Binding Financial Agreements When Does Repudiation Justify Recission?

Paragraph in Agreement the subject of the purported repudiation

The paragraph in the Agreement which was the subject of the dispute was paragraph 18.3 which read as follows:

“The property situated at and known as [T Street, Town A] shall be placed on the market and sold, in a state of good repair, at a price agreed upon between the parties and failing such agreement to be determined by the President of the Real Estate Institute of New South Wales or his nominee and that the proceeds of the said sale be disbursed as follows:

18.3.1 To pay the agents commission and advertising expenses and legal expenses on the sale;

18.3.2 To pay any costs of repairs or placing the property in good repair prior to sale;

18.3.3 The balance to be divided equally between [the wife] and [the husband];

18.3.4 From [the husband’s] one-half share of the proceeds he shall pay to [the wife] the outstanding balance owed by him for the purchase of his one-half share in the property at [T] Street.´

The Husband was at all times prepared to sell the property at Town A but said in his Affidavit at paragraph 19 filed on 4 May 2011 that the Agreement be enforced “other than with respect to Clause 18.3(2).”

The Husband provides at paragraph 20 of his Affidavit that that is “unfair” that he should pay the costs of the repairs when the Wife has been residing in the property rent free since separation.

At paragraph 21 of the Husband’s Affidavit he seeks that the Wife pay one half of the equivalent market rent for the property pending its sale.

Termination of Financial Agreement

The Wife’s solicitors then wrote to the Husband’s solicitors and relied upon paragraph 19 in the Husband’s Affidavit referred to above and stated in that letter “At paragraph 19 of your client’s affidavit he seeks to repudiate the contract (being the Financial Agreement dated 6 July 2005.) My client accepts that repudiation, and therefore considers the Financial Agreement as having been validly terminated according to common law principles of frustration.”

Trial Judge’s Decision

When considering the issue of whether the Husband’s actions amounted to repudiation of the contract the Trial Judge found that “the husband’s position is that he will not participate in his share of attending to the cost of repairs. It seems to me that this conduct amounts to repudiation of the contract. If the husband will not do the necessary acts to put the contract into effect, he has repudiated the contract and the contract is rescinded.”

The trial Judge consequently made Orders to set aside the Financial Agreement.

Grounds of Appeal

The Husband appealed the decision of the Trial Judge and the relevant grounds of appeal considered by the Full Court were that the trial Judge:

1. Failed to 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;
2. Failed to provide adequate reasons for her decision in that it is not possible to discern the path that the trial Judge followed.

The Law

When considering the binding nature of the Agreement the Full Court acknowledged that the general law in relation to contracts and principles of equity apply.

The Full Court applied the following principles in relation to determining whether or not a party has repudiated a contract giving rise to its termination:

1. 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 (Koompahtoo Local Aboriginal Land Council and Anor v Sanpine Pty Limited and Anor (2007) 233 CLR 115); and
2. The other party must be ready and willing to complete the contract (Foran v Wright (1989) 168 CLR 385.

The Full Court found that the trial Judge did not address these principles in her Judgment providing a basis for appellate interference.

Re-determination

The Full Court determined that they were able to apply the law to the facts of the case and re-determine the matter as there was no challenge to the trial Judge’s fact finding and it was not a case regarding exercise of discretion.

The Full Court found that there had not been a repudiation of the Agreement by the Husband entitling the Wife to rescind the Agreement because:

1. The paragraph in the Agreement requiring the parties to share the costs of placing the property “in good repair” for the purposes of sale was neither an essential term of the Agreement nor a sufficiently serious breach of a non-essential term;
2. At the time of the purported termination of the Agreement the Wife was not ready and willing to complete the Agreement.

The Full Court agreed with the submissions by the Husband’s Counsel that the term in contention in this matter “is merely a provision in the contract that provides a mechanism for the shared payment of the costs of putting the property at [Town A] in good repair for the purposes of sale.”

The essential term was that the property be marketed in good repair. The Husband did not purport to breach this term but only challenged the deduction of costs from the sale proceeds.

There was also evidence by the Wife during cross-examination and in her Affidavit material which confirmed her position throughout the matter that she did not want to sell the property and had not taken any steps to sell the property since she purported to rescind the Agreement. The trial Judge did not consider this issue at all.

The Husband was successful in his Appeal and the Wife conceded there should be an Order for costs in that event. As such, the Full Court ordered costs against the Wife to be paid from the sale of the property at Town A.

Conclusion

A lesson for all practitioners to ensure that they consider the relevant principles in relation to rescission before being too quick to rescind a Binding Financial Agreement or contract.