Fewster & Drake
[2016] FamCAFC 214
•4 November 2016
FAMILY COURT OF AUSTRALIA
| FEWSTER & DRAKE | [2016] FamCAFC 214 |
| FAMILY LAW – APPEAL – LEAVE TO APPEAL – Whether the orders appealed from are interlocutory or final – Where the order setting aside the binding financial agreement is a final order and leave to appeal is not necessary – Where the order for spousal maintenance is interlocutory and leave to appeal from it is required – Application of Medlow & Medlow (2016) FLC 93-692 – Leave to appeal granted. FAMILY LAW – APPEAL – BINDING FINANCIAL AGREEMENT – Appeal against the setting aside of a binding financial agreement – Where the parties entered into a financial agreement under s 90C of the Family Law Act 1975 (Cth) – Where the agreement did not exclude the wife from making an application for spousal maintenance – Where the primary judge set aside the binding financial agreement pursuant to s 90K(1)(d) of the Family Law Act 1975 (Cth) – Discussion of the requirements of s 90K(1)(d) – Discussion of Pascot & Pascot [2011] FamCA 945 – Where the primary judge erred in his construction and application of s 90K(1)(d) –– Appeal allowed – Whether the Court should re-exercise the discretion or remit the matter – Where a re-exercise of the discretion is appropriate – Where the wife’s application under s 90K(1)(d) is dismissed. FAMILY LAW – APPEAL – SPOUSAL MAINTENANCE – Appeal against an order for interim spousal maintenance – Where the primary judge failed to have proper regard to the wife’s capital resources – Where the primary judge took into account an irrelevant consideration by determining the application for interim spousal maintenance on the basis that property proceedings between the parties were imminent – Where the primary judge failed to consider the wife’s concession about her unexercised earning capacity – Appeal allowed – Application for spousal maintenance remitted to the Family Court of Australia. FAMILY LAW – APPEAL – COSTS – Where the primary judge was in error – Costs certificates granted. |
| Family Law Act 1975 (Cth) ss 4, 70(1)(h), 74(1), 74(8), 75(2), 90C, 90E, 90K(1)(d) |
| Bennett and Bennett (1991) FLC 92-191 |
| APPELLANT: | Mr Fewster |
| RESPONDENT: | Ms Drake |
| FILE NUMBER: | PAC | 3945 | of | 2014 |
| APPEAL NUMBER: | EA | 139 | of | 2015 |
| DATE DELIVERED: | 4 November 2016 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Strickland, Aldridge & Kent JJ |
| HEARING DATE: | 18 February 2016 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 28 July 2015 |
| LOWER COURT MNC: | [2015] FamCA 602 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Richardson SC |
| SOLICITOR FOR THE APPELLANT: | Barkus Doolan |
| THE RESPONDENT: | In person |
Orders
The Application in an Appeal filed on 8 August 2016 is dismissed.
The appeal be allowed.
Order 1 made by Foster J on 28 July 2015 be set aside.
The application of the wife to set aside the binding financial agreement entered into between her and the husband on 22 December 2006 be dismissed.
Leave is granted to appeal against Order 2 made by Foster J on 28 July 2015 and that Order is set aside.
The wife’s application for spousal maintenance is remitted to the Family Court of Australia for rehearing by a judge other than Foster J.
That the Court grants to the appellant husband a costs certificate pursuant to s 9 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband in respect of the costs incurred by him in relation to the appeal.
The Court grants to the respondent wife a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent wife in respect of the costs incurred by her in relation to the appeal.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Fewster & Drake has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 139 of 2015
File Number: PAC 3945 of 2014
| Mr Fewster |
Appellant
And
| Ms Drake |
Respondent
REASONS FOR JUDGMENT
Strickland J
I have had the advantage of reading the draft reasons for judgment of Aldridge and Kent JJ. Although I agree with the reasons of their Honours, and with the orders proposed, I wish to say something about the issue of leave to appeal.
Until recently, the test that was applied under the Family Law Act 1975 (Cth) (“the Act”) for when leave to appeal would be granted was that emanating from Rutherford & Rutherford (1991) FLC 92-255 (“Rutherford”), namely, whether there has been an error of principle and/or a substantial injustice caused. However, in [17] my fellow judges have identified the test to be applied “[i]n the general run of cases” is whether “the decision is attended by sufficient doubt to warrant it being reconsidered by the Full Court and substantial injustice would result if leave were refused, supposing the decision to be wrong”, citing Jess & Jess (2014) FLC 93-620 (“Jess & Jess”), and Medlow & Medlow (2016) FLC 93-692 (“Medlow”) at 81,086.
In Lindsey & Christie and Anor [2016] FamCAFC 132 I queried the application of that test in Medlow, as follows:
5.It has not yet been universally accepted that that test is now the one to be applied in the context of the Act, and that is primarily because, in any event, as was emphasised in Bass & Bass and Anor (2016) FLC 98-070 at [87], this cannot be “a test of universal application to be rigidly applied” given that “[t]he adoption of a prescriptive approach, even in relation to appellate courts reviewing decisions pertaining to practice and procedure, was considered by the High Court to be ‘unnecessary and indeed unwise’” (see Adam P Brown Male Fashions Proprietary Limited v Philip Morris Incorporated and Anor (1981) 148 CLR 170 at 177).
6.To be fair, the Full Court in Medlow recognised that there was an “unfettered discretion given by s 94AA”, and “[i]n appropriate cases, it being a test or a guideline, it will give way to the particular interests of justice in that case” (at [55]).
7.However, as I see it, it is presently unclear what test should be applied and in what circumstances. I note that although the Full Court in Medlow proposed that subject to the caveat of there being an unfettered discretion, the test to be applied is that identified above, that was not the test that their Honours then applied in that case. At [109] in expressing the conclusion as to leave, their Honours said this:
There has been an error of principle and a substantial injustice would result if leave to appeal was not granted.
In any event, whatever test is applied, namely the test in Rutherford, the test set out at [57] of Medlow, or the test set out at [109] of Medlow, leave to appeal the order for interim spousal maintenance ought be granted.
Aldridge & Kent JJ
On 28 July 2015, pursuant to s 90K(1)(d) of the Act, Foster J set aside a binding financial agreement entered into by Ms Drake (“the wife”) and Mr Fewster (“the husband”) in December 2006. His Honour also ordered the husband to pay the wife $1500 per week as interim spousal maintenance. As a result of the agreement having been set aside, directions were made to facilitate the conduct of the property proceedings that were now to be heard.
The husband seeks leave to appeal and, if leave is granted, to appeal against both orders.
The wife appeared in person to oppose the appeal.
Application for leave to appeal
Insofar as the application for leave concerns the order setting aside the agreement, it is made out of an abundance of caution. The husband is concerned that the application to set the agreement aside could be seen as a precursor to the wife seeking property orders against the husband under s 79 of the Act and may, therefore, not finally determine the rights of the parties. As such it could be seen as an interlocutory order from which leave to appeal is required.
In Saintclaire & Saintclaire (2015) FLC 93-684 (“Saintclaire”) this Court recently considered (at [6] to [10]), by reference to principles expounded by the High Court, whether an order setting aside a financial agreement is an “interlocutory decree” and thus a “prescribed decree” from which leave to appeal is required.
At [9] the Full Court there said, with reference to the definition of “matrimonial cause” in s 4 of the Act:
However, “proceedings with respect to a financial agreement” are a separate matrimonial cause to “proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them …” The trial judge’s orders can be seen to finally determine the parties’ rights with respect to their financial agreement, even if the consequence of those orders is that proceedings under Part VIII can be brought. As a consequence, we incline to the view that her Honour’s order is a final order and that leave to appeal is not required.
(Footnotes omitted)
We would add to what the Full Court said in Saintclaire that in Bienstein v Bienstein (2003) 195 ALR 225 the High Court (McHugh, Kirby and Callinan JJ), citing with approval Windeyer J’s statement in Hall v Nominal Defendant (1966) 117 CLR 423 at 443, said at [25]:
…The test requires the appellate court to look at the consequences of the order itself and to ask whether it finally determines the rights of the parties in a principal cause pending between them.
(Footnotes omitted)
This fortifies the conclusion expressed by the Full Court in Saintclaire at [9]. An order setting aside a financial agreement finally determines the right of a party to rely upon the terms of that agreement. The order brings to an end a principal cause pending between the parties, specifically proceedings within subparagraph (eaa) of the definition of “matrimonial cause” in s 4 “proceedings with respect to a financial agreement.”
Section 90K(3) of the Act provides:
A court may, on an application by a person who was a party to the financial agreement that has been set aside, or by any other interested person, make such order or orders (including an order for the transfer of property) as it considers just and equitable for the purpose of preserving or adjusting the rights of persons who were parties to that financial agreement and any other interested persons.
We do not consider that the consequence of this provision, providing for an application by a party to a financial agreement that has been set aside, means that the order setting aside the financial agreement is not final in effect. An application pursuant to s 90K(3) could not be characterised as “proceedings with respect to a financial agreement” within the meaning of subparagraph (eaa) of s 4. Rather, such an application would be “proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them” within the meaning of subparagraph (ca) of the definition of matrimonial cause. That is, such an application would be a separate “principal cause” from the earlier proceedings to set aside the financial agreement.
For these reasons we consider that the primary judge’s order to set aside the subject financial agreement was a final order and leave to appeal that order is not required.
The order for interim spousal maintenance is clearly interlocutory and leave to appeal is required.
In the general run of cases, leave to appeal under s 94AA of the Act will be granted where the decision is attended by sufficient doubt to warrant it being reconsidered by the Full Court and substantial injustice would result if leave were refused, supposing the decision to be wrong (Jess & Jess; Medlow at 81,086).
However, as is emphasised in Medlow at [55], the discretion to grant leave is unfettered and the interests of justice are paramount. Thus in a given case a grant of leave will serve the interests of justice where only one of the above elements are demonstrated. Where the subject interlocutory order creates or affects substantive rights the “substantial injustice” element assumes greater importance.
In Wilson and Wilson (1989) FLC 92-033 (“Wilson and Wilson”) the Full Court rejected a submission that an interim maintenance order was an order relating to practice and procedure, finding that the provision of interim maintenance was an order creating substantive rights.
We are satisfied that in the circumstances of this case leave to appeal the order for interim spousal maintenance ought be granted.
Background
In order to understand the appeal some context is necessary. The following appears uncontroversial and is taken from the primary judge’s reasons.
The husband was born in 1942 and the wife in 1967. They commenced cohabitation in 2004 and married in 2006.
At that time the wife owned a property at Suburb J, furniture, jewellery and cash on deposit.
The husband owned a property at Suburb C, furniture, superannuation and had the benefit of a life policy. He had the use of a property at D Town which was owned by E Pty Ltd as trustee for the Fewster Family Trust (“the Trust”). The husband was the controlling shareholder of the trustee company and the appointor of the Trust as well as being a beneficiary. In 2011 he resigned as appointor and relinquished any claims against the Trust that he may have had as a beneficiary. In 2012 E Pty Ltd was replaced as trustee by H Pty Ltd, a company controlled by the husband and his children from an earlier relationship.
Early in the relationship the husband suggested to the wife that they should enter into a document which was described as a “Cohabitation and Separation Agreement”. The husband received a draft agreement from his solicitor in April 2005. At this time the husband was concerned that the agreement should provide for the wife to have a right to live in the D Town property after his death. Giving effect to that wish was complicated because the property was owned by the Trust. In September 2005 his solicitor raised concerns about the husband’s ability to put that wish into effect.
The husband received a further draft agreement which was to be made in contemplation of the parties’ marriage.
In late 2005 the wife finalised a property settlement with her former partner. The parties married in January 2006.
In April 2006 the wife’s solicitor wrote to the husband’s solicitor confirming that she had received a list of assets from the husband’s accountant. In mid‑July the husband’s solicitor wrote to the wife’s solicitor proposing various options that would give the wife a continuing right to occupy the D Town property and enclosed a draft agreement, now expressed to be pursuant to s 90C of the Act.
Discussions continued between the lawyers, including discussions in relation to the husband’s interests in a trust and his will.
In early November 2006 the husband’s solicitor confirmed that the husband intended to leave the assets of his first marriage to the children of that marriage. A further draft of the proposed s 90C agreement was provided.
In late November 2006 the wife indicated that she would sign the agreement if it was limited only to property and that she would retain the right to seek spousal maintenance (that right being excluded by the draft agreement). The wife’s solicitor sought a number of minor amendments to the agreement and provided an amended list of assets. All issues were resolved and the agreement was signed in December 2006.
At the time the agreement was signed, the wife was pregnant with the parties’ first child, who was born in 2007. The parties’ second child was born in 2009.
The Terms of the Agreement
The primary judge noted that the agreement included two schedules which listed the property held by each of the parties at the time of the agreement.
His Honour summarised the agreed distribution of the property under the agreement as follows:
70.The relevant features of the financial agreement signed in December 2006 may be succinctly stated as follows:
…
b)That each of the parties acknowledged and agreed that they had made no financial contribution or had any entitlement in respect to their separate assets comprised in the schedules attached to the agreement,
c)That on the happening of a terminating event under the agreement:
i)They would each retain the assets comprised in the separate schedules attached to the agreement or any property or income acquired thereafter arising from the disposal of property referred to in the schedules or from gifts received or inheritances received,
ii)That any jointly acquired real property in the absence of agreement would be sold and each of the parties would be reimbursed their respective contributions to the purchase price, costs of purchase, renovations and/or improvements together with interest that 10 per cent calculated on a daily basis from the date of such contributions until the date of completion of the sale and that the balance of proceeds of sale then remaining be divided between the parties in proportion to the total monies advanced by each of them towards the purchase price and other outgoings of the joint property including but not limited to stamp duty, legal costs and disbursements associated with the purchase, rates, insurance levies and mortgage instalments,
iii)That any personalty comprising furniture furnishings and effects jointly acquired by joint contribution to the purchase price be divided on a two lists basis,
iv)That there be a purported release of claims one against the other under the Family Provision Act 1982 (NSW) with an obligation to make a joint approach to the Supreme Court of New South Wales for the approval of the release.
His Honour’s reasons for judgment
Before the primary judge the wife sought to have the agreement set aside on many grounds. Only one was successful, and that ground is challenged in this appeal. We shall therefore only refer to those parts of the reasons for judgment which are relevant to the appeal.
At the outset, it is necessary to explain that the primary judge made much of the reasons in Pascot & Pascot [2011] FamCA 945 (“Pascot”). His Honour regarded it as being on all fours with the case before him and quoted it extensively, with his Honour going so far as to adopt its conclusions. Therefore, in explaining his Honour’s reasons, we will also need to quote relevant passages from Pascot.
The primary judge commenced his consideration of the wife’s claim under s 90K(1)(d) by referring to Pascot at [150] - [151]. The relevance of those paragraphs was that like the agreement before him, the agreement in Pascot also made no allowance for homemaker and parenting contributions. Those paragraphs said:
150.…It is trite to say that in many property cases, heard by this court, the significance placed by the court on a parties contributions to the marriage, as a homemaker and parent, (as required by sec 79(4)(c)) is notorious. In this regard see Rolfe & Rolfe (1979) FLC 90-629 at pp 78,272–78,273 per Evatt CJ (approved by Wilson J Mallet v Mallet (1984) 156 CLR 605):
“The purpose of s 79(4)(b) [the precursor to s 79(4)(c)] in my opinion, is to ensure just and equitable treatment of a wife who has not earned income during the marriage, but who has contributed as a homemaker and parent to the property. A husband and father is free to earn income, purchase property and pay off the mortgage so long as his wife assumes the responsibility for the home and the children. Because of that responsibility she may earn no income or have only small earnings, but provided she makes her contribution to the home and to the family the Act clearly intends that her contribution should be recognised not in a token way but in a substantial way. While the parties reside together, the one earning and the other fulfilling responsibilities in the home, there is no reason to attach greater value to the contribution of one than to that of the other. This is the way they arrange their affairs and the contribution of each should be given equal value.”
151.Consequently, in a circumstance where the parties had one child and were expecting another, the contributions the primary carer of the children and the primary provider of domestic services to the family was to provide would normally be seen as extensive and not uncommonly assessed by the court to be equal to the income earned and contributed to the family by the parent who was free of those tasks and able to pursue income from employment and advance a career. As a result, what the wife gave up by that provision was a very considerable right of real value.
The primary judge turned to the facts of the matter before him and noted a second child was born two years after the agreement was entered into, in early 2009.
His Honour found that the wife’s evidence that she was the primary carer for the children, and the homemaker, and that she had the overwhelming care of the children physically and financially since separation was not in contest. She had also worked on the parties’ property and in the husband’s business.
As to the agreement before him, his Honour said:
87.The agreement provided in substance for the parties to retain their respective assets as at the date of the agreement and as to any after acquired joint property for same to be divided, after reimbursement of contributions with interest thereon calculated at a daily rate, in the same proportion as the contributions. It is not difficult to see that the wife would have little expectancy to any interest in after acquired joint property where at the time of agreement she had no prospective capacity to make any contribution. It is to be inferred that the husband was cognisant of these consequences as he now seeks that the [D Town] property be transferred to him without any consideration to the wife.
88.The agreement makes no provision so as to recognise the possibility of the wife’s contributions as contemplated by Evatt CJ in Rolfe & Rolfe (1979) FLC 90-629. This notwithstanding the very circumstances that existed at the time of the agreement that clearly indicated that such contributions would be made by the wife. Those contributions were later magnified by the birth of a second child.
The primary judge then quoted some 13 paragraphs from Pascot including [358] and [359] which said:
358.In this instance, the Financial Agreement between the parties was created at a time when the parties were the parents of one child and the prospective parents of a second. No consideration was given in the Agreement to the possibility of the parties having a third child, nor is there any evidence that this possibility was discussed during the negotiations between the parties.
359.The birth of a third child cannot be dismissed as an insignificant or unsubstantial change in circumstances. There are significant costs associated with an additional child in terms of time and emotional investment as well as the financial cost that would most certainly affect the care, welfare and development of the children of the relationship. The change is certainly relevant to the agreement, as there is specific provision that the wife is to be primarily responsible for the children and she is not permitted by the Agreement to claim any compensation from the husband for that effort. It is open to the Court to find that there has been a material change in circumstances.
The primary judge continued:
92.The agreement recites that the parties intend their marriage to be permanent but desire to contract out of the provisions of Part VIII of the Family Law Act 1975 excluding maintenance rights they may have against each other. The agreement acknowledges each party has made a full and fair disclosure of their financial circumstances.
93.The agreement purports to preclude the parties from any claims under the then Family Provisions Act 1982 (NSW).
94.The agreement is silent as to the wife’s prospective role as primary care giver and homemaker but acknowledges that contributions may be made financially and non-financially to the acquisition, conservation and improvement of assets and resources: thus reflecting the provisions of s 79(4)(a) and (b) of the Act.
95.The agreement is silent as to matters contemplated by s 79(4)( c) and (e) of the Act: contributions to the welfare of the family including homemaker and parenting and the range of matters contained in s 75(2) of the Act. The wife is precluded from compensation for her non-financial contributions during cohabitation and thereafter and no consideration is given to prospective disparity in financial resources after separation.
96.The agreement whilst leaving the question of spousal maintenance alive, contemplates no provision for the support of the children if separation as contemplated by s 90E of the Act. The inference is that the wife would bear the primary responsibility for the children post-separation. The husband’s post-separation child support failings are referred to above.
97.There is no provision contemplating the birth of further children in the agreement.
98.Since the agreement, the parties’ second child has been born. This material change in circumstance, the birth of the second child in particular, has a major impact on the underlying circumstances at the time of the agreement. There is no provision for the birth of any future children in the agreement, so the wife’s prospective financial responsibility as it is left under the agreement grows substantially with the advent of this change, while her entitlement diminished by the failure to recognise her non-financial contributions as referred to above.
99.The agreement thus inevitably creates “hardship” for the wife.
His Honour then referred to the conclusions in Pascot at [375] - [381], namely:
375.This Agreement has departed from the Act in the manner in which the parties were to divide the assets of the parties under the Agreement. Considerations that are common in deciding property division under secs 72 and 79 of the Act are completely absent in the Agreement. The wife is barred from claiming compensation for non-financial contributions made throughout the marriage; she is not able to claim compensation for future need. Further, the division of the property is not made by pooling assets brought to, and acquired in the course of, the marriage and dividing them equally, but rather divided on a ‘mine’ and ‘yours’ basis.
376.The husband stated that he wished to maintain control over his largest resource or asset, the [J Trust] (and the property he bought with the proceeds from that trust), which he brought into the relationship. As the parties had been in a relationship for several years and had started a family together, the husband wanted to prevent the ‘erosion’ of his contribution that was inevitable over the course of the marriage.
377.If the Agreement is not set aside, the wife would remain in a position in which she is financially responsible for three children under an agreement that does not adequately provide for such a responsibility, as well as her contributions. The terms of the Agreement contain a number of inequities that are increased by the addition of a third child to her financial responsibility.
378.If the Agreement is set aside, the wife would be able to make an application for orders under secs 72 and 79 of the Act. It is safe to say that the outcome of such an application is likely to be very different to that brought about by the Agreement.
379.In light of this, I would find that hardship on the part of the wife is established, and that setting the Agreement aside is the only remedy.
380.The third element is discretionary. Having decided that there is a material change in circumstance and that the change has created serious hardship to the wife.
381.I consider in all the circumstances that the only just course in this case is to set the agreement aside on the ground set out in sec 90K(1)(d). In such a circumstance the court may make orders under sec 90K(3).
His Honour immediately concluded:
101. Those conclusions are apposite to the present application as discussed above.
102.An order will be made setting the agreement aside under s 90K(1)(d) of the Act.
We pause to observe that in adopting the conclusions from another decision as the conclusions in the case before him, the primary judge proceeded in an unfortunate manner. It will be rare for the facts in different cases to be identical. Here there was at least one very significant and material difference between the two cases. In Pascot, the agreement barred any claims for spousal maintenance. However, in the matter before his Honour, the right to claim spousal maintenance was preserved. His Honour gave no consideration to this important difference.
The appeal
Before turning to the grounds of appeal themselves we wish to make some general observations about s 90K(1)(d), 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:
…
(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…
It is clear enough that s 90K(1)(d) follows the form of s 79A(1)(d) of the Act, which states:
(1)Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
…
(d)in the circumstances that have arisen since the making of the order, being circumstances of an exceptional nature relating to the care, welfare and development of a child of the marriage, the child or, where the applicant has caring responsibility for the child (as defined in subsection (1AA)), the applicant, will suffer hardship if the court does not vary the order or set the order aside and make another order in substitution for the order…
There is, however, a crucial difference. Under s 79A(1)(d) the change in circumstances must be “of an exceptional nature” for the section to apply, whereas the change in circumstances under s 90K(1)(d) must be “material”. The threshold under s 90K(1)(d) would seem to be lower than that which applies to s 79A(1)(d).
Few cases have examined s 90K(1)(d). In Pascot, Le Poer Trench J said:
354.For the purposes of sec 90K(1), it would be useful to adopt the test in the following terms:
a)There must be circumstances that have arisen since the making of the Binding Financial Agreement, being circumstances of a material nature relating to the care, welfare and development of a child of the marriage;
b)It must be demonstrated that the child or the applicant, if she has caring responsibility for the child, will suffer hardship if the court does not set the agreement aside;
c)The court may set the agreement aside if it considers it appropriate and make such orders under sec 90K(3) as it deems appropriate.
Essentially, the analysis in Pascot separates the words of the subsection into three steps. However, this test omits the critical words “as a result of that change”. Those words provide a necessary link between the changing circumstances and the hardship. According to the clear terms of the subsection, the hardship must result from the material change in circumstances, and not from some other cause.
As we will shortly explain, in applying the test from Pascot and not the terms of the section itself, the primary judge overlooked this requirement and thereby fell into error.
In relation to the meaning of the word “material” in s 90K(1)(d), Le Poer Trench J considered that this indicated that an applicant would need to show that the change in circumstances was “substantial, significant and relevant”. That is not an inapt way of describing the word; however, for our part we do not see the benefit of substituting other words for those used in the Act itself, as in some cases that can mislead.
In Sola Optical Australia Proprietary Limited v Mills (1987) 163 CLR 628 the High Court had to consider the phrase “facts material to the plaintiff’s case” that appeared in s 48 of the Limitation of Actions Act 1936 (SA). What the Court said there is relevant to the construction of the present section. The Court said at 636 - 637:
A fact is material to the plaintiff's case if it is both relevant to the issues to be proved if the plaintiff is to succeed in obtaining an award of damages sufficient to justify bringing the action and is of sufficient importance to be likely to have a bearing on the case. The Shorter Oxford English Dictionary defines the word “material”, inter alia, to mean “Of such significance as to be likely to influence the determination of a cause”. Although a definition attributed to the sixteenth century, in our opinion it provides an apt guide to the intention of the legislature in choosing to refer, without any elaboration, to “facts material to the plaintiff’s case”.
With those observations in mind we now turn to the grounds of appeal. We shall deal with them in a slightly different order to that which they were addressed at the hearing of the appeal.
Were the primary judge’s reasons adequate? (Grounds 1.3 and 1.4)
The husband submitted that the primary judge’s reasons were inadequate because his Honour did not discuss the circumstances that led to the finding of hardship or identify the link between the change in circumstances and the hardship that is said to have arisen. It was also submitted his Honour provided no comparison between the wife’s entitlements under the agreement and her present circumstances, and how the difference established hardship.
His Honour’s reasoning process seems to be:
(a)The agreement is silent as to the parties’ contribution to the welfare of the family including homemaker and parenting contributions. In other words, the agreement does not recognise or provide any recompense for such a role.
(b)The wife, by inference from her role as a mother, would bear the primary responsibility for the children post separation.
(c)The birth of the second child was a material change in circumstances.
(d)Because of the above three matters the wife’s financial responsibility grew as a result of the birth of the second child for whom she was the homemaker and parent.
(e)The agreement gave her no recompense for this increased role.
(f)The agreement thus creates hardship for the wife.
The obligations cast upon judges to give adequate reasons are well known: see, for example, Bennett and Bennett (1991) FLC 92-191 at 78,266. The parties must be able to understand the basis of the decision and the extent to which their arguments had been understood and accepted: Pollard v RRR Corporation Pty Ltd [2009] NSWCA 110 at [59].
We consider that the primary judge has adequately explained the basis on which his decision was made. It is true that his Honour did not discuss the matters referred to by the father. However, those matters did not arise on the construction of the section adopted by his Honour. As we have already identified, it is in his Honour’s construction of s 90K(1)(d) that the error lies.
This ground has not been established.
Can the birth of a child, of itself, engage s 90K(1)(d)? (Ground 1.1)
The husband submitted that the birth of a child, of itself, cannot be a material change relating to the care, development and welfare of a child. Rather, he submits the material change in circumstance must be directed to the care, welfare and development of a child and not to his or her birth. This is said to be so because the ordinary expectation of married life is the birth of a child.
It may immediately be observed that if the birth of a child is within the ordinary realms of expectation of a marriage so is the care, welfare and development of a child.
The birth of a child leads inexorably to his or her care, development and welfare. We do not see why a birth cannot be a material change in circumstances for the purpose of s 90K(1)(d). Whether it in fact is such a change will depend on all of the circumstances.
The primary judge did not err in finding that the birth of the second child and the mother having the overwhelming care of the children physically and financially after separation constituted a material change in circumstances that had arisen since the agreement was entered into.
Did the primary judge err in his interpretation of “hardship” within s 90K(1)(d)? (Ground 1.2)
As developed in both the written and oral submissions, this ground became the vehicle for three separate challenges to the primary judge’s reasons. The first is that the section requires the Court to consider whether the hardship arose from the changed circumstance and not from the agreement itself. The second is that the answer to the first finding cannot be made by reference to the agreement alone but requires a comparison between what is provided for by the agreement and the present circumstances of the child or carer. Finally, it was submitted the Court must find hardship and not merely unfairness for s 90K(1)(d) to apply.
The husband correctly submits that the words “as a result of the change” indicate that the relevant hardship with which the section is concerned is the hardship which is caused by the change in circumstances. It is the changed circumstances which must give rise to the hardship, and not the agreement itself. It is to be recalled that, subject to compliance with the statutory requirements, people are free to enter such binding financial agreements as they see fit. There is no statutory provision which enables a binding financial agreement to be set aside merely because it is unfair: Hoult & Hoult (2013) FLC 93-546 at 87,283 and 87,296 - 87,298.
The primary judge referred, at [98] of his reasons, to the changed circumstances (the birth of the second child) and to the agreement failing to contain any provision for the increased responsibility for the child. His Honour concluded at [99] that the agreement “inevitably creates ‘hardship’ for the wife”. That is to pose an incorrect test, as identified above.
We turn now to the second aspect of this challenge. The concluding words of s 90K(1)(d) are “if the court does not set the agreement aside”. Logically and inevitably those words require the court to undertake some comparison between the position of the child, or the person with caring responsibility, if the agreement remains in place and the position of that child or person if the agreement is set aside. It is only by doing so that the court can place itself in a position to determine whether there will be hardship if the agreement is not set aside. The primary judge did not undertake such a comparison.
Finally, we accept the husband’s submission that the hardship required by the section is something more than unfairness. In In the Marriage of Whitford (1979) FLC 90-612 (“Whitford”) at 78,144-78,145 the Court said that hardship is:
…akin to such concepts as hardness, severity, privation, that which is hard to bear or a substantial detriment…
…
In ordinary parlance, hardship means something more burdensome than “any appreciable detriment'”. We consider that in subsec. 44(4) the word should have its usual, though not necessarily its most stringent, connotations.
Although Whitford was a case dealing with s 44(4) and applications for leave to institute property proceedings, these passages are relevant to s 90K(1)(d), as they discuss ‘hardship’ in the context of its ordinary meaning. There is nothing in the terms of s 90K that suggests a different approach should be taken.
It is convenient to repeat the findings made by the primary judge in Pascot, which were adopted by the primary judge in this matter in relation to hardship:
378.If the Agreement is set aside, the wife would be able to make an application for orders under secs 72 and 79 of the Act. It is safe to say that the outcome of such an application is likely to be very different to that brought about by the Agreement.
379.In light of this, I would find that hardship on the part of the wife is established, and that setting the Agreement aside is the only remedy.
Those findings do not establish hardship as it is correctly understood.
This ground of appeal has been established.
Did the primary judge err in the interpretation of s 90E? (Ground 1.5)
The husband submits that the primary judge erred in the interpretation of s 90E, which provides:
A provision of a financial agreement that relates to the maintenance of a spouse party to the agreement or a child or children is void unless the provision specifies:
(a)the party, or the child or children, for whose maintenance provision is made; and
(b)the amount provided for, or the value of the portion of the relevant property attributable to, the maintenance of the party, or of the child or each child, as the case may be.
The primary judge said:
96.The agreement whilst leaving the question of spousal maintenance alive, contemplates no provision for the support of the children if separation as contemplated by s 90E of the Act.
We are puzzled by the primary judge’s reference to s 90E. That section does not refer to separation. However, as his Honour did not undertake any interpretation of the section we are equally puzzled by the husband’s submissions.
This ground is not established.
Did the primary judge’s discretion miscarry? (Ground 2)
The husband’s Summary of Argument indicates that this ground in fact focuses only on the approach of the primary judge as identified under grounds 1.1 and 1.2. As these matters have been thoroughly canvassed already, there is no need to discuss them further.
Outcome of the appeal as to the agreement
We have determined that the order setting aside the agreement should itself be set aside. The question then is whether we are in a position to re‑determine the issue or whether it should be remitted for further hearing. If the evidence at first instance was not capable of establishing the elements of s 90K(1)(d) then there is no point to remitter and the wife’s application should be dismissed.
As we have identified earlier, in order for a binding financial agreement to be set aside under s 90K(1)(d) it is essential that the link between the changed circumstances arising from the care, welfare and development of a child and the hardship suffered by the child or the person with caring responsibility be established. The hardship must result from the change in circumstances for the requirements of the section to be satisfied.
The primary judge identified the wife’s position at the time of the hearing. He found that the wife had acquired a property in January 2015 for $745 000, plus purchase costs. The property was in need of some work. At the same time, the balance of the wife’s significant assets, $325 000, was placed in bank accounts in the names of the children.
The primary judge said:
65.The wife has rented a small shop in [Suburb M] and has set up an art studio. She is an experienced artist, painter, printmaker and sculptor. She asserts modest sales of only $5,000 in the 2015 financial year.
66.Otherwise she undertakes some voluntary work, cares for the children and is engaged in the repair and renovation of her home. The children are in the full time care of the wife, with the husband spending defined time with them. The children are both at the local school. The wife concedes that there is some time during the day that she could seek paid employment.
In the course of dealing with the wife’s application for spousal maintenance, the primary judge recorded at [138] that:
…At present she is reliant on her capital to provide for her and the children’s living expenses. She has about $250,000 in funds at bank to which she has access.
His Honour found that the wife’s reasonable living expenses were $2052 per week. In making that finding, his Honour excluded $1500 per week for repairs as a capital expense.
The primary judge made no findings that the wife’s present financial position constituted hardship within the meaning of s 90K(1)(d) or that any such hardship arose from the change in circumstances arising from the birth of the second child.
The question then becomes whether there was evidence available to the primary judge capable of establishing that the wife’s present circumstances constituted hardship and, if so, that the hardship has resulted from the changed circumstances. Having considered all of the evidence we are of the view that it does not establish the latter. The evidence was limited to the financial position of the wife. There was no evidence as to how those circumstances had changed as a result of the birth of or the care, development and welfare of the second child.
The evidence did not permit a comparison to be undertaken between the financial position of the child, or the wife, under the agreement and the position that would exist if the agreement was set aside. Thus there could be no determination that hardship would ensue if the agreement was not set aside.
It follows that the wife’s application under s 90K(1)(d) must be dismissed. As the other grounds on which the wife relied to have the binding financial agreement set aside did not succeed before the primary judge, her application to set the agreement aside will be dismissed.
Did the primary judge’s decision to award interim spousal maintenance miscarry? (Ground 3)
The husband submitted that the primary judge’s discretion miscarried because his Honour:
a)Wrongly presumed that the wife should not have to have recourse to capital to support herself;
b)Failed to take into account that the order for maintenance was an interim order pending the hearing of the property proceedings between the parties in approximately nine months; and
c)Failed to take into account the wife’s concession that “she had an unexercised capacity for part-time employment amounting to no more than $600 per week”.
It is clear that having found that the financial agreement ought to be set aside the primary judge determined the wife’s application for spousal maintenance on the premise that the order made would subsist only until the determination of property proceedings between the parties.
The order for spousal maintenance (order 2) is expressed to be “by way of interim spouse maintenance pending further order”. Plainly the order was made pursuant to the power in s 80(1)(h) to make an order “until further order”, rather than pursuant to the power to “make a permanent order”. Such an order does not finally dispose of the application for maintenance (s 74(8)).
It can be seen that other than for s 74(8) and the provision for urgent maintenance in s 77, the Act does not by the express terms of s 72 or s 74 distinguish between interim maintenance, or an order for maintenance pending the disposal of property proceedings on the one hand, and an order for maintenance for an indefinite term, or a so-called permanent order on the other.
Whilst the jurisdiction to make a maintenance order of either type is thus expressed in the same terms, the different nature of the orders is centrally important to the discretion involved in exercising the jurisdiction. There is a critical difference between the effect of the respective types of orders.
In Redman and Redman (1987) FLC 91-805 at 76,081 the Full Court (Evatt CJ, Lindenmayer and Nygh JJ) said:
As Nygh J. said in Ashton, the most common purpose of an interim order is to make provision for the spouse and children pending the determination of the property settlement. If a so-called permanent order is made on that occasion, that is not a variation under sec. 83 and does not have to be justified as such, but it is a fresh order made upon the termination of the interim order. Another consequence is that on an application for interim maintenance the court conducts “not as final or exhaustive a hearing as would be the case if one were hearing the matter finally”: Williamson and Williamson (1978) FLC ¶90-505; (1978) 4 Fam. L.R. 355 at FLC p. 77,650; Fam. L.R. p. 359 per Fogarty J. The evidence need not be so extensive and the findings not so precise. Having regard to those factors, and the general injunction of sec. 97(3), the court should in such matters have a greater degree of flexibility than it possesses in applications for maintenance which are intended to last for an indefinite period and can only be varied under sec. 83.
The observations of the Court remain apt notwithstanding the introduction of s 74(8) in 2005. Here, the primary judge determined to make an interim order pending the assumed property proceedings.
The jurisdiction of the Court in spousal maintenance proceedings as expressed in s 74 (1) is to “make such order as it considers proper” (emphasis added). It is well settled that “proper” in this context means “appropriate to the circumstances” (see, for example, Wilson and Wilson).
Obviously enough the “circumstances” pertaining to a transient interim period, when property proceedings are pending, differ from those when there will be no property proceedings. Likewise the consideration of and the relative weight to be given to the s 75(2) matters to be considered may differ in those respective circumstances. For example, some temporary incapacity to earn income (s 75(2)(b)) may be a critical factor in the determination of an interim (temporary) order pending a property trial but less so if an order for an indefinite term is under consideration.
It may be that the subject order could survive appellate intervention, notwithstanding the power relied upon for its making on the premise referred to, if it could be seen that in exercising his discretion to make the subject order the primary judge did not act upon what can now be seen to be an extraneous consideration: specifically, that there would be a determination of property settlement proceedings between the parties.
However, it is unnecessary for that question to be determined as it is readily apparent that the primary judge, in exercising his discretion, did act on the basis that there would be property proceedings.
At [148] the primary judge recorded a finding as to the wife’s reasonable expenses specifically expressed to be “in the context of interim spouse maintenance”. The trial judge recorded:
148. Having regard to the above matters the wife’s reasonable expenses in the context of interim spouse maintenance are assessed at $2,052 per week.
(emphasis added)
The primary judge then said:
149.It is clear the [sic] without recourse to capital the wife is unable to support herself adequately. She has the care of two young children with little support in a physical sense from the husband. She is endeavouring to start a business in which she has invested not insignificant capital. To seek paid employment would put that investment at risk. However she needs to either commence earning from that business or in the alternative in time seek paid employment.
150. She has recourse to capital but it is well settled that she should not be required to live on this especially where property proceedings are now imminent.
(emphasis added)
In addressing the s 75(2) matters (and specifically subparagraph (b) requiring the property of the parties to be taken into account) the primary judge said “[t]he property of the parties will await determination in the context of the wife’s application for property orders” (at [151]).
At [152] the primary judge expressed his satisfaction “that the wife is unable to support herself adequately at this time” and then at [153] recorded:
The husband concedes his capacity to meet a spouse maintenance order. It is expected that property proceedings if contested in this Registry will be listed for final hearing within six to nine months.
Immediately following that the primary judge recorded at [154]:
In all the circumstances it is proper that there will be an order that the husband pay to the wife interim spousal maintenance of $1,500 per week.
It would seem that what the primary judge said at [149] can only be explained in the context that the primary judge was considering interim maintenance only for the period between the hearing and the foreshadowed “imminent” trial of property proceedings referred to at [150], being a period of six to nine months (at [153]). His Honour exercised discretion on that basis.
Having determined that the wife’s reasonable expenses were in the sum of $2052 per week and having recorded at [150] that the wife should not have to have recourse to her capital to support herself, the conclusion that $1500 per week is “proper” is unexplained, other than that the primary judge had firmly in mind that the issue of maintenance would be reconsidered in the property proceedings and the order he made would be only for a transient period.
It follows that the primary judge’s errors concerning his determination to set aside the financial agreement infected the exercise of discretion involved in determining the wife’s application for spousal maintenance and the husband’s second submission is accepted.
Turning then to the first of the husband’s submissions, it is well established that a person’s capital resources need not be exhausted before they can seek an order for spousal maintenance.
In Bevan and Bevan (1995) FLC 92-600 (“Bevan”) the Court said at 81,980:
…we do not think that the law requires that a wife should deplete an already comparatively meagre capital sum, to enable a much higher earning husband to avoid his obligation to maintain a former spouse who is in financial circumstances such as those in which she finds herself. She may well wish to apply all or part of that sum to the purchase of new premises and we do not think that she should be prevented from doing so should she desire it.
In Mitchell and Mitchell (1995) FLC 92-601 (“Mitchell”) the Court said at 81,995 - 81,996:
…her age and her limited earning capacity would make it legitimate for her to set aside a reasonable capital sum by way of a nest egg against future contingencies and uncertainties such as illness or holidays or other significant changes in her life which may call for expenditure which would go beyond the parameters of a small income.
It is also necessary in determining this issue to have regard to the standard of living of the parties and the financial circumstances of the other person: s. 75(2)(b) and (g). The days are long gone when it is necessary for an applicant for maintenance to use up all of her assets and capital in order to satisfy the requirement that she is unable to support herself “adequately'”. Where the line is to be drawn will depend upon the circumstances of individual cases.
However, these two authorities do not establish that the capital of a person seeking spousal maintenance is always to be entirely disregarded. Rather, the point is that the possible need to retain that capital and not use it for day to day support is a relevant consideration to take into account.
Thus the statement of principle by the primary judge at [150] erroneously overstates and over-simplifies the position.
Further, neither Bevan nor Mitchell concerned interim spousal maintenance pending the hearing of property proceedings. Rather, in each the application for spousal maintenance was made after property proceedings had been finalised. As we have explained, the difference is of some significance because in the case of an interim claim pending the hearing of final property proceedings, factors to be taken into account could include the time that would elapse between the interim hearing and the final hearing and the possibility that any depletion of capital could, provided sufficient assets were available, be restored or otherwise taken into account in the final property orders.
The primary judge did not undertake any such consideration notwithstanding it is clear that his Honour had the impending hearing in mind (at [153] and [154]).
Those references give context to the findings at [149] that the wife needed to commence earning from the business or “in time” seek paid employment. Thus, it appears that the primary judge may have considered that the wife should not put her investment of the business at risk by leaving to seek employment between then and the imminent trial. If this was the reason, the primary judge did not say so. There was no consideration as to whether it was reasonable for the wife to draw on the significant cash resource available to her for the period of six to nine months pending the property hearing.
The submission of the husband was not that these considerations would point to any particular result, rather that the discretion miscarried because the considerations were not undertaken at all. We accept that submission.
The primary judge did not refer to the wife’s concession that she had an unexercised earning capacity of $600 per week. His Honour did, however, find that the wife’s weekly expenses are $2052 and made an order for $1500 per week in interim spousal maintenance. No explanation is given for the difference and it may be that the answer is that the relevant concession was taken into account (although the arithmetic is not precise). However, there ought not to be speculation as to whether the wife’s earning capacity was taken into account and this aspect of the ground succeeds.
There is therefore merit in each of the husband’s submissions and the appeal against the order for spousal maintenance must be allowed, the orders set aside and the application remitted for rehearing as soon as possible. As there are no longer any pending property proceedings there is no longer a basis for an interim spousal maintenance order and what is remitted for rehearing is the original application for spousal maintenance.
Application in an appeal
On 8 August 2016 the wife filed an Application in an Appeal seeking to be allowed to re-open her case and to adduce evidence in the appeal.
The evidence is to the effect that the husband has been most dilatory in the payment of the spousal maintenance and irregular with payments of child support.
The application was opposed by the husband and directions were made for written submissions to be made by the parties.
Whilst the Court may receive evidence on an appeal (s 93A(2) of the Act), that ability is not at large. In order to be received, the evidence must bear on the correctness of the decision in question or, in a case where the Full Court is re‑exercising the discretion of the primary judge, be relevant to that re‑exercise. The present evidence cannot bear on the correctness of the decision of Foster J because it refers to events subsequent to it. It is not relevant to the re-exercise of any discretion because the application for spousal maintenance is to be remitted for rehearing.
The Application in an Appeal will be dismissed.
Costs
The husband did not seek an order for costs in the event that the appeal was to be allowed and no such order will be made. However, in that event, the husband and the wife each sought a certificate under the Federal Proceedings (Costs) Act1981 (Cth). As the appeal is being allowed as a result of an error by the primary judge it is appropriate that such certificates issue and orders will be made to that effect.
I certify that the preceding one hundred and nineteen (119) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Strickland, Aldridge & Kent JJ) delivered on 4 November 2016.
Associate:
Date: 4 November 2016
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