Ammala, M. v Sarimaa, S.s

MATTI AMMALA v. SIRPA SISKO SARIMAA
No. AG52 of 1992
FED No. 1000/93
Number of pages - 10
Equity

COURT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
BURCHETT, HILL AND HIGGINS JJ

CATCHWORDS

Equity - resulting trust - how beneficial interests are to be determined when there are unequal contributions - whether an account between the parties needs to be taken.

City Area Leases Ordinance 1936: s.28(2C)

Calverly v. Green (1984) 155 CLR 242; followed.

HEARING

CANBERRA, 5 April 1993

#DATE 19:5:1993

Counsel and Solicitors J. Brewster instructed by
for Appellant: Gallens Crowley and Chamberlain

Counsel and Solicitors R. Eassie instructed by
for Respondent: Macphillamy Cummins and Gibson

ORDER

The Court Orders that:

Appeal allowed in part.

Order 2 of the orders made by his Honour on 31 August 1992 be set aside and in lieu thereof it be ordered that:

(a) Within 30 days of the date of the judgment of the Full Court of the Federal Court of Australia, the plaintiff pay to the defendant the sum of $39,155.

The Court declares that upon payment of this sum by the plaintiff to the defendant, the plaintiff shall be the sole legal and beneficial proprietor of the property.

(b) Should the plaintiff fail to comply with Order 2 (a) herein:

(i) the property be vested in trustees for sale, such trustees to be appointed by the Court;

(ii) the said trustees then forthwith market the property for sale in such manner as in their discretion they see fit, and cause the property to be sold for the best price able to be obtained;

(iii) from the proceeds of sale of the property, the said trustees pay to the defendant an amount calculated as follows:

A = (B - (C + D)) x 10,000 - $14351 27,100

Where:

A = the amount to be paid

B = the sale price

C = $70,000

D = legal commission, solicitors conveyancing costs on sale, costs of affidavit and reimbursement of trustees for sale.

(iv) that the balance of the proceeds of sale be disbursed to the plaintiff.

(c) Until the plaintiff complies with Order 2(a) herein, or until completion of the sale of the property, as the case may be, the plaintiff pay all rates and other similar charges, as and when they fall due.

(d) Upon compliance by the plaintiff with Order 2(a) herein, or upon completion of the sale of the property, as the case may be, the defendant shall do all necessary acts and things to cause Caveat No. 11943 to be removed from the title of the property.

The respondent pay the appellant's costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

BURCHETT, HILL AND HIGGINS JJ Mr Matti Ammala, the appellant in the present appeal and the plaintiff in the proceedings below, appeals against the judgment of the Chief Justice of the Supreme Court of the Australian Capital Territory, Miles CJ, in which, inter alia, it was declared that Mr Ammala held a property situated at 2 Rosewood Place, Hawker ("the property"), in trust for himself and Ms Sarimaa, the respondent to the present appeal, such that the beneficial interest of Ms Sarimaa was in the proportion that 10,000 bears to 27,100. The notice of appeal filed contested not only the quantum of Ms Sarimaa's interest but also the finding that a resulting trust arose in favour of Ms Sarimaa. However, on the hearing of the appeal that ground of appeal was abandoned and the appeal proceeded upon the basis that Mr Ammala held the property upon trust for Ms Sarimaa and himself. The only matters argued went to the quantum of the respective interests.

Having regard to the matters argued, it is not necessary to outline in great detail the facts which led the learned Chief Justice to conclude that a resulting trust arose. It is, however, necessary, in order to evaluate the submissions of Mr Ammala, to understand the way in which the case proceeded below.
The case was commenced by Mr Ammala by way of originating summons seeking an order that a caveat lodged on the title to the property by Ms Sarimaa be removed. Points of claim and points of defence were ordered to be served. These were in somewhat narrative form directed to the question whether a trust was imposed upon the land. In her amended points of claim Ms Sarimaa (treated as the real claimant to the equitable interest, title to the land being in the name of Mr Ammala) outlined what she claimed to be her contribution to the ownership of the property and claimed that Mr Ammala held it upon trust as to one half for himself and one half for her. In the amended points of defence, Mr Ammala denied that Ms Sarimaa had any beneficial interest in the property at all. His case, as pleaded, was that Ms Sarimaa had neither contributed to the purchase of the property nor to the erection of a house upon it.
At the hearing it was indicated to his Honour that the parties wished him to decide all points at issue between them, and that, indeed, is ultimately what his Honour sought to do.
Of the facts which his Honour found gave rise to the imposition of a trust upon the property, it suffices to say that the property was purchased by Mr Ammala in his own name at a time when the parties were living together in a house owned by Mr Ammala at Chisholm. Ms Sarimaa was the owner of another house at Charnwood. Before the contract for purchase was entered into, the parties agreed that they would buy a block of land and build a house on it, for the purpose, so his Honour found, of resale at a profit. The agreement did not go beyond the contemplation of each party that once the land was acquired Mr Ammala would use his skills in assisting in the physical construction of a house and that Ms Sarimaa would contribute by continuing to go out to work and to provide Mr Ammala with household support.
His Honour concluded that as at the time of acquisition there was, in these circumstances, an agreement that the acquisition of the land and the construction on it would be a joint enterprise and that Mr Ammala had led Ms Sarimaa to believe that she would have a half interest in the property.
Mr Ammala was the successful bidder for the Crown lease of the property at auction. At the time of the auction, and perhaps immediately after it, there was a conversation as to the property being in their joint names. Be that as it may, both Mr Ammala and Ms Sarimaa became joint borrowers from the National Australia Bank Ltd under a mortgage to finance the completion of the purchase of the land at Hawker and the commencement of the construction of a home upon it. The loan approved was for $65,000, but was never fully drawn. There was an initial draw-down of $20,000 (this may perhaps have been the only direct advance of funds, the judgment is silent about this). However, with arrears of instalment repayments and presumably interest, the amount of the loan account stood at approximately $30,000 in November 1988 when it was paid out by Mr Ammala using part of the proceeds of settlement of the sale of his house at Chisholm which totalled $52,829.14, together with a balance of deposit on that sale of $9,500.
According to the evidence, Ms Sarimaa contributed in cash only $1,298, being one of the instalments of the National Australia Bank Ltd loan which was in arrears.
It was agreed that the value of the property as at the date of trial was $215,000.
According to Mr Ammala, the balance of the proceeds of the sale of the Chisholm property (approximately $30,000) was used to purchase materials for the construction of the house. Mr Ammala did a great deal of the building work himself, while employing some contractors. Very little was done by Ms Sarimaa, who nevertheless provided for some at least of the domestic arrangements, over and above a contribution by Mr Ammala for board.
The parties separated in March 1989. Mr Ammala moved into the Hawker house some time between April and August 1989, while it was only partially complete, and worked on its completion while living there. In April 1990, Mr Ammala borrowed $35,000 from the then Canberra Permanent Co-operative Building Society Ltd ("Canberra Building Society"). In his initial judgment the learned Chief Justice suggested that this had been used to repay the mortgage to the National Australia Bank. However, this mortgage had been repaid out of the proceeds of the Chisholm sale. A supplementary judgment corrected this error, but his Honour indicated that there was "no evidence as to what exactly was done with the funds so raised", ie from the Canberra Building Society.
In August 1990 and in October 1990, Mr Ammala received two sums of $15,000 and $6,000 respectively, in settlement of a personal injuries claim. These amounts were, according to Mr Ammala, used in the construction of the house. His Honour, discussing the first such payment, commented upon the lack of supporting evidence that the amount was used in the construction of the house but found that it was likely that Mr Ammala spent some of this amount on materials or paying sub-contractors and some supporting himself while engaged in working on the completion of the house. The house was completed in early 1990 and a certificate of occupancy or use issued on 6 February 1991.
The foundation for finding a resulting trust in these circumstances is to be found in the judgment of the High Court in Calverley v Green (1984) 155 CLR 242. Suffice it to say that where two persons contribute the purchase money in unequal shares but the title is taken in the name of only one of them, then, in the absence of circumstances giving rise to a presumption of advancement, there is a presumption, which may be rebutted by further evidence, that the property is held as tenants in common in the proportion in which the contributions to the purchase money are made. This presumption will apply in the absence of a common intention inconsistent with a tenancy in common proportionate to their contributions. Where the whole or some part of the purchase money is paid from joint borrowings, each party is taken to have contributed that portion of his/her share represented by the joint borrowing, irrespective of whether the repayment of the borrowing is made by the one or the other party: Calverley v Green (supra) per Gibbs CJ at 252 and per Mason and Brennan JJ at 257, although the bearing of a disproportionate share of the repayment would be relevant to an accounting between the parties. This is so, as Mason and Brennan JJ observed (at 257-8), because:

"The purchase price is what is paid in order to acquire the property; the mortgage instalments are paid to the lender from whom the money to pay some or all of the purchase price is borrowed... The payment of instalments under the mortgage was not a payment of the purchase price but a payment towards securing the release of the charge which the parties created over the property purchased."

It might have been argued that, having regard to his Honour's finding which seems to have been that at the time of acquisition there was an agreement that Ms Sarimaa would have a one half interest in the property, no question of a resulting trust arose and, in particular, any presumption arising from unequal contributions was rebutted. Ultimately, however, no question arose in the appeal as to this.
In his initial judgment his Honour held that it would be unconscionable to regard Mr Ammala as holding the title other than as to one half for Ms Sarimaa and one half for himself. However, his Honour was of the view that a financial adjustment of the rights of the parties required an account to be taken of the considerable injection of funds and of labour on the part of Mr Ammala. Accordingly, his Honour held that account should be taken of the $30,000 being part of the proceeds of sale of the Chisholm property and a further $35,000:

"...to compensate him for the value of what he has spent on materials and sub-contractors and for his own labour."

This sum of $35,000 seems apparently to have taken into account the $21,000 representing the personal injury settlement, but not the $35,000 borrowed from the Canberra Building Society. Some part of the balance of the proceeds of the sale of the Chisholm property has also, presumably, been taken into account. His Honour was of the view that the case did not call for a taking of accounts between the parties. Accordingly, his Honour held that Ms Sarimaa's interest could be expressed by the following formula:

"x - (y + z)

2

Where x = $215,000

y = $ 65,000

Z = costs and expenses of giving effect to order, if any."

His Honour then adjourned the case to a date to be fixed to settle the form of orders. Thereafter further submissions were made by counsel for both parties. It is unclear precisely how extensive those submissions were. His Honour then delivered a supplementary judgment in which he agreed with a submission that, having held that Mr Ammala held the property upon a resulting trust on behalf of himself and Ms Sarimaa, it was necessary for him to proceed to determine the respective shares contributed by each party to the purchase price. His Honour continued:

"It was not sufficient to assume that, because the obligation to repay the loan was a joint and several one, each party took a one half beneficial interest in the property. That is because the moneys made available by the loan for the purchase did not constitute the whole of the purchase price. The total price paid for the purchase of the land was $27,100. An initial payment of $7,100 was made by Mr Ammala from his own funds on the day of the auction in February 1986; the loan arrangements were entered into by the parties jointly with the National Australia Bank in May 1986 and $20,000 was drawn against the loan entitlement in June 1986 to complete the purchase. Accordingly, Mrs. Sarimaa's proportionate interest in the land was not one-half but 10,000/27,100. (The term 'proportionate interest' is that of Gibbs CJ in Calverley v Green (1984) 155 CLR 242 at 253.)"

His Honour rejected a submission that Mr Ammala was entitled to any greater set off than the sum of $65,000. In particular, his Honour rejected the allowance of a further sum of $35,000 representing the borrowing from the Canberra Building Society, noting that the original judgment had erroneously supposed this to have paid out the National Australia Bank loan. His Honour then adjusted the formula set out above to read as follows:

"A = (B - (C + D)) x 10,000 27,100

Where A = payment to be made by plaintiff to defendant B = $215,000

C = $ 65,000

D = costs and expenses of giving effect to order, if any, not including amount needed to discharge any existing mortgage."

Three criticisms were levelled against his Honour's judgment. First, it was said that $30,000 of the sum of $65,000 should not have been included in the formula as a component of C, but instead $15,000 should have been deducted from the share of Ms Sarimaa when this had been ascertained. Secondly, it was submitted that his Honour should have ordered a full account to be taken between the parties. Thirdly, it was submitted that an inadequate amount had been allowed by his Honour for the funds and labour contributed by Mr Ammala, particularly having regard to the $35,000 borrowed by him from the Canberra Building Society. These submissions may be shortly dealt with.
The first submission is clearly correct. Indeed ultimately, counsel for Ms Sarimaa conceded that there was little to say against it. The amount borrowed from the National Australia Bank was counted in the calculation of Ms Sarimaa's beneficial interest of 10,000/27,100. The liability was a liability of each of the parties jointly and severally. When it was repaid by Mr Ammala, requiring an outlay of approximately $30,000, Mr Ammala was entitled to be indemnified to the extent of one half of the liability extinguished, ie Ms Sarimaa's share of the liability, namely $15,000. Since Ms Sarimaa paid one instalment of $1,298, she is entitled to an indemnity from Mr Ammala in the sum of one half of that amount. In the result, Mr Ammala is entitled to be paid out of Ms Sarimaa's share, in the event of the sale of the property, $14,351 and the component C in the formula should be reduced by $30,000. In this way each of the parties is treated as bearing one half of the loan repayments for which they agreed to be responsible, rather than, if the formula remained unmodified, Mr Ammala bearing 17,100/27,100 of those instalments, when he had already paid one hundred per cent of them, less the one instalment of $1,298 paid by Ms Sarimaa.
The second point is more difficult. It is clear that the court has power in an appropriate case to order an account to be taken between the parties to determine their relative contributions to the property, both in respect of cash contributions and in respect of the value of labour. Any benefit in the nature of rent-free occupation, which one party might have had at the expense of the other, is also relevant. The question is whether that was an appropriate course in the present case. His Honour thought otherwise, because, presumably, he had dealt with the evidence before him of cash contributions, had treated any contribution by Ms Sarimaa in the nature of labour as being insignificant and had taken into account, so he said, the value of the labour contributed by Mr Ammala. In these circumstances there would have been no point in referring the matter to a Master to determine the state of accounts between the parties.
The question ultimately turns upon the way the case was conducted by the parties. As already noted, what started out as an originating summons for the withdrawal of a caveat became a suit for the determination of the extent of Ms Sarimaa's interest in the property. As ultimately pleaded, Mr Ammala's case was an all or nothing one. The case he put was not one that required attention to be given to the quantum of his contribution in cash or labour, for he claimed that there was no trust impressed upon the property. On the other hand, the parties appear to have agreed that his Honour determine all issues between them and if counsel for Mr Ammala was surprised by being required to give evidence as to the extent of work done by him and payments made, it was open to him to apply to reopen his case and call evidence.
It may be noted that although additional submissions were made in the time between the initial judgment and the supplementary judgment, no attempt was made to seek leave to call any further evidence, notwithstanding his Honour's clear comments that Mr Ammala's evidence on these matters had been insufficient.
In these circumstances, his Honour could not be said to have erred in determining for himself the value of Mr Ammala's contribution in cash or labour, rather than subjecting the parties to the expense of a further hearing to determine these matters. Mr Ammala's complaint is really that at the hearing when the issue fell to be decided, if all matters in issue between the parties were to be determined, he failed to satisfy the burden of proof. Now he seeks the aid of the appeal court to extricate him from a situation of his own making.
The third submission has more merit. It will be recalled that, leaving aside the contribution of $1,298 made by Ms Sarimaa, the totality of funds for the payment out of the mortgage and the construction of a house upon the land derived from Mr Ammala. On the evidence, the house was constructed between 1987 and October 1990. Its construction was either the result of Mr Ammala's labour or the work of contractors paid for by him. At the date of hearing it was worth $215,000. The effect of his Honour's judgment is that the construction of the house, valued in labour and materials, cost $35,000, which, together with the original land cost of $27,100, makes a total cost for the land and house of $62,100. Even allowing for inflation, it seems highly likely that the cost was greatly in excess of this figure.

It is against this background that the submissions put concerning the refusal by his Honour to make any allowance for the sum of $35,000, borrowed by Mr Ammala upon the security of the property from the Canberra Building Society as additional expenditure by him, have to be viewed.
Under s.28(2C) of the City Area Leases Ordinance 1936, a Canberra City lease may not be mortgaged unless either the lessee has obtained a certificate that the building and development covenant in the lease has been complied with, or the moneys are used to pay out an existing mortgage used to acquire the lease or are borrowed to acquire the lease, or the mortgage is required by the lessee to enable the lessee to comply with the building and development covenant. There was evidence before his Honour that the certificate of compliance did not issue until 6 February 1991. Since the moneys were not used to acquire the lease or pay out the National Australia Bank, it follows that the only purpose for which the mortgage could lawfully be obtained was the construction of the house. It may be inferred that the Canberra Building Society would be aware of this restriction and ensure that advances under the mortgage were made for a lawful purpose.
In these circumstances, and despite the lack of direct evidence on the part of Mr Ammala as to the use of the funds, a matter fairly conceded by his counsel, it seems appropriate that a further allowance be made to him for the expenditure by him of this $35,000 towards the construction of the house. Indeed, a cost of construction of at least $70,000 on land which cost approximately $27,100 and where, two to three years after construction was completed, the value of the land and house was $215,000, accords with the balance of probabilities. Accordingly, the formula should be adjusted so that the item C in it is increased by a further $35,000 to $70,000.
Complaint was also made on behalf of Mr Ammala that interest should have been ordered on the sum of approximately $15,000 to be repaid to him by Ms Sarimaa out of her share. However, Mr Ammala had the occupation of the property for some time, not only while working upon it, but also after completion. No allowance has been made in the formula for any occupation rent, so that it is not inappropriate to treat the absence of interest as offsetting the absence of occupation rent.
Accordingly, the appeal should be allowed in part. The appellant has been substantially successful and in these circumstances should have his costs of the appeal. However, given that Mr Ammala was unsuccessful below in maintaining that no trust was impressed upon the property, a matter upon which he was wholly unsuccessful, the cost order made by the Chief Justice that he pay two-thirds of the costs of Ms Sarimaa should not be interfered with.
The orders of the Court are accordingly as follows:

1. Appeal allowed in part.

2. Order 2 of the orders made by his Honour on 31 August 1992 be set aside and in lieu thereof it be ordered that:

(a) Within 30 days of the date of the judgment of the Full Court of the Federal Court of Australia, the plaintiff pay to the defendant the sum of $39,155. The Court declares that upon payment of this sum by the plaintiff to the defendant, the plaintiff shall be the sole legal and beneficial proprietor of the property.

(b) Should the plaintiff fail to comply with Order 2 (a) herein:

(i) the property be vested in trustees for sale, such trustees to be appointed by the Court;

(ii) the said trustees then forthwith market the property for sale in such manner as in their discretion they see fit, and cause the property to be sold for the best price able to be obtained;

(iii) from the proceeds of sale of the property, the said trustees pay to the defendant an amount calculated as follows: A = (B - (C + D)) x 10,000 - $14351 27,100

Where:

A = the amount to be paid

B = the sale price

C = $70,000

D = legal commission, solicitors conveyancing costs on sale, costs of affidavit and reimbursement of trustees for sale.

(iv) that the balance of the proceeds of sale be disbursed to the plaintiff.

(c) until the plaintiff complies with Order 2(a) herein, or until completion of the sale of the property, as the case may be, the plaintiff pay all rates and other similar charges, as and when they fall due.

(d) Upon compliance by the plaintiff with Order 2(a) herein, or upon completion of the sale of the property, as the case may be, the defendant shall do all necessary acts and things to cause Caveat No. 11943 to be removed from the title of the property.

3. The respondent pay the appellant's costs of the appeal.

[1993] FCA 1000

19 MAY 1993