Jensen v Ray

[2011] NSWCA 247

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Jensen v Ray [2011] NSWCA 247

Hearing dates:

17 March 2011

Decision date:

01 September 2011

Before:

Campbell JA, Sackville AJA and Brereton J

Decision:

1. Order that the appeal be allowed.

2. Order that the orders made by the District Court on 25 February 2010 be set aside, and in lieu thereof:

2.1 Order pursuant to (NSW) Property (Relationships) Act, s 20, by way of adjustment of property interests, that the property situate at and known as 21 St Elmo Street, Blackheath be sold in accordance with the provisions of the Schedule ("the Sale") and the proceeds applied as follows:

(1) First, in payment of all costs and expenses of the Sale, including legal costs and disbursements, agent's commission, and auction fees, including reimbursement to the defendant of any amount she may be required to advance for advertising;

(2) Secondly, in payment of any outstanding Council and Water Rates;

(3) Thirdly, to discharge of the mortgage to St George Bank Limited;

(4) Fourthly, in payment to the plaintiff of $22,000;

(5) Fifthly, in distribution of the residue, as to 91% thereof plus $3,590 to the defendant, and the balance to the plaintiff;

and that each of the parties otherwise be and remain entitled to the exclusion of the other to all personal property now in that respective party's possession or name.

2.2 Order that the defendant pay the plaintiff's costs, fixed in the sum of $15,000.

3. Order that the respondent pay the appellant's costs of the appeal, and that the respondent if otherwise qualified be granted an indemnity certificate under the Suitors Fund Act, s 6.

Catchwords:

APPEAL - Appeal from judgment of District Court in Property (Relationships) Act 1984 (NSW) s 20 matter - appeal as of right restricted to matter at issue amounting to $100,000 or more, or claim demand or question amounting to $100,000 or more - value of matter at issue determined by whether realistic prospect of changing wealth of party by at least $100,000.
FAMILY LAW - de facto relationships - property - division of assets and adjustment of interests - contributions - failure to apply ratio of contribution of the parties to the net assets - whether open to allocate no property to partner found to have made 40% of contributions - balancing initial and ongoing contributions - treatment of tax debt in calculating liabilities incurred during relationship - both parties to relationship receive benefits of unpaid tax - tax debt treated as liability to be borne by divisible property - duty to finally determine financial relationships between the parties under Property (Relationships) Act 1984 (NSW), s 19 - judge at first instance left party with rights to recover contribution for mortgage debt against other - practicable to end parties' financial relationship - evaluation of contributions of parties fails to correctly assess initial contribution - ongoing contributions weighed with initial contribution result in just and equitable apportionment of totality of contributions of 80:20 in favour of respondent.
COSTS - Appeal substantially successful - costs of proceedings at first instance - starting point that costs should follow the event in de facto relationship cases unless court adjusts interests of parties of a value or amount not in excess of jurisdictional limit of Local Court - costs for first instance proceedings should be proportionate to adjustment of interests in context of amount in issue.

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 98
District Court Act 1973 (NSW), s 127, s 134
Judiciary Act 1903 (Cth), s 35
Local Court Act 2007 (NSW), s 29
Property Relationships Act 1984 (NSW), s 19, s 20
Suitors Fund Act 1951 (NSW), s 6
Supreme Court Act 1970 (NSW), s 101
Uniform Civil Procedure Rules 2005 (NSW), r 42.30, r 51.22, r 51.41

Cases Cited:

Aroona Developments Pty Ltd (In Liq) v Killen (2004) 50 ACSR 668
Blackmore v Browne; Kara Kar Holdings Pty Ltd v Blackmore [2011] NSWCA 114
Bilous v Mudaliar [2006] NSWCA 38; (2006) 65 NSWLR 615
Dunn v Ross Lamb Motors and Another [1978] 1 NSWLR 26
Dunstan v Rickwood (No 2) [2007] NSWCA 266; (2007) 38 Fam LR 491
Gillard v Hunter Wire Products Pty Ltd (No 2) [2001] NSWCA 450
In the Marriage of LA and EA Pierce (1998) 24 Fam LR 377
Kardos v Sarbutt [2006] NSWCA 11; (2006) 34 Fam LR 550
Kardos v Sarbutt (No 2) [2006] NSWCA 206
Moller v Roy (1975) 132 CLR 622
Muldoon v Church of England Homes [2011] NSWCA 46
Pegela Pty Ltd v Oates [2010] NSWCA 186
Peter Hansen v Slattery Transport (NSW) Pty Ltd [2011] NSWCA 193
Sharpless v McKibbin [2007] NSWSC 1498; (2008) DFC 95-414
Trustee of the property of G Lemnos (a bankrupt) v Lemnos (2009) 41 Fam LR 120
Vitali v Stachnik [2001] NSWSC 408; (2001) DFC 95-235

Category:

Principal judgment

Parties:

Stefan Jensen (appellant)
Rhonda Ann Bernadette Ray (respondent)

Representation:

Counsel:
D Alexander (appellant)
P Menadue (respondent)
Solicitors:
Benetatos White (appellant)
A J Law & Co (respondent)

File Number(s):

2010/78137

 Decision under appeal 

Jurisdiction:

9101

Date of Decision:

2010-02-25 00:00:00

Before:

Delaney DCJ

File Number(s):

210/09

Judgment

1. CAMPBELL JA: I agree with Brereton J.

1. SACKVILLE AJA: I agree with Brereton J.

1. BRERETON J : The appellant Stefan Jensen, who was born on 27 October 1956, and the respondent Rhonda Ann Bernadette Ray, who was born on 12 November 1958, commenced to cohabit in 1990 and finally separated, after a domestic relationship of some 17 years, in July 2007. At the end of their relationship, their accumulated net property amounted to about $134,000, including a property at Blackheath (worth $230,000 but encumbered by a mortgage securing a loan of $100,000), of which Ms Ray had been the owner since before the commencement of the relationship (when it was worth $70,000 and unencumbered). Their relationship involved a traditional division of labour, with Ms Ray the homemaker, while Mr Jensen generated almost all the income required to support the parties. In proceedings brought by Mr Jensen for an adjustment of property interests under Property (Relationships) Act 1984 (NSW), s 20, Delaney DCJ, on 17 December 2009, although finding that Ms Ray had made 60% and Mr Jensen 40% of the contributions under s 20 during the relationship, dismissed the application and, on 25 February 2010, declared Ms Ray to be the sole proprietor of the Blackheath property and ordered Mr Jensen to give her vacant possession of it within 28 days, to pay her $3,590 on account of outstanding rates incurred while he was in occupation after separation, and to pay her costs assessed in the sum of $24,422.

1. From that judgment, Mr Jensen appeals to this court, his principal contention being that, having found him to have made 40% of the contributions under s 20, it was not open to the primary judge to allocate none at all of the divisible property to him. During the hearing of the appeal, Ms Ray was granted leave to file a notice of contention, to the effect that his Honour's evaluation of the contributions at 60:40 failed sufficiently to recognise her initial contributions. In my opinion, for the reasons set out below:

(1)   The appeal is competent, but if it were not I would grant leave to appeal;

(2) Whether or not his Honour's evaluation of the contributions at 60:40 in favour of Ms Ray was intended to encompass all relevant contributions, or only those made during the relationship apart from the initial contributions, it was not open to his Honour then to allocate to Mr Jensen none of the divisible property, as to do so involved entirely disregarding significant contributions made by him under, at least, s 20(1)(b) of the Act.

(3)   The primary judge also erred in the manner in which Mr Jensen's taxation debt was treated, and in failing to make orders that would finally determine the financial relationship of the parties.

(4) This court can and should substitute its own judgment for that of the primary judge. An apportionment of the totality of the contributions 60:40 in favour of Ms Ray would so insufficiently recognise the significance of her initial contributions as to be beyond the range of a reasonable exercise of discretion. A just and equitable overall apportionment of the totality of the contributions under s 20(1)(a) and (b), initial and ongoing during the relationship, would be 80:20 in favour of Ms Ray.

(5)   In order to give effect to that conclusion and finalise the financial relationship of the parties, the Blackheath property should be sold, the mortgage discharged, the credit card debt repaid, Ms Ray reimbursed for the outstanding rates, and the balance distributed between the parties to give effect to an overall 80:20 division of their property.

Is the appeal competent?

1. A threshold question is whether the appeal, brought purportedly as of right, is competent, and, if not, whether leave to appeal should be granted on an application made orally at the hearing when the question of competence was first raised.

1. Under (NSW) District Court Act 1973, s 127(2), an appeal from a judgment or order "in an action" lies to the Supreme Court only by leave of the Supreme Court in the case of, inter alia :

(c) an appeal from a final judgment or order, other than an appeal:

(i) that involves a matter at issue amounting to or of the value of $100,000 or more, or

(ii) that involves (directly or indirectly) any claim, demand or question to or respecting any property or civil right amounting to or of the value of $100,000 or more

1. An "action" in the District Court is defined under the District Court Act as an "action in the Court, but does not include any proceedings under Division 8 of Part 3 or under Part 4". That has the effect of excluding from the definition of "action" proceedings in the equitable jurisdiction of the District Court conferred by District Court Act, s 134 - and it is by s 134(g) that that Court is given "the same jurisdiction as the Supreme Court in proceedings for ... any application under the Property (Relationships) Act 1984". The proceedings at first instance were such an application. However, District Court Act , s 139, provides that Division 7 of Part 3 (which includes s 127) applies to and in respect of proceedings under Subdivision 2 of Division 8 (which includes s 134) in the same way as if they were an action [ see generally Muldoon v Church of England Homes [2011] NSWCA 46] . Accordingly, an appeal lies from an order or judgment of the District Court in such proceedings, but an appeal as of right is restricted , by reference to a specified amount or value: by s 127(2)(c) and (3), an appeal lies from a judgment in such proceedings as of right only if the appeal involves a matter at issue amounting to or of the value of $100,000 or more, or involves (directly or indirectly) any claim, demand or question to or respecting any property or civil right amounting to or of the value of $100,000 or more.

1. Uniform Civil Procedure Rules 2005 (NSW), r 51.22, provides that if an appeal as of right is restricted by any Act by reference to a specified amount or value, the appellant on filing the notice of appeal must file and serve an affidavit that identifies the nature of the restriction and sets out the material facts on which the appellant relies to show that the restriction does not apply. UCPR, r 51.41, provides that a respondent who objects to the competency of appeal must by notice of motion filed and served on all other parties to the appeal within 28 days after service of the notice of appeal apply for an order dismissing the appeal as incompetent, and otherwise is not entitled to costs of the appeal if the appeal is nonetheless dismissed as incompetent, unless the court otherwise orders. Mr Jensen filed no affidavit complying with UCPR, r 51.22. Ms Ray filed no motion complying with UCPR, r 51.41. The court raised at the outset of the hearing of the appeal whether it should nonetheless be struck out as incompetent. For Mr Jensen, it was submitted that, notwithstanding the omission to comply with r 51.22, the appeal was in fact competent, on the alternative bases that: (a) it involved a matter at issue amounting to or of the value of $100,000 or more, within s 127(2)(c)(i); and/or (b) it involved a claim ... or question to or respecting ... property ... amounting to or of the value of $100,000 or more, within s 127(2)(c)(ii). In the alternative, it was indicated that leave to appeal would if necessary be sought.

1. Under the first limb of s 127(2)(c), the determinative factor is not the amount of the judgment, nor the amount of the original claim, but the value of the matter at issue in the appeal [ Dunn v Ross Lamb Motors and Another [1978] 1 NSWLR 26, 28] . Reference was made to Aroona Developments Pty Ltd (in liq) v Killen (2004) 50 ACSR 668, in which the relevant provision was the corresponding provision in (NSW) Supreme Court Act 1970, s 101(2)(r), which provides that an appeal lies only by leave of the Court of Appeal from:

(r) a final judgment or order in proceedings of the Court, other than an appeal:

(i) that involves a matter at issue amounting to or of the value of $100,000 or more, or

(ii) that involves (directly or indirectly) any claim, demand or question to or respecting any property or civil right amounting to or of the value of $100,000 or more.

1. Ipp JA, with reference to authorities on the construction of Judiciary Act 1903 (Cth), s 35, held that it was the amount of the judgment that was relevant, apparently treating each of the limbs as governing the words "a final judgment or order in proceedings of the court", rather than the words "other than an appeal", on the basis that the words "other than an appeal" qualified the words "in proceedings of the court". However, as Campbell JA has recently pointed out in Blackmore v Browne; Kara Kar Holdings Pty Ltd v Blackmore [2011] NSWCA 114 (at [31]-[32]), there are material differences between the tests under s 101(2)(r) and those under the pre-1984 versions of Judiciary Act , s 35; and as Basten JA has since observed in Peter Hansen v Slattery Transport (NSW) Pty Ltd [2011] NSWCA 193 (at [2]) , it is not helpful to turn to the authorities under Judiciary Act , s 35 for assistance, the language of the statute being different . And whatever the position in respect of s 101(2)(r), the words "in proceedings of the court" do not appear in District Court Act , s 127(2)(c), in respect of which it is manifest that both limbs govern, and can govern only, the words "other than an appeal". Accordingly, under this form of the legislation, it is the amount in issue in the appeal - and not the amount of the judgment at first instance - that is relevant (the position was otherwise under Judiciary Act , s 35 , as considered in Moller v Roy (1975) 132 CLR 622, 625 (Barwick CJ); cf Aroona , [24]).

1. Usually, issues are determined by and ascertained from the pleadings or, in the case of appellate proceedings, the notice of appeal. However, in Gillard v Hunter Wire Products Pty Ltd (No 2) [2001] NSWCA 450, Priestley JA and Sperling J rejected the submission that the amount "at issue" on appeal meant no more than whatever variation from the judgment below might be claimed on appeal - since were that so an appellant could create an appeal as of right merely by claiming $100,000 more or less than had been awarded at trial, irrespective of merit - and said:

[11] ...The phrase "at issue" must be construed as meaning truly at issue or, inversely, not unrealistically at issue.

[12] It follows that an appellant, appealing against quantum of damages, has an appeal as of right if there is a realistic prospect of changing the result by $100,000 or more. Otherwise leave is required.

1. In Pegela Pty Ltd v Oates [2010] NSWCA 186, Young JA, with whom Allsop P and McColl JA agreed, applied Gillard to hold that an appeal involved a "matter at issue" for the purposes of District Court Act , s 127(2)(c)(i), if there was a realistic prospect that the appeal would change the wealth of the appealing party by more than $100,000, it being the realistic worth of the claim that must exceed $100,000, rather than the property the subject of the claim.

1. By his notice of appeal, Mr Jensen sought to have the orders of the District Court set aside, and the matter remitted for a new trial. By his statement of claim in the District Court, which continues formally to describe his claim, he sought an order for the sale of the Blackheath property, the discharge of the mortgage and his personal liabilities, and the payment to him of half of the net proceeds. Leaving aside his personal liabilities, this would have resulted in him: (1) being freed of his share of liability for the mortgage debt (about $50,000); and (2) in addition, receiving from Ms Ray about $65,000. By way of contrast, the orders of the District Court left him liable for the mortgage (albeit with a right of contribution against Ms Ray for half), and subject to an obligation to pay her $3,590. The difference in his wealth between those two positions is in excess of $118,000, which exceeds the $100,000 threshold.

1. Before this court, however, Mr Alexander for Mr Jensen accepted that the best result for which he could realistically contend - and which he sought by way of substituted judgment in this court - was 40% of the net proceeds of the Blackheath property, after discharge of the mortgage. That would result in his being freed from the mortgage, and receiving $52,000. Compared to the result of the primary judge's orders, it would represent an overall improvement in his position of $105,590 - again exceeding the $100,000 threshold. As the primary judge had found that the contributions were to be apportioned 40% to Mr Jensen, it cannot be said that that position was not a reasonably arguable one. As will appear, ultimately I have reached the conclusion that the appropriate order on appeal will not make a difference of as much as $100,000 in the wealth of either party. But that is not to say that such a position was not reasonably arguable or realistic. In my view, as a matter of substance, the requirements of s 127(2)(c)(i) were satisfied.

1. It follows that in my opinion, the appeal was competent. Had it not been, nonetheless, given the absence of a timely or any notice under UCPR r 51.41, and the substantive merits of the appeal addressed below, I would not have dismissed the appeal as incompetent, but if necessary would have granted leave to appeal.

The judgment at first instance

1. In his Honour's judgment of 17 December 2009, the primary judge:

• On grounds which, of themselves, would be unexceptionable on appeal, expressed a preference for Ms Ray's evidence as the more reliable, "so far as is necessary to determine in this case, where there is a difference in the recollection of events" of the respective parties;
• Correctly stated the three steps in the exercise of jurisdiction under s 20, namely, first, identification and valuation of the property of the parties; secondly, identification and valuation of the respective contributions of the parties of the types referred to in s 20; and thirdly, determination of what if any order is just and equitable having regard to those contributions;
• Found that, at the beginning of the relationship, Ms Ray owned the Blackheath property, some household furniture, personal effects, a boat and outboard motor, in all worth $106,000, with no liabilities; while Mr Jensen had a vehicle worth about $100, some superannuation rights in Denmark of unknown value and some investments of unknown value;
• Found that during the relationship Mr Jensen worked as a tiler and used his income for household expenses, gambling and his own personal use and enjoyment, and that Ms Ray was not in paid employment during the relationship, so that Mr Jensen was the sole income earner; and apparently accepted that Mr Jensen also made some non-financial contributions by way of repairs and improvements to the property, though assessing these to be not of high quality nor of much significance;

• Found that Ms Ray provided non-financial contributions of a substantial degree through doing the cooking, washing, and ironing, while Mr Jensen did little if anything, and that she also provided administrative assistance and support in connection with the tiling business;
• Found that Ms Ray was never apprised of the income Mr Jensen received from his business, and did not know and was never aware that he had not paid his tax or filed a taxation return, or even - until around 2006 or 2007 - that he owed money to the Commissioner of Taxation, but that under significant pressure she agreed to his request to borrow money on the security of the Blackheath property to discharge his tax and other debts.

1. In evaluating the respective contributions of the parties, his Honour said:

In my opinion, when considering and weighing up the contributions of all kinds referred to in s 20(1)(a) and (b) of the Property (Relationships) Act the contributions both financial and non-financial favour the defendant and not the plaintiff. I am satisfied that they favour the defendant by a factor of 60/40.

1. Notwithstanding that conclusion as to the contributions, his Honour rejected Mr Jensen's claim to any of the property:

The asset situation had altered at the time of separation in 2007 because the defendant's house had been mortgaged to the extent of $100,000. That remains the case at the date of trial. But so far as debts are concerned, the plaintiff has incurred more debts: more debts to the Taxation Office, more debts on his credit card, more debts the aetiology of which is not explained. ... The court has to be satisfied on the balance of probabilities that the overall contributions of the type referred to in s 20 are such that it is fair and just that there should be an adjustment of those contributions in favour of an applicant for such alteration of assets.

...

I am satisfied that any increase in value of the premises at Blackheath ... should not lead to adjustment to the plaintiff for that period of two years that he has been in possession of the property.

... it is quite clear that if the property was sold at this point of time, as the plaintiff desires, that it is likely the defendant would suffer a significant additional loss of her assets and it is clear that that course, in the way in which it is sought to be imposed upon her by the plaintiff, should not be countenanced.

... In my opinion, when considering the principles in Evans v Marmont (1997) 42 NSWLR 70 the correct approach to this application for an adjustment of property interests by the plaintiff is that the application should be refused and I accordingly refuse the application ...

1. Turning to Ms Ray's cross-claim, in which she had sought orders to the effect that Mr Jensen vacate the Blackheath property, discharge the mortgage affecting it, and pay the outstanding rates incurred in respect of it during his post-separation occupation, his Honour said that he proposed to adjourn briefly to enable counsel to obtain instructions about the following:

Whether or not in the circumstances Ms Ray wishes me to make any orders in relation to the adjustment of property interests in that she wishes me to order the sale of the property at some time in the future, knowing that that will mean that all she will get is the balance between the current value of that property and the amount that has to be repaid to the bank, or whether or not she wishes to be left with such rights as she might have at law, namely to take proceedings in the Consumer Trader and Tenancy Tribunal to have Mr Jensen removed from the premises so that she can re-enter those premises and live there and take the steps to reconstitute it and sell it at her leisure, and take such steps as she might be advised about recovering from Mr Jensen at law as a debt the amount that she says he owes in relation to the mortgage debt that has been run up on this property.

Those are matters of significant relevance to whether or not I should at this stage make in Ms Ray's favour any order for adjustment of property interests because it seems to me that any such order I do make now on the evidence before me would be of a type which perhaps might not necessarily be in her interests.

1. On the resumption of the hearing, his Honour adjourned Ms Ray's cross-claim part heard. On 25 February 2010, his Honour made orders to the following effect:

1. That within 21 days Mr Jensen pay to Ms Ray the sum of $3,590.52 (which corresponded with outstanding rates in respect of the property).

2. That Ms Ray be declared the sole owner of the Blackheath property and entitled to possession thereof noting that the plaintiff will vacate possession within 28 days.

3. That Mr Jensen pay Ms Ray's costs assessed in the sum of $24,422.40.

The appeal

1. In substance, Mr Jensen's complaints were that:

(1) A result that left Mr Jensen with none of the divisible property was manifestly outside the generous ambit of the discretion conferred by s 20 (grounds 1, 3 and 4).

(2)   In particular, having found that he had made 40% of the contributions during the relationship, it was not open to the trial judge to leave him with none of the divisible pool of property (ground 5).

(3)   The primary judge erred in treating Mr Jensen's tax debt as if it were exclusively his own responsibility and not to be deducted from the divisible property of the parties (ground 2).

(4) The primary judged erred by failing to finally determine the financial relationship between the parties as required by s 19 (ground 6)

1. By leave granted at the hearing of the appeal, Ms Ray filed a notice of contention, to the effect that if his Honour had indeed evaluated the whole of the respective contributions of the parties within s 20 as being in proportions 60:40, that was erroneous, and his Honour ought to have evaluated the whole of the respective contributions of the parties within s 20 in proportions more favourable to Ms Ray than 60:40.

Contribution issues: appeal grounds 1, 3, 4 and 5; notice of contention

1. Although articulated in several different ways, the central proposition in Mr Jensen's argument was that, having found that the contributions within s 20 were in the proportion 60/40 in favour of Ms Ray, it was not open to his Honour to leave Mr Jensen with none of the divisible property, let alone still burdened by his share of the mortgage debt. In response to this apparently compelling submission, Mr Menadue for Ms Ray argued that, properly construed, his Honour's 60/40 conclusion related only to the contributions made during - that is to say, after the commencement of the relationship, and was not intended to include Ms Ray's initial contribution of the Blackheath property.

1. His Honour's conclusion, set out above, was expressed in terms that convey that it involved "the contributions of all kinds referred to in s 20". On its face, it is an evaluation of all the relevant contributions for the purposes of s 20, both initial and ongoing. Mr Menadue's contrary submission, however, is not without force. First, it is very difficult to understand how his Honour could have reached his ultimate conclusion - that Mr Jensen should receive none of the property - in the face of a finding that Mr Jensen had made 40% of the contributions overall. Secondly, the structure of the judgment is that his Honour first identified the property of the parties at the commencement of cohabitation; then considered their respective contributions during the relationship, culminating in the conclusion that those contributions were made in proportions 60/40; and finally addressed what order should be made. While this may betray a misapprehension of the conventional three-step approach - particularly in respect of the first step (as what must be identified and valued in that step is the divisible property of the parties, typically at the date of hearing though sometimes at the end of the relationship, not their initial property), it better explains the result ultimately reached. Put another way, his Honour may have concluded that the balance of contributions after commencement of the relationship was not such as to justify requiring Ms Ray to make over to Mr Jensen any of the property she had introduced at its outset.

1. However, even on that reading of his Honour's judgment, a result that left Mr Jensen with none of the divisible property, having made 40% of the ongoing contributions during the relationship, could not be sustained. Undoubtedly, Ms Ray's initial contribution of the Blackheath property, which was worth $230,000 by the date of hearing, was of great significance. But the contributions made during the relationship were also of significance; even if they did not result in the acquisition, conservation or improvement of property, the ongoing support of the couple over a period of 17 years, financial (by Mr Jensen) and non-financial (by Ms Ray), are relevant contributions under s 20(1)(b) to the welfare of each other, and are not entirely deprived of significance by Ms Ray's substantial initial contribution of the Blackheath property.

1. It is well established that the significance of a large initial contribution by one party at the outset of a relationship is ordinarily progressively diminished - or "eroded" - by the ongoing and offsetting contributions during the relationship of the other or, in this case, both [see Kardos v Sarbutt [2006] NSWCA 11; (2006) 34 Fam LR 550; and Bilous v Mudaliar [2006] NSWCA 38; (2006) 65 NSWLR 615]. As Mr Alexander submitted, despite the apparent controversy, there is no substantial underlying difference between those cases, as I endeavoured to explain in Sharpless v McKibbin [2007] NSWSC 1498, (2008) DFC 95-414 , [75]-[85]. The point of Kardos v Sarbutt was that it is not a rule of general application that increases in value of assets introduced at the outset should be apportioned 50/50 between the partners, but that the apportioning of increments in value depended on the circumstances; in Bilous, Ipp JA expressed agreement with Kardos insofar as it stood for that proposition [ Bilous, [59]]. The point of Bilous was that increases in the value of assets initially contributed by one party should not invariably be regarded as entirely a contribution by that party, and where an initial contribution had been made by one party, the other bore no onus to prove that the initial contribution should be "eroded" [ Bilous, [48]-[49], [55], [62]]. As Ipp JA concluded:

[63] Determinations as to what orders should be made under s 20 are to be made solely on the grounds of the justice and equity of the case. The justice and equity of the case may derive from the fact that the party who owns the family home or other property was able to retain that property, while the market value increased, because "of joint efforts of wage earning, homemaking and parenting, and mutual support". In some instances the non-financial contributions of one party may result in property of the kind in question not having to be sold. In other instances, the non-financial contributions of one partner may allow the other to advance his or her career and earn a high income that enables the property in question to be maintained and retained. Thus, an increment in capital value may well result, indirectly, from "joint efforts of wage earning, homemaking and parenting, and mutual support".

1. This statement is entirely consistent with the approach described in the judgment of the Full Court of the Family Court (Ellis, Baker and O'Ryan JJ) in In the Marriage of CA and EA Pierce (1998) 24 Fam LR 377, (1998) FLC 92-844:

[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: see also Campo and Campo (Full Court, Sydney, 19 May 1995, unreported) at pp 21-2 of the joint judgment of Ellis, Lindenmayer and Finn JJ and Zahra and Zahra (Full Court, Sydney, 3 October 1996, unreported) per Ellis J at p 10.

1. Ultimately, it is a question of weighing the initial contributions of a party with all other relevant contributions to achieve a just and equitable result, the nature and the source of the property and the manner in which it has been used during the relationship being material considerations. This will typically involve one party being regarded as having contributed to the improvement or conservation of an asset initially introduced by the other, but in a lesser proportion than that first party's overall contributions to the relationship: usually it is neither appropriate that any increment in value of an asset introduced exclusively by one party be equally shared between the parties, nor that it be wholly attributed to the party who introduced it; the answer will typically lie somewhere in between. In deciding where within that range it lies, not only the nature, value and source of the property and the manner in which it was being used during the relationship are material; so too are the quantum and quality of the offsetting contributions made during the relationship; the composition of the pool of assets at the time of hearing and in particular the extent to which they reflect those initially introduced; and whether any accretions to capital were attributable to contributions made during the relationship [ cf Sharpless v McKibbin, [86]].

1. In order to reach the conclusion that his Honour did, it would have been necessary totally to disregard the contributions made by Mr Jensen during cohabitation. Whatever their quantification - to which I shall come later - they were not, over a period of 17 years, so slight that they could entirely be disregarded; indeed the 40% finding, to whatever it applied, demonstrates as much. A result that left Mr Jensen with none of the property could not sit with a finding that he had made 40% of the contributions, even if limited to those made during the relationship; such a result could be reached only by failing to take into account his contributions as required by s 20.

1. Accordingly, whether or not his Honour's apportionment of the contributions 60:40 in favour of Ms Ray was intended to encompass all relevant contributions, or only those made during the relationship apart from the initial contributions, it was not open to his Honour then to leave Mr Jensen with none of the divisible property, as to do so involved entirely disregarding significant contributions made by him under, at least, s 20(1)(b) of the Act.

1. These grounds of appeal are, in substance, therefore, established. Against the prospect of such a conclusion, Ms Ray contended that an evaluation of the whole of the respective contributions of the parties within s 20 as being in proportions 60/40 was erroneous, and the evaluation should have been more favourable to Ms Ray. Such a contention could have resulted in the judgment being affirmed only if the proper conclusion were that Ms Ray had made all and Mr Jensen none of the relevant contributions, and, for the reasons already advanced, such a conclusion was not open. However, short of that, establishing that an apportionment more favourable to Ms Ray than 60/40 was appropriate would affect any re-exercise by this court of the primary judge's discretion, and to that I return below.

The tax debt: appeal ground 2

1. Shortly before separation, Ms Ray - at Mr Jensen's request - mortgaged the Blackheath property to raise a loan of $100,000, primarily for the purpose of enabling Mr Jensen to pay an outstanding income tax debt to the Australian Taxation Office. He had been delinquent in the lodgement of taxation returns, and as a result incurred a substantial tax debt, initially in the order of $100,000; he negotiated with the Tax Office to accept $85,000, which involved remission of at least part of the general interest charge accrued in respect of the debt.

1. The primary judge found that Ms Ray did not know and was never aware that he had not paid his tax or filed a taxation return, or even - until around 2006 or 2007 - that he owed money to the Commissioner of Taxation. His Honour rejected Mr Jensen's contention that she knew all along that he had not paid his taxes and was complicit in it, in that she obtained a financial benefit by him having more money available by not paying his taxes, observing "In my opinion, this was an outrageous and bizarre suggestion not accepted by the defendant and in my opinion, untruthful". Mr Jensen contends that this response was erroneous.

1. The treatment of taxation liabilities in this type of situation not uncommonly arises in proceedings for matrimonial property adjustment. The conventional approach is that at least the primary tax - which ought to have been paid promptly, but the deferral of which was in the meantime for the benefit of both parties - is treated as the responsibility of both; while treatment of any penalties varies, so that where the tax evasion has been the frolic of one party unknown to the other, then the penalty tax may - but is not invariably - left to be borne by that party. This approach is illustrated by Trustee of the property of G Lemnos (a bankrupt) v Lemnos (2009) 41 Fam LR 120, where Thrackray and Ryan JJ said (at 164-5) :

[240] His Honour concluded (in [88] of his reasons) that the husband had been "reckless and negligent" in the way in which he had completed his taxation returns and that the wife had not been complicit in the filing of those returns. On that basis, and apparently that alone, he concluded (at [89]) that the husband should satisfy the entire taxation liability from his own resources. His Honour invoked the "waste" principles enunciated in In the Marriage of Kowaliw (1981) FLC 91-092 ( Kowaliw ) to support his ruling.

[241] There was no challenge to his Honour's finding that the husband had been "reckless and negligent" in the way he had completed his income tax returns. Nor was there any challenge to the finding that the wife had not been complicit in the husband's conduct. We do not, however, see how these findings could form a sufficient base for determining that the husband (or the trustee) should be solely responsible not only for the interest, penalties and costs that were incurred as a result of his behaviour, but also that he (or the trustee) should be entirely responsible for the primary tax that would have been payable had the husband completed his taxation returns properly.

...

[243] We are unable to accept that the husband's conduct came within either of the exceptions to the general principle enunciated in Kowaliw . This was not a case in which the husband's conduct was designed to diminish the value of the matrimonial assets. On the contrary, the husband's actions were designed to increase the matrimonial assets. Although we have not been persuaded that the husband could never have retained the former matrimonial home without the benefit flowing from the deductions, it was not suggested that the deductions had not assisted him to do so. Having had the benefit of the funds flowing from the husband's conduct, it would seem to us to be neither just nor equitable for the wife to escape all responsibility for payment of the primary tax that would otherwise have been paid.

[244] In coming to this decision, we respectfully adopt the views expressed in Johnson v Johnson (No 1) (1999) 26 Fam LR 475; [1999] FamCA 369 ( Johnson ) where Ellis, Kay and Dessau JJ said:

20.4 We are of the view that his Honour's discretion miscarried when he failed to provide for the wife to share in any penalties that may be imposed by the taxation commissioner.

20.5 In our view the fact that the wife was or was not involved in the tax avoidance process which may lead to the imposition of penalties was only one consideration that his Honour needed to weigh up when determining liability for the penalties as between the parties. The benefits indirectly gained by the wife in having the pool of assets otherwise increased as a result of the availability of funds which would otherwise have been paid out in tax also have to be considered.

20.6 In the context of an examination of 20 years of financial dealings by the parties, which dealings were almost entirely within the province of the husband, in our view, unless there were compelling circumstances to the contrary, a just outcome demanded that the wife take the good with the bad. While there is a sense of culpability about the penalties, they represent no more in this case than an outgoing incurred in creating the asset pool.

20.7 In coming to this view, we would underline the fact that the parties' fortunes were gained and lost within a volatile trading structure. It is to be remembered that the assets for distribution in their property settlement were built up after the husband's business collapse. Absent any suggestion that the husband was on a frolic of his own and acting contrary to the wife's express wishes, we see no reason for his Honour to have left the husband to shoulder the burden of the tax penalties.

[245] The views expressed in Johnson relate to allocation of responsibility for income taxation penalties . Although in the instant case it is accepted the husband was "on a frolic of his own" we do not accept that the wife's lack of knowledge or complicity in the husband's wrongful deductions is determinative of whether she should ultimately share responsibility for the payment of primary taxation on his income earned during the marriage. In our view, to adopt their Honours' description, the proposition that spouses should generally "take the good with the bad" has even more force when applied to allocation of responsibility for primary taxation.

[246] We do not suggest that the "principle" identified in Johnson is of universal application. The Full Court itself allowed for the possibility of "compelling circumstances" leading to a different outcome. In this matter, however, the trial judge appears to have given no consideration to the significance of the fact that the wife had undoubtedly enjoyed the benefits flowing from the income taxation deductions. This was, in our view, a necessary matter for his Honour to have considered alongside his finding that the wife was not complicit in the husband's conduct.

1. Coleman J said:

[180] While it is unnecessary for me to speculate, I perceive that his Honour may, with respect to him, have given disproportionate weight to the "innocence" of the wife in relation to the husband's taxation indiscretions and thereby failed to have regard to the nature of the husband's indebtedness, how it arose, and how the wife must have been benefited by that. That impression is reinforced by his Honour's statement that, even if, contrary to his finding, the parties could not have acquired W property but for the husband's taxation indiscretions, he would have nevertheless made the order he did given the absence of any complicity of the wife in such indiscretions. As I have earlier observed, a finding in those terms would have had a significant adverse or possibly fatal impact on the wife's contribution based entitlement.

1. It will be observed that, in Johnson , where the wife was complicit in the husband's taxation delinquencies, the penalty tax as well as the primary tax was borne by the divisible pool. In Lemnos , where it was accepted that the husband had been "on a frolic of his own", he was left to bear the penalties, but the primary tax was charged against the pool.

1. In the present case, as part of the interest charge was remitted, as there is no evidence that any penalty tax was imposed, and as the total tax debt bears a reasonable proportion to Mr Jensen's belatedly declared income over the years to which it relates, it is reasonable to conclude that the tax debt did not include any penalty tax component. Moreover, although the trial judge found that Ms Ray had no knowledge at all of Mr Jensen's taxation position, this finding cannot stand with Ms Ray's admissions, in her affidavit evidence, that she knew that Mr Jensen received cash from some jobs which was not declared to the Australian Taxation Office, and that he was behind in his tax payments.

1. As Mr Jensen's income provided the financial support for the parties during the period when he was not paying tax, his tax liability should be treated as a liability to be borne by the divisible property. In essence, both parties received the benefit of the moneys, until they were paid to the Tax Office. In my opinion, the primary judge was wrong to reject this approach, urged on him at the hearing; it was an orthodox one.

1. Accordingly, appeal ground 2 is established. Its practical consequence is that the mortgage debt, which is the present reflection of the tax debt, must be charged against the divisible pool.

Finality: appeal ground 6

1. Property (Relationships) Act, s 19, provides as follows:

In proceedings for an order under this Part, a court shall, so far as is practicable, make such orders as will finally determine the financial relationships between the parties to a domestic relationship and avoid further proceedings between them.

1. The orders made by the primary judge not only left the parties as joint debtors in respect of the loan secured by mortgage on Ms Ray's Blackheath property, making no provision for one to indemnify the other in respect of liability for that debt, but expressly envisaged that Ms Ray might subsequently bring proceedings at law against Mr Jensen to recover the amount of the mortgage debt [Judgment, p14]. At least ordinarily, consistent with s 19, such issues should be resolved in the property adjustment proceedings [ Vitali v Stachnik [2001] NSWSC 408; (2001) 28 Fam LR 142 ; (2001) DFC 95-235 (Barrett J), [44]-[49]].

1. While the court's duty under s 19 is qualified by the words "so far as practicable", it was practicable in this case to end the parties' financial relationship, if not by a sale of the Blackheath property, then at least by an order requiring one party to indemnify the other. The orders at first instance left the parties in an ongoing financial relationship, with the contemplation of further litigation.

1. This ground also is established.

Substituted judgment

1. Having concluded that the appeal must succeed, and that the judgment cannot be upheld on the basis of the notice of contention, it is highly desirable that the parties be saved the costs of further litigation and that this court, if it can, substitute its own judgment for that of the primary judge, rather than remit the matter for a new hearing. The parties accepted that this was so. In doing so, this Court while paying due deference to the findings of the primary judge is at liberty to make its own findings and draw its own inferences from the evidence.

1. Although his Honour correctly stated that the first step in consideration of an application under s 20 was to identify and value the property of the parties, his Honour did not, at least explicitly, make findings as to the pool of property available for division. This "first step" requires identification and valuation of the property of the parties available for division, which exercise is usually undertaken as at the date of hearing, although in some cases another more convenient date, such as the date of separation, may be adopted. That exercise is a necessary precondition to the application to the pool of property of the evaluation of the parties' respective contributions.

1. As at the date of the hearing before the primary judge, Ms Ray owned the Blackheath property, worth $230,000 (established by valuation and agreed at the trial); and she also had furniture, fittings and effects worth about $11,000. Mr Jensen had a Holden Rodeo motor vehicle, which he admitted to be worth $5,000; tools of trade worth $5,000; a DVD collection worth $2,000; and a superannuation interest worth about $3,000. Their combined assets therefore totalled $256,000. They were jointly liable in respect of the debt secured by the mortgage on the Blackheath property for about $100,000, and Mr Jensen had credit card liabilities accrued during the relationship of $22,000; he had also incurred additional credit card liabilities after separation, and had not paid rates of $3,590 in respect of the period after separation while he occupied the property.

1. Excluding, from the liabilities to be paid out of the pool, Mr Jensen's additional tax debt of $21,000 in respect of income earned after separation, his post-separation credit card debt, and the rates of $3,590 - as they were incurred for his benefit alone after separation, and should be to his sole account - that leaves liabilities of $122,000 to be charged against the pool. The net divisible pool therefore amounts to $134,000.

1. Although his Honour found the initial contributions of Ms Ray to be in the order of $106,000, and those of Mr Jensen about $100, this involved two material errors. First, the value of the Blackheath property at the commencement of cohabitation was shown by valuation, and agreed at trial, to be $70,000, not $100,000 as accepted by his Honour. Secondly, his Honour apparently did not accept Mr Jensen's evidence that he had the equivalent of $10,000 invested in a Danish bank account, which had been accumulated from his prior military service there, and which he said he contributed to expenditure in connection with the home and household. Notwithstanding some reservations that the judge had about Mr Jensen giving a 'poor impression' as a witness, and the judge's general conclusion that where there was a difference in their respective recollections he preferred Ms Ray's evidence as being the more reliable, the topic of the money invested in a Danish bank account was not one concerning which they had different recollections. Rather, Ms Ray's affidavit listed Mr Jensen's assets at the commencement of the relationship including as FILLIN \* MERGEFORMAT an item 'savings - not known'. Mr Jensen's evidence in this respect was neither contradicted nor challenged, nor inherently incredible, and should have been accepted. Accordingly, the initial contributions were $76,000 as to Ms Ray and $10,100 as to Mr Jensen: in percentage terms, 88:12

1. During the relationship, Mr Jensen was the sole income earner, from his sole-trader business as a tiler. His income tax returns disclose gross income for the ten years from FY 1998/99 to FY 2007/08 of $424,000. The last of these years was almost entirely post separation and amounted to some $70,000, so that his gross income over the last nine years of the relationship was in the order of $350,000. While his Honour rejected Mr Jensen's evidence to that effect - on the basis that the figures were "created after the fact" and unsupported by contemporaneous documents - it was based on and corresponded with his tax returns, and it is inherently improbable that Mr Jensen would overstate his income in his tax returns; that evidence should be accepted. While the evidence did not establish the quantum of Mr Jensen's financial contributions in earlier years, there was evidence that he was working throughout, and based on his gross income of about $350,000 for the last nine years of the relationship, it might not unreasonably be supposed that over the 17 years of the relationship his gross income amounted to not less than about $500,000; in net terms, after provision is made for the tax debt, his income contributions over the relationship totalled not less than about $400,000 (in nominal terms, unadjusted for inflation).

1. Mr Jensen's income contributions did not directly result in the acquisition of property: because Blackheath was unencumbered at the outset, there was no mortgage to pay off. However, to some extent Mr Jensen contributed to the improvement of property by repairs and renovations; and the income he introduced serviced the outgoings, including rates and utilities and any necessary upkeep and maintenance, as well as providing effectively the whole of the financial support for the couple. Mr Jensen also made some non-financial contributions to the conservation and improvement of the property, through the use and application of his trade skills to effect repairs and renovations. On the other hand, some of his income was dissipated in gambling. Nonetheless, a significant portion also was applied to expenditure connected with the relationship, including household expenses, and outgoings and utilities in respect of the property; the evidence does not enable one to say what proportion was so spent, and it is not in the nature of this type of proceeding to descend into a detailed accounting examination of those issues.

1. Ms Ray was the principal and almost exclusive homemaker (although the suggestion that Mr Jensen was entirely uninvolved is denied by her own affidavit evidence that he accompanied her when shopping, and, if she is correct, must have done so on every occasion, because - she says - he paid directly for the shopping, rather than providing her with money to do so). That said, there were only the two partners; there were no children requiring care. While Ms Ray received a pension during the first year or so of the relationship, she otherwise made no direct income contribution. But by providing the Blackheath property as accommodation for the parties, she freed Mr Jensen from having to pay rent, a not insignificant matter. Ms Ray made further non-financial contributions to Mr Jensen's tiling business, by attending to administrative and bookkeeping duties.

1. Thus during the relationship, each made contributions in their more or less discrete fields of responsibility according to the division of responsibility between them. Mr Jensen was "freed" to generate income by the domestic contributions of Ms Ray. In this case, Ms Ray's indirect contribution is accentuated by her non-financial contributions to his business, and by her provision of accommodation for him. In my judgment, Ms Ray's ongoing contributions during the relationship outweighed those of Mr Jensen, mainly because of her provision of accommodation over and above her homemaking contribution, and this justifies a 60/40 apportionment in her favour of the ongoing contributions during the relationship.

1. It remains to balance and weigh the initial contributions with the ongoing contributions. As is typical of these cases, one is required to satisfy out of a pool of property diverse contributions not readily comparable in monetary terms, some financial and others non-financial, the sum of which inevitably exceeds the available property. Contributions to the welfare of the partners under s 20(1)(b), including financial support as well as homemaking, are not inherently inferior to contributions to the acquisition, conservation and improvement of property under s 20(1)(a). A comparison of the inflows shows that in raw monetary terms, the net income contributions (of $400,000) reflecting the joint endeavours of the parties during the relationship considerably exceed the value of the initial contributions (which produced $236,000 on Ms Ray's part - giving full weight to her introduction of the Blackheath property at its present day value - and $10,100 on the part of Mr Jensen). However, the significance of the income contributions is diminished by the circumstance that a significant portion of Mr Jensen's income would, but for the relationship, have been spent on his own living expenses, including rent, in any event; and similarly, Ms Ray would have had to undertake some domestic and homemaking functions including cooking, cleaning and laundry quite apart from the relationship, although for one person rather than for two.

1. Moreover, Ms Ray's initial contribution of the Blackheath property is no doubt primarily responsible for the existence today of any divisible property. Its appreciation in value during the relationship, from $70,000 to $230,000, was not attributable in any large way to ongoing contributions to its improvement during the relationship, but almost entirely to its initial introduction, although some - albeit a very small part - of it must have been attributable to the improvements carried out by Mr Jensen, and in addition, payment of rates, other outgoings, utilities and upkeep and maintenance were funded through the income generated by Mr Jensen, which constitutes a contribution to its "conservation" within s 20(1)(a). The particular use to which Ms Ray's initial contribution of Blackheath was put, its persistent existence to the end of the relationship, and the fact that it provided the home for the parties, accentuates its ongoing significance.

1. In my view, the initial contribution of Blackheath is entitled to very significant relative weight. An apportionment of the totality of the contributions 60:40 in favour of Ms Ray would so insufficiently recognise the significance of her initial contribution as to be beyond the range of a reasonable exercise of discretion. Having regard to the initial contributions which very heavily (88:12) favour Ms Ray, and the on-going contributions during the relationship which also favour her but not nearly so markedly (60:40), a just and equitable overall apportionment of the totality of the contributions under s 20(1)(a) and (b), initial and ongoing during the relationship, would be 80:20 in favour of Ms Ray.

1. It follows that Mr Jensen is entitled, on the basis of his initial and on-going contributions, to 20% of the net divisible pool, which equates to $26,800. Having regard to the assets that he already retains (which total $15,000), that would require that he receive a further $11,800 from the net proceeds of Blackheath (after discharge of the mortgage and his credit card debt), from which he must pay Ms Ray $3,590 for the outstanding rates.

1. However, to avoid any risk that any increase in his credit card debts since separation be visited on the divisible pool, it is preferable to provide for him also to receive from the proceeds the amount requisite to discharge the credit card debt, namely $22,000, and to leave him to repay that debt. In practical terms, this means that from the net proceeds of the Blackheath property after discharge of the mortgage (assumed to be $130,000), (1) Mr Jensen should receive $22,000 by way of repayment of his credit card debt; (2) of the balance he should he should receive $11,800 (which is 9%), from which he must pay Ms Ray $3,590; and (3) Ms Ray should receive the other 91% (plus the $3,590).

1. That would result in the following distribution, reflective of a 20:80 overall apportionment:

Mr Jensen retaining his motor vehicle ($5,000), his tools of trade ($5,000), his DVD collection ($2,000) and his superannuation interest ($3,000), and receiving from the net proceeds of sale a total of $33,800; and he would remain liable for his credit card debt of $22,000 - so that in all he would have notionally received net $26,800 from the divisible pool, less the $3,590 payable to Ms Ray;

Ms Ray retaining her furniture fittings and effects ($11,000) and the balance net proceeds of Blackheath ($96,200), a total of $107,200, plus $3,590 for the rates.

1. As a crosscheck, this returns to each their initial contribution (of $10,000 and $76,000 respectively), and apportions the increment in the value of their property over the relationship (from $86,000 at cohabitation to $134,000 at hearing), 33% (or $16,000) to Mr Jensen and 67% (or $32,000) to Ms Ray. Consistent with the view expressed above, this neither shares the increment in value of an asset introduced exclusively by Ms Ray proportionately to the ongoing contributions made during the relationship, nor attributes it wholly to Ms Ray who introduced it, the result lying appropriately between those positions.

Costs

1. This outcome represents substantial success for Mr Jensen as appellant in the appeal, and Ms Ray must pay his costs of the appeal, but, the appeal having succeeded in respect of discretionary and legal error, she is entitled if otherwise qualified to an indemnity certificate under s 6 of the Suitors Fund Act 1951 (NSW).

1. As to the costs of the proceedings at first instance, the primary judge ordered that Mr Jensen pay Ms Ray's costs, assessed at $24,422.40, on the basis that Mr Jensen as plaintiff had failed and Ms Ray as defendant had succeeded. The basis for that order is removed by the outcome substituted by this judgment.

1. Civil Procedure Act 2005 (NSW), s 98(1), provides that subject to the rules of court, and that or any other Act, costs are in the discretion of the court. UCPR r 42.1 provides that costs should follow the event, unless it appears to the court that some other order should be made as to the whole or any part of the costs.

1. In Dunstan v Rickwood (No 2) [2007] NSWCA 266, (2007) 38 Fam LR 491, the Court (Beazley, Ipp and McColl JJA) disapproved Kardos v Sarbutt (No 2) [2006] NSWCA 206, to the extent that it proposed that, except where one party had been wholly or substantially successful, or had "bettered" its offer of compromise, the starting position in cases under the Property (Relationships) Act should be that each party bear its own costs. As a result, in such proceedings the starting point remains that costs should follow the event.

1. UCPR r 42.30, which applies to proceedings in which the plaintiff claims relief under the Property (Relationships) Act where the court declares a right or adjusts an interest of a value or amount that does not exceed the jurisdictional limit of the Local Court sitting in its General Division, as the limit was when the proceedings were commenced, provides that in such a proceeding the plaintiff is not entitled to payment of his or her costs of the proceeding unless the court orders otherwise. As the question of the proper construction of UCPR 42.30 has not been argued on this appeal, I shall assume, without deciding, the construction of UCPR 42.30 that is most favourable to Ms Ray, namely that the court 'adjusts an interest of a value ... that does not exceed the jurisdictional limit of the Local Court' only if the order actually made effects an adjustment of less value than the jurisdictional limit of the Local Court.

1. When these proceedings were instituted in the District Court, on 6 July 2009, the jurisdictional limit of the Local Court in its General Division was $60,000 [ Local Court Act 2007 (NSW), s 29]. The effect of the order proposed in this judgment is to work an adjustment of interests in favour of Mr Jensen by $83,800 (from property which at law is Ms Ray's, $50,000 will be applied to discharge Mr Jensen's share of the mortgage debt, $22,000 to discharge his credit card debt, and $11,800 settled on him). Accordingly, even on the construction I am assuming, UCPR r 42.30 does not apply, and in accordance with Dunstan v Rickwood (No 2) , the starting point is that costs should follow the event.

1. Is there sufficient reason to depart from that starting point? Although Mr Jensen has not succeeded for the full amount of his claim, his success is not inconsiderable, particularly when it is appreciated that a large aspect of it is discharge of his share of liability under the mortgage debt. Ms Ray's position was that he should not only receive nothing, but also reimburse her for the mortgage debt; so that he had to prosecute the proceedings to gain a result. There is no evidence of any relevant offer. Unconstrained by authority I might well have inclined to the view, expressed in Kardos (No 2) , that in this type of case the costs are, like in a partnership dispute, a necessary incident of separating the interests of the partners and left to lie where they fall; but in the light of Dunstan (No 2) it would be inappropriate to take that course.

1. However, although the measure of the adjustment in favour of Mr Jensen (taking into account the discharge of his share of the mortgage liability and his credit card debt) is $83,800, the practical effect is that he will receive net $26,800 of a net pool of $134,000. A costs order should not have a disproportionate impact on the adjustment of interests given the amount in issue.

1. Mr Jensen's statement of claim was a simple document, the non-formal parts amounting to four pages. The non-formal parts of his defence to cross-claim were less than two pages. His only affidavit amounted to three and a half pages of text. He was represented by his solicitor at the hearing at first instance, which was completed within a day; by an agent to take the reserved judgment; and again by his solicitor when the matter returned to court briefly on 25 February 2010. The trial judge assessed Ms Ray's costs at just under $25,000, and her affidavit material was more extensive than Mr Jensen's.

1. In order to avoid a disproportionate impact on the distribution of the property of the parties, I would cap Mr Jensen's recoverable costs at $15,000.

1. I propose the following orders:

1. Order that the appeal be allowed.

2. Order that the orders made by the District Court on 25 February 2010 be set aside, and in lieu thereof:

2.1 Order pursuant to (NSW) Property (Relationships) Act, s 20, by way of adjustment of property interests, that the property situate at and known as 21 St Elmo Street, Blackheath be sold in accordance with the provisions of the Schedule ("the Sale") and the proceeds applied as follows:

(1)   First, in payment of all costs and expenses of the Sale, including legal costs and disbursements, agent's commission, and auction fees, including reimbursement to the defendant of any amount she may be required to advance for advertising;

(2)   Secondly, in payment of any outstanding Council and Water Rates;

(3)   Thirdly, to discharge of the mortgage to St George Bank Limited;

(4)   Fourthly, in payment to the plaintiff of $22,000;

(5)   Fifthly, in distribution of the residue, as to 91% thereof plus $3,590 to the defendant, and the balance to the plaintiff;

and that each of the parties otherwise be and remain entitled to the exclusion of the other to all personal property now in that respective party's possession or name.

2.2 Order that the defendant pay the plaintiff's costs, fixed in the sum of $15,000.

3. Order that the respondent pay the appellant's costs of the appeal, and that the respondent if otherwise qualified be granted an indemnity certificate under the Suitors Fund Act , s 6.

SCHEDULE

Sale Provisions

1.   The defendant shall, subject to these directions, have the conduct of the sale.

2.   The defendant shall by 31 August 2011 list the Property for sale by public auction with such agent or agents ("the Agent") as, unless the parties otherwise agree in writing, may be appointed by the President for the time being of the Real Estate Institute of New South Wales, the costs of and incidental to such appointment to be borne equally by the parties as and when they fall due.

3.   The defendant shall co-operate in every way with the Agent, including (without limiting the generality of the foregoing) by making a key available to the Agent, allowing inspection of the property at all reasonable times requested by the Agent, doing or saying nothing to hinder or prevent the marketing of the property and a sale being effected, ensuring that the property including the grounds is in a neat and clean condition at the time of inspection by the agent and prospective purchasers; and signing all documents requested by the Agent in relation to the listing for sale of the property except a contract or agreement for sale which has not been authorised by the parties' solicitors.

4.   The auction shall take place not later than 31 October 2011.

5.   The reserve price shall, unless the parties otherwise agree in writing, be $230,000.

6.   The defendant may at any time before the auction, with the written consent of the plaintiff, accept a pre-auction offer.

7.   Each party shall be entitled to bid at the auction.

8.   The parties shall attend at the auction and in the event that the bidding does not reach the reserve price the defendant shall negotiate with the highest bidders and any other interested person and effect a sale for a price not less than a price five percent below the reserve price (or such other price as the parties then agree in writing).

9.   If the property remains unsold after the auction, the defendant shall do all acts and things and sign all documents necessary or convenient to resubmit the property to sale by public auction not later than three months after the auction, at a reserve price which unless otherwise agreed in writing between the parties shall be 10% below that which applied at the previous auction. In respect of such auction, the provisions of this Schedule shall apply mutatis mutandis .

10.   The defendant shall give vacant possession to the purchaser upon completion of the sale.

11.   There be liberty to apply in the event of any difficulty arising in respect of the implementation of the Sale.

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Decision last updated: 01 September 2011