Brown v George
[1999] FCA 285
•25 MARCH 1998
FEDERAL COURT OF AUSTRALIA
Brown v George [1999] FCA 285
TRUSTS – constructive trusts – claim that financial and non-financial contributions made during period of co-habitation gave rise to a constructive trust – whether unconscionable for respondent to retain benefit of property acquired during de facto relationship.
Muschinski v Dodds (1985) 160 CLR 583 considered
Baumgartner v. Baumgartner (1987) 164 CLR 137 considered
Mallet v. Mallet (1984) 156 CLR 605 considered
Margaret Ann Napier Brown v James William George
AG 96 OF 1998
MILES, MATHEWS AND LEHANE JJ
25 MARCH 1999
CANBERRA
IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY
DISTRICT REGISTRY
AG 96 OF 1998 On Appeal from the Supreme Court of the Australian Capital Territory
BETWEEN:
MARGARET ANN NAPIER BROWN
AppellantAND:
JAMES WILLIAM GEORGE
Respondent
JUDGES:
MILES, MATHEWS AND LEHANE JJ
DATE OF ORDER:
25 MARCH 1998
WHERE MADE:
CANBERRA
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The appellant pay the respondent’s costs of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY
DISTRICT REGISTRY
AG 96 OF 1998 On Appeal from the Supreme Court of the Australian Capital Territory
BETWEEN:
MARGARET ANN NAPIER BROWN
AppellantAND:
JAMES WILLIAM GEORGE
Respondent
JUDGES:
MILES, MATHEWS AND LEHANE JJ
DATE:
25 MARCH 1999
PLACE:
CANBERRA
REASONS FOR JUDGMENT
THE COURT:
This is an appeal by the plaintiff from a judgment of the Australian Capital Territory Supreme Court (Gallop J) in favour of the defendant. The parties had cohabited for approximately 13 years, and the plaintiff had sought a declaration that one‑third of the defendant’s legal interest in assets which he accumulated during the period of their cohabitation was held in trust for her. The basis of the claim was that, having regard to the significant financial and non‑financial contribution made by the plaintiff during that period, a constructive trust had been created in her favour.
At the hearing in the Supreme Court the appellant was represented by solicitor and counsel. The respondent represented himself. The trial judge, in a lengthy judgment, made a number of findings of fact, most of them adverse to the appellant. These findings were summarised in the appellant’s written submissions as follows:
14.1The appellant was born on 23 February 1936 and the defendant was born on 10 August 1944.
14.2The appellant has two children of a previous relationship, a son born 24 October 1959 and a daughter born 1 October 1960.
14.3The appellant met the defendant in 1975 and a sexual relationship between the parties began within the first few meetings, most nights were spent at the appellant’s home.
14.4On 30 April 1980 the respondent purchased 13 Crace Street, Weetangera in the Australian Capital Territory and the appellant moved into that property with the respondent on or about 5 August 1980.
14.5During the relationship between the parties the appellant brought up the subject of marriage on many occasions and was repeatedly told by the respondent “I do not want to marry you”.
14.6For approximately seven years before cohabitation commenced between the parties the appellant was employed as a full‑time pre‑school assistant. Between 1980 and 1982 she also worked part‑time as a TAB clerk and then as an operator in telephone betting
14.7The appellant had intended to work until 65 years.
14.8Before and during the relationship the respondent was a licensed bookmaker.
14.9During the relationship the appellant’s children resided with the parties from time to time; the respondent always made the appellant’s children welcome in the home and was very kind to them; both the children admired and trusted the respondent and treated the house at 13 Crace Street, Weetangera as their family home.
14.10The respondent partially supported the appellant’s children during the early years of the relationship and provided financial support for the children without any obligation to do so.
14.11The respondent continued to support the children throughout the relationship, particularly the appellant’s son.
14.12The respondent guaranteed the daughter’s car loan and though he was never called to pay under the guarantee, he provided that facility without obligation.
14.13At the commencement of cohabitation the appellant was the Crown lessee of 20 Draper Crescent, Higgins (subject to a registered Mortgage securing a debt of approximately $10,000), she owned a 1974 motor vehicle, furniture and personal effects and had savings of between $200 and $300; the appellant had other debts of approximately $3,000.
14.14The respondent paid out all the appellant’s credit cards (the debts of approximately $3,000) shortly before August 1980.
14.15The appellant was managing a reasonable lifestyle but her comfort and access to money greatly increased when she commenced to live with the respondent.
14.16During most of the period of cohabitation the appellant let her house at 20 Draper Crescent, Higgins and the rent on that property from time to time was income which she would not otherwise have had available to her.
14.17There was no pooling of the parties’ respective assets.
14.18The appellant helped the respondent to refurbish the Weetangera home and provided many of the comforts of the home, but she was not the primary home‑maker and care giver.
14.19In addition to working as a licensed bookmaker in New South Wales and the Australian Capital Territory, the respondent ran various businesses through a company structure.
14.20In approximately 1983 the respondent purchased the leasehold of the Ethos Hotel at Dickson in the Australian Capital Territory for approximately $80,000 which was partly financed by a mortgage of the appellant’s property at 20 Draper Crescent, Higgins.
14.21In December 1984 the hotel/motel site was purchased by L J Hooker for $150,000.
14.22The proceeds of the sale of the hotel/motel site were used to purchase a house in Batemans Bay, New South Wales; the respondent demolished the house on that site and built the Bridge Motel which opened in November 1985.
14.23At the request of the respondent the appellant agreed to accompany him to Batemans Bay as it was the respondent’s intention to run the Motel until it was “going okay”.
14.24In order to accompany the respondent the appellant took approximately twelve months leave without pay from the ACT Schools Authority.
14.25The respondent provided $250 per week towards housekeeping at the beginning of the relationship, which provision had increased to $350 per week by the time cohabitation ceased; the respondent continued to pay to the appellant $250 per week until he received legal advice to cease the payments, which he did on 7 January 1994.
14.26The respondent paid insurance and maintenance expenses for the appellant’s motor vehicle, the gap between her medical insurance and hospital expenses and occasionally provided cash for her clothes.
14.27The respondent provided funds for three overseas trips, two of which the appellant made without the respondent; the respondent also provided funds for trips to Cairns and Melbourne and contributed to the plaintiff’s personal expenses.
14.28The respondent always paid for servicing of the plaintiff’s vehicles and any petrol obtained at the time of servicing.
14.29Prior to resigning from full‑time work in the ACT and moving to Batemans Bay the appellant and the respondent employed someone “on and off” to clean the home once a fortnight for approximately three of the five years that they lived in Weetangera; the appellant cleaned the house at all other times; she also did the shopping, cooking and gardening.
14.30On 14 January 1983 and 26 June 1985 the appellant, at the request of the respondent, increased the debt owed under the mortgage on the appellant’s property at Higgins by the sum of $60,000 (to assist in purchase of the Ethos Motel) and $58,000 (to assist in construction of the Bridge Motel) respectively.
14.31The money borrowed on the appellant’s property was borrowed from Alliance Acceptance Co Limited and the funds were advanced by the appellant to Petalma Pty Ltd, a company of the respondent was a director.
14.32At the time the debt owing under the mortgage was increased, the appellant owed approximately $6,000 under the mortgage; from the time the increase in the debt was incurred, the mortgage “was taken care of by the [respondent] or one of his companies”.
14.33When the parties moved to Batemans Bay the appellant claimed that she worked full‑time at the Motel; the work involved managing the Motel while the respondent was away pursuing his bookmaking and other business; the plaintiff also performed the task of receptionist from time to time, maintained the garden (except for lawn mowing), cooked breakfast for the Motel units and did part of the shopping for the Motel.
14.34After the parties leased the Bridge Motel, the appellant helped with the shopping for the Pegasus Motor Inn in Batemans Bay, another business venture entered into by the respondent.
14.35When the appellant gave up full‑time work the respondent increased her allowance to $350 per week; when the parties first moved to the Bridge Motel the respondent paid the appellant $200 per week for her personal needs.
14.36Whilst the parties were running the Bridge Motel the respondent generally spent two days away from that business, being Wednesday and Saturday with an occasional other mid‑week race meeting.
14.37Some time between April and June 1986 managers were employed to run the Bridge Motel.
14.38Some time around July 1986 the parties moved back to Crace Street, Weetangera.
14.39On 16 April 1987 the Bridge Motel was leased.
14.40Following the leasing of the Bridge Motel the respondent moved to the Pegasus Motor Inn and managed that Motel; the appellant remained in Canberra.
14.41In June 1992 the respondent bought out the lessees of the Bridge Motel and continued to manage it.
14.42Having acquired possession of the Bridge Motel the respondent was required to pay to the Commonwealth Bank $150,000 by February 1993 and to enable this to be done he sold the house in Weetangera; following sale of the Weetangera property the respondent rented a house in Holt and the appellant moved to that residence; when the appellant moved from the Weetangera property the respondent permitted her to take household furniture of an estimated value of approximately $28,000.
14.43The respondent’s payments in respect of the appellant and the Holt residence were $14,750 (page 623 Appeal Papers).
14.44From 16 September 1982 until 7 April 1993 the appellant was a director of Petalma Pty Ltd, the respondent also being a director during that period; the appellant claimed that her role as director included signing papers, taking telephone messages and entertaining business associates of the respondent but she was not involved in any
decision‑making in respect of the running of the company or its business.
14.45The respondent sold the Bridge Motel on 10 May 1993; the sale price was nearly $250,000 below the initial construction cost.
14.46On about 23 June 1993 the respondent visited the appellant at the rented home in Holt and told her that he was not coming back to live with her and that the relationship was over.
14.47The appellant’s director’s fees were credited to her loan account in the company.
14.48The respondent purchased for the appellant a 1986 Nissan Pintara motor vehicle at which time the appellant’s Datsun motor vehicle was used as a trade‑in; the respondent contributed cash of approximately $7,490 towards the purchase as well as trading in a business vehicle.
14.49In December 1989 Petalma Pty Ltd advanced funds for the purchase of a station wagon for the appellant; Petalma Pty Ltd later claimed to have a cause of action against the appellant with respect to repayment of the loan but no further steps have been taken, either by Petalma Pty Ltd or the respondent to enforce payment of the loan and none are contemplated.
14.50At the time of the hearing the appellant was employed as a casual relief pre‑school assistant on a day to day contract with the ACT Schools Authority; her evidence was that she was not assured of getting work every week and there was little or no work available from the end of November until the beginning of March; the appellant estimated that her average weekly income from employment was $120; she was also in receipt of an old age pension of $162 per week.
14.51The appellant’s evidence was that there was never any discussion between the parties that indicated to her that the respondent did not consider the relationship to be permanent.
14.52The appellant claimed that she resigned from full‑time employment to her detriment in the belief that the relationship was permanent; the respondent said that the appellant voluntarily resigned and that she was aware that he made no promises that indicated the relationship would be permanent.
14.53In 1986 the relationship began to have problems and there were constant arguments over very minor matters and from 1988 onwards the parties ceased having sexual relations.
14.54As at July 1980 the respondent had the assets set forth at pages 626 and 627 of the Appeal Papers.
14.55During the relationship the respondent purchased and sold properties set forth at page 627 of the Appeal Papers.
14.56During the relationship the respondent sold the properties set forth at pages 627 and 628 of the Appeal Papers.
14.57For the period of the 1980/81 tax year to 1992/93 tax year the respondent’s assessable income from activities as a licensed bookmaker was approximately $790,000; during this period he received approximately $100,000 income from two companies; the respondent made in excess of $200,000 from investments in real estate, most purchased prior to 5 August 1980; bookmaking and residential real estate investments accounted for the bulk of his wealth at June 1993.
14.58Since cohabitation between the parties ceased there has been a substantial depletion in the respondent’s assets due to his involvement in his wife’s business affairs.
One final point should be noted about the trial judge’s factual findings. There were substantial credibility issues in this case, for there were many conflicts between the evidence of the appellant and that of the respondent. In relation to all of these, the trial judge preferred the evidence of the respondent. Indeed he noted in his judgment that the appellant was “prone to exaggerate in order to improve her case”.
No complaint was made on appeal as to any of the trial judge’s factual findings. Accordingly they form the basis upon which we are to reach our conclusions.
The appellant’s case, put simply, is this. During the 13 years in which she and the respondent cohabited, the respondent’s assets increased by about $700,000. Having regard to the significant contribution she made, both financially and non‑financially during that period, it would be unconscionable for the respondent to retain the sole benefit of these assets.
The respondent disputed that the appellant had made any significant financial or non‑financial contribution to the respondent’s affairs. As to the applicable law, both parties relied primarily upon the judgments in Muschinski v. Dodds (1985) 160 CLR 583 and Baumgartner v. Baumgartner (1987) 164 CLR 137.
The trial judge quoted extensively from the judgments in Muschinski, particularly from Deane J. At 614 Deane J made the following observation:
… the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.
A little later, his Honour observed (615-616):
… The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles: cf, generally, Sir Frank Kitto’s Foreword to the first edition (1975) of Meagher, Gummow and Lehane, Equity: Doctrines and Remedies, pp. v‑vii, and see also, e.g., In re Diplock (81); Pettitt v. Pettitt (82); Cowcher v. Cowcher (83); Jacobs’ Law of Trusts in Australia, 4th ed. (1977:Meagher and Gummow eds.), pars. 1301‑1302, 132‑1325‑1329; Allen v. Snyder (84); Oakley, op. cit., pp. 1‑10; Pettit, op. cit., pp. 4‑6. Viewed as a remedy, the function of the constructive trust is not to render superfluous, but to reflect and enforce, the principles of the law of equity.
…… The mere fact that it would be unjust or unfair in a situation of discord for the owner of a legal estate to assert his ownership against another provides, of itself, no mandate for a judicial declaration that the ownership in whole or in part lies, in equity, in that other: cf. Hepworth v. Hepworth (91). Such equitable relief by way of constructive trust will only properly be available if applicable principles of the law of equity require that the person in whom the ownership of property is vested should hold it to the use or for the benefit of another. That is not to say that general notions of fairness and justice have become irrelevant to the content and application of equity. They remain relevant to the traditional equitable notion of unconscionable conduct which persists as an operative component of some fundamental rules or principles of modern equity: cf., e.g., Legione v. Hateley (92); Commercial Bank of Australia Ltd. v. Amadio (93).
Finally Deane J said at 621:
… In assessing whether or to what extent such an assertion or retention of legal entitlement … would constitute unconscionable conduct, one is not left at large to indulge random notions of what is fair and just as a matter of abstract morality. Notions of what is fair and just are relevant but only in the confined context of determining whether conduct should, by reference to legitimate processes of legal reasoning, be characterized as unconscionable for the purposes of a specific principle of equity whose rationale and operation is to prevent wrongful and undue advantage being taken by one party of a benefit derived at the expense of the other party in the special circumstances of the unforeseen and premature collapse of a joint relationship or endeavour.
The trial judge, after quoting the above passages, reached the following conclusion at [21]:
These decisions establish in unambiguous terms that when determining whether it is unconscionable for one party to a de facto relationship to retain the sole beneficial ownership of property acquired in the course of the relationship, regard will be had to the manner in which the parties have conducted their relationship and the contributions each have made. When assessing their respective contributions, regard will be had to non‑financial contributions as well as to financial contributions. The proposition is clear from references to the “practical equation between direct contributions in money or labour and indirect contributions in other forms such as support, home‑making and family care” (Muschinski v. Dodds at p 622) and in the reference to “contributions either financially or in kind” (Baumgartner v. Baugmartner (supra) at p 150). A principle that regard will be had to non‑financial contributions when considering the division of property on the dissolution of a marriage has been affirmed on more than one occasion (see Mallet v. Mallet (1983‑1984) 156 CLR 605 per Mason J at p 623 and the cases there cited. …
No complaint was made as to the trial judge’s finding of law. The appellant’s case is that her contribution, both economic and otherwise, was so substantial as to make it unconscionable for the respondent to retain the full benefit of assets acquired during their cohabitation, and that his Honour erred in failing to reach this conclusion.
ECONOMIC CONTRIBUTION
The trial judge’s findings as to the appellant’s economic and non‑economic contribution are encapsulated in [53] of his judgment. As to the appellant’s economic contribution, his Honour made the following findings:
On the whole of the evidence, it is apparent that there was no pooling of the party’s respective assets. Whatever the plaintiff had when cohabitation commenced she kept and, indeed by the time cohabitation ceased, her net asset position had improved. The mortgage on her home which stood at $6,000 when cohabitation began and nil when cohabitation ceased, was paid by the defendant. In addition to being relieved of that obligation she was, of
course, relieved of the obligation to pay principal and interest during the currency of the mortgage estimated to be in the order of another $2,000. …No challenge has been made to these findings. The evidence upon which they are based is summarised in the appellant’s submission, quoted above. In essence, the evidence was as follows. In August 1980 the appellant moved into the respondent’s home at 13 Crace Street, Weetangera. She already owned a home at 20 Draper Crescent, Higgins. During the 13 years of her relationship with the respondent, the appellant’s home at Higgins was either leased out or was used by her children. She received all rent from the property. At the commencement of cohabitation the Higgins property was subject to a registered mortgage securing a debt of approximately $10,000. In 1983 the respondent purchased the Crown Leasehold of the Ethos Hotel at Dickson in the ACT for approximately $80,000. This was financed, to the extent of $60,000, by a mortgage over the appellant’s Higgins property. At that time the outstanding principal owing by the appellant under the existing mortgage was $6,000. This was paid off by the respondent or one of his companies. The net gain to the appellant was acknowledged to be in the order of $8,000, including approximately $2,000 which would have been payable by way of interest. In 1984 the respondent sold the Ethos Hotel for $150,000. The proceeds of sale were used to purchase a property at Batemans Bay, on the New South Wales south coast, upon which the respondent built the Bridge Motel. A further loan was raised on the security of the appellant’s Higgins property to finance the building of that motel. Some years later the respondent sold the Bridge Motel. The whole venture proved to have been a financial disaster, with the sale price being nearly $250,000 below the initial construction costs. Nevertheless all outstanding mortgages over the appellant’s home were paid out.
This was the only transaction in which any property of the appellant’s was used to further the respondent’s business enterprises. As the trial judge observed, it resulted in a net gain for the appellant, as her mortgage was paid off and she was left with an unencumbered property. Nevertheless the use of this property as security for a loan was integral to the respondent’s purchase of the Ethos Hotel and later to the construction of the Bridge Motel. The first of these ventures was a financial success. Had it not been followed by the disastrous motel enterprise, or had the motel venture been a profitable one, then the appellant would have had a substantial case for seeking a share of the profits. However, as the appellant herself concedes, the venture ultimately led to the respondent suffering a substantial loss. None of this loss was borne by the appellant who, as noted earlier, made a personal gain on the transaction.
The provision of money or property is not the only form of financial contribution which a party to a relationship can make. If one party devotes time, energy or skills towards a business venture of the other, then this is plainly relevant in determining whether it would be unconscionable for the other party to retain the whole of the equity in the business’s assets. In this regard there was evidence at the hearing that for approximately six months, in late 1985 and early 1986, the appellant worked at the Bridge Motel as manager, receptionist and occasional cook. In order to do so she took 12 months leave without pay from the ACT Schools Authority where she had been employed as a pre‑school assistant. Twelve months later she discontinued that employment. At the hearing before the Supreme Court she said that she was currently working in a similar capacity, but on a casual basis. She had suffered a significant loss of income as a result of giving up her full‑time job. She therefore urged that, in acceding to the respondent’s request that she work at the Bridge Motel, she suffered a long‑term financial detriment. However the respondent pointed out that the issue was not as simple as this. For when the appellant moved to Batemans Bay to work at the Bridge Motel she took 12 months leave of absence from her employment. By the time she resigned from her job, 12 months later, she had long since ceased working for the Bridge Motel and had returned, with the respondent, to Canberra. Accordingly, her resignation was not related to any work she was performing for the respondent. Moreover the Bridge Motel venture was, as already mentioned, financially disastrous for the respondent. There were no profits to share with the appellant.
His Honour found that whilst the appellant was working for the Bridge Motel all her food and living expenses were paid by the motel. In addition the respondent gave her $200 per week for her personal needs. Accordingly, she received adequate remuneration for her efforts.
The appellant has not seriously urged that her employment at the Bridge Motel should, on its own, lead to a finding in her favour. It is suggested however that this is one of the several factors which the court should have taken into account in determining that it was unconscionable for the respondent to be allowed to retain the whole of the increase in his assets which occurred over the period of their cohabitation.
NON-FINANCIAL CONTRIBUTION
It is well established that, in determining whether it is unconscionable for one party to a relationship to retain the sole benefit of property acquired in the course of the relationship, the contributions, including non‑financial contributions of the parties will be taken into account. As Mason J noted in Mallet v. Mallet (1984) 156 CLR 605 at 623, a wife’s contribution as a home‑maker should be recognised in a substantial, and not merely a token way, this being a recognition of the fact that, by her attention to the home and the children, the wife frees her husband to earn income and acquire assets.
The appellant submitted that she was the primary home carer during most of the time that she and the respondent lived together. The respondent was thus able to spend more time in the activities which led to the increase in his assets during this period. Accordingly it was urged that it would be unconscionable for him to retain the full benefit of that increase.
The trial judge’s findings in relation to this matter were encapsulated in the following passage at [53] of his judgment:
… Nor is this a case of the plaintiff freeing the defendant from domestic responsibilities so that he could work directly for financial reward. Nor is it a case of the plaintiff by performance of domestic duties contributing to the acquisition of property by the defendant. He already owned the Weetangera home. Admittedly she helped to refurbish the home and provided many of the comforts of the home, but I reject that she was the primary home‑maker and care‑giver.
These findings of his Honour are well supported by the evidence. There were no children of the relationship who required care in the home. It was the care of the home itself which constituted the respondent’s primary domestic need. In this regard the evidence shows that for much of their relationship the respondent paid for persons other than the appellant to care for the Weetangera home and garden. Moreover he contributed significantly, without any obligation to do so, to the physical and financial welfare of the appellant’s adult children from her previous marriage. Certainly the respondent’s lifestyle improved after the appellant moved into the Weetangera home, but so did the appellant’s. More importantly, the work which the appellant did in the home had little if anything to do with the respondent’s acquisition of property. The respondent already owned real estate when their cohabitation commenced, and was already a licensed bookmaker. It was from his dealings in real estate and his earnings as a bookmaker that the respondent derived the additional assets acquired during the period of cohabitation. These activities continued during that period in much the same way as they had earlier. The presence of the appellant in the respondent’s house had no discernible effect upon the respondent’s earning pattern during that period.
CONCLUSION
In conclusion we can find no error in the trial judge’s reasoning According to his Honour’s findings of fact, the appellant made only limited financial and non‑financial contributions during the course of her relationship with the respondent. Such contributions as she did make were for her own benefit as much as for that of the respondent. These contributions did not result, directly or indirectly, in the respondent’s acquisition of property during the course of their relationship. His Honour was correct in concluding that it was neither unconscionable nor inequitable for the respondent to retain the property that was in his name at the time cohabitation ceased. We would dismiss the appeal.
I certify that the preceding twenty-two
(22) numbered paragraphs are a true copy
of the Reasons for Judgment herein of
the Court.
Associate:
Date: 25 March 1999
Counsel for the appellant: Mr J W Constance
Solicitor for the appellant: Snedden Hall & Gallop
Counsel for the respondent: Ms A Tonkin
Solicitor for the respondent: Smyth Burnett Bowden
Date of hearing: 25 February 1999
Date of judgment: 25 March 1999
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