Can a binding financial agreement be repudiated?

The Full Court of the Family court is frequently asked to consider whether a binding financial agreement entered into by parties during their marriage can be upheld following the end of their marriage.

The recent case of Donald & Forsyth was one such instance.

The 2005 agreement provided that the parties would sell a property in "Town A" (acknowledged to have been the wife's and 50% sold to the husband for $132,000 which he had repaid $82,000 by July 2005 and was to repay the remaining $50k in $1k instalments) with the net proceeds to be divided equally - save for any outstanding amount owed by the husband which was to be paid to the wife from his share. The agreement also stated that the parties otherwise retained their separate property.

Judge Demack had made orders setting aside the agreement - the husband appealed those orders and the wife opposed the appeal.

Before Judge Demack the wife sought to set aside the agreement arguing that the agreement had been obtained by fraud (non-disclosure of material matters by the husband) and that the agreement was impracticable (that due to her ill health it was no longer practical that she keep the other property she owned and sell the Town A property). Additionally, the wife argued "that in any event, the contract [had] been rescinded by the husband's repudiation."

Judge Demack did not agree with the first two arguments but decided that the agreement had been repudiated and therefore must be rescinded. In answering this question her Honour found the husband's actions in seeking orders, that "move away from the provisions of the financial agreement", namely seeking "that he not be responsible for the good repair of the property in the equal terms that the agreement required" and seeking that the wife pay one half of the equivalent market rent for the Town A property pending its sale where acts of repudiation. In conclusion though her Honour found that "...the [agreement] has been repudiated by the acts of the husband" and it must be rescinded.

The Husband advanced 7 grounds of appeal but only 1 and 5 were addressed by the Court: The principal complaint in Ground 1 appears to be that her Honour failed to consider, and make all of the findings necessary, to be able to conclude that the husband had repudiated the agreement and that it could be rescinded on that basis. That clearly brings into play Ground 5, where the complaint is that her Honour failed to provide adequate reasons for her decision in that it is not possible to discern the path that her Honour followed.

Justice Strickland & Ryan stated that there can be no dispute as to the principles that are to be applied in determining whether a party to a contract has repudiated that contract so that the other party can terminate the same. Those principles are:

• there must be either a breach or an anticipatory breach of an essential term of the contract, or a sufficiently serious breach of a non-essential term; and 
• the other party must be ready and willing to complete the contract. 

The accepted test in relation to anticipated breach is whether or not the words or conduct of the party would lead a reasonable person to conclude that the party did not intend or was unable to perform the contract. The submission of the husband was that the words or acts of the husband were ambiguous or equivocal, and thus could not be said to constitute an anticipatory breach. The Full Court said: "Applying that test we are comfortably satisfied that the words used in paragraph 19 of the affidavit are clear and evince an intention not to be bound by Clause 18.3.2 of the agreement. Accordingly, although her Honour did not address this issue expressly, we find no error in her Honour effectively finding anticipatory breach by the husband."

Given that finding her Honour was obliged to then consider whether the relevant term of the agreement was an essential term, or if not, whether the anticipatory breach was a sufficiently serious one to justify termination of the agreement. However, the Full Court found that her Honour failed to address either of these requirements, and this alone provides a basis for appellate interference.

Justice May said "plainly there is no express statement by the parties that that term is to be treated as an essential term of the contract ... The essential term in this regard was that the house be marketed in good repair, and this is not a term that the husband sought to breach; he was challenging the deduction of the costs of repair from the proceeds of sale."

Further, the Full Court noted that in order to rescind the agreement the wife relied on paragraph 19 of the husband's affidavit filed on 4 May 2011. It was then on 14 November 2011 that the wife through her solicitors terminated the contract. However, the incontrovertible facts are that from the time of the breakdown of the marriage (29 February 2008), the wife had not been prepared to sell the Town A property as required under the terms of the agreement. Thus the wife was not ready and willing to complete the contract herself.

The Full Court concluded "For these reasons we find that there has not been a repudiation of the agreement by the husband such that the wife is entitled to rescind the same, and we propose to set aside her Honour’s orders. The effect of this is that the husband is able to pursue his application in the Federal Circuit Court of Australia to enforce the agreement."