Cole and Cole
[2008] FMCAfam 664
•27 June 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COLE & COLE | [2008] FMCAfam 664 |
| FAMILY LAW – Binding financial agreement – validity – alleged mental incapacity. |
| Family Law Act 1975, ss.90K, 90KA |
| Black and Black [2008] FamCAFC 7 Gibbons v Wright (1954) 91 CLR 423 |
| Applicant: | MR COLE |
| Respondent: | MS COLE |
| File Number: | BRC 5726 of 2007 |
| Judgment of: | Wilson FM |
| Hearing date: | 23 June 2008 |
| Date of Last Submission: | 23 June 2008 |
| Delivered at: | Brisbane |
| Delivered on: | 27 June 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Moore |
| Solicitors for the Applicant: | Ken Hooper & Associates |
| Counsel for the Respondent: | Ms Carmody |
| Solicitors for the Respondent: | La Vin Law |
ORDERS
The Amended Application in so far as it seeks to set aside the binding financial agreement entered into between the Applicant and the Respondent on 25 August 2005 be dismissed.
The Applicant pay the Respondent’s costs of and incidental to the determination of the validity of the binding financial agreement, to be taxed.
IT IS NOTED that publication of this judgment under the pseudonym Cole & Cole is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRC 5726 of 2007
| MR COLE |
Applicant
And
| MS COLE |
Respondent
REASONS FOR JUDGMENT
On 25 August 2005, the parties made a financial agreement. The Applicant seeks to set that agreement aside.
It was accepted by Counsel for the husband that the agreement was a binding financial agreement that complied with the requirements of s.90G Family Law Act 1975. That concession obviates the need for the Court to consider the sort of arguments ventilated in Black and Black [2008] FamCAFC 7.
The Applicant seeks to set the agreement aside pursuant to s.90K(1)(b) of the Act which 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:
(b) the agreement is void, voidable or unenforceable;…”
Counsel for the Applicant also relied on s.90KA of the Act which provides:
“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.”
The basis upon which the Applicant seeks to set aside the binding financial agreement is on the basis of his asserted mental incapacity at the time the agreement was entered into. A person who lacks the mental capacity to understand the consequences of entering into a contract may avoid it: The Laws of Australia at [7.3.58]. The contract is voidable at the instance of the disadvantaged party: Gibbons v Wright (1954) 91 CLR 423.
The Laws of Australia at [7.3.59] summarises the position as follows:
“In order to rescind on the ground on incapacity, the onus is on the incapacitated party to establish certain elements. They are:
(1) He or she was unable, due to mental impairment, to understand the contract at the time of formation; and
(2) That the other party knew or ought to have known of the impairment.
There is no fixed measure of impairment that must be shown. In Gibbons v Wright (1954) 91 CLR 423 Dixon CJ, Kitto and Taylor observed that:
‘the law does not prescribe any fixed standard of sanity as requisite for validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that each party shall have such soundness of mind as to capable of understanding the general nature of what he is doing by his participation…ordinarily the nature of the transaction means in this connection the broad operation, the ‘general purport’ of the instrument; but in some cases it may mean the effect of a wider transaction which the instrument is a means of carrying out.’”
The Applicant suffers from a number of psychiatric disorders, most relevantly bipolar disorder. The relevant medical records pertaining to the Applicant were put into evidence as Exhibit 2. They reveal that on 31 December 2004 the Applicant was admitted as an inpatient to the Mental Health Unit of the [X] Hospital suffering from major depression, dysthymia, narcissistic personality disorder, epilepsy and asthma. The Applicant says that at this time he was undergoing severe depression as a consequence of the breakdown of his marriage.
Dr R, a psychiatrist, has treated the Applicant over a period of time. In a report to the applicant’s general practitioner dated
3 March 2005, Dr R reports:
“I have been seeing him regularly since November 2004. He is a 57 year old gentleman with a history of chronic depression complicated by his seizure disorders. He has had several overdoses in the past, the most recent being in December 2004 necessitating a two week admission to the [X] General Hospital. During that time he was noted to have frequent seizures usually triggered by intense emotional or stressful situations. The clinical impression is one of pseudo-seizures. There is no doubt however, that he has a genuine underlying epileptic disorder complicated by pseudo-seizures which [Mr Cole] appears to use as a means of gaining attention and sympathy and obtaining the sick role….”
The parties attended a mediation of their family law dispute in June 2005 and agreed to terms of settlement on 27 June 2005. By the terms of settlement, the wife was required to pay the husband $63,000 in exchange for the husband’s interest in the former matrimonial home. The husband does not seek to disturb those terms of settlement, and in fact seeks to enforce them.
The binding financial agreement requires the husband to transfer his interest in the former matrimonial home free from any consideration. Clause 6 of that paragraph provides:
“In the event of a breakdown of the marriage the wife retains ownership and possession of the matrimonial real property free from any claim by the husband and the husband agrees not to make any claim in respect of the matrimonial real property and agrees that he shall have no claim or rights against that property whatsoever either during the marriage or after breakdown of the marriage.”
Dr R saw the Applicant on 18 July 2005. There is no reference in the notes of that consultation to the onset of any manic episode associated with the Applicant’s bipolar disorder. On 27 July 2005 the Applicant attended at the [Z] Health Service. He sought assistance to resolve a conflict with his carer. At that time the Applicant said that he wished to walk into the city from [Y], a three quarter of an hour walk. The Applicant’s carer was concerned for his safety. At this time no reference was made to any manic behaviour.
On 19 August 2005 Dr R saw the Applicant with his wife, the Respondent. They informed Dr R that they had reunited.
At that time Dr R noted that the Applicant’s mood was “ok”.
The next time Dr R saw the Applicant was on 19 October 2005. At this time he was expressing grandiose ideas and
Dr R formed the view that he was hypomanic.
Dr R repeated this view on 2 November 2005 when he next saw the Applicant.
Therefore the Applicant’s treating psychiatrist made no mention of any manic behaviour on 19 August 2005, but the Applicant was plainly hypomanic by 19 October 2005. The question arises as to his mental state when he executed the binding financial agreement on 25 August 2005. As to this there was a dispute in the medical evidence.
Dr R gave evidence that on 19 August 2005 the Applicant’s mood may have been beginning to become elevated. Dr R accepted that he was unable to pinpoint when the hypomanic episode commenced. He said that it was hard to be sure whether the Applicant was incapacitated on the day he executed the binding financial agreement. Dr R said that manic behaviour can last between four and six months.
When asked about his entry on 19 August 2005 that indicated that the Applicant’s mood was “Ok”, Dr R said that it was not unusual for patients to minimise their symptoms and that the Applicant may have had initial symptoms that he missed. The Applicant did not display any overt symptoms on 19 August 2005. Dr R said that the Applicant’s bipolar disorder when he was in a manic state removed his mental capacity. He said the Applicant had fluctuating levels of capacity depending on the state of his illness and when he was in a hypomanic state he was not able to act on and process information properly.
Dr R had no doubt that the Applicant was floridly manic by October 2005 when he saw the Applicant. He said he may have been switching to the manic phase earlier than 17 July 2005. As to this
Dr R referred to the Applicant’s reference on that date to resuming painting. The Applicant is an accomplished artist.
Dr R said that the Applicant was disinterested in painting whilst depressed and his renewed interest in this topic may have been a pointer to the Applicant switching to a manic state. However
Dr R accepted that there was no way of knowing whether the Applicant was manic on 25 August 2005.
When Dr R was taken to the contents of the Applicant’s former solicitor’s file notes, to which I shall refer to shortly,
Dr R conceded that the Applicant appeared rational at the time he spoke to his solicitor.
Finally, Dr R conceded that expressing an opinion as to the Applicant’s mental capacity at a date earlier than his consultation in October would be entirely speculative.
A psychiatrist called by the Respondent, Dr L, agreed with this last statement. He said there was no real way of telling whether the Applicant had capacity without seeing him on the day. Dr L said that if the Applicant was in a manic phase at the time he saw his solicitor he would have been unable to sit still, would be garrulous and irritable. None of these features are recorded in the solicitor’s file notes. Dr L prepared a report which was put before me. Based on the treatment notes, Dr L has concluded that the severe mood disorder evident in October 2005 could not have been present in August 2005 because if it was present and severe to the extent that the Applicant had lost capacity to understand the nature and effect of the financial agreement he signed on that day he would have displayed other features of severe mania like those reported by Dr R in October/November 2005.
As I have said, the Applicant’s former solicitor also gave evidence. The solicitor gave evidence that on 26 July 2005 the Applicant gave his office instructions that he wished to transfer the house from the parties’ joint names into his wife’s sole name. The Applicant contacted the solicitor’s office again on 1 August 2005. The solicitor referred to a file note of the consultation on 1 August 2005 during which the Applicant gave clear instructions that he wished to transfer the former matrimonial property to his wife for no consideration. The solicitor explained to him the options that he had and the drawbacks to what the Applicant proposed. At the conclusion of the file note the solicitor says:
“he seemed quite aware and lucid and seemed to have given the matter some considerable thought. We spoke for half an hour and I indicated to him that I would speak to [the wife’s solicitor] about his proposal and get back to him.”
The solicitor says that the transaction that the Applicant husband proposed was with a view to reconciling with his wife. The Applicant pursued the solicitor on 5, 8, 9 and 10 August 2005 to complete documentation. The solicitor did not detect any abnormal behaviour in the Applicant although he did describe him as eccentric. This seemed to have been the Applicant’s demeanour generally throughout the dealings that the solicitor had with him and not particularly just on the day the binding financial agreement was signed.
The Respondent has sworn an affidavit. She and the Applicant were married for 23 years at the time the binding financial agreement was signed. She opines that the Applicant was fully aware of his actions and their consequences surrounding the entry into the binding financial agreement. The Respondent says that during July 2005 the Applicant contacted her by telephone seeking reconciliation. At paragraph 7 of her affidavit the Respondent says:
“the Applicant discussed the terms of any reconciliation in detail including the Applicant’s offer to transfer to me his one half share in the matrimonial home and also to enter into a binding agreement that the Applicant would have no claim or interest in the property of the marriage in the event of the subsequent breakdown of the relationship. It was clear to me that the Applicant was fully aware and had a full and complete understanding of the consequences of making any such agreement. We specifically discussed the fact that a subsequent breakdown of the relationship would leave the Applicant with no claim against me for a share of the matrimonial assets, and the Applicant told me that he fully understood this and its consequences.”
From the above recitation of evidence, the Applicant has considerable difficulties in persuading the Court on each of the two matters on which he carries the onus of proof. There is no medical evidence that, on the balance of probabilities, the Applicant suffered from mental incapacity on the date he signed the binding financial agreement. At its highest, the Applicant’s case, supported by Dr R, is that he was plainly incapacitated in October 2005 and there were signs in July and August 2005 when he saw Dr R that may support a belief that he was commencing to enter into a manic phase. However when pressed, Dr R accepted that it was entirely speculative to conclude that the Applicant was incapacitated and in a manic phase on the date he signed the binding financial agreement.
The lay evidence is to the contrary. The Applicant spoke to his solicitor over a period of weeks during which he maintained the same course of instructions. The Applicant did not appear to the solicitor to be irrational, or act in a manner that was unusual for the Applicant. The Applicant has not proved, on the balance of probabilities, that he was incapacitated on the day he executed the binding financial agreement.
On the second limb, the evidence is all one way. The Respondent had lived with the Applicant for many years. She saw nothing unusual in his behaviour. She thought he was entirely lucid and rational. If the Applicant displayed signed of entering into a manic phase, they were not picked up by his treating psychiatrist on 19 August 2005.
Dr R accepted that such signs may be very subtle and that a person suffering from bipolar disorder may seek to minimise their symptoms. In those circumstances, it is difficult to see how the Respondent could be expected to know that the Applicant was labouring under incapacity. The Applicant has not discharged the onus of establishing the second requirement of his entitlement to avoid the binding financial agreement.
It follows that the Application, in so far as it seeks to set aside the binding financial agreement dated 25 August 2005 must be dismissed.
In case my conclusion is found to be wrong elsewhere, I should deal with a second argument advanced by the Respondent. If the Applicant was under incapacity at the time he made the binding financial agreement, that agreement was voidable by him. It was submitted the Applicant was obliged to avoid the contract within a reasonable time of regaining capacity. The Applicant regained capacity in 2006 yet his Application to the Court was not filed until 9 May 2007. In those circumstances it was said that the Applicant’s delay should defeat his claim.
This matter was not specifically raised in the Response, but it seems that the Rules of Court do not require the Response to state the facts relied upon as supporting the relief claimed, but rather to state the relief claimed. The Respondent relies upon the Applicant’s own evidence as supporting her submission that the Application should be dismissed on account of the Applicant’s delay.
In my view the Respondent’s submission has merit. The Applicant should have, within a reasonable time, elected whether to avoid a contract that he said was made whilst he was mentally impaired. I do not think a delay of 12 months was acting within a reasonable time. The Respondent was entitled to assume that the binding financial agreement was in force and conduct her affairs accordingly.
Even if the Applicant had discharged the onus of establishing that the binding financial agreement was voidable, I conclude that by his delay he is precluded from seeking any relief to set aside that agreement.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Wilson FM.
Associate: Kelt Wright
Date: 27 June 2008
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