McCauley v McInnes
[2012] ACTMC 2
•6 July 2012
McCAULEY v McINNES
[2012] ACTMC 2 (6 July 2012)
MAGISTRATES – jurisdiction and procedure generally – jurisdiction to determine equitable claims related to residential tenancy dispute – Magistrates Court Act 1930 (ACT), s 257 – Residential Tenancies Act 1997 (ACT) s 77
EQUITY – “Windfall equity” – tenant making improvements to property - availability of equitable relief when improvements to property pursuant to an arrangement for sharing of capital gain.
Magistrates Court Act 1930 (ACT) ss 257, 258
Magistrates Court (Civil Jurisdiction) Act 1982 (ACT) ss 5, 6
Residential Tenancies Act 1997 (ACT) ss 72, 76, 77, 79
Amalia Investments Ltd v Virgtel Global Networks NV (No 2) [2011] FCA 1270
Blair v Curran (1939) 62 CLR 464
Blomley v Ryan (1956) 99 CLR 362
Carson v Wood (1994) 34 NSWLR 9
Commercial Bank of Australia v Amadio (1983) 151 CLR 447
Downham v McCallum [2008] TASSC 81
Foley v Green [2011] VSC 155
Forsyth v DCT (2007) 231 CLR 531
Luke v Chamberlain [2000] NSWSC 626
McCauley v McInnes [2008] ACTRTT 11
Mattock v Mattock (1989) 13 Fam LR 288
Morris v Morris [1982] 1 NSWLR 61
Muschinski v Dodds (1984) 160 CLR 583
Nocton v Lord Ashburton (1914) AC 932
Re Hamilton Irvine Irvine (1990) 94 ALR 428
Sellick v Sellick and Huntley [2008] FMCAfam 1066
Taylor v Streicher [2007] NSWSC 1006
Tito v Waddell (No 2) [1977] Ch 106
Todd v Todd [2007] 245 NSWLR 14
Vale v TMH Haulage Pty Ltd (1993) 31 NSWLR 702
Van Dyke v Sidhu [2011] NSWCA 187
No. CS 10274 of 2010
Magistrate: Mossop
Magistrates Court of the ACT
Date: 6 July 2012
IN THE MAGISTRATES COURT OF THE )
) No. CS 10274 of 2010
AUSTRALIAN CAPITAL TERRITORY )
BETWEEN:JACQUELINE ELIZABETH McCAULEY
Plaintiff
AND:ANTHONY BLAIR McINNES
Defendant
ORDER
Magistrate: Mossop
Date: 6 July 2012
Place: Canberra
THE COURT ORDERS THAT:
(a)The defendant pay the plaintiff the sum of $31,344.07.
(b)The defendant pay the plaintiff’s costs of the proceedings, unless either party applies within 7 days for the matter to be relisted for argument on costs.
Introduction
1. These proceedings involve a somewhat unusual rental arrangement which anticipated that the plaintiff would be able to make capital improvements to the property. The arrangement was not effectively documented. This case provides a salutary warning as to the need to think through such arrangements with care and to document them with precision. Those things were not done in this case.
Overview of claims
2. On 16 April 2010, the plaintiff commenced proceedings in this Court by an originating claim which claimed a debt or liquidated amount of $44,520.23, as well as interest and costs.
3. The statement of claim (“Claim”) alleges that the plaintiff occupied premises at 15 Snowden Place in Wanniassa between June 2000 and April 2009. As a result of a dispute between the plaintiff and the defendant, the ACT Residential Tenancies Tribunal (“the Tribunal”) made a decision on 21 August 2008 that the plaintiff was a tenant in the property under a residential tenancy agreement. It is alleged that the plaintiff provided financial assistance to the defendant in the sum of one thousand dollars prior to the purchase of the property and that the defendant agreed to account for or repay that assistance. That $1000 is alleged to have been an agent’s commission, that the previous owners of the property had agreed to pay to the plaintiff. The owners agreed to reduce the purchase price for the property by $1000 in exchange for the plaintiff not claiming the commission. The defendant is alleged to have agreed to account to the plaintiff for that sum if the plaintiff and defendant reached an agreement in relation to the plaintiff's purchase of the property or if the defendant sold the property to someone other than the plaintiff (Claim at [7]). I will refer to this as the “deposit assistance” claim.
4. In addition to the rent paid under the rental agreement, the plaintiff alleges that she incurred expenditure on making improvements to the property that “the defendant agreed to account for or repay to the plaintiff” (Claim at [8]). That additional expenditure is alleged to total $43,520.23. I will refer to this as the “additional expenditure” claim.
5. It is alleged that the defendant sold the property to a third party on 8 July 2009 and that the defendant did not pay to the plaintiff either the amount of the deposit assistance or the $43,520.23 of additional expenditure.
6. Paragraph 13 of the Claim alleges that “it would be unconscionable for the Defendant to retain the proceeds of the Sale without repaying the Deposit Assistance and the Additional Expenditure to the Plaintiff and [the Plaintiff] seeks equitable relief accordingly".
7. The defendant has also brought a counterclaim against the plaintiff. That claim is based upon an alleged failure to pay rent as well as breaches of the standard residential tenancy terms arising out of damage alleged to have been caused to the property. The total amount of the claim was $11,531. The claim relating to damage to property was abandoned at the hearing. As a result the only remaining claim was a claim for arrears in rent in the sum of $5370 which was further reduced in the course of the hearing.
Jurisdiction
8. Section 257 of the Magistrates Court Act 1930 provides”
Personal actions of law – amount or value
The Magistrates Court has jurisdiction to hear and decide any personal action at law if the amount claimed is not more than $250,000 …
9. Although not expressly pleaded as a contract, the pleadings in paragraphs 7 and 8 of the Claim are allegations of an agreement apparently supported by consideration which would amount to a contract. Those claims are prima facie within the jurisdiction of the Court because a claim in contract is a “personal action at law” within the meaning of that phrase in s 257 of the Magistrates Court Act 1930.
10. The jurisdiction given by s 257 is additional to jurisdiction given to the Court under any other Act (see s 257(4), (5)). Section 258 provides that where the Court does have jurisdiction it may “grant any relief, redress or remedy that the Supreme Court could grant in a similar action in that court, and ... must give effect to any ground of defence, counterclaim or set-off, whether equitable all legal, in the same way and to the same extent that the Supreme Court would do”. Section 258 permits the granting of equitable relief in support of a common law cause of action but does not permit the Magistrates Court to hear and determine claims based on equitable causes of action that arise out of the same substratum of facts as a “personal action at law". That contrasts with the position in relation to counterclaims, where the Court has jurisdiction to determine equitable causes of action (see s 258(1)(b)).
11. When the Magistrates Court (Civil Jurisdiction) Act 1982 (the precursor to the civil jurisdiction provisions in Part 4.2 of the Magistrates Court Act) was first made, the scope of the equivalent section to section 257 of the current Act was described in the explanatory statement in the following terms:
“Jurisdiction is conferred on the Court to hear and determine a personal action at law, that is, an action in tort or in contract where the amount claimed does not exceed $10,000 (section 5). Under the Ordinance the Court is empowered, for the first time, to grant equitable relief e.g., an injunction, in a matter that otherwise falls within its jurisdiction (section 6).”
12. Thus it is clear that the legislative intention at the point at which the progenitors of sections 257 and 258 were enacted was that the Court’s jurisdiction would be limited to matters in contract and tort. That may be a too narrow interpretation of the concept of a “personal action at law”. In Vale v TMH Haulage Pty Ltd (1993) 31 NSWLR 702 at 707 Priestley JA (with whom Meagher JA and Sheller JA agreed) adopted the definition of personal action at law that appeared in The Oxford Companion to Law which indicated that such actions involved claims arising out of contracts or torts. He continued:
“On this approach the term would exclude proceedings for possession of land …[and]proceedings in equity… .”
13. He considered that the phrase incorporated claims founded upon statutes the enforcement of which, if the claims were upheld, would be expressed by a money judgment. This would extend beyond causes of action in contract and tort. He drew a distinction between personal actions at law and “claims of an equitable kind, or claims in rem”. He held that claims that are based on statute, enforceable against persons by way of monetary judgment can “be accurately regarded today as personal actions at law”. The decision in Vale was referred to with approval by the High Court in Forsyth v DCT (2007) 231 CLR 531 at 543 and 563.
14. Whether or not one prefers the limited scope of the jurisdictional provision outlined in the explanatory statement or that in Vale, it is clear that the jurisdiction of the Court under s 257 does not extend to a purely equitable claim such as that outlined in paragraph 13 of the Claim.
15. However, that position is altered by the provisions of the Residential Tenancies Act 1997.
16. In its present form the Residential Tenancies Act 1997 gives the ACT Civil and Administrative Tribunal exclusive jurisdiction to hear and decide any matter that may be the subject of an application to the Tribunal under the Act (see s 76(1)). Prior to the establishment of the ACT Civil and Administrative Tribunal that jurisdiction was given to the Residential Tenancies Tribunal. Prima facie, s 76(1) of the Residential Tenancies Act would exclude the jurisdiction of this Court in relation to a monetary claim arising out of the relationship between landlord and tenant under a residential tenancy agreement. That is because s 79 of the Residential Tenancies Act permits a party to a residential tenancy agreement to apply to the tribunal for resolution of a “tenancy dispute”. The phrase “tenancy dispute” is defined in s 72 of the Act as a dispute between the parties to a residential agreement which is “about, arises from, or relates to, the agreement". The phrase “about, arises from, or relates to” is a broad connecting phrase which, in my view, would extend to a dispute relating to an agreement forming part of or collateral to the residential tenancy agreement such as the additional expenditure claim in the present case.
17. However, where there is a claim for more than $10,000, the jurisdiction of a court which is otherwise competent to hear a claim in contract for the amount claimed is preserved by s 77 of the Residential Tenancies Act. Section 77 provides:
77 Saving of court jurisdiction
(1) A claim for payment of an amount, or for work of a value, that i more than $10 000 may be made in a court competent to hear and decide claims based on contract for the amount claimed.
(2) If a claim mentioned in subsection (1) may be made—
(a) the claimant may also make any other claim related to the relevant tenancy dispute or occupancy dispute; and
(b) the court in which the proceeding is brought may exercise the powers of the ACAT under this Act.(3) This section has effect despite section 76.
18. Subsection (1) permits claims of any sort that fall within the description in the opening words of the subsection to be litigated in a court that has jurisdiction to hear a claim in contract for the amount in question. It does not, in fact, matter what the cause of action is, so long as the court would have jurisdiction to deal with a claim in contract for the amount and the claim is for more than $10,000. As a consequence, notwithstanding the terms of s 76, s 77(1) provides the Magistrates Court with jurisdiction to hear at least the larger of the plaintiff’s two contractual claims, the additional expenditure claim.
19. However, s 77(2) further expands the jurisdiction of this Court and permits the claimant to make “any other claim related to the relevant tenancy dispute”. A claim will relate to the relevant tenancy dispute if it is associated or connected: Re Hamilton Irvine Irvine (1990) 94 ALR 428 at 433, Amalia Investments Ltd v Virgtel Global Networks NV (No 2) [2011] FCA 1270 at [41] or “... a substantial and common question” arises: Mattock v Mattock (1989) 13 Fam LR 288 at 290 or where the “facts and circumstances ... appear to be intertwined”: Foley v Green [2011] VSC 155 at [21].
20. Therefore the jurisdiction of the Court extends to a broad range of claims, whatever their legal basis, that are associated with a tenancy dispute. In the present case, although the deposit assistance claim does not satisfy the $10,000 threshold in s 77(1), it is, in my view, closely enough associated with the relationship of landlord and tenant and the subsequent alleged contributions to the improvement of the property to be a claim related to the relevant tenancy dispute for the purposes of s 77(2), and hence within the jurisdiction of the Court.
21. So too in relation to the claim for equitable relief in paragraph 13 of the Claim. The equitable relief claim is related to the relationship of landlord and tenant between the plaintiff and defendant. It has been brought in the alternative to the additional expenditure claim and the deposit assistance claim. The equitable relief claim is related to the relevant tenancy dispute, namely the dispute about the terms of the residential tenancy agreement or the existence of the collateral agreements alleged in the deposit assistance claim and the additional expenditure claim.
22. The counterclaim brought by the defendant is, on the pleadings, for $11,531. Because it exceeds $10,000 it is therefore within the jurisdiction of the Court by virtue of s 77(1). In my view that section extends to claims made by defendants as counterclaims. In any event, a counterclaim for any amount or based on any cause of action could be made based on the general provision in s 258 of the Magistrates Court which provides that:
Power of court to grant relief
(1) In any proceeding that the Magistrates Court has jurisdiction to hear and decide –
(b) the court must give effect to any ... counterclaim ... whether equitable or legal in the same way and to the same extent that the Supreme Court would do.
23. In its reference to “proceedings that the Magistrates Court has jurisdiction to hear” s 258 is not limited to proceedings in relation to which the jurisdiction is derived from the preceeding section, s 257, but extend to any proceeding where there is jurisdiction.
24. In summary:
(a) the additional expenditure claim is within the Court’s jurisdiction because of s 77(1) of the Residential Tenancies Act;
(b) the deposit assistance claim and the equitable relief claim are within the Court’s jurisdiction because of s 77(2) of the Residential Tenancies Act; and
(c) the counterclaim is within the Court’s jurisdiction because of s 77(1) of the Residential Tenancies Act or alternatively because of s 258 of the Magistrates Court Act.
25. Therefore, in my view, the Court has jurisdiction to deal with each component of the present case.
Issues determined by the Residential Tenancies Tribunal decision
26. The parties have previously litigated aspects of their relationship in the Residential Tenancies Tribunal. Although the chronology will become clearer later in these reasons, the Tribunal proceedings occurred in 2008, after relations between the parties had broken down and the defendant wished to obtain possession of the property. In its decision of 21 August 2008 (McCauley v McInnes [2008] ACTRTT 11), the Residential Tenancies Tribunal considered only the issue of the status of the plaintiff, namely whether or not she was a tenant of the defendant (at [6]). That issue was of central importance because if the plaintiff was not a tenant of the defendant then the Tribunal had no jurisdiction to deal with the plaintiff’s application or the defendant’s application for an order for possession of the premises. The Tribunal proceeded on the basis that it should determine the jurisdictional issue as a discrete question. Ultimately, the Tribunal found that it did have jurisdiction because the plaintiff was the tenant of the premises under a residential tenancy agreement or, alternatively, an occupant under an occupancy agreement within the meaning of the Residential Tenancies Act [120. It is clear that the Tribunal in fact considered that the applicant was a tenant under a residential tenancy agreement and only recognised the possibility that the plaintiff might be an occupant under an “occupancy agreement" as a back-up possibility “if for some reason is not apparent to the Tribunal the present agreement is not a residential tenancy" (at [96]). In reaching this conclusion the Tribunal rejected the claim that the plaintiff was an equitable owner of part of the property as a consequence of either a resulting trust, implied trust or a common intention constructive trust (see [110]-[119]).
27. The circumstances where a court will be precluded from hearing issues that have been previously litigated are well established. In Blair v Curran (1939) 62 CLR 464 at 532-533 Dixon J said:
“In matters of fact the issue estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. … [T]he judicial determination concludes, not merely as the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. ... Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation.”
28. In Todd v Todd [2007] NSWCA 224 the New South Wales Court of Appeal considered the scope of issue estoppels arising from a decision of the Consumer Trader and Tenancy Tribunal. The Tribunal had determined that it lacked jurisdiction because there was no “residential tenancy agreement” within the meaning of the Residential Tenancies Act 1987 (NSW) in existence. Santow JA agreed with the trial judge in the Supreme Court that any issue estoppel was limited to the ultimate facts which formed the ingredients of the cause of action. In that case there was only one such fact, namely that no residential tenancy agreement existed between the parties. Any other issue arising out of the arrangement was open to be subsequently litigated between the parties even though the Tribunal might have expressed an opinion or might have made findings about the issue.
29. So too in the present case. Notwithstanding the fact that in its detailed and comprehensive decision the Tribunal made findings of fact and expressed its opinion on various matters, there is no issue estoppel arising from the Tribunal's decision except in relation to its ultimate conclusion, namely, that there was a residential tenancy agreement between the parties and the necessary pre-requisite for that finding, that the plaintiff was not the beneficiary of a resulting, implied, or common intention constructive trust.
The evidence
30. Both the plaintiff and the defendant gave oral evidence. The plaintiff also tendered a statement of her evidence which she swore was true. A substantial amount of documentary material was also tendered by each party.
The purchase of the property
31. The plaintiff gave evidence that from 1996 she had been resident at 15 Snowden Place Wanniassa, as a tenant of the owners, the Sinclairs. The Sinclairs wished to sell the property and the plaintiff offered to act as their agent, agreeing with them that she would earn a $1000 fee if she was able to secure a purchaser. She had known the defendant for approximately eight years at that point. She said that she had a discussion with the defendant about whether or not he wished to purchase the property. He asked why the plaintiff did not wish to do so herself. She said that she was then 53 years old and was unable to finance the purchase. The plaintiff’s and defendant’s versions of what was said subsequently in the conversation differ substantially. The plaintiff said that she agreed with the defendant that he contribute $10,000 to the purchase of the property and secure $100,000 by way of bank finance and that she agreed to pay interest upon the defendant’s contribution of $10,000 at a rate of 20% flat per year. She said that the effect of such an arrangement would allow the defendant to double his money within five years. She also said that they agreed that she would be responsible for paying the amount due under the mortgage and be responsible for improvement of the property. At the end of the five-year period the arrangement would either continue or either party could call for a sale of the property, in which case the capital gain would be split or she could buy the defendant out. In relation to the $1,000 agency fee she said that she had conversations with both the Sinclairs and the defendant in which she agreed not to claim the amount from the Sinclairs if they reduced the price by $1,000 and that it would be considered a contribution by her to the property by the defendant. She gave evidence that she was told that the defendant would have an agreement drawn up through his solicitor to confirm the agreement.
32. The defendant, on the other hand, gave evidence that he was approached in 2000 by the plaintiff who was seeking a $5000 loan. That loan was in order to assist her in moving herself and the thousands of books that she had stored in the house as part of her book-selling business from the house which she was presently renting to a new rental property. The defendant said that he had lent her small amounts of money previously. In a conversation that went for approximately fifty minutes or an hour she explained that, having regard to her age and previous financial history, banks would not lend her the money required to purchase the house herself. The defendant was aware of the property because he owned a house in the next street. He asked the plaintiff whether, if he bought the property, she would be interested in renting it. They then had a discussion about rent in which the plaintiff told the defendant that the rent was currently $225 per week and the defendant offered to rent it to her for the amount required to pay the mortgage and a little bit more.
33. Going back so many years and having regard to the fact of an acrimonious break down of the cooperation that existed between the parties, it is not surprising that the recollection of the two witnesses differed. The recollections of each, in different ways, was unsatisfactory. Their evidence tended to amount to the recollection of conclusions rather than the facts which would have given rise to the conclusions. I did not form the view that either was being deliberately untruthful in their evidence. Neither was cross examined to demonstrate that he or she was being deliberately untruthful. However, I did form the view that both had a tendency to reconstruct events so as to favour the positions that they had adopted in the litigation and to accord with their examination of the documents. Their evidence appeared to me to also be influenced by the fact that their versions of events had been recounted on a number of occasions. These difficulties were not helped by the fact that their evidence was not as detailed on critical issues as it might have been.
34. The only contemporaneous documents that were put into evidence were exhibits 1: P1c and P1d. Exhibit 1:P1b was a file note prepared by the defendant’s solicitor during a conference with the defendant on 16 March 2000. That file note provides:
“16/3/2000
10 00
Tony McInnis
INV. PURCHASE
·Friend Jackie McCauly unable to get Bank Finance
·Living adjacent other investment ppty - owners live in Samoa (missionaries)
·Bookseller by trade (B) 10,000 books - aversion to moving
·Private sale
·Rent @$175 per week by Jackie
·Offer @ $110,000 agreed to by Seller ($10,000 deposit “equity")
·Discussed joint purchase Seller acting on own account
·Sale in 5/7 years (ANZ D/M)
·Investment purchase
·New rent @ $225 long term lease (5 yrs)
But on tax advice she meets.
M/ge payments up to $225.00
She will put difference between m/ge payment & $225.00
for capital improvements to house.·Improvements above $20,000 return to be split between Jackie and Tony (tenant may do works)
-comply with statutory requirements & Australian standards
-with lessor’s consent
-all necessary approvals
-provide evidence (invoice & approval).·S/d $2365"
35. The plaintiff gave evidence that following that meeting but prior to the purchase the defendant presented her with a proposed agreement in writing.
36. The draft agreement (Exhibit 1:P1d) was between the plaintiff and defendant. Neither party signed it. The body of the agreement provided as follows.
“A. Tony has acquired all the residue unexpired of the Crown Lease in respect of Block 22 Section 162 Division of Wanniassa and known as 15 Snowden place, Wanniassa (“the property") and is now the registered proprietor of the property.
B. Jackie is desirous of occupying the property as Lessee, and is desirous of making improvements to the property, subject to the terms of this Deed, with a view to obtaining the benefit of those capital improvements and the payment to her in respect of those capital improvements upon the sale of the property by Tony.
C. The parties are desirous of recording their agreement in relation to Jackie’s occupation of the property and the improvements to be made to the property by her.NOW THIS DEED WITNESSES:
1. Jackie shall occupy the property as Lessee pursuant to the terms prescribed by the Residential Tenancies Act, a copy of which terms are annexed hereto and marked with the letter “A", save for the provisions for payment of rent.
2. Jackie shall pay to Tony rent equivalent to the sum of two hundred and twenty five ($225) in the following manner:
a. as to the sum directed by Tony to meet the weekly repayments due to be made by Tony in respect of the secured mortgage over the property; and
b. as to the balance to be applied by Jackie to capital improvements to the property pursuant to the terms of this Deed.
3. Jackie shall, subject to the consent of Tony, apply the monies set out in Clause 2(b) hereof to capital improvements to the property, at all times to comply with the statutory requirements and Australian standards and, when called upon so to do by Tony, Jackie shall provide to Tony all necessary approvals and copies of invoices in relation to expenditure made by Jackie in the improvements contemplated by this Clause.
4. Upon the sale by Tony of the property the parties hereto agree that the monies expended by Jackie, to the extent that the same are above the sum of twenty thousand dollars ($20,000) shall be divided equally between Jackie and Tony upon completion of such sale.5. This Deed shall inure for the benefit of, and bind the executors, administrators and assigns of Tony and shall bind and insure for the benefit of the executors and administrators of Jackie to the extent of the reimbursement of the monies contemplated by Clause 4 hereof only.”
37. As Member Anforth put it, with some considerable understatement, in McCauley v McInnes [2008] ACTRTT 11, the terms of this proposed deed are “difficult to understand”. I respectfully adopt what Member Anforth said about the terms of this deed:
20.The terms of the deed are difficult to understand for two reasons. Firstly, even if the Applicant expended the residual rent of $40pw over the 5 years of the agreement it comes only to $10,400.00 and not $20,000. Therefore on the assumption that the Applicant was only authorised to spend the residue of the rent the Applicant would not be entitled to return on her investment in the capital improvements on the sale in 5 years hence.
21.Secondly, the deed only offers to reimburse to the Applicant half of the value of the capital improvements made by her over the sum of $20,000, and then it is unclear whether the first $10,400 from the residue of the rent is to be included in the $20,000. The deed does not offer the Applicant any benefit from any capital gain associated with the capital improvements or movements in the market prices. Thus on the face of the deed the Respondent is to obtain the benefit of the first $20,000 improvements made by the Applicant and then 50% of the value of sums expended by the Applicant over and above the $20,000 threshold. The Respondent is to obtain this benefit whilst receiving all of the rent on a periodic basis save for the small residue of $40pw and the Respondent is to obtain the whole of the capital gains on resale. ...”
38. In my view the operative terms of the deed are inconsistent with the intention stated in Recital B. Further, they are not clearly supported by the notes in Exhibit 1:P1b which appears to contemplate that if there are improvements above $20,000 the “return [is] to be split between” plaintiff and defendant. The reference to “return” in the notes is more consistent with the capital return on the investment being split between plaintiff and defendant rather than the proposal reflected in the terms of the draft deed.
39. The plaintiff’s evidence was that she refused to sign that the agreement because it did not reflect her understanding of the agreement with the defendant. The defendant, on the other hand, gave evidence that his solicitors forwarded a copy of the agreement to the plaintiff and that he only found out about a year later that she had not returned a signed copy of the agreement. He gave evidence that the plaintiff had explained that she was not in a position to commit to the agreement.
40. The solicitor’s notes are significant because they are the only contemporaneous record of the defendant’s position prior to his purchase of the property. Whilst there are some difficulties with those notes and they do reflect the instructions of only the defendant they have the benefit that they were contemporaneous and their terms have not been influenced by the breakdown in the relationship between the parties many years later. In my view, the exhibit demonstrates that so far as the defendant was concerned there was, at this point, an intention, consistent with the recitals in the draft deed that there be an arrangement for splitting the capital return on the property if improvements were made to it by the plaintiff.
41. As will be apparent, this is decidedly different from that reflected in the operative provisions of the draft deed. It is likely that this discontinuity arose because the defendant failed to pay sufficient attention to what his lawyers had drafted. I do not think that the terms as drafted reflected his intention either at the time he had a conference with his solicitors or at the time the deed was sent or given to the plaintiff. It appears to me to be inconsistent with the cooperative approach that was being taken to the purchase of the property that the defendant would be contemplating the kind of arrangement reflected in clause 4 of the draft deed. Had the terms of the draft deed truly reflected the defendant’s understanding of the arrangement it is likely that there would have been some insistence on his part that the plaintiff accept them or some evidence that he made it clear to the plaintiff that, as a result of the failure or refusal to accept the terms, the relationship between them was to be a standard relationship of landlord and tenant with rent payable in the ordinary way. There was no such evidence. Similarly, there was no evidence that either of the parties ever renounced the intention that there be some sharing of the benefits of capital gain on the property in the event that it was sold to a third party.
42. The plaintiff accepted for the purposes of these proceedings that, as a result of the decision of Member Anforth, she was not a co-owner of the property and this was reflected in the pleaded case which accepted the finding of the Tribunal that she was a tenant under a residential tenancy agreement. Whilst the plaintiff was insistent in her evidence that she had conducted herself in relation to the property on the understanding that she was a co-owner of the property, the defendant said he conducted himself as if the deed had been entered into. Clearly enough the plaintiff’s version of the agreement involved a sharing of capital gain. In the light of what I have said above, I do not accept the defendant believed that the draft deed reflected the arrangement between the parties but rather that he intended that there be some sharing of the capital gain. I find that the defendant never communicated a renunciation of the intention that the plaintiff be able to share in the capital gain associated with improvements to the property.
43. Between the defendant’s purchase of the house in 2000 and the end of 2007, the arrangement between the plaintiff and the defendant appeared to go reasonably well. I accept the oral evidence of the plaintiff that the projects particularised at Exhibit 2 pages 223-241 were carried out. In my view, the magnitude of the expenses incurred by the plaintiff is one of the strong objective factors in favour of the existence of an ongoing joint endeavour by the parties to realise a capital gain. No other convincing explanation was given as to why the plaintiff would have invested such sums in the property. I also find that the defendant was aware that these projects were being carried out but that he was not aware of the cost of them. In some cases the defendant participated by arranging a quotation or investigating materials. In other cases he referred contractors to the plaintiff. In relation to some, projects undertaken by the plaintiff, he had only discussed the project in general terms with the plaintiff before it was carried out. At no time did he expressly communicate to the plaintiff that he required her to obtain a greater degree of approval for those project than she had done. Whilst the plaintiff tended to have strong ideas about how improvements should be made, the defendant recognised that she did a good job. An example was the renovation of the kitchen which, although the defendant gave evidence that the plaintiff proceeded with less consultation than he would have liked, he did in fact reimburse her for the expenses. Although the evidence about the communications between the parties during this period was less than complete, I got the impression that they remained cooperative. The communications between the parties were never such as to make it clear that the relationship between them was that of a traditional landlord and tenant with merely the standard residential tenancy terms governing their relationship.
44. As a consequence, I find that the defendant conducted himself in a manner consistent with the understanding between the parties at and shortly after the time of purchase that there would be an arrangement for the sharing of capital gain arising out of the making of improvements to the property if it was ultimately sold to a third party, that he was aware that such improvements were being made and did not prior to the breakdown of the relationship in November 2007 tell the plaintiff that he was repudiating that understanding.
Breakdown of relations in 2007
45. The precise circumstances of, and reasons for, the breakdown in the relationship between the plaintiff and defendant were not clearly explained by the evidence. The evidence of the plaintiff was that in November 2007 the renovations undertaken at the premises were almost complete. On the evening of Friday, 15 November 2007 the plaintiff and defendant had dinner at a local restaurant. The plaintiff said she was ready to purchase the property. Her evidence was that the meeting concluded amicably. However after that time it is clear that the relationship between the parties broke down. Although the cause of this is unclear it is likely to be the different expectations of the parties over how the property was to be dealt with. At that point, the failure to clarify the precise relationship between the parties appears to have been clearly exposed.
46. On 25 November 2007, the plaintiff wrote to the defendant addressing a proposed increase in rent as well as responding to other matters raised in a letter from the defendant which was not in evidence. Those matters appeared to relate to the amount spent on various items of renovation, in particular, renovation of the kitchen/laundry, toilet and bathroom, doors and landings, painting, the kitchen floor and the defendant’s proposal to make changes in relation to heating and the garden of the premises. The defendant replied on 26 November 2007 asking to be supplied with all receipts to date. The plaintiff provided receipts shortly after. On the same day the defendant sent another letter which included "thank you for arranging the tiles, verge and the “Book of the House".
47. On 27 November 2007 the defendant wrote to the plaintiff pointing out that repairs and maintenance of the property were “a 100% claimable expense item against any business (you) or investment (me)”. He referred to the $40-$50,000 of expenditure which the plaintiff had indicated in her letter of 25 November 2007 she had expanded on the property and said:
as I have pointed out in the last letter "I have an obligation to make restitution for any differences between what you has [sic] been claimed on your tax and what was actually incurred.”
48. The letter also complained about the way in which the receipts had been presented by the plaintiff and sought a brief explanation for each project and the action taken. It requested that the projects be listed under four categories, repairs, maintenance, refurbishment or improvements. On 27 November 2007 the plaintiff replied and said:
“Let's get this clear. You have no obligation to me contractually or personally. I have no intention of taking any form of re-imbursement from you. I consider the renovation a business expense. I had to make improvements because professional visitors couldn't use the toilet etc. Everything has been taken off my taxes and therefore doesn't have to concern you.
You can't have overcapitalised because you didn't spend the money and I'm not asking for reimbursement or any part of your house.
…
Consider the renovations as just changes made by the tenant. It happens with business rentals all the time. It's just an upgrade at no cost to you. Therefore I don't intend to justify myself any more. I've wasted too much time doing that already. Any objective person would tell you you've been lucky to have me take care of this place. You can have it back any time you want”
49. On 29 November 2007 the plaintiff wrote to the defendant giving a "house update" she said:
“I've made a unilateral decision to finish off this "stage". Remember I am paying, and I hate leaving a project "untidy". What you do with it afterwards doesn't concern me…”
50. The reference to finishing off the stage appears to be a reference to finishing off some tiling and installing a new back door. There were further letters from the plaintiff to defendant on 1 December 2007. The defendant wrote to the plaintiff on 1 December 2007 dealing with the proposed rent increase to $1000 a month from February 2008. It continued:
You still retain responsibility for the "day to day" maintenance of the property, as would be the case in any other rental agreement. I take full responsibility for repairs that are brought to my attention.
Even though you have rejected the offer three times in the past it still remains a viable. I will mare [sic] restitution to you for any out of pocket expenses, past or present. From here on in it will be 100% repayment irrespective of weather [sic] you have claimed against tax or not. The only request is, as with the past work, that you obtain receipts and define the work carried out."
51. In a letter of 2 December 2007 she said:
“One other thing "restitution" to me was never part of our agreement, why are you trying to force it on me now?”
Is it so that you don't have to honour our original agreement or do you just not remember what that agreement was? At any rate you didn't sign anything so it's a non-issue.
52. There was then, apparently, substantial correspondence between the parties, particularly generated by the plaintiff which was not in evidence.
53. In a letter dated 8 December 2007 the plaintiff wrote to the defendant's solicitor alleging:
"the agreement was for five years with an option to extend. At the end of that period, we would assess our situation and decide if I would buy out Mr McInnes or we would sell and apportion profits etc. We chose to extend until I finished renovating because that was taking all my extra capital."
54. It is clear that in this period the positions articulated by the parties were at variance with the positions adopted in these proceedings. So far as the plaintiff is concerned the statements in her letter of 27 November 2007 appear to be entirely inconsistent with her claim that she spent money on the property in the expectation of sharing in the capital gain either by purchasing it or upon sale. She gave an explanation for this correspondence saying that as a result of information available to her at the time she thought the defendant’s position might only be temporary and she was trying to placate him. She returned to a narrative more consistent with her claim in her letter of 8 December 2007. The statement of the defendant in his letter of 1 December 2007 that he recognised an obligation on his part to reimburse the plaintiff to the extent that she was out of pocket was inconsistent with the position adopted in these proceedings which denied any obligation at all. As a result I place little weight on the position stated by either party at this point where relations had just gone sour.
55. On 7 April 2008 the defendant gave notice that he intended to apply to the Residential Tenancies Tribunal for a termination and possession order requiring the plaintiff to vacate the premises if she did not vacate on or before 21 April 2008. That notice was based on the standard residential tenancy terms set out in schedule 1 to the Residential Tenancies Act 1997 and alleged breaches of those terms including the making of additions and alteration is to the property without the written consent of the lessor and adding numerous fixtures and fittings without the consent of the lessor. It was that notice which led to the applicant making an application to the Residential Tenancies Tribunal on 18 April 2008 and resulted in the decision of Member Anforth in August 2008 in which he found that the Tribunal did have jurisdiction in relation to the dispute because a residential tenancy agreement existed between the parties.
56. The plaintiff ultimately vacated the property in April 2009 and it was sold in July 2009 for a sum of $387,000. Quite clearly, having regard to the purchase price of $110,500 there was a very significant capital gain achieved by the defendant
The additional expenditure claimed
57. The plaintiff’s claim arises from expenditure on maintenance or improvement of the property between 2002 and 2008. The amounts spent are summarised in exhibit 2 at pages 67-68. Notwithstanding that there was some cross-examination suggesting that the amounts in question were not in fact paid by the plaintiff or were paid by the plaintiff in relation to another property that she leased for business purposes, I accept the plaintiff’s evidence that she paid these amounts and that they were paid in relation to maintenance or improvement of the property at 15 Snowden Place.
58. The amounts paid in each year were as follows:
2002 $753.61
2004 $398.57
2005 $20,240.41
2006 $6,954.62
2007 $11,563.38
2008 $3,609.64
59. As I have pointed out above, the amounts in question, particularly those in relation to 2005, 2006 and 2007 are substantial. They go beyond amounts that a tenant would be likely to pay without some other motivation. In my view, no motivation other than that of contributing to the potential to make a capital gain or acquisition by the plaintiff existed. The need to use the premises in a limited way as business premises was not sufficient to explain the renovations nor was the apparent capacity to claim some portion of the expenses as a tax deduction.
60. It is notable that no amounts are claimed in relation to the 2003. In that year there was a small accidental fire in the kitchen. The defendant was made aware of it and inspected the property. Following the inspection the plaintiff and the defendant agreed that the kitchen should be renovated. As the defendant described it, the next thing that the defendant knew was that the plaintiff had gone ahead and organised it. She did not consult about the design. He could not recall whether or not she had consulted with him about the engagement of contractors. Notwithstanding the fact that he described the events in this way in his evidence, he in fact reimbursed the plaintiff some $15,806 in relation to the cost of the renovations. This was described by the plaintiff as being because the defendant said he needed a tax deduction in that financial year. He in fact claimed a deduction of $15,806 for repairs and maintenance which corresponded to payments made by him to the plaintiff in December 2003 and May 2004 (Exhibit 2:220-222). In my view the events in 2003 are important because they demonstrate a willingness to reimburse the plaintiff for expenses incurred as a result of renovations undertaken by her. Even though it involved reimbursement of expenses rather than explicit recognition that improvements made by the plaintiff were for the purposes of achieving a joint capital gain, it is consistent with plaintiff and defendant cooperating to achieve improvements to the property and the defendant paying for works undertaken by the plaintiff.
61. The amounts claimed in 2002 and 2004 are small. However the nature of the items paid for goes beyond the scope of matters for which a tenant would be responsible under a standard residential tenancy agreement.
62. The expenditure in 2005 involved changes to create an office in the laundry area as well as improvements to the bathroom and toilet. There also appears to have been expenditure on a roller door although the oral evidence did not touch on this.
63. In 2006 the principal expenditures related to installing a new boundary fence and a new driveway gate. There were also expenses involved replacing the front door and screen. The expenses also included replacement of some cupboard doors in the laundry. There were also a large number of miscellaneous expenses which are explained in Exhibit 2: 234-235.
64. In 2007 expenditures related to replacing a retaining wall in the back garden which was rotten. The tiling of the kitchen floor, the installation of a back sliding door and some work on the garden. There was also the installation of a screen door. The largest single expense in 2007 was an amount of $4,395 paid to Mr Steven Hillier for painting the exterior of the house. Mr Hillier was a man known to the defendant. The defendant said that Mr Hillier owed the defendant a debt and the defendant referred him to the plaintiff to carry out painting work. The defendant's evidence was that there was an arrangement between Mr Hillier and the defendant that Mr Hillier would undertake painting work on the house as a means of paying off the debt that he owed to the defendant. There was no documentary evidence that identified the precise debt in question or evidenced the arrangement between the defendant and Mr Hillier. On the other hand the plaintiff said that whilst Mr Hillier was referred to her by the defendant she was not told of any debt owed by the defendant to him and paid him in full for the painting work that he carried out. This payment is not proven by the documents that were in evidence although I accept the plaintiff's evidence that whatever might have been the arrangement between the defendant and Mr Hillier she was not aware of it and did in fact pay him the amount claimed.
65. In 2008 there was expenditure on development of the nature strip. There was also some expenditure on the back pathway as well as some miscellaneous items.
66. In relation to the expenditures claimed, they comprise a mix of what can be described as repairs and maintenance as well as capital improvements to the property. Pursuant to the standard residential tenancy terms, repairs and maintenance are the responsibility of the landlord: see Residential Tenancies Act schedule 1, clause 55. Such terms would render void any other terms of the residential tenancy agreement that were inconsistent: Residential Tenancies Act s 9. Nevertheless, the parties proceeded on the basis that expenses relating to repairs and maintenance of the property were to be paid for by the plaintiff.
Contractual claims
67. The plaintiff has claimed that at about the time of the purchase of the property the plaintiff and defendant agreed that the defendant would “account for or repay” the deposit assistance of $1000. She has also claimed that the defendant agreed to account to the plaintiff for the additional expenditure if an agreement was reached for the plaintiff’s purchase of the property or to refund the expenditure from the proceeds of the sale if it was sold.
68. In relation to the two contractual claims I am not satisfied on the basis of plaintiff's evidence that there was an enforceable agreement between the parties as to their financial arrangements at the time of the purchase of the property by the defendant.
69. In relation to the $1000, I am not satisfied that there was any agreement as to how the $1000 agency fee would be treated. The evidence does not support there being any particular conversation or series of conversations in which the defendant agreed to treat it in the manner alleged. Indeed it is not even clear to me that he was aware that the plaintiff was giving up her claim or, if he was, that he considered it as anything other than an issue entirely between the plaintiff and the Sinclairs.
70. Whilst there does appear to have been an agreement that the plaintiff would only be required to pay to the defendant an amount equivalent to the mortgage repayments that he was required to make, and an intention that there be a mechanism by which capital gains in the property would be shared between the parties, there was no clear agreement as to how capital improvements made by the plaintiff to the property were to be accounted for in the event that the property was sold to a third party. In my view it is clear that there was no legally enforceable agreement as between the parties to the effect of that alleged in the pleadings. As is demonstrated by the dealings in relation to the draft deed, there was no agreement between the parties on the terms of any agreement. In my view the conversations that occurred prior to 16 March 2000 were not sufficient to give rise to any concluded agreement. On 16 March 2000 the defendant was clearly providing instructions to his lawyers that would allow them to propose a formal agreement with the plaintiff. That proposal is recorded in exhibit 1:P1c. It is clear that exhibit 1:P1c was not accepted by the plaintiff although the evidence as to when she told the defendant of her rejection of it is unclear. The plaintiff said when it was presented to him she said that it did not reflect the agreement and he said he would have it amended so that it did. The defendant said it was sometime after the solicitors told him that she had not returned the original agreement and she explained that she was unwilling to commit to the arrangement at that time. Whichever is correct it is clear that there was no contractual agreement between the parties.
Equitable claim
71. That leaves the claim for equitable relief. The pleadings on this are brief. Paragraph 13 provides:
“In the alternative, the Plaintiff submits that it would be unconscionable for the Defendant to retain the proceeds of the Sale without repaying the Deposit Assistance and the Additional Expenditure to the Plaintiff and seeks equitable relief accordingly.”
72. Whilst the pleading refers to unconscionability, this is clearly not a case of unconscionability in the precise sense of the term, namely, where one person suffers from a special disability and another person unconscionably takes advantage of it: Blomley v Ryan (1956) 99 CLR 362 or Commercial Bank of Australia v Amadio (1983) 151 CLR 447. Rather the allegation appears to be an allegation of unconscionability in the general sense of the concept which underpins many equitable doctrines.
73. The nature of the claim made was elaborated in the submissions made by the plaintiff. She provided as, in effect, a written submission, an opinion of senior counsel which she had obtained. By reference to that opinion, I infer that the plaintiff submitted that the circumstances of this case should be characterised as one in which there was a failure of a joint venture between family members or friends and the unconscionable retention of a benefit.
74. I will deal below with some of the authorities referred to in the plaintiff’s submission. The authorities referred to are applications of the principles in Muschinski v Dodds (1985) 160 CLR 583 and Morris v Morris [1982] 1 NSWLR 61. They are examples of what Young CJ in Eq described in Henderson v Miles (No 2) [2005] NSWSC 867 as the Windfall Equity:
“I will refer to the equity identified in Muschinski v Dodds as “the Windfall Equity”. It would be classed as a general equity. Other general equities are Proprietary Estoppel, Promissory Estoppel and the Ocean Island Equity based on the unconscionability of a person who has taken the benefit of a transaction while not assuming its burden; see Tito v Waddell (No 2) [1977] Ch 106.”
75. Bennett v Horgan, (unreported NSW Supreme Court (Bryson J), 3 June 1994) was a case involving the plaintiffs contributing to the cost of a substantial extension of the defendant’s property. It was intended that the plaintiffs would live in that property along with the defendants. However relations broke down. Bryson J dealt with the matter in accordance with the principles in Muschinski v Dodds (1985) 160 CLR 583 and Morris v Morris [1982] 1 NSWLR 61 and, adopting what he described as a broad approach, awarded equitable compensation in the sum of $50,000 to the plaintiffs as well as requiring the payment of a loan amount of $30,000.
76. Luke v Chamberlain [2000] NSWSC 626 involved a clear consensual but non-contractual agreement that the plaintiff build a second storey on the defendant’s house. The intention was the plaintiff and her children would continue to live in the premises indefinitely. When the relationship between the parties broke down Master Macready applied the principles in Muschinski v Dodds (1985) 160 CLR 583 and imposed an equitable charge over the property for a sum representing the contribution made by the plaintiff.
77. Taylor v Streicher [2007] NSWSC 1006 was a case involving parents, with the consent of their daughter and son-in-law, building a house on land owned by the latter. After the father had died, the mother had a falling out with her daughter and son-in-law. Macdougall J applied the principle set out in Morris v Morris [1982] 1 NSWLR 61 which was:
“However, in my view, wider equitable principles operate in the present case. The plaintiff spent money on the defendants’ property in the expectation, induced or encouraged by the defendants that he would be able to live there indefinitely as a member of their family. This expectation has been defeated by the occurrence of events which were not in contemplation when the money was spent and as a result of which any subsisting right of residence by the plaintiff in the property is now of no practical consequence. In my opinion, on the facts of this case, it would be unconscionable and inequitable that the defendants should now retain the benefit of the expenditure by the plaintiff of his money on their property free of any obligation of recoupment to him. Consequently, an equity arises in favour of the plaintiff and the court must determine how in all the circumstances justice requires that that equity be satisfied. What a plaintiff in such a case as this should in justice receive will not necessarily correspond with what, when the relevant expenditure was made, he expected to receive.”
78. Applying this principle His Honour assessed the benefit that it would be unconscionable for the defendants to retain not as the amount invested but as a proportion of the increase in the value of the property caused by the improvements.
79. In Sellick v Sellickand Huntley [2008] FMCAfam 1066, a husband and wife were separating. The wife’s mother had built a separate but attached dwelling on land owned by the husband and wife. The intention was that the mother would live in the property without payment for her lifetime. The arrangement broke down when the husband and wife’s relationship broke down. The Court followed Morris v Morris and found that there was an equitable charge over the property for the whole of her contributions to the property as opposed to the increase in the value of the property caused by the improvements.
80. In my view this case can be analysed as a windfall equity case notwithstanding that it has not arisen in the context of a domestic relationship or a family arrangement: see, for example, Carson v Wood (1994) 34 NSWLR 9. It nevertheless involved a cooperative relationship or joint venture entered into in the light of the friendship between the parties which would involve the contribution by both to the realisation of a capital gain from the property in question. Although the mechanism for sharing the capital gain was not worked out, the present case is sufficiently analogous to those set out above to warrant the application of the same principles. It is not a case where the only element of mutual trust and confidence was that which must underlie a contractual relationship: cf Downham v McCallum [2008] TASSC 81 at [102]. Rather, it was an arrangement between friends which was never formalised contractually in which the contributions of each were for the joint benefit. The arrangement broke down for reasons which are not clear but which were plainly exacerbated by the failure of the parties to properly crystallise the terms of the arrangement when it was first entered into and the prospect that the capital gain upon sale of the property would be substantial.
81. Relevant to this issue I make the following findings
a. Whilst there was no formal process of approval for more major renovations, the defendant was aware, as a result of his dealings with the plaintiff that renovations were being carried out.
b. The defendant was aware that the plaintiff was spending money on the premises not merely as maintenance but also as a result of the understanding that she would benefit from them if the property was sold to a third party.
c. The defendant never told the plaintiff not to undertake the renovations even when he was aware that they had been carried out without his express approval.
d. Whilst the plaintiff was very particular in the manner in which she carried out the renovations and inclined simply to carry them out in the manner she saw fit the defendant recognised, at least in retrospect, that the plaintiff did a good job of managing them and hence did not object to her undertaking them.
e. The defendant was not aware of the amount spent on maintenance or renovations prior to November 2007
f. The plaintiff claimed tax deductions for some of the expenditures on the premises although because no information as to her level of income or the extent of the claims were made it is not possible to identify the benefit that she received as a consequence.
g. That the expenditure after November 2007 was made by the plaintiff in the clear knowledge that relations with the defendant had broken down.
82. In these circumstances, on the authorities to which I have referred above, it is unconscionable, as equity uses that term, for the defendant to retain the whole of the proceeds of the sale of the property.
83. The only equitable relief claimed is relief claimed repayment of the deposit assistance and the additional expenditure.
84. For the same reasons outlined at paragraph [68] above in relation to the absence of any contractual agreement in relation to the deposit assistance I am not satisfied that the deposit assistance is recoverable. It is not unconscionable for the defendant to retain the benefit of the reduced price for the property in circumstances where it has not been established that he was aware that the reduction in price was a contribution being made to a joint enterprise rather than a matter between the plaintiff and the Sinclairs.
85. In relation to the additional expenditure claim, having regard to the fact that the property has now been sold by the defendant, the most commonly adopted remedy, an equitable charge over the property is not available. However it is open to the Court to make an award of equitable compensation: Nocton v Lord Ashburton [1914] AC 932; Van Dyke v Sidhu [2011] NSWCA 187. Whilst the approach to such compensation is flexible, its goal is to put plaintiff in as good a position pecuniarily as that in which she was before the injury. In the present case the only claim that is made is for restitution of amounts paid for the maintenance or improvement of the property. Neither plaintiff nor defendant sought to have compensation assessed on the basis of the amount by which the value of the property was increased as a consequence of the plaintiff’s actions as, for example, was the case in Taylor v Streicher [2007] NSWSC 1006. I am satisfied that, having regard to the nature of the capital improvements to the property in so far as they are disclosed by the evidence and the extent of the capital gain realised in 2009, the granting of relief in this way will not be disproportionate.
86. In determining the amount that should be repaid by the defendant to the plaintiff I have taken as a starting point the total amount claimed as additional expenditure, namely $44,520.23.
87. I have excluded the amount paid in 2008 ($3,609.64) as these were expenses incurred by the plaintiff at a time when she knew relations had broken down. It is not unconscionable for the defendant to retain the benefit of monies outlaid by the plaintiff in knowledge that they were paid simply for the satisfaction of the plaintiff in finishing off a project that she had started.
88. I have also deducted an amount of $15,750. This amount has been deducted to take into account the reduced rent that the plaintiff had the benefit of as a consequence of her taking on the obligation to maintain the property. The reason for this is that part of the additional expenditure claim is amounts for maintenance of the property which would ordinarily have been born by the landlord. I have inferred, consistently with Ex P1b, that the rent was lower than it otherwise might have been because the plaintiff bore this burden. As a result I have attributed the difference between the amounts paid ($800 per month) and the rental identified in Ex P1b ($225 per week) as being an amount that was not paid as rent due to the departure from the standard residential tenancy terms. That has been applied over a 7.5 year period from June 2000 to November 2007 to arrive at the figure of $15,750.
89. The plaintiff admitted that she had claimed at least some of the expenses as tax deductions and hence reduced the extent to which she was out of pocket. There was no evidence which would enable me to determine which expenses were claimed or the extent to which the plaintiff gained a tax benefit as a result of the deduction. The question is whether I should attempt, in assessing the amount required to be paid by the defendant to the plaintiff, make a deduction to take into account that tax benefit. I have decided that I should not. That is for the following reasons. I have no evidence to indicate the extent of the benefit. It might reduce the out of pocket cost to the plaintiff by between 0% to 47% but, although I got the impression that the plaintiff’s income was modest, I have no basis upon which determine the percentage reduction. There was no clear evidence as to which items were claimed as tax deductions. It is hard to see how some of the expenses could lawfully be claimable as deductions having regard to the nature of the plaintiff’s business, the nature of the expenditures and the fact that the plaintiff lived in, as well as conducted business from, the house. Further, if they were claimed as deductions previously and the defendant subsequently reimbursed the plaintiff for them then that might necessitate some adjustment to previous returns or accounting for them in future returns, the details of which were not disclosed in the evidence.
90. In summary the amount of compensation that I will order is arrived at as follows:
Total expenditure $44,520.23
Less 2008 expenses $3,608.64
Less adjustment for reduced rent $15,750
Total $25,161.59
91. On this amount I will allow interest pursuant to r 1616. Pursuant to that rule interest may be allowed for all or part of the period between when the cause of action arose and the date of judgment. That rule appears to fit awkwardly with the current situation where the cause of action arose no earlier than November 2007 yet a substantial portion of the expenditure occurred earlier than that. Nevertheless I will allow interest on $25,161.59 from 1 December 2007 to date, a sum of $10,196.48
Counterclaim
92. The defendant counterclaimed for unpaid rent in the sum of $5,370. As originally articulated by reference to Exhibit H this was for the period May to December 2006. Exhibit H was a number of the statements from the bank account into which the plaintiff paid rent. The statements in evidence commenced in May 2006 and hence they did not give any clear picture of the pattern of payments prior to May 2006. In relation to each rental payment there was an entry on the statement referring to the plaintiff's name and the month to which the rent payment related. These notations resulted from the description given by the plaintiff at the time the rent was banked. The records show that although there were records of payment by this method for the months from November 2006 onwards, there were no such payments recorded in relation to the months May 2006 to October 2006. As a consequence the claim was made for rent for that period.
93. The only contribution of the defendant's oral evidence was that he recalled that during this period the plaintiff was behind in her rent but had no specific recollection of the details. An annotation by the defendant on Exhibit H in early 2008 provides:
“I do not seem to be able to account for payments for is the months May-October 2006 November was paid in Mar 2007 then slow catch up.
Accounts person said it was in [sic] lue of monies to refurbish kitchen would need to check tax records. -Not an issue @ present.”
94. As will be apparent, from both the annotation and his oral evidence the defendant had no specific recollection at that date and was dependent upon his “accounts person”, who did not give evidence, to clarify his understanding. Thus, the matter needs to be resolved substantially on the basis of the documentary records. The plaintiff's response to this claim reinforced the necessity to adopt this approach. She simply said that if there was an issue about unpaid rent then it should have been raised at that time or should have been raised when she vacated the premises or when there were proceedings in the Residential Tenancy Tribunal. It was not raised. Further, she submitted that it was notable that when the defendant had sought to terminate her tenancy in April 2008, the application did not identify as one of its grounds for termination any failure to pay rent. She was cross examined about the non-payment of rent. Prior to the hearing she had not sought, and the defendant had not provided, particulars of the dates in relation to which she was alleged not to have paid rent. When she was asked questions which identified to her the dates upon which it was alleged she had failed to pay rent, she arranged to have some additional records brought to court. When the hearing was resumed on 14 June 2012 she sought and was granted leave to reopen her case to tender and additional receipt for a cheque deposit to the defendants account on 1 May 2006 (see Exhibit 6). As a consequence of the production of that record the defendant reduced the amount which he claimed was unpaid to take into account the amount disclosed in that receipt. At the conclusion of the hearing on 14 June 2012 the plaintiff was permitted to seek leave prior to 4pm on 15 June 2012 to reopen her case to tender further documentary material relating to the payment of rent in the relevant period. That leave was granted because she told the court that in the time since she had notice of the amounts in relation to which the claim of rent was made she had not had the opportunity to fully search her records.
95. The plaintiff did seek leave to reopen her case to tender three cheque butts which were said to relate to the relevant period. Each of those cheque butts was a cheque made out to cash with annotations indicating that the cash was to be used, either in whole or in part, to pay rent. The first cheque dated to June 2006 was annotated “cash/rent" and was for the sum of $800. The second cheque dated 30 June 2006 was annotated “rent, Andrew etc" and was for an amount of $1500. The third cheque dated 1 August 2006 was annotated “new van, rent" and was for $3300. I admitted them and marked them Exhibit I. No oral evidence was given in relation to these documents. The defendant did not object to the plaintiff reopening her case to tender these documents and did not either seek leave to cross-examine her further in relation to them or to reopen his case to lead further evidence in reply.
96. Having regard to the limited recollection of the parties, their failure to give oral evidence about Exhibit I, the limited scope of financial records on which the claim was based and the absence of any contemporaneous correspondence about the alleged failure to pay rent this issue falls to be determined on unsatisfactory evidence and bearing in mind that the defendant bears the onus on this issue.
97. In its final form the defendant’s claim was for rent from June to October 2006, 5 months at $800 per month, a total of $4000. Exhibit I shows payments which are at least in part identified as for rent. During the relevant period the plaintiff also rented other premises from which she conducted a pilates instruction and pain therapy business. As a consequence, it is possible that the amounts on the cheque butts were for rent payments for those other premises. The absence of any oral evidence to explain the position means that I must deal with the matter on the basis of inference. Whilst there was a consistent pattern of payments of rent into the bank account of the defendant rather than by cash I am prepared to accept that this was not necessarily the case. The cash cheque for rent of $800 written on 2 June 2006 corresponds both to the date when rent would be expected to be paid having regard to the previous payment on 1 May and to the amount that was due in rent. Having regard those matters and to the onus, I am not satisfied that the defendant has proved that rent was not paid for June 2006. The remaining cash cheques were drawn on dates 30 June 2006 and 1 August 2006 which would correspond to the dates upon which rent became due having regard to payments on 1 May and 2 June. Although the amounts do not correspond to the $800 rent amount they are in excess of that amount and the annotations identify that the cash was used for additional matters as well, “Andrew etc” and “new van” respectively. There is some evidence in the annotations on Exhibit H that the “accounts person” indicated that there may be some informal arrangements in relation to the payment of rent, consistent in my view, with the absence of an unerring practice of the rent amounts being paid only direct to the bank account rather than by cash. Having regard to those matters and the fact that an amount for rent of $800 was drawn in June 2006 I find that the defendant has not proven on the balance of probabilities that rent was not paid for those months.
98. This leaves the months of September and October 2006. In relation to these months there is no evidence consistent with payment of rent by the plaintiff. Further, there is evidence in Exhibit H that she only paid the rent for November 2006 in March 2007. That is consistent with there being some financial difficulty in paying rent on time and hence some delay in doing so. As a consequence I find that the plaintiff did not pay rent for September and October 2006. That is an amount of $1600 on which I allow interest pursuant to rule 1616 of $2,414, a total of $4,014.
Orders
99. Therefore the order that I will make on the plaintiff’s claim is:
a) that the defendant pay the plaintiff equitable compensation in the sum of $35,358.07. On the counter claim I give judgment for the defendant in the sum of $4,014. Pursuant to rule 473, the order of the Court will be that the defendant pay the plaintiff the sum of $31,344.07.
b) Having regard to the success of the plaintiff she is entitled to a costs order in her favour although, having regard to the fact that she represented herself, the amount recoverable pursuant to such an order is likely to be modest. Unless either party applies within 7 days for the matter to be relisted for argument in relation to costs, the order of the Court is that the defendant pay the plaintiff’s costs of the proceedings.
I certify that the preceding number in ninety-nine numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Magistrate Mossop.
Associate: J Noble
Date: 5 July 2012
Counsel for the Plaintiff: Plaintiff in person
Solicitor for the Plaintiff: NA
Counsel for the Defendant: D Shillington
Solicitor for the respondent: Meyer Vandenberg
Date of hearing: 17 April and 13, 14 June 2012
Date of judgment: 6 July 2012
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