Rendon and West and Ors

The case of *Rendon and West* concerned a dispute between the applicant and the first respondent regarding the enforcement of a consent order and an application to vary that order. The primary dispute revolved around the scope of an indemnity clause within the consent order, specifically whether it extended to capital gains tax or only income tax, and a subsequent claim for a share of substantial "break costs" incurred on the early repayment of Bank Bills. The matter came before Judge A Kelly in the Federal Circuit and Family Court of Australia.

The court was required to determine two principal legal issues. Firstly, it had to construe the terms of the consent order and the underlying settlement agreement to ascertain the applicant's obligation to indemnify the first respondent for income tax liabilities, and whether this indemnity extended to capital gains tax. Secondly, the court considered an application under s 79A of the *Family Law Act 1975* (Cth) to vary the consent order, specifically whether the parties' mutual ignorance of significant break costs associated with the early repayment of Bank Bills constituted "any other circumstances" that would render it just and equitable to make a new order, and whether this ignorance amounted to a misrepresentation or a mutual mistake.

In relation to the indemnity, the court found that the terms of settlement, which were drafted by the first respondent's lawyer, obliged the applicant to indemnify the first respondent for income tax assessed upon her participation in business partnerships, but not for capital gains tax. The court determined that the measure of indemnity extended to the average marginal rates of tax assessed on income alone, excluding capital gains tax, and gave the applicant credit for pre-payments of PAYG tax. Regarding the s 79A application, the court held that the parties' discovery of substantial break costs shortly before settlement, which they were unaware of when the consent order was made, constituted circumstances that rendered it just and equitable to vary the order. The court reasoned that this ignorance of break costs, which would have altered the quantum of the net asset pool, amounted to a mutual mistake, and that relief under s 79A was available as machinery or consequential relief, rather than altering substantive rights.

The court ordered that the applicant indemnify the first respondent in the sum of $27,349 for her liability to income tax for the financial year ended 30 June 2016. Furthermore, pursuant to s 79A of the *Family Law Act 1975* (Cth), the consent order of 10 February 2016 was varied to include an order for the first respondent to pay the applicant $28,242, representing 25% of the break costs, and that this sum be set-off against any future indemnity owed by the applicant to the first respondent. The court also ordered that no interest was payable on these amounts and directed the parties to file submissions on costs.