, a court will generally determine that one of the parties is correct, so that what may appear (superficially) to be a case of mutual mistake ends up as a case of unilateral mistake.

Further, both parties in this matter agree that the husband was not mistaken as to the terms of the contract, and that his understanding of the effect of the agreement is the correct one in the circumstances. Mutual mistake is therefore not applicable in this instance.

I now turn to consider the doctrine of mistake as to legal effect, which occurs when there is no mistake within the terms of the contract, but one of the parties is mistaken as to the effect of the contract. It is very similar to unilateral mistake in that it involves the mistake of one party only and the similar requirement that the other party is aware of the mistake and acts to take advantage of the mistake.

The leading case in relation to the doctrine of mutual mistake is that of Goldsborough Mort and Co v Quinn (1910) 10 CLR 674. The plaintiff contracted to purchase land from the defendant that was conditionally leased from the crown. The price was calculated at £1 10s per acre “on a freehold basis”, that is, subtracting from the purchase price the cost of converting the property to freehold. The defendant thought that he was to receive the entire £1 10s per acre. The court held that the terms of the contract requiring that the price was to be calculated ‘on a freehold basis’, were unambiguous as meaning that the cost of conversion to freehold would be deducted. As such, the defendant was bound by the contract despite his mistaken understanding of the terms of the contract.

The learned authors of LexisNexis’ Carter on Contract says of this type of mistake:

Cases of the Goldsbrough Mort type have been common. These are cases in which a party has contracted under an erroneous understanding of the meaning (or effect) of contractual words or even of the impact of the contract as a whole. Since, ex hypothesi, the court in such a case is holding that the other party’s construction is the only right one, the case does not involve mutual mistake. Rather, one party only is mistaken. In such cases the mistaken party must, in order to establish that the mistake affected the validity or enforceability of the contract, prove that the other party knew or had reason to suspect that there was mistake or contributed to the mistake.

The wife was undoubtedly mistaken as to the legal effect of the Agreement, however, again, neither party produced any evidence which established (or even suggested) the husband was aware of this mistake, nor further that he took any steps to prevent the wife from becoming aware of the mistake.

Thus I find that it is not open to the Court, on the facts, to find that the Agreement is void, voidable or unenforceable due to mistake.

Undue influence

The wife further submits that the husband exercised undue influence over her in the formation of the Agreement such that the Agreement is void, voidable or unenforceable.

The judgment of Pawley SJ in Dupont & Dupont (1980) FLC 90-881 (at 75,568) outlined the elements of undue influence:

There are two situations in which the doctrine of undue influence may arise. Firstly, out of the special relationship of the parties to the contract, for example solicitor and client, doctor and patient, parent and child, or secondly by reason of external circumstances which place one party in a position of power over another, where for instance there is some threat to the person influenced or to their property.

Each of Dupont (above) and  O’Brien and O’Brien (1981) FLC 91-094 state categorically that the relationship of husband and wife is not a ‘special relationship’ in terms of undue influence, that is to say, it is not a relationship in which one party is recognised in equity to be under the influence of the other party. Baker J in O’Brien described the special relationships in equity as follows (at 76,653):

Certain relationships have been considered by the Courts to involve such an element of trust and confidence with the consequential likelihood of the exercise of influence or authority by one party over the other that any substantial gift or conferment of advantage had to be justified by the recipient. Such relationships are those of:

(a) religious and spiritual advisers; (b) physicians and attendants on the sick; (c) solicitor and client; (d) parent and child, guardian and ward.

Without the benefit of a special relationship, the wife must show that there was illegitimate pressure from the husband which was a contributing factor which influenced the wife in her decision to enter into the Agreement. There is also a connection between undue influence and unconscionable conduct which I will address later in these reasons.

Further in the judgment of O’Brien, Baker J had the following to say (76656-7):

I am firmly of the view that for a party to succeed in an application to set aside an agreement approved under s 87 at a time when he or she had been given legal advice in relation to the agreement, he or she would need to produce evidence of a very cogent kind, including psychiatric evidence as to his or her state of mind at and prior to the signing of the agreement.

As a statement of general principle I am firmly of the view that a party who alleges undue influence against another in the context of s 87(6) must prove to the satisfaction of the court:

(a) that some illegitimate means of persuasion was used by the other party; and

(b) that the illegitimate means used was a reason (although not necessarily the sole reason, nor the predominant reason, nor the clinching reason) why the party entered into the agreement.

The wife gave oral evidence that she attended a counsellor at a hospital at about the time the Financial Agreement was being drawn up, but states that she only attended once as they “could not give me the help I needed”. She supplied no other evidence to support her assertion that she was suffering any mental or emotional impairment at the time.

The Wife’s evidence is canvassed extensively earlier in these reasons. The thrust of that evidence is that the husband warned her that should she not sign the Agreement he would either not complete the purchase of the W Property or he would withdraw from the purchase even after 23 February 2001, the day of settlement of the purchase. Her evidence is that she was not aware of the dates on which the husband exchanged and completed the contracts for the house and depended on his representations on the subject. Her knowledge of the relevant dates of exchange of contracts and the settlement of the contract came as a result of these proceedings.

The evidence of Mr D supports this representation. In paragraph 5 of his affidavit, he states:

In the first meeting [the wife] presented as a stressed style of person and on numerous occasions throughout the conferences that I had with her she said things to the effect:

“My husband is insisting.”.

“He’s preparing to sell his home and purchase another one but he did not want to finalise that until there was a Binding Financial Agreement.”.

“If I don’t sign this he says he won’t buy us a home.”.

The husband’s evidence is that he doesn’t recollect specific details of the conversations which he had with the wife in relation to the formation of the Agreement. In his oral evidence, the husband stated that the parties discussed the Agreement in a ‘businesslike’ manner, but did not go into detail as to what was said between the parties.

The husband submits that the wife could not have reasonably thought that he could exit the contract in the way claimed by the wife, given the fact that she had purchased property in the past and would have been aware of the property purchase process.

The husband also relies on the dates of the contract to negate the claims of the wife. The husband completed the purchase of the property on 23 February 2001, and the parties moved in immediately. The parties had been living in the house for a month at the time the Agreement was finalised. The husband asks the Court to draw the inference that the circumstances in which the parties signed the Agreement were such that would indicate that the wife was aware of the completion of the purchase of the W Property, and that she signed the Agreement in that knowledge.

The wife’s evidence is that the husband did not tell her the details of the purchase of the property and that she was dependent on his representations as to the progress of the purchase. She said “I had no paperwork”. Her oral evidence suggested that she was aware of the purchase generally, however she was not privy to the details.

At the same time that the purchase was going through, the lease to the parties’ rental property was coming to an end. The wife says in her evidence that she was worried at the time that if she did not sign the Agreement then the purchase of the W Property would not go through and the rental property would also be unavailable, and that the family would be without a home close to the birth of the parties’ second child.

The question is whether the wife signed the Agreement of her own free will or the husband’s influence prevented the wife from exercising independent judgment.

The wife’s evidence is that she was aware that the Agreement was not fair to her. She did reject at least one version of the Agreement, saying “it would be suicide for me to sign them. There’s no justice in these arrangements for the children and their future”. However, the representations of the husband in relation to whether he would continue with the purchase of the W Property appear to have impacted on the wife’s decision making ability.

The Agreement is manifestly unfair to the wife as has been illustrated earlier in these reasons. It prevents her bringing an action in the Family Court which could give Orders for the division of property taking into account her contributions to the marriage and the matters referred to under sec 75(2) of the Act. She could also not seek orders for spouse maintenance. It is difficult to accept that the wife would voluntarily enter into such an agreement, given her previous cognisance of the lack of fairness.

The statements by the husband that he would not complete the purchase of the W Property, even after 23 February 2001, particularly given all the other circumstances impacting upon the wife at the time, did amount to an illegitimate means of persuasion used by him to secure the wife’s signature on the Agreement. Those other circumstances included:

·            That at the time the wife was two months away from giving birth to the parties’ second child;

·            That she was caring, primarily on her own (the husband in full time work and travelling overseas), for the parties’ first child who was not a well child;

·            That she was feeling sufficiently unwell herself at the time such that she sought the assistance of a counsellor at a hospital;

·            That the lease on the property the family was living in was coming to an end;

·            That she felt she could not talk to her family about this aspect of her marriage;

·            That the husband knew and ought to have known that she was emotionally vulnerable at the time and distressed about his requirement that she sign the Agreement. This was illustrated at the very least by her telling him she might not be there when he returned from overseas. In plain language she was considering leaving the marriage. I accept she did tell him that and I accept he prevailed on her not to take that action and reassured her.

I accept that the husband did make the representations that amounted to illegitimate pressure on the wife. I also accept that the representation was a reason that the wife entered into the agreement. Consequently I do not accept the wife entered into the contract of her own free will; rather the husband’s influence prevented the wife from exercising independent judgment.

The remedy for causing a contract to be entered into in circumstances where undue influence has been used is rescission as the contract is voidable. In this case the wife seeks that the Agreement be set aside and on this ground of “undue influence” I would grant that application should it be the only ground moved upon by the wife.

Unconscionability

The parties made submissions as to the relative bargaining power of the parties and whether there was sufficient inequity between the parties to render the agreement void, voidable or unenforceable. At this stage I am considering this aspect of the challenge to the Agreement as part of determining the first consideration (as referred to earlier when discussing the decision in Senior & Anderson) namely, is there an agreement?

There is however the provision of sec 90K(1)(e) which I will refer to later. That sub-section is as follows:

Subsection 90K(1)(e) provides:

(1)  A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:

(e)  in respect of the making of a financial agreement–a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or

In the leading case on this principle is the High Court decision in Commercial Bank Of Australia LTD v Amadio and Anor (1983) 151 CLR 447.  In that decision Deane J stated:

The jurisdiction of courts of equity to relieve against unconscionable dealing developed from the jurisdiction which the Court of Chancery assumed, at a very early period, to set aside transactions in which expectant heirs had dealt with their expectations without being adequately protected against the pressure put upon them by their poverty (see O’Rorke v Bolingbroke (1877) 2 App Cas 814 at 822). The jurisdiction is long established as extending generally to circumstances in which

(i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them, and

(ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or “unconscientious” that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it.

Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: “the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtainthe benefit of the contract” (see per Lord Hatherley, O’Rorke v Bolingbroke, supra, at 823; Fry v Lane (1888) 40 ChD 312 at 322; Blomley v Ryan (1956) 99 CLR 362 at 428–9).

Mason J in Amadio stated the doctrine as:

Historically, courts have exercised jurisdiction to set aside contracts and other dealings on a variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of “unconscionable conduct” is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, e.g., a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.

There is no reason for thinking that the two remedies are mutually exclusive in the sense that only one of them is available in a particular situation to the exclusion of the other. Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest.

Mason J also referred to the decision of Kitto J in Blomley v Ryan (1956) 99 CLR 362 and said:

Likewise Kitto J.  spoke of it as “a well-known head of equity” which—

… applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands. (footnotes omitted)

In Turner v Wendever [2003] NSWSC 1147 at paragraph 105 Austin J formulated a list of elements which he considered were required to establish unconscionable conduct likely to give rise to the remedy sought, namely, setting aside the contract. This list was approved in the appeal heard in the same case and reported at [2005] NSWCA 73. The following is extracted from the decision of Austin J.

“102 I have been given extensive submissions by the parties on law concerning unconscionable dealings and undue influence. In my opinion it is unnecessary for me to explore the law in any detail in order to decide this case. The principal issues are issues of fact.103 The principle upon which equity intervenes to protect the weaker party in an unconscionable transaction was stated by Rich J in Wilton v Farnworth [1948] HCA 20; (1948) 76 CLR 646 as follows (at 655):

“It has always been considered unconscientious to retain the advantage of a voluntary disposition of a large amount of property improvidently made by an alleged donor who did not understand the nature of the transaction and lacked information of material facts such as the nature and extent of the property, particularly if made in favour of a donee possessing greater information who nevertheless withheld the facts … We have here an improvident transaction entirely voluntary springing from no sensible motive … When to all this is added ignorance of the relevant facts and a failure to understand the transaction very substantial reasons have been proved for the intervention of a court of equity. Voluntarily alienation of his property to the defendant was neither fair nor righteous and in the view of a court of equity it must be regarded as unconscientious for the defendant to take the gift or retain it.”104 That passage was relied on by the plaintiff, although obviously this is not a case of a gift but rather, on the plaintiff’s case, a transaction that was improvident because it was at an undervalue from Mrs Lett’s point of view. Since Wilton v Farnworth was decided, the law on unconscionable dealings has developed substantially, through such cases as Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362, Commercial Bank Australia Limited v Amadio (1983) 151 CLR 337, Louth v Diprose (1992) 175 CLR 61 and Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457.105 It is convenient, for present purposes, to accept the statement of the elements of unconscionable dealing put forward by counsel for the defendants on the basis of these cases. According to his submission, which I accept, a case of unconscionable dealing involves the following:(a) the weaker party must, at the time of entering into the transaction, suffer from a special disadvantage vis-a-vis the stronger party;(b) the special disadvantage must seriously affect the weaker party’s capacity to judge or protect his or her own interests;(c) the stronger party must know of the special disadvantage (or know of facts which would raise that possibility in the mind of any reasonable person);(d) that party must take advantage of the opportunity presented by the disadvantage; and(e) the taking of advantage must have been unconscientious.106 I would only add that, as cases such as Blomley v Ryan show, once ingredients (a), (b) and (c) are established, and the improvidence of the transaction is shown, the plaintiff’s task is made easier by an equitable presumption to the effect that the improvident transaction was a consequence of the special disadvantage, and that the defendant has unconscientiously taken advantage of the opportunity presented by the disadvantage. (emphasis added)”

In Bridgewater and Others and Leahy and Others (1998) 194 CLR 457 the majority of the court Gaudron, Gummow and Kirby JJ found that “The closeness of the relationship between” two persons “and the tendency of the older man to fall in with the wishes of the younger” was an available finding on the facts of the case. At paragraph 115 and part of paragraph 116 the following is said:

The position of disadvantage which renders one party subject to exploitation by another such that the benefit of an improvident disposition by the disadvantaged party may not in good conscience be retained may stem from a strong emotional dependence or attachment97. Louth v Diprose98 was such a case. In his judgment in the South Australian Full Court, a decision which was upheld in this Court, Jacobs A-CJ said99:

“It is an oversimplification to say that because the respondent acted as he did with his eyes open, and with a full understanding of what he was doing, he was not in a position of disadvantage, and therefore not the victim of unconscionable conduct.”

There are passages in the reasons of the primary judge which appear to suggest that the existence of such a position of disadvantage necessarily involves physical frailty and enfeeblement with diminished knowledge by the party in question of that party’s property and affairs generally. That will not necessarily be the case.

Bridgewater v Leahy was a case (put simply) involving the transfer of land by an elderly uncle to his nephew for substantially less than market-value. The undervaluation was achieved, in part, through the giving of a deed of forgiveness by the uncle at the time of the transfer of the land for a significantly reduced sum. The uncle died and the nephew also benefited under his will. The wife of the deceased and her four daughters brought the action seeking a declaration that the transfers of property and a deed of forgiveness were of no effect having been induced by undue influence and/or unconscionable conduct. In their conclusion the Court said at paragraph 121 and following:

121. Bill had the goal of retaining the properties as an integrated farming enterprise under reliable and experienced management. His Honour found that this goal was important to him. The transfers and the deed, as a means to attain that goal, involved an improvident transaction which was neither fair nor just and reasonable. The effect of the transfers and the deed was to dispose of a significant portion of Bill’s assets not for their value of $696,811 but for $150,000. This transaction put it out of Bill’s power to change his testamentary arrangements with respect to that portion of its assets. Further, for all his deep concerns that all his properties be kept together under the one manager, even at the expense of the interests of his children, the form of the transaction was such as to provide no certainty that this necessarily would follow for the remainder of Bill’s life or after his death. Nor is it any sufficient response that, were Bill to retain the $150,000 or assets representing such sum, this would augment the $200,000 which would fall into the residue under cl 4 of the will upon exercise of the option after his death.

122. Bill’s goal to preserve his rural interests intact and his perception that Neil was the candidate to provide reliable and experienced management thereof were significant elements in his emotional attachment to and dependency upon Neil. The initiative to utilise the circumstance of the sale of the Injune Land (to the retention of which Bill had been opposed) for the irreversible implementation of Bill’s wishes during his lifetime came from Neil. It is not an answer that there was no finding that Neil had pursued the initiative to its implementation in July and November 1988 with the motive or purpose of forestalling any change in Bill’s testamentary intentions. The equity to set aside the deed may be enlivened not only by the active pursuit of the benefit it conferred but by the passive acceptance of that benefit.

Relief

123. The relationship between Bill and Neil meant that, when Neil raised the question of using the proceeds of sale of the Injune Land, they were meeting on unequal terms. Neil took advantage of this position to obtain a benefit through a grossly improvident transaction on the part of his uncle.

124. In some cases, the equity that arises by reason of an unconscientious or unconscionable dealing of the nature with which this appeal is concerned may be satisfied only by setting aside that dealing in its entirety. The dealing may be embodied in the one instrument which contains several provisions or in several instruments. In other circumstances, of which this case is an example, the equity may be satisfied by orders setting aside some but not all of these instruments or some but not all of the provisions thereof105.

125. It is unconscionable for Neil and his wife to retain the benefit of the improvident transaction by asserting the forgiveness of the whole of the debt which would otherwise be owing to Bill’s estate. On the findings of fact made by and available to him, the primary judge should have held that the deed should not be allowed to stand and be given its full effect; the Court of Appeal also should have intervened. A similar conclusion would have followed with respect to the transfers but for the complexities that would arise in the disentanglement of the transactions involved, including the absence of Sam and the mortgagee as parties to this litigation. In the circumstances of this case and consistently with the framing of relief which, in Lord Blackburn’s phrase, is “practically just”106, the appellants, as representatives of Bill’s estate, properly may elect that only the deed itself be set aside. However, in seeking equity, the estate must be prepared to do equity107. In particular, weight has to be given to the testator’s wish significantly to benefit his nephew which was expressed in cl 4 of the will.

The High Court decision in the case of Louth v Diprose (1992) 175 CLR 621 is of assistance in that it deals with a gift by a man to a woman of a significant amount of money to buy a house for the woman and her children in circumstances where the man was infatuated with the woman. She was found to have taken advantage of that circumstance which gave rise to a conclusion that her conduct was unconscionable thereby moving the original trial judge to order that she transfer the property to the man concerned.

In that case Brennan J said:

The jurisdiction of equity to set aside gifts procured by unconscionable conduct ordinarily arises from the concatenation of three factors: a relationship between the parties which, to the knowledge of the donee, places the donor at a special disadvantage vis-à-vis the donee; the donee’s unconscientious exploitation of the donor’s disadvantage; and the consequent overbearing of the will of the donor whereby the donor is unable to make a worthwhile judgment as to what is in his or her best interest 18. A similar jurisdiction exists to set aside gifts procured by undue influence. In Commercial Bank of Australia Ltd. v Amadio19, Mason J. distinguished unconscionable conduct from undue influence in these terms:

In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position. Deane J. identified the difference in the nature of the two jurisdictions:

Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party … Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. Although the two jurisdictions are distinct, they both depend upon the effect of influence (presumed or actual) improperly brought to bear by one party to a relationship on the mind of the other whereby the other disposes of his property. Gifts obtained by unconscionable conduct and gifts obtained by undue influence are set aside by equity on substantially the same basis. In White and Tudor’s Leading Case in Equity21, the notes to Huguenin v Baseley22 treat the principle applied in cases of unconscionable conduct as an extension of the principle applied in cases of undue influence 23:

The principle upon which equity will give relief as against the persons standing in [the categories of confidential] relations to the donor, will be extended and applied to all the variety of relations in which dominion may be exercised by one person over another. The ground for setting aside a gift obtained by unconscientious exploitation of a donor’s special disadvantage, as explained in Amadio, can be compared with the ground for setting aside a gift obtained by undue influence, as explained by Dixon J. in Johnson v Buttress24:

The basis of the equitable jurisdiction to set aside an alienation of property on the ground of undue influence is the prevention of an unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor’s will or freedom of judgment in reference to such a matter. The source of power to practise such a domination may be found in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved showing that the transaction was the outcome of such an actual influence over the mind of the alienor that it cannot be considered his free act. But the parties may antecedently stand in a relation that gives to one an authority or influence over the other from the abuse of which it is proper that he should be protected. (Emphasis added.)The similarity between the two jurisdictions gives to cases arising in the exercise of one jurisdiction an analogous character in considering cases involving the same points in the other jurisdiction.

The relationship

There are some categories of confidential relationships from which a presumption of undue influence arises when a substantial gift is made by one party to the relationship to the other — relationships such as solicitor and client, physician and patient, parent and child, guardian and ward, superior and member of a religious community. Public policy creates a presumption of undue influence in cases where the relationship falls into one of the recognized categories 25. Those categories do not exhaust the cases in which it may be held that it is contrary to conscience for a donee to retain a gift. In cases where the relationship is not one of confidentiality, a gift may be impeached where the evidence shows that in fact it was procured by unconscionable conduct. Where a gift is impeached on the ground that it was obtained by unconscionable conduct consisting in an unconscionable exploitation of an antecedent relationship, the relationship is one in which one party stands in a position of special disadvantage vis-à-vis the other. Such relationships are infinitely various 26, the common feature being that the donor is, to the knowledge of the donee, in a position of special disadvantage vis-à-vis the donee: that is to say, in matters in which their interests do not coincide, the donor’s capacity to make a decision as to his or her own best interest is peculiarly susceptible to control or influence by the donee. As Mason J. said in Amadio27:

I qualify the word “disadvantage” by the adjective “special” in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.

The relevant relationship may exist because of some weakness in the donor. Thus Fullagar J. in Blomley v Ryan28 took as instances of weakness “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary”. And McTiernan J. said that “[t]he essence of such weakness is that the party is unable to judge for himself”29. It is unnecessary to show that the donee contributed to that weakness. In the present case, King C.J. 30 found —

a relationship existed between the plaintiff and the defendant which placed the plaintiff in a position of emotional dependence upon the defendant and gave her a position of great influence on his actions and decisions. From the time they first met he was utterly infatuated by her. He had had unhappy domestic experiences and was anxious to lavish love and devotion upon a woman. He fell completely in love with the defendant. … The defendant, as her evidence confirms, was well aware that the plaintiff had a deep emotional attachment to her and desired only to have her love and to marry her. He knew that he had what she accepted in evidence to be “an enormous weakness” for her. His willingness to devote himself to her and to lavish her with gifts, notwithstanding that she did not return his love, is quite pathetic. The degree of his emotional dependence upon her and his susceptibility to her wishes is obvious on the evidence and was obvious to her.

Given those findings, the relationship between the plaintiff (respondent) and the defendant (appellant) was so different in degree as to be different in kind from the ordinary relationship of a man courting a woman. It was found that the personal relationship between them was such that the plaintiff was extremely susceptible to influence by the defendant, as the defendant knew. That finding makes the relationship in the present case analogous to the relationship which Lord Langdale M.R. thought to be subsisting between an engaged couple in Page v Horne31. There his Lordship set aside a gift by a woman to her fiance, observing that “no one can say what may be the extent of the influence of a man over a woman, whose consent to marriage he has obtained”. It may no longer be right to presume that a substantial gift made by a woman to her fiance has been procured by undue influence 32 but the cases in which such a presumption has been made demonstrate that the relationship which places a donor at a special disadvantage may have its origin in an emotional attachment of a donor to a donee.

Under the heading “Exploitation of the donor’s disadvantage” Brennan J said:

Equity intervenes “whenever one party to a transaction is at a special disadvantage in dealing with the other party … and the other party unconscientiously takes advantage of the opportunity thus placed in his hands”33. Citing this passage in Amadio34, Dawson J. said:

What is necessary for the application of the principle is exploitation by one party of another’s position of disadvantage in such a manner that the former could not in good conscience retain the benefit of the bargain.

Under the heading of “The donor’s will and judgment” Brennan J said:

When a donor who stands in a relationship of special disadvantage vis-à-vis a donee makes a substantial gift to the donee, slight evidence may be sufficient to show that the gift has been procured by unconscionable conduct. Whether that finding should be made depends on the circumstances. In Watkins v Combes36, Isaacs J. said: It is not the law, as I understand it, that the mere fact that one party to a transaction who is of full age and apparent competency reposed confidence in, or was subject to the influence of, the other party is sufficient to cast upon the latter the onus of demonstrating the validity of the transaction. Observations which go to that extent are too broad.

But where it is proved that a donor stood in a specially disadvantageous relationship with a donee, that the donee exploited the disadvantage and that the donor thereafter made a substantial gift to the donee, an inference may, and often should, be drawn that the exploitation was the effective cause of the gift. The drawing of that inference, however, depends on the whole of the circumstances.

The High Court decision in Blomley v Ryan (1956) 99 CLR 362 outlines the list of special (or serious) disadvantages which would be regarded as meeting the first arm of the test for unconscionable conduct. These disadvantages comprise “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance where assistance or explanation is necessary” (per Fullagar J) and “ignorance, inexperience … and financial need or other circumstances which affect the ability of a party to conserve his own interests” (per Kitto J).

Mason J in that case held that inequality of bargaining power, by itself, is not sufficient, therefore there needs to be some examination of the circumstances surrounding the situation.

I now turn to consider the evidence as to whether the wife was, at the time she entered into the Financial Agreement, in a position of “special disadvantage”.

The wife’s evidence is that she was two months away from giving birth to the parties’ second child at the time the agreement was signed by her. Her evidence is that she was suffering ill-health associated with the pregnancy during that pregnancy, and was also the primary carer for the parties’ first child, who was also suffering from ill health. No medical records were produced to support this claim, but it is the husband’s evidence that he was absent for part of the time, travelling overseas, and he does not dispute that the wife may have been unwell.

In addition to this, the parties agree that the wife was financially dependent on the husband at the time the Agreement was made. She was not working as she was looking after the parties’ first child, and was 7-8 months pregnant with their second child. The husband conceded in oral evidence that the wife was “dependent on me for financial support”. The husband was in full time work at the time and that work took him overseas at least on one occasion during the period during which the Agreement was said to be “negotiated”. The wife was therefore completely on her own during that period. She was emotionally distressed by the husband’s requirement for her to enter into the agreement. The lease on the property the parties were renting was coming to an end. Both she and the husband liked the property and thought it suitable for the family. They had looked at many properties trying to find a suitable property within their price range.

The wife states, and the husband does not disagree, that her main object in the negotiations was to maintain a roof over her children’s head. It is clear that the principal motivating factor from the husband’s perspective of seeking the Agreement was that he had exchanged contracts on the purchase of a home for the family to live in.

The wife’s evidence is that at the time the Agreement was being created, she was quite isolated from her family and friends as she felt that she was unable to talk to anyone about the Agreement. She said “I did not tell my family what was going on”, and “I was scared, I was two months away from giving birth and I had a medically demanding one year old with no family or friends local to me, no job and the threat of insecurity”. The husband’s evidence is that the wife spoke often on the telephone with her family, but he did not recall what the wife spoke of with her family. It certainly does not strain credulity that any wife in the early years of an outward appearing, apparently happy marriage, would have to tell her family that her husband was requiring that she enter into a Financial Agreement before he would provide a home for the family to live in.

As stated earlier, the wife gave evidence about the pressure placed upon her by the husband to sign the agreement at that particular time. I have accepted that evidence.

The wife says that all of the circumstances which led to the understanding that she was at the time in a position of “special disadvantage” were known to the husband. She was anxious that the husband provide a permanent home for the family. She was concerned that unless she signed the agreement she and the children would not have “a roof over their heads”. She claimed the husband made it clear he would not provide a permanent family home, which was owned by him, unless she signed the Financial Agreement. I accept the wife was anxious, as she alleges in her evidence, about the matters referred to in this paragraph. I accept that she was, as she claims, physically unwell at the time she signed the agreement. I accept she was financially dependant upon the husband at the time she signed the agreement. I accept she was dealing with the ill health of her only child at that time.

The legal representation obtained by the wife is not a bar to a finding of “special disability” on the part of the wife. Legal representation can only go so far. A solicitor’s role is to advise; he/she cannot prevent a party from signing an agreement if they are intent on doing so, albeit contrary to the solicitor’s advice.

Under such circumstances, it would be reasonable to conclude that the wife’s capacity to make decisions and protect her own interests would be affected by her being in a position of “special disadvantage”.

As a consequence of the above I am satisfied the wife suffered a special disability at the time she entered into the Financial Agreement. I also conclude, in all the circumstances, that the special disadvantage suffered by the wife seriously affected her capacity to protect her own interests. Such is particularly evident from the fact that the wife entered into an agreement which seriously disadvantaged her. She did so at a time when the husband had completed the purchase of the property. It is clear now that he could not have at the time set the contract aside. That did not mean he could not take some other action like selling the property or renting it, however, prima facie there was no advantage for the wife to gain by entering into such an unfair agreement.

I now move to consider whether the special disability was, or should have been, sufficiently obvious to the husband and whether he took advantage of the opportunity presented to him.

The husband submits that at the time the Agreement was made, the wife was in fact in the stronger bargaining position. I do not understand how the husband considers that to be the case. Nevertheless, the husband managed to achieve his purpose in proposing the Agreement and persuading the wife to sign a document which was obviously not in her favour.

The husband was clearly aware of the wife’s advancing pregnancy. He stated in his oral evidence that “[the wife] was dependent on me for financial support” at the time of the Agreement. He also gave evidence that he was absent from home during some of the time the Agreement was being negotiated, and concurred that the wife may have been unwell.

The wife further submits that the husband made representations about the purchase of a family home which influenced her decision to sign the Agreement. She says that the husband told her he would not purchase a house for the parties to live in unless the wife signed the Agreement. Her evidence is that the husband, even after the parties had moved into the W Property, led the wife to believe by his words that the purchase of the property had not been finalised.

The wife’s evidence is that husband said “I really like the house but I won’t settle on it unless we’ve got an agreement in place.” and “I won’t put a roof over the children’s head and I will pull out of the settlement on [the W Property] if you don’t sign”. The husband’s evidence is that he does not recall specific conversations of that period and that what conversations they held on the subject were conducted in a business-like fashion.

The wife’s evidence also states that she did not know the dates of the exchange of contract for the W Property and as such was reliant on the husband’s representations in relation to the purchase of the W Property.

Mr D’s evidence tends to support the evidence of the wife. At paragraph 5 of his affidavit

In the first meeting [the wife] presented as a stressed style of person and on numerous occasions throughout the conferences that I had with her she said things to the effect:

“My husband is insisting”.

“He’s preparing to sell his home and purchase another one but he did not want to finalise that until there was a Binding Financial Agreement”.

“If I don’t sign this he says he won’t buy us a home”.

The evidence of the wife contradicts the facts in some respects. It is agreed by both parties that the husband exchanged contracts for the purchase of the W Property on 5 December 2000, with the purchase completed on 23 February 2001. The parties agree that they moved into the property at about that time, and that they signed the Agreement on 28 March, over one month after moving into the property.

The husband denies making the representations alleged by the wife, but his evidence is also that he does not remember conversations between the parties at the time that the Agreement was made. The evidence of Mr D tends to support the wife’s allegation that he did make such representations.

The wife said:

“I was told the cooling off period on the settlement was about to expire. I was of the clear understanding that there was a cooling off period on the settlement despite the fact that we had moved into the home.

[The husband] continued to tell me: ‘I can still pull out of this – there is a cooling off period.’”

I find the timing of the Agreement concerning. The husband stated that his purpose was to remove the W Property from the wife’s reach, yet it does not seem that the Agreement needed any haste. The Agreement could be and was backdated, the parties entering into the Agreement over a month after the settlement. Such apparent haste as envisaged by the wife, based on the representations of the husband would seem to be unwarranted. She was not privy to all of the information available to the husband and was dependent on the husband for information in relation to the acquisition of the W Property.

I do accept the wife’s evidence of the husband’s representations to her. The concurring evidence of Mr D is an illuminating insight from the period of time in which the negotiations took place.

I find that the husband was aware of the wife’s dependence and special disability. I find that the husband acted in an unconscientious manner in order to profit in the Agreement. It was unconscionable for the husband to take advantage of the wife’s special disability at the time she entered into the agreement.

The remedy available to the court in such a circumstance is to set aside the agreement or part thereof at the petition of the wife. In the circumstances of this case I consider the only workable remedy is to set aside the whole of the agreement as sought by the wife.

If this was the only ground relied upon by the wife to set aside the agreement I would set it aside.

Section 90K(1)(e).

The wife’s counsel submitted that “It is recognised that unconscionable conduct in the context of sec 90K(1)(b) is distinguishable from that referred to in sec 90K(1)(e)”. With respect, I do not agree with that statement. It appears that the separate ground of “unconscionable conduct” was included to emphasise the Court should consider any such conduct as giving rise to the ability to set the agreement aside as well as the agreement being void or voidable as a consequence of such a finding.

The Further Revised Explanatory Memorandum of Family Law Amendment Act 2000 (Cth) explained the sec 90K(1) grounds

160.        Subsection 90K(1) provides that a court will be able to set aside a financial agreement if the court is satisfied that:

·            the agreement was obtained by fraud (including non-disclosure of a material matter);

·            the agreement is void, voidable or unenforceable including whether the agreement is obtained by the unconscionable conduct of one of the parties.  These grounds reflect the principles of common law and equity, under which an agreement would fail because of lack of certainty, lack of intention to enter legal relations, or because the agreement is affected by duress, undue influence, unconscionability, misrepresentation or operative mistake.  The inclusion of unconscionability as a separate ground is simply to make it clear that this ground is included within the grounds for setting aside an agreement.  Unconscionability will retain its ordinary meaning within the law of contract.  The provision is modelled upon the provisions of section 87(8)(c) of the Act and the Government expects it to be interpreted in a similar way (see for example the decision of the Full Court of the Family Court in Blackman v Blackman (1998) FLA [sic] 92-791) ; (emphasis added)

Given the determinations I have already made I consider it unnecessary in the circumstances of this case to consider sec 90K(1)(e) as a separate basis for setting aside the agreement.

Retrospective dating

The effect of the contract, if validly made, was contrary to the object of the husband in seeking to make it. The terms of the contract were such that the house, as at 28 March 2001, was to be included in the assets which would be divided between the parties in the event of a separation.

The husband proposed that the agreement be operative retrospectively, that is, it would commence on 22 February 2001, the day before the purchase of the W Property was completed. In this way, the husband sought to exclude the W Property from the property that would potentially be divided.

The relevant provision is as follows:

17A. The parties agree that the agreement set out in this document takes effect from 22 February 2001

Prima facie, a basic tenet of contract law is that a contract is operational from the moment of acceptance, and indeed there is a great deal of case law that deals with the determination of that very moment. However, there is an exception to that principle in relation to retroactive contracts. Cheshire and Fifefoot’s Law of Contract (9th ed.) states on this point:

“The question is whether the activities carried out prior to execution are governed by the contract. The answer to this is straightforward if the parties have expressly provided that the agreement will operate as from a dater earlier than its execution date. The agreement has retrospective effect.” [at 3.30]

The learned authors of Cheshire and Fifoot’s Law of Contract (9th ed.) state in relation to retrospective acceptance (at 3.30):

…where the parties have started work on a project with the understanding that a formal contract will be executed at some later stage, the question is whether the activities carried out prior to execution are governed by the contract.

The case law referred to, however, surrounds the question of what to do in situations where there is no retrospective dating.

Most courts in Australia will, in a situation where there is no express retrospective dating, look at the behaviour of the parties to determine whether they had acted on the contract before it was formalised and whether it should be active retrospective on that basis.

The judgment of the Court of Appeal of New South Wales in the case of Newlands v Argyll General Insurance Co Ltd (1958) 59 SR (NSW) 130, on the other hand, is authority (in New South Wales) that a contract is only effective retrospectively if it is expressly stated to be.

In that matter N bought a car from W on 13 March and entered into a hire/purchase agreement with A, a finance company. The agreement contained the statement:

“This offer shall be irrevocable for a period of 21 days. It shall become a binding contract if and when the memorandum of acceptance endorsed hereon shall have been signed by you. The delivery of the goods or any part thereof to or the prepayment by me of any moneys prior to such acceptance shall not prejudice the provisions of this clause and shall be deemed merely conditional …”.

Before A had accepted the contract on 26 March, N took possession of the car and was involved in an accident due to a fault in the car.

The Court of Appeal held that the agreement could not be construed to have commenced on 13 March, and it should not be construed that a contract was effective before it came into existence.

In this instance, there is an express term as to the commencement of the contract. There is no case law submitted, nor am I able to find, an analogous example of retrospective commencement of a contract, which is stated in the contract, being refused. I will proceed on the basis that the agreement is effective in creating its commencing date as 22 February 2001.

Whether the subject document is a Financial Agreement

Notwithstanding I have determined there was no agreement I continue to consider whether there was a sec 90C Financial Agreement lest I be in error in my first determination.

Part VIIIA of the Family Law Act provides for parties to make financial agreements which will be binding on both the parties and which oust the jurisdiction of the court to make orders under Part VIII of the Act.

Section 90C provides:

90C  Financial agreements during marriage

(1)      If:

(a)          the parties to a marriage make a written agreement with respect to any of the matters mentioned in subsection (2); and

(aa)         at the time of the making of the agreement, no other agreement (whether made under this section or section 90B or 90D) is in force between the parties with respect to any of those matters; and

(b)      the agreement is expressed to be made under this section;

the agreement is a financial agreement.

(2)      The matters referred to in paragraph (1)(a) are the following:

(a)          how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of them at the time when the agreement is made, or at a later time and during the marriage, is to be dealt with;

(b)      the maintenance of either of them:

(i)       during the marriage; or

(ii)      after the dissolution of the marriage; or

(iii)     both during, and after the dissolution of, the marriage.

(3)          A financial agreement made as mentioned in subsection (1) may contain matters incidental or ancillary to those mentioned in subsection (2).

(4)          A financial agreement made as mentioned in subsection (1) may terminate a previous financial agreement made as mentioned in that subsection, or a financial agreement made as mentioned in subsection 90B(1), between the same parties.

For the purpose of the section I am prepared to accept that the content of paragraph 16 of the Agreement does satisfy subsection 1(b) of the section. It appears on the face of it that the agreement would, if valid, satisfy the provisions of sec 90C and thereby be capable of being described as a “financial agreement”.

Is the section 90C financial agreement a binding financial agreement?

The parties’ Agreement was made pursuant to sec 90C of the Family Law Act, which deals with financial agreements made during a marriage. It is not, however, the making of the agreement pursuant to that section which ousts the jurisdiction of the courts. The section quite specifically does not refer to an agreement made under this section as a “binding financial agreement”, using instead the term “financial agreement”, which is defined in sec 4 of the Act as being:

an agreement that is a financial agreement under section 90B, 90C, or 90D, but does not include ante-nuptial or post-nuptial settlement to which section 85A applies.

A financial agreement of itself is not enough to oust the jurisdiction of the court in relation to financial matters. It is compliance with sec 71A and consequently sec 90G which ousts the jurisdiction of the court. The binding provision in the legislation is found in sec 90G, in particular sec 90G(1), which outlines the requirements to be met by parties entering into a financial agreement in order to render the agreement binding on the court.

The final question is whether the Agreement is a Binding Financial Agreement as set out in sec 90G of the Act. As with the second question, having concluded that there was not an agreement, there is therefore no question as to whether the Agreement was binding. Nevertheless, I will address that question.

In Senior and Anderson [2011] FamCAFC 129, the Court distinguished a financial agreement from a Binding Financial Agreement, stating that the “strict compliance” outlined in sec 90G(1) was the point of difference between the two. Strickland J stated:

94.          The Act in effect draws a distinction between agreements which are financial agreements (s 4, s 90B, s 90C, s 90D) and those financial agreements which are binding (s 90G).  Financial agreements can, like any other agreement, govern the actions of the parties to them and bind the parties to obligations, but do not oust the jurisdiction of the court.  Parties to an agreement that satisfies the definition of “financial agreement” are bound by its terms (or not bound as the case may be), just as they would be bound (or not bound) by any other agreement (s 90KA) (see generally Australian Securities and Investment Corporation and Rich & Anor (2003) FLC 93-171).

95.          Section 90G is irrelevant to the contractual rights and remedies of the parties to an agreement that satisfies the definition of “financial agreement”.  That section only becomes relevant when the issue is whether an agreement that satisfies the definition of “financial agreement” is effective for a specific statutory purpose, namely to operate as a bar to claims by either party pursuant to Part VIII of the Act (s 71A).  It will be so, if and only if, it is “binding” within the meaning of s 90G.

96.          If an agreement, including an agreement that satisfies the definition of “financial agreement” under the Act, fails to effectively bar Part VIII claims (because of its failure to comply with the requirements of s 90G and, as a result, is not “binding” within the meaning of that section) the financial agreement can nevertheless have an affect.  However, an agreement’s failure to be “binding” in the s 90G sense renders its use in Part VIII proceedings to be very limited; specifically it does not operate as a bar to orders made under that Part (see e.g. Woodland and Todd (2005) FLC 93-217 at paragraphs 37 – 39).

The wife submits that the financial agreement between the parties was not binding due to a failure to meet all of the sec 90G(1) requirements.  This is based on the wife’s assertion that she relied upon advice from her solicitor which was incorrect, namely a letter of advice which stated that the court would not allow itself to be bound by a “pre-nuptial” agreement.

The case is this: the parties made a financial agreement pursuant to sec 90C of Pt VIIIA of the Act. To make it a binding financial agreement, the parties carried out the steps contained within sec 90G. In the latter process, the solicitor for the wife made a mistake as to the law in relation to the binding nature of the agreement, incorrectly advising the wife that the court would not allow itself to be bound by the agreement. The question which arises from this set of facts is whether that mistake renders the financial agreement to be not binding.

Section 90G of the Act does not make provision for the possibility of incorrect advice from a legal practitioner, it merely provides that the advice required by the section be provided before the signing of the agreement and that the party be provided with a signed statement from that legal practitioner stating that the required advice was provided.

It is to be remembered that the provisions of sec 90G(1) which apply to this case are those provisions applicable at the date of signature. Those provisions are as follows:

90G        When financial agreements are binding

(1)          A financial agreement is binding on the parties to the agreement if, and only if:

(a)          the agreement is signed by both parties; and

(b)          the agreement contains, in relation to each party to the agreement, a statement to the effect that the party to whom the statement relates has been provided, before the agreement was signed by him or her, as certified in an annexure to the agreement, with independent legal advice from a legal practitioner as to the following matters:

(i)          the effect of the agreement on the rights of that party;

(ii)         whether or not, at the time when the advice was provided, it was to the advantage, financially or otherwise, of that party to make the agreement;

(iii)        whether or not, at that time, it was prudent for that party to make the agreement;

(iv)         whether or not, at that time and in the light of such circumstances as were, at that time, reasonably foreseeable, the provisions of the agreement were fair and reasonable; and

(c)          the annexure to the agreement contains a certificate signed by the person providing the independent legal advice stating that the advice was provided; and

(d)          the agreement has not been terminated and has not been set aside by a court; and

(e)          after the agreement is signed, the original agreement is given to one of the parties and a copy is given to the other.

Note:       For the manner in which the contents of a financial agreement may be proved, see section 48 of the Evidence Act 1995.

(2)          A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary

 

As can be seen, the original provisions of the section required an annexure to the agreement which contained a certificate signed by the lawyer providing the legal advice to the effect that the required advice had been provided. In the subject case there is such a certificate annexed to the agreement and signed by Mr D. There is no submission made as to the form of that Certificate.

Cronin J stated in Ruane and Bachman-Ruane and Anor [2009] FamCA 1101:

76.      In addition, the plain reading of s 90G is for parties to obtain legal advice.  It does not follow that the advice has to be accepted or followed nor for that matter, for the advice to be correct.  The purpose of the provision is to ensure the party understands not only the rearrangement of property and financial resources but also that rights are being affected.  Those rights include exclusion of access to the courts subject to certain exceptions.  It is this last point that requires consideration about whether the person giving the advice not only is competent in the sense of having access to the relevant knowledge but also accountable as an officer of the court so that the court could be reassured that the advice was directed to the exclusion of access as well as the explanation about the practical side of the settlement itself.

The point at issue in this case is that the legal advice was not only incorrect as to the fairness of the agreement, it was wrong as to the major and pivotal effect of the agreement, namely that the wife was surrendering her rights to seek any order under Part VIII of the Family Law Act. That is a substantially different circumstance to one where the party entering an Agreement understands that the agreement may be important in proceedings between the parties under Part VIII of the Act as opposed to excluding the courts ability to consider any application under that Part.

It would undoubtedly be useful to look for guidance from case law in relation to other sections of the Act in order to determine how the court is to determine this matter.

There is a subset of cases relating to sec 79A of the Family Law Act which deal with the question of whether a “miscarriage of justice”, within the terms of that section, may arise from incorrect advice being provided to a party by their legal representative. This subset of case law provides a degree of analogous commentary from which may be drawn conclusions relating to the situation in this case.

The first point that case law makes on this subject is that there is a distinction to be drawn between incorrect advice which affects the outcome of a case for a party and incorrect advice which affects the “judicial process”

The “judicial process” is rather vaguely described in the judgment of Public Trustee (as an executor of the estate of Gilbert) v Gilbert (1991) FLC 92-799 as being a term which:

can refer to a variety of matters and circumstances which had an influence on the outcome of litigation.

A more concise definition may be to say that the judicial process is the operation of the Court (through litigation and court procedure) by which the court comes to a decision, as opposed to the decision of the court itself.

In Clifton and Stuart (1991) FLC 92-194, the Court was asked to determine whether there had been a miscarriage of justice under sec 79A(1)(a) of the Act due to unprofessional conduct and neglect of the wife’s legal representative, who had been found guilty by the Barrister’s board of Western Australia for charges arising out of the proceedings in question. The Full Court dismissed the appeal of the wife, holding that the incompetence of a legal representative does not, by itself, affect the judicial process. The Full Court (Barblett DCJ, Nygh and Maxwell JJ) stated in a joint judgment:

Our conclusion therefore is that a miscarriage of justice must arise out of the judicial process and that the incompetence of legal representatives unless of the kind instanced by counsel for the husband [“that there might conceivably be cases in which professional incompetence did result in a miscarriage of justice, for example if the representation was so bad as to be the equivalent to no representation at all or if the representation was perverse, for example, if the representative was in league with the other side”]  does not by itself affect the judicial process or the fairness of the trial even though the result may be unjust to the party concerned.

The first instance judgment of In the Marriage of La Rocca (1991) FLC 92-222, took up the decision from Clifton and further clarified it.  Kay J stated:

The Court there concluded that:

“A miscarriage of justice must arise out of the judicial process.  The incompetence of the legal representative unless of a kind instanced by Dr Dickey —”

and I interpose that means it was so bad that there was virtually no representation at all:

“does not by itself affect the judicial process or the fairness of the trial, even though the result may be unjust to the party concerned.”

Earlier in that judgment the Court had posed the question as to whether the section was concerned with an unjust result or an unfair trial.  The conclusion was the latter.

The wife’s submissions directed the court to the case of Holland and Holland (1982) FLC 91-243 as an analogous situation, as the case revolved around a serious unfairness of the distribution of assets between the parties in consent orders. The parties in that instance had entered into consent orders in April 1980, and the husband brought proceedings in September 1980 for the wife’s failure to comply with the orders. The wife then applied for the consent orders to be set aside on the basis that she had not been aware that the consent orders were a final resolution of her matter.

In that case, the wife submitted that the court should set aside sec 79 consent orders on the basis that the wife’s legal advisor had failed to inform himself of vital facts of the matter; had wrongly advised her as a result, and that this constituted a miscarriage of justice under sec 79A. It is important to note that the matters in question all related to the relative financial positions of the parties to the proceedings.

Evatt CJ, Ellis SJ and Murray J held that the legal practitioner had been fully informed as to the relevant issues in question. With respect to the question of whether the advice of a practitioner amounted to a miscarriage of justice, their honours stated (at 77341):

To succeed in an application under sec. 79A, the wife must show some circumstance leading to a miscarriage of justice. Agreement to a consent order which may not adequately reflect a party’s entitlements under sec. 79 does not, of itself, show that there has been a miscarriage of justice. There may be cases where the order consented to is so far outside the ambit of what is just and equitable that the Court may infer that a party has acted under duress, in ignorance or as a result of incompetent advice. This is not such a case. It is not outside the bounds of what is reasonable to conclude that the wife may have accepted half to avoid further delay and expense and to have the matter resolved. His Honour concluded that the result was ”a compromise result well within the ambit of what could have been the ultimate result in any contested hearing” .  (emphasis added)

The main conclusion that may be drawn from this subset of case law is that there is a distinction drawn by the court between the effect of incorrect legal advice on the outcome of the case and its effect on the “judicial process”. In drawing that distinction, the court has held that in the former situation, the party must seek a remedy through an action in negligence against the legal representative, whereas in the latter situation the court may act to remedy the situation.

The distinction referred to in Holland and Holland really arises out of the specific wording of sec 79A. The specific words are “miscarriage of justice”. For that reason the ability to draw further assistance from cases decided in relation to that section becomes limited.

The well documented case of Black and Black (2008) FLC 93-411 emphasised the principle that sec 90G requirements must be strictly complied with for the section to operate so as to oust the jurisdiction of the court so far as Pt VIII is concerned. The Court adopted the approach espoused by Collier J in J and J (2006) FamCA 442, which, after exploring the importance of the term “if and only if” in the operation of sec 90G, went on to state:

Something approaching full compliance, or something that if looked at in a less than strict light, might come close to establishing compliance, is not enough. Clearly, the legislation intended that if this method of parties resolving their differences was to be used without any supervisory power or a court, in a situation where parties’ rights were to be effective, then that which was to be done had to be done full in compliance with that which the statute set out and required.

It needs to be remembered that sec 90G was amended following the decision in Black and Black by the insertion of sec 90G(1A), (1B) and (1C).

The wife submits that the letter of advice from Mr D contained advice that was so bad as to be “the equivalent of no advice at all”. Her complaint in question deals with paragraph 4 of that letter, which read:

Generally speaking, this type of Agreement, commonly referred to as a Pre-Nuptial Agreement, is entered into between a prospective husband and wife prior to their marriage being an agreement to determine how financial matters are dealt with during the marriage or in the event of a separation. The Family Court will not allow such agreements to binds the Courts’ discretion although such agreements will certainly operate so as to influence a Court in relation to the financial relationship between husband and wife.

The letter of advice written by Mr D contained not only the paragraph relied upon by the wife, but also advice regarding specific inequities contained within the Agreement. The letter concludes (on page 2):

We believe that there should be some considerable compromise with regard to the Agreement and unless the foregoing matters are properly addressed we could not possibly discharge our professional responsibility to you by advising you to enter into the agreement.

Notwithstanding the last mentioned portion of his letter to the wife of 9 February 2001, Mr D said that when it came to the signing of the Agreement on 28 March 2001 he was able to tell the wife that in his opinion, at that time, and in light of the circumstances which were reasonably foreseeable, he considered the provisions of the Agreement fair and reasonable. I have stated that I do not accept that advice was given. However, if I be wrong about that then it would highlight a degree of incompetence in the advisor as to fulfil the analogy of being equivalent to receiving no legal advice at all.

Notwithstanding that part of the erroneous advice could be said to go to process rather than outcome I really think it is unavailable as a lever to set the agreement aside. Part of the difficulty in considering setting aside the agreement on the ground that sec 90G has not been complied with, through the provision of competent legal advice, is that the court has to consider the impact of such a decision on the other party. In this case there is no suggestion that the husband was privy to the erroneous advice. The provision of the independent legal advice was a matter completely out of his control. It seems to me to be completely unfair to the husband to set the Agreement aside for a reason which is completely outside his control. To take that action would, it seems to me, potentially make sec 90G and the whole intention of creating “binding financial agreements” unworkable and give rise to uncertainty.

Had the husband been aware of the erroneous advice (such as might arise had the wife shown him the letter from Mr D of 9 February 2001) and had he understood that the advice was clearly wrong then that might present a different scenario for the Court to consider. However, even in such a circumstance, I consider the Court would take that circumstance into account in determining whether there ever was an Agreement in the first place (considering the law of contract) rather than using the departure from the intent of section 90G as a basis for setting the agreement aside.

Section 90G(1A)

As stated earlier sec 90G was amended following the decision of the Full Court in Black and Black.

The amendment is as follows:

(1A)        A financial agreement is binding on the parties to the agreement if:

(a)      the agreement is signed by all parties; and

(b)          one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the agreement; and

(c)          a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and

(d)          the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and

(e)          the agreement has not been terminated and has not been set aside by a court.

Subsection (1B) and (1C) of sec 90G were also added by the 2009 amendments, however, there is no reason to consider those provisions as part of this case.

Given that there is no technical departure from sec 90G(1) which could lead to the type of situation faced in Black and Black there is no reason to further consider the provisions of sec 90G(1A).

Whether since the making of the agreement, a material change in the circumstances have occurred relating to the care, welfare and development of a child and, as a result of the change, the child or Applicant having care and responsibility for the child (the wife) will suffer hardship if the Court does nor set aside the Agreement aside (sec 90K(1)(d).

I turn now to whether the Agreement could be set aside. Again, as I have found that there is no Agreement, and consequently no Binding Financial Agreement, this consideration is not necessary, however, I shall canvass this topic in order to address all of the grounds submitted by the wife.

Subsection 90K(1)(d) provides:

(1)  A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:

(d)           since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside;

Sub-section (2) is as follows:

(2)  For the purposes of paragraph (1)(d), a person has caring responsibility for a child if:

(a)  the person is a parent of the child with whom the child lives; or    (b)  a parenting order provides that:    (i)  the child is to live with the person; or    (ii)  the person has parental responsibility for the child.

This section is very similar in nature and wording to sec 79A(1)(d), although it is noted that this provision is:

“…wider [than sec 79A(1)(d)] in that the change in question need not be “exceptional”, but “material”” (LexisNexis Australian Family Law)

There is no guiding case law on this subsection as yet, therefore in order to gain insight into how this subsection may be construed, it is necessary to draw from case law on sec 79A(1)(d) for guidance, as sec 90K(d) is modelled on that section. In the judgment of Garden and Gavin (No. 2) [2010] FamCAFC 125, the Full Court set out the following test:

[46.]    It is clear that three elements must be satisfied before an order can be made setting aside property orders pursuant to s 79A(1)(d).  First, there must be circumstances that have arisen since the making of the order, being circumstances of an exceptional nature relating to the care, welfare and development of a child.  Secondly, it must be demonstrated that the applicant (not the child) will suffer hardship if the court does not vary the order or set the order aside and make another order in substitution of the order.  Thirdly, what might be described as a further discretionary element, that is, the court may vary the order if it considers appropriate and make another order under s 79 in substitution for the order so set aside.

For the purposes of sec 90K(1), it would be useful to adopt the test in the following terms:

a)           There must be circumstances that have arisen since the making of the Binding Financial Agreement, being circumstances of a material nature relating to the care, welfare and development of a child of the marriage;

b)           It must be demonstrated that the child or the applicant, if she has caring responsibility for the child, will suffer hardship if the court does not set the agreement aside;

c)           The court may set the agreement aside if it considers it appropriate and make such orders under sec 90K(3) as it deems appropriate.

In relation to the first element, it is clear that the court must substitute the broader standard of sec 90K(1)(d) for the narrower sec 79A(1)(d) and be satisfied that that a material change in circumstances has occurred, being circumstances relating to the care, welfare and development of a child of the marriage.

There is no definition, in sec 4 of the Act, of the term “material change”, so it is necessary to look beyond the Act for clarification. The term “material”, according to Butterworths Legal Dictionary, is defined as being “important, essential or relevant”; while “material alteration” is defined as being “a substantial or significant alteration”.

Given these definitions, we may adapt the first element of the test to suit the different standard outlined in sec 90K. The first element of the test would now be that the court must be satisfied that a substantial, significant and relevant change has occurred, being circumstances relating to the care, welfare and development of a child (of the marriage).

In this instance, the Financial Agreement between the parties was created at a time when the parties were the parents of one child and the prospective parents of a second. No consideration was given in the Agreement to the possibility of the parties having a third child, nor is there any evidence that this possibility was discussed during the negotiations between the parties.

The birth of a third child cannot be dismissed as an insignificant or unsubstantial change in circumstances. There are significant costs associated with an additional child in terms of time and emotional investment as well as the financial cost that would most certainly affect the care, welfare and development of the children of the relationship. The change is certainly relevant to the agreement, as there is specific provision that the wife is to be primarily responsible for the children and she is not permitted by the Agreement to claim any compensation from the husband for that effort. It is open to the Court to find that there has been a material change in circumstances.

It also needs to be remembered in this case that at the time the Agreement was signed the parties only had one child, although the fact of the pregnancy of the wife with the second child was set out in the recitals. The impact upon a parent of having the care of three children as opposed to two is significant in many ways. Not the least are the cost of supporting the child, the effort involved in caring for three young children, the time involved in caring for three, the additional cost of day care if the parent has work outside the house.

The second element of the reformulated test is that the court must determine whether a child of the marriage or the applicant if she has the caring responsibility for the child will suffer hardship if the agreement is not set aside.

In this case I am satisfied that the wife does have caring responsibility for all three children as defined by subsection (2) of sec 90K(1).

In this case the hardship focused upon is that of the wife.

In Garden and Gavin (No. 2) [2010] FamCAFC 125, the Full Court followed the leading case of Simpson and Hamlin (1984) FLC 91-576 in relation to the second element of the test, hardship:

[56.]   As their Honours in Simpson and Hamlin said this conclusion is fortified by the operation of s 81 of the Act.  At p.79,659 their Honours said:

The importance of bringing an end to litigation remains an important consideration and the remarks of Mason  J.  remain applicable to para.  (d) mutatis mutandis .  To paraphrase his Honour’s remarks: it is not sufficient that it appears that circumstances have arisen of an exceptional nature resulting in hardship to the applicant, the Court must consider in the exercise of its discretion whether that hardship is of such a serious nature and results in such inequity that it can only be rectified by the extreme step of setting aside or varying an existing order of the Court.  We leave aside the question of whether special considerations apply to consent orders. (emphasis added)

The judgment of In the Marriage of Whitford (1979) FLC 90-612 discusses what “hardship” is (in relation to sec 44(3) of the Act and making an application for property orders out of time). This discussion, though on another section of the Act, is relevant in the discussion as it deals with the reopening of financial matters which would otherwise be considered closed:

The loss of the right to institute proceedings is not the hardship, to which the sub-section refers. It is with the consequences of the loss of that right, with which the sub-section is concerned. The requirement, that the court must be satisfied that hardship would be caused if leave were not granted, implies that it must be made to appear to the court that the applicant would probably succeed, if the substantive application were heard on the merits. If there is no real probability of success, then the court cannot be satisfied that hardship would be caused if leave were not granted. Further, the matter with which the court is concerned is not whether the applicant or a child is suffering hardship, but the question is whether the applicant or a child would suffer hardship if leave were not granted. If the probable result of the hearing on the merits is that the hardship is not likely to be alleviated, then the court cannot be satisfied that the applicant or a child would suffer hardship if leave were not granted.

Hardship may be caused to an applicant if leave were not granted to institute proceedings, although the applicant is not in necessitous circumstances. Whatever the financial situation of an applicant may be, his or her loss of a prospective entitlement to property including money, or his or her inability to have the financial and property relations of the parties adjusted or resolved, may constitute hardship. In some cases, where a resolution of the property or financial relationships of the parties is desired, it might be, that the applicant would receive no more or even less, than he or she already owns at law or in equity. Nevertheless, hardship might be caused to the applicant if leave were not granted so as to facilitate such resolution. (emphasis added)

In this instance, the evidence of the husband is that he wished to remove from the wife’s reach the W Property. The agreement between the parties is backdated so as to commence before the completion of the purchase of the property, in order to effect that purpose.

The Financial Agreement also provides that the wife will be primarily concerned with home-making and parenting duties while the parties live in their home. In her evidence, the wife says that in conversations relating to the agreement, the husband said “I’ll look after you and the children”. These facts together indicate that the wife and children were financially dependent on the husband.

Nevertheless, the Agreement makes the assumption that in the event of separation, both parties would be able to financially support themselves independent of the other party. The wife is also precluded from compensation for her non-financial contributions throughout the relationship.

There is no provision in the Financial Agreement as to the future support of the children should the parties separate. Paragraphs 33-35 provide that the father would pay “appropriate child support … as required from time to time” and that the parties will make wills in favour of the children. The conclusion which may be drawn from that paragraph in the agreement is the wife would remain the primary care-giver to the children if separation were to occur. That has proved to be the case since the separation.

Given the facts, the Agreement, as it stood in 2001, makes the assumption that if the parties were to separate, each party would be able to financially support themselves, independent of the other party. The Agreement also assumes that the wife would be able to financially support two children in addition to herself with only “appropriate child support … from time to time” from the husband.

Since the formation of the Agreement, the parties’ second and third children have been born. This material change in circumstance, being the birth of the third child in particular, has a major impact on the assumptions made in the Agreement. There is no provision for the birth of future children in the Agreement, so the wife’s financial responsibility under the Agreement grows substantially with the advent of this change, while her entitlement diminished, at least proportionately.

This outcome under the agreement inevitably creates hardship for the wife. The support of three children is a significant financial burden, one which has not been dealt with adequately under the Agreement. Further, the Agreement has denied the wife the ability to seek orders in the Family court under secs 72 and 79.

The husband submits that the wife is fully capable of obtaining full-time employment due to her qualifications and that she enjoys the income obtained from leasing her property in Sydney Suburb A that is not subject to any mortgage. He further submits that he spends time with the children five of every fourteen days and pays child support to the mother. The nature of this child support was never fully disclosed in these proceedings, but has included contributions to schooling fees.

The ability of the wife to support herself has little bearing on the question of whether she would suffer hardship. The hardship of the wife is the consequences flowing to the wife if the Agreement is not set aside. It is not necessary to look at the resources currently at the wife’s disposal, but the effect of denying her access to the Family Court for adjudication of the property matters.

This Agreement has departed from the Act in the manner in which the parties were to divide the assets of the parties under the Agreement. Considerations that are common in deciding property division under secs 72 and 79 of the Act are completely absent in the Agreement. The wife is barred from claiming compensation for non-financial contributions made throughout the marriage, she is not able to claim compensation for future need. Further, the division of the property is not made by pooling assets brought to, and acquired in the course of, the marriage and dividing them equally, but rather divided on a ‘mine’ and ‘yours’ basis.

The husband stated that he wished to maintain control over his largest resource or asset, the J Trust (and the property he bought with the proceeds from that trust), which he brought into the relationship. As the parties had been in a relationship for several years and had started a family together, the husband wanted to prevent the ‘erosion’ of his contribution that was inevitable over the course of the marriage.

If the Agreement is not set aside, the wife would remain in a position in which she is financially responsible for three children under an agreement that does not adequately provide for such a responsibility, as well as her contributions. The terms of the Agreement contain a number of inequities that are increased by the addition of a third child to her financial responsibility.

If the Agreement is set aside, the wife would be able to make an application for orders under secs 72 and 79 of the Act. It is safe to say that the outcome of such an application is likely to be very different to that brought about by the Agreement.

In light of this, I would find that hardship on the part of the wife is established, and that setting the Agreement aside is the only remedy.

The third element is discretionary. Having decided that there is a material change in circumstance and that the change has created serious hardship to the wife.

I consider in all the circumstances that the only just course in this case is to set the agreement aside on the ground set out in sec 90K(1)(d). In such a circumstance the court may make orders under sec 90K(3).

SUPERANNUATION

I turn now to the superannuation provisions of the Agreement. The wife submits that the purported superannuation agreement contained within the Agreement is not a valid agreement.

The Agreement provides (at paragraph 28.2):

If at the date of such a breakdown the relevant legal provisions governing family law matters and superannuation have been amended to allow for equal division of superannuation funds, then both parties must:

a)           Obtain written advice from his and her fund manager as to the amount of increase in each fund from the date of this Deed until the date of separation;

b)           Obtain written advice from each fund manager as to the net after tax amount applicable to such funds excluding the amounts presently credited;

c)            Supply to each other the written evidence referred to in (a) and (b) above;

d)           Cause such payment to be made as will ensure that each party has available to him and her one half of the total net increase in each superannuation fund from the amount referred to in each Schedule to the date of separation.

The first question to be answered is whether there is a superannuation agreement that would be a valid agreement under the Act.

The wife submits that the agreement does not fall under the blanket of sec 90MH, being uncertain in its terms. As will be seen later there is also a problem with the commencement date for that section and its non-retrospective operation.

The husband submits that to achieve the parties’ agreement as to a division of the increase in their respective Superannuation Funds, a Splitting Order is not required.

In the husband’s submissions, the Agreement requires that the parties ascertain the exact net increase of each party’s superannuation between the date of the Agreement and the date of separation. Once that amount is ascertained, the parties must then split the increase equally and make available to each other the relevant sums of money to ensure that equal division. The question posed by that submission is whether such action would be permissible pursuant to Commonwealth Superannuation Legislation. The provisions of sec 90MT work as an exception to the provisions of the other Commonwealth Superannuation legislation. Without an order under sec 90MT a trustee of a superannuation fund is not permitted to split superannuation so as to pay it to a third party’s fund.

The Agreement does not require that the funds to be made available be taken from their superannuation funds, the Agreement requires that the parties “[c]ause such payment to be made as will ensure that each party has available to him and her one half of the total net increase in each superannuation fund”.

The Law

Superannuation agreements are dealt with under sec 90MH of the Family Law Act. Prior to that date, there was no legislative framework that dealt with Agreements relating to Superannuation.

Section 90MH relates to superannuation agreements within financial agreements:

90MH  Superannuation agreement to be included in financial agreement if about a marriage

A financial agreement under Part VIIIA may include an agreement that deals with superannuation interests of either or both of the spouse parties to the agreement as if those interests were property. It does not matter whether or not the superannuation interests are in existence at the time the agreement is made.

The part of the financial agreement that deals with superannuation interests is a superannuation agreement for the purposes of this Part.

A superannuation agreement has effect only in accordance with this Part. In particular, it cannot be enforced under Part VIIIA.

A superannuation agreement that is included in a financial agreement under section 90B (in contemplation of marriage) has no effect unless and until the spouse parties marry.

In applying sections 90B, 90C and 90D for the purposes of this Division, a superannuation interest of a spouse party to a financial agreement is treated as being acquired at the time when that party first becomes a member of the eligible superannuation plan in respect of that interest.

Section 90MO outlines limits to the Court’s powers to make a Superannuation Agreement:

90MO  Limitation on section 79 or 90SM order

A court cannot make an order under section 79 or 90SM with respect to a superannuation interest if:

(a)          the superannuation interest is covered by a superannuation agreement that is in force; or

(b)           the non-member spouse has served a waiver notice on the trustee under section 90MZA in respect of the interest; or

(c)          a payment flag is operating on the superannuation interest.

Note:       Under section 90MM, the court can terminate the operation of a payment flag in certain circumstances.

Subsection (1) does not prevent the court taking superannuation interests into account when making an order with respect to other property of the spouses.

Section 90MS is the empowering provision for superannuation orders:

90MS  Order under section 79 or 90SM may include orders in relation to superannuation interests

In proceedings under section 79 or 90SM with respect to the property of spouses, the court may, in accordance with this Division, also make orders in relation to superannuation interests of the spouses.

Note 1: Although the orders are made in accordance with this Division, they will be made under either section 79 or 90SM. Therefore they will be generally subject to all the same provisions as other orders made under that section.

Note 2:  Sections 71A and 90MO limit the scope of section 79.

Note 3: Subsections 44(5) and (6) and sections 90SB, 90SK and 90MO limit the scope of section 90SM.

A court cannot make an order under section 79 or 90SM in relation to a superannuation interest except in accordance with this Part.

Section 90MT details the types of superannuation orders that the Court may make:

90MT  Splitting order

(1)  A court, in accordance with section 90MS, may make the following orders in relation to a superannuation interest (other than an unsplittable interest):

(a)          if the interest is not a percentage-only interest—an order to the effect that, whenever a splittable payment becomes payable in respect of the interest:

(i)  the non-member spouse is entitled to be paid the amount (if any) calculated in accordance with the regulations; and

(ii)  there is a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for the order;

(b)          an order to the effect that, whenever a splittable payment becomes payable in respect of the interest:

(i)  the non-member spouse is entitled to be paid a specified percentage of the splittable payment; and

(ii)  there is a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for the order;

(c)          if the interest is a percentage-only interest—an order to the effect that, whenever a splittable payment becomes payable in respect of the interest:

(i)  the non-member spouse is entitled to be paid the amount (if any) calculated in accordance with the regulations by reference to the percentage specified in the order;

(ii)  there is a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for the order;

(d)          such other orders as the court thinks necessary for the enforcement of an order under paragraph (a), (b) or (c).

Before making an order referred to in subsection (1), the court must make a determination under paragraph (a) or (b) as follows:

(a)          if the regulations provide for the determination of an amount in relation to the interest, the court must determine the amount in accordance with the regulations;

(b)          otherwise, the court must determine the value of the interest by such method as the court considers appropriate.

(2A)        The amount determined under paragraph (2)(a) is taken to be the value of the interest.

Regulations for the purposes of paragraph (2)(a) may provide for the amount to be determined wholly or partly by reference to methods or factors that are approved in writing by the Minister for the purposes of the regulations.

Before making an order referred to in paragraph (1)(a), the court must allocate a base amount to the nonmember spouse, not exceeding the value determined under subsection (2).

Note:       The base amount is used to calculate the entitlement of the nonmember spouse under the regulations.

Before moving on I set out the provisions of sec 90G(2) which are relevant to this consideration:

(2)          A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary.

Discussion

There are several issues that arise in relation to the purported superannuation agreement, quite separate from the questions relating to the Financial Agreement.

The first question is whether there is a purported superannuation agreement, and whether that agreement is in fact a superannuation agreement under sec 90MH of the Family Law Act. The determination of this question affects not only the validity of the agreement, but affects the remedies the court may employ in order to give effect to the agreement of the parties.

Insofar as the husband’s submission as to the meaning of paragraph 28.2 of the Agreement, I turn to the question of whether the parties purported to create a Superannuation Agreement within the Financial Agreement. The husband submits that the paragraph 28.2 does not purport to split superannuation per se, but rather that paragraph 28.2(d), which sets out that the parties must:

“cause such payments to be made as will ensure that each party has available to him and her one half of the total net increase in each superannuation fund from the amount referred to in each Schedule to the date of separation.”

The husband submits that the wording of this subparagraph does not intend that the parties split superannuation, but that they exchange money to the equivalent value of their superannuation. The wife does not agree, submitting that the parties purported to create a superannuation splitting clause in the Agreement.

It is true that (d) does not explicitly set out that the parties are to draw the funds to make such payments, as envisaged in the subclause, from their superannuation funds. The differing interpretation by the parties, as to the meaning of this section, is evidence that the subclause is open to an uncertainty that requires resolution.

Any ambiguity in the meaning of the subclause need not derail the Agreement in any way. In the event of uncertainty, the court’s approach is to seek to uphold the contract by determining what the unclear statement means. Barwick CJ in his judgment in Upper Hunter County District Council v Australian Chilling and Freezing Co. (1968) 118 CLR 429 (at 436-7) neatly encapsulated this principle:

…a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning … the court … will decide its application

In this instance, it is not necessary to import extrinsic evidence to support the finding that the paragraph purports to be a superannuation splitting agreement. The explicit reference in the paragraph to the prospective amendments to the Family Law Act is, of itself, a powerful indication of the intent of the parties to the Agreement. Further, paragraph 28.2 does not exist in a vacuum. Although it anticipates new legislation, it also makes provision for the possibility that the Amendments to the Family Law Act do not go ahead. Paragraph 28.3 sets out:

If the relevant laws have not been amended so as to facilitate the arrangements set out in the preceding subclause, then both parties must use their best endeavours to bring about the same effect by transfer from one complying fund to another complying fund of the relevant amount referred to in the preceding subclause, or upon the relevant party becoming entitled to draw down the sum referred to from the relevant fund. (Emphasis added)

The intent in subclause 28.3 is quite clear. The subclause seeks to cause the splitting of the parties’ superannuation. It is explicitly stated to be the case. It would therefore be somewhat disingenuous to argue that this intention was not also extant in subclause 28.2 merely because the subclause does not use the specific words. Subclause 28.2 looks forward to the introduction of superannuation splitting laws, subclause 28.3 provides for a situation in the event that those laws are not introduced. The overall intent of the parties is to create a superannuation splitting agreement.

That intent, however, does not mean that a superannuation agreement exists.

Paragraph 28.2 of the Agreement purports to look forward to the enactment of legislation dealing with superannuation in a property settlement, stating

“If at the date of such a breakdown the relevant legal provisions governing family law matters and superannuation have been amended to allow for equal division of superannuation funds”,

The Agreement between the parties was formed on 28 March 2001, over a year before the 28 December 2002 commencement date of Family Law Legislation Amendment (Superannuation) Act 2001 (Act 61 of 2001), which inserted Part VIIIB into the Act to deal with superannuation splitting. Prior to this date there was no set scheme as to how to treat superannuation in a property matter.

It is clear in the Agreement that the solicitors for the parties were aware that Amendments to the Family Law Act in respect of superannuation were in train, and that the parties wished to adopt any such laws which might eventuate.

The transitional provisions of the Amending Act note at sec 5:

(5)      Part VIIIB of the Family Law Act does not apply in relation to a financial agreement that was made before the startup time.

The fact of the agreement’s date being over a year before the commencement of the Amending Act, and the transitional provisions contained in the Amending Act, preclude the parties from adopting the provision of sec 90MH into paragraph 28.2 of their agreement. Paragraph 28.2 is contingent on the commencement of the Amending legislation coming into force, so cannot be dealt with outside the terms of the Family Law Legislation Amendment (Superannuation) Act 2001, and as the Amending Act excludes financial agreements made before its start date in 2002, there is consequently no valid superannuation agreement within the terms of the parties’ financial agreement.

The fact of the commencement of the Amending Act further precludes the provisions of paragraph 28.3 being enforced, as it is contingent on the legislation relating to superannuation not coming into force.

In light of this, I find that there is no valid superannuation agreement within the parties’ financial agreement.

I move on to the next question to be addressed in relation to superannuation. Given that there is no valid superannuation agreement within the terms of the Agreement, is the Court able to apply remedies under sec 90G so as to enforce the provisions of the Agreement?

The court has power, under sec 90G(2), to make additional orders so as to give effect to the terms of a financial agreement:

(2)          A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary.

At first glance, this section would appear to give the Court the power to make any orders it thinks necessary. The use of the phrase “such orders … as it thinks necessary” are non-restrictive in their meaning. The only restriction  within the subsection, being that the orders are for “the enforcement of a financial agreement that is binding on the parties”.

In this instance, the binding financial agreement includes an invalid superannuation agreement. It would seem that the Court has the ability to make such an order.

Part VIIIA, however, is a part that restricts the operation of other parts of the Family Law Act. The effect of a financial agreement that is binding on the parties is that it ousts the jurisdiction of the court in relation to certain financial matters. Section 71A of the Act  provides that:

(1)      this part [Part VIII] does not apply to :

(a)          financial matters to which a financial agreement that is binding on the parties to the agreement applies; or

(b)          financial resources to which a financial agreement that is binding on the parties to the agreement applies.

In essence, a binding financial agreement ousts the jurisdiction of the Court to make orders under Part VIII in relation to financial matters and resources dealt with within the terms of the financial agreement. Thus the court is not precluded from making orders under any other part. Section 90MT appears in Part VIIIB.

The annotation to this section in LexisNexis’ Australian Family Law notes:

Where a binding agreement does not deal comprehensively with the all aspects of the parties’ financial affairs, the court’s powers under Pt VIII remain, but the terms of any such agreement will be relevant to the exercise by the court of its powers under Pt VIII

It is therefore clear that there are certain bars to the financial orders that a court may make in matters where there is a binding financial agreement. Part VIII must be treated with caution when seeking to make orders pursuant to sections in that part where there is binding financial agreement in place.

Superannuation Orders and Agreements are covered under Pt VIIIB of the act, which is not covered by the ousting provision of sec 71A. There is therefore an initial assumption that superannuation orders are not beyond the Court’s powers to make an order pursuant to sec 90MT.

However, the empowering provision for the creation of sec 90MT superannuation orders, sec 90MS, states specifically that superannuation orders fall under the banner of property orders under sec 79, which is limited by the terms of sec 71A. It is therefore necessary to examine whether the court has the power under sec 90G(2) to make a superannuation order that would enforce the terms of the superannuation agreement located within the terms of the Financial Agreement.

Superannuation, following the commencement of the Family Law Legislation Amendment (Superannuation) Act 2001, is now deemed to be property for the purposes of sec 79, and as such the court has the power to make orders in relation to its distribution between parties.

The section which gives the court power to make such orders relating to superannuation may be found at sec 90MS. The section states:

(1)          In proceedings under section 79 or 90SM with respect to the property of spouses, the court may, in accordance with this Division, also make orders in relation to superannuation interests of the spouses.

The proceedings before the court at this time are not proceedings under secs 79 or 90SM.

As I have discussed above, the purported superannuation agreement contained within the financial agreement signed by the parties is not valid due to the transitional provisions of the Family Law Legislation Amendment (Superannuation) Act 2001. The superannuation agreement, lacking validity, is unenforceable, and therefore lacks that binding quality which attracts the ousting powers of Pt VIIIA.

The explanatory memorandum of the Family Law Legislation Amendment (Superannuation) Act 2001 sets out the following in relation the Court’s powers to deal with property not dealt with under binding financial agreement. The Explanatory memorandum states:

If an agreement is not binding, a court will be able to deal with the matters with which the agreement deals.  A court will be able to deal with any property or financial resources of the parties that has not been dealt with by a binding financial agreement between them.

The superannuation is not “property” dealt with under the Agreement. There is no valid superannuation agreement. The Court is therefore empowered to deal with the property unencumbered by the terms of sec 71A. However, as seen earlier, the power under sec 90MT can only be exercised when there are proceedings before the court under secs 79 or 90SM. Thus that pathway would appear to be blocked for the court to make the orders which the parties envisaged may be made when the legislation changed to allow “superannuation splitting”.

However, subsection 90G(2) provides the court with a direct power to make orders to enforce the terms of the agreement, in a situation in which, presumably, the terms of an agreement are insufficient to enable the agreement to be enforced otherwise.

The court is empowered by sec 90G(2) to make orders which may be required to give effect to an otherwise valid financial agreement. In the circumstances of this case it is clear what the parties wished to achieve by the agreement so far as superannuation is concerned. It seems to me the court could make an order under sec 90G(2) to give effect to the agreement. Such an order could be a superannuation splitting order.

If I be wrong as to the Court’s power to make such an order with respect to superannuation under sec 90G(2) to enforce paragraph 28.2 by making orders similar to splitting orders, then, there is nothing in the Act or Agreement  which would prevent the parties seeking superannuation splitting orders.

If the Court was to consider making a splitting order, in circumstances such as this, it appears to me that the Court’s discretion would be at large again and therefore the making of any splitting order would be subject to the Court’s requirement to make orders which are just and equitable.

Determinations

As can be seen from the above determinations there are many circumstances in which I have considered the agreement should be set aside. I have considered all of the areas of challenge raised by the wife not only as a requirement of this case but also in the hope it might provide assistance to the legal profession who are facing the challenge of seeking to enforce or escape from a Financial Agreement.

Orders of the Court

Orders of the Court will provide for the agreement to be set aside and the matter then to be returned to the docket registrar for directions.

I certify that the preceding four hundred and thirty two (432) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Le Poer Trench  

Associate:

Date:  21 December 2011


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