Laconi and Cosgrove
[2017] FCCA 1179
•2 June 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| LACONI & COSGROVE | [2017] FCCA 1179 |
| Catchwords: FAMILY LAW – Property – where parties entered into a binding financial agreement post-separation – where husband asserts the proceeds of sale of the former matrimonial home are held on constructive trust – where wife seeks declaration of moneys in her sole name – where wife also claims equitable compensation. |
| Legislation: Family Law Act 1975 (Cth), ss.71A, 90B, 90C, 90D, 90J, 90G, 90KA Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), s.5 |
| Cases cited: Abati & Cole [2015] FamCA 185 | |
| McKay v McKay [2008] NSWSC 177 Zaruba & Zaruba [2017] FamCAFC 91 | |
| Applicant: | MR LACONI |
| Respondent: | MS COSGROVE |
| File Number: | SYC 7837 of 2015 |
| Judgment of: | Judge Harper |
| Hearing dates: | 13 & 14 March 2017 |
| Date of Last Submission: | 14 March 2017 |
| Delivered at: | Sydney |
| Delivered on: | 2 June 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr Evans |
| Solicitors for the Applicant: | Whitfields Solicitors |
| Counsel for the Respondent: | Mr Stevens and Mr Chen |
| Solicitors for the Respondent: | Lincoln Smith and Company |
THE COURT DECLARES THAT:
The wife be entitled to have paid to her the whole of the moneys standing to the credit of the (omitted) Bank Account numbered (omitted) with (omitted) Bank and styled “Lincoln Smith & Ms Cosgrove”.
THE COURT ORDERS THAT:
The husband’s Amended Statement of Claim be dismissed.
The wife’s Amended Cross-Claim, otherwise, be dismissed.
If any party seeks an order for costs, an appropriate written application may be made within 28 days of today’s date (supported by any documentary material) to be filed and served within that time period and a copy forwarded to my Chambers. If no such application is made within the time period specified, no order will be made as to costs.
THE COURT NOTES THAT:
Any application as to costs will be dealt with by way of written submissions, unless the parties request to be heard orally.
IT IS NOTED that publication of this judgment under the pseudonym Laconi & Cosgrove is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYC 7837 of 2015
| MR LACONI |
Applicant
And
| MS COSGROVE |
Respondent
REASONS FOR JUDGMENT
Introduction
These proceedings have their genesis in a binding financial agreement entered into between the parties on 24 July 2006 (“the BFA”). The BFA was made pursuant to the provisions of the Family Law Act 1975 (Cth) (“the Act”). The purpose of the BFA was to bring about a finalisation of any property disputes between the parties after the breakdown of their marriage and subsequent divorce in 2006, and a final division of their assets.
Procedural History
The proceedings were originally commenced in the Supreme Court of New South Wales. Mr Laconi (“the husband”) filed a Statement of Claim on 31 October 2014 naming Ms Cosgrove (“the wife”) as the defendant. The nature of the claim was, broadly, for payment of a sum of money by way of constructive trust or equitable compensation from the proceeds of sale of the property known as Property A (“the property”).
The wife filed a Defence in the Supreme Court of New South Wales on 18 November 2014. An Amended Statement of Claim was filed on 24 December 2014 and a Defence to the Amended Statement of Claim was filed on 13 February 2015 in that Court. The wife filed a Statement of Cross-Claim on 19 February 2015 and a Defence to the Cross-Claim was filed by the husband on 11 March 2015.
By consent, the proceedings were transferred to the Family Court of Australia by order of His Honour Justice Rein on 16 November 2015. The terms of the order were:
That these proceedings be transferred to the Family Court of Australia Sydney Registry pursuant to section 5(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Commonwealth).
On 15 February 2016, the matter was listed before Registrar George in the Family Court of Australia, Sydney Registry, for directions. On that date it was transferred to this Court.
On 23 June 2016 the matter was listed before His Honour Judge Brewster (as he then was) in a duty list in this Court. On that occasion there was no appearance by the husband or the wife and His Honour dismissed all extant applications and the matter was removed from the active pending cases list.
It appears that there may have been some administrative error whereby the parties were not informed of the date of 23 June 2016 before this Court as the matter was then listed into a duty list before Her Honour Judge Boyle on 13 July 2016. On that occasion the Court ordered the parties do all acts and things necessary to attend mediation through the Law Society of New South Wales mediation service and the matter was placed into a call over list before Her Honour on 10 November 2016 for the allocation of final hearing dates.
On 10 November 2016, the matter was listed for final hearing on 13 & 14 March 2017. Directions were also made with regard to the filing of trail affidavits and the preparation of case outlines. The matter was then transferred to my docket but remained listed for hearing on those dates.
Orders sought
The husband sought the orders as set out in his Amended Statement of Claim filed 24 December 2014 in the Supreme Court of New South Wales, as follows:
i)An order that the [wife] pay to the plaintiff the sum of $300,000 or such other sum as the court shall determine by way of equitable compensation from the proceeds of sale of the property known as Property A or generally in respect of:
1. moneys payable by the [wife] to the [husband] by way of contribution for the payment by him of moneys due on the mortgage comprising three separate advances by the mortgagee (“the mortgage”) secured on the subject property at Property A from 24 July 2006 to the 30th December 2013 September 2014;
2. 50%, or such other percentage as the court shall determine, of a sum representing the increase in value of the said property from 24 July 2006 to 27 September 2014 on the ground that in the events that have happened, it would against conscience for the [wife] to now retain, in full the said increase in value, subject to an allowance by the [husband] to the [wife] of an appropriate sum for the repayment of loans secured against the subject property that were taken out for the benefit of the [husband];
ii)Any other matter that might be taken into account by way of set-off or otherwise as the Court shall consider appropriate.
iii)Interest
iv)Costs
The wife sought the orders as set out in her case outline document filed 8 March 2017, as follows:
i)The [husband’s] Amended Statement of Claim is dismissed.
ii)Declare that the [wife] is entitled to have paid to her the whole of the moneys standing to the credit of the (omitted) Bank Account numbered (omitted) with (omitted) Bank and styled “Lincoln Smith & Company & Ms Cosgrove”.
iii)That pursuant to the Amended Cross Claim dated 16 November 2015 the [husband] pay to the [wife] a sum of $
iv)That the [husband] pay the [wife’s] costs of the proceedings in this Court and in the Supreme Court of New South Wales.
I note that the orders as sought by the wife above differ from the relief claimed in her Amended Statement of Cross-Claim which sought, as follows:
i)A declaration that the whole of the moneys held in the account with (omitted) Bank numbered (omitted) in the name of “Lincoln Smith & Company & Ms Cosgrove” (“(omitted) Bank Account”) are held for the benefit of the [wife];
ii)An order that such moneys be paid to the [wife] or as she may direct forthwith;
iii)An order that the [husband] pay to the [wife] by way of equitable compensation and/or damages for equitable fraud, $119,115.75 by way of reimbursement of moneys paid by her on account of the (businesses omitted);
iv)Alternatively or in addition to the relief sought in paragraph 3, an order that the [husband] pay to the [wife] by way of equitable contribution:
1. the whole, or alternatively one half, of the moneys paid by the [wife] to (omitted) Bank out of the proceeds of the sale of Property A in relation to the (businesses omitted) totalling $119,115.75;
2. the whole, or alternatively one half, of the amount of $39,698.09 representing the difference between $270,000 (being the approximate amount owing by the [wife] and the [husband]to (omitted) Bank under its mortgage over Property A as at 24th July 2006) and $309,698.09 (being the amount owing to (omitted) Bank in relation to home loan accounts numbered (account numbers omitted) as at the date of completion of the sale of Property A;
v)An order that the [husband] pay to the [wife] interest on the moneys referred to in paragraphs 3 (or 3A, as may be appropriate) pursuant to section 100 of the Civil Procedure Act calculated from 20th November 2014 to the date of payment;
vi)Costs.
Evidence relied upon
The husband relied upon the following documents:
a)His affidavit sworn 19 May 2015;
b)His affidavit sworn 10 July 2015; and
c)His affidavit sworn 10 November 2015.
A number of objections were made in relation to the affidavits relied upon by the husband which were dealt with in the course of the proceedings.
The husband was cross-examined.
The wife relied upon the following documents:
a)Her affidavit sworn 17 April 2015;
b)Her affidavit sworn 29 June 2015;
c)The affidavit of Ms M sworn 17 April 2015; and
d)The affidavit of Ms M sworn 29 June 2015.
A number of objections were made in relation to the affidavits relied upon by the wife which were dealt with in the course of the proceedings.
The wife and Ms M were cross-examined.
The following documents were tendered in the course of the proceedings:
Exhibit Label
Description
Tendered by
A
Court book (Volumes 1 and 2)
Joint
B
Child Support Agency online payment history
Wife
C
Documents regarding settlement of FMH from Linden Solicitors
Wife
D
Statement of agreed facts
Joint
1
(omitted) Bank Memorandum dated 18 September 1996
Husband
Jurisdiction of this Court
Neither party made any challenge to the jurisdiction of the Court to hear and determine the proceedings. However, jurisdiction is a question upon which the Court itself should be satisfied.
The order for transfer was made pursuant to s.5 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth). Because of s.5(9) it is a pre-requisite to a transfer order that the transferee court have jurisdiction in respect of the relevant matter: Valceski v Valceski [2007] NSWSC 440; 70 NSWLR 36 at [20]. As noted above, the proceedings were transferred from the Supreme Court of NSW to the Family Court of Australia. The matter was then transferred by the Family Court to this court.
The BFA was central to the proceedings in the Supreme Court and is central in this court. Neither party in these proceedings contended that the BFA is invalid. The proceedings were conducted on the basis that the BFA is valid and remains a subsisting and enforceable agreement, and for the purposes of s.90G of the Act, a binding financial agreement. Neither party has applied, or applies in these proceedings, to set the BFA aside.
By reason of s.71A of the Act, Part VIII of the Act does not apply to financial matters to which a BFA applies or financial resources to which a BFA applies. Consequently, neither the Family Court nor this Court has jurisdiction by reason of Part VIII of the Act. However, the provisions of Part VIIIA of the Act are not affected by, and still operate on, the BFA. See Fevia & Carmel- Fevia [2009] FamCA 816 at [118]-[128].
The pleadings created in accordance with the rules of the Supreme Court of New South Wales do not sit easily within the types of initiating and interlocutory documents used in this, or the Family, Court of Australia. However, it is tolerably clear that the claims of the husband raise questions about the enforceability of the BFA, that is, whether it is “enforceable or effective” and the cross-claim of the wife seeks to enforce the BFA. I am satisfied that the claims attract the jurisdiction of this Court under s.90KA of the Act.
I am satisfied this Court has jurisdiction.
Credibility of witnesses
The husband was cross-examined. My impression of him in the witness box was that he endeavoured to give his evidence honestly. He answered questions in a straightforward fashion. His memory was poor in some respects.
The evidence of the wife, in the witness box poses some difficulties of assessment. The wife, for reasons that were not apparent, was subject to tearful outbursts under cross-examination. Overall, however, I was given the impression that she gave her evidence honestly although her recollection of some significant conversations was inadequate.
Background Facts
Many of the relevant background facts are undisputed.
Some of the agreed facts in this matter, as taken from Exhibit “D”, are, as follows:
a)The parties were married on 1991;
b)There were 3 children of the marriage, they being:
i)Mr A (born 1992);
ii)Ms B (born 1994); and
iii)Mr C (born 2000);
c)On 29 October 1999, the parties purchased the property as joint tenants. At that time, the (omitted) Bank took a mortgage over the property as security for the repayment of funds that the Bank provided to assist the parties with the purchase;
d)On 15 August 2001, the parties refinanced the property with (omitted) Bank and granted (omitted) Bank a mortgage over that property in the form of the document that appears at pages 13 - 15 of the wife’s affidavit sworn on 17 April 2015, in place of the (omitted) Bank;
e)The parties separated in April 2002, when the husband moved out of the property. The wife remained in the property with the children;
f)On 20 April 2006, the parties divorced;
g)On 24 July 2006, the parties entered into:
i)The BFA under s.9OD of the Act in the form of the document that appears at pages 40 — 54 of the wife’s affidavit sworn 17th April 2015 (see relevant provisions set out below) and;
ii)The Child Support Agreement (“the CSA”), in the form of the document that appears at pages 55 — 60 of the wife’s affidavit sworn 17th April 2015 (see obligations under the CSA set out below);
h)At the time the parties entered into the BFA, the mortgage held by (omitted) Bank over the property secured to it the repayment of moneys owing to it by the parties totalling in all, approximately $270,000.00.
I will refer to additional agreed facts later in these reasons. First it is necessary to set out the relevant terms of the BFA and the CSA.
Terms of the BFA
The central terms of the BFA were as follows:
3. Within twenty-eight (28) days of the date of this Agreement, the parties will do all acts and things and sign all documents necessary to place the former matrimonial home at Property A in the State of New South al s (“the home”) on the market for sale by private treaty and do all acts and things and sign all documents necessary for the sale of the home by private treaty.
4. To facilitate the conduct of the sale:-
4.1 The home will be placed in the hands of a reputable real estate agent practising as an auctioneer within the local area. If the parties cannot agree on the agent to be employed, Mr Laconi will nominate three (3) such agents and Ms Cosgrove will select one (1). If any further dispute arises as to the appointment of an agent, then the agent will be appointed by the President for the time being of the Australian Property Institute (New South Wales Division) (“the agent”);
4.2 The home will be listed for sale at a price upon which the parties agree or failing such agreement at a price determined to be the fair market price by a registered valuer appointed by the President for the time being of the Australian Property Institute (New South Wales Division);
4.3 All costs incurred by the parties in appointing agents and obtaining valuations pursuant to clauses 4.1 and 4.2 will be shared equally between the parties and will be deducted from the proceeds of sale prior to a distribution of the net proceeds between the parties.
4.4 The parties will appoint a solicitor to act in relation to the sale. If the parties cannot agree on the solicitor to be appointed, Ms Cosgrove will nominate three (3) such solicitors and Mr Laconi will select one (1). If any further dispute arises as to the appointment of a solicitor, then a solicitor will be appointed by the President for the time being of the Law Society of NSW.
5. That:-
5.1 In the event that contracts for the sale of the home have not been exchanged within two (2) months of it being placed on the market pursuant to Clause 3 of this Agreement, then unless the parties otherwise agree, the home will be placed in the hands of the agent for sale by public auction.
5.2 The parties will execute all such documents as may be necessary to authorise the agent to conduct such auction. Thereafter the parties will sign all documents and shall expeditiously carry out all necessary acts to sell the home at such auction and to complete the sale if sold at such auction.
5.3 The reserve price of such auction will be such amount which is agreed upon by the parties and failing agreement in that regard the parties agree to accept the recommendation of the agent.
5.4 If the parties do not accept the recommendation of the agent as to the reserve price for the auction and cannot reach agreement between themselves as to the reserve price at least one week prior to the auction, then the parties will arrange for the reserve price to be determined by a registered valuer appointed by the President for the time being of the Australian Property Institute (New South Wales Division). The parties will share equally in the valuation cost and the valuation fees will be deducted from the proceeds of sale prior to a distribution of the net proceeds between the parties.
5.5 The parties agree to pay to the agent any sum reasonably required for advertising expenses in relation to the auction. If one of the parties advances all of the said expenses they will be reimbursed from the proceeds as a cost of sale before a distribution of the net proceeds between the parties takes place.
5.6 The parties will attend at the auction sale and in the event that the property is not sold at such auction then the parties will negotiate with the highest bidder. In the event that an offer is made below the agreed reserve price and the parties do not agree that it should be accepted, then the home will be listed for sale by auction every four months until sold, such subsequent auctions to be conducted by the same agent but at each such subsequent auction the reserve price will be 5% less than the reserve price at the previous auction.
5.7 The parties will be entitled to bid at the auction.
5.8 The parties will sign all necessary documents and will expeditiously carry out such necessary acts required to sell the home at either auction.
6. Upon completion of the sale of the home, the proceeds of sale will, subject to Clauses 4 and 5, be paid in the following manner and priority:-
6.1 In payment of agents fees and commission due on the sale; 6.2 In payment of legal costs on the sale;
6.3 In payment of any taxes and/or duties arising by virtue of the sale;
6.4 In discharge of the mortgage secured over the home;
6.5 In payment of the balance then remaining to Ms Cosgrove.
7. Mr Laconi is entitled to retain sole legal and beneficial ownership to the exclusion of Ms Cosgrove of:-
7.1 His interests in the business “(business omitted)”;
7.2 All other items of property and personalty including motor vehicles, bank accounts, money, shares, jewellery, furniture and personal effects presently in his possession; and
7.3 Any entitlements under any superannuation fund of which he is or has been a member.
8. Ms Cosgrove is entitled to retain sole legal and beneficial ownership to the exclusion of Mr Laconi of:-
8.1 Her Nissan (model omitted) motor vehicle;
8.2 All other items of property and personalty including motor vehicles, bank accounts, money, shares, jewellery, furniture and personal effects presently in her possession; and
8.3 Any entitlements under any superannuation fund of which she is or has been a member.
There is an Annexure to the BFA. The Annexure records that as at the date of execution of the BFA the parties put a value of $700,000.00 on the property, securing a mortgage of $270,000.00.
The CSA was also executed on the same day as the BFA. The obligations under the CSA were, as follows:
4.1 The father will pay or cause to be paid to the mother child support made up of two amounts:-
(i) periodic child support; and
(ii) private school fees.
4.2 PERIODIC CHILD SUPPORT
4.2.1 Subject to clause 4.3.2 of this Agreement, the father shall pay or cause to be paid to the mother or as she directs in writing from time to time child support in the sum of $125.00 per child per week ($6,500 per child per annum), the first such payment to be made within seven (7) days of the date of this Agreement and monthly thereafter and the final payment to be made upon the happening of a child support terminating event.
4.2.2 The child support payable by the father pursuant to clause 4.2.1 is to be varied on the review date commencing on 1st July 2007 to such sum as shall be determined by multiplying the child support being paid on the review date by the fraction N/B where "N" is the Consumer Price Index (All Groups for Sydney) published by the Australian Bureau of Statistics ("CPI") in respect of the quarter year immediately preceding the review date and "B" is the CPI in respect of the quarter year ending 12 months prior to the review date
4.3 PRIVATE SCHOOL FEES
4.3.1 Subject to clause 4.32 of this Agreement, the father will pay direct to School A or such other private school attended by the children as may be agreed between the parties, private school fees in respect of the children for their secondary school education until the children each complete their secondary education, such school fees to include, if relevant, school and/or building levies.
4.3.2 The periodic child support payable to the mother pursuant to clause 4.2 of this Agreement will be reduced by the amount that the husband is paying in any given year for any child in accordance with clause 4.3.1 of this Agreement.
4.4 The non-periodic child support payable by the father pursuant to clause 4.3, when combined with periodic child support, is intended to constitute 100% of the child support payable by the father under any assessment for each year until the happening of the child support terminating event in relation to each of the children.
4.5 The parties shall, within fourteen (14) days of the date of this Agreement, do all things and sign all documents necessary to cause this document to be lodged with the Agency for the purpose of registering liabilities in this Agreement. This Agreement is to commence within fourteen (14) days of settlement of the sale of the former matrimonial home.
The wife submitted the BFA and the CSA should be construed collectively. They are however separate agreements dealing with quite different subject matter, although executed on the same day. They are interrelated in the sense that by clause 4.5 the CSA did not commence until 14 days after the settlement of the sale of the “former matrimonial home”, which is a reference to the property. Consequently, the husband did not become liable for child support payments under the CSA until the property had been sold.
It can be seen that the parties expected in July 2006 the property to attract a purchase price of about $700,000.00, to be sold reasonably promptly and upon completion of the sale the wife would receive approximately $430,000.00, being the balance of the proceeds of sale, and the husband would become liable to pay child support in accordance with the CSA.
Attempts to sell the property
Pursuant to the BFA, the parties attempted to sell the property through (real estate omitted) by private treaty in 2006. According to the evidence of the husband, the property was listed through (real estate omitted) for a sale price of $800,000.00.
The property did not sell by private treaty. It was subsequently placed with (real estate omitted), according to the husband, or (real estate omitted) Real Estate, according to the wife, for auction.
The mother’s mother Ms M (“Ms M”) gave evidence that she did not discuss a reserve price with the husband but that she had some recollection of a reserve price somewhere between $750,000.00 and $790,000.00. She was unable to recall how those figures were conveyed to her or by whom.
The property went to auction in late 2006. The evidence does not disclose the exact date. There were no bids at the auction and the property was passed in. The evidence of the husband was that the wife set a reserve price of $750,000.00. The wife’s evidence was to the effect that she could not recall what reserve price she set for the property and that she did not attend the auction. Her recollection did not allow her to state whether she discussed a reserve price with the real estate agent or what range of reserve prices might have been the subject of consideration. The husband gave evidence that he did not have any input into setting the reserve price, saying the wife instructed the agent. It was put to the wife, in cross-examination, that she deliberately set the reserve price at a level which she knew the property was unlikely to sell, for the purpose of applying pressure to the husband to keep paying the mortgage. She denied this. The evidence about the organisation of the auction is vague from both parties. On balance, I am not satisfied the wife deliberately set the reserve at a level designed to cause the auction to fail.
Conversations post-auction
The BFA itself required, pursuant to clause 5.6, that the property should be placed for further auction at intervals of four months with a 5 percent reduction in the reserve price at each auction until it was sold. However, this did not happen.
After the failed auction, the parties had some discussion about what should be done with the property. The contents of, and participants in, such discussion were disputed.
The husband gave evidence in his affidavit sworn 19 May 2015 that a few days after the auction he had a telephone conversation with Ms M in which the following exchange took place:
Ms M: “Mr Laconi, what are you going to do with the house?”
The husband: “Put it back on the market for sale.”
Ms M: “She (referring to the respondent) is not going to get the price. Why don’t we wait until the market picks up and when the market picks up, we will put the property back on the market.”
The husband: “I would rather sell it.”
Ms M: “She will not get the money she is asking in this market. She is better off waiting.”
The husband: “How long?”
Ms M did not respond.
According to the husband in this affidavit, he did not have any further conversation concerning the property or its sale and he never again spoke to the wife about it nor did she speak to him.
In his later affidavit, sworn on 10 July 2015 the husband stated that he recalled a conversation between himself and the wife in which she said words to the effect of: “I did not get the price that I wanted for the house. Why not wait until the housing market picks up again and we will see what happens.” The husband said, simply, “Okay. Leave it for a while.” In cross-examination, however, the husband stated that his evidence in this paragraph was incorrect and that the conversation actually took place with Ms M.
At paragraph 17 of her affidavit sworn 17 April 2015, the wife stated that shortly after the auction, the husband had telephoned her and they had a conversation in which he said words to the effect of: “You might as well stay in the property and live there as you’ve got kids to look after. I will continue to pay the loan repayments to the bank and we will see what happens with the market in the future”. The wife gave evidence that she replied: “That’s okay by me as I wouldn’t have enough money to buy another property at the moment anyway if the house had to be sold on what we were offered before the auction.” The husband then said words to the effect: “Okay, then. That’s what we will do. Can you have it taken off the market?” The wife said that she agreed she could.
Ms M swore an affidavit on 17 April 2015 in which she recalled a further conversation with the husband in which he telephoned her and said: “Look Ms R, I have decided that in view of the fact that we can’t sell it for a decent price, I am going to let Ms Cosgrove stay in the children rather than sell it. I will be paying the home loan to the bank whilst they live there. Can you tell Mr J [that is my husband, Mr J] that’s what I’m going to do.”
Ms M gave evidence that she replied: “That’s a good thing for you to do, Mr Laconi, as the kids need somewhere to live.”
The wife stated in cross-examination that she used her mother for communication with the husband. Ms M agreed that she acted as go-between for the parties.
There is overlap between the differing versions and, ultimately for the reasons which follow, the differences are not material to the outcome of these proceedings. On balance, I prefer the version of the wife and accept the evidence of Ms M.
The husband argued the wife was in control of the sale of the property and, at all times, it was his preference to have it sold in accordance with the BFA.
The evidence does not demonstrate that the wife was “in control” of the sale of the property. The evidence shows she may have been in control of organising the failed auction, but she did not determine whether or not it should happen. Thereafter the evidence, as discussed above, of the conversations after the auction discloses an attitude of co-operation towards the sale of the property, or rather delay in selling the property. If it was the husband’s preference to sell the property, there was no evidence that he pressed for the sale, or that the wife refused. Rather the husband gave evidence that he felt an obligation to the bank and his children to keep paying the mortgage on the property in which they were living (paragraph 9 of his affidavit sworn 19 May 2015), which he repeated in cross-examination.
Late 2006 to November 2014
The wife continued to live in the property after the failed auction in 2006.
In period between late 2006 and November 2014 I find the following took place:
a)On about 17 October 2008 and 5 March 2009 the husband drew down $15,000.00 and $20,000.00 respectively from (omitted) Bank home loan account (number omitted). These amounts were used for his business (business omitted). He gave evidence that he specifically asked for and received consent from the wife for these draw downs, with her saying “It’s your house as well as mine”. (Affidavit of the husband sworn 19 May 2015, paragraph 12, 13). The wife did not deny this in her affidavits.
b)It was an agreed fact that between July 2006 and July 2013, the husband paid to (omitted) Bank by way of and on account of repayments of a Home Loan Account numbered (omitted), an amount of $89,191.00;
c)It was an agreed fact that between 16 November 2006 and 22 March 2013, the husband paid to (omitted) Bank by way of and on account of repayments of an (omitted) Mortgage Account numbered (omitted), a net amount of $72,504.92 (after taking into account amounts also withdrawn by him from that account during the period referred to);
d)Between July 2012 and August 2013, the wife caused various repairs and renovations to be undertaken on the property, including laundry renovation and installation of a deck (see Exhibit “A”, pp 458-477). The exact cost of these repairs and renovations was unclear from the evidence. A precise calculation is not necessary. I accept the cost was substantial.
e)At some point in about late 2012, the husband contacted the wife to request that she execute a guarantee, limited to $80,000.00, as part security for a loan of $80,000.00 for the purposes of (business omitted), a business of the husband. The evidence about this loan is unclear. The husband gave evidence that he arranged it in 2009 after a robbery. The wife gave evidence it took place in early 2013. However, for the reasons which follow, it was probably in December 2012. It appears that the husband left with their son relevant bank documents for the wife to sign. The only document in evidence was a standard form (omitted) Bank Guarantee and Indemnity, limited to $80,000.00 for an $80,000.00 loan to (business omitted) (p 393ff of Exhibit “A”). The wife signed the guarantee twice, first on 11 December 2012 (p 399 of Exhibit “A”) when her signature was witnessed; she then obtained legal advice and advice from her father. Her signature was then crossed out and the wife signed a second time on 12 December 2012 but this signature was not witnessed (p 398 of Exhibit “A”) (see Affidavit of the husband sworn 19 May 2015, paragraph 22; Affidavit of the wife dated 17 April 2015, paragraphs 21, 22, 23; Exhibit “A”, pp 393-408). It was suggested that the bank may not have accepted the guarantee in this form. In any event it seems undisputed that the loan proceeded, with or without the wife’s guarantee. There is no evidence of when (business omitted) received the funds. As will be seen, the outstanding balance was discharged when the property was sold in 2014, as detailed below.
f)By early 2013, the husband was encountering financial difficulties and could not keep up the mortgage repayments (see his Affidavit sworn 19 May 2015, paragraph 23, Exhibit “A”, pp 391-393). This evidence makes it more likely that the guarantee was submitted to the wife in December 2012, being the time when the husband knew of his financial pressures and was taking steps to restructure his business finances with additional borrowings.
g)Between January and March 2013, the (omitted) Bank facilities secured by the property were in default (Exhibit “A”, pp 391-393). As at March 2014, the (omitted) Bank facilities remained in default (Exhibit “A”, p 419).
h)On 25 March 2014, the solicitors for the wife wrote to the husband asking that he transfer to her his interest in the property pursuant to an agreement reached between the parties at the time of divorce (Exhibit “A”, p 420).
i)On 9 April 2014 the solicitors for the wife again wrote to the husband proposing that, whilst not resiling “from the stated terms of the BFA”, he transfer to her his interest in the property, largely on the basis that the terms of the BFA had not been complied with, and the wife had spent considerable sums on the property whilst the husband had used it for his business borrowings;
j)At this time, the husband resisted sale of the property unless he received some proportion of the proceeds of sale. On 11 September 2014, the wife’s solicitors wrote to the husband’s solicitor rejecting an offer that $150,000.00 be paid to the husband from proceeds of sale of the property.
k)It was an agreed fact that between when the property went to auction on 27 September 2014 and completion of the sale took place on 20 November 2014.
On completion of the sale, the net proceeds after the costs of sale, being $1,326,500.00, were distributed by payment of $428,813.84 to the (omitted) Bank, and payment of the balance into account number (omitted) in the name of “Lincoln Smith & Company & Ms Cosgrove” (“the controlled moneys”) held at (omitted) Bank, pending resolution of the dispute between the parties about the husband’s claim to part of the fund.
The amount of $428,813.84 was agreed to be made up of the following:
Account number
Account name
Amount Paid
(omitted)
Mr Laconi & Ms Cosgrove
$100,806.65
(omitted)
Mr Laconi & Ms Cosgrove
$ 19,133.09
(omitted)
Mr Laconi & Ms Cosgrove
$189,758.35
(omitted)
(business omitted)
$ 96,103.57
(omitted)
(omitted) business
$ 23,012.18
TOTAL
$428,813.84
It can be seen the businesses owned and conducted by the husband, namely (business omitted) and (omitted) business incurred overdraft liabilities which totalled $119,116.00 as at 20 November 2014, including the loan of $80,000.00 referred to in 52(e) above.
The wife had no interest in these businesses.
I note in passing that the parties owned the property as joint tenants (Exhibit “A”, p. 287). Consequently, they would be co-owners of the net proceeds, subject only to the BFA or order of the Court affecting ownership. Although no submissions were directed to this question, in my view, the BFA itself severed the joint tenancy: Sprott v Harper [2000] QCA 391 at [7]-[8]. Consequently, in the absence of the BFA or the intercession of equitable principles, the controlled moneys would be owned by the parties as tenants in common.
It can be seen that if the parties had followed the requirements of clause 5.6 of the BFA the property would have been sold at some point reasonably soon in 2007 making due allowance for the gap of four months between each fresh auction. It may have taken several attempts but the property would have been sold well before 2014.
In the events which happened, the property increased from the agreed value in the BFA of $700,000.00 to $1,350,000.00 over a period of about eight years. If the terms of the BFA are applied to the net proceeds, the wife would be entitled to all the net capital gain, which means the controlled moneys.
The husband’s case, in essence, is that such a result would be unconscionable because the facts present a failed joint enterprise attracting the principle articulated by Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 618. He argued that it would be unconscionable for the wife to retain the “windfall” capital gain in circumstances where he serviced the mortgage for many years which enabled the gain to be realised. In paragraph 49 of his written submissions the husband submitted:
In the circumstances it is not appropriate that Ms Cosgrove simply pocket the windfall that has seemingly fallen to her by the 7 year delay in selling the property without providing reasonable equitable compensation to Mr Laconi having regard to his expenditures over that period that enabled the windfall.
I will return to this question below. However, since the continued existence and terms of the BFA are central in deciding the husband’s arguments, it is first necessary to take account of some current jurisprudence concerning the relationship between a BFA and the law of contract and equitable principles.
The BFA and principles of contract law and equity
In Fevia (supra) at [119] Murphy J stated that s.90KA makes it clear the principles of contract and equity will determine the parties’ rights with respect to the BFA. The Court has the same jurisdiction as the High Court of Australia in this regard. So whilst a BFA is “undoubtedly unique”, it is susceptible to the general principles of contractual construction and interpretation: Australian Securities and Investment Commission and Rich (2003) FLC 93-171 at [105]; Sanger & Sanger (2011) 46 Fam LR 275.
It has been recognised that equitable principles and doctrines have a role to play. Vitiating factors, such as duress, undue influence, unconscionable conduct, misrepresentation at the point of formation may operate to impugn a BFA: see, for example, Hay & Hay [2014] FCCA 775. The contractual doctrines of uncertainty may be invoked in relation to a BFA: Ruane Backman-Ruane and Anor [2009] FamCA 1101 (a financial agreement under s 90C of the Act); Garvey & Jess [2016] FamCA 445. The principles of severance of a contractual term can apply to a BFA, otherwise valid and enforceable: Abati & Cole [2015] FamCA 185. Other cases have addressed the principles of repudiation and rescission governing termination of a contract, in relation to binding financial agreements: Parke & Parke [2015] FCCA 1692; Donald & Forsyth [2015] FamCAFC 72.
It is clear from the facts recited above that after the failed auction in 2006, the parties ceased to perform the terms of the BFA as they related to the sale of the property by further auctions. That brought about the situation about which the husband now complains. I raised with the parties the possible application of the contractual doctrines of abandonment or frustration to the BFA, and invited further written submissions on those questions.
Abandonment or frustration
In Australia abandonment, where the objective theory of contract prevails, can be inferred from the conduct of the parties. It can be informal, where the parties have so acted in relation to each other, as to abandon or abrogate the contract” regardless of whether there has been something in the nature of rescission: Summers v The Commonwealth (1918) 25 CLR 144 Isaacs J at 152, or seen as “a conclusion that the parties have no further interest in a contract continuing, even though they may have said nothing to that effect”: Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 at [38]-[40]. Abandonment is generally understood as a consensual form of discharge or termination: see, for example, Cheshire & Fifoot, Law of Contract (10th Aust. Ed.) at [22.9].
The contractual doctrine of frustration has long had a role in a family law context as an analogy to aid interpretation of the notion of “impracticability” in s 79A(1)(b): La Rocca & La Rocca (1991) FLC 92-222 at [26]; Sanger & Sanger (supra) at [87]ff. Frustration relies on a radical change in the performance of the contract without default of either party. It is not consensual, but discharges the contract by operation of law: Cheshire & Fifoot, Law of Contract (10th Aust. Ed.) at [19.1].
The evidence recited above leaves reasonable scope to think the parties simply ceased to perform the BFA and indeed the wife even appeared to treat the CSA as at an end in that, at some point she applied for a child support assessment from the Child Support Agency (Exhibit “A” pp 210-283). However, on reflection, I am not satisfied that the question of termination by reason of abandonment or frustration is so clear that I should depart from the common position of the parties, and, accordingly, I do not do so. An inordinate length of time during which neither party has taken any action to perform does not of itself inevitably lead to a conclusion the contract has been abandoned: Fitzgerald v Masters (1956) 95 CLR 420. There is some equivocation in the evidence on the question. For example, the enforceability of the BFA was not put in doubt during negotiations in the first half of 2014 (see above). Neither party contended that the BFA was either abandoned or frustrated. The husband made written submissions to the contrary. I note also that neither party argued the other party was in breach of the BFA, giving rise to a right to terminate. As already noted, neither party has sought at any point to set the BFA aside for abandonment, frustration or any other reason.
I turn next to the husband’s argument, based on constructive trust.
Constructive trust & the Muschinski principle
As already noted, in light of the facts of this matter, the husband puts his case on the basis of the well-known passage from the judgment of Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 618:
Both common law and equity recognise that, where money or other property is paid or applied on the basis of some consensual joint relationship or endeavour which fails without attributable blame, it will often be inappropriate simply to draw a line leaving assets and liabilities to be owned and borne according to where they may prima facie lie, as a matter of law, at the time of the failure. Where there are express or implied contractual provisions specially dealing with the consequences of failure of the joint relationship or endeavour, they will ordinarily apply in law and equity to regulate the rights and duties of the parties between themselves and the prima facie legal position will accordingly prevail. Where, however, there are no applicable contractual provisions or the only applicable provisions were not framed to meet the contingency of premature failure of the enterprise or relationship, other rules or principles will commonly be called into play.
In Muschinski (supra) at 620 Deane J also said:
… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specifically provided that that other party would so enjoy it. The content of the principle is that, in such a case, equity will not permit the other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable to do so ...
The High Court of Australia adopted the reasoning of Deane J in Baumgartner v Baumgartner (1987) 164 CLR 137. In Baumgartner (supra) at 149 the application of the principle to the facts of that case was expressed as follows:
The facts that the Leumeah property was acquired and developed as a home for the parties and that, at least indirectly, it was largely financed out of money drawn from the pool of their earnings, this being one of the purposes which the pool was to serve, combine to support an equality of beneficial ownership at least as a starting point. Equity favours equality, and, in circumstances where the parties have lived together for years and have pooled their resources and their efforts to create a joint home, there is much to be said for the view that they should share the beneficial ownership equally as tenants in common, subject to adjustment to avoid any injustice which would result if account were not taken of the disparity between the worth of their individual contributions either financially or in kind.
Consequently, the Muschinski principle has since, at times, been referred to as the “Baumgartner principle”. It was considered at length in West v Mead (2003) 13 BPR 24,431 by Campbell J (as he then was):
Before any particular asset can become subject to a constructive trust in accordance with the Baumgartner principle, one needs to have a joint relationship or endeavour, and an asset acquired in the course of, and for the purposes of, that joint relationship or endeavour…
In accordance with this approach, a plaintiff needs to establish that there is indeed a joint endeavour between the parties, in which expenditure is shared for the common benefit. It is also necessary to identify what the scope of that joint endeavour is. It is a question of fact, for any couple, what the scope of the joint endeavour they are engaging in is. Further, for any couple, the scope of the joint endeavour they are engaged in might change from time to time. If, within the scope of a joint endeavour which lasts for years, an asset is acquired, as a result of contributions both parties have made, and for a purpose of the ongoing joint endeavour of the parties, this gives rise to the presumption that the beneficial interest ought be shared equally. That presumption can be displaced if one party is able to show that the contributions, both financial and non-financial, to that asset should be regarded as unequal. In practical terms, this way of proceeding will place the onus of attributing a value to non-financial contributions on the person who asserts that the title should be held unequally.
Campbell J went on to highlight the differences between a Baumgartner constructive trust and resulting trust and the role of intention:
A second way in which the principle that beneficial ownership should be proportionate to contributions, which underlies the law of resulting trusts, is transmuted in the Baumgartner type of constructive trust, is in another aspect (besides counting non-monetary contributions) of what counts as a contribution to the purchase price. The payment of mortgage instalments, after a property has been acquired using money borrowed and secured by mortgage, has been accepted as a “contribution”, in this context – Baumgartner at 148. This is unlike the resulting trust principle, in accordance with which it is only in unusual situations that a payment of such mortgage instalments is regarded as a contribution. (References concerning this aspect of resulting trusts are collected in Black Uhlans Incorporated v New South Wales Crime Commission [2002] NSWSC 1060 at [141]-[142])
Even if one bears in mind that mortgage instalments usually include a component of each of principal and interest, it is still possible for the mortgage instalment to be taken into account in deciding the terms of a constructive trust. Continual payment of the interest on the loan which finances the family home is every bit as much a part of the joint endeavour of maintaining the family unit and providing for its future as is meeting other recurrent but necessary expenses like buying the groceries. But the fact that part of the instalment is a payment of interest means that the beneficial interest in property acquired as a result of paying an instalment is not likely to be equal in value to the amount of the instalment paid. It is the proportions in which contributions to the purchase price are made which matter in determining beneficial ownership, not the absolute amount of such contributions. (Emphasis added.)
Another aspect of difference between the Baumgartner basis for a constructive trust, and a resulting trust, concerns the role which the intention of the parties plays. The Baumgartnertype of constructive trust is imposed to prevent an unconscionable assertion of legal title, in circumstances where the parties had no explicit intention about how the legal title would be held in the circumstances which have arisen. By contrast, the presumption of a resulting trust is one which seeks to give effect to the intention of the parties, by making a presumption about what that intention was (Russell v Scott (1936) 55 CLR 440 at 451; authorities collected in Black Uhlans Incorporated v New South Wales Crime Commission [2002] NSWSC 1060 at [133]- [136]). Even so, that is not to say that the intention of the parties has no role to play in whether a Baumgartner constructive trust should be held to exist. Part of the justification for imposing the Baumgartner constructive trust is that the parties have jointly been building up assets, on the basis that those assets will be available for the joint endeavour in future. Part of the reason why it can be unconscionable to let the legal title lie where it falls, if the relationship fails, is that each knew that the other was contributing to a common pool on the basis that the pool, and assets acquired from it, would be used for their ongoing common benefit. It is unconscionable for the party who ends up, at the end of the relationship, with a disproportionate share of the assets which were built up during the relationship, to keep those assets when he or she knew that that was the basis on which the assets were being built up. (Emphasis added.)
Another way in which the intention of the parties would be relevant would be if they had formed an express intention about what was to happen in the circumstance which has in fact arisen. If the parties have expressly contemplated the very situation which has arisen, and have, in advance, agreed how the assets built up as a result of their joint efforts should be divided in that situation, it would often be the case that there is nothing unconscionable in holding the parties to their agreement.
A further way in which the intention of the parties is relevant is that the Baumgartner basis for a constructive trust arises only when there is a premature termination of the relationship. To decide whether this has happened, one must look at what the intention of the parties was, about how long their relationship would endure. To take an extreme example, if one of the partners makes clear that he or she is making no commitment whatever to the relationship, and is free to walk out at any time and keep any property he or she has acquired during the relationship, it is hard to see how there is anything unconscionable in the property interests lying where they fall when the relationship ends.
The objective of improving joint material wealth is a crucial element of a joint enterprise to which the principle may apply. In Lloyd v Tedesco [2002] WASCA 63 at [30], [31] the Court of Appeal of the Supreme Court of Western Australia per Murray JA said:
The guiding principle is unconscionability. In this, as in every such case of a failed de facto relationship, there must be more than simply the performance by the plaintiff of the valuable role of the provision of love, care and support. The provision of such a contribution will be sufficient only if it is related in some factual way to the generation of wealth as part of a joint effort or endeavour to provide for the parties' mutual material welfare and security. That need not, of course, be the only purpose of the provision of such assistance to the defendant, but it must be one of the material purposes because it is that which marks out the character of the joint endeavour as being one which will generate a claim, upon the failure of the relationship, without the fault of the plaintiff, to a share in the property created, acquired, maintained and improved during the course of the relationship, where the endeavour can be seen to be related to particular items of property, or will generate a claim for compensation representing the value of the contribution made by the claimant to the increase in the material wealth which was intended to be enjoyed by the parties jointly.
A joint endeavour of this character is one which has the aim of adding to the parties' material wealth for their mutual benefit rather than being one where the plaintiff simply provides loving care and support to the defendant as a normal incident of a de facto relationship. In that sense it is right to say that the joint endeavour must be one intentionally or deliberately entered into for the purpose of advancing the parties' mutual material wealth. Only if it bears that character will it be unconscionable to allow the defendant to retain the entirety of the beneficial interest in that wealth. To hold otherwise, and in particular to hold that it would be sufficient if in fact the efforts of the plaintiff advanced the defendant's capacity to acquire wealth, would, in my opinion, be to commit the error to which Deane J adverted in Muschinski of giving undue rein to the court's idiosyncratic notions of fairness and justice.” (Emphasis added)
Therefore, the concept of a joint enterprise, meaning a pooling of resources with shared expenditure to improve mutual material wealth and a failure of the substratum of the enterprise “without attributable blame” with unconscionable retention of a benefit, are the central elements of the case to be made by the husband.
On the basis of this principle, the husband claimed, in final submissions, a constructive trust over part of the proceeds of sale of $1,326,500.00, calculated as follows. From the amounts paid to the (omitted) Bank, being $428,813.84, the amount of $119,115.75 should be deducted to reflect debts of his business enterprises, known as (business omitted) and (omitted) business. That left a balance of proceeds after some other deductions of $897,687.00 to which should be added back the figure of $119,115.00 giving a total of $1,016,802.00. By reason of the Annexure to the BFA setting out the agreed value of the property as at July 2006 in the amount of $700,000.00 with a mortgage liability then to the (omitted) Bank of $270,000.00, the mortgage value was 38.5 per cent of the capital value of the property at that time. The husband submitted that by reason of his payments towards the mortgage between 2006 and 2013, he maintained the proportion of the mortgage liability to the capital value of the property at 38.5 per cent. Therefore, 38.5 per cent of $1,016,802.00 is $391,468.00 from which should then be deducted the amount of $119,115.00 leaving an amount of $272,353.00. It is this amount that should be held by the wife on constructive trust for the husband.
Joint Enterprise
As a fundamental part of his argument, the husband needs to establish that there is a joint endeavour or enterprise, and to identify its scope. This is a question of fact.
Two possible joint endeavours were identified in the submissions of the parties. The first, for which the husband argues, is a joint endeavour demarcated by the BFA.
The Muschinski principle has been held to cover a variety of situations including domestic arrangements, frustrated contracts, partnership and contractual joint ventures: Muschinski (supra) at 619-20; McKay v McKay [2008] NSWSC 177 at [13]. In principle there is no reason why a contract or deed cannot describe the parameters of a relevant joint enterprise in a domestic or personal relationship situation. In Bruinsma v Menczer [1996] NSWSC 8 the parties (who were mother and daughter) entered into several deeds, the later one of which made provision for the ongoing shared residence of mother and daughter at particular property with joint expenses until certain events happened. The mother also contributed money. Santow J held the Muschinski principle applied. The joint enterprise was embodied in the deed. The living arrangement failed so the substratum was removed without attributable blame, but it would have been unconscionable for the daughter to retain the benefit of the contributions of the mother. In McKay (supra) the parties reduced their joint enterprise to a written agreement, providing for the provision of care of one party for his life in return for a transfer of real estate to the other parties, and the creation of a life interest.
I accept that a BFA could, if appropriately worded, constitute a joint enterprise which could fall within the Muschinski principle. It would depend whether the terms of the relevant agreement, properly construed. Prima facie, a BFA made pursuant to either s.90B or 90C, that is, before or during a marriage, may be thought to bring about a joint enterprise more readily than a BFA made pursuant to s.90D, which requires a relationship breakdown and divorce.
The BFA in the present case was made pursuant to s.90D. I do not accept it brought about a joint enterprise in the requisite sense. The obvious purpose of the BFA was not to increase the parties’ mutual material welfare through a joint enterprise. Its purpose was to bring the financial aspects of their previous joint enterprise, in the form of their marriage, to an end. The husband argued as much in his supplementary submissions, stating:
It was a joint endeavour to bring the financial arrangements and entanglements between the parties to an end with the intent that they could each get on with their lives, save only for the [husband’s] ongoing obligation to provide child support.
The BFA may have been ‘joint’ in the sense of requiring both parties to do things but it was a joint method of dissolution. Under the terms of the BFA, there was no pooling of resources to increase mutual material wealth. It was not an enterprise with such a purpose. In my view, it makes no difference that the terms of the BFA oblige the parties to co-operate in a number of respects to achieve a sale of the property, as the husband submitted. The terms of the BFA require co-operation to finalise a defunct joint enterprise. As the wife points out, the BFA deals not only with the sale of the property, which required some co-operation, it also deals with final division of the other relevant assets including the husband’s business, and the other personal property of the parties. I do not accept that there was a joint enterprise embodied in the BFA to which the Muschinski principle could apply.
The wife’s primary position was that there was no joint enterprise. Her submissions, however, raised a second possible joint enterprise. She argued a joint endeavour on the facts of this case could only have arisen from the consensus reached after the failed 2006 auction.
I have set out above the evidence of the conversations between the parties after the failed auction in 2006. The evidence shows the wife was looking for a better sale price. The versions are not materially different in this respect and I find that the parties formed a common intention that the property not be sold immediately in accordance with the terms of the BFA, to allow time for the market to improve. Objectively, the parties reached a consensual position after the failed auction not to perform the terms of the BFA, in particular clause 5.6. According to the evidence, the parties placed no time limit on this arrangement. It was open ended. It makes little difference which party proposed the arrangement. The important point is that both acquiesced in and adopted it. Either party could have insisted on adherence to the terms of the BFA, with serial auctions to take place until the property was sold pursuant to clause 5.6. Neither party did so.
Rather the parties agreed to take the property off the market, and the husband contributed mortgage payments and utilised the property as security for additional business borrowings for many years. He also preserved the property as an asset and provided accommodation for the wife and children of the relationship by servicing the mortgage until default in 2013. The wife provided care for the children and, I infer, spent money for their benefit.
These factors may be thought to satisfy, at least partially, the requirement of a joint enterprise. They show the parties maintained many family or domestic elements that had existed before they separated. It could be said there were the following elements present: “continual payment of the interest on the loan which finances the family home” and maintenance of a “family unit and providing for its future” by “meeting other recurrent but necessary expenses like buying the groceries.” (West v Mead (supra)). In some cases partial integration of resources has been enough. The decision in Hibberson v George (1989) 12 FamLR 725 shows that total pooling of resources is not essential, if there is an ongoing relationship. In Miller v Sutherland (1990) 14 FamLR 416 one party bought a house in his own name and paid the purchase price. There was no pooling of funds but a pooling of labour for renovation and contributions for materials by the other party. The implied common intention was to provide a home for both parties and increase its value. Cohen J upheld a constructive trust in favour of the non-owner. See also Lloyd v Tedesco (supra). Non-financial contributions as homemaker and parent are relevant to the application of the Baumgartner principle: Parij v Parij (1997) 72 SASR 153; Cressy v Johnson (No.3) [2009] VSC 52.
In McKay (supra) the joint endeavour was a proposed lifetime of care for one party by the other. A father transferred his half share of a property to his daughter and partner on the basis that he would be permitted to reside in the property for the rest of his life, and that his daughter would care for him as required for the rest of his life. Although he argued for a different version of a joint enterprise, the husband relied upon a passage in McKay (supra) at [15] where Brereton J said:
For the plaintiffs, [it was submitted], first, that the principles in Muschinski v Dodds are not applicable in the present case because this was not a case of a joint venture but a mere contractual relationship. I am unable to accept that submission. First, the relationship between the parties involved co-ownership and co-occupation of property for residential purposes. Secondly, the relationship necessarily involved elements of mutual trust and confidence between them. Thirdly, it involved ongoing obligations to provide care and accommodation. Fourthly, it arose in a family context.
The facts demonstrate that the parties here preserved a degree of connection and both made contributions, not directly to or for each other, but towards and centred around the children’s needs. It may fairly be said there was an element of mutual benefit and a degree of “mutual material welfare and security”.
But in all cases, as in Baumgartner, at the time of pooling or partial pooling of resources, there still existed an ongoing relationship between the parties. In Hibberson at 742, McHugh JA said “it is probably enough that by mutual arrangement the parties have each spent moneys for the purpose of their joint relationship…”
In the present matter there may have been a relationship of sorts, a somewhat frosty and distant connection through parenting and some financial involvement as well as the BFA itself. There may have been co-ownership until the property was sold. But, in my view, it was not the type of relationship necessary for the application of the Muschinski principle. There was no “co-occupation of property for residential purposes.” (McKay (supra)). There was no “commitment to, and hopes for, a joint future”: Crafter & Crafter [2011] FamCA 122 at [82]. Any such relationship had come to an end in April 2002 when the parties separated or at the latest by 20 April 2006 when they divorced. There was nothing analogous to a commercial relationship such as a partnership for profit.
Here the parties separated voluntarily. So by the time the BFA was signed in July 2006 “any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship” was brought to an end: Stanford v Stanford (2012) 247 CLR 108 at [42].[1] After the failed auction the parties remained connected through continued joint ownership of the property and care for the children but they were not in a relationship of trust and support. It could not be said that any express or implicit assumptions arising from the marriage relationship underpinned the approach to dealing with the property: cf Zaruba & Zaruba [2017] FamCAFC 91 at [35].
[1] These comments were directed to the provisions of Part VII of the Act, but have force by analogy.
The husband argued there was a relationship that did “involve mutual trust and confidence between the parties, at least to the extent of carrying out the terms of the BFA” (Written Submissions, paragraph 48). I do not accept this submission. There is no material element of mutual care or trust moving between the husband and the wife through the terms of the BFA. There may have been an obligation of co-operation, but a primary purpose of the BFA, being post-divorce, was to spell out and govern the remaining financial dealings and terms of the co-operation between the parties precisely because there was an absence of trust and confidence.
There was also an absence of intention to increase mutual material wealth. The purpose of delaying the sale of the property was to achieve a “better price” but as the wife submitted, there was no intention expressed in any version of the post-auction conversations for a joint sharing of any increase in value as “mutual material wealth”. The BFA gave the proceeds of sale, including any capital gain, to the wife. This was not the subject of any discussion. There was nothing said to indicate any change from the express common intention disclosed in the BFA, namely, that the wife would receive the net proceeds in full. As already noted several times in these reasons, the parties remain bound by the BFA. In the absence of convincing evidence to the contrary, I infer therefore that the parties at all times intended any proceeds of sale would be dealt with in accordance with the BFA, whenever the property was to be sold. There were also no shared expenses. At most the evidence shows the wife and the husband contributed in their own ways separately to the maintenance of the property as the family home for the wife and the children of the marriage.
There is therefore a real difficulty in analysing the situation as one involving “actual intention to pool resources” or as one in which the parties “intentionally or deliberately entered into for the purpose of advancing the parties' mutual material wealth” (Lloyd v Tedesco (supra) at [86]).
The husband gave evidence that he held an expectation of being reimbursed for mortgage payments. There was no evidence that he ever communicated this expectation to the wife either during the post auction conversations or later. More importantly, he also gave evidence that he felt a moral obligation to the bank and his children to keep paying the mortgage on the property in which they were living (paragraph 9 of his affidavit sworn 19 May 2015), which he repeated in cross examination.
Accordingly, I am unable to find that there existed any joint enterprise to which the Muschinski principle could apply on the facts of this case This conclusion is sufficient to defeat the husband’s claim.
In case the matter goes further, I will deal with the other elements of the husband’s case.
Failure of Substratum
In accordance with the decisions in Kriezis v Kriezis [2004] NSWSC 167, Hill v Hill [2005] NSWSC 863, at [35] and McKay (supra) at [16] I am satisfied that there is no blame to be attributed to either party for the failure of either version of the joint enterprise.
In my view, it cannot be said there has a relevant failure of a “substratum” on either version of the alleged joint endeavour.
It is important to bear in mind that intention of the parties is relevant to the question of failure of the substratum “because the Baumgartner basis for a constructive trust arises only when there is a premature termination of the relationship” (West v Mead, above)
The husband submitted that the substratum of the joint endeavour, as demarcated by the BFA, was removed, or was broken, by the failure to sell the property “as intended by the BFA” (Written Submissions, paragraph 41). This appears to mean the substratum failed because the property was not sold by serial auctions, within a reasonable period after the BFA and for a price in the region of $700,000. The substratum also included sale of the property to create a fund for the benefit of the wife. In other words, it was argued, central to the substratum was a sale price close to $700,000 creating a fund of about $430,000, as reflected in the BFA. The husband is essentially arguing that the substratum failed because the value of the property increased significantly before the fund was created in November 2014 and the wife would receive a much larger sum than $430,000.00.
It is difficult to see why the asserted substratum failed prematurely, if at all. Creation of the fund may have been central to the asserted substratum, but some cap on its size at $430,000.00 was not. The husband acknowledged in cross-examination that he always understood the wife would keep any increase in value, whenever the property sold, and the parties acted consensually to delay the sale of the property.
There are other difficulties with the husband’s argument. He argues that although there was no breach giving a right of rescission to either party, and no termination for any other reason, as a joint enterprise the BFA failed, at least in equity for the purposes of the Muschinski principle. This argument can only mean, that, although the BFA defined or embodied joint enterprise, the substratum failed and the joint enterprise did not remain on foot, even though the BFA did. This is a difficult argument. Prima facie, it would seem inherent in accepting that the BFA remains valid and enforceable that any joint endeavour constituted through its terms could not have failed. The parties remained bound by its terms and either of them could have taken steps to enforce the terms at any time.
Moreover, it is unclear exactly when the asserted substratum is said to have failed. If the substratum required sale of the property and it failed by reason of non-sale after the post auction consensus in 2006, there had been no contributions or capital gain at that time upon which the Muschinski principle could operate. By comparison, in McKay (supra) for example, the substratum, demarcated by the terms of the agreement, required lifetime care. Contributions were made while this substratum remained intact. The substratum failed because of personal antagonisms well before the relevant life time was over. A remedial constructive trust was imposed on the contributions already made. No other point in time for a relevant failure was pointed to.
If the relevant joint venture was constituted through the post auction consensus, its purpose or substratum did not fail. Rather it was realised. The parties waited nearly eight years and a better sale price was achieved. That was the objective.
Unconscionability
Unconscionability is at the heart of the Muschinski principle. I will give my views about its role in case the matter goes further.
In Shepherd v Doolan [2005] NSWSC 42 the plaintiff claimed a joint endeavour in the acquisition of a parcel of real property, during the deceased’s lifetime. At [30], White J summed up the role of unconscionability as follows:
The ultimate basis for the imposition of a constructive trust is that it would be unconscionable for the holder of the legal title to the property to assert that he holds it free of any beneficial interest in the claimant. However, although “unconscionability” is the underlying basis upon which equity will intervene, it is not itself a sufficient description of the principles upon which equity does so. Equitable rights do not arise merely because the Court considers it fair in all the proven circumstances that the legal owner of property should hold it, or a portion of it, for the benefit of another.
One consequence of this understanding of the role of unconscionability is that intention is not determinative. The factual findings set out above demonstrate there was no common intention that the wife should hold any of the proceeds of sale, in the form of the controlled moneys, on trust for the husband. The type of constructive trust argued for in this case, however, does not necessarily rely on common intention. A constructive trust may be imposed despite the fact one party had no intention of holding the property on trust for the other or the parties had no explicit intention about how the legal title would be held in the circumstances which have arisen: Baumgartner (supra) at 129 (per Mason CJ, Wilson, Deane JJ); West v Mead (supra) per Campbell JA; Shepherd v Doolan (supra) at [33].
It was not argued that the provisions of Part VIIIA of the Act preclude or limit the application of principles founded on unconscionability: cf Fevia (supra) at [293]-[294].
The continuing operation of the BFA, adverted to many times already in these reasons, is of considerable importance to the question of unconscionability.
The husband submitted, as a matter of construction, the BFA did not “address the possibility that the house might not be sold within a short time, or even a reasonable time after the execution of the agreement”. It was argued that this deficit gave scope for the operation of the Muschinski principle. I do not accept that submission. There was no such lacuna in the terms of the BFA. Clause 5.6 addresses that very possibility, and provided a mechanism to ensure the sale of the property, by a series of auctions with a reserve reducing until the property was sold. If its terms had been adhered to, the property would have been sold well before 2014.
On the other hand, it is true that the parties in their conversations after the failed 2006 auction did not express any intention “about how the legal title would be held in the circumstances which have arisen” (see West v Mead (supra)), ie, an eight year delay before sale and a substantial increase in capital value. Their conduct suggests they were content to accept that position. This may have eventually provided a basis to set the BFA aside under the provisions of Part VIIIA of the Act, but neither party has taken such a step. The BFA remained in force.
In my view, therefore, this case remained at all times a case of common intention, expressed in the BFA. Despite the fact that the parties did not adhere to its terms regarding sale after the failed auction the BFA continued to express their common intention about the proceeds of sale of the property. The argument of the husband conflates delay in the timing of sale with rights to the controlled moneys. If the BFA is operative and binding, it governs the ownership and disposition of the controlled moneys. It could not be said that the parties “had no explicit intention”, because the relevant circumstance was the creation of net proceeds of sale, whenever that took place, and the terms of the BFA disclose the parties’ explicit intention in that regard. So even if, contrary to my conclusion above, either version of the asserted joint enterprise were to be upheld, it follows that by the terms of the BFA the parties agreed “how the assets … should be divided”. To paraphrase Deane J, disposition of the controlled moneys to the wife was “specifically intended [and] specially provided for" by the BFA (see also McKay (supra) at [18]-[19]). The entitlements pursuant to the BFA remain unaltered. In Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135, a case about a joint endeavour contained in a partnership agreement, at [82] Campbell JA (as he became) explained at [84]: “In my view, the present is not a circumstance in which a Muschinski v Dodds trust arises, because [a clause] of the partnership agreement contains express provision for the manner in which the partnership assets are to be divided upon termination. There is nothing unconscionable about holding the parties to their agreement in that respect.” cf West v Mead (supra) at [63]. In Bruinsma (supra) at [130] Santow J held that the application of these principles of unconscionability “must be consistent with the proper contractual entitlements of either party”. Similarly, holding the parties to the terms of the BFA is not unconscionable in this case.
One can point to additional reasons why there is no requisite element of unconscionability on the facts of this case. First, the husband conceded that he assumed when entering the BFA that the wife was accepting any risk of a rise or fall in the market, acknowledging that she was to keep any capital gain or bear any shortfall. He agreed that if the property had sold in 2007 he would not “have put his hand up” for any capital gain.
Secondly, as already observed above, there was benefit to the husband in retaining the property, and thus in continuing to service the mortgage. He avoided any obligation to pay child support under the CSA. He retained ownership and control of his businesses. He could and did utilise the property for additional borrowing to further his business interests, even if those interests also provided the revenue to service the mortgage. As noted above, when the property was sold, $119,115.75 was remitted to the (omitted) Bank to discharge debts of his business enterprises. In other words, part of the proceeds of sale were used to retire debts associated with the husband. These debts were not in contemplation when the BFA was executed. On this analysis the husband received the benefit of $119,115.75 out of the proceeds of sale. This amount is also the subject of the wife’s cross claim, which I deal with below.
Thirdly, the husband argued that the retention of the entire proceeds of sale by the wife becomes unconscionable because she was the one who did not adhere to the terms of the BFA. I do not accept that argument. Despite the submissions of the husband to the contrary, the wife, on the evidence, cannot alone be held responsible for noncompliance with clause 5.6. If the husband wished to bring about a sale, he could have required the wife to comply with clause 5.6, and invoke the provisions of Part VIIIA of the Act, particularly the enforcement powers in s.90KA of the Act, if she refused. He did not do so. On the contrary, he acquiesced knowingly and for a long period in the noncompliance. He continued to pay the mortgage out of a sense of obligation to his children and perhaps the wife, which is of course praiseworthy. But there was no representation or other conduct by the wife disclosed in the evidence which induced him into this course of action and would affect her conscience in equity.
Accordingly, I am satisfied that the husband has not established that it would be unconscionable for the wife to retain the entirety of the net proceeds of sale in accordance with the terms of the BFA.
The wife also argued that there was no unconscionability because by reason of the eight year delay, the husband escaped liability for child support under the CSA. I do not see much force in this submission because the husband kept up payments of the mortgage until 2014, which enabled the wife to remain in the former matrimonial home with the children.
At this point it is apposite to emphasise that the central question is not one of fairness. It is whether it would be unconscionable for the wife to assert that she held the controlled moneys free of any beneficial interest by the husband. The dictum of Deane J in Muschinski at 615, cited numerous times, is worth repeating again, namely, that though a constructive trust may be a remedial remedy it is not a “medium for the indulgence of idiosyncratic notions of fairness and justice” even if general notions of fairness and justice are relevant to the traditional concept of unconscionable conduct: Baumgartner at 148. It is hard to find any conduct of the wife revealed in the evidence which violated general notions of fairness and justice.
Whilst it is not strictly necessary to do so, it remains to deal with three other issues: possible oral variation of the BFA, the existence of an implied term and unjust enrichment.
Variation of the BFA
The wife argued the parties had varied the BFA by their conversations and conduct after the failed auction. No argument was directed to waiver or estoppel. The wife relied upon the words “unless the parties otherwise agree” in clause 5.1 to argue that the parties agreed pursuant to this contractual provision to vary the terms of the BFA. If so, this would also not only address any question of abandonment or frustration, because their conduct after 2007 could be characterised as conduct in accordance with the BFA as varied, it would also be a complete answer to the husband’s argument based on unconscionability.
The husband argued there was no variation because any variation had to be in writing to be effective. There was clearly no written variation of the BFA.
It is not strictly necessary to decide this issue since, on the views I have formed, its determination would not affect the outcome. Even if there was a variation of the BFA as alleged, this would simply be another reason why there does not exist on the facts of this case either a joint enterprise or unconscionability which could support a constructive trust. Sufficient reasons have already been given for this conclusion. However, again in case this matter is taken further, I will express my view.
Generally, parties to an existing agreement may vary or extinguish some of its terms by a subsequent agreement, expressed orally or implied from conduct: Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd 1957] HCA 10; (1957) 98 CLR 93 at 112-113, 122-124, except where the contract is required by law to be evidenced in writing: Phillips v Ellison Bros Pty Ltd (1941) 65 CLR 221 at 244; Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd [1981] FCA 117; (1981) 36 ALR 567 at 576 per Ellicott J. For an alleged subsequent variation to be contractually effective, it must itself otherwise satisfy the requirements of a valid contract, ie there must be certainty and consideration: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 99 at [24]. See, generally, the discussion in GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited [2003] FCA 50; (2003) 128 FCR 1 at [214]-[232].[2]
[2] Followed in Sanger & Sanger [2011] FamCAFC 210.
On one view oral variation of a BFA, or variation of a BFA implied from conduct, are concepts that do not sit easily with the provisions of Part VIII of the Act. It is clear that a BFA must be in writing: Fevia at [123], s.90B. It becomes “binding” if s.90G of the Act is complied with. It may be terminated by the parties “only” by another BFA or a written termination agreement (s.90J of the Act).
However, I have come to the view that it is not necessary to decide the question of whether a variation of the BFA must be in writing to be enforceable. I am satisfied that, quite apart from any requirement of writing, or consideration for that matter, the alleged variation was not sufficiently certain. The decision in Kostres v Kostres (2009) 42 FamLR 336; FLC 93-420 at [127] observed the meaning to be given to expressions must accurately reflect the intentions of the parties, and the meaning must be clear at the time of making the agreement. Here that means at the time of the purported variation, ie, in the post auction conversations. It is not at all clear exactly what terms in the BFA were said to be varied, or in exactly what manner, in those conversations. In my view there was no variation of the terms as generally understood in the law of contract.
There is no clear substitute for the regime set out in clause 5.6 of the BFA. The parties merely formed a loose consensus not to sell the property for an unspecified period, whilst the husband paid the mortgage. It is not possible to discern, either from the conversations or subsequent conduct of the parties, any clear varied obligations or rights about how or when the property was to be sold. To put it another way, although courts strive to uphold agreements (see Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 40), the terms of the alleged variation are not sufficiently certain to qualify as enforceable. Rather the parties made a “parol arrangement” relating to “the mode and manner of the performance of an existing obligation”, which was not intended to have contractual force: Phillips (supra) at 244.
Implied term
As I have already found, the open ended and loose consensus not to sell in accordance with clause 5.6 posed serious problems for the husband’s argument. The husband recognised this and argued there was implied into the BFA a term that the property would be sold “within a reasonable time”.
There has been some recognition of the possibility of implied terms in a BFA: see, for example, Ruane (supra) at [60]; Garvey v Jess (supra) at [42]ff..
Standard texts on contract law often state that where time for performance is not specified in a contract, a reasonable time is implied, but this may be because the tests for implication of the term are satisfied in relation to each particular contract: see, for example, Handley v Gunner [2008] NSWCA 113; (2008) 13 BPR 25,139 at [124]. The implied term here was said to meet the well-known requirements set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20 at 26, which include the limitations that it be so obvious that “it goes without saying” and it must not contradict any express term of the contract.
The implication of a term into a formal written agreement requires, as Deane J observed in Hawkins v Clayton (1987) 164 CLR 539 at 571, the insertion of an additional term which “effectively involves an alteration to what the parties have formally accepted as the complete written record of the compact between them.” A valid BFA made in compliance with Part VIIIA of the Act is such a complete record.
I reject the asserted implied term. It is unnecessary. The BFA does not need the asserted implied term for its efficacy. It provided a comprehensive regime to bring about the sale of the property. Clause 5.6, in particular, provided a mechanism to ensure the sale of the property by a series of auctions with a reserve reducing until the property was sold. If its terms had been adhered to, the property would have been sold well before 2014. The asserted implied term would be inconsistent with clause 5.6. Since the BFA remains on foot, the asserted implied term founders on this inconsistency.
The husband submitted that without such an implied term the wife could have gone on living in the property “howsoever long she chose” and the BFA was “quite ineffective without it”. This submission stands in some tension with the continued existence of the BFA. The terms of the BFA were not ineffective. The husband could have taken steps at any point between 2007 and 2014 to enforce the efficacy of the BFA.
In truth, the husband’s argument is that at the point where the parties simply decided not to perform the BFA, or perform it in a manner substantially different to the manner required by its terms, it became necessary to imply a term that the property would be sold within a reasonable time. I do not accept this. If the BFA remained at all times on foot, and was not varied, as I have found, there is no occasion to imply a term, ad hoc and after its formation, simply to cover the situation where the parties consensually decided to ignore its terms for an extended period, but did not vary the terms.
It is also not clear what the proposed implied term adds to the constructive trust case made by the husband. The husband appears to argue that it was breach of the implied term which led to the conclusion that it would be unconscionable for the wife to retain all the net capital gain. It is not clear how the rights arising from breach of the implied term could comfortably co-exist with the unconscionable retention of a benefit by operation of the Muschinski principle. The remedy for breach of the asserted term would be damages. As the wife points out, the husband makes no claim for damages for breach of contract. There are no submissions going to questions of causation or quantification of damage.
Unjust enrichment
Although by his pleadings in the Supreme Court of New South Wales the husband alleged a claim based on unjust enrichment, I note this was not pressed before me. At paragraph 13 of his Supplementary Submissions the husband in fact makes clear his claim was not brought as one of unjust enrichment “as some sort of common law doctrine”.
The wife’s cross-claim
The wife’s Statement of Cross-Claim filed in the Supreme Court of New South Wales on 19 February 2015 sought, in addition to the claim for the controlled moneys, relief in the form of equitable compensation for the further borrowings by the husband of $119,115.00 which were secured against the property. These have described earlier in these reasons.
The wife’s case on her cross claim is that it would be unconscionable for her entitlements the net proceeds of sale of the property to bear the obligation of discharging the business borrowings of the husband because she did not know about them, gave no consent and received no benefit. This, the wife argues, is equitable fraud for which compensation should be paid.
I do not accept that this argument. It fails at a factual level. As recorded earlier in these reasons, the husband borrowed a total of $37,000.00 for his businesses in 2007 and 2008. The evidence, recorded earlier, shows that the wife consented to these loans. The wife also had some knowledge of the later borrowing of $80,000.00. This can be seen from the guarantee she signed. It was conceded in argument by the wife that even if the guarantee was not accepted by the bank, she was prepared initially, at least, to give it. There is no evidence she objected to the husband taking the loan. According to his uncontradicted evidence recorded above, the wife took the view the property belonged to the husband as well as her. From this I infer she knew of, and acquiesced in, the borrowing.
In addition, the evidence of the husband was that his businesses, whilst going concerns, were the source of revenue to pay the mortgage, from which the wife benefitted.
For these reasons there was no element of unconscionability in the conduct of the husband and the wife’s claim for equitable compensation fails. Any claim for equitable contribution by the wife fails for the same reasons.
Conclusion
In light of the discussion above, the husband’s claim for a constructive trust fails. The wife is entitled to retain the entirety of the controlled moneys and I will make a declaration reflecting this conclusion. I will, however, dismiss the wife’s claim for equitable compensation for the reasons as set out above.
Costs
Section 117 of the Act sets out that each party shall bear his or her own costs, subject to the considerations in sub-section two of that section.
Any order for costs must also be determined in light of the substantive judgment and the relative success or failure of the parties. This is, naturally, something that can only be addressed after judgment has been delivered.
The Court proposes to make the orders and directions in relation to any application for costs that might be made as set forth in the orders at the commencement of these reasons.
I certify that the preceding one hundred and forty five (145) paragraphs are a true copy of the reasons for judgment of Judge Harper
Date: 2 June 2017
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