Rectification of BFA upheld

Rectification of BFA upheld

Rectification of the agreement (Grounds 1, 2, 4 and 5)

42. The husband contended the Agreement’s rectification by the primary judge was erroneous – both by expressing it to be a financial agreement made pursuant to s 90B of the Act (Grounds 1, 2 and 5) and by amending the terms of clause 17 (Ground 4). Notwithstanding his differentiation of the two forms of rectification in the grounds of appeal, the husband’s arguments can only sensibly be considered compendiously because they ran together and were not segregated under the various grounds and sub-grounds of appeal.
43. A written contract is presumed to correctly record the agreement of the parties to it and, in order to displace that presumption, a party seeking rectification of the contract must advance “clear and convincing proof” it does not embody the final intention of the parties (see Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 345; Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447 at 452, 456 (“Pukallus”); Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336 at 350). For that purpose, the parties’ mutual intention is the relevant feature of the evidence, as there is no room for rectification of the contract if the contrary intention is not shared (see Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at 710; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65;(2007) 69 NSWLR 603 at 655, 660). The parties did not contest the correctness of those principles. Rather, their dispute concerned the application of the principles to the evidence adduced.
44. The husband contended the evidence did not admit of the finding that the parties mutually intended the Agreement would be a binding financial agreement which affected their rights upon separation by preserving the assets they individually introduced to the relationship.
45. It was submitted for the husband in the appeal:

…When the Appellant signed the Agreement, he intended it to be as drafted by the Respondent’s Solicitors with no amendments and after receiving advice from his Solicitor. As far as the Appellant is concerned, there was no mistake and there can be no rectification.

46. However, the absurdity of that proposition is established by the corollary. If the husband did not intend the Agreement to be a binding financial agreement with full force and effect under the Act, he must then have pointlessly intended the Agreement would be a nullity since, in its unaltered form, the Agreement was unenforceable under State law in a State court; be it Victorian or any other. Jurisdiction to determine the matrimonial causes between the parties was exclusively conferred by and under the Act, which could not be ousted by an agreement purporting to be created and enforced under State law. The wife’s senior counsel was correct to describe the Agreement’s attempt to reserve jurisdiction and power under State law as “meaningless and without any effect whatsoever” (Transcript 24 May 2018, p.15 line 23).
47. If the husband did not intend to mislead the wife by executing the Agreement so as to induce her false belief he considered the Agreement was binding, the only rational alternative is that he signed the Agreement honestly believing (contrary to his lawyer’s submissions) the Agreement would bind the parties without realising it would fail to do so in the form it was executed.
48. The husband’s lawyer was mistaken when he informed the primary judge the Agreement in its unaltered form could be enforced in “the courts of the state” (Transcript 24 May 2018, p.27 line 23). To be clear, he was there referring to the Agreement’s stated dedication to its adjudication exclusively under Victorian law in a Victorian court. He could not have been referring to the prospective enforcement of the Agreement by a State court exercising federal jurisdiction under the Act, for two obvious reasons.
49. First, he asserted the agreement was not intended to impinge upon the parties’ matrimonial rights under the Act in any way, as he went on to explain:

…the court’s jurisdiction is not ousted. It’s [the Agreement is] just one of the documents that the court can consider [in the property settlement proceedings].

(Transcript 24 May 2018, p.22 lines 35–36)

…There was no intention to exclude the jurisdiction of this court. So he has signed it, and the court can take into consideration what is stated here. But the court’s jurisdiction is not ousted…

(Transcript 24 May 2018, p.23 lines 3–6)

…all we say is that we agreed to enter into a prenuptial agreement as drafted in this manner and not a binding financial agreement that excludes the jurisdiction of the court.

(Transcript 24 May 2018, p.27 lines 30–32)

50. Secondly, the litigation was already being entertained by the Federal Circuit Court and he was at liberty to try and enforce the Agreement in its unaltered form then and there. There was no need and, indeed, no jurisdictional scope to separately approach a State court to try and do so. However, not only did he not seek to enforce the Agreement against the wife, he sought an order from the primary judge to set it aside.
51. It should be noted that the husband’s application to set the Agreement aside was entirely irreconcilable with his written submissions filed in advance of the hearing, in which it was asserted:

The parties have clearly chosen the applicable laws and have given the courts in Victoria exclusive jurisdiction to determine any dispute arising from the Pre-Nuptial Agreement. This Court has no jurisdiction to determine any dispute arising from the Pre-nuptial Agreement.

(Emphasis added)

52. The husband could not explain how, on the one hand, he could contend the primary judge had no jurisdiction to hear and determine any dispute about the Agreement but, on the other hand, actually ask the primary judge to hear and determine his application to set the Agreement aside. It should also not escape attention that his application to set the Agreement aside pre-supposed its validity as a binding financial agreement under the Act, which characterisation of the Agreement he simultaneously denied. The illogicality of the husband’s position about the Agreement, its intended effect, and its enforceability was, thereby, clearly revealed.
53. During the hearing before the primary judge, the husband’s lawyer was driven to effectively concede he advised the husband upon, and allowed him to sign, an agreement which the lawyer contemplated would be ineffectual. The following exchange occurred between the primary judge and the husband’s lawyer:

[COUNSEL FOR THE HUSBAND]: …this is a rubbish document…

[HIS HONOUR]: Well, you advised on it.

[COUNSEL FOR THE HUSBAND]: Pardon?

[HIS HONOUR]: You gave advice about it.

[COUNSEL FOR THE HUSBAND]: Yes. If the client wants to sign an agreement that’s non-binding, it’s as if it is…

[HIS HONOUR]: Yes, but they’re relying on you for advice.

[COUNSEL FOR THE HUSBAND]: Yes. All he has signed is a prenuptial agreement, if at all…

(Transcript 24 May 2018, p.22 line 36 to p.23 line 3)

54. On the question of rectification, the husband submitted to the primary judge the parties had no common intention that the agreement would provide otherwise than as it stated. When pressed to explain why, the husband’s lawyer said:

…There was no discussion regarding the terms that she put in [the Agreement]. And based on this, your Honour, there cannot be any rectification. There was no discussion regarding the terms of this agreement.

(Transcript 24 May 2018, p.26 lines 33–35)

…we say that the wife has not produced clear and convincing evidence to say that there was common intention because evidence showed otherwise; the agreement showed otherwise, the way it was drafted. And most important is the wife did not, in her own affidavit, say what the terms are supposed to be. She did not say what instructions she gave to her solicitor. Her solicitor did not come and say, “I have made a mistake. It should be a section 90B agreement.”…

(Transcript 24 May 2018, p.28 lines 13–18)

55. The fact the terms of the Agreement, as drafted by the wife’s lawyers, were not thereafter negotiated was immaterial. Before the Agreement was prepared, the parties privately discussed its purpose and, as it transpired, the terms of the Agreement did not fulfil the intended objective. The wife was certainly unaware of the dissonance and, inferentially, the primary judge found the husband was probably also unaware of that fact.
56. Contrary to the husband’s submission to the primary judge, the wife did depose in her affidavit to the intended purpose of the Agreement. She said it was the parties’ “mutual intention” that the Agreement would “set out the property that [they] would each receive in the event of separation and to waive [their] rights to property settlement or to seek spousal maintenance from [the] other”. Although the husband denied the fact, he did not object to the admissibility of her evidence in that form and chose not to cross-examine the wife about it.
57. In the appeal, the husband’s lawyer conceded the parties did, at least initially, commonly intend that they would enter into a binding financial agreement, but then asserted the wife failed to prove their common intention subsisted until they executed the Agreement. It was uncontroversial that, for the Agreement to be amenable to rectification, the parties’ common intention for the Agreement to be a binding financial agreement must have subsisted until its execution (see Pukallus at 452, 456).
58. Three impediments obstruct acceptance of the husband’s submission. First, the wife’s evidence strongly implied their common intention subsisted until the Agreement was executed. Secondly, given the husband’s concession there was an initial common intention, he did not then give evidence expressing or even implying he recanted from their common intention prior to the Agreement’s execution. Thirdly, as was open, the primary judge inferred the continuation of the parties’ common intention and the husband’s lawyer was unable to identify any aspect of the evidence which demonstrated the finding was wrong.
59. The parties’ common intention to execute a binding financial agreement was evident from: the wife’s evidence about their “mutual intention”; the parties’ consistent evidence that they discussed and intended the Agreement to protect the wife’s small business against any claim by the husband in the event of their separation; the identification of the assets they each introduced to the marriage in separate schedules to the Agreement; and the terms of the Agreement itself, which purported to protect the assets they each introduced to the marriage against any matrimonial claim made by the other. The wife’s senior counsel submitted to the primary judge that the inference of the parties’ common intention to create a binding financial agreement was “inescapable”. Whether the inference was so strong is a moot point, but the inference drawn by the primary judge to that effect was certainly available on the evidence.
53. Because it was open to the primary judge to accept such evidence and to infer the parties’ intentions from it, the nature of the instructions the wife gave her lawyer, the nature of the advice she received from her lawyer about the Agreement, and her failure to call her lawyer as a witness at the hearing was of no consequence. There was no gap in the evidence which needed to be plugged by the wife’s lawyer and so there was no room for any adverse inference to be drawn from her lawyer’s absence as a witness (see Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298), for which inference the husband contended before the primary judge.
54. Having drawn the inference of the parties’ common intention to execute a binding financial agreement, that the Agreement did not embody the parties’ objective was an inevitable conclusion. No other device but a binding financial agreement could have carried the parties’ common intention into effect.
55. Since the Agreement did not, by reason of its omissions and inaccuracies, achieve the parties’ common intention, the wife submitted to the primary judge it was a “classic situation where rectification is available” (Transcript 24 May 2018, p.17 lines 38–39), which submission the primary judge was able to accept.
56. The primary judge referred (at [39]–[40]) to Senior & Anderson (2011) FLC 93470, where the Full Court held (at [34]-[36], [105]-[107], [110]-[112], [129], [132]–[133], [138]–[139], [143], [159]–[160]) there was power to rectify the financial agreement in that particular case by substituting correct references to s 90D of the Act for the erroneous references to s 90C, when the correct statutory provision manifested the parties’ common intention. That situation is analogous to the present. Here, the insertion into the Agreement of reference to s 90B of the Act would manifest the parties’ common intention to achieve a financial agreement within the meaning of the Act.
57. As was submitted for the wife in the appeal, the parties did not need to have a common intention about the precise words in which the terms of the agreement should be expressed; only that they had a common intention about the substance and detail of its intended effect (see Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 426–427; Muriti v Prendergast [2005] NSWSC 281 at [137]). For that reason, the fact the parties did not specifically discuss s 90B of the Act in the context of what they agreed the Agreement should accomplish, is no bar to the Agreement’s rectification by insertion of reference to that provision.
58. Since the Agreement could not possibly be a financial agreement within the meaning of the Act without its express reference to s 90B (ss 4(1), 90B(1)(b)), the Agreement’s rectification to reflect the parties’ common intention could only be achieved by an order in terms of Order 1 made by the primary judge. Hence, the validity of the order.
59. Given the Agreement was rectified to reflect its status as a financial agreement under s 90B of the Act, any litigation over the Agreement was the exclusive province of a court exercising jurisdiction under the Act. State courts may, in certain circumstances, exercise federal jurisdiction under the Act, but it was impossible for any Victorian court to entertain and determine any litigation about the agreement under Victorian contract law. The provisions of clause 17 of the agreement were, therefore, nonsense and had to be rectified or severed to render the Agreement correct and intelligible, for which reason Order 3 was also correctly made.

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