Chapman v Batman

[2004] NSWSC 2

Reported Decision: (2004) DFC 95-293

Supreme Court

CITATION:	Chapman v Batman [2004] NSWSC 2
HEARING DATE(S):	12/12/03
JUDGMENT DATE:	3 February 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	Contract declared void
CATCHWORDS:	FAMILY LAW AND CHILD WELFARE - de facto relationships - termination agreement under Property (Relationships) Act - susceptibility to avoidance under Contracts Review Act - CONTRACTS - unjust contracts - avoidance by court - principles to be applied
LEGISLATION CITED:	Contracts Review Act 1980, ss.7, 9 Property (Relationships) Act 1984, s.46
CASES CITED:	Elkofairi v Permanent Trustee Co Ltd (2003) 11 BPR 20,841 West v AGC (Advances) Ltd (1986) 5 NSWLR 610
PARTIES :	Glenda Faye Chapman - Plaintiff James Batman - Defendant
FILE NUMBER(S):	SC 1899/02
COUNSEL:	Mr M D Broun QC/Mr O W Harrison - Plaintiff Ex parte
SOLICITORS:	Chegwidden Solicitors - Plaintiff

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

TUESDAY, 3 FEBRUARY 2004

1899/02 – GLENDA FAYE CHAPMAN v JAMES BATMAN

JUDGMENT

1 By her statement of claim filed on 14 March 2002, the plaintiff seeks relief under the Contracts Review Act 1980 in respect of an agreement made between her and the defendant dated 22 December 1997. The agreement in question is a termination agreement made under the Property (Relationships) Act 1984 (then styled the De Facto Relationships Act 1984). The parties lived together in de facto relationship from about 1982 until 10 December 1997.

2 The matter came before me on 12 December 2003, almost 21 months after the filing of the statement of claim. There was no appearance by the defendant and it seems that difficulties in locating him were the cause of the long delay between filing of the statement of claim and the hearing.

3 The absence of the defendant caused me to pay particular attention to the matter of service. An order for substituted service was made by Registrar Berecry on 27 July 2003. Evidence before the court at that time was that the defendant had left Australia and was thought to be living on an Indian Reservation at Yellowtail, Montana, USA. The plaintiff’s solicitor deposed to having obtained a telephone number in the United States at which he spoke to a person purporting to be the defendant who refused to give his address and, when told that the address was needed for the purposes of service in these proceedings, said, “You should send everything to Peter Fowler”. Mr Fowler is a solicitor practising at Caringbah. The Registrar ordered, pursuant to Part 9 rule 10 of the Supreme Court Rules, that the statement of claim be taken to have been served after seven days from the posting of it by ordinary prepaid post to Mr Fowler at his office address at Caringbah.

4 As it happened, the order for substituted service was not complied with strictly according to its terms. The statement of claim, with a covering letter, was sent to Mr Fowler’s Caringbah office through the Document Exchange instead of by ordinary prepaid post. However, the plaintiff’s solicitor received a letter from Mr Fowler dated 21 August 2003 acknowledging receipt. I am therefore satisfied that the order was substantially complied with and that the statement of claim came to Mr Fowler’s attention as intended. The letter from Mr Fowler also said:

“Unfortunately I still do not have instructions from Mr Batman and cannot see how I can possibly attended to filing an Appearance or a Defence.
If and when I receive instructions from Mr Batman I will let you know.”

5 No notice of appearance or defence has been filed by the defendant, despite a direction of the court that each be filed by 18 August 2003. By letter dated 8 December 2003, the plaintiff’s solicitor notified Mr Fowler that the matter was listed for directions on 12 December 2003 and “we intend to seek to have the matter transferred to a duty judge”. It was in that way that the matter came before me on the latter date, having been referred to me as Duty Judge by the Registrar. I caused the matter to be called outside the Duty Judge’s court. There was no appearance for the defendant. I am satisfied that it is appropriate for me to deal with the claims in the plaintiff’s statement of claim without having heard from the defendant.

6 The termination agreement between the plaintiff and the defendant is dated 22 December 1997. It recited that the parties had lived in a de facto relationship from about 1982 to 10 December 1997 and that, since about July 1995, they had occupied a property in Holmes Street, Kingsford owned by the plaintiff and said to have a value of between $420,000 and $450,000, which property was subject to a mortgage securing a loan of “about $68,000”. The operative provisions dealt almost exclusively with the Holmes Street property. Their substance and effect was that the defendant would pay off one-half of the loan balance by 31 July 1998 and the plaintiff would, from the date of the deed, hold the property in trust for the two of them in equal shares, at the same time enjoying a right of possession for life or earlier marriage or de facto relationship and with the plaintiff paying outgoings during her occupation. There were acknowledgments that each party was to retain and enjoy his or her other property. There were also mutual releases of claims under statutory provisions dealing with de facto relationships.

7 The counterpart of the deed executed by the defendant and put into evidence by the plaintiff carries a certificate dated 22 December 1997 in Form 8 under the De Facto Relationships Act 1984 (as the Property (Relationships) Act 1984 then was) signed by Mr Fowler and saying that he had given the defendant independent advice on the matters referred to in s.47(1)(d) of that Act. The reference to s.47(1)(d) is obviously a reference to the section as it existed before the Financial Services Reform (Consequential Amendments) Act 2002. Evidence given by the plaintiff warrants the inference that, on 18 December 1997, she was similarly given such independent advice by Mr Hopper, a volunteer solicitor she contacted through the Salvation Army. The plaintiff does not, however, recall what Mr Hopper said to her. The plaintiff deposes that the deed was prepared by a solicitor retained by the defendant, that the defendant gave it to her and said she had to see a solicitor about it (and sign it) before he went away, that she contacted Mr Hopper through the Salvation Army and that, when she went to see Mr Hopper, she said words to the effect, “I am here to see you about this. I have been told by my partner I have to sign this”.

8 It is conceded by the plaintiff that the deed is a “termination agreement” as defined by s.44(1) of the Property (Relationships) Act and that the formalities envisaged by s.47(1) (as in force at the material time) were observed in relation to its formation. The plaintiff also points to s.46 of the Act as to the status and effect of such an agreement:

“Except as otherwise provided by this Part, a domestic relationship agreement or termination agreement shall be subject to and enforceable in accordance with the law of contract, including, without limiting the generality of this section, the Contracts Review Act 1980.”

9 The plaintiff contends that she is entitled to relief, in relation to the termination agreement, under the provisions of the Contracts Review Act 1980 the applicability of which is expressly recognised by s.46 of the Property (Relationships) Act. The plaintiff says that the court should, in terms of s.7(1) of the Contracts Review Act, find that the deed was “unjust in the circumstances relating to the contract at the time it was made” and, applying that section, exercise the statutory discretion to declare the contract wholly void (s.7(1)(b)). In approaching the issue central to s.7(1), the court must proceed in accordance with s.9:

“(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of:
(a) compliance with any or all of the provisions of the contract, or
(b) non-compliance with, or contravention of, any or all of the provisions of the contract.

(2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following:
(a) whether or not there was any material inequality in bargaining power between the parties to the contract,
(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,
(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,
(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,
(e) whether or not:
(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or
(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,
because of his or her age or the state of his or her physical or mental capacity,
(f) the relative economic circumstances, educational background and literacy of:
(i) the parties to the contract (other than a corporation), and
(ii) any person who represented any of the parties to the contract,
(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,
(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,
(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,
(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:
(i) by any other party to the contract,
(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or
(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,
(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and
(l) the commercial or other setting, purpose and effect of the contract.


(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.

(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.

(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made.”

10 The aspects of s.9 of the Contracts Review Act on which the plaintiff places particular reliance are s.9(2)(a), s.9(2)(e)(i), s.9(2)(i) and s.9(2)(j). Such reliance arises from the effects of a motor vehicle accident in which the plaintiff was involved in 1980 at the age of 29. She suffered a head injury in the accident and was unconscious for more than two weeks. She has introduced into evidence reports of psychologists and a psychiatrist as to her intellectual capacity and personality containing material relevant to the matters in the identified parts of s.9(2) of the Act.

11 Before reviewing this evidence, I should refer to the principles to be applied in relation to the Contracts Review Act. The first point to note is the twofold approach required by the Act. The first step is to decide whether the contract was “unjust in the circumstances relating to the contract at the time it was made”; the second is to decide whether, if it is found that the contract was so “unjust”, it is “just” that the order sought should be made in relation to it. This twofold approach was the subject of comment as follows by Beazley JA in Elkofairi v Permanent Trustee Co Ltd (2003) 11 BPR 20,841:

“In Nguyen v Taylor (1992) 27 NSWLR 48, the Court was careful to draw a distinction between the consideration as to whether a contract was unjust (the s 9 issue) and the discretion to grant relief (the s 7 issue): per Kirby P at 54-55; Sheller JA at 71. In Nguyen the Court held that the contract (an option to purchase real property) was unjust in the circumstances in which it was made where the vendor had been misled by his agent into making the contract. However, the Court, in the exercise of its discretion, refused relief, because the purchaser had been both innocent and ignorant of any misleading conduct. Relevant to the Court’s consideration in refusing relief was not only McHugh JA’s observation in West v AGC at 620 quoted above, but also the notion that ‘the general policy of the law is that people should honour their contracts’ : per Sheller JA at 70. As Gleeson CJ pointed out in Baltic Shipping v Dillon ‘Mikhail Lermontov’ (1991) 22 NSWLR 1 at 9 ‘that policy forms part of our idea of what is just’ .”

12 The passage in the judgment of McHugh JA in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620 to which her Honour referred is as follows:

“Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision: cf s 9(2)(d). In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract: cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)(j). More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice.”

13 Beazley JA went on to summarise the effect of earlier authorities concerning the process to be adopted in deciding whether a contract was “unjust” as referred to in s.7(1):

“It would appear that the trend of authority since West is that the Contracts Review Act permits a court not only to look at the terms of the contract per se , to see its terms are unjust, but to look at the circumstances in which the contract was made and its effect, having regard to those circumstances. It is not sufficient, however, for a claimant for relief under the Act merely to point to a loss or inopportune transaction.”

14 In the present case, the deed contained two provisions favouring the plaintiff. She obtained the somewhat illusory “right” to live in her own property. There was also a provision requiring the defendant to pay off half the outstanding loan by 31 July 1998. The evidence does not indicate with precision the amount of the outstanding balance at the date of the deed (22 December 1997). It does show, however, that the plaintiff obtained a loan of $75,000 from Advance Bank when she bought the property in 1995 and that she refinanced by way of a loan of $69,000 from RAMS Mortgage Corporation in March 1998, so that the loan balance at 22 December 1997 may be taken to have been of the order of $70,000 (there was, as I have said, a recital in the deed that it was “about $68,000”). Loan account information in evidence does not show any lump sum reduction of the order of $34,000 at any time, from which it must be inferred that the defendant did not perform the relevant provision of the deed.

15 The remainder of the deed worked against the plaintiff, so far as the Holmes Street property was concerned, in that a one-half interest in it was given to the defendant in a context where the parties otherwise retained their separate assets. If one accepts the approximate values stated in the recitals to the deed, the defendant received, in return for a promise to pay about $34,000, a one half-interest in a property said to be worth at least $420,000 and, at the same time, retained his separate property free from claims by the plaintiff, while she too kept her separate property (except for Holmes Street) and obtained the right to have $34,000 paid for her benefit, but lost a property interest of about $210,000.

16 This is not the occasion for any detailed assessment of what might have been the result of Property (Relationships) Act proceedings between the parties, although the matter is, in general terms, one that is relevant to the Contracts Review Act assessment. The evidence indicates that financial contributions to the relationship came principally from the plaintiff, although the defendant did contribute to food and some other expenses. The plaintiff owned the Holmes Street property and had previously owned a unit formerly occupied by her and the defendant. She had bought the unit from the proceeds of an award made to her in respect of the motor vehicle accident in 1980. Most of the domestic work was done by the plaintiff, although the defendant did some. There were no children of the relationship. Both parties worked. It does not appear that earnings were pooled. Having regard to the whole of the evidence, it is unlikely that the result of any proceedings under the Property (Relationships) Act would have corresponded with – or even closely resembled – the result achieved by the deed.

17 I turn now to the medical evidence. The plaintiff was seen by Ms Goldberg, a clinical psychologist, on several occasions in the early 1980s. I infer that this was in connection with her claim arising from the motor accident in 1980. A report of Ms Goldberg dated 16 February 1983 is in evidence. Under the heading “Conclusions” it states:

“A comparison between the two testing occasions October, 1981 and February 1982, shows a uniform and significant deterioration in all verbal functions involving logical reasoning, comprehension and recall. This may be associated with a slow degeneration of conceptual ability which appears to have already lowered general intelligence and may continue to do so further over time.
Miss Chapman is a capable and determined young woman who exerts considerable conscious effort to compensate for the cognitive inefficiency which is nevertheless still apparent.

Her personal and social life show the same determination to cope in spite of handicap and emotional difficulties.
Despite her efforts at living alone however, she continues to be significantly dependent emotionally and physically on her mother, and will probably be more so in the future.
Similarly, despite her efforts at cognition control a slow degenerative process appears to be in process and will probably continue to undermine general mental ability and emotional adjustment.”

18 Ms Goldberg saw the plaintiff again in 1999. I quote three extracts from a report dated 10 November 1999:

“Ms Chapman continues to report the following problems which she directly attributes to the accident in July 1980

· inability to process information quickly

· inability to speak quickly enough to sustain an argument

· inability to consider consequences when making decisions

· poor short term memory

· extreme difficulty with long term memory

· incapacitating fear of the future and being unable to cope

· loneliness and depression as a consequence of her injuries and disability.”

“The overall implication is that her potential for abstract reasoning and logical judgment has been moderately impaired post accident. Her ability to process visuospatial stimuli has also moderately declined since the accident. This tends to confirm her statements about her validity [scil. inability] to consider the consequences of her actions and her difficulty in arguing against someone she may disagree with.”
“ Conclusions . In relation to Ms Chapman’s presenting concern, current testing indicates that the following cognitive psychological factors would have affected her recent financial decisions and agreements:

· reduced speed of information processing;

· poor attention/concentration span;

· limited capacity to recall information;

· reduced capacity for abstract reasoning and judgement;

· tendency to impulsivity in decision making;

· poor capacity for self assertion and verbal communication of needs.”

19 The plaintiff has filed and relies upon an affidavit of Mr Borenstein, also a clinical psychologist. He interviewed and assessed the plaintiff in November 2003 and, in doing so, had access to Ms Goldberg’s reports. Mr Borenstein’s conclusions include the following:

“There is an overall reduced capacity for abstract reasoning and judgment, in contrast to her pre-accident level of functioning. Whereas memory functioning is deemed to be average for material presented verbally, it is subject to the effects of interference of the sort offered by pressure, but assisted by the presence of cues confirming difficulties with information retrieval. That is to say, when subject to a significant amount of material, Ms Chapman has difficulty in memorising without the presence of structure and/or cues to assist in retrieval. This is in keeping with her own self report. She copes in the work setting given the presence of clear structure, routine and memory aids.
I believe there is a distinct interplay between neuropsychological/cognitive deficits of the sort given in the body of this report, and early reports, as well as the behavioural consequences typified by indecisiveness, compromised confidence, relative lack of independence, marked interpersonal sensitivity and secondary depression due to the effects of mild to moderate brain impairment.”

20 Finally, the plaintiff relies upon a report prepared by Dr Strum, a psychiatrist, who saw her in November 2003 and had the reports of Ms Goldberg and Mr Borenstein before him. Again, I quote the relevant part of the report’s conclusions:

“What is certain is that Ms Chapman suffered from brain damage which affected her cognitive abilities, her ability to process information, and she was also left with personality difficulties including dependency and indecisiveness which caused her to rely on others rather than making decisions for herself. I think this was clearly indicated by the fact that she allowed herself to be robbed by an adviser and that this continued for a long time until it was pointed out to her that it was happening. I think it also shows in her arrangements with a house which she bought for her mother and in which her sister and brother are now living and that she has no real idea as to whom it belongs or what will happen to it and she merely trusts that all will be well in the end.
I think her relationship with Mr Batman was one based on dependency and her needs at the time, and that she probably would have signed the document and thought no more about it except that she was advised to go to a solicitor. Her poor memory of what happened with Mr Hopper makes it difficult for me to know how much she understood but I think the anxiety raised by the fact that she would have been overwhelmed by his authority role makes it highly probable that she would have agreed to anything. I was then a friend of hers told her that she had done the wrong thing so she went along with her friend’s opinion.
I think that there are cognitive difficulties and personality difficulties which make it highly likely that Ms Chapman did not understand the document that she was signing or the meaning of it, and that because of her personality difficulties and because of the anxieties inherent in the situation she would have been very susceptible to influence, more so than had she not been brain damaged.
It is not possible to say that there was a psychiatric illness which caused the difficulty she had in comprehending the document but I find myself in agreement with Mr Borenstein that a combination of the cognitive difficulties and the personality problems suggest that there was no true volition in any document which she signed at that time.”

21 The assessments made by Mr Borenstein and Dr Strum were made six years after the termination agreement was made. Ms Goldberg’s assessment of 1999 was made two years after the agreement. Significantly, however, the earlier assessments of Ms Goldberg were made some 15 years before the agreement was made. There is a high degree of consistency between the conclusions in the several reports. It is therefore safe to infer that the disability noted in the later reports, being consistent with that reported by Ms Goldberg in the early 1980s, was present and active in December 1997 when the termination agreement was made.

22 Having regard to the descriptions of her disability, I am satisfied that, in December 1997, the plaintiff was unable adequately to resist or question the defendant when he proposed that the agreement be made – or, more accurately, told the plaintiff “you have got to sign it” before he went away. There was, on the evidence, no discussion or negotiation between them. The plaintiff had no input at all into the arrangement. She was presented with it by the defendant and told what she had to do to bring the agreement into effect. The plaintiff went to see Mr Hopper because the defendant told her she had to see a solicitor. There is nothing to suggest that Mr Hopper did not adequately explain relevant matters to her. But the medical evidence warrants the inference that the plaintiff was unlikely to have been able to absorb what Mr Hopper said to her.

23 I am satisfied that there was material inequality in bargaining power between the parties because the plaintiff was not able to negotiate. Nor was she reasonably able, in the circumstances, to protect her interests. I am satisfied that the provisions of the agreement and their effect were probably accurately explained to the plaintiff by Mr Hopper but I am not satisfied that she understood the provisions and their effect. Furthermore, the essentially one sided nature of the contract makes it more likely than not that the plaintiff was unfairly induced to enter into it.

24 In light of these findings, I am of the opinion that the contract is unjust in the circumstances relating to it when it was made. That being so, I must decide whether it is “just” that the contract should be declared wholly void, as the plaintiff wishes.

25 In determining what is “just”, the court must have regard to the interests of both parties in the whole of the circumstances, as well as to the general public interest in the upholding of contracts. The decision whether or not to make an order is to be made in the context which now exists, not according to the context that prevailed when the contract was made. The first element of context is the fact that the agreement became a substitute for claims under the Property (Relationships) Act in the sense that its provisions resolved matters that could otherwise have become the subject of such claims. The second factor is that, according to the brief assessment I have made, the defendant obtained a better outcome under the agreement than he was likely to have obtained from proceedings under the Act. Third, however, such proceedings can be brought as of right only within two years after the relationship ceased (Property (Relationships) Act, s.18(1)) which period has now, of course, expired. Fourth, the time within which an application may be made can be extended by the court under s.18(2) if it considers that greater hardship would be caused to the applicant if an extension were not granted than would be caused to the respondent if it were granted. Fifth, the defendant has not kept his side of the bargain by paying off one-half of the loan balance (which he agreed to do by 31 July 1998) and has therefore not shown any degree of commitment to the contract.

26 In these circumstances, I am satisfied that it is just that the termination agreement be declared wholly void. If the defendant, who did not keep his side of that bargain, considers himself to have a viable claim under the Property (Relationships) Act in respect of the plaintiff’s property, he will then be free to pursue it, subject only to obtaining leave under s.18(2) to institute proceedings out of time. The prospects of his obtaining such leave must be rated as high in light of the fact that he has been deprived of the benefit of a termination agreement which previously made any application under the Act unnecessary. Avoidance of the agreement does not deprive the defendant of the ability to resort to these statutory channels.

27 I make order C as sought in the statement of claim, that is, an order pursuant to s.7(1)(b) of the Contracts Review Act 1980 that the termination agreement dated 22 December 1997 between the plaintiff and the defendant is void as from the time it was made. I also order that the defendant pay the plaintiff’s costs of the proceedings on the party and party basis.

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Last Modified: 02/05/2004