D v M
[2008] SASC 226
•22 August 2008
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
D v M
[2008] SASC 226
Judgment of The Full Court
(The Honourable Justice Duggan, The Honourable Justice Vanstone and The Honourable Justice David)
22 August 2008
EQUITY - GENERAL PRINCIPLES - OTHER FORMS OF EQUITABLE FRAUD
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - REPUDIATION AND NON-PERFORMANCE
Appellant appealed against trial judge's decision that an agreement between former de facto partners was enforceable - whether agreement should be set aside on the basis of unconscionability - whether appellant under a special disability and whether respondent took advantage - consideration of appellant's personality, mental state and alcohol dependency - consideration of appellant's role in contract negotiations and relevance of legal advice - respondent cross-appealed against trial judge's finding that she could not recover for loss which she avoided, following appellant's breach, because of impecuniosity - agreement provided for reimbursement of respondent's reasonable expenses and payment of health insurance premiums - whether respondent entitled to recover arrears, or damages for loss of a benefit, in the absence of expenditure.
Held: Appellant's condition did not constitute a special disability and respondent did not take unconscientous advantage - appeal dismissed - following breach respondent mitigated her loss so as not to incur expenses - no debt due and no basis upon which damages could be assessed - cross-appeal dismissed.
De Facto Relationships Act 1996 (SA) s 3, s 5, s 6, s 8; Domestic Partners Property Act 1996 (SA), referred to.
Hoggs v Roberts (2003) 87 SASR 248; Louth v Diprose (1992) 175 CLR 621; Williams v Maalouf [2005] VSC 346; Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; Bridgewater v Leahy (1998) 194 CLR 457; Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; M v D (2007) 252 LSJS 24; [2007] SADC 123, considered.
D v M
[2008] SASC 226Full Court: Duggan, Vanstone and David JJ
DUGGAN J: The main issue for determination in this appeal is whether the District Court judge who heard the matter at first instance was correct in deciding that an agreement between the parties was enforceable. According to the argument presented on behalf of the appellant, the trial judge should have granted equitable relief and set the agreement aside by reason of unconscionable conduct on the part of the respondent.
The appellant (“D”) and the respondent (“M”) lived together in a de facto relationship for a period of approximately 14 years between 1987 and April 2001. There were three children born as a result of the relationship.
The couple separated on 12 April 2001. After a period of negotiation they executed a written agreement dated 17 December 2002 entitled “De Facto Relationship Property Settlement Certificated Cohabitation Agreement”. The agreement provided for the division of certain property owned by D and M, but its most important effect was to require payment by D of M’s living expenses until she reached the age of 55.
It was stated in clause 2 that the parties entered into the agreement in full and final satisfaction of all claims either party may have against each other in relation to the division of property and having regard to the provisions of the De Facto Relationships Act 1996 (“the Act”).
The Act has been amended and re-named the Domestic Partners Property Act 1996. However, the Act in its original form is relevant for present purposes.
The long title of the Act described it as “An Act to facilitate the resolution of property disputes arising on the termination of de facto relationships; and for other purposes”.
Section 5 of the Act provided as follows:
5—Cohabitation agreements
(1) De facto partners may make an agreement (a cohabitation agreement) about—
(a) the division of property on the termination of the de facto relationship; or
(b) other financial matters related to the de facto relationship.
(2) A cohabitation agreement must be—
(a)in writing; and
(b)signed by the de facto partners.
Section 6 of the Act stated that “a cohabitation agreement is subject to, and enforceable under, the law of contract”.
Section 3 of the Act provided that an agreement is a certificated agreement if:
(a)the agreement contains a provision (the warranty of asset disclosure) under which each party warrants that he or she has disclosed all relevant assets to the other; and
(b)the signature of each party to the agreement is attested by a lawyer's certificate and the certificates are given by different lawyers;
The certification of a cohabitation agreement had certain consequences under the Act. A certificated agreement could not be varied except by a certificated agreement. Under s 8 a cohabitation agreement could be set aside or varied by a court to avoid serious injustice. However, a court could not set aside or vary an agreement if the agreement provided for the exclusion of the court’s power to set aside or vary, and it was a certificated agreement (s 8(3)).
The present agreement is certificated. However, Mr Whitington QC, for D, submitted that s 8(3) must be read subject to s 6 and that matters such as fraud, undue influence and unconscionability, which can result in an agreement being set aside, would remain applicable under s 6. This was not disputed by Mr Lazarevich, for M, and the matter proceeded on this basis.
D ceased making the monthly payments in March 2005. M then commenced the present action seeking a declaration that the agreement is binding and claiming arrears pursuant to the terms of the agreement or, alternatively, damages for its repudiation.
The defence filed on behalf of D raised various defences to the claim, but the only issue argued on appeal was that the agreement was unenforceable on the following ground:
Enforcement of the purported Cohabitation Agreement by the Plaintiff against the Defendant is unconscionable as the Defendant was under a special disability in dealing with the Plaintiff such that there was an absence of any reasonable degree of equality between the parties, and the Defendant’s special disability was sufficiently known to the Plaintiff such that it was unconscionable that the Plaintiff procure and accept the Defendant’s assent to the purported Cohabitation Agreement.
D’s argument on appeal was put on the following basis. It was said that D was at a special disadvantage in relation to his dealings with M. Reliance was placed on evidence that, at the time of entering into the agreement, D drank excessive amounts of alcohol and was severely depressed. He blamed himself for the breakdown of the relationship and suffered from low self-esteem. M was aware of these problems. It was said that she took advantage of them when encouraging D to enter into the agreement. In the result D agreed to enter into an improvident agreement because of D’s inability to fulfil its financial requirements by reason of the overgenerous provision for M. According to the argument, these circumstances warranted the intervention of equity for the purpose of setting aside the agreement.
The trial judge found that, at the time of the negotiations which preceded the agreement, D was severely depressed, suffering from low self-esteem and dependent upon alcohol. He also found that D felt guilty and blamed himself for the breakdown of the relationship. He accepted that the agreement was improvident from D’s point of view. However, he found that D had a great deal of time to reflect on the agreement and that he had been receiving legal and accounting advice throughout. His Honour accepted that M implored D to sign the agreement. He also noted that her personality and the fact that she was responsible for the two younger children of the relationship placed her in a strong bargaining position. However, he stated that he could not conclude that she acted in an unconscionable manner so as to take advantage of D in the manner contemplated in the authorities.
D and M gave evidence. The trial judge was favourably impressed by D as a witness. He stated that he placed little reliance on M’s evidence where it served her own interests and where there was no independent evidence to confirm her evidence. He expressed his ultimate conclusion in the following passage of his reasons:
There is no doubt that the defendant had a great deal of time to reflect on the ultimate agreement. He had made payments for almost 20 months before he signed the agreement. The cohabitation agreement is not legally or conceptually difficult to comprehend. He had taken an active part in the negotiations over those 20 months.
Since about February 2002 he had sufficient time to reflect upon the advice given to him by his solicitor Mr Farmer and his accountant Mr Horwood.
The defendant was undoubtedly severely depressed; suffering from low esteem and alcohol dependent. He undoubtedly felt guilty, and blamed himself for the breakdown in the relationship. While the death of his father occurred about one month before the agreement was executed, he had already determined to sign it in September/October of that year.
While the agreement was improvident from his viewpoint it reflected his desire to ensure that his de facto of 14 years was adequately maintained. He knew precisely what he was doing when he signed the agreement. There is no comparable legislation in this State similar to the Contracts Review Act 1980 (NSW), where contracts which, may not be unconscionable, may yet be held to be unjust.
From the plaintiff’s point of view, I have no doubt that she was at all times prior to the agreement aware of his debt position, his alcohol dependency, his depression and low self esteem.
Having said that I equally have no doubt to paraphrase Doyle C.J. in Hogg’s[1] case in respect of Part 3 relief, that she did genuinely believe that she had been hard done by and that the payments made to her after 2001 were little compensation for “disappointed or unfulfilled expectations”.
While I have found that she did constantly ring the defendant imploring him to sign the agreement, and that her personality and responsibility for the two younger children placed her in a strong bargaining position, I cannot conclude that she unconscientiously took advantage of him in the manner indicated in the authorities. I also cannot overlook the independent advice he received over a long time, and the terms of the Certificate signed by Mr Farmer. This case is far removed from the facts in Louth v Diprose[2], or Williams v Maalouf[3], despite the defendant’s poor health throughout this period.
It is hard not to have a great deal of sympathy for the defendant, particularly for his struggles to meet the financial commitments in those periods of depression after April 2001. His recovery from the events of August 2004 has been remarkable
In my opinion however for the reasons expressed above the agreement is enforceable against the defendant.
[1] Hoggs v Roberts (2003) 87 SASR 248
[2] (1992) 175 CLR 621
[3] [2005] VSC 346
There was no challenge to the trial judge’s findings of fact. However, it was argued that the facts, as he found them, established that D was under a special disability in dealing with M, of which M took advantage. It was said, these matters having been established, that M had failed to prove that the agreement was fair, just and reasonable.[4]
[4] Louth v Diprose (1992) 175 CLR 621 per Deane J at 637
Unconscionability
In Blomley v Ryan[5] Kitto J provided a succinct statement of the nature of the jurisdiction to grant relief in equity where one party unconscientiously takes advantage of another who is in a position of special disadvantage:
This is a well-known head of equity. It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.
[5] (1956) 99 CLR 362 at 415
In Commercial Bank of Australia Ltd v Amadio[6] Deane J summarised the principle in the following way:[7]
The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: "the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract" (see per Lord Hatherley, O'Rorke v. Bolingbroke; Fry v. Lane, at p. 322; Blomley v. Ryan, at pp. 428-429). (footnotes omitted)
[6] (1983) 151 CLR 447
[7] Ibid at 474
In the same case Mason J said:[8]
Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest.
[8] Ibid at 461
After referring to the judgment of Fullagar J in Blomley v Ryan Mason J added:[9]
It is made plain enough, especially by Fullagar J., that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.
[9] Ibid at 462
The special disability relied upon in the present case is said to arise from a combination of circumstances. Mr Whitington argued that the disability is to be found in D’s dependence on alcohol, his severe depression, his low self-esteem and the fact that he blamed himself for the breakdown in the relationship.
The existence of these factors is not in dispute. The question is whether they gave rise to a special disability in the circumstances of the case.
The trial judge found that D’s mental state at the time he signed the agreement did not deprive him of the ability to understand the nature and effect of the agreement. There is ample evidence to support this finding which was not challenged on appeal.
The finding is of relevance in considering the claim of unconscionability, but is not, of itself, determinative of the issue. In Bridgewater v Leahy[10] Gaudron, Gummow and Kirby JJ said in their majority judgment:[11]
The position of disadvantage which renders one party subject to exploitation by another such that the benefit of an improvident disposition by the disadvantaged party may not in good conscience be retained may stem from a strong emotional dependence or attachment. Louth v Diprose was such a case. In his judgment in the South Australian Full Court, a decision which was upheld in this Court, Jacobs A-CJ said:
"It is an oversimplification to say that because the respondent acted as he did with his eyes open, and with a full understanding of what he was doing, he was not in a position of disadvantage, and therefore not the victim of unconscionable conduct." (footnotes omitted)
[10] (1998) 194 CLR 457
[11] Ibid at [115]
It remains necessary, however, to consider whether the matters relied upon placed D at a special disadvantage which affected his own interests[12] or, to put it another way, resulted in the absence of any reasonable degree of equality between the parties.[13]
[12] Blomley v Ryan supra at 415
[13] Commercial Bank of Australia Ltd v Amadio supra at 474
Before proceeding further it is convenient to say something more about the background of the relationship between D and M; the course of the negotiations between them; and the aspects of D’s personality and mental state which are relied upon to justify the setting aside of the agreement.
M was aged 46 years and D aged 45 years at the date of trial. They were born in New Zealand and came to Australia in 1994.
D is a consultant physician. After being employed at St Vincent’s Hospital in Sydney and then at the Dubbo Hospital, he and M moved to Adelaide in March 1999. D took up a position as visiting medical officer at the Lyell McEwin Hospital where he is currently employed for twelve and a half hours a week. The rest of his time is spent in private practice. The trial judge described him as a “highly competent” physician.
D’s private practice was incorporated and a family trust was set up, with D and M the beneficiaries of the trust.
M was a dental nurse but she ceased full time employment shortly before the birth of their first child in 1989.
After the separation in 2001, M moved to a rental property in North Adelaide. The two younger children lived there with her. D paid the rent and household expenses.
In August 2004, D was admitted to the Royal Adelaide Hospital after a failed suicide attempt. He was suffering from severe alcohol dependence and depression. He returned to work two weeks later.
The negotiations culminating in the signing of the agreement
It is important to have regard to the course of the negotiations leading up to the signing of the agreement on 17 December 2002.
M’s solicitors wrote to D on 18 September 2001 advising that they acted for M and noting that, according to their instructions, D was paying all the living expenses of M and the children. They said they understood that D was prepared to continue this arrangement and suggested that, after D’s financial position had been assessed, it would be appropriate to formalise any agreement between the parties and to do so by way of a written agreement.
D consulted his solicitors who took instructions from him and drafted a response for his consideration. After receiving his instructions the solicitors wrote to M’s solicitors on 19 October 2001. The following is an extract from the letter:
Our client is willing to continue to pay reasonable expenses of your client and the children. Our client would like your client to open her own bank account into which our client will deposit a fixed amount of money on a monthly basis. This will enable your client to develop her independence. What our client proposes is that various fixed expenses be paid by him including your client’s rent, car payments, grocery accounts, health insurance, etc. In addition to the fixed expenses, our client is also willing to provide your client with a fixed sum for discretionary expenses on a monthly basis. It is difficult for our client to know exactly what level of expenditure your client and the children will require. To this end, we would ask that your client provide us with a summary of what fixed expenses are incurred on a weekly basis and our client will then meet with us and provide us with further detailed instructions as to what he is prepared to continue to pay to maintain your client and the children.
Our client wishes to make it clear that whilst he is content to continue to support your client and the children, expenditure by your client cannot be on an unrestrained basis and a limit to the time that our client will be liable to maintain your client (quite apart from his child support obligations) will be stipulated. We would expect your client, over the next fourteen (14) years, to make legitimate attempts to make provision for financial independence by seeking employment or by other means.
We are also instructed that our client will continue to make all car payments until such time as the lease is repaid in full. At that time, our client will transfer ownership of the motor vehicle to your client for her to retain, dispose of or trade at her discretion. Our client will not agree to any additional refinancing for the purchase of another vehicle at any time in the future.
Also, we are instructed to request that all income from your client’s art that she sells be paid to our client until your client’s art profession become profitable and until our client’s current debts are extinguished.
It is relevant to note that D’s instructions were to pay the reasonable expenses of M and the children; that arrangements were to be made for M to have a vehicle; and that items such as health insurance would be paid by D. The letter referred to a period of 14 years during which M could make attempts to achieve a measure of financial independence.
It appears that this proposal formed the basis for future discussions. The solicitors for the parties continued to correspond as they received instructions from their respective clients.
On 28 November 2001 D’s solicitors wrote to M’s solicitors, stating that they had taken instructions from D and enclosing a draft De Facto Relationship Agreement and draft Child Support Agreement. They referred to their understanding that the parties had reached agreement with respect to most of the matters raised in response to their client’s proposal.
The draft De Facto Relationship Agreement provided for the payment to M’s landlord of $350 per week until M reached the age of 55 years or purchased her own residence. It provided that M would continue to use D’s credit card to pay for reasonable weekly expenses for her and the children. Provision was made for M to have a motor vehicle and to receive a weekly allowance of $300 for her personal expenses. Under the draft agreement it was proposed that D continue to contribute to M’s superannuation fund at the rate of $500 per month until she reached the age of 55. D would also be required to pay M’s accounts for gas, water, electricity and telephone. He would agree to pay M’s health insurance premiums.
There was evidence that D’s taxable income for the year ended 30 June 2002 was $212,000. In addition, M received a distribution through the family trust.
As has been stated, the final agreement was not signed until December 2002. In the lead up to this, various drafts were prepared and additional clauses added, including the amendment of 9 October 2002 that provided that no events shall affect D’s obligations to make payments, including D’s retirement or either party’s entry into a marriage or de facto relationship. However, the broad similarity between the provisions in the original draft and the final agreement are readily apparent. In particular, the first draft contemplated that D would provide financial support for M until she reached the age of 55 years.
The final agreement provided that each party retain their respective superannuation entitlements. The main part of the agreement was summarised by the trial judge:
Substantially however the agreement related to the payment by the defendant of the plaintiff’s ongoing expenses until she reached the age of 55 years.[14]
Such payments included the respective sums of $1300 per month, in advance, for her personal expenses; her reasonable accommodation costs then currently $360 per week; her rental of “art space”, $900 per month being lease payments on a motor vehicle; and other expenses, including groceries, petrol, utilities and insurance as detailed therein.
Those payments were required to be made irrespective of any changes to either party’s respective circumstances including the retirement of the defendant; the entry of either party into a marriage or de facto relationship; the reduction in the defendant’s income or the entry into employment by the plaintiff. Although no documentary evidence was tendered with respect to the expenses, it was an agreed fact that on an average basis, excluding the car lease payments, the payments totalled approximately $4,000 per month.
[14] Exhibit P1, clause 3
Under the final agreement D is also required to pay utilities accounts on the residence, and M’s health and life insurance premiums, until she reaches the age of 55 years.
Special disability
Reference has been made to the claim that the special disability arose out of a combination of circumstances affecting D’s state of mind. It is necessary to consider the circumstances individually, although, at the end of the day, it is their combined effect which is relevant.
Alcohol consumption
According to the evidence, D had difficulty in controlling his consumption of alcohol before coming to Australia from New Zealand. The trial judge found that in the period from April 2001 to December 2002, D was consuming alcohol in quantities which eventually reached two and a half litres per day. However, D told Dr Ewer, the psychiatrist who examined him on behalf of the plaintiff, that although he increased his consumption of alcohol in 2001 it did not interfere with his ability to work.
There is no suggestion that D was affected by alcohol at the time of the signing of the agreement or when instructing his solicitors to prepare the agreement. However, reliance was placed on this consideration as a factor relevant to his attitude and state of mind during the period of the negotiations and the signing of the agreement.
Mental condition
An affidavit sworn by D’s treating psychiatrist, Dr Pols, was tendered at the trial. However, Dr Pols was not called to give evidence. Dr Pols put forward a diagnosis. However, though he identified various conditions, he did not offer any opinion as to the possible effects of the combination of conditions on D’s ability to conserve or protect his interests, nor how, if at all, they would render him vulnerable in connection with the negotiations for the agreement.
Dr Pols said in his affidavit:
In my view at the time that this agreement was signed that D was under…
-major depression with suicidal ideation;
-alcohol intoxication and dependence;
-mourning for his recently deceased father;
-an excessive sense of guilt and personal responsibility typical of his personal upbringing; and
-genuine concern for the welfare of his children.
Dr Ewer, a psychiatrist, examined D on behalf of the plaintiff. His report was tendered at the hearing. The report was more comprehensive than Dr Pols’ affidavit. Dr Ewer stated that, in his view, there was insufficient evidence to establish that D was suffering from a major depressive disorder at the time the agreement was signed. As mentioned, Dr Ewer also commented on D’s alcohol dependence.
Dr Ewer formed the view that D was suffering from a Dysthymic Disorder in December 2002. There was no explanation of this condition at the trial, but no objection was taken to Mr Whitington describing it on the hearing of the appeal as a depressive condition falling short of a major depressive illness. Dr Ewer’s report continued:
Based on a reasonable degree of medical probability, in my opinion, [D’s] depression, and in particular his Dysthymic Disorder, in combination with his alcohol use did not render him unable to comprehend legal advice in December 2002. In particular I did not obtain any evidence of cognitive impairment or of psychosis in December 2002 which would interfere with his ability to comprehend legal advice. On the contrary, he was functioning in a responsible position as a Consultant Physician. He was running his private medical practice which involved employing two staff. His employer did not notice any performance issues and did not counsel him formally or informally. He did not take any sick leave in the three months prior to signing the contract.
In summary, there is ample evidence [D] was functioning well in December 2002 and there is no evidence to indicate his ability to comprehend legal advice in December 2002 was adversely affected by his psychiatric problems.
The trial judge preferred the evidence of Dr Ewer over that of Dr Pols. He said:
I do so despite the fact that Dr Pols was the treating psychiatrist. I accept the force of his opinion that the defendant was able to continue his busy practice, working full time to December 2002. Further as Dr Ewer noted, even during and after his admission some 18 months later in April 2004, the defendant was not prescribed anti depressants and returned to work quickly following his abstinence from alcohol.
D consulted Ms Helen Tilly, a clinical psychologist, on 24 July 2002. According to Ms Tilly’s affidavit he had explained to her the circumstances of his separation from M and that he still had significant unresolved grief as a result of the separation. He said he was not coping. He had difficulty sleeping and was losing weight. She stated in her affidavit that these were common effects of depression. Her tests indicated that he was moderately depressed, but it was her opinion that his depression at times bordered on the severe. Ms Tilly saw D on about six further occasions, the last being on 10 October 2002.
Other matters relevant to D’s state of mind
I have said that it was also part of D’s case that he blamed himself for the breakdown of the relationship and that he suffered from low self-esteem. The trial judge accepted that this was so. However, the potential effect of these matters is unclear.
Conclusion
It remains to consider whether all of these matters contributed to a situation whereby D was acting under a disability which seriously affected his ability to make a judgment as to his own interests.[15]
[15] Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 per Gummow and Hayne JJ at [55]
It is not enough that, for one reason or another, D was placed in an unfair bargaining position. More is required before it can be said that he was labouring under a special disadvantage.
D said in evidence that he understood that the Act provides for division of property and does not empower the court to make an order in the nature of maintenance payments. He was asked in examination-in-chief why he signed the agreement:
Q:You had accounting advice, you tell us, that informed you, you couldn’t afford to sign the agreement.
A:That is correct.
Q:Why did you sign the agreement.
A:Following my verbal commitment to provide and do the good, the decent thing, naturally, when the actual quantum became increasingly apparent there was no opportunity for retreat, the plaintiff was uncompromising in that regard and merciless and this is why the negotiations took so long, why they were so protracted.
Q:You are suggesting you felt pressured by the plaintiff, did you, that was how you felt.
A:Well, absolutely.
Q:Why did you feel that way if you had a lawyer that was able to give you advice on the agreement, why was it you felt pressured.
A:Because of the communication she was making to me demanding that I do the moral, correct thing and sign the agreement and there was no opportunity for retreat or negotiation and my – my morality was being called into question, which didn’t sit well, it made me feel dreadful. So, on the one hand I was, you know, looking at an agreement I knew I couldn’t afford and yet I was being told that I was – that I should get on and sign it. I ended up concluding that I had two options, I could hold out as, per my legal and accounting advice, and face indefinite acrimony and such like, or I could sign it, possibly have some respite until things imploded, and that is what I did.
D explained in his evidence that he is generous and honourable to a fault and this was why he undertook to provide for M from the time of the separation. He said it was only when the quantum became apparent that he realised his inability to fulfil the undertakings he had given. He said he knew he was under no obligation to make provision for M in the way that he did. However, he said he felt a moral obligation to contribute. D also said that M was pressuring him to sign an agreement. However, he agreed that towards the end of the negotiations he was anxious to finalise the agreement. He sent the following email to his solicitor, Mr Farmer, on 2 May 2002:
after 14 yrs she has [been left] with nothing, not paying super is nasty, i am being a total bastard, she might just not sign the agreement and leave things as they are. BEN, CAN YOU CLOSE THIS OFF ASAP, [I think] we should all meet very soon.
Whereas a combination of factors such as depression and alcohol dependence could, in certain circumstances, amount to a special difficulty in the context of unconscionability, I think the trial judge was correct in finding that they did not have that effect in the present case.
D’s condition did not prevent him from understanding the nature of the negotiations or the agreement. He took an active role in the steps leading up to the signing of the agreement by giving comprehensive instructions to his solicitors. He was given advice that he could not afford to make the payments required under the agreement, but he persisted. It is clear that he was heavily influenced by moral considerations.
The agreement was not improvident by reason of the fact that D agreed to provide financial assistance to M. Presumably, it was the extent of that assistance which led the trial judge to describe the agreement as improvident from D’s point of view.
Although M kept in contact with D during the negotiation period and implored him to sign the agreement, it must not be overlooked that he played an active role in proposing terms of the agreement. In particular, D and his solicitors were responsible for the basic proposal that D would pay M’s reasonable living expenses for a period of up to 14 years.
In my view, the circumstances do not support the claim that there was not a reasonable degree of equality between the parties of which M took unconscientious advantage. Given that D was prepared to support M for a number of years into the future, she was not slow to bargain for what she considered she required by way of support. As the learned judge found, M was aware of D’s alcohol dependency, his depression and his low self-esteem. However, in view of D’s considered attitude to providing assistance for M, I think the judge was correct in concluding that M did not take unconscientious advantage of D.
I would dismiss the appeal by D.
Cross-appeal by M
After finding that the agreement was enforceable, the trial judge dealt with the claim for compensation for its breach. Reference has been made to the fact that D stopped making monthly payments to M in March 2005. Up to that time he had made the payments required by the agreement.
The trial judge made the following findings as to the events which occurred following the cessation of payments:[16]
The plaintiff was forced to vacate Stanley Street. She sold the Voyager vehicle, and purchased a new vehicle. She moved from one friend’s place to another, including addresses at Wirrina, Seaton and Sydney. She vacated the art studio, but maintained an internet website to sell her paintings. In July 2005 she became obliged to pay child support at $9.97 per fortnight to the defendant, from her Centrelink payments. On 1 February 2006 she was notified that she had been terminated from the defendant’s health fund.
She has not incurred any accommodation or utility expenses since March 2005, because she has been forced to stay with friends. She has been in receipt of Centrelink benefits since that time.
By 30 June 2006, the defendant’s financial position had improved substantially; having ceased payments to the plaintiff, together with the reduction in school fees, the reduction in debt, and an after tax income of approximately $200,000.
[16] M v D (2007) 252 LSJS 24; [2007] SADC 123 at [98] – [100]
The trial judge approached M’s claim in the following way:[17]
[17] Ibid at [147] – [154]
There was no evidence led as to the expenses incurred by the plaintiff since March 2005. The plaintiff’s counsel submitted that as there was an agreement to the effect that the previous average monthly payments totalled $4,000, then this figure should represent the base quantum.
The defendant submitted that the payments under the agreement were not fixed. Implicit in that submission was that the plaintiff’s claim was not for the recovery of a liquidated sum, but for reimbursement of expenses, even if she was not obliged to act reasonably and therefore principles of mitigation applied.
In this case by taking steps not reasonably required of her, the plaintiff has in fact avoided loss resulting from the defendant’s breach. In my opinion, even though it was the consequence of her impecuniosity brought about by the breach of the defendant, those non-liquidated sums so avoided cannot be recovered.
The fixed sum of $1,300 for her personal expenses constituted a liquidated sum. The rental of $166 for art space, undoubtedly and the accommodation expenses of $360 per week, on balance, were not liquidated sums. It is clear from the evidence that she has not incurred any accommodation, rental costs, nor utility expenses since the breach. Obviously she must have incurred some expenses for sustenance and petrol at least. She had sold the Chrysler Voyager, and had purchased a new vehicle.
I am obliged to attempt to fix that loss despite the dearth of evidence. Although the two children were the subject of a Child Support Agreement, their presence with the plaintiff to October 2004 would have increased the general expenses.
Doing the best that I can, I fix a monthly loss of $2,300 being the respective sum of $1,300 fixed for her personal expenses, and $1,000 representing the general other expenses not avoided.
This leads to the following calculations:
1. The arrears between 15 March 2005 and 15 November
2007 being 32 months at $2,300 per month $73,600Less the respective sums of $1,000 paid on
15 March 2005 and 15 April 2005, and $687 paid
in April 2005 $ 2,687
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$70,9132. Interest thereon at 6.5% gradually over the period to the
date of judgment, as rounded $ 2,310
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$73,223The quantum of the plaintiff’s claim including interest is therefore fixed at $73,223.
According to the argument presented on behalf of M, the cross-appellant, the trial judge erred in holding at [149] of his reasons that M could not recover for loss which she avoided because of her impecuniosity. It was argued that she is entitled to be put in the position she would have been in had the contract been performed.
According to the argument, if the agreement had been performed M would have continued renting the house, purchasing groceries and incurring other expenses. Instead, she was able to mitigate her loss. She received Centrelink payments, ceased renting the house, was given accommodation at the homes of various friends and, at one stage, she resided in a women’s shelter. She spent less on groceries, did not incur any utility costs in relation to any premises and no longer rented premises for her art work.
It was argued that the average monthly payments which she had been receiving in relation to these expenses was $4,000 per month. According to the argument, M was entitled to claim arrears between 15 March 2005 and 15 June 2008 at this rate.
Under the terms of the agreement M was to be reimbursed for reasonable accommodation and living expenses. She was entitled to a direct payment of $1,300 per month which was to go towards personal living expenses, over and above reasonable expenses for her groceries and vehicle. She was also entitled to have her health insurance premiums paid for by D.
The learned judge proceeded on the basis that M elected to enforce the agreement rather than accept D’s breach as repudiation of it. However, he said that on either basis M was entitled to be compensated for the breach.
As has been pointed out the payment of $1,300 per month for “additional personal weekly expenses” was a fixed amount which required no proof that money had been spent and no justification of any amount having been spent in a reasonable way.
In contrast, any amount payable in relation to accommodation and the purchase of groceries had to be reasonable. It could not be said that there was a debt due under this heading unless the amount had been spent or was about to be spent, and that expenditure or proposed expenditure was reasonable. There was no evidence to support such a claim. On the contrary, it would appear that there was no expenditure of this nature because M was supported through other means.
The alternative put forward by M’s counsel was that she was entitled to damages for the loss of a benefit. It was argued that M lost what she would have received under the contract, but for the breach, namely the benefit of being able to rent premises, buy groceries and be covered by health insurance. According to the argument, the measure of damages is that which would have been spent on those items if the contract had been performed.
In my view, this argument should be rejected. Again it is necessary to consider the terms of the agreement. In the case of groceries and related expenses, apart from the sum of $1,300 per month which was payable in any event, no liability arose unless the groceries, for example, were actually purchased and the amounts paid for them were reasonable. The performance of the contract required reimbursement for reasonable expenses. However, D lived with friends and did not incur the expenses. I agree with the view of the trial judge that M mitigated her loss so as not to incur expenses for which she would have been entitled to reimbursement under the contract.
The failure by D to provide health insurance comes into a similar category. If there had been a loss occasioned as a result of M being required to pay for services which would have been covered by health insurance, there would have been a compensable loss. However, there is no evidence that this was the case. There is no basis upon which damages could be assessed by reason of the fact that she was not covered by health insurance during the relevant period.
I would dismiss the cross-appeal.
VANSTONE J: I agree with the orders proposed by Duggan J and with the reasons he has given.
DAVID J: For the reasons given by Duggan J, I would dismiss both the appeal and the cross‑appeal.
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