Neilson v Letch

[2004] NSWSC 1246

CITATION:	Neilson v Letch [2004] NSWSC 1246
HEARING DATE(S):	21 and 22 September 2004
JUDGMENT DATE:	17 December 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Master McLaughlin at 1
DECISION:	(1). I declare that the parties are entitled to the proceeds of sale of the property situate at and known as Unit 14/103 Kirribilli Avenue, Kirribilli ("the subject property"), together with interest thereon, in the following amounts: Plaintiff - $88,986 Defendant - $191,245. (2). I reserve to the parties liberty to apply in respect to arithmetical calculations. (3). I make no order as to costs, to the intent that each party will bear her or his own costs of the proceedings. (4). The exhibits may be returned.
CATCHWORDS:	Real Property. Co-ownership. Respective contributions to purchase price. Presumption of resulting trust. Incidents of co-ownership. Co-owner in occupation. Proceeds of sale. Equitable accounting between co-owners. Claim for improvements (including mortgage payments). Entitlement of co-owner not in occupation to rents and to notional occupation fee. He who seeks equity must do equity.
LEGISLATION CITED:	Conveyancing Act 1919 (New South Wales) De Facto Relationships Act 1984 (New South Wales) Imperial Acts Application Act 1969 (Commonwealth) Property (Relationships) Act 1984 (New South Wales) Statute of Anne, 4&5 Anne c3 s27 (1705)
CASES CITED:	Baumgartner v Baumgartner (1987) 164 CLR 137 Calverley v Green (1984) 155 CLR 242 Cardinaels-Hooper v Tierney (20 December 1995, New South Wales Supreme Court unreported) Cowcher v Cowcher (1972) 1 WLR 245 Dunlop v Macedo (1891) 8 TLR 43 Forgeard v Shanahan (1994) 35 NSWLR 206 Hogan v Baseden (24 November 1997, Butterworths Unreported Cases BC9706190) In re Pavlou [1993] 1 WLR 1046 Luke v Luke (1936) 36 SR (NSW McMahon v Burchell (1846) 5 Hare 322; 67 ER 936 Muschinski v Dodds (1985) 160 CLR 583 Ngatoa v Ford (1990) 19 NSWLR 72 Pannizutti v Trask (1987) 10 NSWLR 531 Squire v Rodgers (1979) 39 FLR 106 at 121-122 Wheeler v Horn (1740) Willes 208; 125 ER 1135
PARTIES :	Mary Ann Neilson (Plaintiff) Darryl Richard Letch (Defendant)
FILE NUMBER(S):	SC 2122 of 2003
COUNSEL:	Mr. P. Livingstone (Plaintiff) Mr. J. Drummond (Defendant)
SOLICITORS:	Adrian Twigg & Co. (Plaintiff) Hartmann and Associates (Defendant)

- 23 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

MASTER McLAUGHLIN

Friday, 17 December 2004

2122/03 MARY ANN NEILSON -v- DARRYL RICHARD LETCH

JUDGMENT

1 MASTER: These proceedings were instituted by statement of claim filed by the Plaintiff, Mary Ann Neilson, on 28 March 2003. The proceedings concern property situate at and known as Unit 14/103 Kirribilli Avenue, Kirribilli, of which the Plaintiff and the Defendant, Darryl Richard Letch, were co-owners at the time of the institution of the proceedings. (I shall refer to that property as either “the subject property” or “the Kirribilli property”.)

2 The body of the pleading is brief in the extreme. It alleges that the Plaintiff and the Defendant are the joint registered proprietors of the Kirribilli property, that the Plaintiff has requested the Defendant to join with him in the sale of that property, and that the Defendant has neglected or refused to join in that sale. The Plaintiff then claims relief in respect to the sale of the Kirribilli property, and the disposition of the proceeds of sale, the Plaintiff seeking that the net proceeds, after payment of legal fees, agents fees and other proper selling charges, and after the discharge of the mortgage on the property, be divided equally between the Plaintiff and the Defendant. The Plaintiff also claims that the parties bear equally the cost of any advertising expenses in respect to the auction of the property, subject to the parties agreeing that those advertising expenses shall not, unless otherwise agreed in writing, exceed $15,000. The Plaintiff also claims mesne profits in respect to the Kirribilli property, and costs.

3 The Defendant on 3 October 2003 filed a defence and a cross claim. The defence addresses, inter alia, the various items of relief claimed by the Plaintiff. In particular, the Defendant asserts that he is entitled to be reimbursed from the gross proceeds of sale of the subject property in respect to certain contributions alleged to have been made by him for the acquisition, maintenance and upkeep of the property.

4 The Defendant also, by way of defence of equitable set off, says that by reason of the foregoing alleged payments the Court should order that the totality of those payments be paid to the Defendant before division of the net proceeds of sale. The Defendant also denies that he is liable to the Plaintiff for mesne profits.

5 By the cross-claim the Defendant pleads facts concerning the purchase of the subject property, and the payment of expenses in relation to the acquisition, maintenance and upkeep thereof. The Defendant asserts that the Plaintiff has failed to provide any moneys towards the acquisition, maintenance or upkeep of the property. The Defendant also asserts that he has sought the consent of the Plaintiff to sell the property and to pay from the net proceeds such sums to himself and the Plaintiff as the Court shall direct, but that, despite such requests, the Plaintiff has refused to agree to the sale of the property.

6 By the cross-claim the Defendant seeks relief pursuant to the provisions of Division 6 of Part IV of the Conveyancing Act 1919 (and, in particular, section 66G of that statute) by way of the appointment of statutory trustees for sale of the subject property. The Defendant then seeks an order as to the disposition of the net proceeds of sale, being for the payment to the Defendant of the sum of $126,712, and for the balance then remaining to be paid between the Defendant and the Plaintiff in such sums as the Court may direct. Included, somewhat curiously, among the details of how the net balance of the proceeds of sale should be disbursed is the following prayer, being prayer 6(e) of the cross-claim,

A declaration that the Cross-claimant has with the knowledge, consent and agreement of the Cross-defendant rendered no less than $126,712 in order to acquire maintain and upkeep the property since 13 September 1993.

7 On 27 October 2003 the Plaintiff filed a reply, in which she refers to the agreement between the parties in respect to the proposed sale of the subject property. She denies that the Defendant provided any of the funds set forth in paragraphs 1 to 6 of the defence, and says that the sums allegedly expended by the Defendant have been met substantially from funds provided by the Plaintiff to the Defendant. The Plaintiff denies the entitlement of the Defendant to any set off.

8 By her defence to cross-claim the Plaintiff pleads that the Defendant has been in possession of the subject property since July 1996, that such possession by the Defendant has been to the exclusion of the Plaintiff from that date until 9 October 2003, when the parties agreed that the property be sold; that from July 1996 until 9 October 2003 the Defendant did not account to the Plaintiff in respect of the rental income derived from the property and did not pay any moneys to the Plaintiff in respect of his own occupation of the property.

9 By that defence the Plaintiff also pleads certain facts (the acquisition of the property at a time when the parties were in a bona fide domestic relationship; the capital gains tax presently payable being greater than that which would have been payable had the property been sold at the time when the parties separated in July 1996; the provision by the Plaintiff to the Defendant of the sums necessary to acquire the property), and concludes with the assertion that in all the circumstances it would be unconscionable for the Defendant to receive more than 50 percent of the net proceeds of sale of the property.

10 It should here be recorded that on 21 September 2004, Justice Campbell, as Duty Judge in the Equity Division, ordered that all matters arising from the proceedings be referred to me for determination.

11 I have already made reference to the fact that the pleadings disclose that the property was acquired at a time when the parties were in a bona fide domestic relationship. Indeed, there was no dispute that the parties were in a de facto relationship at that time.

12 It emerged from the affidavit evidence of the Plaintiff (in a passage which was admitted over the objection of the Defendant) that the Plaintiff had in December 1997 instituted against the Defendant proceedings 5267 of 1997 in the Equity Division of this Court, claiming relief under the De Facto Relationships Act 1984 (as the Property (Relationships) Act 1984 was then known). The Defendant filed a defence and cross-claim in those proceedings in April 1998. Subsequently, pursuant to the provisions of Part 32A of the Supreme Court Rules, those proceedings were dismissed by the Registrar on 27 February 2001. The Plaintiff on 24 June 2002 filed a notice of motion seeking an order that that order for dismissal by the Registrar be vacated. After a contested hearing on 8 July 2002 that application of the Plaintiff was dismissed.

13 It should be emphasised that the present are not proceedings for relief of the nature which might be available under the Property (Relationships) Act. The present proceedings relate solely to an asset, being the Kirribilli property, of which the parties were the co-owners, and to the disposition of the net proceeds of sale of that property. In this regard it should be recorded that that the property was acquired on 13 September 1993, being purchased in the joint names of the Plaintiff and the Defendant as joint tenants. That joint tenancy was subsequently severed, and the parties thereafter, and at the time of the commencement of the present proceedings, held the property as tenants in common in equal shares.

14 After the institution of the proceedings, and the filing of the various pleadings to which I have already made reference, the parties reached agreement concerning the sale of the subject property, without the necessity for a contested hearing in that regard. That agreement between the parties was incorporated in short minutes of order dated 9 October 2003. On that date the Registrar by consent made orders in accordance with those short minutes.

15 The subject property was not sold at auction, as contemplated by the short minutes. However, on 9 March 2004 contracts were exchanged for the sale of the property for $400,000. Settlement of that sale was effected on 23 April 2004. The net proceeds of sale (after payment of the amount outstanding on the mortgage, together with the costs and associated expenses), in an amount of $276,420, has been deposited in an interest bearing controlled moneys account in the names of the parties with the Commonwealth Bank of Australia, to be held until further order of the Court. By 31 August 2004 those net proceeds of sale together with accrued interest thereon totalled $280,230.

16 I have had the benefit of receiving written outlines of submissions from Counsel for the respective parties. Those documents will be retained in the Court file.

17 I have already referred to the fact that the Plaintiff in her statement of claim seeks as one of her prayers for relief mesne profits in respect to the Kirribilli property. At the hearing she did not pursue that claim for relief. In any event, since mesne profits are damages for a trespass (see Dunlop v Macedo (1891) 8 TLR 43), and since in the circumstances of the instant case, the Defendant, as co-owner in possession - irrespective of whether or not there had been ouster of the Plaintiff (a matter to which I shall make further reference) - could not be regarded as being a trespasser, the Plaintiff would not be able to sustain a claim for mesne profits.

18 Since the parties were registered as proprietors as tenants in common in equal shares, prima facie they would each be entitled to share equally in the net proceeds of sale of the property. The Plaintiff by prayer 2(g)(iii) in the statement of claim seeks an order to that effect. However, the defendant claims a greater part than one half of the net proceeds of sale.

19 If the Defendant wishes to establish that the legal entitlement of the Plaintiff to a one half share in the net proceeds of sale should be altered, by reducing the Plaintiff’s interest and by increasing the Defendant’s interest in those net proceeds, then it is for the Defendant to establish equitable rights which would justify such an alteration to the legal interests of the parties.

20 For example, the Defendant asserts that a resulting trust has arisen from the alleged greater contributions made by the Defendant to the acquisition, maintenance or upkeep of the property than were the contributions in that regard of the plaintiff.

21 In this regard it is appropriate that I should refer, at least in summary, to the facts and circumstances of the relationship between the parties and the acquisition of the Kirribilli property.

22 The parties met in 1982. The de facto relationship between the parties commenced in September 1989. In the meantime, however, on 29 May 1989 the Plaintiff, at the request of the Defendant, who was the proprietor of a liquor shop at that time, lent to the Defendant the sum of $30,000 in order that he might meet certain Liquor Board fees. That sum has never been repaid.

23 In December 1989 the Plaintiff advanced a further sum of $40,757 to the Defendant, which sum was used by him towards the purchase in his sole name of a residential property situate at and known as 9/378 Miller Street, Cammeray.

24 In March 1990 a property at Nelson Bay which had been owned by the Defendant before the commencement of his relationship with the Plaintiff (and, indeed, before he had even met the Plaintiff) was sold.

25 In April 1993, during the course of the de facto relationship between the parties, the Plaintiff through her Solicitors sought payment to her by the Defendant of the sum of $17,000. That sum was not paid to her.

26 In September 1993 the Kirribilli property was acquired by the parties at auction for the sum of $181,000. As I have already recorded, that property was purchased in the names of the Plaintiff and the Defendant as joint tenants. That purchase was funded by a mortgage loan of $150,000 from the Commonwealth Bank at Northbridge in the joint names of the parties. Despite the assertions of the Plaintiff that she was ultimately responsible for such funds, the deposit of $18,100 was paid by the Defendant from his bank account with the Commonwealth Bank at Northbridge on 13 September 1993. In addition, the Defendant paid stamp duty of $4,829 from the same bank account, and upon settlement paid a further sum of $13,000. The Defendant said that to the best of his recollection he also paid the legal fees on the purchase in an amount of about $1,000. According to the Defendant those funds paid by him had their source in the proceeds of the sale of the Defendant’s property at Nelson Bay and of the sale of the Defendant’s Porsche motor car.

27 At the outset, in February 1993 the mortgage repayments were in an amount of $1,361 a month. They continued in that amount until February 2002, when the Defendant negotiated a variation to $1,109 a month.

28 The Kirribilli property had been purchased by the parties with the intention that it should be an investment property. It was not the intention of the parties that it should be a residence for either or both of them.

29 In September 1995 the Defendant purchased another home unit, situate at and known as 54/8 Waters Road, Neutral Bay, for $135,000. According to the Plaintiff, she assisted in finding and in decorating that home unit. However, she made no financial contributions to its purchase, which was effected by the Defendant in his own name alone.

30 The parties separated on 13 July 1996 and the de facto relationship which had formerly obtained between them terminated on that date.

31 In mid-1999, when the then current lease of the Kirribilli property came to an end, the Defendant moved into residence therein.

32 In February 2002, the Defendant negotiated a reduction in the mortgage loan repayments, those repayments being (as I have already recorded) then reduced to $1,109 a month. However, the Defendant, although accepting responsibility for the outgoings from February 2002 did not make any payment of strata levies after November 2002.

33 I have also already recorded that the subject property was subsequently sold in April 2004, consequent upon orders made according to Short Minutes agreed upon between the parties on 9 October 2003 (which included reservation of the Plaintiff’s costs), and that the net proceeds of sale are presently held in an interest bearing controlled moneys account in the names of the two parties. The most recent information presented to the Court was that as at 31 August 2004 the balance of that account (representing those net proceeds of sale together with accrued interest thereon) was $280,230.

34 The Plaintiff recognises that there is a presumption that the recipient of property holds that property on trust for the person who provided the purchase money. Where two or more parties contribute to the purchase price and the legal title to the property does not reflect those contributions, there is a presumption of a resulting trust for the contributors in proportion to their respective contributions. (See Calverley v Green (1984) 155 CLR 242; Cowcher v Cowcher (1972) 1 WLR 245 at 431.)

35 It was submitted on behalf of the Plaintiff, however, that the foregoing presumption of a resulting trust in the proportion of the respective contributions of the parties is rebutted, the Plaintiff relying on the following facts.

· The property was acquired in the names of both parties.

· The Defendant was well aware that it was open to him not to acquire the property in the conjoint names of himself and the Plaintiff, or to acquire it in some proportion other than equal shares. However he did not do so.

· The parties were joint borrowers.

· After the purchase the Plaintiff did not demand repayment of the loan allegedly made by her to the Defendant (presumably, being the amounts of $30,000 and $40,757 advanced by her to the Defendant in May 1989 and in December 1989 respectively); neither did the Defendant seek to repay the loan.

· Both parties conducted themselves as purchasers, locating the property together.

· The Defendant asserted that, as his co-owner, the Plaintiff was entitled to return to the property, have a key and be otherwise entitled to all the usual rights and entitlements as an owner of the property.

· The property was not acquired as a home for the Defendant (or, for the Plaintiff and the Defendant conjointly). It was acquired by the parties as an investment property. It was only after separation that the Defendant unilaterally decided to occupy the property.

36 The Plaintiff relied upon the unreported decision of the Court of Appeal of New South Wales in Hogan v Baseden (24 November 1997, Butterworths Unreported Cases BC9706190). In that case the Court of Appeal referred to the

“well established principle that where it is found to be unconscionable for a person to take the whole beneficial ownership without recognising a contribution of some other party, equity orders the minimal relief necessary to relieve the conscience of the legal owner … The relief which will be granted is flexible, the court in each case looking at the circumstances in deciding in what way the equity can be satisfied”.

After referring to such well known authorities as Muschinski v Dodds (1985) 160 CLR 583 and Baumgartner v Baumgartner (1987) 164 CLR 137, the Court of Appeal continued,

The principle which emerges from these cases is that the court’s approach to relief is flexible, concordantly with the principle that the court will give the minimal equity necessary to relieve the conscience of the legal owner.

37 The Plaintiff, as the legal owner as to a one-half share in the property, and seeking no more, relies on her legal entitlement as against the Defendant. She submits that the Defendant in bringing the cross-claim must do equity, seeking, as he does, that the whole of the deposit be regarded as a contribution by him.

38 The Plaintiff sets forth various calculations concerning contributions by the respective parties.

39 It is asserted by the Plaintiff that she paid an amount of $3,600 towards the mortgage repayments. She relies upon the payments made by her into the cheque account of the Plaintiff of the amounts of $1,000 and $40,757 (to which I have already referred), as well as upon the advance to the Defendant of the sum of $30,000 for payment to the Liquor Licensing Board. The foregoing payments (which are acknowledged by the Defendant to have been made by the Plaintiff) total $75,357.

40 The Plaintiff recognises that the Defendant claims to have made payments in respect to the mortgage, strata levies, council rates and water rates totalling $106,429. However, the Plaintiff submits that an occupation fee for the period from 30 June 1999 to 11 April 2004 (whilst the Defendant was residing in the subject property) should notionally be brought into the calculations of the contributions made by each party to the subject property. The Plaintiff calculates that occupation fee on the basis of a period of 249 weeks. She adopts the reference made by the Defendant in paragraph 11 of his affidavit of 7 November 2003 to rent of the property as being $250 a week in 1994 and to an average rent of the property being $230 a week in 1999. Upon those bases, the Plaintiff submits that an appropriate total occupation fee would be no less than either $62,250 (at $250 a week) or $57,270 (at $230 a week).

41 The Plaintiff then adopts the formula of taking the moneys claimed to have been paid by the Defendant ($106,429) and deducting therefrom the mortgage payments made by the Plaintiff ($3,600) and the amount of $62,250 (representing a notional occupation fee). The amount then remaining is $40,579. It is then submitted that the appropriate credit which the Defendant could claim is one half of that amount, being $20,289. If, upon the Plaintiff’s formula, she be credited with the amounts totalling $41,757, together with the amount of $30,000 advanced for payment to the Liquor Licensing Board, the result is a total figure of $71,757.

42 The consequence of those foregoing calculations is that, to use the Plaintiff’s phrase, she “is ahead” by $51,467. In the circumstances, the Plaintiff does not in these proceedings claim that additional amount, but merely relies upon her legal entitlement as tenant in common to one half of the net proceeds of sale.

43 It will be appreciated, however, that there are various areas of the foregoing formula which (accepting that payments in the amounts relied upon by the Plaintiff were made by the parties) are the subject of argument or dispute. Further, as will later be observed, the formula relied upon by the Defendant does not accord with the formula derived from judicial authorities and principles in this area of the law.

44 The Plaintiff submits that the rents which the Defendant received in respect to the property as well as notional occupation fee payable by the Defendant during the period whilst he has resided therein should be brought into the account. However, in Forgeard v Shanahan (1994) 35 NSWLR 206 Meagher JA (with whom Mahoney JA agreed) held, at 222, that apart from statute there existed no liability in a co-owner to account for rents received, much less to account for an occupation fee.

45 That situation was ameliorated in 1705 by a Statute of Anne (4&5 Anne c3 s27, although – curiously – often referred to as 4 Anne c16 s27), by which a non-occupying co-owner had a statutory right of action both at law and in equity for rents actually received (see, for example, Wheeler v Horn (1740) Willes 208; 125 ER 1135 and Squire v Rodgers (1979) 39 FLR 106 at 121-122).

46 In New South Wales the Statute of Anne was repealed by the Imperial Acts Application Act 1969. That legislation, recommended by the Law Reform Commission, was described by Meagher JA, at 222, as “a neat illustration of the havoc which can be wrought by high-minded but ignorant people, putting litigants in New South Wales back into the position they would have been in before 1705 in England”. His Honour also discussed the limited area of liability of a co-owner to pay an occupation fee.

47 His Honour continued at 224,

Apart from questions of improvements and occupation fees, which arise from the relationship of co-owners, it will also often happen that co-owners are joint debtors (for example, on a mortgage, or because rates are levied on the property). If one co-owner pays such a debt in full he is entitled to require the other co-owner to contribute a rateable amount; at least that is the prima facie position. In this regard the parties’ rights arise from the equitable doctrine of contribution, not from the law of property (see Gibbs CJ in Muschinski v Dodds (1985) 160 CLR 583 at 596-597), that is, they would apply in the case of all joint debts even if the debtors owned no property.
…
In the case where one party is claiming an allowance for improvements and the other is seeking to charge an occupation fee, both claims can arise in partition actions (and related actions), and only in such actions. Each claim is a potential incident of a partition action. In this context, “no rent if no improvements” makes good sense. The discharging of joint debts stands in a different position.
…
Again, since the equity to claim an occupation fee is always spoken of as a “passive” equity or a “defensive” equity, that is, one which can only be relied upon to repel a claim for improvements, there is much to be said for treating it as exhausted once it has repelled that claim.

48 Mahoney JA at 219 observed that the principles which have been evolved in this area of the law derive, in the first instance, from the incidents which the law long ago attached to common ownership of land. His Honour saw no reason to depart from those principles. His Honour continued at 220,

As with many principles, minds may differ as to the result of the application of them to particular fact situations. But, in my opinion, there is in most of the decisions a commonsense accommodation of competing claims. Thus, one common owner occupying the land may have an interest in effecting improvements which will make his occupation more comfortable; in a sense, it may be unjust if, having effected them, he receives no compensation for the increases in the land value resulting from them. On the other hand, the non-occupying owner may legitimately wish not being required to pay for, or for a share of, improvements which he does not desire to have effected. But if the benefit of the improvements be realised by sale of the land, there is justice in affording to the co-owner who has effected the improvements some benefit from them when the proceeds of disposal are divided. And, on one view, there is justice in setting off against such an allowance for improvements a notional occupation fee payable by the one who during his occupation of the land has effected them.
The decisions which have been laid down represent, I think, a practical attempt to accommodate the justice of competing claims of this kind. Views may differ as to the merits of the result achieved in some cases. But, in my opinion, the balance does not lie heavily on one side or the other.

49 Concerning the description by Meagher JA of those responsible for the repeal of the Statute of Anne effected by the Imperial Acts Application Act 1969, with its consequence of putting litigants in New South Wales back into the position they would have been in before 1705 in England, Kirby P (in a dissenting judgment) observed (at 212) that that repeal was secured not by “high minded but ignorant people” but by Parliament.

50 (Concerning the history of the powers conferred on the Court by section 66G of the Conveyancing Act see Pannizutti v Trask (1987) 10 NSWLR 531, and Ngatoa v Ford (1990) 19 NSWLR 72.)

51 Nevertheless, it will be appreciated that I am bound by the majority decision of the Court of Appeal in Forgeard v Shanahan. In consequence, therefore, the Plaintiff can bring into the equation the rents actually received by the Defendant and a notional occupational fee payable by the Defendant only if there has been ouster, which is not the case in the circumstances of the present claim; or if the Defendant claims a component in respect to improvements.

52 It should however, be recognised that in the later case of Ryan v Dries [2002] NSWCA 3 (6 February 2002) a differently constituted Court of appeal was not in entire agreement with the reasons expressed by Meagher JA in Forgeard v Shanahan, whilst agreeing with his conclusions concerning the liability of a co-owner in occupation claiming for improvements to pay, or to have brought into an account, a notional occupation fee. Sheller JA cited with approval the decision of Vinelott J in In re Pavlou [1993] 1 WLR 1046, saying,

In my opinion the court in In re Pavlou correctly recognised that it may be appropriate, in order to do equity between two former co-habitees of a property, to set off against the claim by the one, who has remained in occupation but claims to recover for mortgage instalment payments made, an amount by way of an occupation rent. As Vinelott J said in the passage quoted [at 1050-1051] that is not by application of a rule of law but simply by application of a principle of equity. Equity may require as a condition of the relief sought, namely that the respondent contribute to the payment of mortgage instalments and reimburse the appellant to the extent of the appropriate contribution, that the appellant be charged with an amount for his occupation.

53 Similarly, Giles JA said,

The rule has long been established. One co-owner A in occupation of a property is not liable to pay an occupation fee to the other co-owner B unless A has excluded B from occupation or A is claiming from B an allowance for his expenditure on repairs or improvements to the property ( Luke v Luke (1936) 36 SR (NSW) 310). A different rule could have been devised in an attempt to adjust matters equitably between A and B. But, as Mahoney JA said of claims between co-owners in Forgeard v Shanahan , at 220, “[t]he decisions which have been laid down represent … a practical attempt to accommodate the justice of competing claims of this kind”.

54 In Cardinaels-Hooper v Tierney (20 December 1995, unreported) Cohen J helpfully gathered together the various authorities dealing with the bases upon which an occupation fee can be charged against an occupying co-owner.

55 In delivering the leading judgment in Ryan v Dries Hodgson JA observed that some of the statements of principle made by Meagher JA in Forgeard v Shanahan were obiter only and that in some respects he was not in complete agreement with them. His Honour referred to the point made by Meagher JA that the claim for contribution in respect of the discharge of a joint debt, such as a mortgage, can be made independently of a partition action or its equivalent, and continued,

However, if the co-owner does rely on equitable principles in making such a claim, in my opinion the co-owner is seeking equity and is required to do equity, no less than if allowance for improvements was being sought.
Thus I agree with Rolfe J [the Judge at first instance in Forgeard v Shanahan ] that, once an occupier is required to do equity because he or she is seeking equity, there is no reason to distinguish between improvements or repairs effected to the property on the one hand, and the reduction of a charge on the property through mortgage repayments on the other. I think this accords with what Long Innes CJ in Eq said in Luke at 317, in commenting on the case of McMahon v Burchell (1846) 5 Hare 322; 67 ER 936.

56 There have been other criticisms of the reasons of Meagher JA in Forgeard v Shanahan (especially in the light of the decision of the Full Court of the Federal Court of Australia in Squire v Rodgers (1979) 39 FLR 106). (See Heather Conway, “Partition Actions and Accounting Adjustments Between Co-owners” (1999) 7 Australian Property Law Journal, 107 at 231, who said, concerning a claim against a co-owner for an account in respect of rents and profits which exceeded his share in the property, that “the law in this particular area remains unsettled”. See, also, Peter Brereton, “The Rights Between Co-owners of Land” (1995) 69 ALJ 316.)

57 The application to the facts and circumstances of the instant case of the foregoing judicial principles derived from the authorities to which I have referred, in particular, Forgeard v Shanahan and Ryan v Dries, has the following consequence.

58 In Ryan v Dries the Court of Appeal applied the foregoing principles by adopting the following procedure:

(i) Establishing the actual contribution of each party to the purchase price;
(ii) Adding incidental expenses;
(iii) Applying the mortgage equally;
(iv) Ascertaining the percentage of the capital contribution of each party in relation to the total of (i), (ii) and (iii).

59 The capital contribution of the Defendant was by way of the deposit (paid on 13 September 1993) in an amount of $18,100, together with moneys paid at settlement in an amount of $13,000, thus totalling $31,100. The stamp duty (paid on 11 October 1993) in an amount of $4,829 and legal fees in amount of $1,000, each of which was paid by the Defendant may be treated as incidental expenses. Thus the original contribution of the Defendant was in an amount of $36,829.

60 Subsequently mortgage payments totalling $154,123 were made. If half that amount, $77,061, be added to the foregoing amount, the interest of the Defendant totals $113,890. That figure is 60.96 percent of the totality of the purchase price and the foregoing incidental expenses (totalling $186,829).

61 It follows, therefore, consonantly with the foregoing formula expressed by the Court of Appeal in Ryan v Dries, that the relative interests of each of the parties are:

Defendant - 60.96 percent.
Plaintiff – 39.04 percent.

62 Applying those percentages to the proceeds of sale ($280,231), the Defendant would be entitled to $170,828, whilst the Plaintiff would be entitled to $109,401.

63 However, the Defendant submits that the foregoing relative entitlements are subject to a claim for contribution in respect to the following payments made by him:

Mortgage (interest and capital) - $154,123.
Strata fees - $13,646
Municipal rates - $3,597
Water rates - $2,826
Total - $174,193

64 It is submitted on behalf of the Defendant that the Plaintiff is liable to contribute one-half of the foregoing jointly incurred expenses, namely $87,096 (being one half of $174,193) thereby reducing her share of the net proceeds as follows:

Plaintiff’s entitlement - $109,401
Less contribution payable to Defendant - $87,097
Plaintiff’s share of net proceeds - $22,304

To the foregoing sum of $22,304 must be added the sum of $1,800 (being one-half of the amount of $3,600), in order to take account of mortgage payments made by the Plaintiff. Thus, on the forgoing calculation the entitlement of the Plaintiff will be $24,104 (that is, $22,304 plus $1,800).

65 I am satisfied that subject property was held by the parties upon a resulting trust in the proportion of 39.04 percent for the Plaintiff and 60.96 percent for the Defendant. However, the Plaintiff submits that she is entitled upon an equitable accounting in respect of the proceeds of sale of the subject property to be credited with one-half of the rents which were received by the Defendant and with a notional occupation fee payable by the Defendant for the period during which he was in occupation.

66 The rental income received by the Defendant totalled $72,494. Accordingly, if the Defendant makes a claim for improvements (that is, for the mortgage payments totalling $154,123) - which he does – then, applying the principle that he who seeks equity must do equity, he will be required to account for one-half of the rents received, that is, for $36,247. That figure must therefore be added to the Plaintiff’s entitlement of $24,104, giving a total of $60,351.

67 However, the Plaintiff submits that, in accordance with the foregoing authorities, and applying the maxim that he who seeks equity must do equity, a notional occupation fee must also be brought into the accounting, since, as I have already observed, the Defendant makes a claim for improvements, being in respect to the mortgage payments made by him (in a total amount of $154,123). I am in agreement with that submission.

68 I consider it appropriate to adopt the “average” rent referred to in the Defendant’s own affidavit, being in an amount of $230 a week. Upon that basis, the total occupation fee for the period whilst the Defendant was in exclusive occupation of the subject property is $57,270. It will be appreciated, however, that, in calculating the entitlement of the Plaintiff, the totality of the notional occupation fee should not be attributed to her share, but only one-half of that notional occupation fee, since any occupation fee, if actually paid, would have been shared equally between the Plaintiff and the Defendant. Thus, to the foregoing entitlement of $60,351 must be added an amount of $28,635 (being one-half of the notional occupation fee of $57,270).

69 It follows, therefore, that the total entitlement of the Plaintiff is to an amount of $88,986 (consisting of $60,351 plus $28,635).

70 I do not overlook the submission of the Plaintiff that there should also be added to her entitlement the amount of $41,757 (being the totality of moneys acknowledged by the Defendant to have been paid into his cheque account by the Plaintiff, almost four years before the acquisition of the Kirribilli property) and the amount of $30,000 (which was advanced by the Plaintiff to the Defendant in order to meet his indebtedness to the Liquor Licensing Board, more than four years before the acquisition of the Kirribilli property).

71 However, it must be appreciated that at the time when those payments were made the parties were living in a de facto relationship. Further, I am presently concerned only with the entitlement of the parties to the proceeds of sale of the subject property; I am not concerned with the rights of the parties under the Property (Relationships) Act. It is possible, although I express no concluded view in this regard, that the Plaintiff may be able to establish that the foregoing moneys were in the nature of loans made by her to the Defendant. If so, she may still have some right of recovery (subject, of course, to any limitation defence). However, I do not consider that it is appropriate for those amounts to be taken into consideration in calculating the entitlements of the parties to the proceeds of sale of the subject property (in the performance of the exercise which may compendiously be described as an equitable accounting).

72 It follows, therefore, that of the net proceeds of sale (together with accrued interest thereon) the Plaintiff will be entitled to $88,986, whilst the Defendant will be entitled to the balance, $191,245 (being $280,231 less $88,986). I recognise that it is likely that some relatively small amount of interest may have accrued on the proceeds of sale held in the controlled moneys account since 31 August 2004, that being the date upon which the amount of $280,231 was calculated. Accordingly, it may be necessary for the amounts of the respective entitlements of the parties to be recalculated in order to reflect such additional interest. I shall, in consequence, reserve to the parties liberty to apply in respect to such recalculation arising from any additional interest earned between 31 August 2004 and the date of the publication of my reasons for judgment herein.

73 Since the present proceedings were conducted as adversarial proceedings, and raised questions of a resulting trust and of claims for contribution, it is not appropriate that the normal costs order in respect to relief under section 66G of the Conveyancing Act (that is, that the costs of both parties be paid out of the proceeds of sale) should apply.

74 In the instant case the Plaintiff was claiming one-half of the proceeds of sale, being $140,000. In the event, I have held that she is entitled to $88,986. The Defendant, however, submitted that the Plaintiff’s entitlement should be, at its highest, no more than $51,189 (or, depending upon the formula adopted, even as little as $42,501). That is, the Defendant submitted that the Plaintiff should in broad terms receive approximately half the amount which, upon my conclusion, she is entitled to receive. That amount, was, however, considerably less than the amount claimed by the Plaintiff herself. In those circumstances, it seems to me that neither party has been substantially successful. In consequence, therefore, my present view is that I should make no order as to costs, to the intent that each party should bear her or his own costs of the proceedings. However, if either party so desires, an opportunity will be given to that party to apply for some other order in respect to costs.

75 Accordingly, unless within seven days of the date hereof either party arranges with my Associate for the matter to be listed for argument as to costs, I make the following orders:

(1). I declare that the parties are entitled to the proceeds of sale of the property situate at and known as Unit 14/103 Kirribilli Avenue, Kirribilli (“the subject property”), together with interest thereon, in the following amounts:

Plaintiff - $88,986

Defendant – $191,245

(2). I reserve to the parties liberty to apply in respect to arithmetical calculations.

(3). I make no order as to costs, to the intent that each party will bear her or his own costs of the proceedings.

(4). The exhibits may be returned.

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Last Modified: 12/17/2004