Miller and Coulson and Ors
[2015] FamCA 637
•3 August 2015
FAMILY COURT OF AUSTRALIA
| MILLER & COULSON AND ORS | [2015] FamCA 637 |
| FAMILY LAW – PROPERTY – Final property orders – Where the husband and the wife entered into partnership with the second respondent – Where there was no evidence of a partnership agreement – What is the value of the business of the partnership – What is the value of the land where the partnership business is based – What were the parties’ interests in the partnership – Whether the husband has already been reimbursed his expenses of the partnership – Whether improvements to the land were contributions to the partnership – Whether the partnership arrangement was unconscionable – Where a secured creditor is joined to the proceedings – Whether the wife’s personal effects vests in bankruptcy – Where the wife was declared bankrupt – Where the wife seeks a superannuation splitting order. |
Evidence Act 1995 (Cth) s 69, s 135
| Family Law Act 1975 (Cth) s 79, s 117B, Bankruptcy Act 1966 (Cth) s 116(2) Partnership Act 1892 (NSW) s 19, s 24 |
| Baumgartner v Baumgartner (1987) 164 CLR 137 |
| APPLICANT: | Ms Miller |
| FIRST RESPONDENT: | Mr Coulson |
| SECOND RESPONDENT: | Mr Elliott |
| THIRD RESPONDENT: | Mr Robbins as trustee of the bankrupt estate of Ms Miller |
| SECOND INTERVENER: | Ms Lane |
| THIRD INTERVENER: | Mrs Coulson |
| FILE NUMBER: | SYC | 4243 | of | 2007 |
| DATE DELIVERED: | 3 August 2015 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Aldridge J |
| HEARING DATES: | 16 – 25 and 27 March 2015, 10 April 2015, 1 May 2015 |
REPRESENTATION
| APPLICANT: | Applicant in person |
SOLICITOR FOR THE FIRST RESPONDENT: | First respondent in person |
| SOLICITOR FOR THE SECOND RESPONDENT: | Second respondent in person |
SOLICITOR FOR THE THIRD RESPONDENT: | Sally Nash & Co Lawyers |
| COUNSEL FOR THE SECOND INTERVENER: | Mr Givney and Mr Alexander |
| SOLICITOR FOR THE SECOND INTERVENER: | McGrath Dicembre & Company |
| COUNSEL FOR THE THIRD INTERVENER: | Mr Moorhouse |
| SOLICITOR FOR THE THIRD INTERVENER: | Harmers Workplace Lawyers |
Orders
That 28 days after today, or upon the maturing of the present term deposit, whichever occurs later, the sum in the National Australia Bank account number …153 be distributed as follows:
Ms Miller
$1 642.00
Mr Coulson
$135 022.17
Mr Elliott
$126 849.63
Mr Robbins as Trustee of the Bankrupt Estate of Ms Miller
$28 910.54
Ms Lane
$131 820.85
Mrs Coulson
$79 693.96
With any surplus to be distributed as follows:
Ms Miller
0.33%
Mr Coulson
26.79%
Mr Elliott
25.17%
Mr Robbins as Trustee of the Bankrupt Estate of Ms Miller
5.74%
Ms Lane
26.16%
Mrs Coulson
15.81%
That Order 5 sought in the Application in a Case filed by Mr Coulson on 15 November 2010 is to be re-listed by approaching the listing manager to have the application for contempt listed before a judge for directions.
That all other applications and cross applications be and are hereby dismissed.
That all issues be removed from the Active Pending Cases List.
That all material produced on subpoena shall be returned to the persons or institutions from which they emanated and all exhibits are returned to the person or persons who tendered the same not before 56 days from the date of these Orders.
NOTATION:
(A)It is noted that Order 1 does not prevent the parties from moving the funds from a term deposit upon its maturity to another account pending the expiration of the 28 days.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Miller & Coulson and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 4243 of 2007
| Ms Miller |
Applicant
and
| Mr Coulson |
First Respondent
and
| Mr Elliott |
Second Respondent
and
| Mr Robbins as trustee of the bankrupt estate of Ms Miller |
Third Respondent
and
Ms Lane
Second Intervener
and
| Mrs Coulson |
Third Intervener
REASONS FOR JUDGMENT
Introduction
These proceedings commenced as property proceedings between Ms Miller (formerly Mrs Coulson) (“the wife”) and Mr Coulson (“the husband”). Aside from interests in superannuation funds their main asset was land originally known as N Road, Village X (“X land”). This land was developed as a holiday retreat in partnership with them and Mr Elliott. He is the second respondent to these proceedings.
The land and the business of the partnership were sold. The sale proceeds remain held in a bank account pending determination of these proceedings. The amount held at the time of the hearing was $503 939.15.
Many issues arose from the partnership and occupied much of the hearing time. These included whether the X land formed part of the partnership and how the proceeds of the sale of the partnership were to be divided amongst the partners.
Two lawyers who had previously acted for the wife intervened to seek payment of outstanding legal fees. The first intervener, Ms M, withdrew her application on 2 March 2015.
The second intervener, Ms Lane, sought the payment of $131 820.85 from the wife. She asserted that the wife had charged her interest in the X land in her favour to secure payment of the outstanding costs.
The wife became a bankrupt in February 2010 when she presented her own petition. Mr Robbins (“the trustee”) was appointed her trustee in bankruptcy. He is the third respondent in these proceedings. Although the wife was discharged from bankruptcy in February 2013, the trustee asserts that any interest held by the wife in the land, subject to any charge in favour of Ms Lane, and any interest that the wife may be found to have in the partnership, vests in him.
On 14 April 2010 Fowler J appointed Mr Robbins and Mr P as trustees for sale of the X land and the business of the partnership conducted on it.
On 10 August 2010 the land and business were sold for a total of $1 395 000. Whilst there were separate contracts for the sale of the land and for the sale of the business, there was but one consideration for the two. Each contract referred to the other and stated that one consideration was being paid for both items. Thus, it is not possible to discern from the contracts for sale a separate value for the business and a separate value for the land.
After payment of the costs and expenses of the trustees and of the sale, and payment to the secured creditor in respect of the land, the proceeds for sale referred to earlier were paid into a solicitor’s trust account. The funds are now held in a term deposit account with the National Australia Bank (“term deposit”).
Mrs Coulson, the present wife of the husband, is the third intervener. She was employed by the partnership between 2007 and 2009. On 31 December 2009 she commenced proceedings against the partners (the husband, the wife and Mr Elliott) in the Industrial Relations Commission of New South Wales asserting that she had not been properly remunerated by the partnership. Mr Elliott responded to that application by seeking an injunction from this court restraining her from continuing the proceedings. On 27 July 2010 his application was dismissed and on 3 December 2010 he was ordered to pay Mrs Coulson’s costs of that application. On 15 December 2011 they were assessed at $34 475.
On 16 August 2013, during the course of the final hearing in the Industrial Relations Commission, those proceedings were resolved by agreement. It will be necessary to deal with the settlement agreement in detail in due course but, for the present, it is sufficient to record that the partners agreed to pay
Mrs Coulson $50 000 from the proceeds of sale of the partnership. Mr Elliott acknowledged his liability to pay costs as ordered by Fowler J. He agreed to pay Mrs Coulson $7500 by 24 July 2013 and to pay her $67.50 per week towards the balance.
She is seeking payment of the $50 000 from the fund held in the term deposit and the balance of her unpaid costs of $29 693.96 from any sum that might be found to be payable to Mr Elliott.
The property the subject of the matrimonial dispute consists of the husband’s and the wife’s interests, whatever they may be, in proceeds of the sale of the land and business (approximately $505 000 in the term deposit) and in their superannuation entitlements. The property application of the wife is therefore thoroughly enmeshed with the partnership issues. Determining the husband’s and wife’s interests in the partnership for the purposes of the property dispute is essential. Accordingly, the determination of the partners’ interests in the partnership is part of the one justiciable matter. Thus although the determination of the partnership dispute is a matter of State law and principally the application of the Partnership Act 1892 (NSW) (“Partnership Act”), this court nonetheless has accrued jurisdiction to deal with it.
The husband and Mr Elliott filed extensive affidavits. The husband’s trial affidavit, including annexures and exhibits, was 5497 pages. Mr Elliott’s trial affidavit, including annexures and exhibits, was 7732 pages. He filed a further affidavit which continued the page numbering and which took the total to
8659. The wife was comparatively restrained with two affidavits, each of about 750 pages.
The affidavits essentially air every grievance of the parties over the
10 years of their dealings with each other. Little of it was relevant to the issues before the court. This is not to criticise the husband, wife and
Mr Elliott, each of whom appeared for themselves, but simply to state the position. The objections by each of them to the others’ affidavits were extensive.
In order to deal with these matters and to contain the hearing within a reasonable time the following steps were taken.
By agreement of the parties I did not rule on the individual objections. Rather, I marked the parties’ lists of objections as exhibits and indicated that I would have regard to them when preparing these reasons and would give appropriate weight to admissible evidence having regard to those objections but not otherwise.
Having regard to the large number of exhibits and annexures I indicated to the parties that regard would only be had to exhibits and annexures to which I was specifically taken during the course of the hearing and would not otherwise trawl through the exhibits and annexures. In the event, very few annexures were referred to in the course of cross-examination or addresses.
Finally, at the commencement of the hearing, after discussion with the parties, I prepared a “list of issues” and provided copies to each of the parties. None of the parties suggested that that list did not adequately identify the major issues in the proceedings. I shall use that list of issues as headings throughout this judgment. It will be convenient to deal with some issues together.
Before dealing with those issues, however, it is necessary to give some background so as to understand the issues.
Background
The wife was born in 1962 and the husband in 1964. After each of the husband and wife had had a previous relationship, they commenced to cohabit on 10 September 1999. At the time the husband was employed with the Commonwealth public service and the wife with the New South Wales public service. The husband had an interest in a property at L Street, Town G (“G property”). It was valued at approximately $220 000 and was mortgaged to Suncorp Bank for $117 000. Each had a car and an interest in a superannuation fund.
On 23 October 1999 the husband and the wife purchased a property in joint names at T Street, Suburb V (“V property”) for $246 000. There was apparently a refinancing of the G mortgage and a mortgage taken out over the V property for $196 000. On 12 November 1999 the husband and the wife purchased the X land for $67 000. The source of the funds was the existing mortgages over the V and G properties and some cash saved by the husband.
On 18 December 2000 the husband and the wife sold the V property for $383 000 and the proceeds of sale were used to discharge the mortgage on X and to pay out the wife’s car loan. The husband and the wife formed the intention to develop a commercial holiday retreat on the X land. In 2000-2001 they took steps to plan the development.
On 27 July 2001 the G property was sold for $263 750. The mortgage was paid out and the net proceeds were applied to the development of the X land.
The husband and the wife were having difficulties obtaining all of the finance that they needed to proceed with the development. In mid 2001 the wife approached Mr Elliott with a business proposition for him to invest in the development which had now been named Z Retreat (“Z”).
In December 2001 the husband and Mr Elliott started clearing trees from the X land to prepare for the construction.
On 28 December 2001 Westpac Banking Corporation approved a loan for $370 000 for the commencement of Z. The funds were advanced to the husband and the wife (but not to Mr Elliott) and were secured by a mortgage over the X land. From that time each of the three partners worked full time in their jobs (Mr Elliott was also a public servant). The husband and Mr Elliott cleared the site and dug trenches for telephone and power lines. The husband developed in-house documentation and bookkeeping and the husband and the wife implemented marketing strategies designing the buildings, purchased fittings and fixtures, sourcing and hiring contractors and the like.
In 2002 there were difficulties with the builder carrying out the construction of the first two buildings. There was a dispute with it which led to a replacement builder having to be engaged.
Between April 2002 and November 2002 Mr Elliott paid $111 000 in
eight payments to the husband and the wife as his investment in Z. Further payments were made by him on 2 January 2003 and 14 January 2003 taking his total investment to $131 000.
In April 2003 Z opened for business. At the time, the improvements included a manager’s residence and office, garage and two guest buildings.
On 25 August 2003 the Westpac Banking Corporation loan was extended to $510 000 for additional work.
In June 2004 a loan to construct two further guest buildings at Z was obtained from the Westpac Banking Corporation for $355 000. This again was borrowed by the husband and the wife and secured over the X land.
In December 2004 ‘Stage 2’ of X opened.
In June 2005 the wife became the retreat manager and a dividend of $51 000 per annum was paid to her from the partnership for that work.
In August 2005 the wife ceased employment with the New South Wales public service so as to continue to be the full time manager of Z. She resigned as that manager in September 2006 when the husband and the wife separated.
On 14 June 2007 the wife filed her application for a property settlement.
On 4 August 2007 the husband and the wife were divorced.
On 7 May 2009 Fowler J appointed the wife and Mr Elliott as joint trustees for the sale of Z. The property did not sell and on 14 April 2010 Fowler J appointed Mr Robbins and Mr P as trustees for sale.
List of Issues
Whether a partnership agreement exists between Mr Elliott, Mr Coulson and Ms Miller.
What were the parties’ interests in the partnership.
The parties agreed that no written partnership agreement was ever entered into.
In mid-2001 the wife approached Mr Elliott with a suggestion that he invest in the development. Discussions continued between the wife and Mr Elliott. The husband at that time was working overseas.
These discussions resulted in a general acceptance that Mr Elliott would contribute $200 000 capital in return for his 45 per cent interest in the profits of the proposed partnership, or perhaps the first stage of the development.
On his return from overeseas, at the end of November 2001, the husband and Mr Elliott commenced working on the X land clearing the property. Whilst he was overseas, the husband had drafted an extensive (some 107 pages) partnership agreement. This was provided to Mr Elliott in early 2002.
After a lengthy discussion between the partners, no agreement was reached as to its terms.
In March 2002 Mr Elliott took the unsigned draft partnership agreement to a lawyer who advised him that it was too complicated. Work on the draft agreement did not proceed and no other draft written agreement was proposed. The parties, as recorded earlier, started investing their funds and developing Z.
In March 2004 Mr Elliott became ill and took some considerable time off from working at Z. The wife went to speak to Mr Elliott. It was agreed between the two of them that, having regard to Mr Elliott’s absence from the project, his interest in the retreat would be 40 per cent rather than 45 per cent.
At some time in October to December 2004, the husband and Mr Elliott had a conversation. What was said at that conversation is disputed but the effect of the conversation is not. (The dispute was whether this decision was imposed unilaterally upon him as Mr Elliott suggests, or was the subject of agreement as the husband suggests). It was agreed that his partnership interest would henceforth be 22 per cent.
Whether or not they were the subject of the discussion or agreement, there seem to be a number of factors leading to this change. The first is that, by that time, Mr Elliott had invested $131 000 and not $200 000. Mr Elliott’s position was that any shortfall had been more than made up for by his labour.
Secondly, it was the allegation of the husband that Mr Elliott’s 40 per cent share related only to his share of the profit of the original two guest buildings. It is to be recalled that by this time, two further guest buildings were about to open. The arrangement reached, in whatever way, was that Mr Elliott would receive a 22 per cent interest in the income from the four guest buildings.
That this is so is confirmed by the 2003 partnership tax returns (at least in a general sense) which distributed the losses that had occurred in the partnership to date as to the husband 41 per cent, the wife 41 per cent and Mr Elliott
18 per cent.
In 2006, ignoring the dividend of $51 000 paid to the wife for working at Z as manager, Mr Elliott received 22.9 per cent of the profit. In 2007 Mr Elliott received a distribution of 19.4 per cent of the profit and the balance was divided between the husband and the wife, albeit not equally.
For each of the income tax returns for the years ending 2008, 2009 and 2010 the profit was distributed as to Mr Elliott 22 per cent and 39 per cent to each of the husband and the wife.
Mr Elliott accepted that the partnership distribution was 22 per cent to him and 39 per cent to each of the husband and the wife.
Two things flow from this. There is no written partnership agreement. The only term of the partnership that can clearly be identified is that Mr Elliott had a 22 per cent share in the partnership, the husband 39 per cent and the wife 39 per cent.
Section 19 of the Partnership Act provides:
The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all of the partners, and such consent may be either expressed or inferred from a course of dealing.
Even if there was not such an agreement as to the proportions the partners held in the partnership, the proportions would be safely inferred from the course of dealings identified in the partnership income tax returns. Each partner based their own personal income tax returns upon the partnership terms. There is no document or conversation in evidence that takes issue with the partnership tax returns.
Section 24 of the Partnership Act provides:
24Rules as to the interests and duty of partners other than partners in incorporated limited partnership subject to special agreement
(1)The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement expressed or implied between the partners, by the following rules:
(1)All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm.
(2)The firm must indemnify every partner in respect of payment made and personal liabilities incurred by the partner.
(a)In the ordinary and proper conduct of the business of the firm, or
(b)In or about anything necessarily done for the preservation of the business or property of the firm.
(3)A partner making, for the purpose of the partnership, any actual payment or advance beyond the amount of capital which the partner has agreed to subscribe is entitled to interest at the rate of seven per centum per annum from the date of the payment or advances.
(4)A partner is not entitled before the ascertainment of profits to interest on the capital subscribed by the partner.
(5)Every partner may take part in the management of the partnership business.
(6)No partner shall be entitled to remuneration for acting in the partnership business.
(7)No person may be introduced as a partner without the consent of all existing partners.
(8)Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of partners, but no change may be made in the nature of the partnership business without the consent of all existing partners.
(9)The partnership books are to be kept at the place of business of the partnership (or the principal place, if there is more than one), and every partner may, when the partner thinks fit, have access to and inspect and copy any of them.
(2)This section does not apply to or in respect of an incorporated limited partnership.
It follows that the partners are entitled to agree upon their proportionate interest in the partnership regardless of their contributions, monetary or otherwise, and to agree on their entitlement to share in the capital and profits of the business or their obligation to contribute to its losses. In this case it is in the proportion of 22 per cent to Mr Elliott, 39 per cent to the husband and 39 per cent to the wife.
Whether the land is a part of the partnership.
As I have said, the X land was purchased by the husband and the wife on 12 November 1999. Shortly prior to the commencement of the partnership, that land was unencumbered. They remained the registered proprietors and owners of the land until the wife’s bankruptcy in February 2010. That bankruptcy had the effect of severing any joint tenancy held by her and the husband in relation to the X land and caused her interest in the land to vest in her trustee in bankruptcy.
At no time did Mr Elliott become a registered owner of the property.
The borrowings referred to at [31] and [32] above were borrowings made by the husband and the wife solely. Mr Elliott was not a co-borrower.
It was the position of the husband, Ms Lane and the trustee in bankruptcy that the land did not become a partnership asset. Rather, it was asserted that the capital contribution of the husband and the wife to the partnership was the money that they had borrowed on the security of the land.
Mr Elliott did not point to any document, other than the tax returns to which I will return shortly, to suggest that the land became owned by the partnership. Rather, he submits that because the partnership set up and maintained the land, including the buildings, gardens and lawns, this would indicate that the land formed part of the partnership.
The significance of whether or not the land is a partnership asset or not is this. If it is a partnership asset, the proceeds of sale of the land are available to meet unpaid expenses of the partnership, capital and profit distributions. Mr Elliott and the husband assert that they are each owed money from the partnership for advances made to it and for goods bought on its behalf. On the other hand, if it is not, then the proceeds of the sale of the land must be divided equally between the husband and the wife’s trustee in bankruptcy, subject to any claim of a secured creditor.
It is clear that there is no written agreement that provides the land is partnership property. Mr Elliott does not assert that there is one. Accordingly, it is necessary to turn to the partnership tax returns to see whether the ownership of the land can be inferred from the course of dealings. The parties did not point to any other evidence on this issue.
It would not be unusual for a partnership to use land rented from others, even if those others include some or all of the partners. Similarly, it would not be unusual for partners to contribute land to a partnership as part of their capital contribution. What was extremely unusual in this case was the treatment of the land. At the time of the commencement of the partnership, the X land was entirely unimproved. The first task that the partners did was to clear it. Thereafter, the partners set about building on the land, extensively improving it, constructing not only the residences, the garage and the guest buildings but undertaking extensive landscaping, installing a swimming pool, installing hundreds of metres of raised walkway connecting the guest buildings with each other and constructing the manager’s residence, office and carpark. The road to the retreat had to be significantly upgraded and improved to enable easy guest access.
In the ordinary course, one would have expected a detailed agreement as to how, if the land was not to be part of the partnership, those improvements and the benefits of them were to be dealt with as between the partners and the owners of the land. As I have said, there is no such agreement.
It is also to be recalled that if the land was a contribution to the partnership by the husband and the wife, then regard would then need to be had as to how the borrowings of $865 000 from the Westpac Banking Corporation (“Westpac loans”) borrowed by the husband and the wife were treated by the partners.
It is the court’s task to ascertain the mutual rights and duties of the partnership which the court, at least as to this aspect, must infer from the course of dealings between them. In doing so the court is trying to give effect to the parties’ intention at the time. The court is not to embark upon a process of drafting an agreement for the parties which it considers to be commercially appropriate or fair. It is to give effect to what the parties themselves must have determined. That determination, in this case, has to be inferred from the meagre evidence available.
In the draft partnership agreement prepared by the husband and discussed by the partners but never signed, there was a reference to the land.
In the draft partnership agreement under the heading “Asset Ownership” the following appeared:
Both parties acknowledge that:
·[Mr Elliott] owns his Villa and not the land underneath that Villa from us;
·We own our Villa, our main residence, the property, and all other infrastructure located upon that property;
·Monies (if any) [Mr Elliott] has paid to us, suppliers, construction companies, or other people, will be taken into account if the partnership is dissolved. At no time during this partnership shall [Mr Elliott] own any of the aforementioned infrastructure.
·A database will be created detailing capital cost expenses paid for by [Mr Elliott] during the period of construction. This database will be recognised as being the true details of [Mr Elliott’s] capital cost financial input into this Development. Both parties agree that this database will be acceptable in any Court of law should a dispute between the parties arise.
(Affidavit of the husband sworn 19 April 2013, Annexure 43)
The “us” referred to is the husband and the wife.
Under the heading “Distribution of Assets if partnership is finalised for any reason”, and after reference to a land value of the X land at the beginning of 2002 as being $140 000, the following appears:
In the event that the partnership is finalised, the following will occur:
(a)A further valuation of the property will be completed. [Mr Elliott] will be required to pay for 50% of that new valuation.
This valuation will be split into the following areas:
·The value of the land alone,
·The value of all capital works upon that land,
(b)The percentage of [Mr Elliott’s] investment towards the total capital works costs of the infrastructure constructed upon the property (expressed as a percentage of the total capital works expenditure by both parties) will be used to calculate the funds required to pay [Mr Elliott] for his contribution of funds towards this development. The value of the land will not be taken into account in any calculations or monies paid to [Mr Elliott] if a pay out is required.
(Affidavit of the husband sworn 19 April 2013, Annexure 43)
Whilst this agreement never came into force, it is tolerably clear that, at the time this document was provided to Mr Elliott, it was the clearly stated position of the husband and the wife that Mr Elliott, by entering into the partnership, was not going to acquire any interest in the land. There is no document or conversation subsequently referred to in the evidence that suggests they changed their mind. Mr Elliott did not suggest there was an agreement that the land was to be a partnership asset or that any representations were made to that effect. Rather, he asserted that because of his investment of capital and labour it would be unfair if the land was not regarded as a partnership asset.
Consequently, regard must be had to the actions of the partners. This means referring to their conduct as evidenced by the tax returns and accounts of the partnership. Not all the tax returns were in evidence, as far as could be seen.
The 2003 partnership tax return does not have any accounts attached to it. It refers to rent expenses of $3722 and interest paid of $1025. Further details are not available. In his personal tax return for the year ended 2003 the husband claimed a deduction for interest paid of $8928.71, being 50 per cent of the total interest chargeable. When 50 per cent of the borrowing costs and bank charges were added, he sought a total deduction of $9250.61. He also claimed the losses of the partnership as a deduction. That means that the interest deduction is unlikely to be a partnership expense.
The wife and her tax return for the year ended 2003 claimed a deduction of $9250.61 in addition to the losses of the partnership.
I infer, because of the similarity in amounts that it is the other half of the interest paid, borrowing costs and bank charges claimed by her husband. It is more likely than not that these expenses refer to the borrowing they had made from Westpac Bank. No other borrowing was identified. This means that they are claiming as a deduction the cost of borrowing that money. This establishes that they had borrowed the money to invest in the partnership and thus their contribution to the partnership is the funds rather than the land itself. That being so, one might expect the partnership to make some payment to the husband and the wife for the use of their land.
The partnership taxation for the year ended 2006 shows that rent expenses of $10 628 and interest of $7414 were claimed as deductions. Again, no further details were provided. Importantly, in that tax return under the heading “Key financial information”, the following appears:
All current assets
17 143
Total assets
17 143
All current liabilities
106 000
Total liabilities
958 118
Proprietors’ funds
940 975
(Affidavit of Mr Elliott sworn 17 October 2013, Annexure 254)
This suggests that it is very unlikely that the land was included as an asset of the partnership. As will be discussed in more detail shortly, in 2003 the land itself, without improvements, was valued by a registered valuer as being $400 000.
In the partnership tax return for the year ending 2007, deductions for rent expenses of $9186 and interest of $5621 were claimed. For the purpose of that tax return the total assets are described as being $41 411. Clearly that figure does not include the land.
In the tax return for the financial year ending 2008 no rent is claimed as a deduction but interest of $13 547 is claimed. The entry for total assets is blank.
In the tax return for the year ended 2009, no rent is claimed as a deduction but total of $12 268 is claimed. Again the entry for total assets is blank.
In the partnership tax return for the year ended 2010 there are no rent expenses and the total interest expenses are said to be $2670. Again the asset entry is blank.
The husband’s individual tax return for the year ended 2006 shows him receiving a distribution from the partnership of $12 938 and claiming, as a deduction related to that distribution, $32 063.
For his tax return for the year ended June 2007 the husband identified a distribution from the partnership of $27 548 against which he claimed a deduction relating to it of $33 734.
The husband’s evidence was that the partnership paid to him and to the wife the amounts that they had to pay by way of regular mortgage repayments. They then, he said, paid the interest to the bank and claimed it as a tax deduction. The partnership did not claim the payments to the husband and the wife as a tax deduction.
The three individual tax returns referred to are consistent with that evidence as it can be seen that in 2003 the husband and the wife, and in 2006 and 2007 the husband, claimed substantial deductions related to their distribution from the partnership in addition to the deduction made for the interest payments. This supports the husband’s evidence.
That, of course, leaves unanswered the question as to what was the interest and rent referred to in the earlier tax returns of the partnership.
The profit and loss statements for Z for the financial years ending 30 June 2003 to 30 June 2009 are before the court. (Affidavit of Mr Elliott sworn 17 October 2013, Annexure 255).
The 2003 profit and loss statement makes it clear that the rent referred to in the income tax return relates to a portion of the rent of the residences occupied by the partners (there is a reference to H and U and a reference to a percentage claim for the use of those premises by the partnership). Similarly, the interest claim is to be calculated by reference to a proportion of the interest paid by the partners on their credit cards.
The profit and loss statement ending June 2005 has a reference to the Westpac loan in the sum of $510 000 under the heading “Expenses” against which the entry $0 appears. This confirms that interest on the Westpac loan of the husband and the wife was not being claimed as an expense by the partnership. There is no reference to rent.
In the accounts for the year ending June 2007 there is no reference to rent and the only reference to interest paid is a reference to the partners’ credit cards.
The profit and loss statement for the year ended June 2008 takes a different format. There are two different columns, one headed “MYOB” and the other headed “D Partners”. It appears that the column headed “D Partners” is an adjustment to the MYOB figures. The MYOB column shows as an interest expense, interest paid on “$510k loan” of $41 693.85 and interest paid on “$355k loan” as $30 237.35. Those sums are adjusted to zero in the D Partners column with the annotation “personal returns” being the comment next to each entry. The total profit and loss derived in the MYOB column is $21 721.65 but in the D Partners column $49 686.92 which bears the annotation “agrees to tax return”.
This is consistent with the partnership paying to the husband and the wife a sum equal to the interest payable pursuant to their Westpac loans but not claiming this payment as a tax deduction. Apparently, this then enabled the husband and the wife to claim the deduction.
Similarly a document headed “Z – 2009” which follows a similar format to the 2008 MYOB document shows interest expenses for the two loans of $19 231.23 and $32 846.36 respectively shown in the MYOB column but adjusted by the D Partners entries to zero. Some caution needs to be exercised with that document, however, as a further document headed “Z Profit and Loss Statement July 2008 – 2009” bears entirely different figures and is in a completely different format.
It can be inferred from these documents that the rent referred to in the tax returns has nothing to do with rent of the X land. It can also be inferred that the claims in those returns to interest is a reference to interest paid on the partners’ credit cards and not the Westpac loans.
One of Mr Elliott’s complaints during the hearing was that the profitability of Z was compromised by it not claiming as a tax deduction the payments it made to the husband and wife as interest on the loans of the husband and the wife, but permitted them personally to claim their payments on the mortgage as a tax deduction.
This evidence, scrappy as it is, establishes that it is more likely than not that the partnership paid to the husband and the wife the amounts that they were required to pay in respect of their mortgage. That payment was not taken into account for the purposes of the partnership’s tax returns. It was not claimed as a deduction for rent or interest. This then is the factual basis for Mr Elliott asserting that, as the partnership paid no rent for the land, it must have been because the land was indeed a partnership asset.
The land, however, did not appear as an asset in the few partnership returns in which lists of assets were completed. This, coupled with the land always having the husband and the wife as the registered proprietors and they being the only two borrowers, suggests that the land was not a partnership asset. The claiming of interest on the loans as a tax deduction by the husband and the wife is consistent with this position. This is because they are claiming the costs of the borrowing of the funds they used for their capital contribution as a tax deduction. The advances from the bank were not used to acquire the land - they were used for the purpose of building. Had the acquisition of land and the borrowings been carried out by the partnership, clearly the partnership would have claimed the interest as a tax deduction.
When these matters are coupled with the complete absence of any document or conversation that suggests that the land was indeed a partnership asset, the only conclusion that can be reached is that it was not. Indeed, the draft proposal first put to Mr Elliott made it expressly clear that he was not, by investing in the partnership, obtaining an interest in the land. True it is that the document was never acted upon, but it stands as an undeniable indication of the then attitude of the husband and the wife. There is no suggestion that whilst the partnership continued that intention changed.
Accordingly, I find that the land did not become a partnership asset but remained owned by the husband and the wife.
In his affidavit sworn 17 October 2013 Mr Elliott said the following at [35] – [44]:
35.On the 14 January 2002, I had a meeting with [the husband] and [the wife] at the unit at [Suburb Y]. During the meeting we discussed a number of issues relating to [Z].
36.Annexed and marked with the number “4” is a copy of that document.
37.Shortly after we had another meeting in which we discussed the Partnership contract that I had been given to read. I had marked the areas on the Contract that I wanted to discuss or wanted changing.
38.The meeting lasted all afternoon. The main area discussed was the profit share. By the end of the meeting [the husband] and I profit share would be shared 55% to [the husband] and [the wife] and 45% to me. The profit share was based on my investment of money and the provision of time and labour during the development stage.
39.During the course of the meeting, the amendments I made the “draft copy of the Partnership Contract”, in addition to the amendments which were made during the meeting were recorded by [the husband] on his home PC. I did not receive a final copy of the Partnership Contract during this meeting.
40.On 29 December 2001, I travelled to the site at [X]. I cleared large trees and other areas for the building sites with a chainsaw. I did this work for three days and I returned to Sydney on the 1 January 2002.
41.Around January 2002, I submitted a request for a loan to my financial institution. I was informed at the current property values; I could be approved for a loan of $68,125.00 secured by my own property.
42.I informed [the wife] and [the husband] without title, I could invest $80,000.
43.To obtain additional funds I would need records and title of the buildings. [The husband] made it very clear that I would not receive title to the building on the property under this arrangement, because they already owned the land in which the buildings would be built on.
44.I was told it would be too expensive to add my name to the title, but I would still be part of the business and I would receive profit share resulting from the business. [As per original]
(Affidavit of Mr Elliott sworn 17 October 2013 at [35] – [44])
It is to be recalled that Mr Elliott himself borrowed money to obtain some of the funds that he invested into the partnership. The position therefore of the husband and the wife is no different.
In the present case, the partnership constructed all of the improvements, at a cost of over $1 million on land owned by the husband and the wife. There is no record of any agreement as to how these improvements were to be treated as between the partnership on the one hand, and the husband and the wife on the other. There was no payment of rent. The partnership however provided to the husband and the wife the cost of their borrowings to invest in the partnership.
The above facts, however, clearly highlight the difficulties that can arise when a person builds on land owned by another where there is no agreement as to how those improvements are to be treated as between the builder and the owners of the land.
In the absence of agreement, the mere fact that a person constructs improvements on the land of another does not give them an interest in the land. I must consider, however, whether it would be unconscionable for the husband and the wife to assert as against Mr Elliott that the land is not part of the partnership. I find that it is not.
There is no evidence whatsoever of any representations made by the husband or the wife to Mr Elliott, let alone representations on which he relied, to his detriment, to the effect that he or the partnership would obtain an interest in the land. Thus, the case does not fall within the principles set out by the High Court in Giumelli v Giumelli (1999) 196 CLR 101.
In Muschinski v Dodds (1985) 160 CLR 583 Deane J (with whom Mason J agreed) said, in relation to the general equitable principle that a party is entitled to the contributions they have made to a joint venture which fails and where the contributions have been made where it was not intended that the other party should enjoy them, at p 620:
…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 specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do.
In Baumgartner v Baumgartner (1987) 164 CLR 137, Mason CJ, Wilson and Deane JJ said after referring to that passage, at p 148:
His Honour pointed out that the constructive trust serves as a remedy which equity imposes regardless of actual or presumed agreement or intention "to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle"
The wife did not address any submissions directly to this issue although, of course, by reason of her bankruptcy she has a limited interest in it. I did not understand either of the interveners or the trustee to assert a contrary position.
It was the husband’s position that the buildings were part of the land and not the partnership and that no allowance for the construction of the improvements should be made in favour of the partnership. He derives a figure for the value of the partnership by deducting the value of the land and its improvements from the total sale price of Z.
The husband submitted in a document entitled “Husband’s Outline of Submissions in Relation to the Second Respondent’s Claim”, at [31]:
[Mr Elliott] entered into this business arrangement with his eyes wide open. If he made a bad investment, it is his own fault.
The issue then is whether it is unconscionable for the husband and the wife to retain the benefits of the improvements constructed on their land by the partnership. The partnership did not pay rent for its use of their land. Had the matter stopped there it would be difficult to find that it would be unconscionable for the husband and the wife to retain the benefit of the improvements because the cost of that construction could be seen as a cost paid in lieu of paying rent.
The matter does not stop there. The partnership re-imbursed the husband and the wife for the cost of their Westpac borrowings.
Mr Elliott made much of the fact that that re-imbursement was done in such a way that it was the husband and the wife who claimed the benefit of the tax deductions and not the partnership. Had the partnership claimed the deductions, the taxable income of the partnership would have been reduced thus reducing the taxable distribution of profit to the partners and reducing the tax they had to pay on their income distributions from the partnership. The effect is that the husband and the wife received 100 per cent of the benefit of the deductions and not 78 per cent. Mr Elliott lost the benefit of claiming 22 per cent of the interest as a deduction.
That, of course, assumes that the interest payments should be categorised as rent or some other deductible payment. I repeat, it is not the court’s task to impose an agreement on the parties but to ascertain the actual arrangement between the parties and to consider whether that arrangement was unconscionable. It is important to bear in mind that the development of Z was a commercial arrangement. Mr Elliott, briefly, had the assistance of a solicitor.
On the husband’s case, he and the wife are to retain the benefit of the improvements at Z as well as the benefit of the loan repayments. This is the cost to the partnership of its use of the land. Whether that was a sound arrangement depends on the profits the partners expected to make from Z. No evidence was called as to that. In the absence of such evidence it is very difficult to determine, at the time of entering into the partnership, which is the relevant time, that the arrangement was so unsound as to make it unconscionable for the husband and wife to rely on it.
One cannot have regard to the profits that were actually earned to determine unconscionability at the time of entry into the partnership.
In other words, the fact that the partnership may have turned out badly for Mr Elliott does not establish his case.
In Muschinski v Dodds, Deane J said at p 615:
Thus it is that there is no place in the law of this country for the notion of "a constructive trust of a new model" which, "[b]y whatever name it is described, is imposed by law whenever justice and good conscience" (in the sense of "fairness" or what "was fair") "require it". Under the law of this country - as, I venture to think, under the present law of England proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion, subjective views about which party "ought to win", and "the formless void of individual moral opinion". Long before Lord Seldon's anachronism identifying the Chancellor's foot as the measure of Chancery relief, undefined notions of "justice" and what was "fair" had given way in the law of equity to the rule of ordered principle which is of the essence of any coherent system of rational law. The mere fact that it would be unjust or unfair in a situation of discord for the owner of a legal estate to assert his ownership against another provides, of itself, no mandate for a judicial declaration that the ownership in whole or in part lies, in equity, in that other. Such equitable relief by way of constructive trust will only properly be available if applicable principles of the law of equity require that the person in whom the ownership of property is vested should hold it to the use or for the benefit of another. That is not to say that general notions of fairness and justice have become irrelevant to the content and application of equity. They remain relevant to the traditional equitable notion of unconscionable conduct which persists as an operative component of some fundamental rules or principles of modern equity. (Citations omitted).
It is of considerable significance that the improvements constructed by the partnership are not shown as assets in the list of partnership assets referred to above. There is no evidence of any contemporaneous complaint by Mr Elliott about that.
There was no evidence as to what would have been a commercially appropriate rent or occupation fee for the partnership to have paid.
Mr Elliott bears the onus of proving the unconscionable conduct.
I am not satisfied that he has done so. Whilst the arrangement, at least so far as it has turned out, as seen by Mr Elliott was unfair, he must call evidence to show that at the time of entry into the partnership, the payment of the interest payments and the retention of the benefits of the improvements by the husband and wife so exceeded acceptable commercial arrangements as to make it unconscionable. There is no evidence by which the court can weigh the cost to the partnership against the expected benefits.
There is no basis on which the land, or alternatively, the buildings on the land, can be treated as an asset of the partnership.
If the land is not a part of the partnership, how is the proportion of the value of the land and business to be assessed.
The evidence addressed to this issue was entirely inadequate and scant. Nevertheless, the court must do what it can with the meagre material provided to it. It cannot divide funds held in the bank account simply by making an assessment as to what it thinks is fair.
The only evidence of assistance is a valuation of the land prepared by
Mr R on 8 April 2003 (Exhibit 27). This valuation was discovered by the second intervener amongst the documents produced by the Westpac Banking Corporation. Mr R was cross-examined by the parties but nothing arose from that cross-examination that cast any doubt upon the weight that should be given to his report.
His report is of limited value because, at 8 April 2003, only two of the four guest buildings had been constructed. A further $355 000 was to be borrowed and used in the further development of the property. However, it is the only evidence that exists on this issue.
Mr R valued the property and buildings by using the summation approach. This involves the separate assessment of the land value and the improvements which are then added together. The land value was determined by a direct comparison approach looking at recent sales and the value of the improvements was calculated by depreciating their replacement cost.
In determining the land value Mr R had regard to seven recent sales. He agreed that the reference to one of those comparable sales contained an obvious typographical error ... His best recollection was that the sale price should have read $445 000 instead of $145 000 but he said that, as his recollection was shaky, it would be safer just to disregard that comparable sale in its entirety. Using the comparable sales he arrived at a land value of $400 000.
Mr R then worked out a value of the buildings by regard to their size and deducted an amount for depreciation, giving a value for the buildings of $487 302 which he rounded up and added to the land value to give a total market value of the property of $890 000.
Whilst it is true that the construction of two new guest buildings and the extensive walkways is likely to have dramatically increased the value of the improvements, it is also likely that a much greater depreciation value would have been applied to the improvements in 2010 than it was in 2003. What those changes might have been was not the subject of evidence and it is not for the court to speculate as to what they might have been. Accordingly, the only evidence of the value of the land on the one hand and the improvements on it on the other, is found in Mr R’s report. It is also the only evidence of the value of the land and improvements on the one hand, as opposed to the value of the land, improvements and partnership business on the other. The latter value is derived from the sale price of Z in 2010. The comparison, having regard to the dates, is far from a desirable one, but it is the only one that the evidence permits to be made.
That being so, the land value (including improvements) is to be taken at $890 000. That is 63.79 per cent of the sale price of $1 395 000. Accordingly, the funds presently held should be regarded as representing 63.79 per cent for the land and improvements and 36.21 per cent for the partnership business.
Whether Mr Elliott is owed money as a result of contributions to the partnership, and if so, how much.
Is Mr Elliott owed a ‘profit share’, and if so, what amount is owed to him.
Is Mr Elliott owed an ‘income distribution’, and if so, what amount is owed to him.
By way of introduction, it is necessary to record that neither Mr Elliott nor the husband are accountants. Neither, apparently, had the benefit of expert accounting assistance in preparing the many schedules relating to amounts said to be owed by the partnership to them. The schedules are not easy to understand. There was limited cross-examination directed towards specific entries or even categories of claims.
It is to be recorded that, until the time the husband and the wife separated in 2006, all parties were regularly present at the retreat. The husband, however, remained primarily responsible for keeping and managing the books of the partnership and sending the relevant information to the accountants for the preparation of the annual accounts and tax returns. He retained that task until April 2009. Thereafter, Mr Elliott, with the assistance of bookkeepers, seemed to be responsible for the accounts.
There was a suggestion that because of the changing nature of the bookkeepers who assisted the husband and Mr Elliott from time to time and because of the partnership difficulties, that two different versions of the accounts may have existed. There was also a suggestion by the husband that a bookkeeper had deliberately altered the accounts to his detriment because she did not like him. In the absence of any evidence as to establish either of those matters or to demonstrate that the particular figures relied upon by the parties were unreliable, neither suggestion can be taken further.
Mr Elliott prepared a 33 page schedule of what he said he was owed by the partnership. He asserted that this resulted in him being entitled to the sum of $572 152.44. He says he had received $85 528.54 from the partnership over the years leaving $486 623.90 outstanding.
The document is in a somewhat confusing format but it groups its claims into a number of categories which will be dealt with separately. It is also to be noted that the schedule also lists a large number of payments made by Mr Elliott for which he does not seek reimbursement.
The first category is for his profit share from the commencement of the partnership in 2002 until the end of the partnership in 2010. Leaving aside the loss that was made in 2003, according to the income tax returns, the profit share for Mr Elliott from the partnership for the following years was:
·June 2004 $37 235
·June 2005 $5183
·June 2006 $7298
·June 2007 $14 495
·June 2008 $10 931
·June 2009 $9956
·June 2010 $8178
Total: $93 276
(Affidavit of Mr Elliott sworn 17 October 2013, Annexures 254 & 256)
Mr Elliott says that he did not receive it.
In his opening submissions Mr Elliott asserted that the husband had improperly retained Mr Elliott’s share of the profit and used it for his own benefit. There was no evidence that this was so and that claim cannot be accepted.
It is not disputed by the husband that there was no actual distribution of the profit to the partners by way of a payment to them.
A profit being made by a partnership and its subsequent distribution to the partners does not necessarily mean that those partners will receive cash in the amount of the profit distributed to them. Profit could arise in a number of ways that do not result in a cash sum for distribution. There could, for example, be a profit on capital as a result of an increase in the value of assets. The profit could also have been reinvested into the partnership. Given that the parties’ capital accounts are not in evidence it is difficult to give an explanation as to why the profit was not received by Mr Elliott as a cash payment but the mere fact that it was not does not mean that he did not receive the benefit of it.
The evidence does not establish that Mr Elliott is entitled to claim against the funds held by the partnership for unpaid profit.
In any event, the assets of a partnership are distributed on a final settlement of accounts in accordance with s 44 of the Partnership Act which provides:
Rule for distribution of assets on final settlement of accounts
In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed:
(a) Losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits.
(b) The assets of the firm, including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order:
1In paying the debts and liabilities of the firm to persons who are not partners therein.
2In paying to each partner ratably what is due by the firm to the partner for advances as distinguished from capital.
3In paying to each partner ratably what is due from the firm to the partner in respect of capital.
4The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible.
In the ordinary course, unpaid profits would, in all likelihood, be added to the partners’ capital account and therefore be paid only after third party creditors and advances by partners to the partnership had been paid. As there was no evidence that the husband and wife had received their profit share as cash, their entitlements would also had to have been taken into account if this argument had succeeded.
The second category claimed by Mr Elliott is for “income distribution not received”. He asserts that between 2004 and 2011 there is an income distribution owed to him but not received which totalled some $201 801. Ordinarily, profit would be distributed as profit to the partners as, in fact, occurred here.
This claim, therefore, that profit was realised but not recorded in the accounts, would suggest that the books were not accurately kept. As I have said, there is no evidence that establishes that, or what the correct accounts would be.
Mr Elliott’s claim is thus difficult to understand. It may well be that this is a reference to the partnership paying, but not claiming, a deduction for the purposes of its tax returns, the interest on the monies borrowed by the husband and the wife. As I have observed, that was how the parties conducted the partnership throughout its operation seemingly without any complaint from Mr Elliott. Again, this complaint is not established.
Mr Elliott claimed the sums he had paid directly to the husband and the wife including the $131 000 capital contribution made by him. This is a sum already described as a capital contribution and cannot be claimed as a reimbursement because the two are dealt with quite separately in s 44 of the Partnership Act. It will be considered in due course. Mr Elliott did not include this sum in the calculation of what he said was owed.
There were a number of other transfers to the husband and the wife between May 2002 and December 2005. Whatever they may be, I am not satisfied that they were advances to the partnership. It is more likely than not that at least some of them were payments of rent for a period when Mr Elliott was living with the husband and the wife. Some of them appear to be the same payments claimed in relation to the capital advance of $131 000. Both need to be excluded.
Mr Elliott makes a claim for payments made to Westpac for life insurance. He says it was a condition of the partnership agreement that each of the partners maintain life insurance. I take that to be a personal obligation on the partners and not an expense of the partnership so it will be excluded from the claim.
Mr Elliott claims sums being diverted from the website business “Wotif” and funds remaining in the Westpac account. Again, they are not advances to the partnership and must be excluded. In any event, the basis for claiming them is not clear.
The balance of the items appear to be goods and services purchased by Mr Elliott for the benefit of the partnership or fuel expenses in relation to the partnership. They are cross-referenced to his credit card entries. There is no basis for not accepting this evidence. As they are expenses incurred on behalf of the partnership, the partnership is obliged to reimburse him
Thus, there are a number of sums to be excluded from the claim identified earlier:
Unpaid profit share
$93 276.00
Income distribution not received
$201 801.00
Funds diverted from Wotif
$ 3960.00
Funds remaining in Westpac
$10 000.00
Westpac Life Insurance
$907.47
Payment to husband and wife
$130 924.00
Total of sums to be excluded:
$440 868.47
(Affidavit of Mr Elliott sworn 17 October 2013, Annexure 254)
When the sum in the above table is subtracted from Mr Elliott’s net claim of $486 623.90, one finds a balance outstanding for advances to the partnership of $45 755.44.
Mr Elliott has a claim for return of his capital of approximately $131 000 should the funds remain for that payment.
The husband prepared three spreadsheets analysing the amount of money he says that Mr Elliott spent on Z for the years 2006 to 2009. Taking the spreadsheet for the year 2008, as an example, it has a number of columns referring to the MYOB transaction number, the date and the description of the expense. There then appears two columns, one headed “What [Mr Elliott] has been paid back” and the other headed “Expenses [Mr Elliott] has paid”. A figure appears for each entry in one, but never both, of the columns. I would, accordingly, understand that spreadsheet to mean that the total of the two columns “What [Mr Elliott] has been paid back” and “Expenses [Mr Elliott] has paid” to be his expenses on behalf of the partnership for that year with the two columns detailing what he has been paid and what he has not been paid. This would seem to be confirmed by the MYOB numbers, the dates and the descriptions referring to different expenses for each column. Thus, the total of the “Expenses [Mr Elliott] has paid” column for the 2008 financial year is $17 716.07. Accordingly I would understand that to be reimbursements to which Mr Elliott is entitled.
Yet of this spreadsheet the husband says:
I have also undertaken an analysis of the money [Mr Elliott] have (sic) spent on [Z] during the 2009 financial year. It shows that he paid $17,716.07 with $14,837.86 repaid to him during that financial year.
(Affidavit of the husband sworn 19 April 2013 at [119])
The reference to 2009 is an error and should be 2008. I do not understand the logic of the husband’s analysis given the form of the spreadsheet. If I am correct about the understanding of the spreadsheets they would, at least in a very broad sense, support a claim of the magnitude of the claim brought by Mr Elliott.
On 8 December 2008 the husband sent Mr Elliott an email which contained the following (Exhibit 21):
Essentially, from what you have submitted for the MYOB file for the 2008 financial year you have paid:
$27,716.07 for expenses for the retreat and in turn repaid $24,835.79.
I do not see how that matches with the spreadsheet prepared by the husband.
For those reasons I am not inclined to place any weight on the spreadsheets for the years 2006 to 2009 as prepared by the husband.
Mr Elliott’s spreadsheet covers the entire period of the partnership and is supported by reference to individual transactions only one of which was the subject of cross-examination. I find it sets out his unpaid advances to the partnership or the payments made on its behalf.
On 15 January 2010 Hamish Cumming Lawyers, who were then acting on behalf of Mr Elliott, wrote to the other parties informing them of his claim. Attached to that letter was a spreadsheet. Mr Elliot’s claim was summarised in the letter as follows (Exhibit 31):
Total Paid by our client for “[Z]”
$116,149.12
Less amount shown for Life Insurance
$907.47
Total paid for which 2nd respondent seeks reimbursement
$115,241.65
Less amount Reimbursed by “[Z]”
$60,863.70
Total to be reimbursed
$54,377.95
Mr Elliott explained the difference between this claim and the one made by him as him discovering further records since 2010 which he took into account in formulating his present claim.
As I have found that Mr Elliott’s present claim is less than the one identified by Hamish Cumming Lawyers (which excludes the amounts excluded by me) that letter is of no particular significance in these proceedings.
I find that Mr Elliott is owed $45 755.44 by the partnership for advances made by him to it and for purchases of goods and services for it.
Whether the husband is owed money as a result of contributions to the partnership, and if so, how much.
Whether the husband has already been reimbursed his expenses of the partnership.
The husband sought re-imbursement of expenses of $56 317 paid by him on behalf of the partnership. These were identified in Annexures 588 and 589 of his affidavit sworn 19 April 2013.
These schedules are in the same format as those discussed at [158] above. I have the same difficulty understanding them. The ordinary reading of them would suggest that the two columns are mutually exclusive but that is not the husband’s understanding. Further, in cross-examination Mr Elliott pointed out a number of errors and duplications in the schedules. There are entries in them such as interest which, on their face, would appear not to be advances to, or purchases made on behalf of the partnership. The evidence did not explain them.
I am not prepared to accept them as being reliable. Therefore, the husband has not established these claims.
Whether the wife’s personal effects vest in her Trustee in bankruptcy.
Whether the Trustee has been [sic] sold personal effects of the wife, or the partnership, and if so, what was the value of those items sold.
Whether the wife is entitled to $20 000 from the partnership.
The wife made a claim for $20 000 for her personal items that remained on the X land and were sold by the trustees for sale. The trustee in bankruptcy, who was also one of the trustees for sale, properly conceded that, if such items were sold by the trustees for sale, the wife would be entitled to reimbursement for them as they would not be items that vested in her trustee in bankruptcy because of the application of s 116(2)(b), (ba), and (c) of the Bankruptcy Act1966 (Cth) (“Bankruptcy Act”). The trustee accepted that there may have been such items sold by him.
In her submissions the wife identified the $20 000 claimed by her as consisting of:
Personal belonging such as replacement cost of personal photographs destroyed by [the husband] $3,880, cash earnings of $1500.00 (see attached document titled C), lost wages for period of unemployment from
20 October 2006 to 26 March 2007 of $14,620.00 (Based on earning at [Z] at time of resignation.(Applicant’s Closing Submissions, handed up 27 March 2015)
None of these is an item within s 116(2) of the Bankruptcy Act as described earlier or an item left on the X land and included in its sale.
In her submissions the wife identified a number of items which she said were not sold by the trustees for sale but were not received by her. These were said to total some $14 780. They included items destroyed by the weather when left outside by the husband under an exposed shed or destroyed by him. Unfortunately, the evidence does not refer to these items. Consequently, they were not dealt with in evidence by the other parties and a claim for them therefore cannot be sustained.
How are the remaining assets of the partnership to be distributed having regard to the above issues.
The amount standing in the term deposit of the solicitors is $503 939.15. I have found that 63.79 per cent of that is attributable to the land and improvements ($321 462.78) and 36.21 per cent attributable to the business of the partnership ($182 476.37).
I have found Mr Elliott’s claim for reimbursement for expenses paid on behalf of the partnership to be $45 755.44.
I have found the husband did not establish any entitlement to reimbursement from the partnership.
The trustee in bankruptcy of the bankrupt estate of the wife did not seek any sum for reimbursement of expenses.
The sum attributable to the partnership must be disbursed in accordance with s 44 of the Partnership Act.
Debts owed to third party creditors must be paid first. There is only one identified by the evidence.
I have already referred to the Industrial Relations Commission proceedings undertaken by Mrs Coulson and their resolution. Pursuant to the settlement agreement, the husband, the wife and Mr Elliott agreed to pay Mrs Coulson $50 000 out of the funds remaining from the sale of the Z business and property which is currently held in trust in priority to any other payment.
That sum must be paid first out of the monies attributable to the partnership.
Mrs Coulson sought interest on that sum. She conceded that the written agreement did not refer to any interest payable but submitted that as some time had passed since the agreement it would be appropriate to award her interest.
Clause 4 of the written settlement agreement provides:
Subject to all Respondent’s compliance with the terms of this Agreement, the Applicant will not seek to enforce her entitlement to payment of the moneys set out in paragraph 1 above prior to the conclusion of the Family Court proceedings. After that time, or at any time in the event of non-compliance with the terms of this Agreement, the Applicant will be entitled to claim or enforce payment of the moneys set out in paragraph 1 by any method she considers appropriate.
(Affidavit of Mr A affirmed 12 March 2015, Annexure PL1)
The reference to the applicant is a reference to Mrs Coulson and the reference to the money set out in paragraph 1 is a reference to the $50 000.
Pursuant to the agreement Mrs Coulson agreed to accept $50 000 in respect of her claim. A condition of that agreement was that she would not seek to enforce her entitlement to that money until the conclusion of the Family Court proceedings. In the absence of any term whereby the other parties agreed to pay her interest, it is clear that the entitlement of Mrs Coulson is only to the agreed sum of $50 000. There is no basis for inferring any term as to the payment of interest. On the appropriate construction of the document there is no entitlement to interest.
Although the parties agreed that this sum would come from the amount held in the term deposit, they were not the only ones with a claim on it. Therefore, this payment must come from the funds in the account attributable to the partnership.
After payment of the $50 000 to Mrs Coulson, the next payment is the payment to Mr Elliott of his re-imbursement of $45 755.44.
The next step is the return of the partners’ capital. As there are no capital accounts in evidence all that can be done is to secure the return, to the extent that it is possible, of their initial capital contributions.
Mr Elliott’s capital contribution of $131 000 has not been repaid.
I have found that the husband and the wife did not contribute the land to the partnership but that they contributed the borrowings that they made using that land as security. Ultimately, there were two loans. One for $510 000 and one for $355 000. This is a total of $865 000.
However, because the business and land were sold together in order to effect the sale of the property, those mortgages were discharged. According to Mr Elliott, without challenge, the loans of the husband and the wife were repaid out of the proceeds of sale of Z in the sums of $476 443.95 and $261 914.34, a total of $738 358.29. Therefore, that part of their capital contribution of $865 000 has been repaid to them because their liability to the bank for that amount has been extinguished by the partnership by payments out of the proceeds of sale. I infer that the balance was repaid from the regular payments made by the partnership to them which they then used as payments of interest and principal for the Westpac loans. They have, therefore, been repaid their capital contributions to the partnership (as best as can be established from the evidence).
The husband asserts that he also made available for the benefit of the partnership his interest in the G property. That was a property that was sold in 2001 and part of the proceeds used for business development. That was prior to the partnership with Mr Elliott. That, of itself, suggests that it was not a capital contribution to the partnership. In the absence of any capital accounts of the partners demonstrating that it was a capital contribution, this claim cannot be accepted.
The trustee in the wife’s bankruptcy did not make any claim in relation to this fund so the balance, accordingly, will be payable to the husband.
Thus, from the partnership share of the fund the following are to be paid:
Mrs Coulson $50 000.00
Mr Elliott$45 755.44
$95 755.44
Mr Elliott is entitled to the balance as partial return of his capital of $131 000 leaving a shortfall. The husband and wife have had their capital returned in full. Section 44 of the Partnership Act requires the repayment of capital to be paid rateably.
Thus, the shortfall is to be borne by the partners in proportion to their interest in the partnership. The wife is a bankrupt and if Mr Elliott wishes to pursue her share of her over payment he must lodge a proof of debt. The husband however, is obliged to contribute to Mr Elliott’s 39 percent of that shortfall. The calculation of this sum is at [250].
From what source or sources should the amounts owing to Mrs Coulson and Ms Lane be paid.
The proportion of the money in the term deposit representing the land is $321 462.78. As they were the owners of the property half of that should, subject to Ms Lane’s claim, be paid to the husband and half to the trustee in bankruptcy of the wife.
Ms Lane is a lawyer. Between 2005 and 30 June 2008 the wife was a client of Q Firm. That firm was acquired by Ms Lane on 1 July 2008. The wife remained a client of that firm until 17 February 2010. On 12 March 2010 a bill of costs was rendered to the wife in the sum of $131 820.85.
On 1 April 2009 the wife entered into an agreement with Q Firm which provided as follows:
In consideration of you agreeing at my request to provide me with legal assistance in respect of my family law proceedings on a deferred payment basis, I, the undersigned [Ms Miller] of … in the state of New South Wales hereby charge in your favour all my estate and interest in the land and contained in Certificate of Title Folio Identifier … and known as [N Road, Village X] in the State of New South Wales (“the property”) with payment of all legal costs and disbursements or other moneys now or in the future owing by me to you or incurred by you on my behalf as and from 1 July 2008. I undertake to pay all such legal costs and disbursements when due in accordance with your required terms of payment.
(Affidavit of Ms Lane sworn 20 January 2012, Annexure F)
The charge was registered on 28 April 2009 and a caveat subsequently lodged on the title of the property. As Ms Lane is a secured creditor, she is entitled to pursue her security regardless of the bankruptcy of the wife. The trustee in bankruptcy accepted that if there was a sum that vested in him as being referrable to the wife’s interest in the land, it would be subject to any charge of Ms Lane.
Accordingly, the appropriate order is that from the $321 462.78 representing the wife’s share in the fund referrable to the land, i.e. $160 731.39, the sum of $131 820.85 is to be paid to Ms Lane and the balance of $28 910.54 is to be paid to the trustee in bankruptcy. The husband will receive the remaining half.
The evidence discloses that on 1 January 2010 Q Firm held $27 981.40 in their trust account on behalf of the wife. On 28 January 2010 $24 970 was paid to counsel leaving a balance of $3011.40. The evidence does not disclose what happened to the balance.
If it remained in the trust account it would have vested in the wife’s trustee in bankruptcy when she became bankrupt in February 2010, subject to any prior claim of the lawyers. In that case, the fate of the balance is a matter for the lawyers and the trustees and is not relevant to the present proceedings.
Whether the wife is entitled to 50 per cent of the superannuation contributions of the husband for the relevant seven years whilst the parties were in a relationship.
This issue effectively raises the s 79 proceedings between the husband and the wife under the Family Law Act 1975 (Cth) (“Family Law Act”). The only order that was sought by any of the husband, the wife or the wife’s trustee in bankruptcy, was sought by the wife. She initially sought an order that would give her the benefit of one half of the husband’s superannuation entitlement that was acquired by him during the marriage. In her final submissions she simply sought 10 per cent of the husband’s superannuation.
Applicable Principles
According to guidelines established through a series of leading decisions, the court is required to determine the following matters:
·having regard to the breakdown of the marriage, if any, is it just and equitable to consider whether the alteration of the parties’ interests in their property is just and equitable;
·the assets, liabilities and financial resources of the parties to the marriage;
·all relevant contributions of each of the parties, within the meaning of paragraphs (a) - (c) of s 79(4) must be identified and weighed against each other;
·the matters in paragraphs (d) - (g) of s 79(4), particularly paragraph (e) which takes up by reference the provisions of s 75(2) must be considered and a determination made as to what, if any, alteration should be made to the entitlements of the parties earlier assessed on account of contribution; and
·an order under s 79 must not be made unless the court is satisfied that, in all the circumstances, it is just and equitable to make the order.
I must first determine whether it is just and equitable that there be an alteration of the property rights of the parties. This must be done by consideration of the relationship, its breakdown, the property held by the parties and the basis on which it was held and used by them. The court can also have regard to the matters raised by s 79(4) of the Family Law Act in this consideration, as is made clear by the introduction to that subsection.
The property presently owned by the parties consists of their interests in the fund the subject of these proceedings and their respective superannuation entitlements. The wife’s interest in that fund has vested in her trustee.
The relationship between the parties was relatively short – some seven years. At the commencement of the relationship the husband had his interest in the G property of approximately $103 000. Each of them had a car and significant superannuation interests. The car owned by the wife was subject to a loan.
Throughout the marriage each of the parties worked as a public servant and continued to contribute to their superannuation. Each of them undoubtedly worked very hard in the development of Z. This property was bought and developed by them during the relationship although assisted by the equity that the husband had in the G property.
The husband clearly made a greater initial financial contribution than the wife. Since then their direct and/or indirect financial contributions to the property held by the husband and wife was equal.
The husband and the wife had no children. There is no suggestion from either of them that there was anything other than an equal contribution by them to the welfare of the parties to the marriage.
It is difficult to see how any proposed order would have any effect upon the earning capacity of the other party of the marriage.
The husband says that he severely injured his hand a relatively short time ago and he has not regained the full use of it. He is currently registered as a private investigator, is not presently working but expects to do so when this matter is over and the health of his current wife permits.
His earnings in the past as a private investigator were not disclosed.
The wife is currently working in the travel industry earning up to $50 000 per year. She says that she has, as a consequence of the ending of the relationship, the breakdown of the partnership and her bankruptcy, suffered at least two nervous breakdowns which have significantly affected her earning capacity.
In particular, she points to her retiring from the public service in August 2005 so as to become the full time manager of Z. She resigned from that position in September 2006 when she and the husband separated. She says that this caused her a loss of superannuation whereas the husband continued in his employment at the Commonwealth public service and continued to build his superannuation. That is so, but for most of the marriage, both parties were contributing to their own superannuation funds.
The husband clearly has the physical and mental capacity to continue his work as a private investigator. The wife says, and there is no reason not to accept it, that because of her psychological state, the work that she is presently undertaking is the best she can do.
According to the husband, Mrs Coulson suffered a fractured vertebrae in a car accident. She was diagnosed with fibro myalgia. She still takes medication for both injuries. She suffers from clinical depression for which she is treated and still taking anti-depressants. She had thyroid cancer in 2002 which involved surgery and chemotherapy. She has been treated for breast cancer involving both surgery and chemotherapy in 2002, 2004 and 2006.
In 2007 she was diagnosed with a leaking mitral valve which will require valve replacement surgery at some time in the future. Mrs Coulson was apparently hospitalised, for an unknown reason, a number of times between 2009 and 2013. The last occasion was for a period of six weeks.
The husband said that from July 2009 he and Mrs Coulson could no longer afford to pay rent and had moved to live in a holiday home on the Central Coast owned by his mother and his aunt. He says that he had not worked since July 2012.
The wife has remarried. There was no evidence as to any particular needs of her husband or his income.
Pursuant to the orders referred to above the husband will be receiving $160 731.39 from the term deposit attributable to the land. From this he must account to Mr Elliott for $25 709.22 leaving him with $135 022.17. His superannuation was valued by the expert accountant as having a value of $798 647 as at 5 February 2015.
The wife’s entitlements to one half of the land have been paid to a secured creditor of hers or to her trustee in bankruptcy.
As at 27 February 2015 the account balance of the wife’s superannuation fund held with First State Super was $31 689.90. On at least two, and possibly three, occasions the wife has applied to have early access to her superannuation fund on the ground of hardship. This has obviously and significantly depleted her superannuation entitlements.
I am not satisfied that it is just and equitable to make an order under s 79 of the Family Law Act.
Effectively, the parties’ interests in Z have been divided equally between them notwithstanding that the wife’s share will be paid to a secured creditor and the trustee. On a contributions basis, this would favour the wife slightly because of the greater initial financial contribution by the husband from his equity in the G property.
For almost all of the relationship, save for the last six months, each of the parties worked for a public service and contributed to their superannuation fund. The wife has already taken the benefit of a large part of her superannuation fund whilst the husband’s remains. That is not of itself a basis for making an adjustment.
The wife is working and the husband is not presently, although he clearly has the capacity to do so. He has an obligation to support Mrs Coulson.
Even accepting the wife’s submission that her economic capacity and her superannuation are less than the husband’s, when those matters are weighed against his greater initial contribution and his need to care for Mrs Coulson, no further adjustment is required.
There is another way of looking at the matter. The first is that it would be appropriate to deal with the superannuation assets of the parties as a separate pool as they each significantly contributed to that fund before the relationship commenced and, in the husband’s case, after the relationship ended. Given that each worked for almost the same period during the relationship, contributing to their own superannuation fund, there would be a strong basis for not making any adjustment to that pool.
Further, having regard to these matters, if I were considering what would be an appropriate order under s 79, there would be an order to make no adjustment to the present position.
For those reasons the application of the wife under s 79 will be dismissed.
Whether Mrs Coulson’s Industrial Relations (IR) agreement with
Mr Elliott should be set aside.
Mr Elliott complained of what he said was the unfairness of the agreement and the pressure he was under at the time he signed it. He sought to have it set aside.
This was not part of his original application. Consideration would need to be given as to whether or not the Industrial Relations Commission proceedings could be reinstated if the agreement that resolved them were to be set aside. If not, it would mean that Mrs Coulson would have lost both the benefit of the settlement agreement and the opportunity to pursue the proceedings. That would be a most inequitable result.
An issue arises as to the jurisdiction of this court to do so.
Unfairness and pressure are, of themselves, insufficient to justify setting aside an agreement under the general law. Unconscionability, undue influence or duress would suffice. The evidence does not establish any.
There is no basis for setting aside the industrial relations agreement.
Whether Mr Elliott is obliged to pay to Mrs Coulson her costs in relation to an anti-suit injunction.
In the settlement agreement referred to earlier between Mrs Coulson and the husband, the wife and Mr Elliott, there was an agreement between Mrs Coulson and Mr Elliott as to the money he was obliged to pay her pursuant to the costs order in relation to his failed application for an anti-suit injunction. Clauses 7 to 11 of that agreement provide:
7.The parties agree that he following amounts shall be paid out of the Family Court Trust Funds, and in priority to any payment of any other share of the Family Court Trust Funds:
(a)To [Mr Elliott], payment of $20,000 as reimbursement of legal costs incurred by him in connection with the IRC Proceedings; and
(b)To [Ms Miller], payment of $1,642 as reimbursement of legal costs incurred by her in connection with the IRC proceedings.
8.The parties irrevocably consent to any Family Court order sought by any party in the Family Court proceedings which seeks:
(a)that the moneys to be paid to [Mr Elliott] and [Ms Miller] as set out in paragraph 7 above be paid to [Mr Elliott] and [Ms Miller] out of the Family Court Trust Funds, and in priority to any payment of any other share of the Family Court Trust Funds; and/or
(b)that the moneys to be paid to [Mr Elliott] and [Ms Miller] as set out in paragraph 7 above be paid out of the Family Court Trust Funds prior to the final hearing and determination of the Family Court proceedings.
9.[Mr Elliott]:
(a)acknowledges that he is indebted to the Applicant in respect of an amount of $34,475, plus interest from 13 December 2011 (calculated in accordance with the Family Law Rules 2004- Rule 17.03, Rate of Interest), as set out in a Costs Assessment Order issued by the Family Court on 13 December 2011.
(b)will reimburse the Applicant the following amounts in respect of legal costs incurred by her:
(i)approved Family Court costs of $543.60;
(ii)Sherriff’s cost in respect of repossessing assets: $71.00;
(iii) Bankruptcy Notice: $440.00; and
(iv) Creditor’s Petition: $1,219.00
And agrees that the amounts in this paragraph 9(b) (i) to (iv) are to be paid out of the amount in paragraph 7(a).
(c)Will, by 24 July 2013, pay the Applicant an amount of $7,500 be electronic funds transfer to an account nominated by the Applicant, as part payment towards the debt referred to in paragraph 9(a).
(d)Irrevocably consents to the outstanding amount of that debt being paid to the Applicant out of any part of the Family Court Trust Funds which is payable to him or ordered by the Family Court to be paid to him, either prior to or following the hearing and determination of the Family Court proceedings; and
(e)Further irrevocable consent to the Family Court making an order that the outstanding amount of that debt (including interest, but not including the costs specified in paragraph 9(b) (i) to (iv) be paid directly to the Applicant out of Family Court Trust Funds.
10.The Applicant agrees that, subject to [Mr Elliott’s] ongoing compliance with paragraph 9(c) and 11 of this agreement, she will take no further steps to enforce the debt referred to in paragraph 9(a) and will not take any steps to have [Mr Elliott] declared bankrupt as a result of that debt, until the final determination of the Family Court proceedings.
11.Commencing from 7 days after the payment required by paragraph 9(c), and until the debt referred to in paragraph 9(a) (including interest) and the costs set out in paragraph 9(b) are paid in full either by Mr [Elliott] or as a result of an order of the Family Court, [Mr Elliott] will pay the Applicant an amount of $67.50 per week by electronic funds transfer to an account nominated by the Applicant, such amounts to be treated as payment towards the debt referred to in paragraph 9(a). [Mr Elliott] acknowledges that if he fails to make any weekly payment in accordance with this paragraph the Applicant will then be at liberty to take steps to enforce the remaining indebtedness or to proceed to have [Mr Elliott] declared bankrupt as a result of that debt.
(Affidavit of Mr A affirmed 12 March 2015, Annexure PL1)
It follows from clause 7 that there should be paid out of the sums held in the term deposit attributable to the partnership, $20 000 to Mr Elliott and $1642 to the wife. The latter is an entitlement arising after the date of the bankruptcy. Clause 9 requires Mr Elliott to pay Mrs Coulson, from his share of the funds attributable to the partnership, the balance owing under that clause subject to the payments made by Mr Elliott pursuant to that clause and clause 11. Mrs Coulson’s solicitor, without contradiction, calculated the amount owing to be $29 693.96.
Mrs Coulson sought an order under s 117B(2) of the Family Law Act for the payment of interest on her debt of $50 000. This section provides:
(2) A court that makes an order for the payment of money as mentioned in subsection (1) may order that interest is not payable on the money payable under the first-mentioned order or may order:
(a) that interest is payable at a rate specified in the order, being a rate other than the rate prescribed by the applicable Rules of Court; or
(b) that interest is payable from a date specified in the order, being a date other than the date from which the interest would be payable under subsection (1).
In Stephens & Stephens & Anor (Enforcement) (2009) FLC 93-425 the Full Court said at [404] – [405]:
404.The discretion to award interest up to judgment is designed to assist the court to do more complete justice between parties by compensating the plaintiff for having to wait for money lawfully due. In a claim for damages interest is granted on the basis that the plaintiff has been kept out of money which ought to have been paid to him. As the Privy Council said in Thompson v Faraonia (1979) 24 ALR 1 at 7, “[t]he reason for awarding interest is to compensate the plaintiff for having been kept out of money which theoretically was due to him at the date of his accident”. Spender J observed in Smallacombe v Lockyer (1993) 114 ALR 568 at 575 that, “[i]nterest under s 51A is part of the judgment-see s 51A(1). As a matter of principle, it is part of the loss or damage suffered by the applicants representing the compensation for being out of pocket to the extent of the principle amount”. In a claim for money owed, the reason for paying interest is that money owed to the plaintiff is withheld by the defendant until the plaintiff takes action, and in the meantime, the defendant has the benefit of the money which he ought not to have, and in those circumstances the plaintiff should be compensated by being granted interest on the amount withheld: per Lord Herschell LC in London, Chatham & Dover Railway Co v South Eastern Railway Co [1893] AC 429 at 437. In either case, the cause of action including the claim for interest merges with the judgment, and interest on the principal sum ceases to run.
405.However, we observe that in Grincelis v House (2000) 201 CLR 321, in joint reasons Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ said at 328-329 in relation to “[t]he statutory purposes of an award of interest”:
“16. As was noted in Gogic [(1991) 171 CLR 657 at 663]:
‘The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period.’ [Batchelor v Burke (1981) 148 CLR 448 at 455 per Gibbs CJ]
There is no doubt that this is a very important purpose of statutory provisions providing for the award of interest on the amount of a debt or damages in respect of the period between the cause of action accruing (or, in some statutory provisions, the commencement of the proceedings and the date of judgment. It may be, however, that statutory provisions for interest serve not only that purpose, but also a purpose of encouraging early resolution of litigation. That statutory awards of pre-judgment interest may have such a purpose may be more readily understood in relation to claims for debts or sums certain than in personal injury cases where it will often be in the interests of the plaintiff to wait until injuries have stabilised before bringing the action to trial. For present purposes, however, it is sufficient to have regard to the compensatory purpose of interest.”
I have already found that the settlement agreement did not provide for the payment of interest.
It is a commercial agreement entered into between the parties on the eighth day of the Industrial Relations Commission hearing. The parties to it knew that these proceedings were pending. Even a moment’s forethought would have indicated that, having regard to the parties’ conduct in these proceedings to that date and in the Industrial Relations Commission, it would be neither quick nor easy.
In that circumstance the court should not, in effect, impose into that agreement, a term for the payment of interest. The parties resolved the issue as to how much and in what circumstances Mrs Coulson should be paid. This weighs decisively against the discretion to award interest.
Form of orders
The amount held in the term deposit is $503 939.15 of which $321 462.78 is attributable to the land and $182 476.37 attributable to the partnership.
The amount attributable to the land is to be distributed as follows:
Husband $160 731.39
Ms Lane $131 820.85
Trustee in bankruptcy $28 910.54
$321 462.78
From the amount attributable to the partnership the following must be paid:
Mrs Coulson $50 000.00
The wife $1642.00
Mr Elliott (anti-suit injunction) $20 000.00
Mr Elliott (advances to partnership) $45 755.44
$117 397.44
From the balance remaining of $65 078.93, Mr Elliott is entitled to all as a part repayment of his capital contribution of $131 000 leaving a shortfall of $65 921.07. The husband is obliged to contribute 39 percent of that to Mr Elliott, namely $25 709.22 as discussed at [197] and [198].
Mr Elliott is entitled to receive:
$20 000.00
$45 755.44
$65 078.93
$25 709.22
$156 543.59
Less $29 693.96
$126 849.63
The husband is entitled to receive $160 731.39 less $25 709.22 which is $135 022.17.
Mrs Coulson is entitled to receive $50 000.00 and $29 693.96 making a total of $79 693.96.
The fund will be distributed as follows:
Husband $135 022.17 (26.79%)
Wife $1 642.00 (0.33%)
Mr Elliott $126 849.63 (25.17%)
Ms Lane $131 820.85 (26.16%)
Trustee in bankruptcy $28 910.54 (5.74%)
Mrs Coulson $79 693.96 (15.81%)
$503 939.15 100%
Any surplus will be distributed in the same proportion.
The valuation report
I referred earlier to the valuation report of Mr R. When it was tendered it was objected to and I indicated that I would give my reasons for its admission into evidence in the final judgment. I do so now.
The cover sheet of the report has the following appearing on it:
Under instructions from and for the use and benefit of: Westpac Banking Corporation
NSW Credit Centre.
It was found by the second intervener in material produced by the Westpac Banking Corporation on subpoena. Therefore, it is a reasonable inference to draw that the report was obtained by Westpac Banking Corporation as part of its carrying on the business of a bank, that the original valuation formed part of the records kept by the bank in the course of and for the purpose of its business and the representations in the reports were made for the purposes of the bank.
In Ringrow Pty Ltd v Ors v BP Australia Ltd (2003) 130 FCR 569 Hely J found that, in similar circumstances, such a valuation report was a business record admissible under s 69 of the Evidence Act 1995 (Cth) (“Evidence Act”). His Honour also held that as the value of a property at a particular date is a question of fact, at [19], “the valuers had personal knowledge of the asserted fact, because the asserted fact consists of opinions which they themselves had formed that expressed”.
His Honour thus found that the valuation reports in that case were admissible. The probative value of the reports in that case was slight because there were obvious difficulties with the assumptions within the report. Because of that difficulty and because the valuers were not available for cross-examination, his Honour declined to admit the documents relying on s 135 of the Evidence Act.
In the present case the second intervener indicated that if the valuation was admitted into evidence it would call the valuer so that he could be cross-examined. It did so and he was. There were not the inherent difficulties in the report that were in the reports before Hely J. For these reasons I admitted the report into evidence.
The husband’s contempt application
The husband has brought a contempt application against Mr Elliott and sought to agitate it during the hearing of these proceedings. I declined to follow that course being of the view that it should be heard separately from the proceedings either before, or, preferably, after the conclusion of this case. It therefore remains to be determined. All other outstanding applications in a case were not pressed before me and will be dismissed.
I certify that the preceding two hundred and sixty one (261) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Aldridge delivered on 3 August 2015.
Associate:
Date: 3 August 2015
Key Legal Topics
Areas of Law
-
Civil Procedure
-
Insolvency
-
Equity & Trusts
Legal Concepts
-
Appeal
-
Costs
-
Discovery
-
Injunction
-
Jurisdiction
-
Remedies
0
9
3