Chow & Harris & Anor
[2010] FamCA 366
•14 May 2010
FAMILY COURT OF AUSTRALIA
| CHOW & HARRIS AND ANOR | [2010] FamCA 366 |
| FAMILY LAW – PROPERTY PROCEEDINGS – THIRD PARTY CLAIM FOR DEBT – Rectification of loan agreement – Whether third party’s claim for principal and/or interest statute barred – Balance principal debt not statute barred – Fresh accrual of cause of action – Interest from date of fresh accrual payable but arrears before fresh accrual statute barred – Husband and wife – Property pool – Contribution – Section 75(2) – Just and equitable division |
| Family Law Act 1975 (Cth) ss 79, 75(2), 90AE Limitation of Actions Act 1958 (Vic) ss 5(7), 8, 20(1), 20(5), 24(3) |
| B Pty Ltd and Ors v K and Anor [2008] Fam CAFC 113 I C F Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages, 4th ed, Sydney, LBC, 1990 |
| APPLICANT: | Ms Chow |
| FIRST RESPONDENT: | Mr Harris |
| SECOND RESPONDENT: | Ms M Harris |
| FILE NUMBER: | MLC | 5261 | of | 2008 |
| DATE DELIVERED: | 14 May 2010 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | O'Reilly J |
| HEARING DATE: | 11, 12, 13 and 16 November 2009 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Wilson |
| SOLICITOR FOR THE APPLICANT: | Adrian Abrahams Family Lawyers |
| COUNSEL FOR THE FIRST RESPONDENT: | Mr Cantwell |
| SOLICITOR FOR THE FIRST RESPONDENT: | Hogg and Reid Solicitors |
| COUNSEL FOR THE SECOND RESPONDENT: | Dr Sadler |
| SOLICITOR FOR THE SECOND RESPONDENT: | Buxton & Associates |
Orders
SECOND RESPONDENT’S CLAIM
The loan agreement dated 4 July 1987 between Ms M Harris, the husband and Ms VH be rectified by including in the Schedule the following item:
DEFAULT INTEREST: 15.5% compounding annually.
The husband pay to Ms M Harris on or before 30 June 2010 the amount calculated in accordance with paragraphs 90 and 103 of the reasons for judgment by payment to the trust account of her solicitors:
Buxton & Associates
M W Buxton Trust Account
Commonwealth Bank
Account No …
Branch ….
The parties have liberty to apply on short notice by arrangement with the Associate if any difficulty should arise in calculation of the amount the husband is to pay to Ms M Harris in accordance of paragraphs 90 and 103 of the reasons for judgment.
APPLICANT’S AND FIRST RESPONDENT’S CLAIMS
Pursuant to s79 of the Family Law Act 1975 (Cth) the property and assets of the husband and the wife and either of them be divided to effect a division of 35% wife and 65% husband as follows:
The wife have:
(a)item 2: units 1 and 2, P, provided that on or before 30 June 2010 she has obtained finance sufficient to pay out or has arranged sole liability for the mortgage debt to ANZ bank (item 7) the release of the husband from all liability in relation to that mortgage and the release of all collateral security in relation to that mortgage valued net $152,000 (being $380,000 value less mortgage value agreed for the purpose of these proceedings $228,000)
(b)item 4: 2003 Toyota Camry … valued at $9,800
(c)item 5: Chattels and jewellery in her possession valued at $5,000
(d)item 17: half the value of the husband’s member account in Harris Superannuation Fund valued at $32,041.50
(e)item 18: wife’s member account in Harris Superannuation Fund valued at $36,043
(f)item 19: wife’s member account with Hesta Superannuation Fund valued at $11,206
(g)cash sum to be paid to her by the husband to represent 35% overall of the parties’ property and assets based upon the values set out in paragraphs 1 & 2 except in relation to items 17 & 18 which are to be valued according to the amounts of actual payment (and excluding the amount of $800 referred to in paragraph 2(a)(ix) which is a separate debt of the husband owing to the wife).
The husband have:
(a)item 1: M property valued at $750,000 provided that on or before 30 June 2010 he has obtained finance secured on that property sufficient to pay out and by that date has paid out and obtained receipts for:
i.item 6: the debt to Ms M Harris valued at $64,153.24 provided that if he should make payment to her earlier than 30 June 2010 he have the benefit of any interest saved but that if payment not be made by that date he be solely responsible for the payment of any further interest accruing after that date
ii.item 8: ANZ supplementary loan valued at $60,000 provided that if at the date of payment the amount is greater he solely be liable to pay such greater amount to discharge that debt
iii.item 9: wife’s HECS debt valued at $35,712 provided that if at the date of payment the amount is greater he solely be liable to pay such greater amount to discharge that debt
iv.item 10: wife’s E Credit Co-op debt for tax valued at $8,800 provided that if at the date of payment the amount is greater he solely be liable to pay such greater amount to discharge that debt
v.item 11: debt to R Harris valued at $18,650
vi.item 13: husband’s outstanding tax debt valued at $16,553 provided that if at the date of payment the amount is greater he be solely liable to pay such greater amount to discharge that debt
vii.item 14: husband’s integrated tax account valued at $4,578 provided that if at the date of payment the amount is greater he solely be liable to pay such greater amount to discharge that debt
viii.the cash amount he is to pay to the wife pursuant to paragraph 1(g)
ix.$800 being half the valuation fee ordered by the Honourable Justice Cronin on 27 June 2008.
(b)item 3: 1998 Mercedes Benz … valued at $9,750
(c)item 17: half the value of his member account in Harris Superannuation Fund valued at $32,041.50.
The husband and the wife do all things necessary to:
(a)pay the wife’s member account in Harris Superannuation Fund net after tax, costs and fees to her member account with Hesta Superannuation Fund
(b)pay from the husband’s member account in Harris Superannuation Fund net after tax, costs and fees:
i.half to the wife’s member’s account with Hesta Superannuation Fund and
ii.half to the husband
(c)wind up Harris Superannuation Fund with any costs of such over and above those referred to in (a) and (b) to be shared equally between the husband and the wife.
If the wife by 30 June 2010 has been unable to perform paragraph 1(a) units 1 and 2 at P be sold with the following provisions to apply:
(a)the husband and the wife immediately after 30 June 2010 list the property for sale by public auction to occur within 60 days after listing;
(b)the proceeds of sale be applied:
i.in payment of the costs of sale including commission and auction costs;
ii.in payment of the mortgage debt item 7;
iii.the balance to the selling agent’s trust account pending the operation of paragraph 6.
If the husband by 30 June 2010 has been unable to perform paragraph 2(a) M property be sold with the following provisions to apply:
(a)the husband and the wife immediately after 30 June 2010 list the property for sale by public auction to occur within 60 days after listing;
(b)the proceeds of sale be applied:
i.in payment of the costs of sale including commission and auction costs;
ii.in payment of the debts set out in paragraph 2(a) (i)-(vii)
iii.the balance to the selling agent’s trust account pending the operation of paragraph 6.
If either of paragraphs 4 or 5 should come into operation the parties are to relist the matter before the Honourable Justice O’Reilly for such machinery orders as may be necessary to effect a division of 35% of the parties’ property and assets to the wife and 65% to the husband having regard to the existing provisos in paragraphs 1 and 2 save as to necessary adjustment having regard to the net sale values of items 1 and/or 2.
The wife as soon as practicable resign as a director of Harris & Associates Pty Ltd.
The wife retain the chattels in Annexure A to the order made by the Honourable Justice Cronin on 27 June 2008.
The husband use his best endeavours to locate and deliver to the wife her beaded velvet dress and her medical dictionary.
The wife and the husband do all things necessary to cause the Australian Taxation Office to issue an assessment of capital gains tax payable in relation to the sale of the property at D.
On the issue of such assessment the wife and the husband be liable to pay one half each of any capital gains tax payable and each indemnify the other in relation to one half including as to any interest charges and penalty.
Otherwise, the wife and the husband are to retain all property, assets, chattels, liabilities and financial resources in the respective name or possession of each.
Unless otherwise specified in this order:
(a)each party is solely entitled to the exclusion of the other to all property and assets (including choses in action) in the possession of that party as at the date of this order;
(b)each party is solely entitled to the credit of any moneys in any bank accounts in his or her name;
(c)each party is to forego any claim he or she may have to any superannuation benefits belonging to or earned by the other;
(d)each party is to be solely liable for and to indemnify the other against any liabilities encumbering any item of property or any asset to which that party is entitled pursuant to this order.
The parties are to sign all documents necessary to give effect to this order and in default a Registrar is empowered to sign all such documents.
The parties have liberty to apply on short notice by arrangement with the Associate:
(a)under the slip rule;
(b)if I should have made any calculation errors in the reasons for judgment or this order;
(c)if the parties, by their solicitors, should be unable to agree the calculations required by this order;
(d)if any further machinery or other orders may be necessary to carry out this order or to give effect to the decision; or
(e)if clarification of any part of the decision or order should be required.
IT IS NOTED that publication of this judgment under the pseudonym Chow & Harris and Anor is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: MLC 5261 of 2008
| MS CHOW |
Applicant
And
| MR HARRIS |
First Respondent
And
MS M HARRIS
Second Respondent
REASONS FOR JUDGMENT
The parties and their applications
Ms Chow (the wife) and Mr Harris (the husband) each seek a just and equitable division of their property and assets.
Ms M Harris, described in the proceedings as the second respondent, seeks to be recognised as a creditor of the husband. She seeks an order pursuant to s90AE of the Family Law Act 1975 (Cth) (FLA), or at law, that he pay to her the amount of debt calculated as owing to her pursuant to a loan agreement dated 4 July 1987 as to both principal and interest.
The parties agreed that, if s90AE does not apply, her debt claim attracts accrued jurisdiction.
Relevant background
The husband is 65 years and the wife 37 years. They met in April 1992, when the wife commenced to reside in the husband’s home at M. This was pursuant to a student boarder arrangement between the wife’s school and the husband. The wife, then 19 years, was required to pay to the husband, then 47 years, $125 per week in exchange for a bedroom and her food requirements. The wife previously had lived in Taiwan. She was sponsored by her father as an Australian foreign student. As such, at least initially her father paid the requisite amount for her board and keep.
The husband’s home at M had been purchased by him and his former spouse VH in 1986. The divorced in 1990. The M home had been purchased with borrowed funds. It comprised four bedrooms. In order to supplement his income as a sales consultant the husband made two of the bedrooms available to foreign students. When the wife arrived in April 1992 another student already was in residence.
By December 1992, the husband and the wife had commenced a romantic relationship. They married in July 1994. They separated under one roof in March 2008 and physically in August 2008. The period of their relationship and marriage if taken from December 1992 until March 2008 was a little over 15 years.
There was agitation at the trial as to whether the husband and the wife commenced their romantic relationship in December 1992, or December 1993. Both parties’ trial affidavits had this as December 1992. The husband, at the trial, contended that the romantic relationship had not commenced until December 1993. However, as will be seen, nothing turns on the difference, and it is convenient to regard it as December 1992 in accordance with both parties’ trial affidavits.
Nature and value of the asset pool
The wife and the husband largely were able to agree the nature and value of the asset pool as set out in an agreed schedule, ex 9, reproduced below with minor changes agreed during the trial (but excluding annotations). However, several items require determination by me. These are dealt with below the schedule.
Schedule
Assets
| 1. | [M property] | $750,000 | Agreed |
| 2. | Units 1 & 2, [P] | $380,000 | Agreed |
| 3. | 1998 Mercedes Benz – […] | $9,750 | Agreed |
| 4. | 2003 Toyota Camry – […] | $9,800 | Agreed |
| 5. | Chattels and Jewellery in the wife’s possession: | ||
| (a) wife agrees | E $5,000 | Agreed | |
| (b) balance of Husband’s estimate | E $23,000 | Not Agreed | |
| Liabilities | |||
| 6. | Debt owing to second respondent | [no amount included] | Not Agreed |
| 7. | ANZ mortgage re units in [P] | E $228,000 | Agreed |
| 8. | ANZ supplementary loan in husband’s name | E $60,000 | Agreed |
| 9. | Wife’s HECS debt | E $35,712 | Agreed |
| 10. | Wife’s [E] Credit Co-op debt for tax | E $8,800 | Agreed |
| 11. | Monies owing to [R Harris] (husband’s claim) | $18,650 | Not Agreed |
| 12. | Monies owing to [S Harris] (husband’s claim) | $20,000 | Not Agreed |
| 13. | Husband’s outstanding tax owing | $16,553 | Agreed |
| 14. | Husband’s integrated tax account owing | $4,578 | Agreed |
| 15. | Unassessed taxation liability for CGT on sale of properties at [D] | [no amount included] | Not Known |
| 16. | Husband’s debt to [O Company] | E $10,000 | Not Agreed |
Superannuation
| 17. | Husband’s member account with [Harris] Superannuation Fund Pty Ltd as at 29/10/2009 but to be fully accessed pursuant to Orders of this Court made 26 October 2009 but not yet implemented with the monies to be divided equally: gross | E $64,083 | Agreed |
| 18. | Wife’s member account in [Harris] Superannuation Fund as at 28/10/2009 | E $36,043 | Agreed |
| 19. | Wife’s member account with Hesta Super Fund as at 30/06/2009 | $11,206 | Agreed |
| Total Superannuation: | $111,332 | ||
Other matters
| 20. | Husband’s claim re wife’s use of credit card: | |
| (a) wife agrees | $214 | Agreed |
| (b) balance of husband’s claim | $1,000 | Not Agreed |
| 21. | Wife’s claim re [P] mortgage payments (September 08 to November 09): | |
| (a) wife paid | $12,761 | Agreed |
| (b) husband paid | $2,516 | Agreed |
Item 5- Chattels and jewellery in wife’s possession
It is common ground that the chattels in the wife’s possession include those listed in ex 3. With minor exception, the list comprises chattels which the wife was permitted to take from the former matrimonial home at M (item 1) pursuant orders made by Cronin J on 27 June 2008. The wife conceded value of $5,000. The husband asserted by way of lay opinion that the value of the chattels and jewellery in the wife’s possession is about $23,000 (or perhaps $28,000, as item 5(b) uses the expression “balance” of husband’s estimate). The husband however did not offer any expert evidence to support the value he estimated and thus has failed to discharge the evidentiary onus of proof in relation to an asserted higher value. In the circumstances the best that can be done for the purpose of these proceedings is to include item 5 at the conceded value of $5,000.
Item 6 - Debt owing to second respondent
On 29 July 1986 Ms M Harris, the husband’s sister, lent him $11,200. In January 1987 she lent him $49,597.52. In each case a loan agreement was prepared and signed: see annexures TKG4 and TKG5 to the affidavit of Mr G, chartered accountant. These amounts were rounded as at 4 July 1987 to an agreed debt of $60,000 principal. A third loan agreement was prepared and signed: see annexure TKG6. The purpose of the loan/s was to enable the husband and his then wife, VH, to purchase the property at M, which became their matrimonial home and subsequently the matrimonial home of the husband and the wife: M Harris’ affidavit, par 6.
Several issues arise. It is convenient to deal with each in turn.
Amount repaid
The husband repaid $7,000 on 30 August 2004, $25,000 on 12 October 2004 and $5,000 on 29 June 2005, totalling $37,000. The amount of the original principal debt unpaid (that is, leaving aside for the moment any accretion by interest) thus is $23,000.
Initially, the wife contended that the third payment on 29 June 2005 by the husband was $12,000. However, the evidence which I accept is that whilst on 29 June 2005 $12,000 was paid to the second respondent, $5,000 was from the husband and two discrete amounts of $4,000 and $3,000 were moneys provided by Ms Harris and the husband’s brother and their sister respectively. See ex 17, in particular, the hand notations in the wife’s handwriting. Ultimately, the wife conceded that the only logical explanation for her hand notation is as described. Further, see the letter from the husband to Mr G 30 June 2005, part of annexure MJH9 to Ms Harris’s affidavit, referring to the husband’s third payment as $5,000.
Rectification
The second respondent seeks rectification of the third loan agreement such that the Schedule to it make reference to a default interest rate which, she says, and the husband agrees, was intended by them to be included in the Schedule and by omission was not included.
Initially, the second respondent’s claim for rectification (made during the hearing) was for 15.5% compounding (or alternatively simple) interest or 8% compounding (or alternatively simple) interest: see Dr Sadler’s written submissions, par 14.
In final oral submissions however Dr Sadler sought that the rectification be by way of inclusion in the Schedule of an item concerning default interest and that it be inserted as 15.5% compounding annually on the basis that this accorded ultimately with the evidence of Ms Harris and the husband.
The evidence of Ms Harris and the husband was clear that they had the common intention that the third loan agreement contain in the Schedule a default rate and that it be 15.5% compounding: see the husband’s affidavit par 14 “a default compound interest of 15.5%” and Ms Harris’ affidavit par 19(d) “the default interest rate…of 15.5% per annum”; see also her affidavit at pars 20-21, explaining that the non default interest rate was 8% reducing quarterly on the condition that agreed monthly payments were made, but that it was understood between them that if there was “future default” the default interest rate was 15.5%; see also Ms Harris’ oral evidence.
The husband’s affidavit, at par 14, did not refer to the expression “per annum”. It expressly referred however to the 15.5% default interest rate as a “compound” rate.
Both Ms Harris and the husband said that the third loan agreement was intended by them to be a “consolidating” agreement in relation to the $60,000 (rounded) amount already advanced pursuant to the first and second loan agreements.
The first loan agreement had specified a default interest rate expressed as “compound interest rate of 15.5% per annum” (clause 2) and “15.5% compound interest” (clause 3(2)) to commence if the principal of $11,200 not be paid within twelve months.
The second loan agreement did not specify any default interest rate. Rather, it specified the “rate of interest” as “15.5% per annum”, and that repayment of the principal $49,597.52 be made upon the sale of a property which the husband then owned at V (obviously, to be repaid from the proceeds of sale of that property).
In my view, it is plain thus that the third loan agreement was not intended to “consolidate” the first and second loan agreements in the sense of reproducing all of the terms of the first and second loan agreements, but to “consolidate” them only in the sense of consolidating the two debts to one “rounded” debt, with terms to apply to it which the parties then agreed in substitution for the terms in the first and second loan agreements. Indeed, the genesis of the third loan agreement was that the husband had not, as he had promised to do in the second loan agreement, repaid Ms Harris upon the sale of the V property but rather used the proceeds for investment for himself.
In this sense I accept the submission of Mr Wilson, for the wife, that the third loan agreement superseded and “did not preserve” the earlier two loan agreements, nor their terms, and that the third loan agreement contained “substantially different terms”. That much is plain.
I turn now to the third loan agreement, against the background of Ms Harris’ and the husband’s evidence that it was their common intention that the Schedule contain a default interest rate, before considering further their evidence as to what the default interest rate was to be.
The third loan agreement:
·in its preamble, after the word “Whereas”, recorded that the Lender and the Borrower had agreed to the lending of the “Principal Sum specified in the Schedule” (the receipt of which was acknowledged) on terms including, expressly, that in default of performance the default interest rate be as specified in the Schedule, which rate was defined then expressly as “the default interest rate”
·by clauses 2, 3, 5 and 6, referred to the payment of “default interest at the rate set forth in the Schedule”, upon the happening of certain events
·in its Schedule, in the left column, does not contain any item for default interest, nor any reference to any rate of interest as “ the default interest rate”
Whilst there is limitation on use of a preamble rather than the promissory clauses in aid of construction, in rectification cases the preamble can provide useful evidence of what the parties had earlier agreed and thus intended to record in the promissory clauses and/or Schedule so as to tend to show any obvious omission in them. This is plain, having regard to the principle that in rectification cases evidence as to the parties’ prior negotiations is admissible: Codelfa v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 per Mason J.
Even if the preamble is ignored, however, it is plain on the face of the third loan agreement, and in particular by reference to clauses 2, 3, 5 and 6, that the Schedule omits something that the Lender and the Borrower agreed and intended it to contain, that is, an item described as default interest, and a specification as to what “the default interest rate”, or the “default interest at the rate set forth in the Schedule”, was to be.
Given the circumstance of the plain omission evident from the face of the document of a specified default interest rate (even by reference to clauses 2, 3, 5 and 6 and ignoring the preamble) there is no logical reason to reject Ms Harris’ evidence and the husband’s evidence that the default interest rate which both understood would apply and that the agreement should reflect was 15.5% compounding annually.
The parties’ choice of 15.5% as the default interest rate and as being part of their agreement and common intention is referred to in many subsequent letters: see annexure MJH9 to Ms Harris’ affidavit. It is settled law that inferences can be drawn from post contractual facts. Further, the husband concedes that the rate was to compound.
Ms Harris, in part of her evidence, referred to compounding of 15.5% quarterly. However, in my observation, it is likely that she is confusing, innocently, a reference in the Schedule to “reducing quarterly” in the context of the non default interest rate. In this regard, the Schedule provided:
THE PRINCIPAL SUM: SIXTY THOUSAND DOLLARS ($60000)
RATE OF INTEREST: Eight percent per annum (8%) reducing quarterly.
INSTALMENTS: The Borrower may make repayments of the Principal sum or any part thereof commencing one month from the date of the Agreement.
…
AMOUNT OF INSTALMENTS: A fixed amount of $700 per month would be the amount the Borrower will pay every month over a period of TEN (10) years. Based on recing (sic) quarterly the residue to be paid at the end of ten years.
In his written submissions, par 13, Dr Sadler, for Ms Harris, referred to the debt under the third loan agreement calculated on the basis of “15.5% compounding quarterly”. However, properly, in his final oral submissions he abandoned such claim as not reflecting the common intention of Ms Harris and the husband, and urged that on the totality of the evidence I should find that their agreement and common intention was that the default interest rate agreed to be in the Schedule, but which by omission did not there appear, was 15.5% compounding annually.
Mr Wilson submitted that even if I make such finding as between Ms Harris and the husband, rectification cannot lie because whilst the first and second loan agreements were between Ms Harris as Lender and the husband as Borrower, the third loan agreement was between Ms Harris as Lender and the husband and his former wife VH as Borrower.
Mr Wilson submitted that in the absence of evidence from VH the Court cannot be satisfied as to what was intended. However, VH died in 2005. See the husband’s affidavit, par 7.2. There is no principle of which I am aware that rectification cannot lie because one of the parties to a contract is deceased. Rather, all that is required is that I be satisfied as to the parties’ common intention (that is, all of the parties) which satisfaction can be met by reference not only to evidence given by the parties themselves but by inferences which appropriately may be drawn as to the parties’ common intention. Thus, in relation to VH, first there is the circumstance of the plain omission from the Schedule of an item which even on the face of the document the parties, including her, intended to be included, that is, a default interest rate. Secondly, the extrinsic evidence of post contractual facts includes the letters in annexure MJH9 to which I have referred, the first two of which are addressed to both the husband and to VH, 13 December 1987 and 13 October 1988, before her death in 2005. The letter 13 October 1988 contains the following:
I have asked [Mr G] to send you the account statements both at 8 percent and the agreed 15.5 percent. You can be REST ASSURED that the 15.5 percent will be the default interest rate as we agreed & EVEN IF the interest rates rise (& they are rising). …
This letter does not appear to be signed by VH in acknowledgement of receipt. It is signed by the husband. However, it is unlikely that Ms Harris would have addressed such to her, and sought her acknowledgement, if it did not correctly record the agreement by all three persons, including VH as an addressee of the letter, she then being the husband’s wife. Moreover, if the content of the letter had been incorrect, it would seem more likely than not that the husband, at least, who did sign acknowledgment of it, at that early stage would have challenged any incorrect assertion in it.
I am thus able to infer, which I do, that VH’s intention coincided with and was common with that of Ms Harris and the husband namely that the item plainly omitted in the Schedule of “default interest at the rate set forth in the Schedule” (see again, clauses 2, 3, 5 and 6 as to such intention) was default interest of 15.5% compounding annually, there being no evidence of any different default rate having been in the parties’ contemplation and there being positive evidence by Ms Harris and the husband of their common intention of 15.5% compounding annually as the default rate.
Mr Wilson made reference to the parol evidence rule, citing Hoyts Pty Ltd v Spencer (1919) 27 CLR 133 as disallowing evidence to alter or qualify a written agreement. The parol evidence rule applies “unless it can be shown that the document was not intended as the complete record of their bargain”: 143 per Issacs J. The rule has no application however where, as here, such was intended but there plainly was an omission of something either agreed or intended to be included namely a default interest rate to be specified in the Schedule. Put shortly the parol evidence rule does not apply in rectification cases the gist of which is that a written agreement whilst intending to record what the parties agreed or intended has failed to reflect that and failed thus to record their common intention such that oral evidence, necessarily, is admissible as to what the parties actually agreed or as to what was their common intention: Codelfa (above) at 352.
Mr Wilson raised that Ms Harris is estopped from seeking rectification because she “sued on the agreement without seeking rectification”. I reject this argument. The need for rectification emerged during the hearing. It was squarely raised, sought during the hearing and has been fully litigated. Mr Wilson did not point to any relevant procedural or other detriment to make good the estoppel submission.
Mr Wilson raised that “laches and delay”, in this case 22 years, have effect that rectification should be refused. I reject this argument as having no foundation, there being no claim of prejudice or detriment, and the delay being adequately explained by the circumstance of Ms Harris and the husband, as it would appear, not adverting to the omission in the Schedule until the hearing. Rather, as is evident, their subsequent correspondence, as exemplified in annexure MJH9, seems based upon an assumption by them that the third loan agreement included reference to the default interest rate which they intended it include.
On all of the evidence I am satisfied that Ms Harris has made out her case for rectification, in that the third loan agreement does not reflect, as was the parties’ common intention, their true agreement and that the rectification sought will make the third loan agreement conform with their true agreement: Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 346 per Menzies J; 349-50 per Mason J; The Club Cape Schank Resort Company Limited v Cape Country Club Pty Ltd [2001] VSCA 2 at [39] per Phillips JA and [44] per Chernov JA, citing Pukallus v Cameron (1982) 180 CLR 447 at 457-8 per Brennan J.
I will therefore order that the Schedule to the third loan agreement be rectified so as to include a default interest rate and that it be 15.5% compounding annually.
I would observe that such is consistent with all other terms of the third loan agreement and its Schedule. In particular, the Schedule extract set out above, by reference to fixed instalments of $700 per month, has effect that if there had been no default the Borrower by the end of ten years would have paid $84,000. The “residue” to be paid at the end of ten years would have been calculated, having regard to the $700 monthly payments, by applying 8% to the quarterly balances. Mr G, chartered accountant, said that the expression “reducing quarterly” denotes compound interest. He said further that $60,000 at 8% compounding quarterly over ten years would yield $132,538, and that $60,000 at 15.5% simple interest over ten years would yield $93,000 interest plus the $60,000 principal, that is, $153,000, but that at some point the yields would “cross over”. Thus, it is unlikely that the non default interest rate would be a compounding rate but the default interest rate a simple rate.
Further, Mr G said that he has never known a default rate not to be compounding, that he has never seen an agreement with compound interest for the non default rate and simple interest for the default rate and that invariably a default interest rate is greater than a non default interest rate.
Whilst these matters are not ones, I state categorically, which I have taken into account in identifying the parties’ common intention as to the amount and type of default interest they intended to include in the Schedule, and indeed would have been inadmissible for such purpose, Mr G’s evidence serves to indicate that the parties’ common intention, as I have identified it, was for the time not remarkable, in particular when it is recalled (as was in evidence) that in 1987 “standard” interest rates ranged between 15.5% and 17%.
Ms Harris also remarked in her oral evidence that the agreed rate for default interest was, at the time, below usual default interest rates. Thus, again, it is seen that the parties’ agreement and common intention was, for the time, unremarkable. Also, these background matters are useful to understand that in the preamble it is recorded that the default interest specified in the Schedule is a rate “acceptable” to the Lender, which description is given meaning when it is seen that such was below the prevailing default interest rates at the time.
The Limitation of Actions Act 1958 (Vic)
The terms of the third loan agreement were such that initially the debt was not repayable on demand, and was not “immediately due”, with effect that Ms Harris’ cause of action did not accrue instanter upon the making of the loans: VL Finance Pty Ltd v Legudi [2003] VSC 57 at [39], [40], [46] and [47]; Olgilvie v Adams [1981] VR 1041, 1043 per Fullagar J (as cited in VL Finance at [40]):
The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor’s money, and this whether the creditor brought an action of debt or an action in indebitatis assumpsit. Therefore if A lends money to B, then instantly B is detaining A’s money. In order to prevent a cause of action for recovery arising in A instantaneously on paying the money, the parties must expressly contract out of that situation by words clearly inconsistent with that situation. ….
The parties here “contracted out” of that situation, such that according to the terms of the third loan agreement the debt became payable in full on the date specified in the Schedule or upon the expiry of 14 days written notice requiring payment in full: clause 2. There is no date in the Schedule for “payment in full”, however, there is express provision for “the residue” to be paid “at the end of ten years”, that is, after ten years of monthly payments of $700. Plainly, even absent any written notice under clause 2, or in relation to any default during the ten year period under clause 5, the whole amount became payable no later then ten years after 4 July 1987, that is, 3 July 1997, so that the cause of action accrued, at the latest, on that date.
Section 5(1)(a) of the Limitation of Actions Act 1958 (Vic) (LAA) provides a 6 year limitation period from the date on which a cause of action accrued for action founded on a simple contract. If this provision is applied, time expired on 3 July 2003.
Section 20(1) provides the longer limitation period of 15 years to recover principal “secured by a mortgage or other charge on property”.
The Schedule to the third loan agreement contained a charging clause:
SECURITY OR REAL ESTATE OF THE BORROWER OR GUARANTOR PROVIDED AND AVAILABLE:
All that piece of land being Lot […] on Plan of Subdivision Number […] and being the whole of the land comprised in Certificate of Title Volume […] Folio […]. The Borrowers charge their interest in real estate in the said land.
The land referred to is at M.
The correspondence MJH9 previously referred to includes reference to an instrument of mortgage “signed, stamped and registered in July/Aug 1987”. See Ms Harris’ first letter to Mr G 1 December 1987. The mortgage, it appears, was to have been prepared by Amad & Amad Solicitors. Ex 19 is a copy extract from that firm’s Deed Book showing an entry:
2125
[Harris M]
Mortgage & Caveat
[Signatures]
and a notation against the signatures “18th Nov ’87”.
Apparently, thus, a mortgage was created. However, it appears not to have been registered against the title: see annexure H to the wife’s affidavit; and no original or copy was placed into evidence. There was however a caveat prepared: annexure MJH10 to Ms Harris’ affidavit, which was lodged: annexure H to the wife’s affidavit.
The caveat expressly refers (Note 7) to the Grounds of Claim “As mortgagee under instrument of mortgage from [the husband] and [VH] dated the 4th day of July 1987”. The caveat is dated 18 August 1987. The lodgement date, according to the title extract, was 24 August 1987, showing lodgement by Peter F Amad. Mr G said he had no recollection of seeing any instrument of mortgage, although the evidence to which I have referred would seem to make plain that one came into existence.
It is not necessary to determine, however, whether s20(1) applies so as to provide the longer limitation period for Ms Harris’ right to recover the principal, but simply to observe that if it applies time would not expire until 3 July 2012.
That is because, as will be seen, under s24(3) LAA Ms Harris’ right of action is deemed to have accrued freshly, either by payment or acknowledgment. Section 24(3) provides:
24 Fresh accrual of action on acknowledgment or part payment
...
(3) Where—
(a)any right of action has accrued to recover any debt or other liquidated pecuniary claim or any claim to the personal estate of a deceased person or to any share or interest therein; and
(b)the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof—
the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment;
Provided that a payment of a part of the rent or interest due at any time shall not extend the period for claiming the remainder then due, but any payment of interest shall be treated as a payment in respect of the principal debt.
I have referred already to the three payments $7,000 on 30 August 2004, $25,000 on 12 October 2004 and $5,000 on 29 June 2005.
Each of those payments was followed by an acknowledgement of debt by letters signed by the husband on each of 1 September 2004, 15 October 2004 and 30 June 2005 (contained in annexure MJH9). Each, relevantly, is in writing, signed and given to Mr G as Ms Harris’ agent: see s25. Each however refers to the amount paid, rather than any acknowledgement of debt amount, so as arguably not to be an acknowledgment within the meaning of s25, at least according to its historical purpose of establishing, in effect, not just the existence of a debt, but its amount, where a claim is made for debt many years after it has been incurred and there may be difficulty in proving that the debt ever was incurred or that already it has not been paid: Jones v Belgrove Properties Ltd [1949] 2 KB 700 at 704 and the commentary concerning it in Rees and Chapman, Limitation of Actions Handbook Victoria, Butterworths, 1997 [24(3).5]. Possibly, however, the terms of the letters may be sufficient when read with the terms of the third loan agreement to constitute effective acknowledgments and, for the purpose of what follows, I will make that assumption.
Ms Harris commenced an action in the County Court of Victoria by writ dated 11 May 2009: ex18, but seemingly filed 13 May 2009. On 19 May 2009, Cronin J restrained Ms Harris from continuing those proceedings, until further order, and joined her as a party to these proceedings. By her response filed 6 August 2009 in these proceedings Ms Harris sought relief including payment by the husband to her of “the debt owed to the second respondent pursuant to the loan agreements”, being specified as the three loan agreements already referred to.
Both Ms Harris’ County Court writ, and her response in these proceedings, are within 6 years from each of the three payments and (if they are acknowledgments) each of the three acknowledgments. Thus, it is common ground that Ms Harris should recover, at least, the $23,000 principal remaining unpaid.
The question however for determination is the amount of interest, if any, she is now entitled under LAA to recover. A separate question, as will be seen, is whether she has any greater or better claim having regard to s90AE FLA. It is convenient to deal first with the question under LAA.
Section 5(7) LAA provides:
5 Contracts and torts
…
(7)Save as otherwise expressly provided an action shall not be brought to recover any arrears of interest in respect of any sum of money whether payable in respect of a specialty, judgment, legacy, mortgage or otherwise, or any damages in respect of such arrears, after the expiration of six years after they became due. (emphasis added)
Ms Harris’ right of action to recover interest payable under the third loan agreement became statute barred at the same time as her right of action to recover the principal. One right cannot subsist without the other, both arising from the same loan agreement, such that, as between debtor and creditor (but not, seemingly, as between, for example, a creditor and a guarantor) “interest is an accessory which falls to the ground with the principal”: Elder v Northcott [1930] 2 Ch 422 at 430. Further, it is plain by the terms of s5(7) that, absent operation of the saving provision, Ms Harris’ right of action to recover arrears of interest became statute barred 6 years after they became due which, on the facts of this particular case, coincided with the bar to her right of action to recover the principal, that being also 6 years: s5(1)(a).
Thus until at the earliest 30 August 2004 Ms Harris’ right of action had been statute barred for both principal and interest after 3 July 2003.
Rees and Chapman (above) contains the following:
[5(7).5]The common law rule is that actions for interest are barred with the barring of the action for the principal which gives rise to the interest: Elder v Northcott [1930] 2 Ch 422. Subsection 5(7) provides for separate treatment of principal and interest, save for express contrary provisions, eg Limitation of Actions Act s 20(5). (emphasis added)
Section 5(7), as noted, is prefaced with the words “Save as otherwise expressly provided”. An example of such other express provision is s20(5), noted in the extract above. However s20(5), on its face, is not applicable in the present case, dealing, as it does, with the rights of a subsequent incumbrancer after continuance of possession by a prior mortgagee or incumbrancer.
Section 5(7), in barring the recovery of any arrears of interest after the expiration of 6 years after they became due expressly applies in respect of a “mortgage”, “or otherwise”. Thus, it does not avail Ms Harris, in relation to her interest claim, whether there was or was not any instrument of mortgage, nor whether she did or did not have a valid charge in relation to the land; and s20(1) does not assist her, as expressly it provides for the longer limitation period of 15 years in relation to principal only; s20(5) does not apply; and there are no other provisions applicable by the saving provision prefacing s5(7) other than, potentially, s24(3).
Thus, her claim for interest payable under the third loan agreement (the first two, as I have determined, being superseded by the third), having become statute barred under s5(7), is reliant upon s24(3).
Mr Wilson submitted (written submissions, par 4), which plainly is correct, that:
….. Section 5(7) clearly means that there is a 6 year limitation on recovering arrears of interest unless another provision of the Act expressly provides to the contrary. (emphasis added)
Does s24(3), thus, expressly provide to the contrary? Mr Wilson submitted that it does not, because s24(3), according to his submission, expressly revives only the right to recover the “debt”, and not arrears of interest; because s24(3) does not, expressly, extend the period for claiming arrears of interest; and further because, by the proviso, expressly the period is not extended having regard to the clear words that a payment of interest “shall not extend the period for claiming the remainder then due”, but be regarded as a payment of principal.
Mr Wilson thus submitted that Ms Harris cannot claim arrears of interest back to 1987 (claimed as principal and interest at some $1,833,739 in her points of claim, and see the relevant calculation sheets prepared by Mr G in ex 20), but is limited to interest which has accrued since 6 years before 13 May 2009, that is, 13 May 2003, being 6 years before the date of issue of her County Court writ.
Such would appear to be a correct application of s5(7) if the time for recovery as at 13 May 2009 already had not expired. However, it had. Thus, it is not a case in which “counting back” from the commencement of proceedings can apply, but rather for the application of s24(3) according to its terms.
Before proceeding further, having regard to several arguments put by Dr Sadler, it is necessary to identify, for the purpose of s24(3), the date which is intended by the words in it:
the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment.
In the case of “the date of the acknowledgment”, there were three: 1 September 2004, 15 October 2004 and 30 June 2005. Arguably, they do not acknowledge “the claim” as opposed to “the mortgage debt” with no amount specified. However, it is not necessary to consider this aspect of the matter further, and for the sake of argument presently I will assume valid acknowledgements of “the claim”. Where there is a series of acknowledgments, there is no reason to conclude that the intention is other than that the right to recover freshly accrues on the date of each acknowledgement, especially because s24(3) has operation whether time has expired or is still running: Rees and Chapman (above) at [24(3).5]; see also Handford, Limitation of Actions, 2nd ed Thomson Lawbook Co, 2007 at [5.10.2150, esp. fn 3].
In the case of fresh accrual by payment, the statute expressly provides however that the fresh accrual be the date of the “last” payment. The Oxford English Dictionary, and the Macquarie Dictionary, give similar meanings to “last”, as “after all others, coming at the end” (Oxford) and “occurring or coming latest, or after all others, as in time, order or place” (Macquarie). However, does that mean that there is no fresh accrual on the date of any first or subsequent payments which are not the “last” payment, as would appear by the literal meaning? I do not think so. Such would produce an illogical and improbable result, which intention ought not be imputed to Parliament. Further, the literal meaning must yield in such circumstances, as explained in CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384 at 408:
…… Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd, if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent. (footnotes omitted) (emphasis added)
If the literal meaning be given, so as to preclude (retrospectively) fresh accrual having occurred on 30 August 2004 and 12 October 2004 (the dates of the first two payments) that would be absurd, or nonsensical, as the following demonstrates. As at 30 August 2004, the payment on that date was as at that date the “last” payment. According to s24(3), fresh accrual thus occurred on that date. To contend that fresh accrual occurred only on the date of the third payment, 29 June 2005, would be to ignore that the statute already had taken effect on the two earlier dates by the cause of action having been “deemed to have accrued” already, as at those earlier dates. Once a right is deemed to have accrued, it cannot “unaccrue”. Thus, to avoid absurdity “last” needs to be put in the context of the “last” at any given point in time but not so as to negative any fresh accrual already having occurred. The true meaning of “last”, in this particular case, is not a merely academic question. As will be seen, if any right of action to recover interest freshly accrued, as part of the fresh accrual of the right of action to recover the “debt” (s24(3)(a)), it would be anomalous if Ms Harris were restricted to interest accruing only from 29 June 2005 (merely because of a later payment) rather than 30 August 2004. It is a consistent analysis that time, after fresh accrual, runs against her. The statute seems thus to intend that she should have the benefit of 6 years after 29 June 2005 for action to recover her debt, but that in any event, if she let the time run until then, 29 June 2011, she would be restricted to interest back to the “last payment” relevant to that accrual, 29 June 2005. But that is not to say that she ought not have the benefit of interest from the first date of fresh accrual, 30 August 2004, if she sued within six years after that, which she did.
The object of s24(3) is to allow for time to restart and run again, in certain circumstances. It would be anomalous if, whilst furthering that object, it had the unintended effect of defeating a claim for interest accruing from an “earlier” fresh accrual by an earlier payment. The statute should not be given that effect.
I would conclude therefore that in relation to the payments there was fresh accrual of Ms Harris’ right of action on each of 30 August 2004, 12 October 2004 and 29 June 2005. There is nothing anomalous about such conclusion, when it is borne in mind that s24(3) does not operate only when time has expired, but also while time is still running.
Dr Sadler submitted that the effect of s5 is to bar the remedy (the right to recover accrued interest) but not to extinguish the right embedded in the cause of action: Jones v Belgrove Properties (1949) 2 KB 700 at 704 per Lord Goddard; Commonwealth v Verwayen (1990) 170 CLR 394 at 405 per Mason CJ. He reasoned that the effect of s24(3) is not to create a new right of action, such that only interest accruing after the revival date is recoverable, but that rather the right to recover previously accrued interest also revives because the “debt” in s24(3)(a) is a debt not just of principal but a debt of both principal and accrued interest. He referred to Busch v Stevens [1963] 1 QB 1 at 6, per Lawton J, as cited in Handford (above) at [5.10.2150]:
Their effect [acknowledgement or part payment] is that “the right [of action] shall be given a notional birthday and on that day, like the phoenix of fable, it rises again in renewed youth – and also like the phoenix, it is still itself.”
It must be borne in mind however that s24(3) has operation while time is still running, and not only when time has expired. This is clear on its face. (And see Rees and Chapman (above) at [24(3).5]). Thus, whilst the “phoenix” analogy may be apt while time is still running, when time has expired effect must be given to express provisions of the statute dealing with that circumstance. Thus, whilst it is true that “As a general rule, principal and interest are components of one debt”: see Handford (above) at [5.10.2220], as observed already s5(7) provides for separate treatment of principal and interest: see Rees and Chapman (above) at [5(7).5].
Accordingly, s24(3) must be interpreted in the light of s5(7) and, if possible, so as to be consistent with it.
Dr Sadler’s argument continued that the proviso in s24(3) does no more than reflect the rule in Devaynes vNoble; Clayton’s Case (1816) 1 Mer 572 (Claytons’ case) that in the absence of a contrary intention, expressed or implied, a court will presume the intention of the parties to be that payments are to be allocated between them on the basis that they relate to the oldest debt first: Dr Sadler’s written submissions, par 35, and fn 1.
Thus, he argued, the revival of Ms Harris’ right of action was revival of the entirety of her right, for both principal and accrued interest, as if her right of action never had become statute barred.
In my view the submission is incorrect, and I do not accept it. First, as said, the statute provides for the separate treatment of principal and interest. Secondly, s5(7) is a provision expressly relating to the barring of a remedy for arrears of interest after the expiration of 6 years after they became due. In this context, the proviso to s24(3), properly, and conformably, is read as reflecting s5(7), such that even a payment of interest “not extend the period for claiming the remainder then due”, but “be treated as a payment in respect of the principal debt”. This makes clear, for the purpose of s24(3), that a payment of interest not only does not revive any claim for interest already statute barred but is to be treated as a payment of principal, plainly because the right of action to recover the arrears of interest remains barred, under s5(7), so, logically, the payment is put towards principal. The proviso thus does more than reflect the rule in Clayton’s case (if it does that at all) by reinforcing the clear words of s5(7) which, it must be noted also, is a specific provision concerning arrears of interest. Thirdly, if there be any different intendment, not only would it be expected that s24(3) would contain words such as “notwithstanding s5(7)” (compare s20(5) containing similar words), but to contain express words also such as those which appear in s20(5)(a), namely that the subsequent incumbrancer may recover “all the arrears of interest”.
Further, effect must be given to the circumstance that s24(3) contains a deeming provision, to operate according to its terms, so that upon acknowledgment or payment the right of action to recover is deemed to have accrued “on and not before” the relevant date of acknowledgement or payment. The right of action deemed to accrue is the right to recover the “debt”. Whilst it is the case that a “debt” at any one time may be comprised of both principal and interest, as explained, the statute provides separate treatment such that expressly the right to recover arrears of interest accrued before the revival date does not revive, such that the right to claim interest is also the subject of fresh accrual, in particular, because there is no retrospective element in s24(3) to, for example, claim accrued interest for the 6 year period before the revival date. However, as the cause of action in all other respects revives there is no reason to think that freshly accrued interest on and from the date of revival cannot be claimed as part of the revived right of action. I deal with this aspect of the matter further on.
Dr Sadler submitted further that the words in s24(3)(a) “other liquidated pecuniary claim” is amply wide to include arrears of interest. This does not appear to be correct. Rees and Chapman (above) at [24(3).15] notes that these words “cover the situation where the amount to which a plaintiff is entitled (if entitled to anything) can be ascertained by calculation or fixed by a scale of charges or other positive data”, citing Spain v Union Steamship Co of New Zealand Ltd (1923) 32 CLR 138 at 142. Technically, whilst arrears of interest may be capable of falling within that literal description, because the statute elsewhere expressly deals with arrears of interest by a specific provision (s5(7)), the words “other liquidated pecuniary claim” should be interpreted as not intending to mean or to include arrears of interest. In short, such interpretation of this expression in s24(3) is not permissible having regard to s5(7) with which provision s24(3) must, if possible, conformably be read.
I conclude, in all of the circumstances, that there is nothing in s24(3) affecting or detracting from s5(7) and accordingly I reject Ms Harris’ claim for arrears of interest, that is, any interest component of the debt accruing before 30 August 2004, the date on which, in my view, her right of action to recover the debt arising out of the third loan agreement is deemed to have accrued (but not, as explained, arrears of interest as at that date which remain statute barred by s5(7)).
Dr Sadler argued further that there is a distinction in s24(3) of what revives according to whether the revival is by acknowledgement or by payment. He submitted that the proviso to s24(3), in its terms, refers only to payment and not to acknowledgment, so that upon revival by acknowledgment (which I have said I will presume for the sake of argument) all arrears of interest also are revived. I reject this argument based upon the same reasoning as already set out.
Dr Sadler argued further that resort is not necessary at all to s24(3), or to any notion of revival, because s8 LAA has the effect that Ms Harris’ right of action for the sale of land, being the M property, is not yet statute barred and that time will not expire for that until 3 July 2012. He referred, in this context, to the history of ss5 and 20 LAA as dealing with different types of causes of action as explored in Equuscorp Pty Ltd v Lloyd [1998] VSC 171, per Warren J. In that case, her Honour found that whilst the parties had intended to create a mortgage, none was created, so that there was no resort to s20(1) and the applicant’s claim was statute barred under s5. In the present case, as already observed, it appears that a mortgage was created, but was never registered, and is lost. Even so, it is necessary to point out that Ms Harris, in her response, and in her points of claim, does not claim any present right under any mortgage to possess or recover the land and sell it (see s8), but rather that the husband pay her a money sum and that in default of such payment the land be sold. This is characterised as enforcement of a judgment debt, not action on rights under a mortgage. I have dealt already with s20(1) as it relates to the present case. It is not in contest that Ms Harris may recover her principal. The arguments were centred on what right if any she now has to recover interest.
In conclusion, Dr Sadler’s central submission was that “the remedy is barred not the right”, therefore arguably the right of action in full “revives” including for arrears of interest. However, the matter is governed by statute and that is not its effect.
There is however nothing in either s5(7) or s24(3) which precludes the recovery of interest which has accrued under the terms of the third loan agreement since the deeming in s24(3) has taken effect. That is, Ms Harris’ right of action in relation to the third loan agreement is deemed to have accrued, for reasons already given, on 30 August 2004. Her rights under the third loan agreement include the right to interest. Thus, in my view she is entitled to recover interest which has accrued on and from 30 August 2004, taking into account the three payments made, calculated at 15.5% percent per annum compounding on 30 August annually until the date of payment. On 30 August 2004, after the payment of $7,000 and thus deemed fresh accrual of Ms Harris’ cause of action, the debt was $53,000 at the moment of the deemed accrual before the application of any such interest. The relevant calculation thus should commence with $53,000 principal outstanding as at 30 August 2004.
Dr Sadler earlier submitted that there had been a written demand for payment under clause 2 of the third loan agreement by a letter dated 13 July 2003. However, even assuming the competency of that letter to constitute a written demand within the meaning of clause 2, that is, requiring the husband to pay in full the amount of the loan debt, such was beyond the expiry of time by the application of s5(1)(a), 3 July 2003, so as to not avail; and not necessary for the purpose of s20(1) as time under that provision even now has not expired. Further, Dr Sadler ultimately conceded, correctly, that the written notice procedure under clause 2 would assume relevance only if payment in full was required earlier, and within the ten year period. Thus, nothing turns on whether there was or was not any competent written notice by Ms Harris to the husband under clause 2.
Section 90AE
Dr Sadler further argued that the effect of ss90AE(1), (2) and (3) when read with s90AC has effect that Ms Harris remains a “creditor” of the husband so that even if LAA bars her remedy in relation to the arrears of interest it does not “remove the underlying right” or “status” that she has as a creditor, in particular as s90AC expressly provides that Part VIIIAA has effect despite anything to the contrary in any other law of the Commonwealth, a State or Territory.
Thus, he put (written submissions, par 53):
Therefore, even if the statute of limitation denies a remedy in contract (noting it bars the remedy not the right), the Court may make an order which addresses the moral responsibility for this right (which remains) in the context of it being a consideration in the cauldron of “just and equitable considerations” in making the order…(emphasis added)
In this context, s90AE(3)(d) requires the Court to be satisfied, before making any order under it, that it is just and equitable to make the order, relevantly, an order binding a creditor.
However, although LAA may be said to “remove the remedy not the right”, “the right” is a right of action, and Ms Harris sues in a court only under a right of action.
Dr Sadler’s submission is based upon the notion of morality generally and of a just and equitable result suggesting thus that it would be just and equitable to allow Ms Harris the full amount of her arrears of interest as if LAA did not apply. It is well established however that where a claimant’s right has been extinguished at law by a limitation statute equity will not assist unless there is an independent equitable remedy; and further that on the rare occasions where laches did not arise accordingly there must be reliance on limitation periods “by analogy”. (See s5(8)), as the following passages demonstrate). Thus, in Rees and Chapman (above) appears the following:
[5(8).5] Application ‘by analogy’ As already stated (see [0.35]), the Limitation of Actions Act applies mostly to common law actions. Section 5(8) allows limitation periods to be applied by courts of equity ‘by analogy’ in certain circumstances. The sub-section states that s5 does not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provisions corresponding to the provisions of s5 but repealed by the Limitation of Actions Act 1955 would have been applied by analogy by the courts prior to their repeal. Spry states that the words ‘by analogy’ should be construed widely and should be taken to include cases where the court may be said to be acting ‘in obedience’: I C F Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages, 4th ed, Sydney, LBC, 1990 p241. Meagher, Gummow and Lehane adopt the disctinction set out by Lord Westbury in Knox v Gye (1872) LR 5 HL 656 at 674: the limitations statute is applied directly only when it in terms operates to bar the equitable remedy, and in all other cases it operates by analogy. (R P Meagher, W M C Gummow and J R F Lehane, Equity: Doctrines and Remedies, Sydney, Butterworths, 1992 p786.)
[5(8).10] Equitable jurisdiction Where the claimant’s right or title has been extinguished at law by the Limitation of Actions Act, then equity will not assist. And it has been said that where the statute imposes a bar on the prosecution of a legal claim, there is no equitable jurisdiction to grant equitable remedies in aid of that claim (Crown v McNeil (1922) 31 CLR 76 at 100) but ‘where equity has created a new right founded on its own doctrines exclusively, and no Act bars that specific right, then equity is free’: McNeil at 100. In other words, for claims arising in the concurrent jurisdiction of law and equity and in the ‘auxiliary jurisdiction’ where an equitable remedy is sought in protection of a legal right (Spry p409), equity follows the law. However, where the claim is one in the exclusive jurisdiction of the court of equity, and there is sufficient similarity between the exclusive equitable right in question and a legal right to which the statute applies, the court will weigh all the circumstances of the case before applying a statutory provision by analogy: Spry p401. (emphasis added, except for the first two words)
Further, in I C F Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages, 4th ed, Sydney, LBC, 1990 at 241-2, is the following (which passage follows after that referred to in Rees and Chapman):
Proceedings for specific performance arose in the auxiliary jurisdiction of courts of equity, and it might hence have been expected that even where those courts were not bound directly by statute, they would, save in the case of fraud and, possibly, of certain other matters that might render the setting up of the material statutory provision unconscionable, exercise their discretion by applying the same limitations as would be applied in comparable proceedings for breach of contract at law. Some support for this approach can be found, yet there is little direct authority. On the one hand, there are cases that suggest that, subject to fraud and to any difficulties that may arise in respect of pleading, the appropriate legal statutory periods are applied by courts of equity by analogy in suits for specific performance; and so Stirling J said that “it seems to me quite contrary to the principles on which a court of equity acts, or to the way in which it obeys or follows the statute of limitations, that, the remedy at law being barred, the court should decree specific performance, or give effect to these stipulations”. On the other hand, it is rare that, in proceedings for specific performance, the defendant should be obliged to rely on the operation of a statute of limitations. For generally where there is the lapse of a substantial period of time it is found either that the legal contractual rights in question have come to an end or else that their enforcement in equity is in any case inappropriate, either through laches, or through acquiescence, or else on some other such ground. Only rarely are occasions found when laches and other such matters do not arise and when accordingly there must be reliance on the application of limitation periods by analogy. (footnotes omitted) (emphasis added)
Ms Harris does not claim any independent equitable remedy. However, these passages illustrate that there is no separate basis for a “moral” claim outside s90AE.
As to s90AE itself, in B Pty Ltd and Ors v K and Anor [2008] Fam CAFC 113, the Full Court said at [28], in the context of s90AE(2)(b):
28.That the elements of the “action” which the wife seeks to initiate cannot be identified is a powerful argument against the position for which Mr North contends. In our view, all that s 90AE(2)(b) does, of relevance to the wife’s claim here, is to enable the court to adjust the property interests of a third party for the purpose of effecting a division of the present property of the parties to the marriage, between those parties. Only in the sense that altering interests may leave a bundle of rights or interests that are consequent upon the alteration, may the exercise of power create interests, but these “new” interests will be the residue of what already existed at law. Except in this sense, the subsection does not create a new cause of action derived from rights not previously known to the law. In this sense, the subsection resembles a machinery provision, though in our opinion it is more than that. (emphasis added).
There is thus nothing in s90AE which has the effect of “creating” a cause of action for Ms Harris, justiciable in this Court, which she would not have in the State Courts.
Moreover, s90AE(3) contains as an element that the Court may only make an order under s 90AE(1) or (2) if the making of the order is “reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage”. This condition is not fulfilled.
Thus, Ms Harris’ position is not improved by invoking s90AE rather than the litigation of her common law right by accrued jurisdiction, and her reliance on s90AE thus is misconceived to the extent that she relies upon it as an independent head of Commonwealth power to award arrears of interest statute barred under State law.
Conclusion
My own calculation, having regard to my findings in par 90, is that the amount payable is $56,839.62 as at 30 August 2009 and will be $64,153.24 as at 30 June 2010, which I propose to order as the payment date: see annexure 1 attached to these reasons for judgment. However, the parties themselves should be responsible for the calculation such that if mine is erroneous nothing turns on it. I would envisage that Mr G may attend to the calculation on behalf of the parties up to and including the date of payment. I will give liberty to apply if difficulty in calculation should arise.
Mr G’s accounting annexed to his affidavit, with signed acknowledgments by the husband, is for amounts more than the amount which I have determined is recoverable, and to that extent is not relevant. That is to say, if any of his calculations were performed on the basis of 15.5% compounding quarterly, such cannot be relied upon because plainly Ms Harris cannot recover default interest at any rate or rest interval other than in accordance with the third loan agreement as rectified.
Joint liability or husband’s sole liability
The husband deposed that when he and VH were divorced it was agreed that he would have the former matrimonial home (the M property), to be transferred to him, and that he would “take all the debts”: husband’s affidavit, par 17.
Legally, thus, the debt to Ms Harris is the husband’s sole debt.
However, it is plain on the evidence that the wife, equally with the husband, has had the benefit of the use of Ms Harris’ moneys during the whole period of their 15 year relationship and marriage, between December 1992 and March 2008, and that by using Ms Harris’ moneys for investment purposes, rather than the husband repaying Ms Harris in 1987, as had been an express term of the second loan agreement (predating the commencement of the relationship between the husband and the wife in 1992), both have benefited.
It seems to me that, in these circumstances, as the pool significantly is represented by (1) the M property, purchased in 1986 for $112,000, with more than half of the purchase price provided by Ms Harris (Ms Harris’ affidavit, par 10), now worth $750,000 (item 1 in the schedule), and (2) the parties’ investment in the units at P, now worth $380,000 (item 2 in the schedule) with a debt of $228,000 mortgaged not only against the units but also against the M property, as between the husband and the wife I should regard the debt for the purpose of a s79 order as a debt of them both in order to ascertain the net worth of the property pool for division.
The matter is analogous with a husband and a wife borrowing money from a bank in the name of one of them only for the purpose of acquiring a matrimonial home from which both benefit by inclusion in the property pool.
Further, while there was much concentration at the trial as to a credibility issue of whether the wife did or did not know of the husband’s debt to Ms Harris when she met the husband and throughout the whole period of their relationship and marriage, in my view nothing turns on that because, even if I should find that the wife had no knowledge of the debt, nonetheless she has had the benefit of the borrowing during the whole period of her relationship and marriage with the husband and indeed continues to the present to have that benefit by having the M property in the pool. That is to say, the husband’s debt to Ms Harris was a reality when the wife met the husband in 1992. It became statute barred in 2003, but was “revived” by deemed fresh accrual in 2004. Her position now plainly cannot be improved by seeking to assert that she did not know of that reality. The facts are the facts. It is thus not necessary that I determine the credibility issue.
Dr Sadler seeks an order that the debt to Ms Harris be “determined” as a joint and several liability, for which there is power under s90AE(1)(b). However, as will be seen, my determination that the husband’s debt to Ms Harris should be taken into account in assessing the net value of the pool and not be regarded discretely as a debt of the husband has effect that it will not be necessary to make any order that the husband and the wife be jointly and severally liable for the debt.
Second respondent’s chattel claim
This was abandoned at the trial.
Item 9 - Wife’s HECS debt
The wife’s HECS debt $35,712 was agreed in amount, but not how it should be taken into account. It relates to studies to obtain a Degree in Nursing during 2005-2008, which, it would appear, she completed in early 2008 shortly before the parties’ separation under one roof in March 2008. Although the date of completion in March 2008 was not common ground, the wife gave evidence that she became a registered nurse on 4 January 2009 and that between the completion of her degree and registration she was required to be employed as a nurse for twelve months. I would deduce that it is therefore more likely than not that her HECS debt in relation to her studies was accumulated wholly during the marriage and indeed in its last three years shortly before the parties’ separation.
As the debt was one wholly accumulated during the marriage it should be brought to account as a joint marital liability.
I will deal separately below, when dealing with the s75(2) factors, with the circumstance that the degree is a benefit to the wife taken out of the marriage by her.
Item 10 – Wife’s E Credit Co-op debt for tax
Initially, the amount of debt $8,800 was agreed, but there was an issue as to whether this item should be regarded as the wife’s sole debt or a joint debt. Ultimately, the husband conceded that this item should be regarded as a joint debt.
Items 11 and 12 – Husband’s claim for moneys owing to his sons R and S
R - $18,650
The husband said (affidavit, par 59) that in April/May 2002 he heard of a land sale at C which he wished to purchase but did not have funds. He approached his son R who provided $21,300 (cheque for $20,000 and $1,300 cash) to comprise the requisite 5% deposit on the purchase of four blocks. He said he made an agreement with R that if R provided the deposit then on the sale of the four blocks R would receive repayment of his deposit and the profit on two blocks, he and the wife would receive the profit on one block and his other son S the profit on one block. On 9 May 2002 two blocks were purchased for $107,000 each, the third for $103,000 and the fourth for $109,000. He said the purchases were made in the name Harris & Associates, which I understand to be Harris & Associates Pty Ltd. He said “we also agreed” that Harris & Associates would “bear any taxes including CGT”. The blocks were onsold with settlement for both the purchases and sales in June and July 2003, so that there no outlays except for the deposit, and no mortgages. The transactions yielded gross profit of $134,700, averaging a net profit of about $33,675 on each block. R thus was owed $88,650, being profit $67,350 and return of deposit $21,300. R was paid $70,000. The husband said that he and the wife retained the balance profit at the time because they were experiencing difficulties in relation to other investments. Accordingly, the husband claims that R is owed $18,650 ($88,650 less $70,000).
The wife said (affidavit in response) that she did not know what arrangements were made between the husband and R and that the husband had told her that he had purchased the four blocks “in our company name [Harris] & Associates Pty Ltd” and had sold the four blocks for profit. The wife said further that she has not been provided full disclosure as to the transactions “nor supporting documentation”. The wife’s Counsel however had full opportunity to cross examine the husband at the trial on this aspect of the matter and ultimately did not make any submission that the claim should be disallowed for the want of any relevant disclosure.
R was not called as a witness, although in cross examination it was established that at the time of the trial R was in Australia and available. I am not prepared however to draw any adverse inference against the husband by this circumstance because the wife did not deny that R had lent the deposit, or that the agreement with R was as the husband stated, but rather said only that she did not know what arrangements had been made. In the absence of any express denial the husband was entitled to rely on his own evidence and whilst it was open to him to provide corroborative evidence there was no necessity for him to do so. In these circumstances, I am not prepared to draw the adverse inference that if the husband had called R his evidence would have been unhelpful to the husband’s case: Jones v Dunkel (1959) 101 CLR 298, as recently discussed in Suffolk & Suffolk (No 2) [2009] FamCA 917 at [78]-[87].
Further, the husband gave robust evidence in his cross examination that “my big boy invested in that land and we profited from it”, and I have no reason to doubt either his affidavit evidence concerning the arrangement with R which precisely was set out or his evidence as to these matters cogently maintained during his cross examination.
I would determine therefore that $18,650 is owing to R and that the debt properly is characterised as a joint marital debt of the parties.
S - $20,000
The claimed debt to S is said to arise by his entitlement to $33,675 profit on one of the blocks of land, as already mentioned, plus $10,000 which the husband said S lent to the husband and the wife in about 2005 (affidavit, par 59) such that the “debt” to S was about $44,000 (the profit from one block plus $10,000). The husband said S was paid $24,000 in late 2007 so that $20,000 debt remains.
S, however, plainly provided no consideration in relation to the land transactions, which the husband in cross examination frankly conceded, and there is thus no proper basis to regard the husband and the wife as having a debt to him of $33,675 profit, this being characterised properly as merely a promise unsupported by consideration so as not to constitute any enforceable debt claim.
S was paid $24,000, as mentioned, so that he has been repaid the $10,000 lent in about 2005.
For the reasons stated, I reject that the husband and the wife are indebted now to S for $20,000 and would regard the $14,000 difference between the $24,000 paid to him and the $10,000 debt repayment as a gift from parent to child.
Certainly, the wife did not seek to argue that S (who seemingly at all relevant times was a student) is now indebted to the husband and the wife in such amount.
Items 13 and 14- Husband’s tax debts
The wife disputes also that the husband paid for all of her courses, saying rather that he “helped”. She said further that many of the courses were short and inexpensive, and that her nursing course was HECS funded.
Ms B, another sister of the husband, deposed that she “cooked and provided evening meals to [the husband] for him to provide to the occupants of his home including the various overseas student boarders”, and that she did this until he ceased providing such accommodation in 2000 (affidavit, pars 7-11).
The wife said that whilst she recalled Ms B at various times, particularly between 1992 and 1994, cooking meals at her home and bringing them to the M property during the time that the wife was a student paying board, after that time the wife cooked the meals for herself and the husband as well as the student boarders, and that she cleaned the house regularly on and from 1993 while she also worked part time.
There is tension, thus, between Ms B’s evidence and the wife’s evidence as to the provision of cooking and other services for the students after 1994. I have no reason to doubt the wife’s evidence that she provided many of these services after 1994. Probably however Ms B continued to do so as well, to some extent. It appears, from other evidence, that some of the husband’s family did not know that he had married the wife in 1994, and thus continued to treat her as a “student boarder”, without knowledge of her quite different status within the home and without knowledge of the various roles which she performed during the marriage. Perhaps the husband, who is one of many siblings, had not disclosed the marriage to his siblings for reasons best known to him.
Mr Cantwell argued that “the wife was provided a free house” during the period of the parties’ relationship and marriage, “contributed nothing to the assets” and, in effect, furthered her own advancement at the husband’s cost, in particular her advancement as detailed in par 86 of his affidavit already set out.
Further, Mr Cantwell submitted (written submissions, par 7) that during the course of the parties’ relationship and marriage the wife transmitted at least AUD$52,000 “from family income” to the wife’s relatives in Taiwan for investment by them. Against this the wife says, which I accept (affidavit filed 11 November 2009, par 2), that she sent AUD$43,900 to her parents, being:
· $5,000 for dental work for herself in Taiwan;
· $2,000 for clothing for the husband at his request;
· $36,900 over the years “in small amounts” to help for medical treatment for her father who became extremely ill, for her father’s living expenses while incapacitated though illness and otherwise while he was recovering from surgery which amounts the husband “encouraged” her to send in particular because the husband and her father had a “good relationship”.
Mr Wilson submitted, in relation to these amounts (written submissions, par 30), that although the husband “complains” as to these amounts, the husband during the course of the parties’ relationship and marriage “gave much more to the sons from his first marriage”, that is, R and S. In this regard, there is evidence, to which I have referred already in a different context, of $14,000 gifted to S. Further, there is evidence that S was gifted $21,000 as his 21st birthday present in 2003.
However, as stated in an earlier context, the matter of payments to or for the benefit of family members is more appropriately dealt with under s75(2).
For present purposes, I am satisfied that money paid by the parties to or for the benefit of their kin (the wife’s family in Taiwan, and the husband’s sons, in particular S when he was a student) were “appropriate” payments, whether or not they “balance out” equally.
Post separation contribution
In the recent post separation period the wife has lived in one of the P units, and the husband in the M property, such that neither has been required to pay rental.
The wife has paid more than the husband in respect of the P mortgage. However, it is common ground that this should be dealt with under s75(2) and not assessed in relation to contribution in particular as the payments were made pursuant to a consent order made by Cronin J on 26 October 2009.
Superannuation contributions
It is necessary specifically to consider contribution to the parties’ superannuation interests.
The husband says that he contributed to the Harris Superannuation Fund for both his and the wife’s member accounts from his own earnings.
The wife’s Hesta member account, it appears, contains compulsory employer contributions on her behalf based on her nursing earnings both pre and post separation.
Contribution assessment
Mr Cantwell submitted that the husband’s contribution be assessed as “considerably more” than the wife’s not only because of his equity in the M property at the commencement of their relationship, which he put at $25,000 (value $135,000 less the two borrowings of $60,000 to Ms Harris and approximately $50,000 still owing to the bank) but because the husband earned regular income throughout the period of the parties’ relationship and marriage and used his skills in consultancy for direct financial gain. He put that in essence the wife made negligible contribution as a homemaker, relying on Ms B’s evidence as to her provision of meals and cleaning for the students, which he said was corroborated by the boarder already in residence when the wife commenced to reside in the M property as a student, and that in effect the wife “was provided a free house to live in and used her time and energies towards her courses and qualifications”.
Whilst Mr Cantwell did not specify a precise percentage assessment for contribution sought by the husband, he sought a property division overall of 75%/25% in the husband’s favour including in relation to the s75(2) factors, his submissions in respect of which (to which I will refer below) make clear that some component of the 75%/25% division in the husband’s favour be attributable to the s75(2) factors. The husband sought also several specific orders, to which I will refer in due course, having the effect of a considerably higher percentage award overall to the husband: see the minute of orders sought by the husband placed with the papers.
Mr Wilson submitted that contribution should be assessed 45% wife and 55% husband and that the difference in the husband’s favour be “by reason only” of his prior ownership of the M property such that all other contribution be assessed as equal.
I will deal first with Mr Cantwell’s submission that the husband’s equity in the M property at the commencement of the parties’ relationship and marriage was about $25,000. At that time, even if the husband had been paying principal and interest to the bank, he was in default of payments to his sister for 5 ½ / 6 ½ years attracting interest of 8% on $60,000 compounding quarterly, which amount over that period even before the commencement of the parties’ relationship would far have exceeded $25,000. As observed earlier, subsequently the husband’s debt to Ms Harris for interest during this period became statute barred, so that it is appropriate, as between the husband and the wife, to recognise the husband’s claim for equity as between $15,000 and $25,000, but probably closer to $25,000.
It is fortuitous however that by lapse of time Ms Harris did not enforce her right under the third loan agreement before the expiry of time which had effect that she was unable to enforce her claim for arrears of interest. In my view the husband ought not benefit unduly by that circumstance, which ultimately has enured for the benefit of the husband and the wife equally in that the M property is still in the pool and was not the subject of Ms Harris much earlier enforcing her rights pursuant to the mortgage which she held, although it was never registered and now is lost: see pars 48-53 above. However, be that as it may, in practical terms as between the husband and the wife now it is plain that the husband contributed more initially at least by his prior ownership of the M property and his equity in it. Further, the circumstance that the husband was the registered proprietor of the M property had effect that he and the wife were able to use it as a springboard to obtain funding from the Royal Bank for various investment properties which were bought and sold during the parties’ marriage. These, it appears, included Unit a property in the southeast of Melbourne in about 1999, another property in the southeast suburbs in about 2006, Units 1 and 2 at P in 2002 and Units 2, 3, 4 and 5 D also in 2002. (Further there was the land at C referred to earlier. As explained, there were no borrowings in relation to that investment).
In relation to the investments listed above it appears that the Royal Bank did not know of the husband’s debt to Ms Harris nor of any mortgage to her: see affidavit wife, par 38, which I accept, which seems to indicate that the bank first learned of the debt to Ms Harris in late 2007. It would appear, in this context, that the husband’s further borrowings against the M property were deceitful by non disclosure to the bank of the existence of the debt to Ms Harris: see exs 12-15.
Be that as it may, even if the advantage of the borrowings was improperly obtained by deceit, there is still the circumstance, vis a vis the wife, that the springboard of the husband’s ownership of the M property resulted in the husband and the wife subsequently being able to invest in other properties for profit. The only extant investment is ex 2, the P units. However, there is evidence that profits were taken from the other investments and used by the parties in various ways including for motor vehicles, holidays and trips. There is now in the schedule a further bank debt of $60,000 (item 8) which I understand to be a consolidation of later miscellaneous borrowings.
It was not argued at the trial that the husband ought not benefit from his deceit. Although in other types of court proceedings such a matter potentially might loom large to deprive a person of a benefit or gain obtained by deceit, in the s79 process the assessment of monetary contribution by one spouse vis a vis another, whether initial, during the course of a relationship and marriage or post separation is a relatively clinical exercise, although, as is well understood, it is taken into account as one aspect only of contribution within the wider context of both financial and non financial contribution.
The M property now is the most valuable in the schedule, at $750,000. The P units, at $380,000, are encumbered to the value of $228,000, such that the equity is $152,000. Even if the aggregate of the parties’ liability, $436,446.24 is considered (including the $228,000 debt in relation to the P units) the husband’s prior ownership of the M property is a significant contribution by the husband, even more so if the P mortgage is taken out of the equation.
There are however the other matters to which I have referred of both the husband’s and the wife’s contribution to the M mortgage; the payment of $37,000 principal to Ms Harris; and the existence of the present debt to Ms Harris which I have determined will be a joint liability and observed is more than half of the initial purchase price of the M property.
In Farmer v Bramley (2000) FLC 93-060 Kay J made clear that contribution assessment is not limited to the assets of which the pool currently is comprised: see at [68]-[69]. Thus, as I have observed, the husband’s ownership of the M property allowed the purchase and sale of other properties, with profit used by the parties during the course of their marriage. I would infer, as invited, that if the husband had disclosed to the Royal Bank the existence of and amount of his debt to Ms Harris, and the circumstance of his default in his obligations to her under the third loan agreement, the bank would not have advanced the moneys it did advance for the purchase and sale of the parties’ other investment properties all of which borrowings, it would appear, were secured against the M property as well as the various investment properties such that, presently, the M property still is encumbered by the borrowing for the P units (husband’s affidavit, par 30).
Leaving this aside however the circumstance of the husband’s prior ownership of the M property has had a springboard effect for the parties’ other investment properties bought and sold for profit during the course of their relationship and marriage so that a significant contribution assessment is warranted in the husband’s favour, particularly when his prior equity in it is also considered.
Otherwise, in my view, the financial and non financial contributions of the husband and the wife do not call for a contribution assessment weighted in favour of one or the other and I would assess them as equal. Although the husband earned more than the wife, and the wife it is true engaged in many self improvement courses, including ultimately her nursing degree she also earned income and contributed it to the marriage and made also substantial non financial contributions as already outlined.
The period of the parties’ relationship and marriage, at 15 or so years, is not insignificant. In my view the case is one in which as was observed in Figgins and Figgins (2002) FLC 93-122 (Full Court) at [134] per Nicholson CJ and Buckley J:
134. … Marriage is and should be regarded as a genuine partnership to which each brings different gifts. …
I would assess the husband’s greater financial contribution, having regard to the matters I have outlined, as 10%, providing a 20% differential.
I am conscious that the value of the M property now represents 90% of the net value of the pool. However, its significant growth in value from $135,000 in 1992-1993 to $750,000 now occurred during the course of the parties’ relationship and marriage during which each made the other contributions to which I have referred. It is not as if, to the exclusion of the wife, the husband now is entitled solely to the capital gain in relation to the M property as if the relationship and marriage had not existed at all. Such could not give effect to the relevant principles as to initial contribution as set out, for example, in Pierce and Pierce (1999) FLC 92-844 (Full Court) at 85,881:
28.In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution. In the present case that use was a substantial contribution to the purchase price of the matrimonial home: … (emphasis added)
Further, as I have determined, the forbearance of Ms Harris has enured not solely for the benefit of the husband but both the husband and the wife.
The section 75(2) factors
Age
The husband is 65 years and the wife 37 years.
Health
The husband said he is in poor health, suffering diabetes and high blood pressure. However there is no expert medical evidence as to this such that his evidence at best is lay opinion. The wife said that she has “feelings of depression” which developed towards the end of the marriage and continues to visit a psychologist for counselling. However similarly there is no expert medical evidence as to these matters such that it also is at best lay opinion.
Income earning capacity and related matters
The husband has reached retirement age and is unlikely to earn significant income in the future such that largely he will be reliant on his property settlement for his future needs. At the time of the trial he was being paid $500 weekly advanced against future commissions as a salesman with a sales company. He said however that he is accumulating debt in relation to the payments if there should not be future earned commissions. Depending ultimately on his means, it may be that the husband will qualify for a pension or part pension. During final submissions it was put that on attaining 65 years in December 2009 the husband would become eligible for a pension of about $200 weekly if he so chooses. This however is dependent upon means testing.
The wife has the many qualifications to which I have earlier referred. Most significantly, now that she is a fully qualified nurse, she is able to earn income at least commensurate with the nursing award or similar. Exhibit 21 is the current Nurses (Victorian Public Health Sector) Agreement published by the State Government of Victoria, Department of Health, showing (p113) for a year 1 nurse $937.10 gross weekly ($48,700 per year), year 2 $973.30 gross weekly ($50,611 per year) and so on. Subject to ongoing good health, the wife reasonably may expect a future earning path of some 20 or more years.
The wife’s nursing degree is a benefit she has taken out of the marriage. As I have determined already, her HECS debt of $35,712 will be fully paid.
At the commencement of the relationship and marriage, the wife was a student of 19 years, and the husband about 47 years, with few assets but earning reasonably well.
In relation to the property division order, whilst initially the husband sought that both the M property and the P Units be sold, ultimately Mr Cantwell agreed that if the property order is able to be structured so that the wife have the P units and take over or refinance the $228,000 existing mortgage, the husband had no objection to such. If this is the outcome, the wife will be able to live in one of the units and rent the other to assist in servicing the mortgage, or alternatively deal with the property otherwise as she may see fit or be advised.
The husband seeks, if possible, to retain the M property. This would require significant borrowing on his part such that even if afforded the opportunity to do so it may not be financially viable. If he is able to retain the M property, he will have the opportunity to rent out some of the rooms in it for income to assist in servicing the necessary borrowing, just as he did when he first met the wife. If ultimately the M property must be sold, it is difficult to assess whether the husband may have sufficient capital after payment of debt to purchase a more modest property in which to live. If he is required to rent a property, then at least he would be in the position to have modest capital to invest. If this is the outcome, his pension entitlement may be affected.
Post separation benefits
Post separation, the husband has had the benefit of living in the M property and the wife in one of the P units.
Items 20 and 21
I turn now to the two matters previously in the schedule, items 20 and 21, which the parties agreed more appropriately should be dealt with under s75(2), set out below for convenience:
20.
Husband’s claim re wife’s use of credit card:
(a) wife agrees
$214
(b) balance of husband’s claim
$1,000
21.
Wife’s claim re P mortgage payments (September 08 to November 09):
(a) wife paid
$12,761
(b) husband paid
$2,516
In relation to item 20, the wife agrees that post separation she charged $214 (in oral evidence $194) to his credit card, such for her personal use. She says however that the $1000 amount was used for property purposes, in that she paid it or an amount similar to it towards the P mortgage.
I accept the wife’s evidence as to the $1000 amount.
Otherwise, as to the amount of $214 (or $194) I regard it as de minimus and will make no adjustment.
In relation to item 21, on 27 June 2008 Cronin J ordered by consent (par 3) in relation to the M property and the P units:
3. That until further order and as and from the occupation date:-
a)The wife have sole use and occupation of Unit 1 to the exclusion of the husband;
b)The husband have sole use and occupation of the former matrimonial home to the exclusion of the wife;
c)The wife shall be responsible for the occupation costs of Unit 1, including but not limited to rates, taxes and insurances;
d)Each of the husband and the wife shall be responsible for and pay as and when the same falls due one half of the mortgage instalments pursuant to the mortgage secured over Unit 1 and Unit 2, [P], in the state of Victoria (“Unit 2”) “the investment mortgage”;
e)Each of the husband and the wife shall do all such acts and things as may be necessary to ensure that rental proceeds received from Unit 2 shall be applied in reduction of the investment mortgage and paid into that mortgage account and the same in relation to the rental proceeds received from Unit 1 until the tenants vacate.
In the same order, by par 4, Cronin J ordered that the husband until further order be responsible for the occupation costs of the former matrimonial home including but not limited to rates, taxes and insurances (cf. par 3(c)); and by par 6 that until further order the husband be solely responsible for the payment of instalments on the parties’ ANZ supplementary loan account (item 8 in the schedule).
The wife claims that in relation to par 3(d) of the orders the husband “paid his share” for the first four months toward the P mortgage but subsequently stopped and paid only part of his share. It is common ground that the wife paid $12,761 (ex 1) and the husband $2,516 (ex 8). The aggregate is $15,277. Half the aggregate is $7,638. As the husband paid $2,516 there is a $5,122 discrepancy which the wife seeks that the husband pay her by way of adjustment under s75(2)(o), or that it be reflected by a percentage s75(2) adjustment.
The husband said in his affidavit (pars 32-35) that pursuant to the orders the wife moved into unit 1, and that unit 2 leased at $694 net per month ($750 gross) which after the deduction of agents’ fees and expenses was paid towards the P mortgage repayments of $1,508 per month so that at the time the orders were made the shortfall was $814 per month. He said that he understood when the orders were made that the wife would also continue to pay an amount “equal to rental” for unit 1 being about $690 per month which would have meant that the shortfall would have been reduced to about $125 per month and that they would each pay half of that amount, $62.50 per month, such that the wife would pay a total of $752.50 “to house herself” being $690 “in lieu of rent” and $62.50 “for her half share of the shortfall”. He said that as he was continuing to pay the amounts due on the ANZ supplementary loan (par 6 of the order) of about $500 per month, “the $62.50 for my half of the shortfall”, and higher rates and insurance on the former matrimonial home, he thought that the arrangement as he understood it “was fair” as “we would continue to pay similar monthly amounts to house ourselves.” In those circumstances, he said, he consented to the orders being made. He said that the wife had said that her understanding was that she would be required only to pay half of the shortfall and “no contribution to rent” so that “she is effectively housing herself for only $407 per month” whereas he would have to pay “$907 per month” and that “this is not at all what I intended when I consented to the orders of 27 June 2008.”
This however is not the effect of pars 3(d) and 4 of the orders, and overlooks two things.
First, plainly the orders intended that for an equivalent period the wife and the husband each would have a rent free property in which to reside with each being responsible for the occupation costs of the premises in which each was residing.
Secondly, and more pertinently, par 6 of the orders separately provided that “until further order” the husband pay the instalments on the ANZ supplementary loan. Although par 6, in its terms, was not expressly characterised as a circumstance to be taken into account by the trial judge, this was its effect, as an interlocutory order.
On any view, if (as I presume, in the absence of evidence to the contrary) the husband between the date of the orders 27 June 2008 and the trial in November 2009 serviced the ANZ supplementary loan instalments at about $500 per month (about $8,000) such would amount to more than the $5,122 discrepancy adjustment which the wife seeks.
In these circumstances, I refuse the wife’s application for such adjustment.
The husband, I would observe, does not seek any reverse adjustment, and, based upon his own figures and explanation at pars 32-35 of his affidavit, none is warranted.
Money to Taiwan
I turn now to another matter raised on the material which appropriately is dealt with under s75(2)(o), namely the husband’s allegation that the wife sent $51,920 to her family in Taiwan. The wife said in her evidence that she agreed that $43,900 was sent to Taiwan, being $5,000 dental expenses for herself, $2,000 shirts, clothes and gifts requested by the husband and the balance for medical treatment and living expenses for her father, as mentioned earlier in these reasons. The discrepancy alleged by the husband amounts to unproved assertion. On the wife’s case thus about $36,900 was used for her father’s medical and living expenses. However, the wife says that the husband gave “much more” to his sons R and S exemplified, in particular, by the amount of $24,000 given to S to which reference already has been made (the wife denying any debt to S of $10,000, as mentioned earlier) and other examples referred to throughout the evidence which I need not specifically mention. In my view, moneys properly expended on the needs of extended family members, particularly if the expenditure is agreed, is part and parcel of the incidence of marriage. There may be exceptions, in the case of enormous amounts paid to or for the benefit of an extended family of one spouse to the exclusion of the other, whether agreed or not. However, that is not the case here. In the particular circumstances of this case, it seems to me that in relation to gifts to or for the benefit of the wife’s father, and to or for the benefit of either R or S, no adjustment is warranted on either side.
Standard of living
Each party has enjoyed a reasonable standard of living since the commencement of their relationship and marriage and each is entitled now to a reasonable standard of living. Each party has significant post separation or personal debts, including legal fees (ex 10), which it is appropriate to mention, and observe generally, but which by their nature properly are not brought to account in the proceedings. Mr Wilson, for the wife, submitted that in all of the circumstances a 5% adjustment in the husband’s favour is appropriate, in particular, having regard to the comparative ages of the parties and their income earning capacities now.
Adjustment
Mr Cantwell, as I have mentioned earlier, did not specify a percentage s75(2) adjustment in the husband’s favour, but submitted that rather, having regard to both contribution and the s75(2) factors the property division be 75% husband and 25% wife.
Taking all of the s75(2) factors into account, but in particular the parties’ respective ages, and their present and future income earning capacities, I would assess that the husband should have a 5% adjustment in his favour, amounting to a 10% differential. Whilst it is true that the wife has a significant income earning capacity now, and forseeably will enjoy that for the next 20 or so years, as a benefit directly taken out of the marriage by her, particularly with her HECS debt to be fully paid, nonetheless the wife will need actually to work to earn such income so that its attainment will not be effortless on her part. Moreover, the discrepancy in the parties’ ages, some 30 years, obtained at the commencement of their relationship and marriage as much as at the end of it, and now. The husband was 47 years when he met the wife, but had little to show for his years, his only substantial asset then being the M property with the financial exigencies to which I have referred already in detail in dealing with contribution. At this stage of his life, nearly 20 years later, the husband at least has the prospect of the pension, modest as it is, whereas the wife will need to continue to work for income.
The husband, after the performance of Cronin J’s order 26 October 2009, par 5, concerning the husband’s entitlement in the Harris Superannuation Fund will have no superannuation. The wife will have the present value of her superannuation in the Hesta Fund, which will be about $47,000 after her member’s account in the Harris Superannuation Fund is rolled into it, which absent unforseen circumstances she will not be able to access for many years, but which reasonably it may be expected will continue to grow and in addition she will have the benefit at least of employer compulsory contributions for the next 20 or so years or as long as she may remain in the workforce.
The payment of the wife’s HECS debt will be of considerable value to her, being about 4% of the net pool, such that she will not suffer continued deduction for it during her working life until the debt is satisfied. However, on any view, the wife worked very hard to achieve her nursing degree in the latter stage of the marriage, without which she would not now have the benefits attaching to that achievement.
Thus, in my view, having regard to all of the matters which I have mentioned there is warranted a 5% s75(2) adjustment in the husband’s favour, amounting to a 10% differential. In particular, the wife has worked very hard for the specific advantages that she has now, which the husband does not have, and, I would reiterate, to yield the benefit of what the wife now has will not come without genuine hard work on her part for the next 20 or so years.
Percentage division before the fourth step
Having regard to my assessment of 10% contribution weighting in the husband’s favour and 5% s75(2) adjustment in his favour, the net effect is that, before the application of the fourth step, the husband will have 65% of the pool and the wife 35% of the pool.
The fourth step – just and equitable result
In Phillips and Phillips (2002) FLC 93-104 at 88,985, the Full Court made clear its acceptance of the principle that at times the application of percentages does not necessarily produce a just and equitable result; that it is the order which is to be just and equitable, not just the underlying percentage division of the net value of the parties’ assets; that usually adjustment for the s 75(2) factors will be assessed in the range of 10% and 20%; but that a number of cases will justify an assessment outside those parameters; that in any event it is the real impact in money terms which is ultimately the critical issue; and finally, that in the consideration of whether the result is just and equitable, it is the justice and equity of the actual order, not of the percentage distribution, which must be considered.
Thus, I am obliged to have regard to the “real impact in money terms” as to whether any particular division of the parties’ property and assets is just and equitable, bearing in mind always that it is the justice and equity of the actual order, not of the percentage distribution, which must be considered.
Percentage division
A percentage division of 65%/35% would see the husband having $539,133 value and the wife $290,303 value (combined, $829,436).
Wife
By reference to the schedule, the husband does not object to the wife having the P units, item 2, at the agreed value $380,000, conditioned upon her ability to refinance the mortgage, item 7, $228,000 within 60 days and arrange release of the collateral security on that mortgage in relation to item 1. This will be the net effect of value to the wife of $152,000. As the wife has resided in Unit 1, it is just and equitable that she be solely responsible for any increase in the mortgage over that property over and above $228,000 since the time of the trial, subject to a proviso which I will make, if the P units should need to be sold.
It is common ground that the wife should have items 4 and 5, being her motor vehicle, chattels and jewellery at the aggregate value $14,800 ( the value of the motor vehicle $9,800 being an agreed value and the value of the chattels and jewellery having been determined by me at $5,000).
The parties agreed that the wife should have her superannuation items 18 and 19, in aggregate $47,249.
This amounts to $214,049.
At the trial, it was stated as common ground that the parties should be equally liable for item 8, $60,000 with accretions, but subject to my determination as to a just and equitable result overall.
I have determined above that as the wife has resided in unit 1, it is just and equitable that she be solely responsible for any increase in the mortgage in relation to the P units over and above $228,000 since the time of the trial. She will thus solely be responsible for this mortgage debt, with its accretions since the time of the trial. In the order which I propose to make, the husband solely will be liable for any increase in the $60,000 ANZ supplementary debt over that amount, including accretions since the time of the trial. In my view such is practical, and just and equitable, in all of the circumstances of the case.
The wife also will have half of the husband’s superannuation amount item 17, E$32,041.50, but which may be less, having regard to the exigencies to which already I have referred.
In aggregate, this will amount to about $246,090 value to the wife, but actually will be less having regard to the cost of the roll out of the husband’s member account in the Harris Superannuation Fund, taxation and the costs of the winding up of that fund.
Husband
It is common ground that the husband should have item 1, the M property, at the value of $750,000, and item 3, his motor vehicle, at the value of $9,750.
In relation to item 1 however, once the debt in relation to the P units is excised by the wife taking it over, the parties’ joint debts items 6, 8, 9, 10, 11, 13 and 14, E$208,446.24, will need to be paid by the husband either by a borrowing mortgaged against item 1, if he is able to arrange that, or alternatively by the sale of the M property if he is not able to arrange that. I intend, as I will specify in the order, that the husband be solely liable for all accretions in relation to the joint debts on the basis that he, and he solely, will be responsible either for the early refinance of the M property, if he can do that, or for its early sale, if he cannot.
Such division of the parties’ property and assets, whilst leaving each with considerable debt, in my view is a just and equitable division. If ultimately the husband is not able to arrange refinance of the M property, that cannot be helped. Similarly, the wife’s ability to maintain ownership of the P units will depend upon her ability to arrange the refinancing to which I have referred. If she is not able to do that, and those units also need to be sold, that also cannot be helped.
Other matters
Chattels
On 27 June 2008, Cronin J ordered by consent (par 7), that the wife be at liberty to remove the chattels listed in annexure A to that order from the former matrimonial home “without prejudice to either of the parties’ rights to argue for the return of or receipt of further chattels”. For convenience, annexure A was marked ex 3 in the proceedings, with markings on it the subject of oral evidence given at the time. The husband’s minute of orders, par 13, sought specifically that the wife deliver to him several items on annexure A (ex 3) namely:
·Leather sofa suite comprising one lounge, two arm chairs and one leg rest;
·Coffee table;
·Plasma TV;
·Maytag refrigerator;
·Wine stand;
·Lamp stand
all of which were situate in the M property before Cronin J’s order was carried into effect.
By email 19 April 2010 to the parties’ solicitors, the Associate sought clarification as to this and other matters.
In the response emails from the husband’s and wife’s solicitors, the husband maintained the claim for the return to him of the first, second and fourth items and the wife resisted such.
It seems to be the case however, on the evidence, that item 5 in the schedule, which the wife is to have, includes the items in annexure A (ex 3).
I refuse therefore the husband’s relief that he should have these chattels.
Wife’s beaded velvet dress and medical dictionary
The wife seeks the return of these items. The beaded dress was the subject of a specific direction at the trial. The wife alleges that the husband did not give her this item when ordered to and has not since. The husband by his solicitor’s letter in response to the email instructed that the beaded velvet dress is not at the M home such that he is not able to deliver it to the wife and that he maintains that at separation the wife took the dress with her. The wife is adamant that the dress is not in her possession.
In these circumstances I will make an order that the husband use his best endeavours to locate the dress and deliver it to the wife.
The wife maintains also, in the response email from her solicitors, that her medical dictionary is still in the husband’s possession.
In the circumstances, I will make the same order concerning it.
Item 15 – D property
I have already referred to the potential outstanding capital gains tax liability of the parties in relation to capital gains tax upon the sale of this property.
I will include in the order, for reasons already stated, that the parties be equally liable for any capital gains tax in relation to the sale of this property and that each indemnify the other as to one half of such liability including interest charges and fees.
Valuation ordered 27 June 2008
On 27 June 2008 Cronin J ordered by consent (par 11) that valuations be undertaken in relation to the M property and the P units and that the parties pay one half each of the valuation costs.
The wife claims that she has paid the full cost and that the husband thus owes her $800 pursuant to Cronin J’s order.
This is an existing order of the Court and the husband must abide it. I will therefore include in the s79 order provision that the husband must reimburse the wife half of the valuation cost at $800.
Spousal maintenance
Initially, the husband claimed spousal maintenance. This was abandoned at the trial.
Kennon factor
The parties’ material contained many allegations of violence one to the other. However, at the trial it was made plain that neither party sought that I consider any Kennon factor: see Kennon & Kennon (1997) FLC 92-757.
Conclusion
The property order I will make has regard to all of the matters which I have mentioned.
I certify that the preceding two hundred and fifty eight (258) paragraphs are a true copy of the reasons for judgment of the Honourable Justice O’Reilly
Associate:
Date: 14 May 2010