Cotsis & Cotsis
[2021] FCCA 673
•7 April 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Cotsis & Cotsis [2021] FCCA 673
File number(s): MLC 4963 of 2019 Judgment of: JUDGE STEWART Date of judgment: 7 April 2021 Catchwords: FAMILY LAW - property – financial agreement – application to set aside financial agreement – alleged unconscionable conduct Legislation: Evidence Act 1995 (Cth), s 140
Family Law Act1975 (Cth), ss 71A, 90B, 90G, 90K, 90KA, 90K(1), 90K(1)(b), 90K(1)(e)
Cases cited: Australian Securities and Investments Commission v Kobelt [2019] HCA 18
Bridgewater v Leahy [1998] HCA 66
Kostres & Kostres [2009] FamCAFC 222
Louth v Diprose [1992] HCA 61
Senior & Anderson [2011] FamCAFC 129
Thorne v Kennedy [2017] HCA 49
Number of paragraphs: 54 Date of hearing: 31 August & 1 September 2020 Place: Heard in Dandenong, delivered in Melbourne Counsel for the Applicant: Mr Werner Solicitor for the Applicant: Webb Korfiatis Family Law Counsel for the Respondent: Mr Jackson Solicitor for the Respondent: John Yianoulatos ORDERS
MLC 4963 of 2019 BETWEEN: MS COTSIS
Applicant
AND: MR COTSIS
Respondent
ORDER MADE BY:
JUDGE STEWART
DATE OF ORDER:
7 APRIL 2021
THE COURT ORDERS THAT:
1.Pursuant to section 90K(1)(e) of the Family Law Act 1975, the Financial Agreement between the parties dated 17 January 2013 is set aside.
2.The proceedings are adjourned to 3 May 2021 at 9.45am for mention.
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment under the pseudonym Cotsis & Cotsis is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
These reasons relate to the issue of whether the Financial Agreement between the Husband and the Wife dated 17 January 2013 should be set aside or whether the agreement should be upheld.
In the latter part of 2012 the parties were planning to marry. Prior to living together, in 2012, the Wife discovered she was pregnant with their first child. Their relationship developed from spending a lot of time with each other at the Husband’s mother’s home in Suburb B to moving into their first independent home in rented premises in Suburb C in 2012. The parties planned an engagement party to take place in 2012. In anticipation of their marriage the parties also commenced negotiations for the preparation of a Financial Agreement in contemplation of their marriage.
In the midst of their preparations in 2012 tragedy struck. At six months gestation the Wife felt no movement from their unborn child for three days. She attended hospital and undertook an ultrasound which revealed serious issues for their unborn child. The unborn child was discovered to be non-viable with no demonstrable cardiac activity. The Husband was in Country D on business and the Wife was supported by her parents, the Husband’s mother and the Husband’s brother. The following day, the Wife gave birth to the parties’ stillborn son.
For the Wife the experience of the stillbirth was devastating. I can well understand the state of shock and despair she felt in the immediate aftermath of this event in both an emotional and physical sense. The Husband returned from Country D in 2012. He too was devastated by the loss of their son.
The parties postponed their imminent engagement party in 2012.
Their commitment to the relationship was such that the parties continued to plan for their marriage. The Wife alleges she was pressured into entering the agreement by the Husband and his mother while the Husband denies that any pressure was brought to bear on the Wife to execute the agreement. Ultimately the Financial Agreement was executed by the Wife on 7 December 2012 and later by the Husband on 17 January 2013; rendering the contract complete.
The parties married in 2014 and separated just over four years later on 1 January 2019. Their marriage produced two children; X (“X”) born in 2013 who is now seven years old and Y (“Y”) born in 2016 who is now four years old. Between X and Y’s births the parties suffered a further non-viable pregnancy.
The Wife seeks to set aside the Financial Agreement. She says that having regard to all of the circumstances leading up to the completion of the agreement, including her emotional health following the stillbirth and the alleged pressure exerted by the Husband (and to some extent his mother), that the Husband’s conduct in accepting the agreement is unconscionable as she was labouring under a special disadvantage.
The Husband opposes the Wife’s application. He seeks an order that the Wife’s application be dismissed and a declaration that the Financial Agreement is binding upon the parties and costs.
In these reasons and pursuant to section 140 of the Evidence Act 1995 (Cth), the standard of proof is to a balance of probabilities.
During the hearing there were numerous facts and matters referred to by the parties. It is not possible to refer to every fact and/or matter in these proceedings and nor is it necessary to do so. I have had regard to the totality of the evidence in these proceedings. If I have not referred to a particular fact or matter it does not follow that I have not had regard to it.
In these reasons a statement of fact is a finding of fact, unless it is obvious from the context that I am reciting the position of one of the parties in the case.
The Wife concedes that the Financial Agreement is a Financial Agreement pursuant to section 90B of the Family Law Act 1975 (Cth) (“the Act”) and is binding within the meaning of section 71A of the Act. It is for this reason that she seeks to have it set aside pursuant to section 90K of the Act.
In the matter of Senior & Anderson [2011] FamCAFC 129, Justice Strickland sitting in the Full Court observed at paragraphs 88 to 89 as follows:-
88. Despite its wide circulation as a term of convenience, the expression “binding financial agreement” is not defined in the Act. Rather, as can be seen, the Act refers to and defines a particular form of agreement called a “financial agreement”. Further, as s 4 makes plain, a “financial agreement” has two essential components. It must first be “an agreement”, and it must also be an agreement that is made “under section 90B, 90C or 90D.”
89. “Agreement” is also not defined and thus carries its ordinary and natural meaning. Accordingly, just as with any agreement, principles of law and equity will apply so as to vitiate the agreement if the relevant circumstances are made out. So it is, in my view, with an agreement that purports on its face, to be a “financial agreement”. That interpretation is reinforced by s 90KA, noting that this section refers to “financial agreements” as distinct from “agreements”.
A financial agreement is rendered or declared binding if it satisfies the provisions of section 90G of the Act as follows:-
(1) Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:
(a) the agreement is signed by all parties; and
(b) before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and
(c) either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and
(ca) a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and
(d) the agreement has not been terminated and has not been set aside by a court.
(1A) A financial agreement is binding on the parties to the agreement if:
(a) the agreement is signed by all parties; and
(b) one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the agreement; and
(c) a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and
(d) the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and
(e) the agreement has not been terminated and has not been set aside by a court.
(1C) To avoid doubt, section 90KA applies in relation to the enforcement application.
(2) A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary.
Section 90K(1) of the Act sets out the circumstances on which the Court may set aside a financial agreement as follows:-
(1) A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
(a) the agreement was obtained by fraud (including non-disclosure of a material matter); or
(aa) a party to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii) with reckless disregard of the interests of a creditor or creditors of the party; or
(ab) a party (the agreement party ) to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or
(ii) for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM, or a declaration under section 90SL, in relation to the de facto relationship; or
(iii) with reckless disregard of those interests of that other person; or
(b) the agreement is void, voidable or unenforceable; or
(c) in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or
(d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or
(e) in respect of the making of a financial agreement--a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or
(f) a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or
(g) the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB.
Section 90KA of the Act addresses the validity, enforceability and effect of financial agreements and termination agreements as follows:-
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 Full Court in Kostres & Kostres [2009] FamCAFC 222 at paragraphs 127 to 128 observed, in respect of setting aside an agreement (section 90K of the Act) or dealing with validity, enforcement or effect (section 90KA of the Act):-
We are of the view that, while common law principles of construction undoubtedly apply and can be used to avoid absurdity, the terms of the agreement must accurately reflect the intention of the parties at the time of the making of the agreement, and be unambiguous. In other words, the meaning to be given to expressions used in the agreement must be clear and their meaning certain. We note in this regard the discussion of Mason and Brennan JJ in Calverley v Green of the meaning to be attributed to the word “acquire”. Any term which a reasonable person would imply should be uncontroversial. These requirements are particularly important when the financial agreement is one made, as in this case, in contemplation of marriage, and deals with unidentified property or financial resources which may be acquired or contributed to by parties in the future and subsequently divided between them, or retained by one party, in the event their marriage breaks down irretrievably.
We accept that in determining whether the agreement is valid, enforceable or effective, the general law relating to contracts, as well as principles of equity, are to be applied. That must be done to give effect to the parties’ intentions at the time of the making of the agreement, and in the context of the statute. The legislature has been careful to include strict requirements if a financial agreement is to be binding, including the requirement of independent legal advice. In those circumstances it is clear the legislature envisaged, because of the nature of these agreements and the removal of the Court’s supervisory role, that parties would receive legal advice about the necessity for their intentions to be accurately and clearly reflected in the actual terms of the agreement.
The Wife argues that the Financial Agreement should be set aside pursuant to section 90K(1)(b) and alternatively 90K(1)(e) of the Act.
The Wife bears the burden of proving there has been unconscionable conduct on the balance of probabilities.
THE WITNESSES
The Wife is 36 years old and is engaged in full time home duties. She swore five affidavits in the proceedings and was cross-examined.
The Wife’s mother, Ms E (“Ms E”), swore two affidavits in the proceedings and was cross-examined.
The Husband is 40 years old and engaged in full time employment as a labourer. He swore five affidavits in the proceedings and was not required for cross-examination.
THE FINANCIAL AGREEMENT
The following paragraphs reference the Financial Agreement dated 17 January 2013.
The recitals to the Financial Agreement in their entirety are:-
Background
1. Mr Cotsis was born in 1981 and is aged 31 years.
2. Ms Cotsis was born in 1984 and is aged 27 years.
3. Mr Cotsis and Ms Cotsis currently live together at Suburb C in the State of Victoria.
4. Mr Cotsis and Ms Cotsis propose to marry and this agreement is conditional upon the marriage taking place.
5. Mr Cotsis and Ms Cotsis intend their marriage to be permanent but nevertheless wish to define their financial rights and responsibilities during the marriage and if a breakdown of the marriage occurs.
6. There are no children of the relationship
but Ms Cotsis is pregnant with their first child which is due in 2013.7. Neither Mr Cotsis nor Ms Cotsis have other children.
8. Mr Cotsis is a labourer who earns from this source approximately $72,800.00 gross per annum.
9. Ms Cotsis has ceased work
pending the birth of the parties’ first child but was previously employed as a manager earning from this source approximately $40,000.00 gross per annum.Purpose of agreement
10. Because of their mutual love for each other the parties want an Agreement to eliminate, as much as possible, any future impediment to their marriage which might arise from uncertainties as to their respective financial responsibilities from each other.
11. Mr Cotsis and Ms Cotsis want this agreement to:
11.1 promote harmony between them;
11.2 reduce the possibility of litigation if they separate
11.3 create certainty about their financial and legal responsibilities towards each other if they separate.
12. The parties desire, to the fullest extent permitted by the law;
12.1 to resolve before their marriage all possible financial claims which they might have, or later acquire, against the other party.
12.2 to provide for the settlement of all property and other rights that may arise from the marriage.
13. Both parties want to keep all of their current and future separate property free from any claim of the other except as expressly set out in this Agreement.
14. The parties want:
14.1 so far as is possible to contract out of Part VIII of the Family Law Act if they separate;
14.2 to enter into a financial agreement under sec 90B of the Family Law Act setting out:
14.2.1 if they separate, their property and financial resources at the date of this agreement, or at a later time, and before the dissolution of the marriage, is to be dealt with; and
14.2.2 the maintenance rights of either of them if they separate.
15. No other agreement is in force under sec 90B, 90C or 90D of the Family Law Act 1975.
16. The parties acknowledge that they:-
16.1 have been fully informed of the wealth, property, estate and income of the other and that all questions asked of the other have been satisfactorily answered;
16.2 are fully aware of their respective rights
Plans
17. Mr Cotsis and Ms Cotsis intend to live together at their current rental accommodation prior to their marriage
in late 2012.18. Mr Cotsis through his sole efforts has developed a portfolio of assets prior to his relationship with Ms Cotsis which are still in essentially the same form at this present time. The portfolio is expected to increase in value in the future by virtue of natural growth.
19. Ms Cotsis through her sole efforts has developed a portfolio of assets prior to her relationship with Mr Cotsis which are still in essentially the same form at the present time. The portfolio is expected to increase in value in the future by virtue of natural growth.
20. It is the desire and intention of the parties to retain the sole ownership and control of their own individual assets and financial resources that they now own or may later separately acquire as though they were not married and free from any claim of the other party arising out of their cohabitation or material relationship under any law of any State or country.
21. It is the agreement of the parties that all assets and resources accumulated by them jointly during their relationship are to be considered as joint assets. In the event of separation, any assets held in joint names that cannot be divided shall be sold, and the net proceeds shall be distributed equally between the parties.
Property, liabilities and resources
22. Mr Cotsis’s assets, liabilities and financial resources are set out in Schedule A (“Mr Cotsis’s Financial Portfolio”).
23. Ms Cotsis’s assets, liabilities and financial resources are set out in Schedule B (“Ms Cotsis’s Financial Portfolio”).
24. The parties have fully disclosed to each other the identity, nature and estimated value of their liabilities and financial resources.
25. Mr Cotsis has not contributed to Ms Cotsis’s Financial Portfolio.
26. Ms Cotsis has not contributed to Mr Cotsis’s Financial Portfolio.
27. The parties expect that if they separate, they will each have sufficient income from their employment and separate assets to have reasonable standard of living.
Separate Property
28. Both parties want to protect their separate property (as defined in paragraph 29) from claims by each other if they separate save for as provided in Clause 31 herein.
29. The term “Separate Property” shall mean:
29.1 All property and financial resources, whether real or personal, tangible or intangible, owned by each party at the date of their marriage (it is noted that their separate “financial portfolios” as set out in the Schedule);
29.2 All property later acquired by each party by gift, devise, bequest or inheritance and all property acquired in exchange for such property.
30. Both parties specifically reject the concept of unintentional creation of marital property or unintentional change of separate property to marital property. All property acquired by either party after their marriage shall be separate property unless the owner in writing either transfers the property to joint tenancy or designates it as marital property. All property acquired by either party after the marriage shall be presumed to be separate property unless clear contrary positive action is taken by the parties.
31. Both parties shall have the unfettered right to dispose of their separate property by gift, transfers to or by trust, or by Will during their lifetimes without interference by the other party.
32. During the marriage both parties shall have the full rights to own, control and dispose of their separate property as if the marriage did not exist. If either party seeks to mortgage, sell or transfer their separate property and the consent of the other party is required by the purchaser or mortgagee, the other party will do everything reasonably necessary to complete the intended transaction.
33. Both parties relinquish, release and waive their statutory rights to act as administrator or administratrix of the estate of the other, and relinquish, release and waive any statutory right to nominate or appoint any person to act as an administrator for the estate of the other.
34. If the parties acquire property after the date of this Agreement and place it in both their names or enter into any written agreement or execute any legal documents to transfer the title to any separate property into both parties’ names, that property shall be marital property.
35. Any written or oral reference by the parties to property as “joint” or “ours” does not create a presumption of joint ownership in property which is otherwise separate. There must be formal documentation to prove the transfer of separate property to joint ownership.
36. Except as specifically provided in this Agreement, each party waives, relinquishes and releases all right, title and interest in and to any and all of the other party’s separate property.
37. Both parties shall have the right to voluntarily transfer or convey to the other party and property or interest in property. No voluntary transfer or conveyance shall change in this Agreement.
38. If the parties acquire property jointly during the marriage, the property shall be held by them as provided in the document conveying title or evidencing title. If the document does not specify otherwise or if there is no document, the property shall be held as a tenancy in common in proportion to their direct financial contributions. The arrangement shall not in any way be deemed a waiver or abandonment of the whole or any part of this Agreement.
The Financial Agreement has a Certificate of Independent Legal Advice provided to the Wife by a solicitor. That statement records:-
I, N Law Firm, Melbourne HEREBY CERTIFY that in relation to the agreement in writing proposed to be entered into between Mr Cotsis and Ms Cotsis (“the parties”) I advised Ms Cotsis (“my client”) independently of the other party, and before the time of which my client signed the agreement, as to the following matters:
1. The effect of this financial agreement on the rights of my client pursuant to the Family Law Act 1975.
2. Whether or not at the time this advice was provided, it is to the advantage, financially or otherwise, of my client to enter into the financial agreement.
The Financial Agreement has a Certificate of Independent Legal Advice provided to the Husband by a solicitor. That statement records:-
I, Ms O, HEREBY CERTIFY that in relation to an agreement in writing proposed to be entered into between Mr Cotsis and Ms Cotsis (“the parties”) I advised Mr Cotsis (“my client”) independently of the other party, and before the time of which my client signed the agreement, as to the following matters:
1. The effect of this financial agreement on the rights of my client pursuant to the Family Law Act 1975.
2. Whether or not at that time this advice was provided, it is to the advantage, financially or otherwise, of my client to enter into the financial agreement.
DISCUSSION
It is at this point that I turn to discuss the relevant evidence of the parties as it impacts on my assessment of whether or not the financial agreement should be set aside.
The High Court of Australia considered matters of unconscionable conduct in relation to financial agreements. In the matter of Thorne v Kennedy [2017] HCA 49 on appeal from the Full Court of the Family Court of Australia, the majority set out the following:-
64. The Full Court recognised that Ms Thorne was labouring under a disadvantage, although the Court did not add the adjective “special”, which, as Mason J in Commercial Bank of Australia Ltd v Amadio explained, is used to emphasise that the disadvantage is not a mere difference in the bargaining power but requires an inability for a person to make a judgment as to his or her own best interests. The findings by the primary judge that Ms Thorne was subject to undue influence – powerless, with what she saw as no choice but to enter the agreements – point inevitably to the conclusion that she was subject to a special disadvantage in her entry into the agreements .
65. Ms Thorne's special disadvantage was known to Mr Kennedy. Her special disadvantage had been, in part, created by him. He created the urgency with which the pre-nuptial agreement was required to be signed and the haste surrounding the post-nuptial agreement and the advice upon it…
Further, the High Court of Australia considered matters of duress, undue influence and unconscionable conduct in relation to financial agreements. In the matter of Thorne v Kennedy [2017] the majority set out the following factors at paragraph 60 which may be considered:-
(i) whether the agreement was offered on a basis that it was not subject to negotiation; (ii) the emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement; (iii) whether there was any time for careful reflection; (iv) the nature of the parties' relationship; (v) the relative financial positions of the parties; and (vi) the independent advice that was received and whether there was time to reflect on that advice.
The Wife did not rely on an assertion of undue influence to set aside the agreement, but rather puts her case on the basis that the Husband knew or ought to have known that the Wife was labouring under a “special disability” (which I understand to be a reference to the special disadvantage referred to in Thorne v Kennedy [2017]). Due to that, it is said there was no need for the Wife to cross-examine the Husband with respect to disputed facts surrounding pressure to enter the agreement. It is said that the agreement fails because the Husband, having knowledge of the Wife’s special disadvantage, should not have accepted the Wife’s signature and the fact that he has done so amounts to unconscionable conduct.
The legal principles surrounding unconscionable conduct which emerge are as follows:-
(a)to be invoked the Wife is required to establish she was labouring under a special disadvantage which seriously affected her ability to safeguard her interests at the time she entered into the agreement. In Australian Securities and Investments Commission v Kobelt [2019] HCA 18 it was identified that “the essence of the relevant weakness is that it “seriously affects” the innocent party's ability to safeguard their own interests”;
(b)what may constitute a special disadvantage is incapable of exhaustive definition but such disadvantage “may stem from a strong emotional dependence or attachment” (as per Bridgewater v Leahy [1998] HCA 66); and,
(c)the special disadvantage requires more than a mere difference in bargaining power.
Notwithstanding the Wife’s initial affidavit which suggests that the Husband did not discuss the Financial Agreement until late 2012, days before the postponed engagement party and around four or five weeks following the stillbirth, it emerged clearly on the evidence that the initial discussions surrounding the Financial Agreement occurred in mid 2012 whilst the Wife was pregnant. Correspondence from the Husband’s solicitor dated 22 August 2012 was forwarded to the Wife which she said she became aware of in September 2012.
On 24 September 2012 the solicitor acting for the Wife, Mr N (“Mr N”), responded on the Wife’s behalf to the Husband’s solicitor. That letter from Mr N:-
(a)notes that the financial agreement was drafted by the solicitor for the Husband;
(b)confirms that the agreement substantially conforms with the parties’ intentions;
(c)seeks a number of amendments to the agreement, notably that:-
(i)property acquired by the parties (save for inheritances or gifts) be treated as joint property;
(ii)seeks the inclusion of a clause recognising non-financial contributions to be made by the Wife during marriage (noting at this time the Wife was pregnant and was likely to be the primary homemaker and parent within the union); and
(iii)sought a redaction of the clause ousting jurisdiction of a court with respect to spousal maintenance.
The Husband’s solicitor responded to Mr N by letter dated 26 September 2012 asking that he draft the proposed amendments, which Mr N duly completed and forwarded the suggested draft by email on 5 October 2012. By letter dated 11 October 2012 the solicitor for the Husband advised of the Husbands agreement to the proposed clauses and deletions and enclosed the amended agreement for signature and execution.
The evidence of both the Wife and her mother is that they attended upon Mr N at least twice and probably three times according to the Wife’s mother. It is also clear that at least one of those consultations took place prior to the stillbirth when the Wife was pregnant and healthy. Each of the Wife and her mother confirmed that the Wife was advised by Mr N not to sign the agreement. The constant theme of the Wife’s evidence was that she was marrying for love and not the Husband’s money, she therefore signed the agreement in spite of the advice she was given. Having had the valuable opportunity to observe the Wife give her evidence (via Microsoft Teams) I formed the distinct impression that the Wife was determined to enter the agreement no matter what.
Although not mutually exclusive, that assessment does not sit well with the Wife’s assertions in her affidavit and viva voce evidence that the Husband exerted illegitimate pressure on her to sign the Financial Agreement. It is the Wife’s assertion that the Husband’s mother put pressure on the parties to marry before attempting to have another child and that the Husband persisted and asserted that there would be no marriage or “any other children” if she did not sign the agreement. It is clear from the Wife’s affidavit evidence that this was alleged to have been said following the stillbirth. The Husband denies that he and/or his mother issued ultimatums to the Wife or placed her under inappropriate pressure. He points out that the Wife signed the financial agreement after four months of negotiations and two months after the stillbirth. He said that the Wife did not express any reluctance to enter the financial agreement, and consistent with my impression of the Wife’s intentions formed during the hearing, said that the Wife repeatedly said to him that she was not interested in his assets. Given the forensic decision not to cross-examine the Husband, I accept his evidence. I cannot find that the Husband applied any illegitimate pressure to the Wife to sign the financial agreement either before or after the stillbirth. It was said that I should draw an inference from the Husband’s failure to call evidence from his mother that she was putting pressure on both of the parties to get married before attempting to have children again. The Husband denies that assertion and to the contrary says that his mother did not approve of the marriage between the parties at all. I decline to draw the inference sought and cannot make a finding that the Husband’s mother exerted any illegitimate pressure on the parties or either of them.
It was conceded by Counsel for the Wife that had the agreement been signed and executed prior to the stillbirth there could be no argument that the Financial Agreement was not binding upon the parties. I concur. The issue therefore becomes simple and is threefold:-
(a)first, did the stillbirth and the consequent emotional and psychological effect on the Wife place the Wife at a special disadvantage to the Husband?; and,
(b)if yes, did that special disadvantage seriously affect the Wife’s ability to make a judgment about her best interests?; and,
(c)if yes, has the Husband unconscientiously (but not necessarily unlawfully) taken advantage by acceptance of the Wife’s assent to the agreement such that equity should intervene.
In assessing the first issue, it is noted that no medical evidence was called by the Wife to establish her emotional and psychological state following the stillbirth and she relied on her own evidence as to her state of mind following the stillbirth. She spoke of the devastating impact of the event and of being in an “acute state of depression” and being unable to properly contemplate dealing with any other matters. The Wife reports receiving little professional assistance beyond a visit from a social worker at the hospital, a house call from a social worker a few days later where service agencies were discussed and one visit to a doctor and one to a psychologist at a time she could not recall. In her later affidavit the Wife supplies a symptomatic description of her grief including incessant crying, insomnia, weight loss, nightmares and a lack of motivation and enthusiasm. Ms E confirms the observations of her daughter’s grief following the stillbirth and many years later, in preparation for parenting proceedings, Ms M (“Dr M”) observed at paragraph 20 of her Family Report “Ms Cotsis cried when speaking about the loss of her two babies in utero and the level of distress was in excess of what would typically be expected with the passage of time” (although I note in the intervening period the parties had suffered a subsequent non-viable pregnancy).
The Husband’s unchallenged evidence surrounding how the parties coped following the stillbirth was that both he and the Wife grieved and that notwithstanding their grief they approached the following weeks and months with the hope that the Wife would recover as quickly as possible. There is, inferentially at least, the sense from the Husband’s evidence that the Wife was coping adequately from his point of view. Nevertheless, he appropriately acknowledged that the Wife was recovering over weeks and months and in that sense I regard his evidence as a tacit acknowledgement that the Wife was likely still recovering from the effects of the stillbirth seven weeks later when she executed the agreement. I do not regard the evidence of the Husband as being in conflict with the evidence of the Wife, although subjectively they may each have had a different view about the severity of the Wife’s condition.
The lack of medical evidence does not preclude a finding that the Wife was at a special disadvantage. It is within the realms of common human experience that an event of the significance of a stillbirth at six months gestation, particularly of the parties’ first child, would have a devastating effect on both the Wife and the Husband. This is acknowledged by both of the parties and understood. This common understanding, coupled with the Wife’s evidence of how she was feeling, which I accept, demonstrates that at the time she entered into the agreement her faculties were impaired. She was suffering a severe and understandable grief reaction to the stillbirth. The stillbirth, her desire to marry, her desire to pursue her dream of having a child and her love of the Husband were inextricably entwined. The question then arises as to whether or not such disadvantage affected her ability to make a decision in her best interests.
Understandably there was considerable focus in these proceedings surrounding the Wife’s headstrong determination to enter the agreement (albeit with some amendments to the original draft) prior to the stillbirth. However, her ability to make decisions must be assessed at the date of signing the agreement. Whilst I accept that the Wife could easily have signed the agreement prior to the stillbirth, the fact is that she did not. The evidence of correspondence jumps from the letter from the Husband’s solicitors dated 11 October 2012 enclosing the agreement to the letter from the Wife’s solicitors dated 17 December 2012 enclosing the agreement signed by her. There is no evidence that the devastating intervening event of the stillbirth even factored into negotiations. Notwithstanding the terms of the agreement were clearly settled prior to the stillbirth, I am well satisfied that from at least that date, and possibly two days before when the Wife held concerns for her unborn child, the Wife was under a special disadvantage which deprived her of the ability to undertake a proper consideration of the agreement reached and whether to go ahead and sign. Of course I cannot speculate as to whether she would have signed or not if the stillbirth had not occurred. The tenor of her evidence suggested she may very well have. Alternatively, the Wife may have heeded the strong advice of her solicitor not to sign. I simply do not know, but I am satisfied that the intervening event of the stillbirth impeded the Wife’s capacity to make a proper decision not just between October 2012 and December 2012 when she signed, but also between December 2012 and January 2013 when the Husband signed, when she may have been in a position to reconsider and withdraw her consent.
Having regard to the terms of the agreement I concur with the advice the Wife received from her solicitor that the Wife’s assent to the agreement was disadvantageous to her and advantageous to the Husband.
At first instance the agreement was subject to negotiation and its terms were arguably concluded prior to the stillbirth, which is a factor to be taken into account militating against setting the agreement aside.
Between late 2012 and the stillbirth, I am satisfied that there was time and capacity for careful reflection regarding the agreement. However, for the reasons I have set out earlier, the intervening stillbirth deprived the Wife of a proper capacity to reflect on the agreement prior to it being signed by both parties.
The nature of the parties’ relationship was one of mutual love and affection and a desire to marry and have children. The Wife was eager to establish to the Husband that she did not seek to marry for financial gain but rather for love and, in that sense, I find she was in a marginally inferior bargaining position. She exhibited a strong emotional need to prove that point. I am satisfied that subjectively at least the Wife associated the prospect of marriage and children being conditional on signing the agreement. However, as I have said earlier, I cannot make findings that the Husband issued ultimatums to sign the agreement or there would be no marriage. Nevertheless, the Wife’s subjective beliefs also contribute to my assessment of her as being at a special disadvantage at the time the agreement was executed.
I do find that the Husband’s financial position was superior to the Wife’s in terms of both the assets sought to be protected by the agreement in each of the parties’ possession and in terms of earning capacity. In that sense, it is difficult to see what was in the agreement for the Wife in ousting the jurisdiction of the Court in circumstances where it was always contemplated that she would undertake the home duties role.
I therefore turn to the final question to be addressed ,which is whether the Husband’s acceptance of the Wife’s assent to the agreement was unconscionable in the circumstances. I was referred to the principle as explained by Justice Deane in Louth v Diprose [1992] HCA 61 at paragraph 11 where his Honour said as follows:-
It has long been established that the jurisdiction of courts of equity to relieve against unconscionable dealing extends generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or "unconscionable" that that other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable…
In Thorne v Kennedy [2017], Justice Gordon considered when the retention of a benefit can be considered unconscionable. At paragraph 114 of her Honour’s dissenting judgment she said as follows:-
114. Retaining a benefit conferred under a transaction, or seeking to enforce a right or obligation under a transaction, cannot attract the intervention of equity without the existence of some factor that affects the conscience of the stronger party. Once it is accepted that (1) the doctrine of unconscionable conduct seeks to identify that factor in the wrongful (scil “unconscientious” or “exploitative”) conduct of the stronger party, and (2) a person commits no wrong per se by retaining a benefit or seeking to enforce a right or obligation obtained through a lawful transaction, then the basis for equitable intervention must reside in some defect in how the dealing was entered into. That defect will exist if the special disadvantage was sufficiently evident to the stronger party at the time of the transaction to make it unconscientious to procure or accept the assent of the weaker party.
I have given significant consideration to this issue as it applied to the Husband in these proceedings. It may well be said that the Husband considered the agreement concluded at the time he accepted the Wife’s amendments and he agreed, and at a time when the Wife was not labouring under a disadvantage. Nevertheless, his own evidence suggests that he was privy to the distress and grief of the Wife following the stillbirth. Indeed he was probably more alive to her grief and distress as he was no doubt experiencing similar feelings. There is no doubt that he put a more optimistic gloss on the Wife’s ability to cope with those feelings, but nevertheless they were there.
The Husband appears to have had an appetite to protect his assets. There is an assertion in the Wife’s affidavit evidence that the Husband divested himself of his interest in Employer P in mid 2012 by transferring his 12 shares to his mother. At the same time he resigned as a Director and Secretary of that company. At the time this transaction occurred the Wife was pregnant and the parties were soon to commence living together in separate accommodation from his mother. The Husband must have been aware that the relationship was moving to the next level. Very soon after the Wife was presented with the Financial Agreement by mail. The preparation of the Financial Agreement was instigated by the Husband or those acting on his behalf on an unknown date. Clearly the Husband was aware of the issue that the seriousness of the relationship had the potential to put his assets at risk. It is beyond the scope of these reasons to consider the legitimacy of the transfer of the Husband’s shares and I stress that I am not doing so. There may very good reasons why such transfer occurred and that may need to be considered in more detail on a later date. Nevertheless, these actions are indicative of a desire to protect assets moving forward and the Husband acted on that by accepting the Wife’s assent to the agreement in January 2013.
In many respects this is a difficult case which turns uniquely on its own facts. It is difficult to be critical of the Husband in the way he negotiated the agreement in what would seem to be good faith prior to the stillbirth. He readily made concessions as to the content of the Financial Agreement even when those concessions were disadvantageous to him. There were no further amendments requested. Nevertheless, I cannot ignore that the Husband, more than perhaps anyone, would or should have been aware of the Wife’s distress and grief. The parties were living together and were in a loving and caring relationship which was to progress to their engagement party and marriage. To accept the Wife’s assent around seven weeks subsequent to the stillbirth, even in circumstances where she had previously indicated her consent, was at the very least imprudent and insensitive. There is no suggestion that the parties, in the context of their intimate and personal relationship, further discussed the Financial Agreement in the context of the significant change in their circumstances and how they were each feeling. In fact the evidence as it stands suggests that running in tandem with a couple in the throes of planning their engagement party is a purely business transaction through solicitors regarding the agreement. In a legal but not pejorative sense, I find the Husband’s acceptance of the Wife’s consent to be exploitative in the circumstances.
Perhaps rhetorically my decision in these proceedings has caused me to reflect on when it might have been that the Husband could have safely secured the Wife’s consent without putting the agreement at risk. Ultimately I have not been able to form a concluded view on that point. I suspect the answer would lie in the Wife’s recovery progress and any setbacks experienced by her. Having regard to the Wife’s presentation to Dr M, it may well be that she will never fully recover. That of course presents real issues with respect to parties entering financial agreements and may require careful consideration by legal practitioners. Suffice to say that in the unique circumstances of these proceedings the Wife’s signing of the agreement seven weeks after the stillbirth, with her temperament and reaction, rendered her at a special disadvantage. I find that the Wife was weaker and more vulnerable than the Husband at the time the agreement was executed and that the Wife’s special disadvantage was sufficiently evident to the Husband to make it unconscientious to accept her assent.
For all of the foregoing reasons the Financial Agreement will be set aside.
I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Stewart. Associate:
Dated: 7 April 2021
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