Kostres & Kostres
[2009] FamCAFC 222
•15 December 2009
FAMILY COURT OF AUSTRALIA
| KOSTRES & KOSTRES | [2009] FamCAFC 222 |
| FAMILY LAW - APPEAL – PROPERTY – BINDING FINANCIAL AGREEMENT – Whether the Federal Magistrate erred in enforcing terms of parties’ financial agreement – Where agreement entered into prior to parties’ marriage – Where agreement purported to deal with inter alia assets acquired during the marriage – Where parties mistakenly thought husband bankrupt at time agreement executed – Where parties purchased business and real property in wife’s name and name of trust in mistaken belief assets could not be purchased in joint names – Where no challenge in respect of compliance with the formal requirements of s 90G of the Family Law Act 1975 – Where Federal Magistrate determined the parties’ financial agreement was binding and should not be set aside – Where there was inconsistency in the reasoning of the Federal Magistrate – Consideration of the terms of the binding financial agreement – Consideration of the meaning of “acquire” – Where neither party’s legal representative before the Federal Magistrate referred to relevant authorities in relation to the question of acquisition of property as distinct from contributions to purchase price – Decision of the High Court in Calverley v Green (1987) 155 CLR 242 considered – Where the parties’ relied on s 90KA of the Family Law Act 1975 – Where the interpretation of the agreement contended by both parties required broad interpretation of the terms of the agreement but where each relied on differing interpretations – Where s 32 of the Judiciary Act 1903 applied– Consideration of general principles of contract law and interpretation – Where there was ambiguity in the terms found in clause 6 of the agreement – Held the terms of the agreement must accurately reflect the intention of the parties at the time of the making of the agreement and be unambiguous – The expressions used in the agreement must be clear and meaning certain – Where it was not possible for the Court to supply or correct the terminology of the agreement with appropriate certainty to give effect to the parties’ agreement – Discussion of the importance of precision in drafting of financial agreements – Where the terms of the agreement ineffective – Where the Federal Magistrate erred in enforcing the terms of the agreement – Appealable error established. FAMILY LAW - APPEAL – COSTS – Where error of law established – Costs certificates granted |
| Family Law Act 1975 (Cth) – s 71A(1), s 79, Pt VIIIA, s 90DA, s 90G, s 90K, s 90K(1), s 90KA Family Law Amendment Act 2000 (Cth) Federal Justice System Amendment (Efficiency Measures) Act 2009 (Cth) Judiciary Act 1903 (Cth) – s 31, s 32 |
| Baumgartner v Baumgartner (1987) 164 CLR 137 Black & Black (2008) FLC 93-357 Blackman & Blackman (1998) FLC 92-791 Calverley v Green (1984) 155 CLR 242 Commonwealth of Australia v Verwayen (1990) 170 CLR 395 CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 244 CLR 98 Davidson & Davidson (1991) FLC 92-197 Drew & Drew (1985) FLC 91-601 Duff v Duff (1977) 15 ALR 476 Fitzgerald v Masters (1956) 95 CLR 420 Kennon v Spry (2008) 251 ALR 257; (2008) 83 ALJR 145 McCrossen and McCrossen (2006) FLC 93-283 Milankov & Milankov (2002) FLC 93-095 Monie v the Commonwealth (2005) 63 NSWLR 729 NAIS and Others v Minister for Immigration and Multicultural and Indigenous Affairs and Another (2005) 228 CLR 470 Rollings & Rollings [2009] FamCAFC 87 Stein & Stein (1986) FLC 91-779 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Webster & Webster (1998) FLC 92-832 Westpac Banking Corporation v Tanzone Pty Limited & Ors [2000] NSWCA 25 |
| APPELLANT/CROSS-RESPONDENT: | Mr Kostres |
| RESPONDENT/CROSS-APPELLANT: | Ms Kostres |
| FILE NUMBER: | BRC | 2799 | of | 2007 |
| APPEAL NUMBER: | NA | 106 | of | 2008 |
| DATE DELIVERED: | 15 December 2009 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Bryant CJ, Boland & Jordan JJ |
| HEARING DATE: | 18 May 2009 and 15 June 2009 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 17 October 2008 |
| LOWER COURT MNC: | [2008] FMCAfam 1124 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT/ CROSS-RESPONDENT: | Mr Hodges |
| SOLICITOR FOR THE APPELLANT/CROSS-RESPONDENT: | James Noble Family Law |
| SOLICITOR FOR THE RESPONDENT/CROSS-APPELLANT: | Barry & Nilsson Lawyers |
Orders
The appeal against the orders made by Federal Magistrate Wilson on 17 October 2008 is allowed.
The cross-appeal is dismissed.
Order 2 of the orders made by Federal Magistrate Wilson on 17 October 2008 be set aside.
The husband’s application be remitted for rehearing before a Federal Magistrate other than Federal Magistrate Wilson.
That the husband be at liberty to make further written submissions in respect of the costs appeal (appeal No. NA 22 of 2009) by filing such submissions at the Northern Region Appeal Registry of the Family Court of Australia and serving them on the wife within 21 days of the date hereof.
That the wife have a further 14 days in which to make written submissions in answer thereto by filing such submissions at the Northern Region Appeal Registry of the Family Court of Australia and serving them on the husband.
That the husband be at liberty to reply to an answer by way of written submissions by filing such reply at the Northern Region Appeal Registry of the Family Court of Australia and serving it on the wife within a further 7 days.
That each party endorse on the cover sheet of any submissions filed pursuant to Orders 5, 6 and 7, the date upon which a copy of that submission was served on the other party.
That the Court grants to the appellant husband a costs certificate pursuant to section 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 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 section 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 in respect of the costs incurred by her in relation to the appeal.
The Court grants to each party a costs certificate pursuant to the provisions of section 8 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 them in respect of the costs incurred by them in relation to the rehearing.
IT IS NOTED that publication of this judgment under the pseudonym Kostres & Kostres is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT BRISBANE |
Appeal Number: NA 106 of 2008
File Number: BRC 2799 of 2007
| Mr Kostres |
Appellant/Cross-Respondent
And
| Ms Kostres |
Respondent/Cross-Appellant
REASONS FOR JUDGMENT
Introduction
Two days before their marriage in January 2002 Mr Kostres and Ms Kostres executed a financial agreement in order to regulate their financial affairs during their marriage, and to govern such affairs in the event the marriage did “not work out”.
This appeal by the husband, and cross-appeal by the wife, raise for determination how terms of a financial agreement made under Part VIIIA of the Family Law Act 1975 (Cth) (“the Act”) should be construed, and the circumstances which may lead to such an agreement not being enforced.
It was not in dispute at the time the parties entered into the financial agreement they both mistakenly thought the husband was a bankrupt. But they did not reveal this fact to the solicitors who drafted and gave advice about the financial agreement. The parties’ mistaken belief about the husband’s status led to them acquiring assets which were not purchased in the parties’ joint names.
In June 2006, by which time the parties’ marriage had broken down, the husband commenced proceedings in the Federal Magistrates Court seeking orders that the wife pay him an amount, quantified at the hearing as $486,985.00, representing one half of the net value of assets acquired during the marriage (a retirement hostel business, the real property on which the business is conducted, and a home unit at Surfers Paradise). It appears these orders were sought by way of enforcement of the financial agreement.
In the alternate, at trial, the husband argued that, if the real property on which the business was operated (which property is held as an asset of a discretionary trust) did not fall within the terms of the financial agreement, the trust should be regarded as property for the purposes of s 79 of the Act and adjusted between the parties. He also appeared to argue before Federal Magistrate Wilson another basis for the financial adjustment he sought – namely that all the parties’ assets be adjusted between them under s 79 of the Act.
Before the Federal Magistrate the wife ultimately sought orders that the financial agreement be enforced, and no adjustment be made under s 79 of the Act. She asserted the parties had not acquired from joint funds the retirement hostel business or the property, but rather that she had solely acquired these assets. Thus, she said, under the terms of the financial agreement she was solely entitled to these assets. (The terms “acquired”, “joint funds” and “asset” are words found in the financial agreement). However she conceded that the Surfers Paradise unit was an asset which had been acquired from joint funds, and that, in accordance with the financial agreement, the equity or proceeds of sale of that unit should be divided equally between the parties.
Federal Magistrate Wilson, for reasons we will shortly record, rejected the bases relied on by the husband for relief, but determined he should receive $123,985.48 in satisfaction of his claims. The sum ordered to be paid to the husband represented one half of the increase in the goodwill of the retirement hostel business from its acquisition to trial, and one half of the equity in the Surfers Paradise unit. This is the husband’s appeal against the Federal Magistrate’s orders.
The wife filed a cross-appeal in which she asserted the Federal Magistrate erred in determining that the goodwill of the retirement hostel business was caught by the financial agreement, and thus in error in making any order in the husband’s favour, other than a monetary sum to reflect his half interest in the unit. Implicit in the wife’s resistance to the husband’s appeal, and the agitation of her cross-appeal, is the proposition that she has acquired the sole entitlement to the business and the assets of the trust under the provisions of the financial agreement.
Before us the husband sought and was granted leave to adduce by way of further evidence the trust deed of the relevant discretionary trust (the Z Family Trust).
We think it is useful at this point in our reasons if we set out how we propose to describe the assets or entities referred to in these reasons. We will refer to the financial agreement as “the agreement”. The retirement hostel business will be described as “the business” and the property and improvement on which the business is conducted as “the property”. We will describe the Z Family Trust as “the trust” and the Surfer’s Paradise unit as “the unit”.
We record at this point that at the hearing before the Federal Magistrate the husband had sought summary dismissal of the wife’s response on the basis that the parties had not executed a separation declaration under s 90DA of the Act, with the consequence the agreement had no force or effect. The Federal Magistrate allowed the wife to amend her response to seek such a declaration. Notwithstanding his Notice of Appeal seeks to appeal all orders made by Federal Magistrate Wilson, no challenge is made by the husband in his grounds of appeal about the Federal Magistrate’s decision in respect of the declaration, or to his order requiring the parties to execute a separation declaration within seven days.
Background
The background history, about which there was no substantial dispute, is found in the Federal Magistrate’s reasons or the appeal book. In the latter case we have provided the relevant reference.
The husband was aged 55 years at the date of the hearing. The wife was aged 63 years. The parties married in January 2002 and they separated in June/July 2006. There were no children of the marriage.
In January 2002 the parties executed the agreement made under the provisions of Part VIIIA of the Act. Schedule A to the agreement sets out the wife’s assets and liabilities. The wife’s assets comprised a half share in a Property M, Property K, household furniture and a motor vehicle. Her liabilities included a mortgage over her half interest in Property M, and a mortgage over the Property K.Schedule B to the Financial Agreement recorded that the husband had household furniture, a motor vehicle and savings of $12,000.00. We will later set out the relevant terms of the agreement.
In March 1998 the husband was made bankrupt on his own petition.By operation of law he was discharged from bankruptcy in March 2001. As we have already noted, at the time the parties executed the agreement they each believed the husband was still an undischarged bankrupt. They did not reveal this fact to the solicitors who provided the certificates of independent legal advice annexed to the agreement. They both held this belief at the time of the purchases of, respectively, the business, the property, and the unit
By Deed dated 12 June 2002 the trust was settled. It is a discretionary trust. The settlor is Ms H. The sole trustee of the trust is the wife. The primary beneficiaries of the trust are the wife, the husband, the wife’s three children of her former marriage and the husband’s two children of his former marriage.
By contract dated 14 June 2002 the wife, in her capacity as trustee of the trust, purchased the property for a purchase price of $552,500.00 (wife’s affidavit dated 9 August 2007, filed 16 August 2007, paragraph 18 and Annexure MK3). The wife deposed that the whole of the purchase price of the property was obtained from the National Australia Bank (“NAB”). The wife asserted the husband was not able:
… to provide any security to the National Australia Bank to obtain finance, nor was [the husband] able to even join with me as a co-borrower upon the loan given that at the time the property was acquired, [the husband] was an undischarged bankrupt. (wife’s affidavit dated 9 August 2007, filed 16 August 2007, paragraph 22)
The wife asserted she borrowed $669,521.10 from the NAB to purchase the business and property, and that she also obtained an overdraft facility. The wife asserted the borrowings were secured by a bill of sale over the chattels of business, guarantees and indemnities provided by her son, a mortgage over her Property K, a joint mortgage with her son over Property M, as well as a mortgage over the subject property (wife’s affidavit dated 9 August 2007, filed 16 August 2007, paragraph 29).
On 31 July 2002 the wife asserted she entered into a contract to purchase, in her sole name, the business for a purchase price of $100,000.00. The wife asserted that she provided $10,000.00 from her savings to the purchase price of the business (wife’s affidavit dated 9 August 2007, filed 16 August 2007, paragraph 14).In her oral evidence the wife conceded the whole of the purchase price for the business and property was funded from borrowings (transcript, 6 September 2007, pp 71 to 75).
On 4 April 2003 the parties each signed a Disclosure Statement and contract to purchase the unit (wife’s affidavit dated 9 August 2007, filed 16 August 2007, Annexure MK 4).The unit was registered in the sole name of the wife.The purchase price of the unit was $195,000.00. The wife asserted she purchased the unit by providing $6,000.00 from her savings, a loan from a family friend ($30,000.00) and the balance of $162,000.00 by way of borrowings from the NAB. The wife asserted in her affidavit that the husband provided no funds for the acquisition of the unit, nor could he join with her as a co-borrower because “[the husband] was an undischarged bankrupt” (wife’s affidavit dated 9 August 2007, filed 16 August 2007, paragraph 27).
In 2006 the wife purchased, as trustee of another trust, the C Family Trust, a unit at Surfers Paradise (“the second unit”). The borrowings to purchase the second unit were secured against the business and property. The wife conceded she had not told the husband she had purchased the second unit. (transcript, 9 September 2007, p 80).
In August 2006 the wife received $25,000.00 as a result of an insurance claim for damage caused by leakage to the bathroom of the unit. She conceded she paid the whole of the insurance claim into the NAB account operated by the business and asserted she used the funds to pay bills (transcript, 6 September 2007, p 81).
The application to adduce further evidence
There was no opposition to us receiving the trust deed other than a submission by the wife’s solicitor that it had no relevance. In these circumstances it is unnecessary we give detailed reasons for its admission. The deed is confirmatory of facts recorded in the Federal Magistrate’s reasons, namely, the name of the trust, that the wife is the appointor and sole trustee, and the parties and their children are the named primary beneficiaries. Further, it reveals the parties are entitled to consideration, as objects of the benefaction, to receive the whole of the income and capital of the trust on its vesting. In the event the trustee fails to distribute the capital when the trust vests, it is payable to the beneficiaries as tenants in common.
The financial agreement
The agreement executed by the parties, and dated January 2002, is expressed in clause 10 to be made in contemplation of and conditional upon the parties’ marriage. The agreement, which is in the form of a deed, contains two recitals as follows:
A.[Ms Kostres] and [Mr Kostres] have agreed to marry [in January 2002]. Both of them are entering into the relationship with love for each other and with hope for the future.
B.In the hope of leading to tranquillity in their life together and to avoid or reduce any disputes between them in the future about the ownership, use and descent of property and to avoid unpleasantness and dispute should, despite their best intentions, the relationship and/or marriage in any circumstances not work out, they wish to set down in writing what they are agreeing to as to how their financial relationship with each other should be regulated.
The relevant operative parts of the agreement include clauses 3 and 4 which provide as follows:
3.[Ms Kostres] and [Mr Kostres] agree that the ownership of the assets set out in Schedules A and B hereto will remain separate throughout their marriage although each will permit the other to use what they have. Each party shall pay their own costs for the maintenance and repair and all outgoings in relation to their respective assets. Each party shall be entitled to retain for their own respective use and benefit any income or benefit received from their respective assets.
4.It is the intention of both [Ms Kostres] and [Mr Kostres] to provide proper support for each other during the marriage and neither will have any objection and will give every support and encouragement to the other continuing to work in such employment as they wish to follow. Both agree that any savings made by each of them from their own wages will remain their separate savings and neither party will make any call on the savings of the other
The pivotal provision of the agreement insofar as the appeal is concerned is clause 6 particularly sub-clauses (c) and (d). It is in the following terms:
[Ms Kostres] and [Mr Kostres] agree that in the event that the marriage should end that the assets of each of them either alone or jointly shall be dealt with as follows:
(a)The assets set out in Schedule A shall remain the property of [Ms Kostres].
(b)The assets set out in Schedule B shall remain the property of [Mr Kostres].
(c)Any assets of whatsoever kind or nature acquired during the relationship from joint funds shall be divided equally between [Ms Kostres] and [Mr Kostres].
(d)Any assets acquired by either party from their own moneys shall remain the property of that person.
(e)[Ms Kostres] and [Mr Kostres] shall retain for their own use their respective right, entitlement and interest in and to any superannuation or life policies owned by them. (our emphasis)
Clause 11 of the agreement is also relevant. It provides as follows:
Each of them has entered into this binding Financial Agreement to set out their rights and obligations to reduce any disputes between them in the future and save as provided hereunder, to avoid proceedings under Part VIII of the Family Law Act. The parties have reached this agreement to regulate and determine for all time their financial arrangements and commitment to each other in the event that their marriage breaks down in accordance with Part VIII of the Act.
The appeal grounds
The husband relied on eight grounds of appeal in his Notice of Appeal. As will become apparent from an identification of the challenges made to the Federal Magistrate’s orders, it is unnecessary we set them out in full. In his written submissions counsel for the husband, although not officially abandoning grounds 5, 6 and 7, did not argue those grounds. Before us the husband’s counsel described these grounds as the husband’s “fall back” position in the event we did not find merit in the other grounds. We will return to our summary of these grounds shortly.
The issue which emerged as the dominant issue in the appeal (and the cross-appeal) was the assertion the Federal Magistrate had incorrectly interpreted and applied the terms of the financial agreement.
The determination of this issue requires us to consider whether, so far as the husband is concerned, the Federal Magistrate erred in failing to conclude the husband and wife acquired the business and the property from their joint funds. Insofar as the wife is concerned, she asserted in her cross-appeal that the Federal Magistrate was in error in finding the husband had acquired an interest in the goodwill of the business, rather than finding she alone had acquired the business.
A secondary challenge agitated by the husband was whether, if the property owned by the trust properly fell outside the terms of the financial agreement, the Federal Magistrate erred in failing to deal with it under s 79.
It is useful at this point for us to briefly refer to the challenges mounted in grounds 5, 6 and 7.
Ground 5 asserts that the Federal Magistrate erred in not concluding the agreement should be set aside under s 90K(1)(c), that is, that circumstances had arisen which would made it impracticable for the agreement to be carried out.
Ground 6 asserts error by the Federal Magistrate in concluding the agreement could be enforced when:
· both parties thought the husband was bankrupt at the time of the making of the agreement;
· the property was purchased in the name of the trust because the parties mistakenly thought the property could not be held in the name of the husband;
· both parties had contributed to the acquisition of the property; and
· the wife sought to rely on the agreement to the detriment of the husband.
Ground 7 asserts that the Federal Magistrate erred in failing to find the wife could not rely on the agreement because of circumstances amounting to unconscionable conduct.
We propose to consider the issues raised by the appeal by:
· first, examining whether the parties did acquire assets from joint funds, which assets should, in accordance with the agreement, have been divided equally between them (grounds 1 and 2, and ground 1 of the cross-appeal) (this challenge involves consideration of how the terms of the agreement should be construed);
· second, if we consider it necessary to do so, to examine whether the trust (which both parties’ legal representatives conceded was “property” as defined by s 4(1)(a) of the Act) should have been adjusted between the parties under s 79 (grounds 3 and 4);
· third, to the extent we have not already done so in our discussion of the second identified challenge, we will examine whether the Federal Magistrate was in error in finding, at least by implication, that the wife, (by reason of her position as trustee and beneficiary of the trust) was entitled, under the terms of the agreement, to retain the business, subject to the goodwill adjustment, the property and a loan account as assets “acquired” by her from her “own moneys” under clause 6(d) of the agreement;
· fourth, we will, if necessary, consider the provisions of s 90K(1) and whether the Federal Magistrate was in error in enforcing the agreement if, as asserted, it was unconscionable to do so (ground 4). (Encompassed in this challenge is the assertion that the Federal Magistrate gave insufficient reasons for determining the agreement should be enforced); and
· fifth, we will examine whether the delay in delivering the reasons renders the judgment unsound.
In categorising the challenges above, we accept that there is a degree of overlap between issues raised in a number of the grounds in the appeal and the single ground in the cross-appeal.
The single ground relied on by the wife in her cross-appeal is as follows:
That the learned Federal Magistrate erred in including as an ‘asset acquired during the relationship from joint funds’ as applicable to the parties’ financial agreement made pursuant to section 90B of the Family Law Act 1975 the goodwill of the business conducted at [the property].
Before commencing our discussion of the grounds, to put the issues in context, we will summarise the arguments advanced at the hearing of the appeal and cross-appeal, and then refer to the relevant statutory provisions dealing with financial agreements – Part VIIIA of the Act. It is useful that we pause here to record that neither party asserted any departure had occurred from the formal requirements in s 90G of the Act (as in force at the time of the making of the agreement).
The husband’s counsel expressly disclaimed before the Federal Magistrate that the agreement should be set aside on the basis that there was mutual mistake by the parties (their belief the husband was bankrupt) at the time the agreement was executed, and the husband gave evidence that he would have still executed the agreement if he had known he had been discharged from bankruptcy. It was, however, asserted on his behalf, he would not have agreed to the manner in which the business, property and unit were acquired.
A summary of the arguments advanced at the hearing of the appeal and cross-appeal
The import of the husband’s counsel’s submissions at the hearing of the appeal was that the Federal Magistrate erred in:
·determining that the business (as distinct from the increase in goodwill in it) and the trust (and its underlying asset, the property) did not fall within the terms of the agreement;
·rejecting the husband’s contention that he and the wife acquired the business and property by the application of joint funds;
or, in the alternate, erred in:
·having rejected the husband’s contention the trust fell within the scope of the agreement, erred in failing to adjust the parties’ interests in the trust between them under s 79; and
·failing to set aside the agreement, and proceeding to enforce the agreement when it was unconscionable to do so.
Counsel for the husband also submitted the Federal Magistrate erred by failing to deal with a loan account in the wife’s name of $119,175.00. Counsel, when referring to the ground directed to the failure to deal with the wife’s loan account, also referred to the ground which asserted greater scrutiny than usual to the Federal Magistrate’s reasons was required because of the delay of 13 months from the hearing of the husband’s application until delivery of reasons for judgment and the making of the orders.
The wife’s solicitor, in arguing the cross-appeal, agreed with the first proposition advanced on behalf of the husband, namely, that the business and the trust were assets which fell within the terms of the agreement, but he argued, the parties had not acquired the business from joint funds, as the husband was only an employee of the business. As such, he submitted the husband had not contributed to the repayment of borrowings used to acquire the business or the trust assets, and he had no entitlement to either under the terms of the agreement.
The wife’s solicitor disputed the parties operated the business in partnership, or that the husband received drawings or profits. He asserted the wife, who owned the business, was solely entitled to its profits which profits serviced borrowings. He acknowledged the position advanced by him was a “legalistic” one, that the result for which the wife contended “may smack of unfairness”, but he submitted it was the bargain or contract to which the parties agreed.
The husband sought, in the event we found that the Federal Magistrate had erred in determining he should not receive 50 per cent of the value of the business and trust assets – the property (as well as 50 per cent of the equity in the unit) pursuant to the agreement, that we should re-determine the matter by enforcing the agreement and ordering that he should receive an increase in the amount to be paid by the wife to him to reflect that entitlement. He further sought 50 per cent of the wife’s loan account. In the event we found the trust was not caught by the agreement, but was otherwise property for the purposes of s 79, we should re-determine the matter on the findings made by the Federal Magistrate. The husband’s counsel conceded in the event we determined the agreement should be set aside, that the matter would have to be remitted for rehearing under s 79 of the Act.
After the hearing of the appeal and cross-appeal an application was made by the wife’s solicitor to re-open. The wife’s solicitor submitted that, in the event we found appealable error, and re-exercised the discretion, by reason of changes in the valuation of the business and property, it would be improper to use the figures in the single expert report relied on at trial, and that further evidence would be required to arrive at a proper outcome.
Part viiia of the act
Part VIIIA was inserted into the Act by the Family Law Amendment Act2000 (Cth). The broad rationale behind the inclusion of this Part is explained in the Further Revised Explanatory Memorandum (“the EM”). The EM also considers circumstances in which a financial agreement can be set aside by a court. We think it gives context to the issues raised in the appeal and cross-appeal if we extract some of the statements from the EM:
Currently under the Act, people can make ‘pre-nuptial’ and ‘post-nuptial’ settlements about their property. In recent years the use of these has been limited because they are not binding and the court is able to exercise its discretion over any property with which these settlements deal. …
Because parties will have obtained prior advice, the court will only be able to set aside an agreement in certain limited circumstances, for example if it were obtained by fraud, including failure to disclose material assets, duress or undue influence that would make it unfair to give effect to the agreement. The grounds for setting aside include all common law and equitable grounds, which includes, for example, that a party engaged in unconscionable conduct in obtaining the agreement. These grounds are modelled upon those set out in existing paragraph 87(8)(c) … Common law and equitable doctrines of particular relevance to binding financial agreements include mistake, rectification, fraudulent, negligent and innocent misrepresentation, collateral contract, estoppel and damages for breach.
The general scheme of Part VIIIA is explained at paragraph 139 of the EM as follows:
139.Item 10 inserts new Part VIIIA – Financial agreements. The Part provides for financial agreements, dealing with some or all of the property, maintenance and financial resources of the parties, to be made and will provide for the mechanism to make such agreements binding.
Paragraph 160 of the EM describes the circumstances in which a court may set aside an agreement. The parts of that paragraph relevant to this appeal state:
160.Subsection 90K(1) provides that a court will be able to set aside a financial agreement if the court is satisfied that:
·the agreement was obtained by fraud (including non-disclosure of a material matter);
·the agreement is void, voidable or unenforceable including whether the agreement is obtained by the unconscionable conduct of one of the parties. These grounds reflect the principles of common law and equity, under which an agreement would fail because of lack of certainty, lack of intention to enter legal relations, or because the agreement is affected by duress, undue influence, unconscionability, misrepresentation or operative mistake. The inclusion of unconscionability as a separate ground is simply to make it clear that this ground is included within the grounds for setting aside an agreement. Unconscionability will retain its ordinary meaning within the law of contract. The provision is modelled upon the provisions of section 87(8)(c) of the Act and the Government expects it to be interpreted in a similar way (see for example the decision of the Full Court of the Family Court in Blackman v Blackman (1998) FLA [sic] 92-791) ; or
·circumstances have arisen since the agreement was entered into that make it impracticable for the agreement, or part of it, to be carried out.
Amendments have been made to Part VIIIA since its introduction, including the recent Federal Justice System Amendment (Efficiency Measures) Act 2009 (Cth). Those amendments are not relevant to this appeal.
For the purposes of this appeal it is important that we set out the provisions of s 71A(1) of the Act. That section is not found in Part VIIIA but is relevant to it. The section makes it clear that if an agreement which is binding deals with financial matters or financial resources, then the Court cannot exercise its jurisdiction under Part VIII (which part includes property adjustment under s 79). Accordingly, if property of the parties or their financial resources are not encompassed in their binding financial agreement, they fall to be dealt with under Part VIII. Section 71A(1) is in the following terms:
This Part does not apply to:
(a) financial matters to which a financial agreement that is binding on the parties to the agreement applies; or
(b) financial resources to which a financial agreement that is binding on the parties to the agreement applies.
As we earlier recorded, no challenge is raised in relation to compliance with the formal requirements to be carried out in respect of the agreement – it was signed by the parties, contained a clause of explanation of rights by a legal practitioner, and certificates from each party’s legal practitioner were annexed (see s 90G(1)).
Section 90G(2) deals with the enforcement of a financial agreement that is binding on the parties. It provides as follows:
A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary.
Section 90K(1) sets out the circumstances about which a court must be satisfied if, in the exercise of discretion, it is to set aside a financial agreement. Section 90K provides, so far as is relevant to this appeal, as follows:
(1) A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
…
(b) the agreement is void, voidable or unenforceable; or
(c) in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or
…
(e) in respect of the making of a financial agreement—a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or
…
(3) 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.
…
Section 90KA, which is directly relevant to the appeal and cross-appeal, provides as follows:
The question whether a financial agreement or a termination agreement is valid, enforceable or effective is to be determined by the court according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts, and, in proceedings relating to such an agreement, the court:
(a) subject to paragraph (b), has the same powers, may grant the same remedies and must have the same regard to the rights of third parties as the High Court has, may grant and is required to have in proceedings in connection with contracts or purported contracts, being proceedings in which the High Court has original jurisdiction; and
(b) has power to make an order for the payment, by a party to the agreement to another party to the agreement, of interest on an amount payable under the agreement, from the time when the amount became or becomes due and payable, at a rate not exceeding the rate prescribed by the applicable Rules of Court; and
(c) in addition to, or instead of, making an order or orders under paragraph (a) or (b), may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court.
It is also relevant that we set out the powers of the High Court in its original jurisdiction. These powers are found in Part IV of the Judiciary Act 1903 (Cth). Sections 31 and 32 of Part IV provide as follows:
31Judgment and execution
The High Court in the exercise of its original jurisdiction may make and pronounce all such judgments as are necessary for doing complete justice in any cause or matter pending before it, and may for the execution of any such judgment in any part of the Commonwealth direct the issue of such process, whether in use in the Commonwealth before the commencement of this Act or not, as is permitted or prescribed by this or any Act or by Rules of Court.
32Complete relief to be granted
The High Court in the exercise of its original jurisdiction in any cause or matter pending before it, whether originated in the High Court or removed into it from another Court, shall have power to grant, and shall grant, either absolutely or on such terms and conditions as are just, all such remedies whatsoever as any of the parties thereto are entitled to in respect of any legal or equitable claim properly brought forward by them respectively in the cause or matter; so that as far as possible all matters in controversy between the parties regarding the cause of action, or arising out of or connected with the cause of action, may be completely and finally determined, and all multiplicity of legal proceedings concerning any of such matters may be avoided.
The federal magistrate’s reasons in considering whether the husband acquired assets from joint funds
(a) preliminary observations
Before proceeding to summarise the Federal Magistrate’s findings it is appropriate that we record the difficulties which he faced in hearing this matter. The case which the husband sought to pursue at trial was not readily apparent from his amended application, and a number of the submissions made to the Federal Magistrate during the hearing, when he sought to clarify the exact bases on which relief was being sought were, in our view, confusing. He was not assisted by the wife’s response which sought in paragraph 1 relief “by way of property settlement”.
The Federal Magistrate noted the change in the husband’s position as to the relief sought at paragraph 3 of his reasons as follows:
Although no amendment was made to the application, at the commencement of the final hearing, counsel for the husband handed to the Court a document that reads:
That the financial agreement is not binding on the parties (or either of them) or is otherwise unenforceable because:
i)At the time the parties entered into the financial agreement they both were of the belief that the husband was an undischarged bankrupt and such fact was not disclosed in the financial agreement
ii)The effect of the belief in the husband’s bankruptcy in terms of the financial agreement could not and or was not explained to him in the context of s90G of the Family Law Act
iii)It would otherwise be unconscionable for the husband to be bound by the financial agreement given the matters in (i) and (ii) herein and the fact that the consequences of his signing the financial agreement with his belief of bankruptcy was not know [sic] to him nor explained to him.
The Federal Magistrate also recorded, at paragraph 6, how the wife’s position as to the relief she sought changed:
In an amended Response filed by leave after the evidence was completed, the wife sought the following orders:
(1)That pursuant to section 90G(2) or section 79 of the Family Law Act 1975 [the unit] be sold and the net proceeds from the sale be divided equally between the parties.
(2)That pursuant to section 90G(2) or section 79 of the Family Law Act 1975, subject to order number 1 above each party retain all items of property in their name or control.
(3)That the husband pay the wife’s costs of and incidental to this application on an indemnity or standard basis.
(4)Such further and other Order that this Honourable Court deem meet [sic].
At paragraph 8 of his reasons, the Federal Magistrate identified what he understood to be the issues between the parties. It is useful that we set out that paragraph:
Thus, although the parties’ formal court documents may not necessarily reflect it, the parties argued and the court is required to decide the following issues:
a)Whether the agreement made between the parties is a ‘financial agreement’;
b)Whether the financial agreement is binding on the parties;
c)Whether the financial agreement should be set aside;
d)Whether the financial agreement can be enforced.
The Federal Magistrate’s task was also complicated by the following factors:
·the trust deed for the trust was not in evidence before him;
·the single expert who valued the business and the trust valued those entities using consolidated financial statements;
·there was no independent evidence which disclosed the source and manner of payments to the mortgagee, the NAB for the borrowings obtained to purchase the business and the property;
·the contract for the purchase of the business annexed to the wife’s affidavit was incomplete – it did not disclose the purchaser of the business; and
·the wife was unable to explain at all how there was a credit loan account in her name in the financial statements reproduced in the expert report.
We record here that no challenge is raised in the appeal or cross-appeal in respect of the Federal Magistrate’s findings that the agreement was a financial agreement, or if effective that it was binding on the parties. Thus it is the issues identified by the Federal Magistrate in paragraph 8(b), (c) and (d) which remain relevant to this appeal. These issues are, in reality, subsidiary to the determination of how the Federal Magistrate construed the terms of the agreement.
At paragraph 9 of his reasons, the Federal Magistrate said:
It is only if the agreement between the parties is a financial agreement that is binding on them, that Part VIII of the Act, including ss.79 and 75(2) does not apply: s.71A(1) of the Act.
We think it is appropriate that we note here that the drafting of paragraph 9 suggests to us that at this point in his reasons the Federal Magistrate may have misdirected himself, if by that paragraph he determined that once a financial agreement is found to be binding that fact, of itself, ousts the jurisdiction of the Court under s 79. Rather, he should have proceeded on the basis that the Court’s jurisdiction in respect of financial matters or financial resources covered by a binding financial agreement is ousted, but that property or financial resources not dealt with by the agreement remain to be determined under Part VIII.
(b) Federal Magistrate’s consideration of the terms of the Financial Agreement
At paragraph 42, the Federal Magistrate referred to the property upon which the business is conducted, noting that the property was owned by the wife as trustee for the trust. Having recorded that the trust deed was not put into evidence, the Federal Magistrate referred to the description of the trust provided by the expert accountant. We are satisfied from our examination of the trust deed that the matters recorded by the Federal Magistrate about that document are accurate.
At paragraph 43, the Federal Magistrate explained that the husband sought an order that required the transfer to him of “one half of the value of the assets of the [trust]”. The Federal Magistrate said “[t]he trustee is not, in her capacity as such, a party to the proceedings”. (It is not in dispute that no application was made to join the trust as a party to the proceedings.)
At paragraph 44, the Federal Magistrate went on to explain that the property was “the most valuable asset potentially forming part of the matrimonial pool”. He further explained “[o]wnership of it and the operation of the [business] are inextricably linked, according to [the single expert]”. He then said:
My concern is that enforcement of the financial agreement according to its terms would not take into account the asset that is trust property. That is, the land upon which the [business] is operated would remain a trust asset. The wife as trustee could presumably be expected (if the terms of the trust deed so permit) not to make any future distributions of capital or income to the husband or his children. There are other questions that were not addressed by the parties. Is the business worth as much if the land is not owned by an entity associated with the parties? Can the business be sold to a third party, but the land retained by the trust? If the business is sold, how will the debt secured against the trust asset be paid? If the land is sold by the trust, does the business have any, and if so what, value? (paragraph 44)
These questions posed by the Federal Magistrate led him, in paragraph 45, to consider whether “‘any assets acquired during the relationship from joint funds’ can encompass [the property], or at a different level of enquiry, the parties’ respective beneficial interests in the [trust]”.
The Federal Magistrate then turned, at paragraph 46, to consider the interpretation of clause 6(c) of the agreement. He said one interpretation of that clause did not require the assets to be purchased in name of either party. We note this proposition was not disputed by either party before the Federal Magistrate or us. He went on to say “[h]owever, it plainly contemplates that the ‘asset’ can be divided between the parties. As two of a class of primary beneficiaries, the parties do not have the right to title of the [property]”.
Having considered the right of a beneficiary in a discretionary trust as discussed by the High Court in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 244 CLR 98 at paragraph 15, the Federal Magistrate said, at paragraph 47:
One would need to know the terms of the trust to ascertain whether any party had an entitlement to either capital or income from the trust, or whether they, as with other potential beneficiaries, depended on the absolute entitlement of the trustee to determine distributions. It would also need to be known whether there was any default provision if the trustee did not exercise her power by a given date. None of those matters are disclosed to the Court.
The Federal Magistrate then, at paragraph 48, recorded the liabilities secured against the property, including the mortgage to the NAB and the guarantees. The Federal Magistrate posed for himself the question “[i]f it could be argued that the [property] was capable of being shared between the parties, how would these liabilities be dealt with?”
Having recorded what the Federal Magistrate perceived to be the difficulties encountered because of the “ownership” of the property by the trust, and having reached the conclusion that the underlying assets of the trust could not be divided equally between the parties, the Federal Magistrate then explained, at paragraph 54, it would only be impracticable for the agreement to be carried out if the trust property was “‘an asset acquired during the relationship from joint funds’”.
The Federal Magistrate’s pivotal findings in respect of clause 6(c) insofar as the trust is concerned are set out at paragraph 55. There the Federal Magistrate said:
In my view, the better construction of clause 6(c) of the financial agreement is that to be caught the asset should be personally acquired by one or other or both of the parties to the agreement. In those circumstances, it would not extend to cover assets purchased by one of the parties in their capacity as a trustee. Accordingly, I would conclude that the assets of the [trust] are not captured by the terms of the financial agreement. The trustee will continue to hold that asset on the terms of the trust.
Further, at paragraph 56, the Federal Magistrate considered the question of application of joint funds as follows:
Even if I were unsure of that outcome, the [property] was not acquired using the joint funds of the parties. It was accepted during argument that ‘joint funds’ should be construed to mean funds to which each party made a contribution. It was accepted that there was no need for their contribution to be equal. The purchase of the [property] was wholly financed by a loan from the National Australia Bank. Clause 6(c) of the financial agreement focuses on how the particular asset is ‘acquired’. The [property] was ‘acquired’ on its purchase from the previous owners. The husband made no contribution to the purchase of the asset. It is beside the point that the loan repayments were made from [the business] to which the husband made an undoubted contribution. If it was found that part of those funds was contributed by the husband (due to his efforts in assisting to run the business) they were not contributed to the acquisition of the asset, but rather to the repayment of a loan.
The Federal Magistrate concluded, at paragraph 57:
In my view if the [property] is not caught by the financial agreement, as I conclude, then it is not impracticable for the agreement to be carried out.
As a result of these findings the Federal Magistrate proceeded on the basis the agreement was binding and should not be set aside.
The Federal Magistrate then went on to consider whether he could separately make orders with respect to the property and concluded the “mere expectations” of the parties under the trust were not property. He said “there is no property left to be adjusted under s.79 of the Act” (paragraph 60). (We conclude it is implicit from this finding that the wife could, in her capacity as trustee of the trust, continue in that role. This must lead to the conclusion that she could deal with the trust assets as she, in her absolute discretion may determine, consistent with the terms of the deed. That could include making a distribution of all income and/or capital of the trust assets to herself to the exclusion of the husband).
At paragraph 75 of his reasons, the Federal Magistrate commenced his discussion about the assets “caught” by the agreement. At paragraph 76 he repeated his earlier finding that the property was not “caught by the financial agreement”.
The Federal Magistrate then noted that the wife would retain Property K and Property M (presumably meaning the wife’s one half interest in Property M). He explained that, as a consequence of the terms of the agreement, the husband was to be afforded no credit for work he carried out to renovate the wife’s properties. (It was not disputed the husband had carried out renovation work.)
The Federal Magistrate next proceeded to consider the facts relevant to the acquisition of the business and the property noting the wife was the named purchaser under the contract to purchase the business. He recorded his summary of the wife’s evidence at paragraphs 81and 82 as follows:
The wife says that the total monies borrowed to facilitate the purchase were $669,521.10. The purchase price of the business was $100,000. The purchase price for the land was $552,500. The additional borrowings were to pay for acquisition costs, such as stamp duty and legal expenses.
The wife says that she paid a $10,000 deposit towards the purchase of the business. I accept her evidence in that regard. The husband made no initial financial contribution.
At paragraph 83 of his reasons, the Federal Magistrate set out his conclusions in respect of the acquisition of the business. He said:
The initial purchase of the business of [the retirement hostel business] was therefore facilitated by funds provided by the wife, and from borrowings in the wife’s name.
At paragraph 84, the Federal Magistrate said:
The solicitor for the wife accepted, in his final address, that a property was caught by clause 6(c) of the financial agreement if both parties contributed to the repayment of the loan initially used to acquire the property. It was accepted that because the income produced by the business and paid to both parties was used to make repayments on the loan pertaining to [the unit] the husband was entitled to a share of that property.
Later, at paragraph 85, the Federal Magistrate said:
If the concession was properly made (as to which see my Reasons at paragraph 56, above), it is difficult to see why both parties did not contribute to the acquisition of the [business], or at least to the creation or enhancement of the goodwill of that business. Both parties worked in the business. The loan for the business and the [property] was serviced from the business income. That conclusion is reinforced when it is realised that both parties have contributed to the creation of a significant asset – the goodwill of the business.
At paragraph 89 the Federal Magistrate set out his finding that both parties had worked in the business and “contributed to the generation of goodwill”. He further explained:
I do not accept that the husband contributed nothing to the business. As stated earlier, for an asset to be caught by clause 6(c) of the financial agreement, the contributions of the parties do not have to be equal. The wife accepts that the husband did some maintenance of the facility, and that he cooked meals. He has, for some time, conducted the business on a week about basis with the wife.
He went on, at paragraph 91, to pose to himself the question whether “the running of the business and the consequent generation of goodwill” was the “acquisition of an asset from joint funds”. Having referred to the goodwill ascribed to the business in the expert valuation the Federal Magistrate went on to consider how the parties operated the business. He said:
… If I accept that the parties were effectively partners in the business each was entitled to one half of the profit generated by the business. The parties in fact had equal drawings from the business (apart from a short period when the husband was recuperating from surgery). They used their drawings to pay off debts and for living expenses. However, the profit of the business was not entirely consumed by drawings. In my view, by working in the business the husband and the wife generated the income of the business. This income was “joint funds”. The parties used their joint funds to acquire the business in the sense of building up the goodwill, and repaying debt associated with the business.
At paragraphs 93 and 94 the Federal Magistrate set out his conclusions which led to his determination that the husband should receive a sum equal to one half of the increase in the goodwill from the date of purchase until hearing. In these paragraphs he said:
Putting these uncertainties to one side, if the goodwill of the business was $90,000 when the business was purchased, and is now $180,000 as assessed by [the single expert], an asset has increased in value due to the parties’ operation of the business. Could this increase in value be said to be the acquisition of an asset? Goodwill, being an intangible asset, could reasonably be said to be ‘acquired’ by the parties continuing to operate the business successfully. It is, according to [the single expert], a function of profitability. That is, as profitability increased, additional goodwill was acquired. Profitability of the business was only achieved by the efforts of both parties. In that sense, I conclude that the increase in value of the goodwill of the business was acquired from the joint funds of the parties.
It is not possible for me to make any findings as to the parties’ contribution to overall value of the business, because, as [the single expert] says at paragraph 10.1 of his report, his value of the business brings in the value of [the property], the debt secured against the property and monies owed by the trust to the wife. It is simply not possible to separate out these matters so as to enable a calculation of the husband’s contribution to the overall growth in value of the business itself.
In summary, it may be seen that the Federal Magistrate concluded:
· to fall within the scope of the agreement an asset must be held in the name of the husband and/or the wife personally;
· that the husband (and we would say by implication the wife) had not acquired the business from joint funds;
· the parties had acquired an asset (the increase in the goodwill of the business); and
· “the asset” (the increase in goodwill) had been acquired from joint funds (their joint efforts in generating the earnings of the business).
Did the parties acquire an interest in the business from joint funds? did the parties acquire the trust assets (the property) from joint funds?
(a) the submissions before us (and the Federal Magistrate)
In his written submissions the husband’s counsel submitted that although the business was purchased in the wife’s sole name, and the property acquired by the trust, both assets were caught by the clause 6(c) of the agreement. In respect of the property he submitted (at paragraph 4) this was “because it is an asset of both acquired during the relationship from joint funds” as:
·it was acquired by the parties during their relationship;
·the “funds used to acquire both [presumably the business and the property on which it operated] was income from the [business] which both the husband and wife operated”;
·“clause 6(c) of the agreement does not require any asset to be in the name of a party nor does it refer to legal title”; and
·the wife conceded that “joint funds” should be construed to mean funds to which each party made a contribution. This he submitted included “contributions to repayment of the loan initially used to acquire property”.
Counsel for the husband noted that the Federal Magistrate had referred to such concession, “and found both parties contributed to the [business] and the unit, yet not to the [property]”.
While accepting that “there appears to be no good reason why trust property per se could not be captured by the Financial Agreement executed by the parties and found to be binding by the learned Federal Magistrate” the wife’s solicitor, in his written submissions, went on to submit, as the trustee of the trust was not a party to the agreement, the “trust property cannot form part of the property by which the agreement affects, unless that was intended by the parties when they executed the agreement”.
However, at paragraph 2.9 of his submissions, the wife’s solicitor, having said “it does not matter who holds the property legally” for the purpose of considering whether an asset was caught under clause 6(c) or (d) of the agreement, then asserted what was significant was the determination of how the expressions “joint funds” and “from their own moneys” should be construed. He submitted “it does not matter that the Wife owned [the property] (either as trustee or otherwise), nor owned the [business] run thereon … Had the Appellant (Husband) contributed funds (or monies) to its acquisition, then Clause 6(c) is enlivened. However because the Wife owns [the business] then the funds generated by [the business] are hers. They are not the Husband’s funds to contribute”.
In his oral submissions the wife’s solicitor expanded this submission. He asserted the business operated by the parties was not operated in partnership – there being no written partnership agreement, or evidence there was an oral partnership agreement. Rather, he submitted the husband (as was the wife) was an employee of the business who received a wage for his work in the business. We note here we were not taken to any documents in the appeal book which clearly demonstrated only the wife received, in addition to her wages, profits from the business, although a footnote in the single expert report indicates the business income was included in the wife’s income tax return. But the husband’s income tax return reveals he received a distribution from the trust (see husband’s affidavit sworn 9 August 2007, filed 10 August 2007, Annexure L). We will return to the significance of this distribution when we examine the term “joint funds”.
A different attitude was adopted by the wife’s solicitor in relation to the unit before both the Federal Magistrate and us. In contrast to the property (in relation to which the wife made no assertion that any of her funds comprised part or whole of the purchase price), the wife conceded the husband had acquired an interest in the unit notwithstanding the wife provided $6,000.00 of her own funds as part of the deposit, the husband was not a joint mortgagor and funds generated by the business paid to the parties by way of wages were asserted to be the source of repayments of the mortgage secured on the title.
The distinction about mortgage repayments for the unit and those for the business were sought to be explained by the wife’s solicitor to the Federal Magistrate as follows:
MR COOPER: Yes. Well, if you [sic] talking about [the unit] it was not quite 100 per cent. There was $6000 deposit paid and about $30,000 borrowed from the resident friend.
FEDERAL MAGISTRATE: So do you say that the advance to [the wife] by a financial institution is an asset acquired from her own money?
MR COOPER: No, I don’t. I say that the asset in question is the equity in that property and the equity in that property has been acquired by [the wife] initially, but also by [the husband] in the payment of mortgage payments from his wages at [the business] We therefore say that [the unit] falls within 6(c) of the agreement. However, where there is no money howsoever applied by [the husband] to an asset then it falls within 6(d).
FEDERAL MAGISTRATE: But in the case of [the business] how do you distinguish that from the unit?
MR COOPER: Because the unit was paid out - simply out of the payment of wages to [the husband]. He initially took $1000 - - -
FEDERAL MAGISTRATE: I thought it was paid for out of the earnings of the business?
MR COOPER: Well indirectly so because the business paid [the husband]. It also paid [the wife] an equal amount of about $1000 a week, which was then reduced to cover the payments for [the unit].
FEDERAL MAGISTRATE: Yes?
MR COOPER: So there is a direct tracing between the equity in [the unit] and payments by [the husband].
FEDERAL MAGISTRATE: No, sorry, but [the business]?
MR COOPER: Well [the business] pays them both a [sic] draw moneys, right? And if you have a look at – I think its exhibit 2, which is the bank statements attached to my letter, you’ll see that the debt payable for [the unit] has drawings from a joint account.
FEDERAL MAGISTRATE: Yes.
MR COOPER: The money goes from [the business] to a joint account, it then gets paid. That, we say, clearly indicates that joint funds go towards the acquisition of the equity in that property. That is quite different to the other payments. (Transcript 7 September 2007, p 97)
(b) are there inconsistencies in the wife’s submissions?
It can be seen from the transcript extracted above, the propositions put to the Federal Magistrate to support the wife’s assertions contained, in our view, prima facie internal inconsistencies, and, as we will now explain, may have led the Federal Magistrate into error.
The wife’s concession that the unit is an asset acquired from joint funds, is inconsistent with the submission that the parties’ acquisition of the business is not the acquisition of an asset from joint funds.
A comparison of relevant facts is illuminating:
·both the unit (at completion) and the business were purchased pursuant to contracts asserted to be in the wife’s sole name;
·the wife asserted she paid the initial deposits for both the unit and the business from her separate funds ($10,000 for the business and $6,000 in the case of the unit). (We note, contrary to the findings of the Federal Magistrate, in the case of the business the wife conceded in cross-examination that the whole of the purchase price for the business and the property was from borrowings) (transcript, 6 September 2007, pp 71 to 75);
·the husband was not a party to either mortgage;
·both parties contributed to the repayments of the mortgage on the unit with funds sourced from the business, albeit paid as their salaries and deposited into a joint account; and
·the wife conceded both parties drew equal amounts of money from the business. Repayments of the borrowings to purchase both the business and the property were asserted to be paid from the profits of the business which was operated on a day-to-day basis by the parties jointly (transcript, 6 September 2007, pp 71 to 75).
It is also relevant to note that the business paid rent to the trust, and the husband’s income tax return discloses he received a distribution from the trust of $15,000.00 in the year ended 2005. Such a payment to him is entirely inconsistent with the wife’s assertion that his only entitlement from the business was his wage as an employee. However, as we have already noted, the single expert report refers to the business being shown in the wife’s income tax returns (which were not produced) as being in her ownership. No income tax returns on a partnership basis were in evidence or referred to in the expert report, and the existence of a partnership return is at odds with the husband’s tax return annexed to his affidavit.
It is important to remember the parties both submitted before us, and the Federal Magistrate, for the purposes of interpretation of the agreement that:
·the legal ownership of an asset was irrelevant for the purposes of clause 6(c) – so it did not matter whether the business or the property was acquired in the name of the husband, or the wife, or presumably a corporate entity in which one or other of them held shares, or shares were held in trust for either of them, or by a trustee on trust for either or both of them (we note this proposition was rejected by the Federal Magistrate);
·that the expression “asset of whatsoever kind or nature” included both legal and equitable interests in an asset including the equity in the unit; and
·that the expression “joint funds” did not mean that there had to be an equal contribution of money by the parties.
We perceive not only was there at least, prima facie, an inconsistent approach to assets held in the wife’s name (the business and the unit) advanced by her solicitor, but there was also inconsistency in the reasoning of the Federal Magistrate in how he construed the agreement.
At paragraph 56 of his reasons the Federal Magistrate found, consistent with authority to which we will shortly refer, that the husband could not have acquired an interest in the business because he made no contribution to the purchase of that asset, but found that the husband had acquired an asset, the unit, notwithstanding he made no contribution to its purchase price (reasons, paragraph 85). We are unable to accept this reasoning. We will explain why this is so by reference to the terms of the agreement.
(c) the evidence to support a finding of acquisition from “joint funds”
The evidence of the wife was that she borrowed the whole of the funds to obtain the business and the property. Although the Federal Magistrate recorded the wife contributed $10,000.00 to the acquisition of the business, in cross-examination the wife conceded the whole of the borrowings for the business and property were advanced from the NAB. It appears the Federal Magistrate overlooked this concession, and this fact gives some weight to the ground asserting the necessity for more thorough scrutiny of the reasons because of the delay from the hearing until delivery of judgment (see NAIS and Others v Minister for Immigration and Multicultural and Indigenous Affairs and Another (2005) 228 CLR 470; Monie v the Commonwealth (2005) 63 NSWLR 729; McCrossen and McCrossen (2006) FLC 93-283; Rollings & Rollings [2009] FamCAFC 87). The evidence discloses that the wife provided no funds from her own monies to “acquire” either the business or property, nor did the husband. However, the wife contributed to the purchase price by the obligations she assumed under the mortgage, and repayments to it made from the business.
It is not in dispute the husband worked in the business with the wife. He received equal “drawings”, and a distribution from the trust. The parties’ joint endeavours generated the profits of the business. It was not suggested there was any source of funds, other than the business, to service repayments on the mortgage obtained to purchase the business, the property and the unit.
How should the terms of the financial agreement be construed?
(a) the context of Financial Agreements in Part VIIIA and its inter-relationship with Part VIII
This was an agreement made ostensibly to oust the jurisdiction of a court under Part VIII to make an adjustment of property under s 79 in the event, as in fact happened, the parties’ marriage broke down irretrievably. In those circumstances we think the definition of property in s 4(1)(a) and the provisions of s 79 of the Act and the authorities relevant to those sections assume some importance.
Section 4(1)(a) defines “property” as follows:
(a) in relation to the parties to a marriage or either of them—means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion …
The term “property” has been afforded a very wide meaning (see Duff v Duff (1977) 15 ALR 476; Kennon v Spry (2008) 251 ALR 257; (2008) 83 ALJR 145).
Section 79(4) of the Act mandates that a court determining a claim for property adjustment must have regard to the parties’ financial and non-financial contributions to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them. Clauses 6(c) and (d) of the agreement do not include the words “contribution to” assets, nor do they encompass financial contributions to the improvement or conservation of property. Thus, should it be assumed the parties, and the drafter of the agreement, intended to limit the operation of clause 6 to acquisition of an asset by a party or either of them from either joint funds or from “their own moneys”, rather than to the conservation or improvement of such assets? Did the parties and the drafter intend a restrictive interpretation of the words “acquisition”, “joint funds” and “from their own monies”? We turn first to the case law on this topic.
(b) the general law in respect of acquisition and contributions to purchase price
From our perusal of the transcript it is clear that neither party’s legal representative at trial in their submissions referred to relevant authorities dealing with the question of acquisition of property, as distinct from contributions to the purchase price of a property by way of loan repayments, or equitable principles, including those relevant to resulting or constructive trusts. Other than a brief reference by the wife’s solicitor to Baumgartner v Baumgartner (1987) 164 CLR 137, we were not referred to any authorities on this topic. Nor were we referred to any authorities on the interpretation of terms of a contract.
In Calverley v Green (1984) 155 CLR 242 the High Court, in dealing with a case between parties who had lived in a de facto relationship, and who had purchased home held in joint names, discussed whether borrowings obtained to complete the purchase were funds used to acquire the home. The male partner had provided some funds from the sale of a former property owned solely by him, and the parties had jointly borrowed funds to complete the purchase. It was not in dispute that mortgage payments were made solely by the male partner. He asserted the female partner held her interest in the property on resulting trust for him. Mason and Brennan JJ (as they then were), at 257, posed for themselves the question – was the female partner a contributor to the purchase price of the property? Mason and Brennan JJ explained that the property was not acquired by the payment of mortgage instalments; rather the partners had made a contribution to the securing of the release of the charge created over the property purchased.
Given the importance of their Honour’s determination of this issue we now set out the relevant passage from Calverley v Green (at 257-258):
… The defendant’s payment of the instalments due under the memorandum of mortgage, in accordance with the arrangement made between the parties, may be thought to be, or to be the equivalent of, the provision pro tanto of the purchase price of the property. After all, the only moneys which were actually paid out of what the parties had owned before settlement of the contract for the purchase of the Baulkham Hills property or out of what they had earned thereafter had come out of the defendant’s pocket. The property was purchased on the basis that the purchasers should pay it off over twenty years, a basis familiar to many home buyers. It is understandable but erroneous to regard the payment of mortgage instalments as payment of the purchase price of a home. The purchase price is what is paid in order to acquire the property; the mortgage instalments are paid to the lender from whom the money to pay some or all of the purchase price is borrowed. In this case, the price was $27,250, of which $18,000 was borrowed from the mortgagee by the plaintiff and defendant jointly. The balance was paid by the defendant out of his own funds, being part of the proceeds of the sale of the Mount Pritchard property. Thus the plaintiff and defendant both contributed to the purchase price of the Baulkham Hills property. They mortgaged that property to secure the performance of their joint and several obligation to repay principal and to pay interest. The payment of instalments under the mortgage was not a payment of the purchase price but a payment towards securing the release of the charge which the parties created over the property purchased. We would agree with the view expressed by the English Court of Appeal in Crisp v. Mullings, a case in which the material facts are not distinguishable from the present:
‘The situation, in our view, is that the defendant does not establish that he alone provided the purchase-price, any more than he would have, had the whole price been provided by a joint mortgage; and the resulting trust of the whole is therefore not established.’
As both parties contributed to the purchase price, there could not be a resulting trust in favour of the defendant alone. … (footnote omitted) (our emphasis)
What are the consequences flowing from the High Court’s discussion in Calverley v Green set out above when applied to the facts of this case, and the reasons of the Federal Magistrate?
In reality, both parties sought, as their primary position, that the terms of the agreement should be enforced in their respective favour, thus they relied on s 90KA. The principles of contract law and equitable relief are therefore applicable.
In interpreting actual terms in a contract, the learned authors of Cheshire and Fifoot’s Law of Contract ( 9th edition) explain at 429:
The High Court has repeatedly emphasised that the court approaches the task of ascertaining the meaning of the parties’ expressions objectively. It is not interested in their subjective understanding, but applies the meaning that an objective outsider would attribute to the contract in the circumstances. …
Later, at 429-430 the authors quote from the decision of the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at paragraph 40:
References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purposes and object of the transaction. (footnote omitted)
We also have regard to the contra proferentem rule. This rule, which may be applied where there is ambiguity in the terms of a contract, is resolved against the party seeking protection where that is appropriate.
To consider these principles of contract law it is necessary we examine the construction of the agreement and the parties’ contentions relevant to that construction.
The interpretation of the agreement for which both parties contend requires a very broad interpretation of its terms.
It is appropriate to commence our discussion by reference to the dictionary definition of “acquire”. The Macquarie dictionary defines “acquire” as: “1. to come into possession of; get as one’s own … 2. to gain for oneself through one’s actions or efforts”.
To give practical meaning to clause 6 of the agreement, on the parties’ respective interpretations a number of words are required to be “read into” the agreement. The effect of their submissions is demonstrated by repeating the actual terms of the agreement, and then reproducing the words which they submit should be read into the agreement.
Clause 6 of the agreement provides as follows:
[Ms Kostres] and [Mr Kostres] agree that in the event that the marriage should end that the assets of each of them either alone or jointly shall be dealt with as follows:
….
(c) Any assets of whatsoever kind or nature acquired during the relationship from joint funds shall be divided equally between [Ms Kostres] and [Mr Kostres].
(d) Any assets acquired by either party from their own moneys shall remain the property of that person.
The interpretation for which both parties contend (albeit with differing effect) would require the agreement to be read as follows:
[Ms Kostres] and [Mr Kostres] agree that in the event that the marriage should end that any interest, either legal or equitable, in property held by or on behalf of either of them (including any interest held personally, or in a company, trust or in any other entity) either alone or jointly shall be dealt with as follows:
(c) any financial contribution to the purchase price of any interest, either legal or equitable, in property held by them or on behalf of them (including any interest held personally in a company, on trust or in any other entity on their behalf) made during the relationship from funds derived from their joint endeavours, [or in the case of the wife from jointly held funds] although not necessarily contributed equally, shall be divided equally between [Ms Kostres] and [Mr Kostres];
(d) any financial contribution to the purchase price of any interest, either legal or equitable, in property held personally, or by or on behalf of either party in a company, trust or any other entity by or on behalf of one party exclusively from their own moneys or borrowings shall remain the property of that person. (our emphasis)
We accept that the purpose of Part VIIIA is to permit parties to arrange their own affairs in the manner they choose, to give certainty, and to avoid delay and costly disputes on marriage breakdown.
The legislature intended a financial agreement, if binding, would oust the jurisdiction of the Court to adjust property, financial resources, and other matters the subject of the agreement. The practical effect of Part VIIIA is, (subject to the sections which permit a court in exercise of its discretion to set aside an agreement (s 90K), or to decline to enforce or test the validity, or effectiveness of the agreement (s 90KA)), to remove the provisions made in the agreement from the scrutiny of a court to ensure those provisions are just and equitable.
The principle that words “may generally be supplied, omitted or corrected, in an instrument, when it is clearly necessary to avoid absurdity or inconsistency” is a well recognised principle in the law of contract (see Fitzgerald v Masters (1956) 95 CLR 420 at 426; Westpac Banking Corporation v Tanzone Pty Limited & Ors [2000] NSWCA 25).
While the parties suggest it is appropriate to construe clause 6 by reading into that clause a wider meaning so that the clause is interpreted not only to catch assets purchased by them personally, but also assets purchased in the name of a third party on their behalf, they are not in agreement as to the meaning which should be given to the term “joint funds”, nor it appears do they agree whether the expression “from their own moneys” should, to give intent to their agreement, include the words “or from their sole borrowings”.
Notwithstanding the concessions made, and the difficulties caused by the inconsistent literal interpretation of the word “acquire”, as asserted by the wife in respect of the business, but not the unit, we are not satisfied we can supply or correct the terminology with appropriate certainty to give effect to the parties’ agreement.
We are of the view that, while common law principles of construction undoubtedly apply and can be used to avoid absurdity, the terms of the agreement must accurately reflect the intention of the parties at the time of the making of the agreement, and be unambiguous. In other words, the meaning to be given to expressions used in the agreement must be clear and their meaning certain. We note in this regard the discussion of Mason and Brennan JJ in Calverley v Green of the meaning to be attributed to the word “acquire”. Any term which a reasonable person would imply should be uncontroversial. These requirements are particularly important when the financial agreement is one made, as in this case, in contemplation of marriage, and deals with unidentified property or financial resources which may be acquired or contributed to by parties in the future and subsequently divided between them, or retained by one party, in the event their marriage breaks down irretrievably.
We accept that in determining whether the agreement is valid, enforceable or effective, the general law relating to contracts, as well as principles of equity, are to be applied. That must be done to give effect to the parties’ intentions at the time of the making of the agreement, and in the context of the statute. The legislature has been careful to include strict requirements if a financial agreement is to be binding, including the requirement of independent legal advice. In those circumstances it is clear the legislature envisaged, because of the nature of these agreements and the removal of the Court’s supervisory role, that parties would receive legal advice about the necessity for their intentions to be accurately and clearly reflected in the actual terms of the agreement.
While, for the purpose of construing the agreement a court should, as in the context of a commercial agreement, apply an objective test of a reasonable bystander to the construction of an agreement, it cannot give meaning to an agreement whose terms are so imprecise or ambiguous the parties’ intent cannot be discerned. This is particularly so when regard is had to provisions of Part VIIIA in the overall context of the Act.
The differing arguments of the legal representatives in this case as to how the terms “acquired”, “assets”, “joint funds” and “from their own moneys” should be construed brings into sharp focus the ambiguities in those terms found in the drafting of clause 6 of the agreement.
We think it is particularly relevant that this agreement, which the parties entered into with the intention of dealing with their property and financial resources during their marriage and if it broke down, did not reflect the terms of the section (s 79) which it sought to bypass. Clause 6 does not refer to “contributions”, either financial or non-financial, nor does it, except in clause 6(d), refer to “property” or “financial resources”. These terms are ones which are well known and the subject of a considerable body of case law as to their interpretation.
We are satisfied that the construction each party asserts should be given to the terms of clauses 6(c) and (d) goes beyond that which can be objectively construed or implied to give effect to the parties’ intentions at the time the agreement was made. This is readily apparent from our re-construction of the agreement inserting the words which the parties’ respective legal representatives assert must be read into clause 6 to give efficacy to it. The differing interpretation of the expressions “joint funds” and “from their own moneys” starkly illustrates our concern.
It is clear to us that the terms of the agreement are ineffective, particularly insofar as it is asserted they deal with the right to seek division of the business, the trust and the two units. It follows from that conclusion that the Federal Magistrate’s decision to enforce the terms of the agreement as he did constitutes appealable error.
Should the federal magistrate have dealt with the trust under section 79?
As we earlier noted, before us both parties submitted that the Federal Magistrate was in error in excluding the trust property as an asset dealt with by the agreement.
Given our conclusions about the terms of clause 6 of the agreement it is not necessary we determine this challenge. However, as the Federal Magistrate did not deal with the trust under s 79 we will examine the issue briefly, particularly because of the position adopted by the husband if we found appealable error.
We accept there were procedural and evidentiary problems which did not assist the Federal Magistrate. The consequence of the failure to address this issue has left the wife, who by implication, the Federal Magistrate found did not acquire the trust assets from her own monies, as the controller of the parties’ most valuable asset which, as we have already explained, she can retain for her own use and benefit to the detriment of the husband.
The Federal Magistrate does not in his reasons (paragraphs 51 and 52) refer to the long standing well recognised jurisprudence under the Act where when one party is a trustee of a trust (or able to appoint a new trustee) and can properly distribute the assets of the trust to one of the parties to the marriage or either of them, of treating the trust assets as property for the purposes of s 79, rather than only being able to consider the trust assets as a financial resource.
We think the Federal Magistrate firstly misled himself as to the relevant law to be applied, and secondly erroneously determined he could not deal with the trust assets by reason of the manner in which the single expert valued the business and property by using consolidated financial statements for both entities.
The evidence before us establishes that the wife as trustee could, in her absolute discretion, distribute the whole of the income or capital of the trust to herself or the husband. She had the effective control of the assets of the trust (see Stein & Stein (1986) FLC 91-779; Davidson & Davidson (1991) FLC 92-197; Webster & Webster (1998) FLC 92-832; and Milankov & Milankov (2002) FLC 93-095). Further the trust property could have been considered for the purposes of s 79 of the Act as property of the parties or either of them (see Kennon v Spry). The wife had legal control of the trust assets, and the husband (and/or the wife) as an object of the benefaction of the trust could have received the whole or the income or capital of the trust.
We accept that if the trust deed had been admitted into evidence, and if the trust had been named as a party to the husband’s application, or at least that the other named beneficiaries notified of the orders sought by him, the Federal Magistrate’s concerns about making orders affecting the trust assets under s 79 could well have been overcome.
However, in considering this issue the following matters are relevant:
(i)the wife who is the sole trustee and appointor of the trust was well aware of the orders sought;
(ii)the wife conceded the trust property fell within the agreement, albeit she submitted it was her separate property under clause 6(d) or was property for the purposes of s 79; and
(iii)the relief sought by the husband, if granted, would not have had the effect of extinguishing the whole of the assets of the trust. Thus the interests of the other named beneficiaries could have been taken into account.
In passing we note that, other than the wife’s reference to her son providing a guarantee to the NAB and becoming a joint mortgagor with her in respect of Property M, it is not asserted any other beneficiary other than the husband or wife contributed in any way to the trust assets (see Kennon v Spry, paragraph 65, per French CJ). This trust did not, prima facie, fall within the class of trusts referred to by French CJ in paragraph 69 of Kennon vSpry.
To the extent that it is relevant, given our determination about the agreement, we also find merit in this challenge.
We are comfortably satisfied the Federal Magistrate erred in failing to deal with this valuable interest.
Should the agreement have been enforced to the detriment of the husband?
(a) did the Federal Magistrate err in failing to find the wife’s conduct in enforcing the agreement in respect of the trust constitute unconscionable conduct?
Having found that the terms of clause 6 of the agreement are ineffective to achieve their intended purpose, and that the agreement should not have been enforced as it was by the Federal Magistrate, we turn to consider if he erred in his consideration of whether the agreement was void, voidable or unenforceable, and if so should we re-determine the issue, set it aside, and thereafter remit the issue of adjustment of all the parties’ property for determination under s 79 of the Act. An alternate course, given our findings about clause 6 of the agreement, is that we can conclude that clause of the agreement should be severed, and the balance of the agreement otherwise remain intact. We could then remit for rehearing the determination of the adjustment under s 79 between the parties of their property acquired during the marriage.
In support of this claim, the husband’s counsel relied on the wife’s conduct in purchasing the business in her name, and acquiring the property as an asset of the trust, and the husband’s consent to this course because of the parties’ mistaken belief he could not hold assets in his own name. He further asserted if not so mistaken he would not have permitted the business to be purchased in the wife’s sole name, or the property to be held by the trust, of which she is the sole appointor and trustee, and that it is unconscionable for her in these circumstances to enforce the agreement to the detriment of the husband, and she should be estopped from so doing. In support of his argument he relied on statements of Mason CJ and Deane J in Commonwealth of Australia v Verwayen (1990) 170 CLR 395. He also relied on inadequacy of reasoning by the Federal Magistrate in dealing with this issue.
Before us the husband’s counsel fairly conceded, having regard the wording of s 90K(1)(e) that he could not assert any unconscionable conduct at the time the agreement was made. Rather, relying on s 90KA, and the principles espoused in Verwayen, and in particular the reference to estoppel by conduct discussed by Mason CJ at 409 and Deane J at 444 to 445, he submitted that the Federal Magistrate was in error in enforcing the agreement.
The Federal Magistrate considered and rejected as appropriate, the setting aside the agreement pursuant to s 90K(1)(c) and s 90K(1)(e). We do not intend, given the effective abandonment of the grounds challenging his Honour’s treatment of those two subsections, to consider them.
(b) discussion
Section 90K(1)(b) is in identical terms to s 87(8)(c), namely that agreement may be set aside on the basis it is void, voidable or unenforceable. The EM refers to unconscionable conduct having relevance under this sub-section when the “agreement is obtained”. The EM also makes it clear that the provision should be construed by a court as s 87(8)(c) has been construed. The only authority we have been able locate relevant to the construction of s 87(8)(c) is the decision of the Full Court in Blackman & Blackman (1998) FLC 92-791.
The Full Court (Ellis, Lindenmayer and Gun JJ) considered that s 87(8)(c) required a court to construe the phrase “void” and “voidable” in the same manner as those terms would be construed in the ordinary law of contract. Later, their Honours considered the meaning of unenforceable in the context of s 89(8)(c) and determined, as they had not had the benefit of argument, they would not wish to authoritatively determine the issue.
We are satisfied from the concessions made by the husband’s counsel, and the husband’s own evidence about his willingness to enter into the agreement, that there was no unconscionable conduct by the wife at the time of the making of the agreement which, for that reason, would render it void ab initio, or requiring it should be set aside.
In Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 those justices of the High Court who determined the issue of the enforceability of a bank guarantee on the basis of unconscionable conduct (the plaintiffs by reason of the lack of English and representations made by a bank representative were in a position of special disadvantage) referred to unconscionable conduct at the time of entering into the agreement. Our researches disclose that the question of unconscionable conduct is generally directed to conduct referable to the formation of the agreement itself. This is consistent with the EM.
In Blackman the Full Court referred to the construction given to “unenforceable” by Fogarty J in Drew & Drew (1985) FLC 91-601. His Honour determined that the parties’ resumption of cohabitation, and the acquisition of other assets after the approval of a Maintenance Agreement under s 87 constituted an implied revocation of the agreement. As a consequence he found the approval of the agreement could be set aside. The decision therefore lacks direct relevance to this case.
The unconscionable conduct sought to be relied on in this case is not conduct associated with the making of the agreement itself, nor implied revocation of it. Mutual mistake as a remedy was specifically rejected by the husband as part of his case. Nor does he specifically seek to impugn the validity of the contract to purchase the business or the property on the basis that the wife’s conduct in entering into those agreements was unconscionable. At the time of the making of those contracts both the husband and wife mistakenly thought the husband had no capacity to hold any property because of his bankrupt status. In short, it is not submitted the agreement, or the contracts are void, or voidable.
The husband does not suggest either party has sought to repudiate the terms of the agreement. Both parties sought to enforce the terms in their favour. He relies on the doctrine of estoppel by conduct as the basis to set aside the agreement.
The relief to be granted under s 90K(1) is discretionary. It was not suggested by either party that any of the provisions of the agreement are incapable of enforcement.
The circumstances on which the husband relied do not support a finding of any unconscionable conduct by the wife in the making of the agreement, or the purchase of the business, property or unit. We agree with the Federal Magistrate that the husband, as much as the wife, was responsible for not making proper enquiries about the status of his bankruptcy.
This leads us to consider whether the appropriate remedy would be to sever clause 6 of the agreement. Given our determination about the ambiguity of the terms used in this clause, as some of those terms appear elsewhere in the agreement, we conclude this remedy is not an appropriate one. In our view the ambiguities lead to the conclusion that the whole agreement is void for uncertainty and it should be set aside. Thus the appeal must be allowed and the cross-appeal dismissed. The effect of our conclusion is that the adjustment of the parties’ property will be determined under s 79 of the Act.
We are satisfied in these circumstances that it is not necessary we determine if the term “unenforceable” in s 90K(1)(b), as a ground to set aside the agreement, can encompass, if established, estoppel by conduct after the agreement is made.
The remaining grounds of appeal
Having found appealable error by the Federal Magistrate in respect of the enforcement of the agreement, it is unnecessary we discuss grounds 5, 6 and 7 which the husband’s counsel acknowledged were “fall back” grounds. Nor is it necessary we consider as a separate ground the question of delay, or lack of adequate reasons.
We have already noted the submission that the Federal Magistrate failed to consider the status of the wife’s loan account in the trust. The issue of the loan account was raised by the husband’s counsel in his closing submissions at the hearing. There was simply no explanation of how the credit loan account came into existence. The expert report is not particularly helpful on this issue – the consolidated accounts simply record as a liability a loan owed to the wife of $119,175.00. Note 2 of Schedule 2 of the expert report states: “[t]he loan of $119,175 owed to [the wife] as shown above should also be taken up as an asset of [the wife]”. Without the individual financial statements of both the trust and the business it is impossible to know the correct status of the wife’s loan account. In those circumstances we detect no error by the Federal Magistrate in failing to make an order that the wife pay the husband one half of her credit loan account, nor could we, on the existing evidence, deal with it.
Can we re-determine the matter and make the orders the federal magistrate should have made?
It is clear to us that we cannot make the orders sought at the end of the appeal by the husband. First, as the wife’s solicitor indicated on the re-opening there is now a dispute about the present value of the business and the property. The resolution of that dispute will necessarily involve some further delay, and may require specific directions to obtain appropriate expert evidence. Second, we are satisfied to do justice and equity to both parties the issue of the wife’s loan account requires further evidence. That too requires proper expert evidence. Further, careful consideration needs to be addressed to the form of orders to be made, particularly in respect of the trust. Crucially however, the Federal Magistrate did not exhaustively examine the parties’ contributions to all the property in dispute, and because of the manner in which he determined the issues before him, he gave no consideration at all to relevant matters under s 75(2) or the making of orders which were just and equitable. In these circumstances, we are satisfied the matter must be remitted to the Federal Magistrates Court for the necessary determination under s 79.
Conclusion
This case throws into sharp focus the particular care needed to be exercised by parties entering into a financial agreement under Part VIIIA (and the significant responsibilities on the legal practitioners drafting and advising on the agreement) if the agreement is to be binding and enforceable in the event their marriage, for any reason, breaks down.
The principles applicable to the adjustment of property interests under s 79 have been carefully developed over many years. The section contemplates contributions, both financial and non financial, not only to acquisition of property but to its improvement and conservation (as well as contributions to the welfare of the family) and other matters (s 79(4)(d), (e), (f) and (g)). It is well established when determining an adjustment of property which is just and equitable the Court gives the expression “property” the widest interpretation, and adjustment can be made between parties regardless of the title of property. A court’s power to adjust property under s 79 is exercised using well defined guidelines to ensure the resulting order is just and equitable, and any order made may be subject of the safeguard of appellate review. That is not the case with property dealt with under a financial agreement. Thus care in establishing the mutual intention of the parties, and drafting the terms of the financial agreement with precision assume the utmost importance.
As this case unfortunately demonstrates agreements designed to avoid costly litigation can have expensive consequences if the intention of the parties is not readily discernable from the drafting of the agreement. This is particularly so given the recent amendments to the Act by the Federal Justice System Amendment (Efficiency Measures) Act 2009 (Cth), which Act received Royal Assent on 7 December 2009. The amendments were designed to overcome the effect of the Full Court’s decision in Black & Black (2008) FLC 93-357 where the Court applied a strict compliance test with relation to certain technical requirements for binding financial agreements made under the Act. One of effects of the amending Act is to provide additional protection for parties who enter into financial and termination agreements by enabling a court to declare, in enforcement proceedings, that an agreement is binding despite a failure to meet the procedural requirements relating to the making of the agreement if the court is satisfied that it would be unjust and inequitable if the agreement did not bind the spouse parties (disregarding any change in circumstances from the time the agreement was made). This makes it even more essential that the substantive clauses of such agreements are drafted with precision to ensure effectiveness, especially as they may be dealing with future acquired property or other interests in property.
Costs appeal
At the conclusion of the appeal we were informed by the parties’ legal representatives that there was an appeal against costs orders made by Federal Magistrate Wilson arising out of the proceedings. As one of the members of this Full Court will retire on 18 December 2009 the costs appeal will, if still pursued by the husband, be determined after the filing of written submissions by a differently constituted Full Court.
Costs of the appeal
Before us the parties each sought, in the event the appeal was allowed by reason of error of law by the Federal Magistrate that they should receive costs certificates pursuant to the relevant provisions of the Federal Proceedings (Costs) Act 1981 (Cth). As we are satisfied error of law has been established, and that each party should bear their own costs under s 117, we propose to grant such certificates.
I certify that the preceding one hundred and sixty-seven (167) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court.
Associate:
Date: 15 December 2009
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