THE ESTATE OF THE LATE MS FAN & LOK
[2015] FamCA 300
•28 April 2015
FAMILY COURT OF AUSTRALIA
| THE ESTATE OF THE LATE MS FAN & LOK | [2015] FamCA 300 |
| FAMILY LAW – PROPERTY - FINANCIAL AGREEMENT – Where the husband and the wife entered into a financial agreement expressed to be pursuant to s 90B of the Family Law Act 1975 (Cth) even though the husband executed the agreement after the marriage – Where the wife died subsequent to entering the agreement – Where the wife’s estate sought enforcement of the agreement – Where it was found that the agreement could be rectified to be expressed pursuant to s 90C – Where it was found that the legal certificates could not be rectified – Where there has been no material change in circumstances – Where there has been no unconscionable conduct – Where it was found that the agreement was binding pursuant to s 90G(1A)(c). |
| Family Law Act 1975 (Cth) ss 44, 90B, 90C, 90G, 90H, 90K, 90KA |
| Balzia & Covich [2009] FamCA 1357 Australia & Amadio (1983) 151 CLR 447 Hoult & Hoult (2013) FLC ¶93-546 Sanger & Sanger (2011) FLC 93-484 Senior & Anderson (2011) FLC 93-470 |
| APPLICANT: | The Estate of the late Ms Fan |
| RESPONDENT: | Mr Lok |
| FILE NUMBER: | SYC | 1018 | of | 2013 |
| DATE DELIVERED: | 28 April 2015 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Rees J |
| HEARING DATE: | 10 March 2015 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Watkins |
| SOLICITOR FOR THE APPLICANT: | Raymond Lee & Co |
| SOLICITOR FOR THE RESPONDENT: | Zhang Shijing Lawyers |
Orders
IT IS DECLARED
That it would be unjust and inequitable if the Financial Agreement entered into between the husband and the wife on 20 January 2003 were not enforced.
IT IS ORDERED
That the application for enforcement filed 27 February 2013 and the response filed 13 May 2013 be listed for hearing before Rees J on 1 June 2015 at 2.15pm.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Fan & Lok 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 1018 of 2013
| The Estate of the late Ms Fan |
Applicant
And
| Mr Lok |
Respondent
REASONS FOR JUDGMENT
On 20 January 2003, Ms Fan (“the wife”) and Mr Lok (“the husband”) entered into an agreement which purported to be a Financial Agreement (“the Agreement”) pursuant to s 90B of the Family Law Act 1975 (Cth) (“the Act”).
The Agreement was signed by the wife on 15 January 2003 and annexed to the Agreement is a certificate signed by her then solicitor, Mr M, to the effect that he gave advice in relation to a Financial Agreement pursuant to s 90B of the Act.
The parties married in 2003.
The husband signed the Agreement on 20 January 2003 and a certificate signed by the husband’s solicitor, Ms Y, is annexed, certifying that she gave the husband advice in relation to a Financial Agreement pursuant to s 90B of the Act.
The Agreement relates to a property which the husband and the wife jointly purchased at B Street, Suburb C (“Suburb C”) for $255,000. To finance the purchase they borrowed $430,000 from HSBC Bank (“the HSBC loan”). The HSBC loan was secured over two properties, a property owned by the husband at D Street, Suburb E (“Suburb E”) and a property owned by the wife at F Street, Suburb G (“Suburb G”), both of which were purchased prior to the marriage.
From the HSBC loan, $177,000 was applied to the mortgage owed by the husband over Suburb E (“Suburb E mortgage”) and the balance was used to buy Suburb C (“Suburb C mortgage”). Suburb G was unencumbered at the date of the Agreement and accordingly, none of the HSBC loan was applied toward Suburb G even though the property was used as a security for the HSBC loan.
The husband and the wife also borrowed a further $50,000 on the HSBC loan for business purposes. Accordingly, by the time both parties had signed the Agreement in January 2003, the HSBC loan was made up of various loan accounts relating to the Suburb C and Suburb E mortgages and to the business loan. The husband was making repayments toward all the loan accounts.
The Agreement provided that, in the event of the breakdown of the marriage or the death of one of the parties, and notwithstanding any unequal financial or non-financial contributions by the parties to the property of the marriage, each party was to retain the assets he or she owned prior to the date of the Agreement. Clause 4.2.2 provided:
The HSBC loan and the Suburb C property shall be dealt with in the following manner:
(a)The Suburb C property shall be sold by way of public auction or private treaty as agreed by both parties as soon as practicable;
(b)If the sales proceeds less all incidental expenses exceed $253,000.00 then $253,000.00 is to be paid off the HSBC loan while [the husband] must pay the balance amount required to discharge the HSBC loan and must ensure that [the wife] will obtain an unencumbered title to the Suburb G property. The balance sales proceeds of the Suburb C property shall be distributed equally between the parties.
(c)If the sales proceeds less all incidental expenses falls below $253,000.00 then the HSBC loan shall still be paid off in the same manner while the shortfall (from the $253,000.00) is to be made up by the parties in equal shares.
Clause 4.3 provided:
Each party acknowledges that it may apply to the Family Court for property settlement in relation to any other matrimonial property apart from the property mentioned in clause 4.2.1(a).
Clause 4.2.1(a) refers to:
(a) all the assets and liabilities of each party acquired and assumed prior to the date of this deed including but not limiting to the assets and liabilities listed in the annexure marked “A” “Premarital Assets and Liabilities”;…
…
shall be the absolute property, rights and liabilities of each party and shall not be included into the pool of matrimonial property or considered during any property settlement between the parties.
Annexure “A” lists the following:
[THE WIFE]
[THE HUSBAND]
Assets
Value
Assets
Value
F Street, Suburb G
$430,000.00
D Street, Suburb E
$290,000.00
B Street, Suburb C (half)
$127,500.00
B Street, Suburb C (half)
$127,500.00
Liabilities
Liabilities
Mortgage Loan (Suburb G property as security but applied to the purchase of the Suburb C property)
$126,500.00
Mortgage Loan (Suburb G property as security but applied to the purchase of the Suburb C property)
$126,500.00
Mortgage Loan (Suburb E property)
$177,000.00
Net Assets
$429,000.00
$114,000.00
Thus the parties retained the right to seek an adjustment of property in respect of any after acquired assets, subject to clause 4.2.1 (b), which provides:
(b) Subject to paragraph 4.2.2 hereto, any income, asset, revenue, expenditure, value of capital, chose in action whether legal or equitable and equity derived or sourced from Premarital Assets and Liabilities which may accrue after the date of this deed, notwithstanding the nature or the substance of such assets and liabilities of each party may have altered, substituted or otherwise changed and PROVIDED they are separately identifiable and can be traced from Pre-marital Assets and Liabilities.
shall be the absolute property, rights and liabilities of each party and shall not be included into the pool of matrimonial property or considered during any property settlement between the parties.
The husband and the wife separated on 13 February 2008.
The wife died in 2008.
The applicant in the present proceedings (“the Applicant”) is the executor of the wife’s estate who is one of her children.
Subsequent to the wife’s death, the husband, on 2 September 2008, executed a Notice of Death and Suburb C was transferred into his sole ownership by right of survivorship and in disregard of the provisions of the Agreement which required Suburb C to be sold and the net proceeds to be applied to the HSBC loan upon the death of either party.
The wife left Suburb G to her children including the Applicant. The Applicant currently resides at Suburb G.
On 22 January 2013 HSBC Bank issued a default notice claiming overdue amounts, excess amounts and enforcement expenses totalling $11,549.99. That notice was served on the husband and on the Applicant at the Suburb G address. This was the first notice that the Applicant had that the HSBC loan was not being paid. It is common ground that, after the wife’s death and prior to the default, the HSBC loan repayments were made by the husband, who presumably had the benefit of the rent from Suburb C to assist him.
On 27 February 2013, the Applicant instituted proceedings to enforce the Agreement. The Applicant sought orders for the sale of Suburb C and application of the net proceeds toward the HSBC loan so as to ensure that the amount owed was no more than $253,000. In the event that the husband failed to make payments required of him, the Applicant sought orders for the sale of Suburb E and for the net proceeds to be applied to discharge any amounts secured to the HSBC bank. By way of interim order, the Applicant sought an order that the husband pay the amount of $253,000 to HSBC and that Suburb E be charged with that payment.
On 17 June 2013, Orders were made by Senior Registrar Campbell for the sale of Suburb C and for the net proceeds to be paid toward the HSBC loan.
On 15 August 2013, the husband filed a Response seeking to set aside the Agreement and consequential orders for property settlement, including the sale of Suburb C and Suburb G, so as to discharge the HSBC loan, leaving Suburb E unencumbered. The husband sought a declaration that he be declared the sole legal and beneficial owner of Suburb E.
A letter from HSBC Bank to the husband dated 21 May 2014 shows that as at that date, the amount jointly owing by the husband and the Applicant on the HSBC loan, made up of seven accounts, was approximately $599,000.
Contracts were exchanged for the sale of Suburb C on 2 April 2014 for the purchase price of $244,200 and settlement took place in May 2014.
On 22 May 2014 the Applicant received a Default Notice which showed that the total amount due to remedy the default on the HSBC loan including the excess amount, the overdue amount and the enforcement amount was $75,219.87.
During the period from June to July 2014 a total of $248,056.33 was paid to HSBC from the net proceeds of Suburb C in partial discharge of the HSBC loan.
When the matter came before the Court for hearing of the interim applications on 10 March 2015, the primary issue to be determined was whether the Agreement was a Binding Financial Agreement. The legal representatives conceded that, if the Agreement is binding, then the Court has power only to enforce it. It was also conceded that if the Agreement is not binding, then the Court has no jurisdiction to entertain the husband’s application for property settlement as there were no proceedings on foot at the time of the wife’s death.
Before proceeding further, it was necessary to determine whether the Agreement is binding. Depending on that determination, the competing applications of the parties can then be determined.
THE HEARING
Both parties filed written submissions and relied on affidavit evidence.
The Applicant sought to uphold the Agreement.
The husband relied on an affidavit sworn on 23 September 2013. He deposed that the HSBC loan had been increased by $50,000 which amount he referred to as “the business loan”. He also deposed that the facility was increased by $10,000 to cover college fees for the wife’s daughter, and a further $10,000 for the wedding of the wife’s son. The husband made the repayments on the HSBC loan until September 2012 when he asserted that he could no longer afford the repayments. The husband gave no evidence of the manner in which the rent from Suburb C had been applied.
In his summary of argument, the husband contended that the Agreement was void because there was no common intention between the husband and the wife. On behalf of the husband it was submitted that the agreement was not made pursuant to either s 90B or s 90C of the Act. At Clauses 2 c. to e. of the written submissions, the solicitor for the husband stated:
c.The agreement dated 20 January 2003 cannot be made pursuant to s 90B when the Respondent entered into the agreement after marriage.
d.The agreement dated 20 January 2003 cannot be made pursuant to s90C when the Wife entered into the agreement before marriage.
e.An agreement made without the force of either s 90B or s 90C of the Act does not oust the jurisdiction of the Family Court.
In the alternate, the husband argued that pursuant to s 90K(c), circumstances have arisen that make the Agreement impracticable to be carried out; that is the further borrowings and the fact that the husband assumed the full responsibility for the loan repayments.
Further, the husband argued that it was unjust and inequitable for him to bear the full burden of the HSBC loan in the light of the additional borrowings.
The husband argued that pursuant to s 90K(d) there had been a material change in circumstances such that he would suffer hardship if the Agreement were not set aside in that the HSBC loan was increased due to the additional borrowings.
The husband further argued that the wife had engaged in unconscionable conduct in that the Agreement was presented to him shortly before the marriage and he was deprived of the opportunity to make a considered decision.
THE ISSUES TO BE DETERMINED
There emerged in the course of submissions a number of contentions in relation to the effect of the Agreement. Ultimately, the issues to be determined were:
· Is the Agreement ineffective because it is expressed to be pursuant to s 90B of the Act and not s 90C?
· Have circumstances arisen that make it impracticable for the Agreement to be effected (s 90K(c))?
· Has there been a material change in circumstances (s 90K(d))?
· Has there been unconscionable conduct (s 90K(e))?
· Can the equitable doctrine of rectification be applied to give effect to the Agreement as an agreement pursuant to s 90C of the Act rather than s 90B?
· Can the certificates appended to the Agreement be rectified?
· If the certificates cannot be rectified, would it be unjust and inequitable within the provisions of s 90G(1A)(c) if the agreement were not binding on the parties?
Whether financial agreements are binding is governed by the provisions of s90G of the Act which are set out below:
FAMILY LAW ACT 1975 - SECT 90G
When financial agreements are binding
(1) Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:
(a) the agreement is signed by all parties; and
(b) before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and
(c) either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and
(ca) a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and
(d) the agreement has not been terminated and has not been set aside by a court.
Note: For the manner in which the contents of a financial agreement may be proved, see section 48 of the Evidence Act 1995 .
(1A) A financial agreement is binding on the parties to the agreement if:
(a) the agreement is signed by all parties; and
(b) one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the agreement; and
(c) a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and
(d) the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and
(e) the agreement has not been terminated and has not been set aside by a court.
(1B) For the purposes of paragraph (1A)(d), a court may make an order declaring that a financial agreement is binding on the parties to the agreement, upon application (the enforcement application ) by a spouse party seeking to enforce the agreement.
(1C) To avoid doubt, section 90KA applies in relation to the enforcement application.
(2) 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.
The husband also relied upon the provisions of s 90K(1) which are set out below:
FAMILY LAW ACT 1975 - SECT 90K
Circumstances in which court may set aside a financial agreement or termination agreement
(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.
IS THE AGREEMENT INEFFECTIVE BECAUSE IT IS EXPRESSED TO BE A S 90B AGREEMENT AND NOT A S 90C AGREEMENT?
Financial agreements entered into pursuant to the provisions of the Act must be expressed to be entered into pursuant to either s 90B, s 90C or s 90D. S 90B agreements relate to persons who are contemplating marriage to one another. It is not in dispute that, at the time the husband and the wife gave instructions for the preparation of the Agreement, they were contemplating marriage but that, at the date of the Agreement, 20 January 2003, they had married. The parties agree that the Agreement could not have been entered pursuant to s 90B.
S 90C deals with financial agreements during marriage. The terms are set out below:
(1) If:
(a) the parties to a marriage make a written agreement with respect to any of the matters mentioned in subsection (2); and
(aa) at the time of the making of the agreement, the parties to the marriage are not the spouse parties to any other binding agreement (whether made under this section or section 90B or 90D) with respect to any of those matters; and
(b) the agreement is expressed to be made under this section;
the agreement is a financial agreement . The parties to the marriage
may make the financial agreement with one or more other people.
At the time the Agreement was executed and dated, on 20 January 2003, the husband and the wife had married. They were parties to a marriage within the terms of s 90C. Therefore they could have entered into a financial agreement pursuant to the provisions of s 90C.
S 90KA provides that:
FAMILY LAW ACT 1975 - SECT 90KA
Validity, enforceability and effect of financial agreements and termination agreements
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.
Relevantly, because of the provisions of s 90KA(a) the remedy of rectification is available, where appropriate, to cure defects in drafting such as this. So much is evident from the separate judgements of May J and Strickland J in Senior & Anderson (2011) FLC 93-470 (“Senior & Anderson”).
In determining whether the doctrine of rectification is available, the intention of the parties is all important.
Clause 3.1 of the Recitals to the Agreement provides:
[The wife] and [the husband] (‘the parties’) intend to be married in Sydney and entered into this deed before their marriage to set out an agreed manner for the amicable property settlement in the event of the breakdown of their marriage.
Clause 4.2 of the Operative Provisions provides that:
Upon the breakdown of their marriage or the death of either party and notwithstanding any unequal financial or non financial contributions by both parties to their matrimonial properties, both parties agree that:-
(the terms of the agreement are then set out).
In his affidavit sworn 23 September 2013 the husband deposed that he understood that the purpose of the Agreement was to have Suburb C as an investment property for when the couple were old. He further understood that, if they separated, either could buy out the other’s share of Suburb C or Suburb C would be sold and the proceeds divided. The husband deposed that he was advised by Ms Y that the Agreement was an agreement to split the assets of the marriage in the event of a separation.
I am satisfied that the terms of clauses 3.1 and 4.2 of the Agreement, which have been set out earlier in these reasons, and the affidavit evidence of the husband, demonstrate that the husband and the wife had the common intention of entering into an agreement that would determine the manner in which their property would be dealt with in the event of the breakdown of their marriage or the death of either of them.
Accordingly, the Agreement can be rectified, both to correct the recital in Clause 3.1 and to refer to its foundation in s 90C.
HAVE CIRCUMSTANCES ARISEN THAT MAKE IT IMPRACTICABLE TO CARRY OUT THE AGREEMENT?
The husband relies on the provisions of s 90K(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;
In Sanger & Sanger (2011) FLC 93-484 the Full Court considered the meaning of “impracticable” in the context of s 90K(c) and said commencing at paragraph 82:
We agree with the submissions of Counsel for the wife that there is a material distinction between an agreement which is unable to be put in practice, and is thus impracticable, and an agreement which, although producing a potentially different outcome to that for which a party hoped, is able to be implemented, or put into practice. Our conclusions with respect to this issue are necessarily reached in the light of the conclusions with respect to the interpretation of the BFA which we have earlier recorded.
And at paragraph 86:
As is not in doubt, the provisions of s 90K are not designed to, and do not facilitate a party escaping from what proves, or is perceived to be a "bad bargain". The term "impracticable" is not defined in the Act. There do not appear to be any cases in which the meaning of impracticable has been discussed in the context of s 90K(1)(c). However, the meaning of "impracticability" has been considered in the context of s 79A(1)(b), which provides for the setting aside of s 79 orders on the basis of "impracticability" in substantially the same terms as s 90K(1)(c). "Impracticability" is similarly a relevant factor for reviewing maintenance agreements under s 78(8)(d) and for setting aside financial or termination agreements between de facto parties under s 90UM(1)(f).
Their Honours further said at paragraph 87:
In Rohde & Rohde (1984) FLC ¶91-592, Gee J discussed "impracticability" in the context of s 79A(1)(b) and said (at 79,768):
(a) It is not enough that circumstances have arisen since the order was made which make it unjust for the order or part of the order to be carried out; the onus is upon the applicant to establish to the reasonable satisfaction of the Court, that in the circumstances that have arisen it is impracticable for the order or part of the order to be carried out.
(b) The word "impracticable" means gleaning a definition from the Shorter Oxford Dictionary, "not practicable", "that cannot be carried out or done"; "practicably impossible"; "unmanageable"; "intractable".
(c) "Impracticability" is a conception different from that of "impossibility"; the latter is absolute, the former introduces at all events some degree of reason and involves some regard for practice (per Veale J in Jayne v National Coal Board [1963] 2 All ER 220).
At paragraph 113, the Full Court referred to paragraph 94 of the Federal Magistrate’s judgement where his Honour had stated:
A mere negative change in a party's financial circumstances is not in itself sufficient to make orders against that party otherwise impracticable, particularly if the change in financial circumstances was self-induced (see Cawthorn & Cawthorn (1998) FLC ¶92-805), and, on the evidence before the Court, that is a likely conclusion.
The onus is upon the husband to establish that it is impracticable to carry out the Agreement. Nothing in the husband’s Summary of Argument indicates the basis of the submission.
The husband has filed no up to date Financial Statement. There is no current evidence of the value of the husband’s property. In an affidavit sworn 23 September 2013 the husband estimated that the outstanding loan amount was $560,000 but provided no documentary evidence. In his Financial Statement sworn 16 May 2013 the husband estimated the value of his share in Suburb E to be $378,000.
Presumably, the amount outstanding to HSBC has been reduced by the amount of the net proceeds of sale of Suburb C so that the amount could be satisfied from the sale of Suburb E.
If that were not the case, then the onus lay upon the husband to demonstrate that fact.
This ground has not been made out.
HAS THERE BEEN A MATERIAL CHANGE OF CIRCUMSTANCES?
The husband relies on the provisions of s 90K(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;
The provision specifically refers to a material change of circumstances relating to the care, welfare and development of a child of the marriage.
It is common ground that there were no children of the husband and the wife.
This ground has not been made out.
HAS THERE BEEN UNCONSCIONABLE CONDUCT?
The husband relies on s 90K(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;
The unconscionable conduct must be the conduct of the wife. What that conduct is alleged to be, apart from an assertion by the husband that he was presented with the Agreement shortly before the marriage, is not specified.
The law in relation to unconscionable conduct is clear. In Commonwealth Bank of Australia & Amadio (1983) 151 CLR 447 at 448 (“Amadio”) Deane J, with whom Mason and Wilson JJ concurred, said:
The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: "the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract" (see per Lord Hatherley, O'Rorke v Bolingbroke [46]; Fry v Lane [47], at p. 322; Blomley v Ryan [48], at pp. 428-429).
The husband has led no evidence to establish facts that would lead the Court to accept that the test set out in Amadio has been met.
The husband deposed that on about 4 January 2003, he and the wife attended upon a solicitor, Mr M, to give instructions for the preparation of the Agreement. He deposed that it was his understanding on 4 January 2003 that the purpose of the Agreement “was to have [Suburb C] as an investment property for when the Deceased and I grew old”.
The husband further deposed:
It was explained to us simply that on separation, the financial agreement allowed for either party to buy out the other’s share in the Suburb C Property, or otherwise, the Suburb C Property would be sold and the proceeds to be divided equally.
The husband does not suggest that he was unwilling to enter into the Agreement or that he was in any way coerced. He does not suggest that he understood that the marriage ceremony in 2003 would not proceed if he did not sign the Agreement.
Mr M explained to the husband that he would need to obtain independent legal advice as he acted for the wife. The husband said that at the end of the conference, after the wife had signed the Agreement and Mr M had signed the certificate of legal advice, he told Mr M that he would not be able to see another lawyer until 20 or 21 January 2013. This was a date that was known by the husband and the wife to be after the wedding.
The husband and the wife were married in 2003.
The husband consulted a solicitor, Ms Y, on 20 January 2003. He said:
I was advised as to the terms generally and that the agreement was an agreement to split the assets upon separation. However the issue of the agreement being prior to marriage or after marriage was never raised.
The husband’s evidence does not support the contention that the wife’s conduct was unconscionable. Both the husband and the wife consulted Mr M on 4 January 2003 with the joint intention of entering into the Agreement.
The husband signed the Agreement after the marriage had taken place. It cannot be suggested that, had he not signed, the marriage would not have proceeded.
This ground has not been made out.
The husband’s challenges, based on the provisions of s 90K(c) to (e) inclusive, must fail.
CAN THE CERTIFICATES BE RECTIFIED?
In Balzia & Covich [2009] FamCA 1357, Collier J considered this issue. His Honour concluded:
40. If I were to accept that rectification can be carried out to the deed, then there exists an agreement referring to section 90C. However, for the reasons I have given, the certificates refer to section 90B. To my mind the 90B certificates can only clearly be understood and interpreted to mean that advice was given at the time the agreement was entered into that was incorrect. What it does not indicate, and cannot indicate on the face of the rectified document on one hand, and the certificate on the other, is that either party had explained to them what were the advantages and disadvantages of entering into the agreement now that they were married, rather than at a time they were contemplating marriage.
41. I cannot be satisfied as to the fact that either party was advised as to specific matters that might arise as a result of them being married, and no longer simply in a relationship, and contemplating marriage. So far as I am concerned, it would need be properly demonstrated that the certificate satisfied any reasonably minded observer that the parties had been advised of their rights, having regard to their status as married persons. Clearly the Act draws a distinction or difference between pre-marriage, post-marriage, and post-divorce agreements. I am satisfied that because that distinction is drawn by the Act itself the nature of the advice to be given in respect of each such situation must reflect the actuality of the situation at the time the advice is given.
42. To my mind, therefore, the difference between the advice certified to have been given and the factual situation in existence at the time the agreement, by way of deed, was signed by each of the parties means that I cannot be satisfied that the advice given, as evidenced by the solicitors’ certificates, meets the requirement that the legal practitioner for each of the parties had explained the advantages and disadvantages at the time that the advice was provided to either party entering into the agreement.
The issue, and His Honours reasoning, were considered in Senior & Anderson where Strickland and Murphy JJ found merit in the challenge to the rectification by the trial judge of the errors in the certificates.
Brereton J, writing extra judicially in a paper entitled “Binding or Bound to Fail” delivered at the 15th National Family Law Conference in Hobart in October 2012 respectfully disagreed with their Honours saying:
First, I would not think that the certificates are “part of the Agreement”. They are documents of the solicitors, not of the parties. They are annexed to the agreement, but do not form part of it. This is even more clearly the case in respect of the “signed statements” now required by s 90G(1), which need not even be annexed.
Secondly, the certificates being documents of the solicitors, ought to be capable of rectification if through error or omission they fail to express the true intention of the certifying solicitor. The mistaken references to incorrect first names in Senior v Anderson seem very plainly to have been in this category. However, as the certificates are the solicitor’s document, and it is the solicitor’s intention that is crucial, it seems to me that the solicitor would be a necessary party to proceedings for their rectification.
Thirdly, the fact that s 90G requires a certificate as a precondition to an
agreement being binding on the parties ought not preclude rectification of the certificate so that its terms accord with the true intent of the certifying solicitor. Once it is recognised that rectification has retrospective effect and can validate acts that would not have been valid under the original form of document, there is no obstacle to a rectified certificate establishing compliance with s 90G, without detracting from the insistence on strict compliance.The matters to which Brereton J refers were not argued before the Full Court in Senior & Anderson, the errors in relation to the certificates in that matter being of a different nature. It remains to be seen whether the Full Court, seized of facts similar to the present case, and evidence of the nature posited by Brereton J, would decide differently.
However, in the present case, there is no evidence from either of the solicitors who signed the certificates. They were not parties to the proceedings and it is not possible to conduct an enquiry as to the advice given and the intention of the solicitor who signed the certificate.
There is no basis, on the evidence in these proceedings, to consider rectification of the certificates.
IF THE CERTIFICATES CANNOT BE RECTIFIED, WOULD IT BE UNJUST AND INEQUITABLE WITHIN THE PROVISIONS OF S 90G(1A)(c) IF THE AGREEMENT WERE NOT BINDING ON THE PARTIES?
The Applicant relied on the provisions of s 90G(1A)(c) which provides that the Agreement is binding if:
a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made);
In the course of submissions, after submissions on behalf of the Applicant, the solicitor for the husband was invited to make submissions on the issue of whether it would be unjust and inequitable if the Agreement were not binding. Very minimal submissions were made on behalf of the husband in relation to that issue. It is therefore left to the Court to attempt to ascertain, from the husband’s affidavit material, what submissions might have been available to him.
In Hoult & Hoult (2013) FLC ¶93-546, the Full Court considered, inter alia, the proper application s 90G(1A)(c).
Strickland and Ainslie Wallace JJ said at paragraph 290 that the trial Judge had correctly identified that once the discretion pursuant to s 90G(1A)(c) is enlivened, “nothing within the section suggests, in terms, any restriction on the matters that might inform it.”
At paragraph 291 their Honours said:
We are also ad idem with the trial judge that “the Court is required to inquire into the facts and circumstances surrounding the agreement so as to arrive at a conclusion as to whether those facts and circumstances justify the Court exercising the discretion inherent in paragraph (c) of [s 90G(1A)]” (paragraph 8 reasons for judgment). We would only add the necessary rider that it is the facts and circumstances surrounding the making and performance of the agreement which are relevant. (Our emphasis)
And at paragraph 307 their Honours set out a list of the factors to be taken into account:
o The terms of the section, the nature of a financial agreement as a creature of the Act, and the place of Part VIIIA within the overall scheme of the Act.
o The nature and extent of the non-compliance with the requirements of s 90G(1).
o The facts and circumstances surrounding the making of the agreement including, in particular, if one of the parties has complied with all of the mandatory requirements necessary to render the agreement binding.
o How the parties have acted subsequently in relation to the agreement (bearing in mind that changes of circumstances cannot be considered).
THE APPLICANT’S SUBMISSIONS
On behalf of the Applicant it is submitted, firstly, that if the Agreement were not binding, then there is no jurisdiction in the Court to hear and determine an application for property settlement, the wife having died in 2008 when there were no proceedings on foot.
The provisions of s 44(3B) of the Act do not assist because nothing in those provisions confers jurisdiction to commence proceedings after the death of the wife.
It is not in dispute that the Court has jurisdiction, pursuant to the provisions of s 90H, to enforce the Agreement.
Thus the only jurisdiction in the present case is to enforce the Agreement or to set it aside.
If the Agreement is set aside then neither the husband nor the Applicant can proceed with the proposed applications for property settlement.
The wife died in 2008. The husband took no steps to enforce the Agreement on her death. Rather, in complete disregard of the Agreement, he caused a Notice of Death to be filed so as to effect the transfer of Suburb C to himself by operation of survivorship.
No notice was given by the husband to the Applicant of that transaction.
Thereafter, HSBC Bank appears to have dealt only with the husband. The Applicant deposed that only the husband was able to draw down on the HBSC loan and that she was not allowed access any of the loan statements because HSBC refused to provide them, citing privacy reasons.
Counsel for the Applicant asserts in written submissions that between November 2007 and January 2015, the respondent withdrew the amount of $102,005.45 for his own benefit from the HSBC loan. No documents were tendered to support that submission.
The Applicant deposed that she only became aware that the HSBC loan was in arrears in January 2013 when she received the Default Notice.
The Applicant contends that the husband’s delay in bringing any application to set aside the Agreement until some six years after the wife’s death causes an injustice to the Applicant that cannot be remedied.
On behalf of the Applicant it is argued that it would be unjust and inequitable if the husband is not required to sell Suburb E and the HBSC bank were to take action against the Applicant’s property at Suburb G as the estate would suffer a loss that is likely to be irrecoverable against the husband. It is submitted that without enforcement of the Agreement, the HSBC Bank is more likely to take possession action against the Applicant’s property than the husband’s. The Applicant currently resides at Suburb G. It appears from the Applicant’s evidence that Suburb E is rented out by the husband.
DISCUSSION
The existence of the HSBC loan and the Agreement were known to the Applicant. Both were disclosed in the application for a grant of probate in the estate. The Inventory filed in the Probate Division of the Supreme Court of New South Wales listed the deceased’s interest in Suburb C as an asset, and notes the estimate of value as “$253,000 (pursuant to the Family Law Agreement entered between the parties dated 20 January 2003)”.
Probate was granted on 26 November 2008.
There is no evidence of any step taken by the Applicant to enforce the Agreement at that time.
Annexed to the affidavit of the Applicant sworn 25 February 2013, is a copy of the Default Notice issued by the HSBC Bank in January 2013. The Notice sets out the account numbers and account balances as follows:
Account Numbers: …, … and …
The account balance is set out as:
$405,894.06 (comprised of $155,227.26 in respect of Account Number …, $86,253.52 in respect of Account Number … and $164,413.28 in respect of Account Number …) as at 18 January 2013.
However, the Default Notice does not indicate which account number refers to which facility.
The Notice lists the borrowers as the husband and the wife and the facilities claimed to be in default as:
Facility 1: PowerVantage Owner Occupied Equity Loan contract dated 13 December 2005
Facility 2: PowerVantage Investment Standard Variable Loan, contract dated 13 December 2005
Facility 3: Home Equity and 5 Year Fixed Investment Loans plus PowerVantage Package, contract dated 25 October 2002
Mortgage 1: Registered mortgage number … given by the husband over [Suburb E]
Mortgagor 1: [The husband]
Mortgage 2: Registered mortgage … given by [the wife] over [Suburb G]
Mortgagor 2: [The wife]
It is not possible to ascertain which debt or debts within the HSBC loan refer to the borrowing of $430,000 referable to the purchase of Suburb C recited in the Agreement. It could be assumed that the two mortgages are the loans referable to the Agreement, being the Suburb E mortgage and the Suburb C mortgage, but that does not assist in knowing what sums are outstanding pursuant to those mortgages.
THE EVIDENCE OF THE HUSBAND
The husband relied on two affidavits in the proceedings, sworn on 23 September 2013 and 10 May 2013.
In the affidavit sworn 10 May 2013, he deposes (relevantly):
7.In or about 1998, my wife and I started the [Business H]…We jointly borrowed $50,000 from HSBC Bank to start this business (Account No: …).
8.From about 1998 when we started the [business], we started to pay all bills and daily expenses from the income of the business, including the facility of her [Suburb G] property and her children’s expense (sic).
9.In or about the end of 1999 when we sold the [business], we lost about $50,000….
11.In or about 1999, we further loaned about $10,000 for my wife’s daughter’s [named] teeth brace…
18.From about 2003 to 2006, my wife’s daughter [named] went to college, my wife and I borrowed a further amount of about $20,000 from the loan account to cover all relevant expenses.
19.In or about 2004 or 2005 when my wife’s son [named] got married, we borrowed a further amount of about $10,000 from the loan account to cover all relevant expenses…
27.After the death of my wife, I continued to repay the loan of HSBC Bank from my own income until September 2012 when I could not afford the large amount of the loan any more.
In what is described by the husband as an “Amended Affidavit” sworn on 23 September 2013, the amount borrowed from the HSBC loan facility by the husband and the wife for the wife’s daughter’s college fees was revised downward from $20,000 to $10,000 (at paragraph 18). It would seem therefore that the husband asserts that, after the Agreement, two further sums, each of $10,000, were borrowed for the benefit of the wife’s children.
DISCUSSION
For the past six years, both the husband and the Applicant have acted in complete disregard of the provisions of the Agreement.
Ultimately, the Applicant bears the onus of satisfying the Court that it would be unjust and inequitable for the Agreement not to be binding.
It is not the case that, if the Agreement is set aside, no remedies are available to the Applicant. All of the general law as it applies to co-borrowers will be available.
The remedy which the Applicant seeks is an order requiring the husband to sell Suburb C and pay the sum of $253,000 to the HSBC Bank as provided in the Agreement. If the proceeds of Suburb C are less than is needed to make that payment, then the Applicant seeks an order that the husband pay the balance or, in default, that Suburb E be sold and the balance paid from the proceeds of sale.
In fact, Suburb C has already been sold and, according to the Applicant’s chronology, $248,056.33 has been paid to HSBC.
The relevant terms of the Agreement are set out below:
4.2.2The HSBC loan and the Suburb C property shall be dealt with in the following manner:
(a)The Suburb C property shall be sold by way of public auction or private treaty as agreed by the parties as soon as practicable;
(b)If the sale proceeds less all incidental expenses exceed $253,000.00 then $253,000.00 is to be paid off the HSBC loan while [the husband] must pay the balance amount required to discharge the HSBC loan and must ensure that [the wife] will obtain an unencumbered title to the Suburb G property. The balance sales proceeds of the Suburb C property shall be distributed equally between the parties.
(c)If the sales proceeds less all incidental expenses falls below $253,000.00 then the HSBC loan shall still be paid off in the same manner while the shortfall (from the $253,000.00) is to be made up by the parties in equal shares.
If the Agreement were enforced, then, as between the Applicant and the husband, the Applicant would be required to meet half the shortfall of $4,943.67; that is $2,471.83, and the husband to pay the same amount. Pursuant to clause 4.2.2 of the Agreement, the husband would then be required to pay the balance of the HSBC loan and must ensure that the Applicant obtains an unencumbered title to Suburb G.
Enforcement of the Agreement will not affect the position or right of HSBC. However, it was the clear agreement of the husband and the wife, firstly, that Suburb C would be sold and the proceeds paid off the HSBC loan and secondly that, as between them, the husband would be liable for the repayment of the balance of the loan.
The nature and extent of the non-compliance with the requirements of s 90G(1) is, as identified by their Honours Strickland and Ainslie Wallace JJ in Hoult, a relevant consideration for the Court when determining whether to exercise its discretion pursuant to s 90G(1A)(c).
It does not appear to be disputed by either party that the requirements in s 90G(1)(a) and (d) have been complied with. With respect to the provisions of s 90G(1)(b) – (ca), it appears from the evidence before me that both the husband and the wife received independent legal advice, albeit pursuant to s 90B of the Act, prior to signing the Agreement. Certificates of legal advice are attached to the Agreement from each of the husband and the wife’s respective solicitors stating that legal advice had been provided to each party as to the following matters:
1.the effect of the agreement on the rights of my client;
2. whether or not, at that time it was to the advantage, financially or otherwise, of my client to make the agreement;
3. whether or not, at that time, it was prudent for my client to make this Agreement;
4. whether or not, at that time in the light of such circumstances as were, at that time, reasonably foreseeable, the provisions of the Agreement were fair and reasonable.
It is the husband’s assertion that he could not have received the requisite legal advice required by s 90G(1)(b) as the certificate of advice provides that the parties only received advice in relation to a s 90B agreement.
At paragraphs 187 – 188 of Hoult, his Honour Thackray J confirmed that the operation of s 90G(1A)(c) is not limited to “technical” breaches of s 90G(1) and was applicable in circumstances where there has been a failure to give the required legal advice:
187. First, the words of the provision are plain. There is no warrant to add a gloss to the text by suggesting that its operation is confined to “technical” breaches. Such a description is not helpful, since what the court must find to enliven the discretion is a breach of one or more of the provisions identified in s 90G(1A)(b). As the words are plain, there is no warrant for referring to extrinsic materials to limit the operation of the provision. See s 15AB of the Acts Interpretation Act 1901 (Cth).
188. Secondly, had the absence of the requisite legal advice been intended by Parliament to be a bar to relief under s 90G(1B), then that factor would have been treated in the same way as the absence of signatures. The legislature has left the door open for agreements to be declared binding even where there has been an absence of legal advice. Once that is recognised, it follows that it is necessary for a trial judge to consider the extent of the failure to give the required legal advice and then weigh that against other relevant factors.
S 90G(1A)(b) specifically provides that a financial agreement may be binding upon the parties even in circumstances where one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the agreement.
I do not find that the nature and extent of the non-compliance with the requirements of s 90G(1)(b)-(ca), which follows from the Court’s inability to rectify the certificates of legal advice, is sufficient to prevent the exercise of my discretion pursuant to s 90G(1A)(c).
It would be unjust and inequitable if the husband were not held to his agreement.
The matter will be listed so that the parties can be heard in relation to the competing applications outstanding.
I certify that the preceding one hundred and twenty-six (126) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 28 April 2015.
Associate:
Date: 28 April 2015
2
1