Jervey and Jervey

[2014] FamCA 561

FAMILY COURT OF AUSTRALIA

JERVEY & JERVEY [2014] FamCA 561

FAMILY LAW – PROPERTY SETTLEMENT IN RELATION TO MARRIAGE– Where the husband and the wife are the beneficial co-owners of a property – Where the wife asserts that the husband must account for rent during the period of his sole occupation of the property – Where it is found that the husband’s occupation of the property did not constitute an ouster of the wife – Orders made for the wife’s application to be dismissed.

Jones (A. E.) v. Jones [1977] 1 WLR 438
Bull v. Bull [1955] 1 Q.B. 234
New South Wales v Koumdjiev (2005) 63 NSWLR 353
Biviano v Natoli (1998) 43 NSWLR 695
Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460
McLeary v Swift [2012] NSWSC 1403

APPLICANT: Ms Jervey

RESPONDENT: Mr Jervey

FILE NUMBER: SYC 3181 of 2012

DATE DELIVERED: 24 July 2014

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Rees J

HEARING DATE: 21 July 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Blank

SOLICITOR FOR THE APPLICANT: SLG Lawyers

COUNSEL FOR THE RESPONDENT: Mr Batey

SOLICITOR FOR THE RESPONDENT: Streeterlaw

Orders

IT IS ORDERED

1. That orders 2 and 3 of the orders sought in the Initiating Application filed by the wife on 7 March 2014 be dismissed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Jervey & Jervey has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 3181 of 2012

Ms Jervey

Applicant

And

Mr Jervey

Respondent

REASONS FOR JUDGMENT

1. On 26 March 2012 the applicant Ms Jervey (“the wife”) and the respondent Mr Jervey (“the husband”) entered into a Financial Agreement (“BFA”) pursuant to the provisions of section 90C of the Family Law Act 1975 (Cth). They had separated on 20 November 2010 and wished to resolve issues of property settlement between them.

2. The validity of the BFA is not challenged.

3. Relevantly, for the purpose of these proceedings, the husband and the wife were both directors of a company, B Pty Ltd (“B Pty Ltd”) which is the trustee of the B Pty Ltd Unit Trust (“the Unit Trust”). Each held one unit in the Unit Trust.

4. The Unit Trust owns a warehouse located at Suburb C.

5. The BFA provides at clause 16: “The Parties shall do all acts and things and sign all such documents necessary to cause the Unit Trust to lease the Warehouse for at least $300,000.00 (plus GST) per year.”

6. Clause 17 provides: “The Parties shall do all such acts and things and sign all such documents necessary to cause the Unit Trust to market and sell the Warehouse.”

7. Clause 20 provides that the list price for the warehouse was to be at least $3,900,000 or, if that amount were not obtainable, 90 per cent of that sum.

8. Clause 21 provides that if rent on the warehouse was not received for three months then the parties were to do all acts and things necessary to sell the warehouse.

9. On 7 March 2014 the wife filed an application to enforce the BFA.

10. In her application for enforcement the wife specifically sought orders in the following terms:

    2.An order directing the respondent to forthwith produce a lease agreement signed by a tenant for the warehouse premises (described) at an annual rent of $300,000 + GST.

    3.An order directing the respondent to forthwith produce an accounting of all rental payments made for the use of the Warehouse after 18 August 2013 and, where such accounting shows any missed payments (based on an annual rent of $300,000 + GST), an order directing that the respondent to pay or to procure immediate payment for such rent.

11. On 10 June 2014 the parties entered into consent orders which provided for the husband to purchase the warehouse building for $3,500,000. He also undertook from that date to pay the rent of $25,000 (plus GST) per month.

12. The matter was dealt with in a Judicial Duty List and there was not time to resolve the disputed issue about the payment of asserted arrears of rent.

13. The Orders made on 10 June 2014 contain the following notation:

    A.The wife contends that an amount of $155,000 is owed by the Husband or his nominee for their occupation of the warehouse for the period 14 August 2013 to the date of transfer. The Husband disputes the period of occupation and the quantum of arrears.

    B.The Husband asserts the Agreement provides for any of these adjustments pursuant to Clause 20(g)(vii) and Clause 11(e) but in any event, should the parties fail to reach agreement in respect of this disputed amount with or without the assistance of an independent accountant than either party have liberty to relist the interpretation of the Agreement no later than 14 days prior to settlement.

14. It is the matter of the wife’s assertion that rent is owed by the husband or his nominee for the occupation of the warehouse which is now before the Court for determination.

EVENTS LEADING TO THE APPLICATION TO ENFORCE THE BFA

1. At the time the BFA was entered into, the warehouse was leased by the Unit Trust to an independent third party (“the tenant”) for $300,000 per annum plus GST. The tenant continued to occupy the warehouse until 7 August 2013 when administrators were called in. At the time the tenant went into administration the arrears of rent were approximately $83,000.

2. The business which was conducted by the tenant in the warehouse took damaged or otherwise imperfect electrical goods from a well-known manufacturer (“the supplier”) and sold those goods as seconds. The husband had previously operated a similar business.

3. After the tenant left, the supplier’s goods remained in the warehouse.

4. The husband, because of his previous experience, thought that there was a business opportunity in attempting to take over the goods in the warehouse and sell them on. He asked the wife if she wanted to be part of the new business but she declined.

5. From about 18 August 2013 the husband took over the warehouse and negotiated with the supplier to determine what stock could be sold and what stock should be sent for recycling as scrap.

6. In the course of their discussions in relation to the husband’s occupying the warehouse and attempting to set up the new business, the wife said to the husband that if he wanted to use the warehouse he must sign a lease and pay the agreed rent of $300,000 per annum plus GST.

7. The husband refused to sign the lease but agreed that he would pay half of the amount of $300,000 per annum plus GST as, he said, he was a half owner and he was only using half of the space.

8. On 16 October 2013 the wife caused her solicitors to write a letter to the husband saying, inter alia,

   The parties undertook in their Financial Agreement dated 26 March 2012 to “do all such acts and things and sign all such documents necessary to cause the Unit Trust to lease the Warehouse for at least $300,000.00 (plus GST) per year” (Clause 16). However, since resuming possession of the Warehouse, your client has failed to execute a lease for the property or pay any rent. Effectively, his new business has the benefit of the property for free. Your client has also prevented our client (and B Pty Ltd Unit Trust) from leasing and/or selling the property.

9. In the letter it is alleged on behalf of the wife that the husband has:

   1.Breached clause 16 of the Financial Agreement by preventing the property from being rented;

   2.Entered a material conflict of interest by placing his / his new company’s interests ahead of the interests of the trust;

   3.Failed to pay occupation rent and/or account for profits earned through possession of the property to its other co-owners; and

   4.Breached clause 21 of the Financial Agreement by preventing the property from being sold after three months where no rent was paid.

10. Before me it was asserted on behalf of the wife that the husband owed an unspecified amount of money calculated on the basis of rental payments of $25,000 per month plus GST. It was not entirely clear when the obligation to pay rent was said to arise. No understandable accounting had been made by the wife for rent which the husband had already paid.

11. On behalf of the wife it was contended that the husband was liable to pay the whole of the sum of $25,000 plus GST per month.

12. On behalf of the husband it was conceded that the husband was liable to pay rent by operation of common law principles. It was the husband’s case, however, that since he only occupied half of the warehouse he was only required to pay half of the rent.

13. Whether the husband occupied half of the warehouse, as he asserted, or the whole, as the wife asserted, was an issue in the current proceedings.

14. Much was made in the wife’s case of her assertion that the husband had interfered with or stifled a proposed sale of the warehouse. In circumstances where the parties have now agreed that that husband will purchase the property, and the wife seeks no relief relating to this assertion, it is not necessary to determine that issue. I note however, in passing, that the proposed sale which had been negotiated by the wife was for a purchase price of $3,500,000 whereas the BFA specified a purchase price of $3,900,000.

THE LAW

1. Neither party raised before me the application of common law or equitable remedies to circumstances where the property of the parties was the subject of a BFA. Having regard to the findings I make in relation to the relevant common law remedy, it is not necessary to determine that question here.

2. For the purpose of these proceedings, there is no dispute that the Unit Trust is the alter ego of the husband and the wife. Thus they will be treated as tenants in common in equal shares in the warehouse.

3. The general rule applicable in such a situation is, as stated by Lord Denning in Jones (A. E.) v. Jones [1977] 1 WLR 438, that:

   one tenant in common is not entitled to rent from another tenant in common, even though that other occupies the whole…

4. However, the qualification to this principle is that the land must be possessed in a proper manner, and in accordance with the respective shares of each co-owner. This is set out by Lord Denning in Bull v. Bull [1955] 1 Q.B. 234, where, referring to the rights of tenants in common, he said:

   Each of them is entitled to the possession of the land and to the use and enjoyment of it in a proper manner. Neither can turn out the other; but if one of them should take more than his proper share the injured party can bring an action for an account. If one of them should go so far as to oust the other he is guilty of a trespass: see Jacobs v. Seward.

5. This authority was cited by the NSW Supreme Court of Appeal in New South Wales v Koumdjiev (2005) 63 NSWLR 353 (“Koumdjiev”). As stated by Hodgson JA:

   It is clear that each tenant in common is entitled to possession of the property, and to the use and enjoyment of it in a proper manner. If one tenant in common excludes the other from the property, the latter has a remedy in action for trespass; and if one tenant in common takes more than its share of income or other benefits produced from the property, the other may have an action for an account: Jacobs v Seward (1892) LR 5 HL 464 ; Bull v Bull.

6. However, the Court in Koumdjiev emphasized that where one tenant has not excluded the other from the property but rather, is making use of the property in a way that unreasonably restricts the other tenant’s use, the other tenant does not have an action for an account and their only remedy is to compel a sale of the property. Hodgson JA says:

   …there appears to be no direct remedy available to one tenant in common on the basis that the other is making use of the property, which does not go so far as to exclude the former and cannot be made the subject of an action for an account, but nevertheless is excessive and unreasonably restricts the former's use and enjoyment of the property. In such a case, it appears that the only remedy would be to compel a sale of the property.

7. The requirement that the exclusion be legally wrongful was also emphasised by Beasley JA in the NSW Supreme Court of Appeal in Biviano v Natoli (1998) 43 NSWLR 695. She said:

   A tenant in common is entitled to exercise acts of ownership over the whole of the common property without liability to be called upon to account in respect thereof: Luke v Luke (1936) 36 SR (NSW) 31053 WN (NSW) 101. This general rule will be displaced, however, where a tenant in common has wrongfully excluded a co-tenant from exercising the right to occupation. At common law a co-tenant so excluded could sue for ejectment and for mesne profits: Goodtitle v Tombs (1770) 3 Wils KB 11895 ER 965, and could also bring a partition suit to charge the occupying co-tenant with an occupation rent…

   …An entitlement to an occupation fee only arose where there was conduct sufficient for the court to infer a denial of the claimant's title: see Chieco v Evans (1990) 5 BPR 11,297; ; Jones v Jones. In Forgeard v Shanahan, Meagher JA reiterated the principles which govern the right to claim an occupation fee. His Honour stated (at 223):

   “… Turning to the liability of a co-owner in occupation to pay an occupation fee, the position at law is fairly clear. He was not liable unless he excluded his co-owner, in which case he rendered himself liable in ejectment and for mesne profits, or if he constituted himself a bailiff, in which event he would be liable in an action of account, like any other bailiff: Re Tolman's Estate (1928) 23 Tas LR 29 at 31; Rees v Rees [1931] SASR 78 at 80-81 . Indeed, the whole bias of the law against making a co- owner in occupation liable to account is precisely based on the rationale that if such a liability were to exist a co-owner could, by abstaining from entering into occupation, turn his co-owner into an involuntary bailiff…”

   …The true nature of ouster is that it constitutes a trespass by one co-tenant of another co-tenant's rights in respect of the property. An express denial of the title and right to possession of fellow tenants, brought home to the latter openly and unequivocally would clearly amount to an ouster: see 20 Am Jur 2d, Cotenancy and Joint Ownership, par 51, citing Williams v Sinclair Refining Co Inc 39 NM 38847 P 2d 910 (1935) and Howell v Bradford 570 So 2d 643 (1990): see also Doe v Bird (1809) 11 East 49103 ER 922. On the other hand, a temporary disturbance to an access way to the property would not: see, eg, Ferguson v Miller [1978] 1 NZLR 819.”

DOES THE HUSBAND’S OCCUPATION OF THE WAREHOUSE AMOUNT TO AN OUSTER?

1. The husband and the wife discussed the husband’s occupation of the warehouse very soon after the tenant departed. On either version of the evidence, the wife wanted the husband to pay the whole of the rent of $25,000 per month plus GST and the husband wanted to pay only half that amount as, he said, he was only occupying half of the warehouse.

2. The wife’s position was ultimately set out in the letter from her solicitors dated 16 October 2013 to which reference has been made earlier in these reasons.

3. In response, the husband’s solicitors, in a letter dated 18 October 2013 said:

   Our client has spent considerable time and effort to “clean up” and empty out the debri, waste and equipment that the previous tenants had left on the site.

4. The solicitors also said:

   Our client has accompanied and liaised with Real Estate agents to introduce both prospective tenants and prospective purchasers to the property and to demonstrate and illustrate its features”.

5. The wife in her oral evidence said that between August 2013 and January 2014 both parties liaised with real estate agents to find a suitable tenant for the warehouse. From September 2013, she said, no prospective tenant viewed the warehouse.

6. In November 2013 having been unable to attract a tenant, the parties agreed that they would put the warehouse to auction in February 2014.

7. Apart from his occupation of the warehouse, the wife does not assert that the husband acted in a way whereby he prevented or hindered her efforts to find a tenant. There is no evidence that the fact of the husband’s occupation of part, or all, of the warehouse in any way deterred a prospective tenant from taking up a lease of the warehouse.

8. The husband in his oral evidence said that, at all times, had a suitable tenant been found for the whole space, he would have moved out. In the alternate, he said, he was prepared to lease half of the space and have a third party lease the other half.

9. In the event, no other person or entity was found to lease either half, or all, of the warehouse.

10. The husband relies on two affidavits by real estate agents involved in the leasing and marketing of the warehouse. They were joint agents. Both depose to the husband’s co-operation in showing the warehouse to prospective tenants.

11. There is no evidence from the real estate agents that any action on the part of the husband hindered or affected their efforts to find a tenant for the warehouse.

12. In those circumstances, there was no ouster of the wife such as to ground a claim for occupation rent.

13. Therefore it is not necessary to determine whether the husband occupied all of the warehouse or half of it.

14. The husband is not liable to pay rent for the warehouse of $25,000 (plus GST) per month until he undertook to do so in June 2014.

PROMISE TO PAY TO A THIRD PARTY

1. Counsel for the wife relied on the principle enunciated in Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460 where Barwick J. said:

   It must be accepted that, according to our law, a person not a party to a contract may not himself sue upon it so as directly to enforce its obligations. For my part, I find no difficulty or embarassment in this conclusion. Indeed, I would find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another. But that does not mean that it is not possible for that person to obtain the benefit of a promise made with another for his benefit by steps other than enforcement by himself in his own right : see the recent case of Beswick v. Beswick(1966) Ch 538 . I would myself, with great respect, agree with the conclusion that where A promises B for a consideration supplied by B to pay C then B may obtain specific performance of A's promise, at least where the nature of the consideration given would have allowed the debtor to have obtained specific performance. I can see no reason whatever why A in those circumstances should not be bound to perform his promise.

2. Counsel for the wife referred to a decision of Windeyer AJ in McLeary v Swift in the Supreme Court of New South Wales handed down on 21 November 2012. That decision does not do more than demonstrate a particular circumstance where the principle enunciated by Barwick J. was applied.

3. The terms of the BFA do not equate with the factual situation with which Barwick J. dealt and the principle has no application in the present case.

MONEY PAID TO THE UNIT TRUST BY THE WIFE

1. Although not part of her application, it was the wife’s case that she had paid $10,000 into the Unit Trust in January 2014 to enable the Unit Trust to pay the mortgage secured over the warehouse and that she would be required to pay further sums to enable the payment of mortgage payments and of land tax which were to fall due.

2. In the course of argument, Counsel for the husband indicated that the husband agreed that the wife should be reimbursed for money she had advanced to the Unit Trust to allow it to meet its liabilities.

3. Having noted that agreement, it is not necessary to make an order in relation to that issue.

CONCLUSION

1. The husband paid rent of $25,000 (plus GST) in October 2013 and then paid $15,000 (plus GST) from November 2013 to May 2014. From June 2014, in accordance with his undertaking noted by Johnston J., he has paid rent of $25,000 (plus GST).

2. He is not required to pay any further sum.

I certify that the preceding fifty-seven (57) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 24 July 2014.

Associate: 

Date:  24/7/2014