Is the Agreement ‘Impracticable’ or just a ‘bad bargain’?
If parties can agree on how they will divide their assets and liabilities when they separate, they can make their agreement legally binding by entering into either a Consent Order or a Financial Agreement.
But what happens if the agreement can’t be carried out or if the terms of the agreement have a very different effect than what the parties intended?
The Law:
An agreement (either in the form of a Consent Order or a Financial Agreement) will be set aside if it is “impracticable”– i.e. it cannot be carried out – due to circumstances which have arisen since the agreement was entered into, or a circumstance which both of the parties had expected to happen has not come to pass.
An agreement will not be set aside if it can still be put into practice, even if the outcome is very different to what the parties expected. For example, parties agree that the Husband will sell a property he owns which both parties think is worth $500,000. The husband will pay $250,000 to the Wife when the property sells and keep the other $250,000 himself. The written agreement just says “the husband will pay $250,000 to the wife upon the sale of the property”. The property ends up selling for only $400,000. The agreement is not “impracticable” because the husband can still carry it out and pay $250,000 to the wife, even though the husband will end up with only $150,000 when both parties had thought he would end up with $250,000. In that scenario the husband made a “bad bargain” but the agreement is not “impracticable”.
A recent case deals with a situation where the agreement was found to be “impracticable” and therefore set aside.
The Facts:
- The parties jointly owned a property. They entered into a Financial Agreement which included a clause which required:
- The Husband to transfer his interest in the property to the Wife;
- The Wife to refinance the mortgage into her sole name so that the Husband would be released from all liability under the mortgage.
- At the time the parties entered into the Financial Agreement, they both assumed that the Wife would be able to refinance the mortgage into her sole name. They were both aware that the Wife had no other source of funds from which she would be able to pay out the mortgage.
- The Wife applied to the bank for the mortgage refinance but they refused her application. She also applied to other financiers but could not obtain finance.
- The Wife was therefore unable to refinance or pay out the mortgage and release the Husband from the liability. She argued that the Financial Agreement was not legally binding on the parties because it was “impracticable” – i.e. could not be carried out.
- The Husband argued that the Financial Agreement was not “subject to finance” and that the Wife’s obligation to pay out the mortgage was absolute.
Court Findings:
- The Court held that the Financial Agreement did not require the Wife to pay out the Husband’s liability under the mortgage or to secure the Husband’s release from his obligations to the bank ‘under any circumstances’. It required her to ‘refinance’ that ‘liability’, no doubt recognising that without the assistance of a financier, she could not have the Husband released from his obligations to the bank.
- The Court said that this case was different to a case where the bargain had turned out to be worse for the payer than it was expected to be when the agreement was made. The Financial Agreement did not require the Wife to pay anything to the Husband – it required her to do something other than pay money. There came a point where the Wife, having made the necessary applications for finance, could do no more and the matter was left with the decision of the financier – a decision out of the hands of either party.
- In these circumstances the Court held that the Financial Agreement could not be carried out or put into effect. It was therefore “impracticable” and was set aside.
