Otero and Otero
[2010] FMCAfam 1022
•31 August 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| OTERO & OTERO | [2010] FMCAfam 1022 |
| FAMILY LAW – Binding Financial Agreement – was there a failure to disclose material facts – unconscionable conduct – severance of part of the Agreement – Application to set aside dismissed. |
| Family Law Act 1975, ss.90C, 90K(1)(a), (b) and (e) Federal Magistrates Court Rules2001 |
| Green & Kwiatek (1982) FLC 91-259 Derry v Peek (1889) 14 AC 337 |
| Applicant: | MS OTERO |
| Respondent: | MR OTERO |
| File Number: | MLC 4769 of 2009 |
| Judgment of: | Hartnett FM |
| Hearing dates: | 2 & 3 June 2010 |
| Delivered at: | Melbourne |
| Delivered on: | 31 August 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr Williams |
| Solicitors for the Applicant: | Glenys Dolphin Solicitor |
| Counsel for the Respondent: | Mr North SC Dr Ingleby |
| Solicitors for the Respondent: | Richard Calley Family Lawyers |
ORDERS
Clause 10 of the financial agreement dated 23 October 2007 entered into between the parties is void and Recital T and that part of Recital
P and Q which refer to spousal maintenance is void and each of the said Clause and Recitals or part thereof is severed from the financial agreement such that no binding provision is made with respect to spousal maintenance for either party.
Otherwise the application of the wife to set aside the financial agreement is dismissed.
Any claim for costs by the husband and wife shall be determined at the conclusion of the proceedings.
Pursuant to rule 21.15 of the Federal Magistrates Court Rules2001, the Court certifies that it was reasonable for the parties to employ Counsel including Senior Counsel.
The extant proceedings as to spousal maintenance are adjourned to a conciliation conference with a Registrar of the Federal Magistrates Court of Australia at the Melbourne Registry on 21 October 2010 at 11:00am.
IT IS NOTED that publication of this judgment under the pseudonym Otero & Otero is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLC 4769 of 2009
| MS OTERO |
Applicant
And
| MR OTERO |
Respondent
REASONS FOR JUDGMENT
By amended application filed 30 April 2010 the wife sought, amongst other orders, that pursuant to section 90K of the Family Law Act 1975 (“the Act”) the Binding Financial Agreement dated 23 October 2007 (“the Agreement”) be set aside. At the hearing the wife relied in particular on s.90K(1)(a), (b) and (e). The husband sought dismissal of that application. Each party seeks a costs order.
The wife was born [in] 1953. She is aged 56. The husband was born [in] 1957. He is aged 52. The wife is a [occupation omitted], the husband a company director. The parties married [in] 1982 and separated in March 2007 under the one roof before physical separation in July 2007 consequent upon the husband purchasing and moving into a home in [suburb omitted]. The wife remained in the former matrimonial home at [G] until its sale. Their marriage was approximately twenty-four and a half years in duration. There is one adult child of the marriage and a child of the wife’s from a previous relationship who is also an adult.
The husband is a company director of [M] (“the Company”). The wife was a director of the Company and company secretary from 30 December 1987 until 7 November 2007 when she ceased to be so consequent upon the execution of the Agreement.
A single expert witness report was filed in the proceedings sworn by Mr R, Chartered Accountant. He prepared a valuation report of the Company dated 8 April 2010. The wife sought to rely on this evidence.
The Company business was established in 1983 by the husband and his brother Mr O. The Company is a [business omitted]. Products are distributed through a network of agents across rural and metropolitan Australia. The husband, his brother and his brother’s wife Ms G are currently directors and shareholders of the Company along with [D] Nominees which holds 4000 ordinary shares. Mr R valued the husband’s 50% shareholding in the Company as being:
at 30 June 2007 – $1,047,500 (the wife in fact at this time had not transferred her shareholding to the husband)
at 30 June 2009 – $1,119,500
At the time of negotiation in relation to and preparation of the Agreement, and at the time of its subsequent execution by the parties, neither the husband nor wife nor their solicitors (who provided each of the husband and wife with independent legal advice) obtained a valuation of the husband and wife’s shareholding in the Company business and nor did the husband and wife in fact ascribe any value to it. No production of profit and loss statements, taxation returns or bank statements of the Company were produced by either party for the examination of the other.
The Agreement was tendered in evidence marked exhibit “JON1”. Also tendered in evidence was correspondence from De Marco Lawyers for the wife to Morehead Lawyers for the husband dated
5 October 2007 wherein amendments to the Agreement were proposed by the wife to be included prior to execution of the Agreement by the parties. It is accepted by both parties that correspondence emanated from each of their solicitors to the other including amendment proposals in respect of the Agreement.
The Agreement may be set aside on one of five grounds set out in section 90K(1) of the Act. If one of those grounds is established the Court will then make a discretionary determination as to whether to set the Agreement aside or not. Determination of the issues in these proceedings is by reference to the balance of probabilities standard of proof.
Section 90K(1) of the Act is as follows:
(1)A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
(a) the agreement was obtained by fraud (including non‑disclosure of a material matter); or
(aa) a party to the agreement entered into the agreement:
(i)for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii)with reckless disregard of the interests of a creditor or creditors of the party; or
(ab) a party (the agreement party) to the agreement entered into the agreement:
(i)for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or
(ii)for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM, or a declaration under section 90SL, in relation to the de facto relationship; or
(iii)with reckless disregard of those interests of that other person; or
(b) the agreement is void, voidable or unenforceable; or
(c) in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or
(d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or
(e) in respect of the making of a financial agreement – a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or
(f) a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or
(g) the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB.
The Agreement was entered into between the parties in October 2007. The wife filed proceedings seeking to set it aside in September 2009, her complaints as set out in her affidavit material arising well after the time in which the Agreement was carried out. No plausible explanation for the delay was provided by her to the Court.
The applicant argued that the Court should be satisfied that the Agreement was obtained by fraud in circumstances where the definition of fraud in section 90K(1)(a) includes “non-disclosure of a material matter”. In this context and in Green & Kwiatek (1982) FLC 91-259 the Full Court of the Family Court adopted the classic common law definition of Lord Herschell LC in Derry v Peek (1889) 14 AC 337 (at p 374):
“Fraud in this context consists of a false statement of fact which is made by one party to a transaction to the other knowingly, or without belief in its truth, or recklessly, without caring whether it be true or false, with the intent that it should be acted upon by the other party and which was in fact so acted upon.”
The Agreement provided for the husband and wife to each receive one half of the net proceeds of sale of the former matrimonial home which was sold for $495,000 (but valued in the Agreement at approximately $580,000). In addition the wife received one half of the parties [M] Superfund No.1 (of which the parties were trustees) shares and other equities which had a total value of $549,500.58 plus a further $50,000 to be paid to a superannuation fund in her sole name by the husband over a further five year period, and the totality of the parties equity in a real property situate at [P] Queensland being property held in their superannuation fund with a value of $250,000 and with such property being transferred to a superannuation fund in the name of the wife. The wife thus received a sum of $125,000 more than a 50-50% apportionment of those assets dealt with by the Agreement together with a payment of $50,000 by the husband into a superannuation fund in the wife’s name over a period of five years. This additional allocation of funds was said to represent her shareholding in the Company which pursuant to the Agreement was to be transferred to the husband. Importantly neither party chose to obtain a valuation of that shareholding nor did they agree as to any value. Each of the parties retained their respective motor vehicles and generally the furniture in their possession.
The Agreement contained a number of “Recitals” and in particular the following:
I.At the date of this agreement the following are the assets and financial resources of the parties:
a.The property known as [address omitted] in [G] in the State of Victoria (herein referred to as “the [G] property”) registered in the name of both parties and valued at approximately $580,000.00;
b.The property held by the [M] Superfund No 1 the trustees of which are the parties hereto and which fund holds shares and other equities to the value of $549,500.58 and one parcel of real estate known as [address omitted] in [P], Cairns in Queensland (herein referred to as “the Cairns property”) valued at $250,000.00;
c.The business known as “[M]” carried on by [Mr Otero] and his brother (the parties have not been able to agree on a value);
d.Furniture and household goods owned jointly and valued at $20,000.00;
e.Motor vehicles of equal value in their respective possession;
f.Their respective provisions for taxation, business accounts and credit facilities.
J.The parties have spent considerable time negotiating a settlement between them since their separation including attending counselling and solicitor assisted mediation and each party agrees that the other has fully disclosed the financial position to the other party.
K.The parties have made their own inquiries regarding the financial position of the other. They also rely upon their previous knowledge of the financial affairs of each other.
L.The parties accept the value of the assets and financial resources referred to in recital I above.
and
R.The parties acknowledge that this agreement has been negotiated directly between them and through their independent legal practitioners. Each party has been advised about the meaning and effect of the terms of this agreement and about their rights and entitlements under Part VII, VIIA and VIIIB of the Family Law Act 1975 if this agreement was not entered into. Each party has been absolutely free to accept or reject the terms of this agreement without coercion or fear. Neither party has sought to advise, guide, direct, control or pressure the other into accepting the terms of this agreement nor sought that the other rely upon his or her trust or confidence. They each understand and consented to all the terms of this agreement and believe them to be fair, just, reasonable and not unconscionable.
S.Before each party signed this agreement, they received a separate independent legal advice from a legal practitioner (as certified in the certificates annexed to this agreement as schedules A and B) as to the following: the effect of this agreement on the parties rights; whether or not, at the time the advice was provided, it was to the advantage, financially or otherwise, of that party to make this agreement.
T.The parties each acknowledge that at the date of signing this agreement: that each is able to support themselves without an income tested pension, allowance or benefit; they do not expect either of them will (ever/or for at least five years) be eligible for or need to rely on an income tested pension, allowance or benefit; they have read and considered the matters set out in section 75(2) of the Family Law Act and believe this agreement gives those matters appropriate weight; and, this agreement makes adequate provision for the maintenance of both parties.
Further the Agreement contained clauses 10 and 15 as follows:
10. In consideration of the financial provision for [Mr Otero] and
[Ms Otero] pursuant to the terms of this agreement, [Mr Otero] and [Ms Otero] waive and relinquish for all time any right or entitlement that they have to seek maintenance for themselves pursuant to the Family Law Act 1975 or any act of like nature repealing or amending the Act.…
15. If any part of this agreement shall be held to be invalid, void, unenforceable or illegal by a court of competent jurisdiction, the agreement will be read as if that part of the agreement was omitted and the rest remains in full force and effect.
It is clear that Clause 10 and the Recitals in the Agreement which refer to the provision of spousal maintenance do not satisfy the legislative requirements as set out in the Act and all such spousal maintenance references are void and to be severed from the Agreement. The severance of that part of the Agreement does not however render the totality of the Agreement one which should be set aside. Rather Clause 15 is operative and the balance of the Agreement remains in full force and effect and has been carried out. Indeed was carried out some considerable time ago.
The wife’s evidence was that the parties could not agree as to how to settle the business between them. She claimed the husband said to her:
“The Company is really not worth anything because it’s going down and not moving forward”
and that
“The Company is only worth the stock and money in the bank”
Further that the husband said to the wife her share of the business was $300,000 being a quarter of the stock and money in the bank. The wife gave as her reason for accepting what the husband proposed, his proposal being a payment to her of a lesser sum than what she claimed he indicated was her interest in the Company business, that she thought he must be right as to the valuation of the Company business and that she “wanted it over and done with”. She however asserts that if she had been made aware of the value of the assets of the Company she would not have entered into the Agreement. Of course it was open to the wife and subsequently the wife and her solicitor to obtain a valuation of the husband and wife’s shareholding in the Company at any time. The wife acknowledges that she had access to all financial records and any documents required for the purposes of obtaining a valuation. She determined not to obtain one nor request any documentation from the husband or other directors and shareholders as to the company operations despite the husband suggesting to her that she obtain information from the director most involved with the bookkeeping of the company and the company accountant.
The wife’s evidence was further that whilst she was a director of the Company from 1987 to 2007 she had nothing to do with the day-to-day running of the business. She did not attend company meetings or participate in any decision making. Although she had access to the financial records of the Company she claimed to not have the computer skills necessary to enable her to access such material. Each of the husband and wife agreed however that their sister-in-law (Ms G) did all the bookwork for the Company and that she was always available to the directors equally to assist in any enquiry they may have had. Likewise it is not disputed that the Company accountant was available to be consulted by either the husband or wife throughout the entire period of the wife’s involvement with the Company including in the negotiation period leading up to the signing of the Agreement.
The wife’s evidence was further that when she asked the husband what the goodwill of the Company was he replied:
“You know as well as I do it is worth nothing because it is going downwards”
When the wife suggested the parties value the company she alleges the husband said:
“It will cost you more then what the company is worth to get it valued”
The wife did not proceed.
The husband’s evidence was that the Agreement was a fair and equitable distribution of the matrimonial assets being an equal division on the matrimonial home and the stocks and cash in the self-managed superannuation fund. The wife’s receipt into her superannuation fund of the totality of the unencumbered property in Cairns together with the such of $50,000 over five years was to compensate her for any value in the business retained by the husband “over and above the continuing personal work of my brother and I” the husband deposed. What exactly that value was remained unknown.
The husband responded to the wife’s allegations by noting that at the time of entering into the Agreement the wife was a director and company secretary who was authorized to sign business cheques and withdraw monies without any other signatories. Further that she had, in that role, access to all business financial records and all superannuation records. He conceded that at the time of entering into the Agreement there was an offshore company structure for the business which had approximately US $30,000 – 40,000 in a Hong Kong bank account. These funds related to the operation of [M] (Hong Kong) Pty Ltd. This company was wound up in 2009. The Agreement made no mention of this Company and Mr R (chartered accountant) placed no value on the Hong Kong operations of the business when he completed his valuation. The wife’s evidence was that the husband advised her at the relevant time that “there was nothing much” in the Hong Kong bank account and not a sum worth worrying about. That was in effect conceded by the husband because he had determined the sum made little difference to the value of the parties shareholding and would be applied to business operations.
The husband’s evidence, which I accept, is that he placed no value upon the parties company shareholding in discussions with the wife and that he told her to consult with the other directors. He did not, nor did he seek to, withhold financial documents from the wife but nor did he provide documents which were not requested by the wife and/or her solicitors. He did indicate to the wife that he thought the Company profits were going down but did not express an opinion as to its value nor say anything upon which the wife acted to determine her entitlements. The wife did not challenge the husband’s evidence as contained in his affidavit sworn 31 May 2010 as follows:
32. At no stage prior to or during our negotiations or in the lead up to the execution of the Agreement did the Applicant ever suggest or request that we have our companies valued. At no stage did she ever request any company documentation from me during the four weeks of our direct negotiations or from my solicitor during the six weeks that our solicitors were involved.
33. At all material times she remained the secretary and director of the company and had open access to all information and documentation that she wanted to. As Director and Company Secretary she also had unfettered access to the company accountant should she wish to clarify any matter with him.
In accepting this evidence I reject that of the wife’s to the effect that she did not sight these documents. She was unconvincing in her giving of evidence in this regard.
Further, I accept the husband’s evidence as set out in paragraph 35 of his affidavit as follows:
35. Just prior to us executing the Agreement the Applicant came into my office where I had a copy of the draft company tax return on my desk for the 2006-2007 financial year for [M]. She asked if she could have a look at the draft documents and I said “go for your life”. She picked them up while I was sitting there and read through them. She made no comment about the financials and subsequently left.
The Agreement was entered into between the parties pursuant to section 90C of the Act. This followed two and half months of negotiation both direct and for six weeks, solicitor-based. The parties had already equally divided the sum of $280,000 held in a joint account with the National Australia Bank. The settlement proposal put by the husband in the first instance which he declared was to be his final offer was the manner in which the parties divided their assets pursuant to the Agreement. The husband’s offer did not relate, and was not expressed to relate to any percentage division of the parties assets as provided for in the Agreement. It was acknowledged by both that ?? of their assets were not covered by the Agreement and nor were they required to be. The wife had sought $500,000 for her interest in the family business and the husband had refused same stating that the wife could have the business for an equivalent payment to him. Approximately one week later the wife accepted the husband’s offer saying she “just wanted it all over and she wanted to get on with her life”. She had in that intervening week spoken with the husband’s brother and his wife the later who was the director responsible for the day-to-day administration of the Company. The wife consulted a solicitor in August 2007 and in or around early September 2007 so too did the husband. The instructions provided by both parties to their respective solicitors were for the preparation and drafting of a financial agreement. Each of the solicitors communicated with the other making amendments to the Agreement before it was ready for execution. The applicant executed the Agreement on 23 October 2007 and the husband executed the Agreement the following day. The necessary Certificates of Independent Legal Advice were annexed to the Agreement for both the wife and husband. Prior to the Agreement being signed the husband had purchased real property in which to reside and with the knowledge and consent of the wife he withdrew monies from the parties joint account to pay the deposit and to assist with settlement funds. Those funds totalling $118,000 were refunded to the wife (as previously agreed) from the sale proceeds of the former matrimonial home and provision for this was included in the Agreement.
The husband admits that in August and September 2007 he made inappropriate telephone calls to the wife in that he was aggressive and hostile in manner. He regrets comments made by him at the time. The wife was represented by a solicitor for six weeks before signing the Agreement. During this time she did not seek any orders against the husband nor instruct her solicitors to write to the husband’s solicitors about any behaviour of the husband. Although unpleasant and inappropriate such behaviour of the husband did not compel the wife to sign the Agreement some weeks later or at all. Her reason was very clearly that provided by her and set out in paragraph 21 of these reasons.
The wife’s case is that the husband failed to disclose to her records of the company and failed to obtain a valuation. This is at a time when she is the secretary and a director of the company and when she does not request a document from the husband or allege that he has withheld information. Neither the husband nor wife were obliged to express an opinion as to the company’s value one to the other. Each had an opportunity to inquire after the books and records to obtain any valuation. Neither chose to do so. Their legal advisers seem also to have determined that the information they had was sufficient to justify the entering into of a binding financial agreement by each of their clients. There was no non-disclosure of documents sought and Recital J noted that “each party agrees that the other has fully disclosed the financial position to the other party” and further Recital K noted that “the parties made their own enquiries regarding the financial position of the other.”
I am satisfied that nothing said by the husband to the wife induced her to enter into the Agreement. Nor did anything said by the husband amount to a non-disclosure of a material matter. The husband I am satisfied did not place any value upon the Company in discussions with the wife. He did say that the Company was not doing very well at a point in time (when it was in fact increasing its annual profit) but he indicated very clearly to the wife that he had no idea as to its value and that she was at liberty to ascertain that herself and to speak with the other directors and company accountant. The Agreement itself recites that the parties, at the time of signing, were unable to agree as to the value of the Company business. The sworn evidence of the parties and the Recital itself lead me to conclude that the wife wished to move on with her life and settle property matters with the husband even if that meant accepting his only offer which she believed at the time to be not particularly financially advantageous to her. She obtained independent legal advice and was not prepared to further investigate the value of the husband and wife’s company shareholding. Specifically she did not rely on anything said to her by the husband to determine in her mind questions of valuation. Rather it seemed a pragmatic decision she made at the time. Subsequently in 2008 the wife resumed working for the Company.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Hartnett FM
Associate:
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