Searle and Anor and Moreland

[2015] FamCA 981

FAMILY COURT OF AUSTRALIA

SEARLE AND ANOR & MORELAND [2015] FamCA 981

FAMILY LAW – PROPERTY – Where the husband and the wife had a property settlement order made by consent without referring to a debt the husband owed which was in excess of $4 million – Where the husband’s trustees in bankruptcy negotiated with the wife to set aside the property settlement order -Where the trustees signed consent orders prepared by the wife but the wife then did not sign them nor file any application to the court to have the new orders made – Whether the wife and the husband’s trustees entered into a contract to set the orders aside and if so whether damages are payable by the wife for beaching that contract – Where the agreement contained a contingent condition upon which the formation of the contract depended, namely the making of the orders by the court – Where because that condition was not fulfilled there is no contract – Alternatively if there was a contract which the wife breached that contract contained a contingent condition that the court make the orders agreed to and the trustee has not established that consent orders would have been made by the court – Where the trustees’ application for a declaration that there was a binding agreement between the wife and the trustees and their claim for damages against the wife is dismissed – Where the trustees have an alternate remedy

Family Law Act 1975 (Cth)

Family Law Rules 2004 (Cth)

Cahill v Carbolic Smoke Ball Co (1839) 1QB 256
Chemaisse & Chemaisse & The Commissioner of Taxation of the Commonwealth of Australia (1988) FLC 91-915
Chemaisse & The Commission of Taxation & Ors (1990) FLC 92-133
Harris & Caladine [1991] 172 CLR 84
Masters v Cameron (1954) 91 CLR 353
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 All ER 456 affirmed [1953] 1 All ER 482
Sykes and Sykes (1979) FLC 90-652

APPLICANTS: Mr Searle and Mr Lette as Trustees of the bankrupt estate of Mr Moreland

RESPONDENT: Ms Moreland

FILE NUMBER: SYC 2322 of 2014

DATE DELIVERED: 6 November 2015

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 18 May 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Golledge

SOLICITOR FOR THE APPLICANT: Addison Lawyers

COUNSEL FOR THE RESPONDENT: Mr Eardley

SOLICITOR FOR THE RESPONDENT: Mercantile Legal Services

Orders

1. The Application in a Case filed 9 February 2015 is dismissed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Searle and Anor & Moreland has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 2322 of 2014

Mr Searle and Mr Lette as trustees of the bankrupt estate of Mr Moreland

Applicants

And

Ms Moreland

Respondent

REASONS FOR JUDGMENT

1. This is a discrete hearing about whether there is a binding contract between the wife and the husband’s trustees in bankruptcy to set aside a property settlement order between the husband and wife and, if there is, what damages the wife should pay the trustees for breaching that contract.

2. The husband and wife commenced to live together in 1984 and married in 1986. The husband and wife separated in August 2008.

3. In February 2009 the husband entered into a loan agreement which required him to repay an amount in excess of $4 million by April 2011. He did not do so and in May 2011 the creditor filed a statement of claim which was served upon the husband on 2 June 2011.

4. On 3 June 2011 the husband consulted a lawyer regarding an application for a property settlement order between himself and the wife pursuant to s 79 of the Family Law Act 1965 (Cth) (“the Act”). On 6 June 2011 an application for a property settlement order was signed by both the husband and wife and the court made that order on 28 June 2011 (“the June 2011 order”).

5. The application for the June 2011 order asserted that the husband’s net worth was in the sum of $4,960,000 and that the wife’s net worth was a negative $3,000. The major assets held by the husband were two pieces of real estate which the husband and wife asserted had a net worth of about $4.4 million. The other major asset held by the husband were shares in a particular company with an asserted value in the sum of $800,000.

6. The June 2011 order provided that the two pieces of real estate would be sold by the parties and the net proceeds of each of the properties would be paid entirely to the wife.

7. The application for the June 2011 order asserted that during the marriage the husband made the bulk of the financial contributions, the wife made the bulk of the non-financial contributions and of parenting and homemaking contributions. It was further asserted that there was a disparity of earning capacity between the parties with the husband earning far more than the wife who had the care of a child under the age of 18 years old and the care of an adult child with special needs. The husband and wife claimed that the effect of the orders sought would be that the assets of the parties would be divided as to 82 percent to the wife and 18 percent to the husband. Based upon the values set out in the Amended Application for Consent Orders, the wife received net assets in the sum of $4,417,000 and the husband received net assets in the sum of $820,000.

8. Both parties signed the application for the June 2011 order which contained a representation to the court as follows:

   19. Is there any person who may be entitled to become a party to the case under ss 79(10).....of the Act?

   The answer given to that question was “No”. The husband and wife did not refer to the husband’s creditor, to whom the husband owed over $4 million.

9. In August 2011, a default judgment was entered against the husband for an amount of $4,531,131.

10. A creditor’s petition was filed in September 2011 and a sequestration order made against the husband’s estate in July 2012.

11. In 2012 the two properties that were subject to the June 2011 order were sold. Whilst it is not entirely clear, it seems that the wife received from those sales significantly less than was anticipated in the application for the June 2011 order, being an amount of about $1.8 million. In August 2012 the wife purchased her new property for a price of about $1.1 million.

12. The husband’s trustees in bankruptcy sought to challenge the June 2011 order. They lodged a caveat against the wife’s new property and entered negotiations and mediation with the wife in an attempt to resolve issues relating to the disputed 2011 consent order.

13. On 12 September 2013 the wife’s solicitors sent to the solicitors for the trustees the following email:

    …

    Our client is only able to settle on the following basis:

    1) an initial payment of $50,000 within 3 months after agreement provided the Caveat can be removed to allow her to refinance. If our client defaults on the initial payment then she will incur interest in accordance with the Family Law Rules.

    2) There would then be a second payment of $250,000 to your client after 18 months of the date of the arrangement.

    If your client cannot settle without an entitlement to claim the sum of $1.2 million from our client in the event of default then your client must commence proceedings.

14. On 17 September 2013 the trustee’s solicitors replied to the wife’s solicitors in the following terms (“the 17 September 2013 email”):

    Our clients agree and accept this offer.

    Can you please submit the draft orders for our clients to consider.

15. On 14 October 2013 the wife’s solicitors emailed the trustees’ solicitors:

    15.1.A letter dated 14 October 2013

    15.2.Draft consent orders

    15.3.An application for consent orders in Word format.

16. The letter was in the following terms:

    Please find enclosed herewith the draft Consent Orders settled by our barrister [the barrister’s name].

    [The barrister’s first name] has indicated that an Application for Consent Orders should be filed together with this form. Please find also enclosed herewith Word format an Application for Consent Orders for completion of the counterpart information of your client. We are currently completing [the wife’s christian’s name] updated financial information in her counterpart section in readiness for the two counterparts to be merged.

17. The consent orders provided for orders to be made in terms of the proposal contained in the wife’s solicitors’ email of 12 September 2013.

18. The 2013 Application for Consent Orders is not with the papers that have been provided. What seems to have been enclosed was a blank Application for Consent Orders in a parenting matter.

19. On 25 October 2014 the solicitors for the trustees’ sent the following email to the wife’s solicitors:

    The trustees agree with these orders. Can you please substitute “Official Trustee in Bankruptcy” for [the trustees’ names], Joint and Several Trustees of the Bankrupt Estate of [the husband’s name]”

    Can you please apply for these orders forthwith.

20. On 8 November 2013 the wife’s solicitors sent to the solicitors for the trustees the amended consent orders and asked them to “please return the executed forms”.

21. On 15 November 2013 the solicitors for the trustees returned to the wife’s solicitors the signed consent orders (“the proposed 2013 orders”) and asked them to “please urgently make an application to the Family Court for instigation of these orders”. So far as I can tell, although the consent orders had been signed by the trustee, no Application for Consent Orders had been signed by the trustees. Also, notwithstanding these exchanges, there is no indication that the wife either signed the final version of the consent orders or an Application for Consent Orders.  

22. The wife no longer consents to the proposed 2013 orders being made.

23. The husband was not involved in the 2013 negotiations between the trustees and the wife.

24. The husband’s trustees in bankruptcy filed an Initiating Application for Final Orders on 17 April 2014 seeking orders in the following terms:

    1.That the Consent Orders made 28 June 2011 in proceedings number SYC 3184/11 be set aside pursuant to s 79A(1)(a) Family Law Act.

    2.Further, or in the alternative:

    (a)     A declaration that a binding agreement has been reached between the parties in the terms of the consent orders [the proposed 2013 orders]

    (b)    Damages for breach of contract referred to in paragraph (a)

25. By an Application in a Case filed 9 February 2015, the trustees seek the following relief:

    1.A declaration that a binding agreement was reached between the [trustees] and [the wife] on 17 September 2013 as contained in [the 17 September 2013 email].

    2.Alternatively a declaration that a binding agreement was reached between the [trustees] and [the wife] in the terms of the consent orders [the proposed 2013 orders].

    3.Damages for breach of contract referred to in paragraph 1, alternatively the contract referred to in paragraph 2, including interest on the amounts payable under the binding agreement and the costs of these proceedings.

26. The claim for a declaration in respect of a binding agreement and for damages is made by the trustees relying upon accrued jurisdiction.

27. The trustees’ Application in a Case in effect seeks determination on a final basis of the alternative relief sought by the trustees in order 2 of the Initiating Application for Final Orders filed 17 April 2014. The trustees submit that a decision in their favour about that issue shall dispose of the case (see rule 10.13(a) Family Law Rules 2004 (Cth)).

28. The wife and the trustees disagree about the nature and effect of the negotiations in 2013.

29. The trustees submit the email from the wife’s solicitors dated 12 September 2013 contained an unambiguous and unconditional settlement offer which was accepted on 17 September 2013, bringing into effect a concluded agreement on that day.

30. Alternatively, the trustees submit that if the first exchange be seen as conditional on further agreement reached as to the content of the orders which would be made, then that occurred no later than 15 November 2013 (and in fact probably on 25 October 2013).

31. The wife submits that:

    31.1.The emails sent on her behalf on 12 September 2013, 14 October 2013 and 8 November 2013 (the wife’s 2013 emails) were no more than “invitations to treat”;

    31.2.There was an absence of consideration;

    31.3.If the parties in the exchange of emails had reached a consensus, it was not intended by the wife to be a concluded agreement until consent orders were made which included a new order being made by the court under s 79 of the Act.

32. The first two contentions by the wife can be disposed of shortly. Firstly, the wife’s 2013 emails evidence more than a willingness to negotiate an agreement. They were offers which the trustees were able to accept (see Cahill v Carbolic Smoke Ball Co (1839) 1QB 256; Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 All ER 456 affirmed [1953] 1 All ER 482). Secondly, the negotiations took place in circumstances where the wife faced the prospect that the trustees would commence proceedings against her under s 79A(1)(a) of the Act. The trustee’s forbearance to sue is sufficient consideration.

33. In respect of the third issue both counsel presented the case on the basis that the applicable principles emerge from the decision of the High Court in Masters v Cameron (1954) 91 CLR 353, and in particular from the following passage at page 360:

    Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

34. Since the decision in Masters v Cameron subsequent cases have developed a so-called “fourth category”, namely, where the parties intend to be bound immediately by the terms which they have agreed upon, whilst expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.

35. In my view, this is not a case in which the principles discussed in Masters v Cameron have relevance.

36. True it is the trustees had made an offer and the wife had accepted it and that agreement made performance conditional upon the execution by the wife of the consent orders and the execution by both the wife and the trustees of the Application for Consent Orders. However that agreement also contained a contingent condition upon which the formation of the contract depended. That condition was that the court exercise its discretion to make an order under the Act setting aside the June 2011 order and to make new orders in the terms consented to by the trustees and the wife.

37. In an analogous situation, Pawley J in Sykes and Sykes (1979) FLC 90-652 at 78,446, considered the effect of a registered maintenance agreement (see s 83, 86 and 88 of the Act) and said:

    Certainly the terms of the agreement were they properly made are able then to be enforced as if they were orders of the court. But, even though those terms deal with matters of property it would be a mistake to regard them as orders under sec.79 or orders in any sense except in the very limited way I have outlined. They lack the very important ingredient which orders made under sec.79 and indeed agreements approved under sec.87 possess. They have not been arrived at by an exercise of the court’s discretion. Indeed they have been arrived at without any exercise of the judicial process. They lack then a very significant characteristic possessed by orders of the court relating to property settlement and in my view without having been set aside under sec.86(3) can have their effect varied or altogether extinguished by a subsequent order made in the same field by a Judge in the exercise of his discretion.

38. The effect of His Honour’s reasoning in the current context is that although the parties may agree on the terms of an order and agree to apply to the court for an order, those agreements have no legally binding effect until an order is actually made by the court. The making of that order requires an exercise of discretion by the court and until that discretion is exercised, there was no concluded and enforceable agreement between the parties.

39. If I am wrong about that then the following alternative argument is available to the trustees:

    39.1.There was a concluded agreement between the wife and the trustees with terms that:

    39.1.1.A condition precedent to the performance of the agreement was that the court would make orders in the terms of the agreed consent orders;

    39.1.2.The wife would sign the consent orders, complete an application for consent orders and lodge the application for consent orders with the court;

    39.2.The wife breached the agreement by failing to do each of the three things referred to in [39.1.2];

    39.3.On balance, I would find that the court would have made the consent orders had the application for consent orders been signed and filed;

    39.4.The trustees suffered damage as a result of the wife’s breach of the agreement which was quantifiable in accordance with the expressed terms of the agreement.

40. The difficulty with the alternate argument set out in the preceding paragraph is the third proposition, namely, that I would find on balance that the court would have made the consent orders.

41. I am mindful that the consent of the parties who seek the court to make property settlement orders is a powerful factor  to take into account when the parties are legally represented (see Harris v Caladine [1991] 172 CLR 84; Mason CJ and Deane J at 96; Brennan J at 103; Dawson J at 124 and Toohey J at 133).

42. However, in this case, I am unable to find that on balance the consent orders would have been made.

43. On the documents that I have been provided, it is not possible for me to discern whether or not the parties intended to seek the court make the proposed 2013 orders under s 79A(1A) or s 79A(1)(a) of the Act.

44. If their intention was the former, then there would be a significant obstacle to the court making a consent order under that section.

45. Section 79A(1A) is in the following terms:

    (1A) A court may, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, and with the consent of all the parties to the proceedings in which the order was made, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside. [emphasis added]

46. The parties to the proceedings in which the June 2011 order was made were the husband and wife. No consent was sought from the husband to set the June 2011 order aside. Although the property of a bankrupt vests in the trustees, the entitlement of a person to consent or not consent under s 79A(1A) of the Act is a personal right which does not vest in the trustees. Accordingly it would not be possible for a consent order to be made under s 79A(1A) of the Act, absent consent by the husband.

47. Alternatively, if the 2013 consent orders were meant to be made under s 79A(1)(a) of the Act, the court has to be firstly satisfied that there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclosure relevant information), the giving of false evidence or any other circumstance. Secondly, in the event the court is satisfied that the grounds exist, the court then “may, in its discretion, .....set aside the order and, if it considers appropriate, make another order under s 79 in substitution for the order so set aside”.

1. Based on the facts detailed earlier in these reasons, there seems to be a strong arguable case that the 2011 orders were made in circumstances where there was a failure to disclose relevant information, namely, the existence of a debt that the husband owed in excess of $4 million. Nonetheless, no document, which was drafted in 2013, placed the court in a position to be satisfied that either the provisions of s 79A(1)(a) had been enlivened or that the discretion to set aside the 2011 order should be exercised. Next, there is no material which would explain why the new proposed consent orders were just and equitable.

2. Further there is a question as to whether or not the court would exercise its discretion to make the orders in circumstances where the bankrupt husband who was a party to the 2011 order had not, so far as I am aware, been invited to be involved as a party to the proposed 2013 proceedings, (although I accept in the circumstances of this case he may have little interest in being involved).

3. In conclusion, in the circumstances set out above and for the reasons discussed, the proposed 2013 consent orders were never made by the court. Given the failure of a contingent condition upon which the formation of the contract depended, there is no contract between the trustees and the wife in respect of which the declaration sought and any consequential award for damages could or should be made. Alternatively, if there was a concluded contract which the wife breached, that contract contained a condition precedent to the performance of the agreement, namely, the court making the consent orders and the trustees have not established that consent orders would, on balance, have been made by the court.

4. For these reasons I dismiss the trustees Application in a Case filed 9 February 2015.

5. The result means that the trustees are left with the remedy they first threatened the wife with, namely, to make an application to the court under s 79A(1)(a) of the Act to have the 2011 orders set aside because there was miscarriage of justice perpetrated on the husband’s creditors by the consent arrangement that was entered into between the husband and wife and to seek a new order pursuant to section 79 of the Act (see generally Chemaisse & Chemaisse & The Commissioner of Taxation of the Commonwealth of Australia (1988) FLC 91-915; Chemaisse & The Commission of Taxation & Ors (1990) FLC 92-133)..

I certify that the preceding fifty-two (52) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 6 November 2015.

Associate:

Date:  6.11.2015