BERKLEY and STANFIELD

[2018] FCWA 119

JURISDICTION : FAMILY COURT OF WESTERN AUSTRALIA

ACT: FAMILY LAW ACT 1975

LOCATION: PERTH

CITATION: BERKLEY and STANFIELD [2018] FCWA 119

CORAM: O'BRIEN J

HEARD: 24 & 25 JANUARY 2017

FINAL WRITTEN SUBMISSIONS 2 MARCH 2018

DELIVERED : 5 JULY 2018

FILE NO/S: PTW 5618 of 2015

BETWEEN: MS BERKLEY

Applicant

AND

MR STANFIELD

Respondent

Catchwords:

FAMILY LAW – BINDING FINANCIAL AGREEMENT – Where the parties signed a financial agreement prior to their marriage – Where husband seeks to enforce the agreement – Where wife seeks orders setting aside the agreement on multiple grounds – Where the home the subject of the agreement was sold prior to separation – Orders made setting aside the binding financial agreement

Legislation:

Fair Work Act 2009 (Cth)
Family Law Act 1975 (Cth) s 90

Category: Not Reportable

Representation:

Counsel:

Applicant	:	Mr M Berry SC
Respondent	:	Mr M Rynne

Solicitors:

Applicant	:	Douglas Cheveralls
Respondent	:	Carr & Co.

Case(s) referred to in decision(s):

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977)
180 CLR 266
Cawthorn v Cawthorn (1998) FLC 92-805
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982)
149 CLR 337
Commonwealth Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696
Fazio v Fazio [2012] WASCA 72
In the Marriage of La Rocca (1991) FLC 92-222
Johnson v Buttress (1936) 56 CLR 113
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392
Kennedy & Thorne (2016) FLC 93-737
Louth v Diprose (1992) 175 CLR 621
Paal Wilson & Co A/S Partenreederei Hannah Blumenthal [1983] 1 AC 854
Sanger & Sanger (2011) FLC 93-484
Thorne v Kennedy (2017) FLC 93-807
Weldon and Asher (2014) FLC 93-579
Winefield v Clarke [2008] NSWSC 882

WORDS IN SQUARE BRACKETS REPLACE WORDS USED IN THE ORIGINAL JUDGMENT - PARTIES’ NAMES AND IDENTIFYING DETAILS HAVE BEEN CHANGED

1[Mr Stanfield] (“the husband”) and [Ms Berkley] (“the wife”) were married [in] 2001, having lived together since 1994. They separated in June 2015.

2On 12 April 2001, prior to their marriage, the parties executed a financial agreement (“the BFA”) pursuant to s 90B of the Family Law Act 1975 (Cth) (“the Act”). It is common ground that the BFA complied with the requirements of the Act as they stood at the relevant time and is, accordingly, binding.

3Section 90K of the Act provides that a court may make an order setting aside a financial agreement if, and only if, the Court is satisfied on one or more of a number of grounds.

4While the list of grounds is exclusive, the establishment to the satisfaction of the Court of one or more of the grounds does not mean that the BFA must be set aside; rather, it enlivens the discretion to do so.

5The wife seeks to set aside the BFA on the following bases:

1.The husband engaged in conduct that was, in all the circumstances, unconscionable (s 90K(1)(e));

2.The husband engaged in conduct that amounted to undue influence (s 90K (1)(b));

3.In the circumstances that have arisen since the BFA was made, it is impracticable for it to be carried out (s 90K(1)(c));

4.In the alternative, the BFA is unenforceable (s 90K(1)(b)); and

5.The BFA is void for uncertainty (s 90K(1)(b)).

6The husband seeks the dismissal of the wife’s application.

7The trial took place over two days in January 2017. My decision was reserved. On 10 March 2017, the High Court granted special leave to appeal the decision of the Full Court of the Family Court of Australia in the matter of Kennedy & Thorne (2016) FLC 93-737. At my direction, the Principal Registrar drew the grant of special leave to the attention of the parties and the matter was relisted to enable them to make submissions as to whether my judgment should await the outcome of the High Court proceedings.

8On 29 March 2017, the proceedings were adjourned generally at the request of the parties, to be relisted for further directions upon publication of the decision of the High Court. That decision, Thorne v Kennedy (2017) FLC 93-807 (“Thorne v Kennedy”), was delivered on 8 November 2017. On 15 January 2018, orders were made by consent for the filing and service of further written submissions by the parties. The husband’s submissions were received by the Court on 15 February 2018. On 2 March 2018, the solicitors for the wife advised that they did not propose to exercise their right to reply.

The terms of the BFA

9The provisions of the BFA are not complex.

10The recitals noted that each party would individually bring into the marriage certain assets and financial resources listed in schedules to the agreement, and defined as the “quarantined property” of each. The parties’ joint ownership of a house and land at [Property A] (“the house”) was also recited, as were the circumstances of its acquisition. In particular, the payment by the wife of the deposit of $45,000 for the purchase of the house was recited, as were the facts that her payment represented 17% of the purchase price, and that the balance of the purchase price was borrowed.

11The BFA also recited the desire of the parties to “define their financial rights and responsibilities towards each other in the event of the breakdown of the marriage” and “avoid conflict or litigation between them should the marriage break down”. The expressions “separation” and “marriage breakdown” were defined to mean the parties separating and living apart for a continuous period of not less than three months or such shorter period as they might agree.

12The operative clauses of the BFA provided that in the event of a breakdown of the marriage:

(a)each party would retain his or her quarantined property, and neither would have any entitlement in relation to the quarantined property of the other;

(b)neither party would have any entitlement to any gift or inheritance received by the other during the marriage;

(c)each party would have the option to purchase the interest of the other in the house, on terms specified in detail;

(d)subject to either party exercising that option to purchase, the parties:

“[would] put the house on the market for sale and the proceeds of sale [would] be disbursed as follows:

(i)in payment to [the wife] of such sum as represents 17% of the gross sale price of the house;

(ii)in payment of the costs and expenses of sale including agents selling commission;

(iii)in payment of the sum necessary to discharge any encumbrances including any mortgage; and

(iv)in payment of the balance then remaining equally to [the husband and the wife].”

(e)unless otherwise provided, the assets and resources “accumulated in the name of either or both of the parties during the course of the marriage (“the joint assets”) [would] be deemed to be owned by the parties”;

(f)the joint assets would be divided equally; and

(g)the husband would pay maintenance to the wife at a specified rate for a period of six months, on certain conditions, and meet certain relocation expenses for her in the event that she desired to return to [Country A].

13The BFA also provided that it would continue in effect for a period of 10 years from the date of marriage, “when it may be reviewed”, but, if not reviewed, would “continue in full force and effect”. Neither party suggested that any review had occurred, nor that the BFA had lapsed. While there was a dispute between them as to whether the possibility of a review had been raised by the wife, nothing turns on that.

14Central to the wife’s argument that the BFA is impracticable to be carried out, or, alternatively, unenforceable, is the fact that the parties sold the house in 2014, with settlement proceeds of approximately $940,000 being received in October that year. From the proceeds of sale, the parties jointly purchased a property in [Country B] for approximately $569,000. Various improvements to that property were funded from the proceeds of sale of the house. After the parties separated, the wife transferred the remaining proceeds of sale of the house (a sum of approximately $185,000) from the joint account into accounts in her sole name for “safekeeping”.

15The husband has lived in the property in Country B since February 2015.

Affidavit evidence at trial

16The wife relied on the following affidavits:

1.her trial affidavit filed 12 August 2016;

2.her affidavit sworn in reply to the husband’s affidavit, filed 6 October 2016; and

3.affidavit of [Mr C] (the solicitor who advised her in relation to the BFA), filed 20 December 2016.

17The husband relied on the following affidavits:

1.his trial affidavit filed 15 September 2016;

2.affidavit of his former wife, [Ms S], filed 15 September 2016;

3.affidavit of his daughter, [Ms St], filed 15 September 2016;

4.affidavit of his son, [Mr S], filed 16 September 2016; and

5.affidavit of [Mr B] (the solicitor who drafted the BFA and advised him in relation to it), filed 15 September 2016.

18Both parties were cross-examined on their affidavit material. Mr C and Mr B were also cross-examined. The other witnesses who swore affidavits filed on behalf of the husband were not required for cross-examination.

Observations as to the evidence

19Mr B and Mr C each gave their evidence in a professional, straightforward and frank manner. Both readily acknowledged that they did not have accurate present recollection of relevant events which took place in 2001. Both gave clear evidence as to their regular practice where relevant. Mr B did not have the benefit of a file or contemporaneous notes, his file having been destroyed in 2013. Mr C’s entire file, in so far as relevant, was in evidence and he was able to refer to it. That said, the correspondence and notes on his file were extremely brief.

20The wife was not an overly impressive witness. She had a tendency to endeavour to tailor her answers to her case, and was reluctant to make any concession. Indeed, she went further than that – in her oral evidence, she asserted that the husband had not raised the prospect of a BFA until after she had agreed to marry him, and only shortly prior to the meeting with Mr B that led to the drafting of the document. When cross-examined in that regard by reference to her trial affidavit, in which she had said that the husband had raised the issue of a BFA with her after their return from a holiday in March 2000, during which he had proposed to her, she argued that her trial affidavit did not specify how long after their return from the relevant holiday that had occurred. She maintained that the matter was not raised until March or April 2001.

21That stood in contrast to her evidence in an affidavit sworn earlier in the proceedings, and prepared by the solicitors who previously represented her, in which she said:

“In 2000, [the husband] said words to the effect of ‘I will marry you, but only if we have a pre-nup’.”

22It also stood in contrast to the express assertions in her Particulars of Claim filed on 22 February 2016, which said that in 2000, the husband asked her to marry him but only if she signed a prenuptial agreement.

23Other aspects of the wife’s oral evidence gave the clear impression that she was acutely conscious of the matters which need to be established in support of her application, and that she tailored her evidence accordingly.

24The husband’s evidence in relation to the circumstances leading up to the execution of the BFA, and the conversations between the parties as to their relationship and the subject of marriage, was unshaken in cross-examination, and given in a direct and seemingly open manner.

25In contrast, when asked questions about his current financial circumstances, the husband became somewhat evasive.

26Nevertheless, where the evidence of the parties differed in relation to factual matters within the knowledge of each of them, I preferred the evidence of the husband.

27The evidence of the husband’s former wife and his adult children was not of any assistance in determining the matters in issue.

The first limb of the wife’s case – unconscionable conduct

28Subsection 90K(e) provides that the Court may set aside a financial agreement if satisfied that:

“in respect of the making of a financial agreement – a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable.”

29Counsel for the wife agreed with the proposition that the words “in respect of the making of” in that subsection mean that the conduct which is asserted to be unconscionable must relate to the circumstances in which the agreement was made, rather than any subsequent conduct.

30The principles of unconscionable conduct in equity were restated in Thorne v Kennedy at [38]:

“A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests.” The other party must also unconscientiously take advantage of that special disadvantage. This has been variously described as requiring “victimisation”, “unconscientious conduct”, or “exploitation”. Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage.”

31Counsel for the wife contended that the concept of “unconscionability” for the purposes of the subsection is wider than the recognised equitable notion of unconscionability. He referred in that regard to a decision of Thackray CJ sitting at first instance in Weldon and Asher (2014) FLC 93-579, where his Honour considered that question, albeit without the benefit of detailed submissions. At [94], his Honour “thought it proper to indicate that [he had] not discounted the possibility that s 90K(1)(e) has some independent application and that relief might therefore potentially be available in circumstances where equity would not intervene”.

32Counsel for the wife submitted that his Honour had analysed the “statutory concept of unconscionable conduct” and “conclude[d] that it is probably wider than the equitable concept of unconscionable conduct”, and adopted that analysis.

33With due respect to counsel, in my view his Honour reached no such conclusion. In his observations just quoted, his Honour did not “discount the possibility” of what counsel described as a wider concept. His Honour went on to say at [95]:

“However, given what I perceive to be the manifest differences in factors underpinning commercial contracts and those underpinning agreements between prospecting spouses it may well be entirely appropriate for the grounds for relief to be “just a little” wider than those applying in the commercial sphere [emphasis added], as was intended by the proponent of the relevant amendment in the Senate”.

34It is clear from his Honour’s carefully chosen words, and from his analysis referred to, that his Honour did not suggest that he had reached a concluded view on the point.

35In Thorne v Kennedy, the High Court said this at [23]:

“At all stages in this litigation it was assumed that each of the vitiating factors applied according to the principles of common law and equity as described in s 90KA. There were no submissions made concerning how the statutory prohibition against unconscionable conduct in s 90K(1)(e) might differ, if at all, from the equitable doctrine concerning unconscionable conduct. Further, although, in written submissions in this Court, Ms Thorne initially appeared to submit that the statutory context of ss 90K and 90KA might somehow have affected these principles, in oral submissions in this Court, counsel for Ms Thorne accepted that the principles were not altered although the particular circumstances of the marital context would be taken into account. This latter point was, properly, common ground”.

36I perceive no inconsistency between the observations of the High Court and those of the Chief Judge in Weldon and Asher.

37As the High Court said in Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at [18] (footnotes omitted):

“The invocation of the conscience of equity requires “a scrutiny of the exact relations established between the parties” to determine “the real justice of the case”. Where an appeal is made by a plaintiff to the standards of equity embodied in the Amadio principle, the task of the courts is to determine whether the whole course of dealing between the parties has been such that, as between the parties, responsibility for the plaintiff’s loss should be ascribed to unconscientious conduct on the part of the defendant”.

38By that scrutiny, and the examination of the whole course of dealing between the parties, the “particular circumstances of the marital context” can readily be taken into account. That in turn is consistent with the observation of the High Court in Louth v Diprose (1992) 175 CLR 621 (“Louth v Diprose”) that “the adverse circumstances which may constitute a special disability for the purposes of the principle relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible of being comprehensively catalogued”, and the acceptance in that case of the proposition that a relevant special disability could arise from a strong emotional attachment and other associated factors.

39As noted above, the wife filed Particulars of Claim on 22 February 2016. In support of her contention that the husband engaged in unconscionable conduct, she asserted that:

1.she had left behind her career prospects in Country A to move to Australia in 1994 “in reliance upon assurances by [the husband] that they would be married within five years”;

2.after about five years, she asked the husband about his promise to marry her, and he “reneged on his previous offer of marriage claiming it had never been made”;

3.in 2000, the husband again asked her to marry him, but only if she signed a prenuptial agreement, and that she was “shocked by the request”;

4.at that time, her primary source of income was employment via the husband’s companies, and she held no recognised qualifications to pursue her chosen professions in Australia;

5.the husband made various statements to the effect that she could “pack her bags” if she would not sign a prenuptial agreement;

6.the husband “dictated the terms in which the [BFA] would be drafted without meaningful input” from her, or negotiation with her;

7.the BFA was executed shortly prior to the departure of the parties to Country A to be married, and some 15 days prior to the wedding;

8.she was not given sufficient time to consider the terms of the BFA or the effect of the legal advice she received; and

9.she was at a special disadvantage in the circumstances, which the husband knew or “plainly ought to have known”.

40In the wife’s Amended Particulars of Claim filed on 1 November 2016, it was further contended that Clauses 6 to 8 of the BFA were drafted “on behalf of the husband” and were “intended to induce the wife to believe” that the BFA could be varied, that such variation could occur on a review date, and that the inclusion of those provisions had a substantive legal effect.

41Quite how that contention sits with the express provision at Clause 8 of the BFA that if the BFA was “not reviewed then it will continue in full force and effect” was not explored.

42The husband denied making any promise prior to the wife moving to Australia to marry her if they were still together after five years. He accordingly denied the suggestion that she moved to Australia in reliance on such a promise. In cross-examination, while maintaining her evidence in relation to the alleged promise, the wife acknowledged that the parties had discussions about the disadvantages of a long-distance relationship, and that they mutually decided (given the husband’s family and business interests in Australia) that it was more feasible for her to move to Australia than it was for him to move to Country A.

43The husband also denied the suggestion that he only raised the issue of a BFA or prenuptial agreement very shortly prior to the parties marrying. He said that he had told the wife as early as 1995 that if they were ever to marry, and if such agreements were available in Australia, he would want one. He said that was not an issue between the parties at the time, noting that the wife had a prenuptial agreement with her first husband, and also that the discussions arose in the context of him resolving his financial affairs with his first wife.

44I accept the husband’s evidence in relation to those matters. I accept further that he raised the issue of a BFA again at an early stage after proposing marriage; on the wife’s evidence, that proposal occurred in about March 2000. I reject the wife’s subsequent evidence to the effect that the prospect of a BFA was first raised with her only very shortly before the appointment with the lawyer who was to draft it.

45The wife’s prenuptial agreement with her first husband was not in evidence. In cross-examination, however, it emerged that the agreement provided that, on separation, she would retain the assets she brought into the marriage and that anything jointly acquired would be divided equally. As the wife put it, “everything that was brought in by the two of us would be split 50-50, after I got my initial inlay back”. She explained further that at the commencement of her first marriage, she had assets and her husband had debts, and identified the fact that she would not be paying those debts as a benefit to her of their prenuptial agreement.

46In broad terms, the wife’s prenuptial agreement with her first husband had much in common with the BFA.

47The wife was a qualified [chiropractor] in Country A and had made progress towards formal qualifications as a [teacher]. She worked as a [secretary] for the husband’s companies when in Western Australia and, indeed, through her previous lawyers, commenced proceedings in the Federal Circuit Court after the separation of the parties, claiming entitlements under the Fair Work Act 2009 (Cth).

48The wife is an intelligent, well-educated and articulate woman. While the legal system in Country A differs from that in this country, she had experienced a separation and divorce prior to her relationship with the husband, and had engaged with a lawyer regarding a prenuptial agreement for her first marriage which reflected the superiority of her financial position entering into that marriage. I do not accept that she was in any position of special disadvantage in her relationship with the husband in these proceedings by reference to any lack of intelligence, education or commercial experience.

49Similarly, I do not accept that she was in any position of special disadvantage by virtue of having moved from Country A to Australia in furtherance of the relationship, or by virtue of the relative financial positions of the parties.

50I reject the wife’s evidence that she had no input into the terms of the BFA. Apart from the apparent similarity of its terms with those of the prenuptial agreement with her first husband, the terms were not complex in any event. They specifically recorded a percentage entitlement on the part of the wife in respect of the house, which was to reflect the proportion of the initial purchase price provided by her by way of deposit; in that way, her initial contribution would continue to be reflected proportionately regardless of any increase in value of the house by virtue of market forces. I accept the evidence of the husband that the relevant clause was included at the wife’s initiative. I also accept the husband’s evidence as to the manner in which the schedules of specific items to be retained by each party were created.

51I acknowledge that the BFA was signed very shortly before the parties were to leave to go overseas for their wedding. That said, it is common ground that there were a number of “false starts” as to the preferred venue for the wedding, and I accept the husband’s evidence that the wife was keen to be married [overseas] in April.

52Given my findings as to the matters set out above, I conclude that the parties did have time for proper contemplation before executing the BFA.

53I reject the evidence of the wife to the effect that she was given no choice but to sign the BFA, and that the husband had told her she must “pack her bags” if she did not. I accept the husband’s evidence to the contrary.

54It follows that I reject the wife’s claim that the husband engaged in unconscionable conduct.

The second limb of the wife’s case – undue influence

55Subsection 90K(1)(b) provides that a financial agreement may be set aside if the Court is satisfied that it is void, voidable or unenforceable.

56Transactions procured by undue influence are voidable at equity.

57Undue influence may be actual or presumed. “Presumed undue influence may arise from the existence of a relationship where one person has assumed a position of ascendancy or influence over the other person or the other person has reposed trust and confidence in the former, and the former has used that relationship to achieve a transaction in which the first person benefits”: Winefield v Clarke [2008] NSWSC 882 at [27].

58The existence of such a relationship in turn may be proved by evidence of the circumstances of the relationship in question, or by virtue of the relationship between the parties falling within recognised categories that are presumed to be relationships of influence. Uncontroversially, those categories include relationships between parent and child, solicitor and client, or doctor and patient.

59At trial, counsel for the wife argued that the relationship between fiancé and fiancée falls within the recognised categories that are presumed to be relationships of influence. He referred in that regard to the judgment of Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 134 (“Johnson v Buttress”) and to academic writings, noting that, notwithstanding the observations of Brennan J in Louth v Diprose, that judgment had not been clearly rejected by any subsequent High Court decision.

60In his subsequent written submissions, counsel for the wife properly conceded that the High Court put that issue to rest in Thorne v Kennedy, and that a relationship of fiancé and fiancée does not give rise to a presumption of influence. He confirmed that “the [wife’s] undue influence case is now limited to actual undue influence”.

61Actual undue influence can be proved by establishing that one party had the capacity to influence the other improperly, that the improper influence in fact occurred, and that the transaction under scrutiny occurred as a result of the influence: Johnson v Buttress.

62Undue influence and unconscionable conduct can overlap, but they have distinct spheres of operation: Thorne v Kennedy at [40]. The difference between unconscionable conduct and undue influence was described in Commonwealth Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461 as follows:

“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” .

63In a case where actual undue influence is asserted “there will be questions of the evaluative judgment involved in assessing whether the extent to which a person’s will has been subordinated to another’s is sufficient to characterise the person as lacking free will”: Thorne v Kennedy at [43].

64In her Amended Particulars of Claim, the wife asserted that for the same reasons as those articulated in support of her claim that the husband engaged in unconscionable conduct, she “did not exercise an independent and voluntary will when she signed” the BFA.

65As will be apparent from the findings set out above, I reject the proposition that the wife’s will was subordinated to that of the husband at all, let alone to an extent sufficient to characterise her as lacking free will in the execution of the BFA.

The third limb of the wife’s application – that in the circumstances that have arisen since the agreement was made, it is impracticable for it to be carried out

66Section 90KA provides that the question whether a financial agreement is “valid, enforceable or effective is to be determined… according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts”.

67Subsection 90K(1)(c) provides that if the Court is satisfied that 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, the Court may make an order setting the agreement aside.

68The word “impracticable” is not defined in the Act and must be given its ordinary meaning. It does not mean “impossible”. By the same token, the proposition that an agreement is “impracticable to be carried out” is not the same as the proposition that it is impracticable to enforce the terms of the agreement.

69The concept of impracticability of carrying out an order (and, by analogy, the terms of an agreement) has been described as being “akin to the application of the doctrine of frustration in contractual matters”: In the Marriage of La Rocca (1991) FLC 92-222. It is not, however, identical to that doctrine.

70The most frequently cited definition of the doctrine of frustration is that by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, at p 729:

“…frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract”.

71Along similar lines, Viscount Simon LC said in Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221 at p 228:

“Frustration may be defined as the premature determination of an agreement between parties, lawfully entered into and in course of operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstances so fundamental as to be regarded by the law both as striking at the root of the agreement, and as entirely beyond what was contemplated by the parties when they entered into the agreement”.

72In Sanger & Sanger (2011) FLC 93-484, the Full Court reviewed the authorities and academic writings on the doctrine of frustration, noting with approval the following observations by the learned author of JW Carter, Carter on Contract, Lexis-Nexis Australia:

“It is not possible to define, except in general terms, what constitutes a frustrating event since, ultimately, this must depend on the terms of the contract and the circumstances of the particular case. However, it is clear that the event must have severe consequences, and not merely alter the circumstances in which performance is called for….. there must be a ‘radical’ change”.

73And later:

“Most cases of frustration involve an element of impossibility. Indeed, the scope of the doctrine has largely depended on the legal conception of ‘impossibility’. Apart from the obvious cases where performance by either (or both) of the parties is physically impossible, for example, because the subject matter of the contract has been destroyed, the legal concept of impossibility encompasses situation where performance is not literally impossible, but is ‘impracticable in a commercial sense’”.

74And further, in relation to foresight and contractual terms dealing with frustration:

“Whether or not a contractual provision deals with the event relied upon as frustrating the contract in such a way as to prevent the parties being discharged under the doctrine of frustration depends on the construction of the contract.

If the contract contains express provisions which indicates sufficiently the consequences which are to result from the occurrence of the event, the parties’ rights will be regulated by the express terms, and there will be no room for the operation of the doctrine”.

75And further, with respect to “self-induced frustration”:

“Where the event relied on as frustrating the contract occurs because of ‘blame’, ‘fault’ or ‘default’ the contract is not frustrated because reliance cannot be placed on self-induced frustration. Frustration may be regarded as self-induced by reason of default arising from either an act or an omission by the parties. Although applied as an ingredient of the frustration doctrine, the principle that a party may not rely on self-induced frustration is derived from the general rule that a person should not be allowed to take advantage of his or her own wrong”.

76In the present case, of course, the parties acted jointly in selling the house. A contract will not be frustrated if both parties have been involved in the event which prevents further performance of their obligations: Paal Wilson & Co A/S Partenreederei Hannah Blumenthal [1983] 1 AC 854.

77The joint actions of parties may however give rise to an inference that the contract has been mutually abandoned. That does not “depend upon the subjective intention of the parties, but upon whether their conduct (both acts and omissions) viewed objectively manifests an intention to discharge the contract”: Fazio v Fazio [2012] WASCA 72 at [74].

78It is against that background that it is important to remember the observation of the Full Court in Cawthorn v Cawthorn (1998) FLC 92-805 at 85,060 (albeit in relation to s 79A(1)(b) of the Act):

“On a case by case basis, reliance upon authority relating to the contractual doctrine of frustration in its various facets may at times prove to be of assistance. In so doing however, care must be taken and it must remain at all times in the forefront of the Court’s deliberations that the task before the Court is to interpret and administer a section of the Act”.

The wife’s case

79The wife’s case is simply put. She argues that the provisions of the BFA which expressly provide for the sale of the house and the division of sale proceeds, or the purchase by either party of the interest of the other in the house by reference to a specified formula, are impracticable to be carried out as the parties no longer own the house. She argues further that the relevant provisions are so essential to the agreement reflected in the BFA that they are not severable and that the whole of the BFA must therefore be set aside.

The husband’s case

80The husband’s case is less simply put.

81He argues firstly that the BFA “can and should be construed in such a way that ‘the house’ includes the proceeds of sale of [the house]”. He argues that such a construction is “supported by principles of implication of terms into contracts”. In support of that proposition, he refers to authorities to the effect that the law should “strive to uphold a contract wherever possible”, and be “astute to adopt a construction which preserves the contract’s validity”. He argues further that the general approach of the courts is to attempt to uphold a contract despite any lack of clarity, by employing an objective test in interpretation and, in appropriate circumstances, implying terms into it so as to give effect to the parties’ intentions.

82There are a number of difficulties with that argument.

83Firstly, the construction for which the husband argues is directly contrary to the express terms of the BFA, which provide for the realisation of proceeds of sale of the house only if, after the breakdown of the marriage, neither party exercises the option to purchase the interest of the other.

84Secondly, the principles permitting the implication of terms into contracts operate to resolve issues which arise by virtue of a lack of clarity in drafting, leading to uncertainty. They do not, in my view, extend to the importation of new terms in circumstances where a central component of the agreement has been rendered impracticable to be carried out.

85The husband submits:

“When a party alleges that a contract has been frustrated, the task of the court is to determine, on the true construction of the contract’s terms read in light of the nature of the contract and of the surrounding circumstances, whether the contract which the parties made is wide enough to apply to the new situation. If it is not, then the contract is at an end. See Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 357 per Mason J.” (“Codelfa”).

86Mason J in Codelfa went on to say:

“The critical issue then is whether the situation resulting from the [intervening event] is fundamentally different from the situation contemplated by the contract on its true construction in the light of the surrounding circumstances”.

87It cannot sensibly be argued, and the husband did not submit, that the terms of the BFA contemplated the situation now faced by the parties. In submitting that the BFA is “wide enough” to take account of the sale of the house and the subsequent application of the sale proceeds, the husband argues that is so by virtue of terms which can properly be implied.

88 “Logically the question whether there is to be a term implied into the contract must be dealt with before the question of possible frustration can arise”: Mason J in Codelfa.

89As his Honour said at 346:

“The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it – it is not a term that they have actually agreed upon”.

90The implication of a term is designed to give effect to the parties’ presumed intention. For obvious reasons, terms are not implied lightly. The contract in question may represent the “totality of [the parties’] willingness to agree”, and there are obvious difficulties in identifying with any degree of certainty the term to be implied, by concluding that it represents that upon which the parties would have agreed had they turned their minds to the question.

91The majority in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283, summarised the conditions necessary to support the implication of a term into a contract as follows:

1.it must be reasonable and equitable;

2.it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

3.it must be so obvious that “it goes without saying”;

4.it must be capable of clear expression; and

5.it must not contradict any express term of the contract.

92In the present case, the evidence does not support any conclusion that a term of the nature contemplated by the husband in order to make the BFA “wide enough” to “apply to the new situation” can be properly implied. No such term “capable of clear expression” was articulated; indeed, the husband’s own evidence under cross-examination was distinctly confused in relation to what he would say should be the nature of such a term. His evidence reinforced the readily reached conclusion that any proposed implied term simply could not be “so obvious [as to] go without saying”.

93The BFA expressly required the parties to take specific steps in relation to a property which they no longer owned by the time those obligations were triggered by their separation. It is impracticable for that part of the agreement to be carried out. The conclusion in that regard could only differ if terms adequate to capture the current factual circumstances were implied into the BFA; no such terms can be properly implied.

94To the extent that it might be suggested that a different conclusion be drawn by reference to the principle that a party may not benefit from “self-induced frustration”, I would reject such a suggestion. In my view, those principles are applicable when a party may profit or benefit from the frustration, to the disadvantage of the other party, in circumstances where the frustration arises from the unilateral action of the party seeking to profit. In the present case, the parties have jointly created a situation where a central term of their BFA is incapable of being carried out; neither can claim that the situation arises by virtue of the unilateral action of the other.

95As noted earlier, my conclusion does not of itself mean that all or part of the BFA must be set aside; rather, it enlivens the discretion to do so.

The fourth limb of the wife’s case – that the agreement is unenforceable

96Subsection 90K(1)(b), as already noted, provides that the Court may make an order setting aside a financial agreement if it is “void, voidable or unenforceable”.

97The wife’s argument under this limb overlaps with her argument that the BFA is impracticable to be carried out. Her Amended Particulars of Claim under this limb refer only to the fact that the house was not available to be dealt with pursuant to the BFA at the time of the breakdown of the marriage.

98The BFA in so far as it makes express provisions relating to the house is self-evidently unenforceable. Again, that does not necessarily mean that the whole BFA should be set aside, but the discretion to do so is enlivened.

The fifth limb of the wife’s case – that the agreement is void for uncertainty

99The wife argues that the BFA is void for uncertainty on the basis that:

1.the definition of “joint assets” in Clause 4 is uncertain; and

2.the interpretation of recital K(ii) is uncertain.

100Clause 4 of the BFA says:

“Unless otherwise provided in this Agreement, the assets and resources accumulated in the name of either or both of the parties during the course of the marriage (“the joint assets”) will be deemed to be owned by the parties.”

101Clause 5(e) goes on to provide that in the event of the breakdown of the marriage, the joint assets will be divided equally.

102Recital K(ii) records the acknowledgement of the wife that she has:

“no entitlement to [the husband’s] quarantined property or any improvements to it in value or to any other property acquired in substitution for it or any income from it”.

103The husband’s quarantined property is defined as that listed in the first schedule to the BFA. It includes his “shareholding and interest in” four separate corporate entities.

104Counsel for the wife suggested that there was relevant uncertainty because a corporate entity (the husband’s interest in which is defined as quarantined property) provided funds for the purchase of [vehicles] which were registered or licensed in his personal name.

105With all due respect to counsel, I do not accept that such uncertainty as there may be is incapable of resolution. The issue of the beneficial ownership of any item of property acquired in the manner described above could be readily resolved. The remaining dispute might centre on whether a particular item was “accumulated in the name of either or both of the parties” but, again, I do not regard that as being incapable of resolution.

106In any event, the evidence does not support a conclusion that such uncertainty as there may be in this regard, would be sufficient to cause the Court to exercise its discretion to set aside the BFA.

107There is, however, another aspect to the matter which is linked to the findings made above about impracticability and which, while not specifically listed under the fifth ground of the wife’s particulars, was nevertheless squarely raised.

108The BFA expressly provides that any new property acquired from the proceeds of disposal of quarantined property would itself be treated as quarantined property; there is no such provision as to the treatment of property acquired from the proceeds of disposal of property which was not quarantined.

109It is common ground that some, but not all, of the proceeds of sale of the house were applied to the acquisition of the property in Country B. The property in Country B falls within the definition of “the joint assets” contained in Clause 4 of the BFA. Pursuant to Clause 5(e), the joint assets are to be divided equally; yet the wife’s entitlement in respect of the house, or the proceeds of sale of it, was for a greater than equal share.

110As already noted, the husband’s argument in relation to the issue of impracticability was that the proceeds of sale of the house could be readily “traced”, and the wife paid accordingly; that argument does not appear to have taken into account the issue just articulated which, in my view, represents an uncertainty in the operation of the BFA, incapable of being resolved by the implication of terms for the reasons already outlined.

Should the agreement be set aside?

111Having reached those conclusions, the question remains as to whether the discretion to set aside the BFA should be exercised.

112As counsel for the husband submitted, the law should strive to uphold a contract and attempt to adopt a construction which preserves the validity of a contract and gives effect to the intention of the parties. It is also true, as counsel submitted, that the purpose of Part VIIIA of the Act is to enable parties to enter into binding agreements designed to prevent future disputes and avoid the application of judicial discretion to the alteration of their property interests.

113I have considered whether those parts of the BFA which deal with the house can be severed, so as to still give effect to the intention of the parties. In short, they cannot. In my view, the continued ownership of the house at the time of the breakdown of the marriage was an essential component of the agreement contained in the BFA. Additionally, as explained above, the effect of severance would be to alter the wife’s entitlements.

114As the parties properly acknowledged, even if it was to be argued that a view as to what might be a just and equitable alteration of the property interests of the parties (absent the BFA) could influence the exercise of the present discretion, there is no adequate evidence to permit such a view to be reached.

115Having found that what I regard as an essential component of the BFA between the parties is impracticable to be carried out, and noting the compounding effect of the uncertainty arising from the application by the parties of the proceeds of sale of the house, I conclude that the only appropriate course is to set aside the BFA.

Proposed Orders

116The wife’s application seeks no specific orders other than to set aside the BFA, proposing rather that she “particularise the orders she seeks with respect to spousal maintenance and property settlement within 29 days of receiving full disclosure from the husband or no later than 21 days prior to trial”.

117I will hear from counsel as to the appropriate orders to be made consequential to the setting aside of the BFA.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Family Court of Western Australia.

LH
ASSOCIATE

5 JULY 2018