Failed Attempt to Unbind a Binding Financial Agreement (BFA)

In the recent case of Donald & Forsyth [2015] FamCAFC 72, considered by the Full Court of the Family Court of Australia, the Court held that one party to a Binding Financial Agreement (BFA) cannot claim they are no longer bound by the BFA simply because the other party decides not to be bound by part of it.

The Binding Financial Agreement required that a particular property be sold, after being placed in a state of good repair, with the net proceeds of sale divided equally (after payment of any costs of such repair).

However, after separation, the Husband indicated to the Wife that he would not agree to share the costs of bringing the property into “good repair” prior to sale (despite a clear term in the BFA to that effect). The Wife, who wanted to live in the property, then claimed, in effect, that since the Husband did not want to follow the BFA, neither should she. She then proceeded to seek orders from the Court for a division of the matrimonial property on the basis that the BFA had been terminated.

Initially the Court agreed with the Wife. However, on appeal, the Full Court unanimously decided that the BFA was still binding and that the Husband was entitled to seek enforcement of it. The reasons why the Wife could not terminate the Binding Financial Agreement in these circumstances included that:

1. The Husband’s “anticipatory breach” was not in relation to an “essential term” of the BFA. That is, it could not be said that the term in the BFA requiring that the cost of bringing the property into a state of good repair is a term that the parties had agreed (in the context of the Binding Financial Agreement) will always justify termination if breached.
2. Neither would such a breach be properly characterised as a sufficiently serious breach of a non-essential term. The breach did not go “to the root of the contract”.
3. The Wife was not, herself, “ready and willing” to complete the agreement. As she did not want to sell the property at all, she could not properly be called an “innocent party” and therefore entitled to rescind the BFA.

The moral of the story is that a party cannot automatically set aside a Binding Financial Agreement simply because the other party has breached it first. As in this case, it may be that the BFA is still binding and that an alternative remedy should be sought by the aggrieved party in the event of the breach of a term of the agreement. On the other hand, a party should not readily breach their obligations under a Binding Financial Agreement, as there are circumstances where not following a BFA could give the other party the ability to terminate the agreement. Care should be taken and legal advice sought whenever the circumstances of a breach of a BFA arise.