ZAGAR & HELLNER
[2016] FamCA 224
•8 April 2016
FAMILY COURT OF AUSTRALIA
| ZAGAR & HELLNER | [2016] FamCA 224 |
FAMILY LAW – PROPERTY – BINDING FINANCIAL AGREEMENT – Where the parties entered into a Domestic Relationship Agreement under Part IV of the Property (Relationships) Act 1989 (NSW) – Where the Court finds the parties entered into a binding financial agreement for the purposes of section 90UJ of the Family Law Act 1975 (Cth) – Where the applicant seeks to have the Agreement set aside under sub-sections 90UM(1)(e) and 90UM(1)(h) – Where the respondent alleges that the parties entered into a verbal agreement which ultimately became the executed Agreement – Where the respondent argues that the applicant is precluded by principles of estoppel from seeking to have the Agreement set aside – Where the Court finds the parties did not enter into an agreement until they executed the Domestic Relationship Agreement – Where the Court finds the applicant cannot be estopped from seeking to have the Agreement set aside – Whether the respondent was under duress when executing the Agreement – Whether the respondent procured the Agreement by exercising undue influence over the applicant – Whether the respondent procured the Agreement by way of unconscionable conduct – Where the Court finds the respondent procured the Agreement by way of unconscionable conduct – Where the Court finds the respondent has failed to discharge his onus of establishing that the Agreement was fair, just and reasonable – Agreement set aside.
Contracts Review Act 1980 (NSW) s 7
Family Law Act 1975 (Cth) ss 90UJ, 90UM, 90UN
Family Law Amendment (De Facto Financial Matters and Other Measures)Act 2008 (No.115 of 2008) (Cth) s 88
Property (Relationships)Act 1989 (NSW) ss 45, 46, 47
Aboody v Ryan [2012] NSWCA 395
Australia and New Zealand Banking Group Limited v Karam (2005) 64 NSWLR 149
Black & Black (2008) FLC 93-357
Blomley v Ryan (1956) 99 CLR 362
Carmel-Fevia & Fevia(No. 3) [2012] FamCA 631
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Commonwealth of Australia v Verwayen (1990) 170 CLR 394
Fevia & Carmel-Fevia (2009) FLC 93-411
Hoult & Hoult (2011) FLC 93-489
Hoult & Hoult (2013) FLC 93-546
Hyman v Hyman [1929] AC 601
Raleigh & Raleigh [2015] FamCA 625
Saintclaire & Saintclaire [2015] FamCAFC 245
Scammell & Nephew Ltd. v Ouston [1941] AC 251
Selen & Selen and Ors [2011] FamCA 310
Senior & Anderson (2011) FLC 93-470
Tulloch (deceased) v Braybon & Ors(No. 2) [2010] NSWSC 650
| APPLICANT: | Ms Zagar |
| RESPONDENT: | Mr Hellner |
| FILE NUMBER: | SYC | 6187 | of | 2013 |
| DATE DELIVERED: | 8 April 2016 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | McClelland J |
| HEARING DATE: | 16 - 17 November 2015 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Petrie |
| SOLICITOR FOR THE APPLICANT: | Court Legal |
| COUNSEL FOR THE RESPONDENT: | Mr Lloyd SC with Ms Giacomo |
| SOLICITOR FOR THE RESPONDENT: | Manning Lawyers |
Orders
Pursuant to sections 90UM(1)(e) and 90UM(1)(h) of the Family Law Act 1975 (Cth), the Domestic Relationship Agreement dated 7 October 2005 between the parties be set aside.
Pending further order of the Court, the consent orders made by Senior Registrar Campbell on 9 April 2014 in respect of property are to continue.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Zagar & Hellner 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 6187 of 2013
| Ms Zagar |
Applicant
And
| Mr Hellner |
Respondent
REASONS FOR JUDGMENT
Introduction
This matter concerns an application by Ms Zagar (“the applicant”) to set aside a Domestic Relationship Agreement ("the Agreement") which she entered into with Mr Hellner (“the respondent”) under Part IV of the Property (Relationships) Act 1989 (NSW) (“the NSW Act”) on 7 October 2005.
The applicant seeks to have the Agreement set aside pursuant to sections 90UM(1)(e) and 90UM(1)(h) of the Family Law Act 1975 (Cth) (“the FLA”) as well as section 7 of the Contracts Review Act 1980 (NSW) (“the Contracts Review Act”). The applicant alleges that she executed the Agreement under duress, the Agreement was procured by the respondent exercising undue influence over her and/or that the Agreement was procured by unconscionable conduct on the part of the respondent. The context in which the applicant alleges that such duress, undue influence and/or unconscionable conduct occurred was that the respondent allegedly continued to pressure the applicant to sign the Agreement in the period prior to her giving birth to the parties’ daughter who was born in 2005. The applicant further alleges that, in the period immediately subsequent to the birth of the child, the respondent indicated to her that she would have to vacate the respondent’s home if she did not sign the Agreement. At that time the applicant was also employed in the respondent’s business.
The respondent, on the other hand, maintains that he agreed to the applicant moving into his home only on the basis of the applicant agreeing to enter into a “pre-nup” and that the terms of that agreement were verbally agreed to by the parties during the period from February until April 2005. The respondent submitted that the verbal agreement was subsequently reduced to writing and signed by the applicant on 7 October 2005 after she had received independent legal advice.
The respondent asserts that there is no evidence to support the applicant’s contentions of the Agreement being executed under duress, procured by undue influence and/or procured by unconscionable conduct on his behalf generally, and more specifically, in the period from February 2005 until April 2005. The respondent submits, therefore, that the applicant should be bound by the terms of the Agreement.
Legislation
It was common ground between the parties that this Court has jurisdiction to consider the applicant’s application to set aside the Agreement as a result of transitional legislation enacted when particular States, including New South Wales, transferred their jurisdiction in respect to de facto relationships to the federal jurisdiction of the Family Court of Australia.
In that context, section 88 of Part 2 of Schedule 1 of the Family Law Amendment (De Facto Financial Matters and Other Measures)Act 2008 (No.115 of 2008) (Cth) (“the transitional Act”) relevantly provides:
88 Pre commencement agreements-made during de facto relationships
(1) This item applies if:
(a) before commencement and while in a de facto relationship, the parties to the de facto relationship (the couple ) made a written agreement, signed by both of them, with respect to any of the matters (the eligible agreed matters ) mentioned in sub item (3); and
(b) the agreement was made under a preserved law of an earlier participating jurisdiction; and
(c) a court could not, because of the preserved law, make an order under that law that is inconsistent with the agreement with respect to any of the eligible agreed matters; and
(d) immediately before commencement:
(i) the agreement was in force under the preserved law; and
(ii) the de facto relationship had not broken down; and
(iii) the couple were not married to each other.
Paragraph (a) extends to an agreement made with one or more other people.
Note: Agreements made in non-referring States are not covered by this item. Those agreements continue to be governed by State law unless they are transformed into Part VIIIAB financial agreements (see section 90UE of the new Act).
(2) For the purposes of the new Act, the agreement is taken, on and after commencement, to be a Part VIIIAB financial agreement made as mentioned in subsection 90UC(1) of the new Act to the extent that the agreement deals with the eligible agreed matters.
Note: After commencement, the agreement can only be enforced, varied, terminated or otherwise set aside under the new Act.
(3) The matters referred to in paragraph (a) of sub item (1) are the following:
(a) how all or any of the:
(i) property; or
(ii) financial resources;
of either member, or members, of the couple at the time when the agreement is made, or at a later time and during the de facto relationship, is to be distributed in the event of the breakdown of the de facto relationship;
(b) the maintenance of either member of the couple in the event of the breakdown of the de facto relationship;
(c) matters incidental or ancillary to those mentioned in paragraph (a) or (b).
(4) For the purposes of paragraph (c) of sub item (1), disregard whether the preserved law permits the court to make such an order if the court varies or sets aside the agreement.
(Emphasis added)
There was no issue between the parties that the NSW Act is a “preserved law” of a participating jurisdiction, as contemplated by section 88 of the transitional Act. As will be discussed, the issues of preservation of only written agreements signed by both parties and the method of enforcement of such agreements are issues of significance in this matter.
In respect to that first issue, that is the preservation of written agreements, section 88(1)(a) of the transitional Act reflects section 47 of the NSW Act which also required domestic relationship agreements to be in writing. That section relevantly provides:
47 Effect of agreements in certain proceedings
(1) Where, on an application by a party to a domestic relationship for an order under Part 3, a court is satisfied:
(a) that there is a domestic relationship agreement or termination agreement between the parties to the relationship,
(b) that the agreement is in writing,
(c) that the agreement is signed by the party against whom it is sought to be enforced,
(d) that each party to the relationship was, before the time at which the agreement was signed by him or her, as the case may be, furnished with a certificate in or to the effect of the prescribed form by a solicitor which states that, before that time, the solicitor provided legal advice to that party, independently of the other party to the relationship, as to the following matters:
(i) the effect of the agreement on the rights of the parties to apply for an order under Part 3, and
(ii) the advantages and disadvantages, at the time that the advice was provided, to the party of making the agreement, and
(e) that the certificates referred to in paragraph (d) are endorsed on or annexed to or otherwise accompany the agreement,
the court shall not, except as provided by sections 49 and 50, make an order under Part 3 in so far as the order would be inconsistent with the terms of the agreement.
(Emphasis added)
The question as to whether the Agreement is a binding financial agreement for the purposes of the FLA is significant as section 90SA of the FLA provides that, to the extent set out in that section, Division 2 of Part VIIIAB concerning maintenance, declaration of property interests and alterations of property interests in respect to de facto relationships, does not apply in circumstances where parties have signed a binding financial agreement. In effect, a binding financial agreement displaces the jurisdiction of the Family Court in respect to those matters.
Section 90UJ of the FLA sets out the circumstances of when a financial agreement concerning a de facto relationship is binding and relevantly provides:
90UJ When financial agreements are binding
(1) Subject to subsection (1A), a Part VIIIAB financial agreement (other than an agreement covered by section 90UE) 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 Part VIIIAB financial agreement (other than an agreement covered by section 90UE) 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 Part VIIIAB 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 90UN applies in relation to the enforcement application.
(2) A Part VIIIAB financial agreement covered by section 90UE is binding on the parties to the agreement if, and only if, the agreement has not been terminated and has not been set aside by a court.
(3) A Part VIIIAB financial agreement ceases to be binding if, after making the agreement, the parties to the agreement marry each other.
(4) A court may make such orders for the enforcement of a Part VIIIAB financial agreement that is binding on the parties to the agreement as it thinks necessary.
(Emphasis added)
The parties were in agreement that paragraphs (a), (b) (c) and (ca) of section 90UJ(1) had been satisfied. Accordingly, the primary issue before the Court is whether the Agreement should be set aside as contemplated by section 90UJ(1)(d).
The applicant submitted that the Agreement should be set aside pursuant to either subsection 90UM(1)(e) or 90UM(1)(h) of the Act.
In context, those provisions are:
90UM Circumstances in which court may set aside a financial agreement or termination agreement
(1) A court may make an order setting aside, for the purposes of this Act, a Part VIIIAB financial agreement or a Part VIIIAB termination agreement if, and only if, the court is satisfied that:
…
(e) the agreement is void, voidable or unenforceable; or
…
(h) in respect of the making of a Part VIIIAB financial agreement--a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; …
…
Section 90UN is also of relevance and provides:
90UN Validity, enforceability and effect of financial agreements and termination agreements
The question whether a Part VIIIAB financial agreement or a Part VIIIAB 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.
(Emphasis added)
The applicant submitted that "the principles of law and equity" referred to in section 90UN include the law in respect to duress, undue influence and unconscionable conduct. The applicant also submitted that, in considering whether to set aside the Agreement pursuant to section 90UM(1)(e), the Court should apply section 7 of the Contracts Review Act. In that respect, section 46 of the NSW Act provides:
46 Agreements subject to law of contract
Except as otherwise provided by this Part, a domestic relationship agreement or termination agreement shall be subject to and enforceable in accordance with the law of contract, including, without limiting the generality of this section, the Contracts Review Act 1980.
Section 7 of the Contracts Review Act provides:
7 Principal relief
(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:
(a) it may decide to refuse to enforce any or all of the provisions of the contract,
(b) it may make an order declaring the contract void, in whole or in part,
(c) it may make an order varying, in whole or in part, any provision of the contract,
(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:
(i) varies, or has the effect of varying, the provisions of the land instrument , or
(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.
(2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order.
(3) The operation of this section is subject to the provisions of section 19.
The Evidence
The applicant relied upon her affidavits filed 22 October 2013 and 28 February 2014.
The respondent relied upon his affidavit filed 22 October 2015 and the affidavits of Ms N, Mr F and Mr L all respectively filed 22 October 2015. Ms N and Mr L were not, however, required for cross-examination.
Summary of the terms of the Agreement
The applicant annexed a copy of the Agreement to her affidavit filed 22 October 2013. The Agreement annexed to the applicant’s affidavit is executed by all parties however is undated. A brief summary of the terms of the Agreement are set out below:
Clauses A to N - Introduction
Set out the parties’ intentions in entering into the Agreement as well as describing the circumstances and facts in which the parties entered into the Agreement. Clauses A to N also operate to provide assistance in the interpretation of any ambiguities in the clauses of the Agreement. Relevantly, it is of note that clause E states:
E. It is intended that this Deed will apply to the whole of the property and financial resources of the parties and to any maintenance liability under the [NSW] Act of the parties now and in the future.
Clauses 1 – 17 Operational provisions of the Agreement
Clauses 1 – 17 set out the operational provisions of the Agreement and in particular, how the parties’ property and financial resources will be dealt with in the event of a breakdown of their relationship. The Agreement does not make provision for the financial support of either party following separation. Of note are the following clauses:
Clause 2: Describes the assets, liabilities and financial resources of each of the parties. The parties’ respective “Separate Property” is set out in two schedules, which are set out in some considerable detail, annexed to the Agreement. The respondent’s property is set out in Annexure “A” and the applicant’s property is set out in Annexure “B”. These schedules include the parties’ respective superannuation entitlements. The clause also states that each of the parties have “fully and adequately” disclosed the “identity, nature and estimated value” of their assets, liabilities and financial resources and have satisfied themselves independently as to the estimated values set out in the respective schedules. Clause 2.6 also relevantly provides:
2.6 [Mr Hellner] undertakes that 30 days of the date of executing this Agreement he will pay $25,000.00 to buy shares for [Ms Zagar] at her discretion and sole discretion.
Clause 3: Sets out the financial arrangements in the event of a breakdown of the relationship. The Agreement provides that each of the parties is to retain, to the exclusion of the other, their “Separate Property”, being the items listed in Annexures “A” and “B”. “Separate Property” also purports to include any property acquired by each of the parties separately during the relationship.
Joint or “Shared Property”, being property which is not “Separate Property”, is to be divided between the parties in accordance with “…their respective share in the asset, liability or resource”. “Shared Property” is only characterised on the basis of written documentation which evidences “title/ownership/interests in that asset, liability or resource” and the property is to be divided in accordance the shares evidenced in the written documentation.
Where “Shared Property” cannot be divided the Agreement provides a mechanism for the sale of that property with the proceeds of the sale to be divided between the parties in the portions evidenced by the written documentation. The Agreement also provides a mechanism for the division of household effects and furnishings.
Clause 7: Advises that each party has received independent legal advice from separate qualified legal practitioners. Sub-clause 7.2 sets out a number of acknowledgements of each of the parties in respect to the Agreement. Relevantly sub-clause 7.2(c) provides:
7.2(c) the effect of this Deed is to end any claim that the parties may otherwise have under the [NSW] Act for property adjustment, settlement or maintenance under Part III of the [NSW] Act.
Also of note is sub-clause 7.2(g) which provides:
7.2(g) nothing in this Deed affects the power of any appropriate Court to make orders with respect to parenting of children or maintenance for children, nor does it affect any entitlement or liability for Child Support.
Annexure “A” to the Agreement identified the total net assets and financial resources of the respondent as being $4 375 869.71. The bulk of this comprised the property at C Street, Suburb D which was valued at $1 500 000 and the respondent’s business “E Pty Ltd” which was valued at $2 654 000. Annexure “B” to the Agreement identified the applicant’s total net assets and financial resources as being $32 865 which, aside from cash and superannuation totalling $8000, consisted of household furniture and effects.
In summary, the Agreement precludes each of the parties from making a claim against any property or financial resource owned solely by each of them or against the other parties’ share of any joint property in the event of separation. There is no provision in the Agreement for an adjustment of the parties’ respective property interests as a result of any non-financial contributions made during the course of the relationship. Further the Agreement makes no provision for an adjustment of property interests in respect to contributions made by either party during the course of the relationship to the improvement or maintenance of the other party’s property or financial resources (whether those contributions are financial and/or non-financial).
There is no provision for maintenance of a party, however the Agreement does not seek to alter the parties’ respective child support entitlements and obligations.
Background facts
The relevant facts and, where disputed, factual contentions of the parties can be summarised as follows:
a)The applicant was born in 1973 and is currently aged 42. The applicant is currently employed as a retail sales assistant.
b)The respondent was born in 1962 and is currently aged 53. The respondent is self-employed as Managing Director of E Pty Limited.
c)In November or December 2003, the parties commenced dating. At this time the respondent was residing at the property situated at C Street, Suburb D (“the Suburb D property”) whilst the applicant lived in rental accommodation.
d)The respondent contends that between December 2003 and January 2005 the parties dated “on and off” and separated on at least three occasions. The respondent contends that the applicant wanted to move in with him soon after the relationship commenced but that he refused.
e)In September 2004, as the lease for the applicant’s rental accommodation was coming to an end in February 2005, the applicant contends that she proposed that the parties commence living together.
f)On 18 December 2004, the respondent drafted a document titled “The … move in criteria” which set out, in dot points, what the respondent wanted if the parties were to move in together. It included the following dot points:
· Prenump [sic] – protect assets.
· Don’t want kids (vesectimony) [sic].
· Home environment: Your stuff / my style.[1]
[1] The respondent’s affidavit filed 22 October 2015 at paragraph 18 and Annexure ‘A’.
g)In late December 2004 or early January 2005, the parties discontinued their relationship. The respondent alleges that he believed it was on a final basis.[2]
[2] Ibid at paragraph 19.
h)In January 2005, the applicant discovered that she was pregnant. She telephoned the respondent to inform him. The applicant alleges that the respondent became upset and told her:
I do not want to be a father. You have to terminate the pregnancy. If you don’t you will have to [do] it alone without any support from me.[3]
[3] The applicant’s affidavit filed 22 October 2013 at paragraph 14.
i)The applicant attested that in late January 2005, she consulted her doctor about a termination of the pregnancy. She believed she had miscarried the child and, when she discovered she had not, decided to continue with the pregnancy.[4]
[4] Ibid at paragraphs 15 and 16.
j)The respondent alleges that in early 2005, he said to Mr F, a friend of his:
I will need to protect my assets moving forward particularly when I have worked so [hard] to build my assets.[5]
[5] The affidavit of Mr F filed 22 October 2015 at paragraph 14.
k)The applicant deposed that on 23 February 2005 after a month of no contact from the respondent, she received an email from him saying that he wished to get together and discuss matters. The applicant replied saying that she was ready to talk but the respondent did not respond.[6]
[6] The applicant’s affidavit filed 22 October 2013 at paragraph 17.
l)On 26 February 2005, the applicant sent a text message to the respondent saying that she was going to be spending the weekend in the Region G and was considering moving to live in Victoria to be closer to her father and friends.[7]
[7] The applicant’s affidavit filed 22 October 2013 at paragraph 18; the respondent’s affidavit filed 22 October 2015 at paragraph 23.
m)In late February 2005, the respondent joined the applicant for the weekend in the Region G and said to the applicant words to the effect:
I want to be part of your life and the baby’s. I want to trial living together.
n)During that weekend away it was agreed between the parties that they should sign a “pre-nuptial agreement”. However, the parties gave different evidence about the level of detail of the proposed “pre-nuptial agreement” as discussed between them.
o)In February or March 2005, the parties commenced counselling with Dr H and attended between five to eight sessions.
p)In March or April 2005, Dr H prepared a document entitled “Goal Setting Stage 3 Action Plan Format” which included the topic “Financial Agreements re finances”.[8]
[8] The respondent’s affidavit filed 22 October 2015 at paragraph 34 and Annexure ‘B’.
q)On 17 March 2005, the respondent prepared a document titled “Project …’s Strategic Plan 2005”, which he gave to the applicant and Dr H for discussion at the counselling sessions.[9]
[9] Ibid at paragraphs 35 to 36 and Annexure ‘C’.
r)In March or April 2005, the respondent alleges that during the counselling sessions the applicant said “Okay I am happy to sign a pre-nup” and that he agreed to the applicant moving in with him into the Suburb D property on that basis.[10] This was supported by Mr F who says that the respondent told him around that time:
[10] Ibid at paragraphs 37 and 38.
[Ms Zagar] has agreed to sign a prenup that we have been discussing during counselling. As [Ms Zagar] will be having the baby she will move in to my home and rent out her apartment now that she has decided to sign the prenup [sic].[11]
[11] The affidavit of Mr F filed 22 October 2015 at paragraph 15.
s)On 23 April 2005 on the respondent’s version, or 25 April 2005 on the applicant’s version, the parties commenced living together in a de facto relationship. The applicant was approximately four months pregnant at the time.
t)The respondent asserts that, at this time, he understood that a de facto relationship would commence six months after the applicant moved in, and as such, the applicant was required to enter into a financial agreement no later than 10 October 2005.[12]
[12] The respondent’s affidavit filed 22 October 2015 at paragraph 42.
u)In May 2005, the respondent sought legal advice from K Lawyers as to the preparation of a financial agreement.
v)On 6 June 2005, the respondent received a draft agreement from K Lawyers. The respondent then had a discussion with the applicant about her compiling a list of her inventory and assets.
w)In July 2005, the applicant commenced working for the respondent’s business in a business development role. The applicant says she worked every day until she gave birth.[13] The applicant continued to be employed by the respondent’s business until October 2013. The applicant’s initial salary was $1 800 after-tax per month.[14]
[13] The applicant’s affidavit filed 22 October 2013 at paragraph 20.
[14] Ibid at paragraph 33.
x)On 29 July 2005, the applicant attended upon a solicitor, of J Lawyers. That firm had been engaged through the respondent’s solicitors and their fees were to be paid by the respondent. No issue was taken by the applicant as to the independence of the advice she received from J Lawyers. At that meeting on 29 July 2005 the applicant was provided with a copy of the draft agreement. The applicant contended that she had not read the document provided by the respondent prior to her attendance at Mr I’s office.
y)In August 2005, the parties agreed to attend counselling with Mr L to discuss the transition to signing an agreement. Sessions were held jointly and/or individually and discussions continued in respect to the draft agreement.
z)Around that time, the respondent told Mr F:
[Ms Zagar] doesn't want to sign the prenup [sic] anymore. She keeps putting it off. I am really concerned that she is not going to meet her commitments. We are still going to counselling so I am hoping that will resolve it.[15]
[15] The affidavit of Mr F filed 22 October 2015 at paragraph 17.
aa)On 25 August 2005, the applicant again attended upon her solicitor, Mr I. Shortly after that meeting she told the respondent:
The Agreement provides me with nothing [Mr Hellner]. You have assets and I will be left with nothing. How can I sign a document like that? I need to provide for my future.[16]
[16] The respondent’s affidavit filed 22 October 2015 at paragraph 60 and see transcript of 16 November 2015 at page 40.
bb)The respondent alleges he then discussed with his father giving the applicant a share portfolio of $25 000. The respondent alleges that the applicant told him that, if he put the share portfolio into the agreement, she would sign it.
cc)The applicant deposed that in early September 2005, the respondent presented to the applicant a draft of the proposed agreement and told her:
You have to sign this. I’ve made an appointment for you to see a solicitor to sign the document on 6 September 2005. I have paid for the solicitor who will see you.[17]
[17] The applicant’s affidavit filed 22 October 2013 at paragraph 21.
dd)In September 2005, at thirty-seven weeks pregnant, the applicant attended Mr I’s office and received a letter of advice which concluded: “We recommend you do not enter into that Agreement”.[18]
[18] The applicant’s affidavit filed 22 October 2013 at paragraph 21 and see transcript of 16 November 2015 at page 40.
ee)Around a month later the parties’ child, B, was born (“the child”). She is currently aged 10.
ff)Two days later after the birth, the applicant and the child were discharged from hospital.
gg)The following day, the applicant alleges that the respondent said to her:
You have to sign the Agreement or you will have to move out of my house.[19]
[19] The applicant’s affidavit filed 28 February 2014 at paragraph 6.
hh)The respondent alleges that, at this time, he said to the applicant:
We have been discussing this for quite some time. You knew this when you moved in. As we agreed, you wouldn’t be here if you hadn’t agreed to sign it.[20]
[20] The respondent’s affidavit filed 22 October 2015 at paragraph 81.
ii)On 28 September 2005, the respondent provided to the applicant a document titled “Moving Forward Blueprint” which according to the respondent included the following:
[Ms Zagar] gets $25, 000 share portfolio (all growth to be reinvested) which she can only access if relationship dissolves (or before as mutually agreed. This goodwill gesture from [Mr Hellner] is activated 24 months after signing of [Mr Hellner’s] property agreement.
[Mr Hellner’s] house, business, super, shares and future inheritance is to be protected in a property agreement.
The issue needs to be resolved in the next 10 days. If this is not resolved then the pre-April circumstances will have to be resumed.[21]
[21] Ibid at paragraphs 83 and 84.
(Emphasis added)
jj)The applicant agrees that the Moving Forward Blueprint document was provided to her on or about 28 September 2005 but her evidence differs from the respondent in so far as she asserts the paragraph emphasised in the above extract read:
[Mr Hellner’s] assets to be protected in the existing property agreement.[22]
[22] The applicant’s affidavit filed 22 October 2013 Annexure ‘B’ referred to at paragraph 27.
kk)On 28 September 2005, the husband emailed his solicitor, Ms K, and said:
Okay we have now some resolve regarding the agreement. [Ms Zagar] will sign and I will provide her with $25,000 worth of shares on signing. She will own these shares and their growth (and/or additional contributions to over the years) if the relationship ever dissolves.[23]
[23] The respondent’s affidavit filed 22 October 2015 at paragraph 86 and Annexure ‘H’.
ll)On 7 October 2005, the parties signed a Domestic Relationship Agreement under Part IV of the NSW Act. The child was approximately three weeks of age when the Agreement was executed.
mm)The Agreement was signed at the office of the respondent’s solicitors, with the applicant’s solicitor present. The child was also present with the applicant. The applicant alleges she was two weeks later diagnosed with post-partum thyroiditis.[24] The respondent alleges that the applicant was not diagnosed with post-partum thyroiditis until January 2006, some two to three months after the Agreement was signed.[25]
[24] The applicant’s affidavit filed 28 February 2014 at paragraph 8.
[25] The respondent’s affidavit filed 22 October 2015 at paragraph 78.
nn)In November 2005, the respondent provided the applicant with the share portfolio in accordance with the Agreement. The applicant also recommenced working in the respondent’s business.
oo)In February 2006, the parties hired a nanny to take care of the child for three days per week.
pp)In August 2006, the child commenced attending day care and the applicant continued to work for the respondent’s business three to four days a week.
qq)In July 2013, the parties received an inheritance from the respondent’s father; with $50 000 received by the applicant and $600 000 received by the respondent.
rr)On 3 September 2013, the applicant alleges that she raised with the respondent the issue of marriage, to which she says the respondent said:
I always told you I didn’t want to get married. Any man in my situation would have a prenup in place [sic].[26]
[26] The applicant’s affidavit filed 22 October 2013 at paragraph 39.
ss)On 15 September 2013, the parties separated.
tt)On 1 October 2013, whilst on holiday in Queensland with the child, the applicant received two emails from the respondent. The first email attached a document advising that her employment with the respondent’s business had been terminated and that he would no longer pay her mobile phone expenses. The second email attached a document advising she had to vacate the Suburb D property by 27 October 2013.[27]
[27] Ibid at Annexures ‘C’ and ‘D’.
uu)On 3 October 2013, the applicant received a further email from the respondent attaching an Employment Separation Certificate and advising that $3 250 had been deposited into her bank account with a further $3 000 to be deposited the following day.[28]
[28] Ibid at Annexure ‘E’.
vv)On 8 October 2013, the applicant returned from Queensland. The applicant alleges the respondent had changed the locks to the office and the Wi-Fi password.
ww)The applicant alleges that on 14 October 2013 the respondent agreed to the applicant remaining at the Suburb D property until she returned from the United States of America where she was travelling to visit her brother with the child.[29]
[29] Ibid at paragraph 48.
xx)On 17 October 2013, the applicant alleges the respondent advised her that the parties could not continue to live together and that she had to leave the Suburb D property before she travelled to the United States.[30]
[30] Ibid at paragraph 50.
yy)On 22 October 2013, the applicant commenced proceedings in the Family Court of Australia seeking to set aside the Agreement as well as final property orders and parenting orders.
zz)On 6 February 2014, the applicant commenced part-time employment as a retail sales assistant.
aaa)On 9 April 2014, interim parenting and property orders were made by consent before Senior Registrar Campbell. These orders included the following undertakings that:
·The applicant would vacate the former matrimonial home at Suburb D;
·The respondent would do all things necessary to obtain a residential lease in his name for a two bedroom apartment in Suburb D for the applicant and child;
·The respondent would pay the rent, and bond, associated with that apartment until final property orders were made by the Court or the Agreement was set aside;
·The respondent would pay the applicant child support of $1 000 per month.
bbb)On 9 February 2015, Aldridge J dismissed the respondent’s application to vary the undertakings provided by him on 9 April 2014.
Contentions of the Parties
The applicant's contentions
The applicant relied upon the following particulars in support of the grounds pleaded to set the Agreement aside. These were set out in the Applicant’s case outline as follows:[31]
[31] The applicant’s Outline of Case document titled “Case Outline of the Applicant Mother” page 23 onwards.
Duress
a)The respondent had repeatedly informed the applicant that unless she executed the Agreement, she and the child would have to leave the respondent’s home in Suburb D.
b)From July 2005 until shortly prior to the execution of the Agreement, the applicant worked in the respondent's business at his discretion and under his control.
c)The terms of the Agreement were determined by the respondent.
d)At the time of execution of the Agreement, the applicant was completely financially dependent on the respondent.
e)At the time of the execution of the Agreement, the applicant had no support network available to her from family and/or friends.
f)The applicant had no property, money, alternative accommodation or source of financial support available to her.
g)At the time of the executing of the Agreement, there was a material inequality in the bargaining power of each the parties in that the respondent had his own business and had been in business on his own account for some years. The applicant, at that time had been employed, and had never been employed or engaged in commerce on her own behalf.
h)The applicant believed that, in the circumstances, she had no alternative but to sign the Agreement.
Undue influence
a)The applicant alleged that the respondent procured the applicant’s agreement to the terms of the Agreement as result of undue influence resulting from the respondent being in a position of ascendancy over her. In that respect, the applicant relied on the same particulars provided in respect to the ground of duress.
Unconscionable conduct
a)The applicant alleged that the respondent procured the applicant’s agreement to the Agreement by unconscionable conduct in circumstances where, to his knowledge, the applicant was at a special disadvantage that the respondent took advantage of. The applicant again relied on the particulars provided in respect to the grounds of duress and undue influence.
Contracts Review Act 1980 (NSW)
a)The applicant essentially repeated the particulars as relied upon in respect to the grounds of duress, undue influence and unconscionable conduct as establishing that the contract was an unfair contract as contemplated by the Contracts Review Act.
The respondent’s contentions
The respondent placed significance on the parties having entered into what was alleged to have been a verbal agreement in the period between February and April 2005. This verbal agreement, it was submitted, subsequently became the written agreement signed by the applicant on 7 October 2005. The summary of argument provided by the respondent in that respect was as follows:[32]
[32] The respondent’s Outline of Case document filed 11 November 2015.
a)Prior to the applicant cohabiting with the respondent the parties entered into a negotiation as to the Agreement.
b)The parties negotiated the Agreement in the period from February 2005 to April 2005. It was agreed that:
i)The respondent's business, home, superannuation and investments would be protected in the event of a later separation.
ii)That the applicant and respondent would record their agreement in a document that they both described as a "pre-nup".
c)At the commencement of cohabitation the parties had concluded their [verbal] agreement and intended to be immediately bound to the performance of the conditions and terms thereof. They also agreed to reduce such conditions and terms on which they had agreed in a document that they called a "pre-nup".
d)At the time of entering into the [verbal] agreement in April 2005, the applicant was fully aware of the content of the agreement and was satisfied with its conditions and terms.
e)The respondent, in reliance upon the [verbal] agreement, consented to the applicant moving into his home in Suburb D in April 2005. The applicant moved into the respondent’s home in April 2005.
f)In about September 2005 the applicant and the respondent agreed that the respondent would give the applicant the sum of $25 000 as a goodwill gesture to purchase a share portfolio. The respondent communicated this to his solicitor.
g)On 28 September 2005 the applicant and respondent recorded their April 2005 [verbal] agreement in writing in a document they called a "pre-nup.” The essence of this Agreement was a de facto relationships agreement, pursuant to the NSW Act.
h)Prior to entering into the Agreement the applicant was provided with legal advice.
i)In November 2005, the respondent gave the applicant the sum of $25 000 to purchase a share portfolio as agreed by between the parties in September 2005.
In terms of relevant law, the respondent argued that the verbal agreement had been entered into in the period prior to April 2005 and was one in which the parties had reached:
…finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms, but at the same time proposed to have the terms restated in a form which will be full or more precise but not different in effect.[33]
[33] Masters v Cameron (1954) 91 CLR 353 at 360.
In that respect, counsel for the respondent argued that the verbal agreement fell within the first category considered by the High Court in Masters v Cameron (1954) 91 CLR 353 and was therefore "binding upon the parties from the time of its inception".
Counsel for the respondent argued that the payment of the sum of $25 000 to the applicant in November 2005 was in the nature of a gift, rather than consideration for the applicant entering into the Agreement and, therefore, did not alter the fact that an agreement had been entered into prior to the applicant moving into the respondent’s home in April 2005. In that context, counsel for the respondent argued that "past consideration (after a promise has been performed) is no consideration,” relying upon the authority of Roscorla v Thomas (1842) 3 QB 234.
In respect to the ground pleaded by the applicant that she was under duress when executing the Agreement, senior counsel for the respondent argued that evidence of unlawful conduct is required to establish duress and no such evidence has been presented by the applicant. The respondent relied upon Australia and New Zealand Banking Group Limited v Karam (2005) 64 NSWLR 149 in this regard.
In respect to the ground pleaded by the applicant that the respondent had procured the Agreement by exercising undue influence over the applicant, senior counsel for the respondent argued that one of three elements is required to be established.
Firstly, relying upon National Westminster Bank PLC v Morgan (1985) AC 686 and Bank of New South Wales v Rogers (1941) 65 CLR 42, there must be evidence that the transaction has been procured by the improper or unconscientious use of influence by the respondent over the applicant that cannot be explained on the grounds of friendship, charity or other ordinary motives on which people ordinarily act.
Secondly, at the time the parties entered into the verbal agreement regarding the matters subsequently included in the Agreement, they were in a romantic relationship, but not living together, and therefore their relationship did not fall within the categories of presumed undue influence, as contemplated by Johnson v Buttrose (1936) 56 CLR 113.
Thirdly, relying upon Winefield v Clarke [2008] NSWSC 882, in the absence of a presumed relationship of undue influence, the applicant bears the onus of proving that the respondent assumed a position of ascendancy or influence over her and that the applicant reposed trust and confidence in the respondent and used that relationship to achieve a transaction from which the respondent benefitted.
Senior counsel for the respondent submitted that, in respect to the first element, the evidence presented did not establish that the transaction had been procured by the improper or unconscientious use of influence by the respondent and, in respect to the third element, the applicant had failed to discharge the onus upon her.
In respect to the ground pleaded by the applicant that the respondent had procured the Agreement by unconscionable conduct on the part of the respondent, senior counsel for the respondent relied upon Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. The respondent argued that the applicant bears the onus of proving that she was under a special disadvantage and that the respondent knew of that disadvantage and, further, took advantage of the applicant’s known weakness, disabilities and disadvantages in procuring her agreement to enter into the “pre-nup”. Senior counsel for the respondent once again argued that the applicant had failed to discharge that onus.
Finally, senior counsel for the respondent argued that merely because the applicant has become dissatisfied with the terms of the Agreement since entering into itis no basis for setting the Agreement aside. In that respect, senior counsel relied upon Gerbert & Gerbert (1990) 14 FamLR 62 and Logan & Logan [2012] FMCAfam 12.
The Issues
The issues for determination are therefore as follows:
·Did the applicant enter into a verbal agreement with the respondent prior to moving into respondent’s home in April 2005?
·If so, what was the significance of any such verbal agreement?
·Is the applicant precluded by the principles of estoppel from seeking to set aside the Agreement?
·If the applicant is not estopped from seeking to set aside the Agreement, should the Agreement be set aside as a result of:
· Duress;
· Undue influence; or
· Unconscionable conduct?
·Does the Court have jurisdiction pursuant to section 7 of the Contracts Review Act to set aside the Agreement or vary its terms?
Consideration of issues
Did the applicant enter into a verbal agreement with the respondent prior to moving into the respondent’s home in April 2005?
The respondent places significant emphasis on his contention that the parties entered into a verbal agreement prior to the applicant moving in with him in April 2005. Specifically the respondent alleges that:
1. …
2. The parties negotiated the agreement in the period from February to April 2005. It was agreed that:
a. The Respondent's business, home, superannuation and investments would be protected in the event of a later separation.
b. That the Applicant and Respondent would record their agreement in a document (that they both described as a "pre-nup").
3. At the commencement of cohabitation the parties had concluded their agreement and intended to be immediately bound to the performance of the conditions and terms thereof. They also agreed to reduce such conditions and terms on which they had agreed in a document that they called a "pre-nup".
4. At the time of entering into the agreement, in April 2005, the Applicant was fully aware of the content of the agreement and was satisfied with its conditions and terms.
The respondent’s submission as to the time the parties entered into the alleged verbal agreement is significant. This is because he contends that there can be no suggestion that the applicant was under duress or subject to undue influence or unconscionable conduct on the part of the respondent, in the period prior to the applicant moving in with him in April 2005. This timing is also significant in so far as the respondent alleges that, as a result of the applicant entering into the verbal agreement, the respondent acted to his detriment in allowing the applicant to move into his home. Accordingly it was argued that the applicant is estopped from seeking to have the Agreement set aside pursuant to section 90UM of the FLA.
The first issue to determine is, therefore, whether the parties entered into a finalised, albeit verbal, agreement with a view to protecting the respondent’s “business, home, superannuation and investments” prior to the applicant moving in with the respondent in April 2005.
It is generally accepted that the four basic requirements for there to be a valid contract between parties is: offer and acceptance, consideration, intention to create legal obligations and certainty of terms. In these reasons I propose to focus only on the issues of certainty and intention to create legal obligations.
In Scammell & Nephew Ltd. v Ouston [1941] AC 251 at 268 Lord Wright said:
The object of the court is to do justice between the
parties, and the court will do its best, if satisfied that there was
an ascertainable and determinate intention to contract, to give
effect to that intention, looking at substance and not mere form.
It will not be deterred by mere difficulties of interpretation.
Difficulty is not synonymous with ambiguity so long as any
definite meaning can be extracted. But the test of intention is to
be found in the words used. If these words, considered however
broadly and untechnically and with due regard to all the just
implications, fail to evince any definite meaning on which the
court can safely act, the court has no choice but to say that there
is no contract.(Emphasis added)
The applicant acknowledged that, prior to her moving in with the respondent, she agreed to enter into a “pre-nup” with the respondent but asserted that the agreement was only intended to apply to the respondent’s home in Suburb D rather than the entirety of his assets.
No issues of credit arose in these proceedings in respect to each of the parties and I am of the view that both witnesses were truthful in their evidence. On the balance, however, I find that it is more plausible that the respondent would have referred to his desire to “protect” more than simply his home, but it is unclear as to just what was specifically intended to be included in the verbal agreement.
For instance, according to the respondent’s evidence, the “Moving Forward Blueprint” document dated 28 September 2005 which was provided by the respondent to the applicant, sought to protect not only the respondent’s business, Suburb D home, superannuation and investments as referred to in the respondent’s written submissions but also included his “future inheritance”.[34]
[34] The applicant’s affidavit filed 22 October 2013 at paragraph 27 and Annexure ‘B’; the respondent’s affidavit filed 22 October 2015 at paragraphs 83 and 84.
Even if the respondent’s evidence is taken at its highest, and a broad approach is taken, it is nonetheless impossible to formulate with a satisfactory degree of precision the content of the alleged verbal agreement or its conditions and terms as agreed between the parties.
The respondent’s evidence is set out in paragraphs 30 to 32 of his affidavit filed 22 October 2015, as follows:
30. We discussed my needs wherein I said to Dr H and the Mother words to the effect of:
I have built up my business and own my own home. As it has been a rocky relationship thus far, I need security for my assets including my superannuation and investments. Therefore to feel comfortable moving forward, signing a prenup is a top priority for me to protect my assets. I want there to be fairness in the contributions we are both bringing to the relationship.
31. The Mother also discussed her needs and said words to the effect of:
I agree that signing an agreement is necessary but I do not want to feel left high and dry.
32. The Mother and I also discussed many options, including if we did not continue the relationship and how the Mother and the baby would supported financially.
The respondent admits that the applicant expressed concern as to how she and the parties’ child would be financially protected if the parties’ relationship ended. The applicant’s evidence to that effect was not challenged in cross examination.
There is no evidence that, as at 25 April 2005, the parties had reached any agreement as to how the applicant and the parties’ child would be financially supported in the event of the breakdown of their relationship.
There was no evidence presented to the Court that either party had sought legal advice in respect to the alleged verbal agreement prior to the applicant moving into the respondent’s home in April 2005. There was also no evidence presented as to whether the parties had considered or had discussed the rights under the NSW Act that the applicant would be foregoing or which were being substituted by the alleged verbal agreement.
In those circumstances there is no evidence that the parties were in agreement in respect to any rights the applicant would have under the alleged verbal agreement. The absence of an agreement in respect to a matter of such significance, in circumstances where the respondent acknowledges that entering into a “pre-nup” was an ongoing concern of the applicant’s, leads the Court to conclude that the parties had failed to reach agreement as to the content of a “pre-nup” in the period prior to the applicant moving in with the respondent in April 2005, as alleged by the respondent.
I find that, in the period prior to April 2005, the parties reached a consensus that they would sign a “pre-nup” but there was insufficient identification of the terms of such an agreement at this time. I therefore find that the respondent has failed to establish that he entered into a contract with the applicant regarding property and maintenance at a time earlier than 7 October 2005 when the written Agreement concerning those matters was signed by the parties. Specifically, in terms of the requirement of certainty of terms, the respondent has failed to establish that the parties entered into a verbal agreement concerning those matters prior to the applicant moving into the respondent’s home on either 23 April 2005 or 25 April 2005.
Further, in terms of intention to create legal obligations, the evidence suggests that the respondent was well aware that something more than an oral agreement was necessary to create a legally binding agreement between the parties. In Selen & Selen and Ors [2011] FamCA 310, Austin J discussed the authorities in relation to the intention of parties to create legal relations in domestic relationships in the following terms:
49. It is established by a long line of authority that, ordinarily, agreements made in a domestic or family context are not legally enforceable because the parties did not intend to create legal relations with one another (see Balfour v Balfour [1919] 2 KB 571; Cohen v Cohen [1929] HCA 15; (1929) 42 CLR 91 at 96; Jones v Padavatton [1968] EWCA Civ 4; [1969] 2 All ER 616 at 620-621; Henderson v Miles [2005] NSWSC 710 at 19 - 24]; Magill v Magill [2006] HCA 51; (2006) 226 CLR 551 at 614; Atco Controls Pty Ltd (in liq.) v Newtronics Pty Ltd (recs and mgrs appt)(in liq) [2009] VSCA 238 at [60]).
50. Although that may be the usual expectation, it is not now appropriate to accord the expectation the status of a rebuttable presumption (see Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 106). Evidence may always be adduced to prove the existence of the relevant intention to create legal relations. The party seeking to prove the contract bears the onus of establishing the relevant intention, and that intention is ascertained objectively from any written contractual document and the surrounding circumstances. As was observed by the High Court in Ermogenous at 105-106:
...the search for the ‘intention to create contractual relations’ requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour)...Although the word ‘intention’ is used in this context, it is used in the same sense as it is used in other contractual contexts. It described what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.[35]
[35] On appeal the Full Court upheld his Honour’s reasoning on this particular matter: see Selen & Selen and Anor (2013) FLC 533 at [117] at 87,027.
In this matter, the objective evidence is that the respondent knew that a written document was required to create a legally enforceable agreement between the parties in respect to property that applied in the event of a breakdown of their relationship. At page 44 of the transcript of 16 November 2015, the following exchange between counsel for the applicant and the respondent was recorded:
MS PETRIE: You were nervous as – that if she did not sign the agreement by 23 October 2005 and the relationship subsequently broke up you believed that she would then, maybe, able to make a claim on your property?
THE RESPONDENT: My understanding was that, yes, a de facto may – may have been activated by then. That was my initial understanding.
MS PETRIE: And therefore if she did not sign your property would be at risk. That was your understanding, wasn’t it?
THE RESPONDENT: Yes.
Accordingly, I find that the parties did not enter into an agreement that was intended to create legal relations between them in respect to property until they executed the Domestic Relationship Agreement on 7 October 2005.
In any event, as will be discussed, even if I am wrong in concluding that there was no legally enforceable agreement between the parties prior to them signing the Domestic Relationship Agreement on 7 October 2005, the existence of a verbal agreement was ineffective in displacing the Court’s jurisdiction pursuant to the NSW Act to deal with matters of property between the parties in the event of a breakdown of their relationship. Similarly, the existence of a verbal agreement is ineffective in displacing the jurisdiction of the Family Court to make appropriate orders pursuant to Part VIIIA of the FLA.
Whether the parties entered into a binding financial agreement sufficient to oust the jurisdiction of the Court?
In order to appreciate the significance of the formal requirements for a binding financial agreement that are set out in section 90UJ of the FLA, it is necessary to understand the legislative history to the current provisions.
In Black & Black (2008) FLC 93-357 at 82,343, the Full Court said:
As discussed by the Full Court in Naughton and Naughton (1983) FLC 91-327; (1983) 9 Fam LR 47, the statutes, namely the Matrimonial Causes Act 1959 (Cth) to 1975 and the Family Law Act 1975 (Cth) since that time, gave to parties of a marriage or former marriage certain rights of application in respect of property and maintenance. The parties could not by agreement outside the confines of that legislation contract themselves out of the right to institute such proceedings: (see generally Hyman v Hyman [1929 ] AC 601; Davies v Davies [1919] HCA 17; (1919) 26 CLR 348; Brooks v Burns Philip Trustee Co Ltd [1969] HCA 4; (1969) ALR 321; Wright and Wright [1978] HCA 4; (1977) FLC 90-221; (1977) 3 Fam LR 11,150; Burgoyne and Burgoyne (1978) FLC 90-467; (1978) 4 Fam LR 204; Candlish and Pratt (1980) FLC 90-819; (1980) 6 Fam LR 75 and the cases therein referred to).
(Emphasis added)
The rationale behind the Court’s refusal to permit parties to oust the jurisdiction the Court to consider such issues of property and maintenance was referred to by Lord Hailsham in Hyman v Hyman [1929] AC 601 at 614 in the following terms:
However, this may be, it is sufficient for the decision of the present case to hold, as I do, that the power of the court to make provision for a wife on the dissolution of her marriage is a necessary incident of the power to decree such a dissolution, conferred not merely in the interests of the wife, but of the public, and that the wife cannot by her own covenant preclude herself from invoking the jurisdiction of the court or preclude the court from the exercise of that jurisdiction.
(Emphasis added)
That public policy consideration is acknowledged in section 45 of the NSW Act. As previously noted the NSW Act is, by virtue of the transitional Act, a preserved law for the purpose of the Family Court giving effect to financial agreements that were entered into under the NSW Act. Section 45 relevantly provides:
45 Entering into agreements
(1) Notwithstanding any rule of public policy to the contrary, two persons who are not married to each other may enter into a domestic relationship agreement or termination agreement.
(2) Nothing in a domestic relationship agreement or termination agreement affects the power of a court to make an order with respect to the right to custody of, maintenance of or access to or otherwise in relation to the children of the parties to the agreement.
The legislative safeguards contained in the NSW Act that permitted domestic relationship agreements to override the jurisdiction of the State courts to determine the property and maintenance rights of a party (as opposed to the maintenance rights of a child) is contained in section 47 of the NSW Act. This section has been set out above at [8].
Section 90UJ of the FLA sets out similar safeguards. These legislative safeguards are preconditions to the Court recognising a financial agreement as legally binding between parties and therefore, preconditions to recognising a financial agreement entered into pursuant to a preserved law which, in this case is the NSW Act.
The significance of those legislative safeguards was referred to in Black & Black (supra) as being, in particular, the provision of appropriate legal advice prior to the parties entering into such an agreement. In Raleigh & Raleigh [2015] FamCA 625 at [139], Watts J summarised the position in the following terms:
As the Full Court records in Wallace & Stelzer at [22]-[24], prior to the Matrimonial Causes Act 1959 (Cth), agreements which ousted the jurisdiction of the court to deal with financial matters were void as being against public policy. Section 87(1)(k) of the Matrimonial Causes Act and s 87 of the Family Law Act (which replaced the Matrimonial Causes Act in 1976) allowed the court to approve agreements that did oust the jurisdiction of the court. That approval involved careful judicial scrutiny of the terms of the agreement and the financial circumstances and history of the parties. When, in 2000, legislation was introduced for “private ordering” by agreements, which ousted the jurisdiction of the court (s 71A of the Act), s 90G (as well as s 90K and s 90KA) provided a check and balance. Yes, a party was free to make a bad bargain (or to use the words of the plurality in Hoult [310] “they can literally make the worst bargain possible”) but only if the parties are properly advised and do so with their eyes wide open.
The requirement for a party to a de facto relationship to be provided with appropriate and independent legal advice prior to entering into an agreement, which purports to limit or oust the jurisdiction of this Court, is set out in section 90UJ of the FLA. As noted, section 90UJ and section 47 of the NSW Act are to similar effect. Section 47 of the NSW Act applied during the period from February 2005 until 7 October 2005 during which the parties negotiated and ultimately executed the Agreement.
In Senior & Anderson (2011) FLC 93-470, the Full Court distinguished “financial agreements” from “binding financial agreements” that oust or limit the Court’s jurisdiction to make orders pursuant to Part VIII of the FLA. The Full Court confirmed that it is only the latter, by virtue of satisfying the definition of a “financial agreement” under the FLA, and meeting the formal requirements of the FLA, that has the effect of ousting the jurisdiction of the Court to make orders under Part VIII or Part VIIIA of the FLA.
Relevantly, Strickland J at 85,719 stated:
94. The Act in effect draws a distinction between agreements which are financial agreements (s 4, s 90B, s 90C, s 90D) and those financial agreements which are binding (s 90G). Financial agreements can, like any other agreement, govern the actions of the parties to them and bind the parties to obligations, but do not oust the jurisdiction of the court. Parties to an agreement that satisfies the definition of “financial agreement” are bound by its terms (or not bound as the case may be), just as they would be bound (or not bound) by any other agreement (s 90KA) (see generally Australian Securities and Investment Corporation and Rich & Anor [2003] FamCA 1114; (2003) FLC 93-171).
95. Section 90G is irrelevant to the contractual rights and remedies of the parties to an agreement that satisfies the definition of “financial agreement”. That section only becomes relevant when the issue is whether an agreement that satisfies the definition of “financial agreement” is effective for a specific statutory purpose, namely to operate as a bar to claims by either party pursuant to Part VIII of the Act (s 71A). It will be so, if and only if, it is “binding” within the meaning of s 90G.
96. If an agreement, including an agreement that satisfies the definition of “financial agreement” under the Act, fails to effectively bar Part VIII claims (because of its failure to comply with the requirements of s 90G and, as a result, is not “binding” within the meaning of that section) the financial agreement can nevertheless have an effect.
(Emphasis added)
In so far as the Full Court held that a financial agreement which failed to comply with the statutory requirements of section 90G may nonetheless have an effect, that conclusion is of little utility to the respondent because as stated by Strickland J:
However, an agreement’s failure to be “binding” in the s 90G sense renders its use in Part VIII proceedings to be very limited; specifically it does not operate as a bar to orders made under that Part.
Section 90UJ, which is relevant in these proceedings, applies to financial agreements entered into by parties to a de facto relationship. The requirements of this section are of similar effect to section 90G referred to in the above passage. The reasoning applied by Strickland J in Senior & Anderson applies equally to section 90UJ.
In any event, section 88(1)(a) of the transitional Act preserved only those agreements made under the preserved NSW Act that are “in writing and signed by both parties”. That did not occur between the parties in these proceedings until 7 October 2005. Despite the respondent’s argument that a legally enforceable oral agreement existed between the parties prior to the applicant moving into the respondent’s home in April 2005, any such oral agreement was not preserved by the transitional Act due to its form and execution, and therefore cannot displace the provisions of Part VIIIA of the FLA.
Is the applicant precluded by the principles of estoppel from seeking to set aside the Agreement?
The respondent argued that, even in the event that the Court determined that the alleged verbal agreement did not constitute a binding agreement between the parties, it was sufficient to create an estoppel against the applicant seeking to have the Agreement of 7 October 2005 set aside. The submission by senior counsel for the respondent, in that respect, was as follows:
MR LLOYD: …the condition precedent to all of this was that [prior] to her moving in was the construction of the agreement. The agreement that they reached in February was one which my client was entitled to rely upon. And this is where we get into an issue, perhaps, of promissory estoppel. By the way, your Honour, 26 February – I’m reliable [sic] informed – was a Saturday [that the parties discussed the matter]. If your Honour looks at the respondent’s side of the matter – which, obviously, your Honour does – there was an agreement reached, which he was entitled to relied [sic] upon. It was expressed to be unequivocal. Its terms were not difficult to understand. The evidence of the applicant was that she was not under any form of duress or influence in February of 2005, that she made that agreement notwithstanding she was a month pregnant or something of that nature or, perhaps, a bit more.[36]
[36] Transcript of 17 November 2015 at page 81.
In Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 444-446, Deane J discussed the concept of estoppel by conduct in the following terms:
While the ordinary operation of estoppel by conduct is between parties to litigation, it is a doctrine of substantive law the factual ingredients of which fall to be pleaded and resolved like other factual issues in a case. The persons who may be bound by or who may take the benefit of such an estoppel extend beyond the immediate parties to it, to their privies, whether by blood, by estate or by contract. That being so, an estoppel by conduct can be the origin of primary rights of property and of contract.
The central principle of the doctrine is that the law will not permit an unconscionable - or, more accurately, unconscientious - departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation.
Since an estoppel will not arise unless the party claiming the benefit of it has adopted the assumption as the basis of action or inaction and thereby placed himself in a position of significant disadvantage if departure from the assumption be permitted, the resolution of an issue of estoppel by conduct will involve an examination of the relevant belief, actions and position of that party.
The question whether such a departure would be unconscionable relates to the conduct of the allegedly estopped party in all the circumstances. That party must have played such a part in the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he were not to depart from it. The cases indicate four main, but not exhaustive, categories in which an affirmative answer to that question may be justified, namely, where that party:
(a) has induced the assumption by express or implied representation;
(b) has entered into contractual or other material relations with the other party on the conventional basis of the assumption;
(c) has exercised against the other party rights which would exist only if the assumption were correct;
(d) knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so.
(Emphasis added)
I am not satisfied that the circumstances of this case are such that it can be said that an oral agreement, which is alleged by the respondent to have existed between the parties prior to April 2005, created an estoppel against the applicant. The evidence is clear that the respondent was concerned about “protecting” his property but, as noted, the applicant was equally concerned about her rights and the rights of the parties’ unborn child to be financially provided for should the relationship breakdown. Her concerns were entirely reasonable in the circumstances. She was entitled to receive legal advice before being held to a commitment she gave to sign a “pre-nup” during a weekend away in February 2005 in which the parties agreed to re-commit to their relationship.
Further, in my opinion the respondent has not established that he acted to his detriment in allowing the applicant to move into his home. As a result he was able to reside with his intimate partner and, after July 2005, pay her a salary that was tax deductable through his business. He was also successful in arranging for her to pay a substantial portion of that salary towards the parties’ joint expenses.[37]
[37] The applicant’s affidavit filed 22 October 2013 at Annexure “B”.
Moreover, in my opinion, a party cannot be estopped from exercising their statutory rights and obligations as set out in Part VIIIA of the FLA.
In that respect I agree with the detailed analysis of this issue by Murphy J in Fevia & Carmel-Fevia (2009) FLC 93-411, where his Honour held that, in the context of the public interest considerations to which I have referred, the equitable doctrine of estoppel does not apply to section 90G of the FLA and I make a similar finding in respect to section 90UJ of the FLA.
Should the Agreement be set aside?
The applicant has made an application to set aside the Agreement pursuant to section 90UM of the FLA primarily on the basis that:
·The Agreement is void, voidable or unenforceable (section 90UM(1)(e)); or
·In respect to the making of the Agreement, the respondent engaged in conduct that was, in all the circumstances, unconscionable (section 90UM(1)(h)).
In order to determine whether the Agreement should be set aside, it is necessary for the Court to consider the “whole of the circumstances”.[38] This consideration is also a requirement in determining whether the respondent engaged in unconscionable conduct pursuant to 90UM(1)(h) of the FLA.
[38] See for instance Louth v Diprose (1992) 175 CLR 621 per Brennan J at [7].
I respectfully agree with the views expressed by Murphy J at first instance in Hoult & Hoult (2011) FLC 93-489 at 86,078, wherein his Honour held that:
The relevant time for assessing whether the bargain is unconscionable is the time at which it was entered. The crucial circumstances are those which surround that time, although, of course, preceding circumstances may well comprise part of the latter picture.[39]
[39] His Honour’s reasoning in this respect did not appear to be challenged on appeal: see Hoult & Hoult (2013) FLC 93-546.
Section 90UN of the FLA is clear that the question as to whether a financial agreement is “void, voidable or unenforceable” for the purposes of section 90UM(1)(e) is to be determined according to “the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts”. This includes the concepts of duress, undue influence and unconscionable conduct.
Was the applicant under duress when executing the Agreement?
In Australia & New Zealand Banking Group v Karam (supra), the New South Wales Court of Appeal suggested that the concept of duress should be limited to circumstances of unlawful conduct. At [66] the Court of Appeal said:
The vagueness inherent in the terms “economic duress” and “illegitimate pressure” can be avoided by treating the concept of “duress” as limited to threatened or actual unlawful conduct. The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, but can be to the legitimate commercial and financial interests of the party. Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Amadio.
Taking a similar approach in the present case, the question becomes whether the respondent applied pressure on the applicant, to the extent that it could be considered unlawful, in attempting to have her execute the Agreement. If that question is answered in the negative, it is still necessary to consider whether the respondent engaged in conduct that establishes undue influence or would otherwise be unconscionable.
Counsel for the applicant did not argue that the conduct of the respondent was unlawful and therefore, in the absence of such evidence, I am unable to find that the applicant was subject to duress when executing the Agreement.
Did the respondent procure the Agreement by exercising undue influence over the applicant?
In Saintclaire & Saintclaire [2015] FamCAFC 245 the Full Court summarised existing law by reference to the decision of Brereton J in Tulloch (deceased) v Braybon & Ors(No. 2)[40] where his Honour commented:
… A husband and a wife obviously are vis-a-vis each other in positions of trust and confidence and influence, but one does not ordinarily have over the other such authority as to make such relationships a presumed relationship of influence, nor (without more) a special relationship of influence. It is where the relationship is such that one party is seen or supposed to be in some way beholden, obliged, or disadvantaged in relation to the other, that such relationships are presumed or can be proved, and dominion or ascendancy is at least usually an important factor.
[40] [2010] NSWSC 650 at [51].
Applying that reasoning I determine that the parties in this case, who were in a de facto relationship, were not in a relationship where the requisite degree of influence can be presumed.
In those circumstances evidence must be adduced that establishes the relationship went “beyond one of mere confidence and influence to one involving dominion or ascendancy by one over the will of the other, and correlatively dependence and subjection on the part of the other”.[41]
[41] Ibid at [37] – [51].
The applicant alleged that from July 2005, until shortly prior to the execution of the Agreement, she worked in the respondent's business at his discretion and under his control. She was residing in his home at the time, had no property of her own, little money, no alternative accommodation or source of financial support available to her. She contends that she was completely financially dependent on the respondent and that it was the respondent who had determined the terms of the Agreement. The applicant further alleges that the respondent had repeatedly told her that unless she executed the Agreement, she and the child would have to leave the respondent’s home. As a result of these circumstances, the applicant stated that she believed that she had no alternative but to sign the Agreement.
It was the applicant’s case that the respondent was therefore in a position of undue influence over her. It is unnecessary to make a determination as to whether those matters placed the respondent in a position of undue influence over the applicant because, as I will discuss, she has, in my opinion failed to establish the consequence of any such undue influence. Specifically, the applicant has not established that in making the agreement “she was not exercising her free and independent will.”[42]
[42] Saintclaire & Saintclaire [2015] FamCAFC 245 at [58].
In that context, in Australia and New Zealand Banking Group Limited v Karam (supra), the Court of Appeal usefully summarised the distinction between undue influence and unconscionable conduct. Relevantly, the Court of Appeal distinguished undue influence as conduct that results in a party’s free and independent will being overborne from unconscionable conduct. In the latter situation a party’s will is not overborne but rather, as a result of a special disadvantage known to the other party, it would be unconscionable to hold the vulnerable party to the transaction. At paragraphs [45] – [46], the Court of Appeal summarised the position as follows:
45. In Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447, Mason J identified a significant distinction between a claim that a transaction should not be enforced because it has been induced by “undue influence” and one which should not be enforced because of “unconscionable conduct”. His Honour stated (at 461) after reference to a number of bases upon which equity might decline to enforce a transaction:
“But relief on the ground of ‘unconscionable conduct’ is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage ... . Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.”
46. As was noted in the joint judgment of Gaudron, Gummow and Kirby JJ in Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457 at [73] despite the overlap between these concepts, there is danger in failing to attend to the “conceptual and practical distinctions between them”. But it may be noted that the matters which must be considered under each will fall into three broad categories, namely:
(a) those affecting the status, characteristics or situation of the party seeking to resist enforcement of the document or transaction;
(b) factors relating to the position of the enforcing party, and
(c) the conduct of the one with respect to the other.
In the case of undue influence, the focus will, as noted by Mason J in Amadio, be on the extent to which the will of the innocent party is not independent and voluntary. This result may follow from a particular mental or physical infirmity, or because of the relationship with the stronger party. Nevertheless, where these circumstances arise, whether the will is in fact overborne also requires consideration of the conduct of the stronger party. Whilst, by contrast, the concept of unconscionable conduct may focus to a greater extent on the unconscientious conduct of the stronger party, the conduct will be treated as unconscionable only where the weaker party “by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is taken of the opportunity thereby created”: see Amadio at 462 and the paper by Sir Anthony Mason. “The Impact of Equitable Doctrine on the Law of Contract”, (1998) 27 Anglo-American Law Review 1 at 6-8, quoted in Bridgewater at [75]. Thus, it remains a combination of the conduct or circumstances of each party which must be taken into account. In relation to unconscionable conduct, it will usually be necessary to have regard to the knowledge of the stronger party and his or her awareness of the situation of the weaker party. Further, it is not necessary to find that the will of the weaker party has been overborne, so that there is no independent and voluntary act.
In these proceedings, I do not find that the applicant’s signing of the Agreement was anything other than “independent and voluntary”. Despite the respondent arranging and paying for the applicant to attend upon a solicitor to receive legal advice, no issue was raised that the applicant had received anything other than independent legal advice. That advice, which was expressed in unequivocal terms to the applicant, prior to the applicant signing the Agreement, was that it was not in the applicant’s interests to do so. Nevertheless, she executed the Agreement with the respondent. The applicant had been independently and appropriately advised on the implications of entering into the Agreement, she knew precisely what she was doing and it cannot be alleged that her will was overborne such that there was “no independent and voluntary act”.
I therefore find that the respondent did not procure the execution of the Agreement by exercising undue influence over the applicant.
Did the respondent procure the Agreement by way of unconscionable conduct?
In Saintclaire (supra) at [20] – [22], the Full Court usefully summarised the existing law dealing with the concept of unconscionability in the following terms:
Equity might set aside a transaction or agreement:
…whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.
Importantly:
Mason J in Amadio’s case … was at pains to emphasise that the mere circumstance that there was some difference in the bargaining power of the parties was not enough; “the disabling condition or circumstance [must be] one which seriously affects the ability of the innocent party to make a judgment as to his own best interests”.
Recently, the principles were reiterated this way:
The doctrine of unconscionability will intervene to prevent a donee from retaining the benefit of a gift where a person under a special disability has transferred it to them in circumstances where it would not be in good conscience to do so. A special disability is an attribute of the donor, which renders them incapable of making a judgment as to his or her own interests. Equity will intervene when the donee has actual knowledge or knowledge of the facts that would raise a question in the mind of a reasonable person that the donor suffers from a special disadvantage and takes advantage of it.
(Original footnotes omitted)
As referred to above, at the time that the applicant signed the Agreement the respondent was the applicant’s employer. The applicant was also living in the respondent’s home with the parties’ ten day old child. At that time, the respondent had informed the applicant that if she did not sign the Agreement he would require her to vacate the respondent’s home. I am satisfied that the applicant believed that if she did not sign the Agreement the respondent would require her to vacate his home. The applicant believed this also applied to her ten day old baby who the applicant was still breast feeding. By virtue of this, the respondent was in a position of control as to whether the applicant and the child continued to reside in his home and whether the applicant would continue to be employed by his company. He was the stronger party in respect to the transaction.
Moreover, the applicant was in a situation of special disadvantage rather than merely in a weaker bargaining positon.[43] The applicant’s special disadvantage was her (and she believed her child’s) precarious accommodation arrangements and vulnerable employment status over which the respondent had ultimate control. The respondent had threatened to evict the applicant from his home if she did not sign the Agreement a mere ten days after she had given birth to the parties’ child. This would have understandably caused her considerable concern, in circumstances where she had limited financial resources, and where the respondent was her current employer. There was no question that the respondent was aware of the applicant’s special disadvantage. Indeed, he acted to create a situation where she would be at a special disadvantage by way of potential homelessness and unemployment, by serving upon the applicant the “Moving Forward Blueprint” document dated 28 September 2005 which stated:
This issue needs to be resolved in the next 10 days. If this is not resolved in this timeframe then pre-April circumstances will have to be resumed.[44]
[43] Blomley v Ryan (1956) 99 CLR 362 per Kitto J at 415.
[44] The applicant’s affidavit filed 22 October 2013 at Annexure ‘B’.
Reference by the respondent in that document to “pre-April” circumstances is significant as those “pre-April” circumstances refer to the time when the applicant was not living with the respondent nor was she employed in his business.
The following exchange between senior counsel for the respondent and the applicant, during cross examination of the applicant, reflects the applicant’s perception of the situation after receiving the “Moving Forward Blueprint” document:
MR LLOYD: Are you telling his Honour that you honestly believe that, absent signing the document, you and your young child, his child too, would be thrown out of the house?
THE APPLICANT: Absolutely. [The respondent] had made it very clear verbally. Besides the moving for [sic] blueprint, he had made it verbally clear.[45]
[45] Transcript of 16 November 2015 at page 29.
It is of particular note that the respondent’s evidence was entirely consistent with the applicant having that understanding. The following exchange between counsel for the applicant and the respondent during cross examination is relevant in that respect:
MS PETRIE: You had said to [the applicant] that unless she signed the agreement she would be out of the house, didn’t you?
THE RESPONDENT: I said that we would have to look at that possibly, you know, reconvening to pre-April arrangements and that was one of the options.
MS PETRIE: Well, when you sent to her that blueprint dated 28 September 2005, found at annexure B of her affidavit, that was the only option that you expressly put in writing to her, wasn’t it?
THE RESPONDENT: Yes.
MS PETRIE: Because you meant what you said at that time, didn’t you?
THE RESPONDENT: I was disappointed that she hadn’t fulfilled her agreement and I was just trying to make sure that we could move forward and finalise what she said she was going to do.
MS PETRIE: And you meant what you said, didn’t you…?
THE RESPONDENT: Probably, yes. [46]
[46] Ibid at page 46.
As noted, the ultimatum contained in the “Moving Forward Blueprint” document was provided in circumstances where the applicant had only ten days earlier given birth to the parties’ child. It was not contested that, aside from clothing, jewellery, household effects and superannuation totalling approximately $35 000, the applicant had approximately $3 000 in available to her in cash and $5 000 in liabilities. This is outlined in Annexure “A” to the Agreement being the ‘Statement of Assets, Resources and Liabilities’ of the parties. The respondent was aware of these financial circumstances because the applicant’s financial position at that time was contained in the earlier draft Agreement that had been signed by the respondent and provided to the applicant by her lawyers on 29 July 2005.[47] The respondent was also aware of the applicant’s modest salary as a consequence of being her employer.
[47] Exhibit 1.
I find that the special disadvantage, resulting from the matters to which I have referred, seriously affected the ability of the applicant to make a judgment as to her own best interests. This is shown by the fact that she signed the Agreement despite the clear advice of her lawyers not to do so.[48] I accept the applicant’s evidence that she signed the Agreement, despite that advice, because she believed she had to sign it to avoid being evicted from the respondent’s home.[49]
[48] Letter form J Lawyers to the applicant dated 6 September 2005 as contained in Exhibit 2 and Letter form J Lawyers to the applicant dated 27 October 2005 as contained in Exhibit 1.
[49] Transcript of 16 November 2015 at page 16.
Senior counsel for the respondent argued that in determining whether there was unconscionable conduct on the part of the respondent, the Court should have regard to the applicant’s evidence that, after living with the respondent for a period of time, she had hoped he would reconsider his proposal for her to sign a “pre-nup”. That hope, on the part of the applicant, may certainly be a factor in the delay that occurred in her signing the Agreement in the period from 24 July 2005 until 7 October 2005. However, the delay on the part of the applicant in signing the Agreement did not justify the pressure placed on her by the respondent in the form of him serving on her the “Moving Forward Blueprint” document.
In light of the “Moving Forward Blueprint” document, the respondent’s case sought to characterise the signing of the Agreement on 7 October 2015 as being no more than a written confirmation of the prior verbal agreement which the respondent alleges the parties had agreed to as early as February 2005.
In that context, senior counsel for the respondent submitted that a promise, on the part of the respondent, to pay to the applicant the sum of $25 000 to enable her to acquire a share portfolio should be characterised as a gift rather than a variation of the verbal agreement. This submission was made despite the executed Agreement specifically including the following recital:
[The respondent] intends to give [the applicant] $25,000 to invest in shares of her choosing to be held in her name solely.
Even if that submission is correct, it does not result in the respondent’s conduct being characterised as anything other than unconscionable. The promise by the respondent to gift the applicant the sum of $25 000 to invest in shares was a “carrot” intended to influence the applicant to sign the Agreement. However, the threat that the applicant would be required to leave the respondent’s home, should she not sign the Agreement, was the “stick” that still remained. This is made clear from the following exchange during cross examination of the applicant by senior counsel for the respondent:
MR LLOYD: And then can I suggest to you that gratuitously, and I don’t mean that in any derogatory sense, [the respondent] gifted you a share portfolio worth about $25,000?
THE APPLICANT: Yes.
MR LLOYD: And then you indicated, “If you put that in the agreement,” that is, the gift, “I will sign it”?
THE APPLICANT: Yes.
MR LLOYD: And when the agreement then included this gift by [the respondent] to you of $25,000, did [Mr I] give you different advice then to what he had given you before? In other words, did he say, “You still shouldn’t sign the agreement”?
THE APPLICANT: Yes.
MR LLOYD: But you did?
THE APPLICANT: Yes. I knew I had to. [50]
[50] Transcript of 16 November 2015 at page16.
Was the Agreement fair, just and reasonable?
There is no question that the Court takes a reasonably robust view in respect to binding financial agreements. Indeed, in Hoult & Hoult (2013) FLC 93-546, Thackray J observed that the FLA “now undoubtedly allows parties to enter into bad or grossly unfair bargains.”[51] However that is in circumstances where the requirements of the FLA have been complied with and where there is an absence of circumstances which would warrant the Court setting aside the agreement including as a result of duress, undue influence or unconscionable conduct.
[51] (2013) FLC 93-546 at 87,283.
As previously noted, the principles of law and equity that the Court is, by virtue of section 90UN, required to apply in determining whether a financial agreement is “valid, enforceable or effective”, include determining whether an agreement has been reached as a result of unconscionable conduct on the part of one party. Once that conclusion is made the onus shifts to that party to establish that the agreement was "in point of fact fair, just, and reasonable".[52]
[52] Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 per Deane J at 479[23] citing Fry v. Lane (1888) 40 ChD at 321.
In Commercial Bank of Australia Ltd v Amadio,[53] Deane J commented:
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, supra, at 823; Fry v Lane (1888) 40 ChD 312 at 322; Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362 at 428–9).
[53] (1983) 151 CLR 447 at 474[12].
Section 90UM(1)(h) makes it clear that, in considering whether to set aside a financial agreement, the totality of the circumstances applicable to the transaction must be considered. As noted, this is consistent with the principles of law and equity in considering unconscionable conduct.[54]
[54] Louth v Diprose (1992) 175 CLR 621 per Brennan J at [7].
In addressing those circumstances, senior counsel for the respondent submitted that it would be inappropriate for the Court “to look at the Agreement and start with the view [the Agreement] is obviously unfair.” [55] The substance of the Agreement was summarised by senior counsel for the respondent in the following terms:
The agreement itself… takes away and removes the entitlement of either party to seek an order under the [NSW Act], any order for adjustment of property or maintenance. Now, up until the time this document was executed and came into force, both parties – and, in particular, the applicant – had an unfettered and absolute right under the [NSW] Act to make a claim for her own maintenance, and had an entitlement to make a claim for child support under the child support legislation. The effect of the agreement removed only the former, that is, a right for spousal maintenance. The document at the time complied fully with the provisions of the [NSW Act]…[56]
[55] Transcript of 17 November 2015 at page 92.
[56] Ibid at page 75.
Counsel for the applicant argued that the Agreement was inherently unfair in that it deprived the applicant of rights that she would otherwise have under the NSW Act without providing for an alternative benefit.
In response to the argument that the applicant would be waiving her entitlements under the NSW Act, in respect to property, senior counsel for the respondent submitted that:
…there is no authority available to your Honour that I’m aware of or any piece of legislation that exists which would entitle your Honour to assume that the applicant would receive a different entitlement in the absence of the agreement under the [FLA] as a measure to determine whether the agreement is fair. [57]
[57] Ibid.
To similar effect, senior counsel for the respondent further submitted that:
The nature of the agreement the parties reached in these circumstances is not to be measured by what a court might divide between them at point A, that is to say within a year of the agreement; point B, within 10 years of the agreement; or in point C, 50 years from the agreement. After all, that’s a moving picture under the [FLA] as well and – but these parties, without there being any inhibition, any reason why they can’t contract in these circumstances agree to the terms that they did. [58]
[58] Ibid at page 84.
It must be remembered that, as the Court has found that the respondent procured the Agreement by way of unconscionable conduct, it is the respondent who carries the onus of establishing that the Agreement is fair, just and reasonable. Specifically, the respondent carries the onus of establishing that, in light of the totality of benefits and obligations provided for in the Agreement, it was fair, just and reasonable to then deprive the applicant of the statutory entitlements that were otherwise available to her. Those entitlements included the ability to seek orders for a property adjustment having regard to any financial or non-financial contributions she may have made during the course of the parties’ relationship.
The respondent’s argument was to the effect that it cannot be regarded as unfair, unjust or unreasonable to deprive the applicant of statutory rights to apply for property adjustment orders because it could not have been predicted, at the time, what orders, if any, would have been made by a Court if such an application was made.
That argument, by the respondent, may have had had some substance if it was the applicant who carried the burden of proving unfairness. However, that is not the case. The respondent carries the onus.
I have previously summarised the effect of the Agreement which effectively precludes the applicant from receiving recognition of non-financial contributions to the property of the relationship including as the primary carer of the parties’ child and as a homemaker. These contributions were potentially of significance. In Carmel-Fevia & Fevia(No. 3)[2012] FamCA 631 at [113], Cronin J summarised the potential value of such a contribution in the following terms:
In Rolfe v Rolfe (1979) FLC 90-629, Evatt CJ said that where one party was earning an income and the other fulfilling responsibility at home, there was no reason to attach greater value to the contribution of one of them to that of the other because that was the way the parties arranged their affairs. Her Honour said that the contribution of each should be given equal value. In Mallet [1984] HCA 21; (1984) FLC 91-507 Wilson J referred to Rolfe (supra) and agreed with Evatt CJ’s exposition subject to one reservation. His Honour said that the [FLA] required that the contribution of the wife as a homemaker and parent be seen as an indirect contribution to the acquisition, conservation or improvement of the property of the parties regardless of whether legal ownership resided. His Honour then said:
The contribution must be assessed, not in any merely token way, but in terms of its true worth to the building up of the assets.
Pursuant to the Agreement the applicant does not even receive token recognition for her non-financial contributions – she receives no recognition. In those circumstances the respondent has failed to discharge the onus of establishing that the agreement is fair, just and reasonable.
The understanding of the respondent as to the operation of the Agreement is reflected in the following answers he provided during cross examination:
MS PETRIE: Around that time [in the days leading up to the child birth] she also said to you, “The solicitor advised me not to sign the agreement unless there is some provision in there for me and the baby if you ask me to leave.” Do you recall [the applicant] saying that to you?
THE RESPONDENT: Yes.
MS PETRIE: And you became increasingly angry towards her and said, “You came into this relationship with nothing. Why should you be entitled to anything if the relationship ends”?
THE RESPONDENT: I was disappointed that she hadn’t fulfilled her commitments with the agreement that we had agreed on earlier in the year.
MS PETRIE: And you said that to her. You said to her, “You came into this relationship with nothing. Why should you be entitled to anything if the relationship ends”, didn’t you?
THE RESPONDENT: Probably something along those lines.[59]
[59] Transcript of 16 November 2015 at page 41.
The respondent has not presented evidence to displace his frank acknowledgment that it was his intention to create a situation where, by signing the Agreement, the applicant would not be entitled to make any claim against his property if the relationship ended.
It must be noted that, in the period subsequent to the parties’ conversation, which occurred in the days leading up to the child’s birth, the respondent offered to pay to the applicant the sum of $25 000 for the purposes of purchasing a share portfolio.
Senior counsel for the respondent emphasised that the share portfolio was a gift offered gratuitously by the respondent to the applicant and did not form part of the Agreement. I have therefore not had regard to that component in determining whether the Agreement was, on its face, unfair, unjust and unreasonable. If I am wrong in disregarding the $25,000 “gift”, the respondent has not satisfied me that the amount is sufficient to justify the applicant contracting out of her legislative rights, such that it would render the Agreement fair, just and reasonable.
Further, in considering the circumstances in which the Agreement was entered into, it is appropriate to have regard not only to that which was within the reasonable contemplation of the parties at the time but also to the actuality of what occurred. In Aboody v Ryan [2012] NSWCA 395 at [79], Allsop J, with whom Bathurst CJ agreed, said that in determining whether an agreement is fair, just and reasonable:
Equity does not fix upon the instant of a transaction and ignore what later arises in the assessment of the conscionability of behaviour that includes the retention of benefit obtained from a weaker party. That is why Deane J referred to "retain" in Amadio at 474…
The reference to the comment of Deane J in Amadio (supra) is to where, at 474[13], his Honour said:
Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so.
In support of her argument that the document was unfair in practice as well as form, counsel for the applicant noted that the applicant had very little by way of assets at the commencement of the relationship and was unlikely to be in a position to build up assets. This was because, firstly, she was an employee of the respondent’s company on an income of $1 800 after-tax per month,[60] and secondly, under the “Moving Forward Blueprint” document, the applicant was required to pay the respondent approximately $20 000 per annum towards what was identified as “groceries, health insurance baby care etc.”[61]
[60] The applicant’s affidavit filed 21 October 2015 at paragraph 33.
[61] Ibid at Annexure ‘B’.
Accordingly the applicant argued that she had no realistic prospect of accumulating assets that would be regarded as her own. In response to the applicant’s argument that that the Agreement was unfair, senior counsel for the respondent submitted that the fact that each party would leave the relationship with only the assets that they individually brought into the relationship and would individually build up during the relationship was not an indication of unfairness. In that respect senior counsel for the respondent said:
MR LLOYD: … One can’t say that her only prospect of accumulation of assets would be as a consequence of some employment that he would offer. That’s to ignore all of the [variables] in life. And it may well be, touch wood, that the respondent lost all of his assets by some incorrect or inappropriate contractual arrangement he made elsewhere. So life is a complete moving picture in that regard. And that’s why I started initially with the proposition that the agreement itself is important. It did nothing unfair, if that’s a proper term, unfair towards either of them. [62]
[62] Transcript of 17 November 2015 at page 92.
With respect to that argument, in determining whether it would be unfair for the respondent to retain the benefit of the Agreement, it cannot be ignored that, according to the “Moving Forward Blueprint” document, the applicant would be required to pay the sum of $20 000, or approximately eleven months of her net income, towards household expenses and the care of the parties’ child. In short the “Moving Forward Blueprint” arranged the affairs of the parties such that over 90 per cent of the applicant’s income would be applied to household running costs and child care. This left little available for the applicant to make a direct financial contribution to the property of the relationship by way of making mortgage payments, contributing to the cost of maintaining the property or to making improvements to the property.
Finally, in determining whether the Agreement is unfair, the fact that the applicant received legal advice is a relevant factor. In Aboody v Ryan (supra) at [75], Allsop J, with whom Bathurst CJ agreed said, in that respect:
… The solicitor's advice here should be viewed as part of that process: Smith v Smith [2004] NSWSC 663 at [60] (Barrett J); Turner v Windever [2003] NSWSC 1147 at [105] (Austin J); and R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies, 4th ed (Butterworths LexisNexis, 2002) at 530 [16-035]; and see Micarone at 41 [215]. The place of asserted independent advice and its assessment will depend upon all the circumstances, including in particular what else is known by the party taking the benefit.
I find that an element of unfairness in this case was that, despite the fact that the respondent was well aware of the applicant’s special disadvantage and that she had received legal advice, which was in unequivocal terms, not to sign the Agreement, he nonetheless pressed the applicant to sign the Agreement. The respondent maintained a “take it or leave it” position. This position, as noted, had significant consequences for the applicant, in that she believed, on reasonable grounds, that she and the parties’ young child would be required to leave the respondent’s home if she did not enter into the Agreement.
I have found that there was unconscionable conduct on the part of the respondent. As I have indicated, in those circumstances, the respondent carried the onus of showing that the Agreement was fair, just and reasonable. For the reasons I have given, I find the respondent has failed to discharge that onus.
Moreover, as noted by Allsop J in Aboody & Ryan, in making the assessment as to whether it is fair, just and reasonable for the respondent to retain the benefit of the Agreement, that the applicant entered into as a result of the respondent’s unconscionable conduct, the Court should not ignore the reality of what later arises in respect to the impact of the agreement. In that context, the Court cannot ignore that, in the context of the parties’ domestic arrangements including those reflected by the “Moving Forward Blueprint” document, the applicant has been unable to accumulate savings during the course of their relationship of approximately eight years.[63]
Does the Court have jurisdiction pursuant to section 7 of the Contracts Review Act to set aside the Agreement or vary its terms?
[63] The applicant’s affidavit filed 21 October 2013 at paragraph 52.
In light of the conclusion I have reached that the Agreement should be set aside as a result of it being procured by unconscionable conduct on the part of the respondent, and that it could not be seen as fair, just and reasonable, it is unnecessary to consider the applicant’s application that the Agreement be set aside pursuant to section 7 of the Contracts Review Act 1980 (NSW).
I am, however, of the view that section 90UM of the FLA sets out an exclusive legislative framework for the Court to follow in contemplating whether to set aside a financial agreement entered into by parties to a de facto relationship which is given force and effect under the FLA by virtue of the transitional Act.
In arriving at that conclusion, I have had particular regard to the opening words of section 90UM which empowers the Court to set aside a financial agreement “if and only if” the Court is satisfied in respect to the matters thereafter set out in that section.
I have also had regard to sub-section 88(2) of Part 2 of Schedule 1 of the transitional Act which provides:
88(2) For the purposes of the new Act, the agreement is taken, on and after commencement, to be a Part VIIIAB financial agreement made as mentioned in subsection 90UC(1) of the new Act to the extent that the agreement deals with the eligible agreed matters.
Note: After commencement, the agreement can only be enforced, varied, terminated or otherwise set aside under the new Act.
(Emphasis added)
That provision confirms that, in the period subsequent to the commencement of the transitional Act, the Agreement is taken to be a Part VIIIAB financial agreement, and is no longer an agreement under the NSW Act. As such, the Contracts Review Act no longer has application to the Agreement.
In that context section 17(3) of the Contracts Review Act provides:
17 Effect of this Act not limited by agreements etc
(1) …
(2) …
(3) This Act applies to and in relation to a contract only if:
(a) the law of the State is the proper law of the contract,
(b) the proper law of the contract would, but for a term that it should be the law of some other place or a term to the like effect, be the law of the State, or
(c) the proper law of the contract would, but for a term that purports to substitute, or has the effect of substituting, provisions of the law of some other place for all or any of the provisions of this Act, be the law of the State.
(Emphasis added)
The FLA is not a law of New South Wales. Accordingly, the Family Court is without jurisdiction to deal with that part of the applicant’s application in respect to section 7 of the Contracts Review Act 1980 (NSW).
Conclusion
Pursuant to section 90UM(1)(h) of the FLA I find that, in respect of the execution of the Agreement between the applicant and the respondent, the respondent procured the execution of the Agreement by engaging in conduct that was, in all the circumstances, unconscionable. I similarly find, on that basis, the Agreement is voidable pursuant to 90UM(1)(e).
I therefore order that:
1.Pursuant to sections 90UM(1)(e) and (h) of the Family Law Act 1975 (Cth), the Domestic Relationship Agreement dated 7 October 2005 between the parties be set aside.
2.Pending further order of the Court, the consent orders made by Senior Registrar Campbell on 9 April 2014 in respect to property are to continue.
I certify that the preceding one-hundred and thirty-seven (137) paragraphs are a true copy of the reasons for judgment of the Honourable Justice McClelland delivered on 8 April 2016.
Associate:
Date: 8 April 2016