Neuhaus v Swanston

[2002] NSWSC 443

Reported Decision: (2002) DFC 95-251

New South Wales

Supreme Court

CITATION:	Neuhaus v Swanston & Anor [2002] NSWSC 443
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 1893/01
HEARING DATE(S):	4 & 26 April 2002 16 May 2002
JUDGMENT DATE:	30 May 2002
PARTIES :	Walter Neuhaus Scott Swanston Lily Swanston
JUDGMENT OF:	Davies AJ at 1

COUNSEL :	Mr N Jackson for the Plaintiff Mr K O'Kane (Solicitor Advocate) for the First Defendant Mr D Smallbone for the Second Defendant
SOLICITORS:	Kings Lawyers for the Plaintiff John R Quinn & Co Solicitors for the First Defendant Ross A Clarke & Associates Solicitors for the Second Defendant
CATCHWORDS:	Equity - Resulting Trust - whether partnership moneys used in purchase of a home unit - whether partners entitled to interest in the property - no question of principle
LEGISLATION CITED:	Family Law Act 1975 (Cth)
DECISION:	1. The Court declares by way of a resulting trust that the first defendant holds in trust the property located at 9/4 Ford Road, Maroubra for the plaintiff, to the extent of $70,000 plus interest from this date; 2. The Court orders that: (i) the first defendant pay to the plaintiff the amount of $70,000, and in addition, interest as referred to in paragraph (ii) below, within two months from the date of final property orders made in the Family Court of Australia in the Sydney Registry of the Family Court of Australia, proceedings number SY 7120 of 1999; (ii) this amount be subject to an interest provision, with such interest to run from the date of these orders, and be subject to such rate of interest as is prescribed by the New South Wales Supreme Court Rules; (iii) the plaintiff's costs be paid by the defendants, such costs to be assessed on an indemnity basis as from 19 December 2001; (iv) the first defendant 's costs, including the costs payable by him to the plaintiff, be paid by the second defendant.

- 5 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Davies AJ

Thursday, 30 May 2002

1893 / 01 Neuhaus v Swanston & Anor

Judgment

1 His Honour: In these proceedings the plaintiff, Walter Neuhaus, has claimed an equitable interest in a home unit at 9/4 Ford Road, Maroubra, which is owned by the first defendant Scott Swanston. Mr Neuhaus sued both Mr Swanston and his former wife Lily Swanston, the second defendant. In her defence, Mrs Swanston has not claimed an interest in the property; but it is not in dispute that, as she and Mr Swanston are involved in proceedings under the Family Law Act 1975 (Cth), she has a sufficient interest to defend the proceedings.

2 At the hearing, Mr N Jackson of counsel appeared for Mr Neuhaus, Mr K O’Kane, solicitor, appeared for Mr Swanston and Mr D A Smallbone of counsel appeared for Mrs Swanston.

3 The proceedings are unusual in that Mr Neuhaus and Mr Swanston, the persons who have primary knowledge of the relevant acts, are agreed that the following orders would be appropriate:

“1. That the Supreme Court of New South Wales declares by way of a resulting trust that the First Defendant holds in trust the property located at 9/4 Ford Road, Maroubra for the Plaintiff, to the extent of $70,000
2. That arising from the resulting trust referred to in paragraph one (1), the First Defendant pay to the Plaintiff the amount of $70,000, and in addition, interest as referred to in paragraph 3 below, within two months from the date of final property orders made in the Family Court of Australia in respect to the Sydney Registry of the Family Court of Australia, proceedings number SY 7120 of 1999
3. That the amount of $70,000 referred to in order two (2) above, be subject to an interest provision, with such interest to run from the date of these orders, and be subject to such rate of interest as being prescribed by the New South Wales Supreme Court rules”

4 I should make it clear that the parties did not come to the hearing with an agreed position. When I observed that the evidence of Mr Swanston was in general confirmatory of that given by Mr Neuhaus, I indicated to Mr Jackson and to Mr O’Kane that it would be helpful if the Court could be informed as to what was considered to be the appropriate order on that evidence. I allowed time for them to discuss the matter. The orders set out in paragraph 3 are the orders which, after discussion, they proposed as appropriate. As a result of that indication, I do not need to consider the several claims made in the amended statement of claim which, if pursued, may have led to a result more favourable to Mr Neuhaus.

5 In the light of the Family Court proceedings, however, the above order is not consented to. Mrs Swanston alleges, in effect, that the present proceedings constitute a fraud or conspiracy against her interests and seek to reduce the assets owned by Mr Swanston in which Mrs Swanston can expect to share under an order of the Family Court.

6 In 1990, Mr Swanston purchased the unit for a price which, together with legal expenses and stamp duty, amounted to $163,500. In the light of the order suggested by Mr Jackson and Mr O’Kane, the present value of the unit is not important, but it is not in dispute that it has increased very greatly in value since 1990. The property was and is registered in Mr Swanston’s name.

7 At the time of the purchase, Mr Swanston and Lily Swanston, who were not then married, were living together in the unit. However, from the time they first commenced living together in about 1987 until they became engaged to marry in 1992, their relationship was a variable one. On four occasions, Mrs Swanston left the unit and lived elsewhere. At one time, she travelled to Canada where she applied for permanent residence. Mr and Mrs Swanston married in 1994 and they continued to live together until about 1998 when Mrs Swanston separated from her husband and left the unit. They were subsequently divorced. I set out those facts simply by way of background, not because they have any particular significance. I turn now to the vital facts of the case.

8 In 1989, Mr Swanston had a business primarily concerned with the design and remodelling of bathrooms. He called the business “Sovereign Bathrooms”. The office from which the business was conducted was the subject premises 9/4 Ford Road, Maroubra.

9 Mr Neuhaus was a carpenter. On 20 June 1989, he and Mr Swanston entered into partnership to carry on the business of Sovereign Bathrooms. Their partnership agreement was a simple handwritten document, which both signed and which read as follows:

“I Scott Graeme Swanston & Walter Neuhaus agree to a 50 / 50 partnership in the building business, Sovereign Bathrooms.”

10 The accounts of the partnership show that thereafter, for several years, the annual profits of the business were divided 50 / 50 between Mr Swanston and Mr Neuhaus. Mr Neuhaus had regular drawings but these appear to have been deducted from his share of the profits. The business also paid the rent where Mr Neuhaus lived and his telephone and petrol expenses. The business paid outgoings (but not mortgage payments) in respect of the subject property and for the telephone, petrol and like expenses of Mr Swanston. No capital was contributed to the partnership by either Mr Neuhaus or Mr Swanston.

11 From about 1994, when Mr and Mrs Swanston were married, Mrs Swanston was also a partner in the business. From the time she joined the business, the profits were split equally between the three partners.

12 In 1998, Mr Neuhaus, who was then 66 years of age, retired from the partnership although he continued to do some contracting work for the business thereafter.

13 In his affidavit, Mr Neuhaus deposed that Mr Swanston had used $65,000 of partnership funds in the purchase of the Maroubra property. Relevant passages in his affidavit read as follows:

“10. It was the common intention of both myself and the Defendant that I would have an interest in the property at the time the $65,000 was put into the property. By way of an example, I recall the following conversation which took place in or about June 1990:

The Defendant said to me words to the effect:

‘We have $65,000.00 in the business account and I think it would be a good investment opportunity for the business to use that $65,000 to purchase the property located at 9/4 Ford Road, Maroubra. The property will be purchased in my name only, because it will be easier, but half of the property will still belong to you’.
I replied to him:
‘That is OK, I don’t really care if it is not in my name as long as I am still entitled to half of the property.’
11. The property was then purchased in the name of the Defendant only because the Defendant thought it would [be] easier and it did not matter to me whether my name was on the title to the property or not.
…
16. At the time of the purchase of the property on 28 June 1990, from conversations between myself and the Defendant, it was my understanding that the property would be relied on to facilitate the operations of the business.
…
21. At the time I left the partnership I had the following conversation with the Defendant:
He said to me:
‘Now you are retiring from the partnership, you will receive $70,000 out of the proceeds of sale of the property since there are no other liquid assets in the business’.
I said in reply:
‘That is OK with me’.
I was aware that the property was the only asset belonging to the business.
…
27. In providing through the business in December 1989 the $65,000 for the purpose of the purchase of the property on behalf of the business, I had no intention of providing the Defendant with any gift. The money was provided for the purpose of the beneficial interest and operation of the business, from which I anticipated I would receive, in due course, a financial benefit.”

14 Mr Neuhaus did not attach to his affidavit any financial accounts to elaborate upon the source of the $65,000. Nor was the transaction one which was mentioned in any of the partnership accounts which are in evidence.

15 In his oral evidence, Mr Neuhaus said that, in his recollection, the sum which came from the partnership funds was $55,000 and that Mr Swanston had borrowed a further $10,000 making the total of $65,000 which, together with $90,000 borrowed on mortgage, was sufficient to pay the purchase price. Mr Neuhaus said that his knowledge of the partnership funds which were used to purchase came mainly from what Mr Swanston had told him.

16 Mr Neuhaus said that the conversations as deposed in his affidavit took place but that he was not sure about the reference to “half of the property”. Mr Neuhaus said he did not recall that being said.

17 Although the story which Mr Neuhaus put forward is somewhat unusual, the impression which I gained on hearing and seeing Mr Neuhaus was that he was an honest witness, who was giving evidence of the facts as he recalled them. Mr Neuhaus gave his evidence clearly. No part of his examination in chief or cross examination demonstrated fabrication or prevarication or elision of the truth as Mr Neuhaus recalled it.

18 As the substance of the case put on behalf of Mrs Swanston is that the proceedings are a fraud or conspiracy against her interests, I should set out the following passage from the cross examination of Mr Neuhaus which deals with that aspect:

“SMALLBONE: Q. You didn’t contemplate any such claim prior to him suggesting to you that you get a lawyer, because it was your understanding that you had no basis for making any claim against him?
A. Correct.
Q. The first time that you thought you might have a basis for making a claim against him was when he [Mr Swanston] suggested to you that you get a lawyer. That’s right isn’t it?
A. Correct.
Q. Do you understand in these proceedings Mr Swanston is seeking to assert a liability to you in order to diminish the pool of assets which is available for division between himself and his wife, don’t you?
A. I don’t know.
Q. You know that, don’t you? Do you understand the question?
A. Not quite.
Q. Do you understand that the Family Law property proceedings - - -
A. Yes.
Q. - - - are about dividing the assets of a husband and wife, between a husband and wife so that they can go their separate ways.
A. Yes.
Q. In working out what is to be divided, the Court has to decide what assets are available to be divided, do you understand that?
A. Correct.
…
Q. You understand, don’t you, that if Mr Swanston owed you some money that reduces the net pool, or could reduce the net pool of assets which is available to be divided between husband and wife?
A. Correct.
Q. One of your purposes in bringing these proceedings is to assist him in that respect?
A. Not true.
Q. You understand that he is not resisting your claim in these proceedings, don’t you?
A. Pardon?
Q. You understand in these proceedings which you have commenced, Mr Swanston is not resisting your claim to an entitlement?
A. No.
Q. You understand that?
A. Yes.
Q. You understand that that is because he considers it will be to his advantage in relation to the Family Law property proceedings, don’t you?
A. No.”

19 The impression which I have gained from that cross examination is that, although Mr Neuhaus would not have instituted these proceedings unless he had been advised by Mr Swanston to do so, he nevertheless did not institute the proceedings with a view to harming Mrs Swanston, but rather because, on the advice of Mr Swanston and the solicitor whom Mr Neuhaus engaged, he considered that he was entitled to make the claim.

20 Mr Neuhaus’ failure to pursue a claim until prompted by Mr Swanston to do so appears to me to be consistent with Mr Neuhaus’ character. I gained the impression from his evidence that he worked in the business conscientiously and for long hours. He was not particularly concerned or informed about monetary matters. He and Mr Swanston worked well together and have continued to be friends.

21 If the facts of which Mr Neuhaus gave evidence are correct, he is entitled to the orders which I have set out above. Mr Neuhaus’ claim is that moneys belonging to the partnership in which he and Mr Swanston were equal partners were used by Mr Swanston in the purchase of the subject property which was acquired in Mr Swanston’s own name. On Mr Neuhaus’ evidence, he was informed he would have an interest in the property. Mr Neuhaus and Mr Swanston subsequently agreed that $70,000 would be a fair figure at which to fix that interest.

22 The evidence of Mr Swanston generally confirmed that of Mr Neuhaus. In his affidavit he deposed, inter alia:

“13. The Plaintiff and I had conversations both before and after the purchase of the unit as to how and when the Plaintiff was to be repaid for money taken from partnership funds for the purchase of the unit. I recall a conversation with the Plaintiff and Mr. Charles Segovic, a friend of the Plaintiff, at 465 Glebe Point Road on or about 25 May, 1990. I said to Charlie: ‘Walter and I are buying the property at Ford Road, Maroubra and Walter will have equal share in the property, even though it will be in my name.’ I purposely said this to Charlie in the Plaintiff’s presence to allay any fears the Plaintiff might have, and suspicions Charlie might have in me using the partnership funds to acquire the property.
14. On 14 July, 1990, I said to my brother at his residence at 16A Wellington Street, Waterloo: ‘We used the money from the business as a deposit to purchase the property, and I don’t have a problem with saying Walter has a 50% stake in the property, but ideally we want to buy a property for Walter.’ Again, I said this as I did not wish people to think I had taken advantage of the Plaintiff. My recollection is that the Plaintiff was present at that time.”

23 In his oral evidence, Mr Swanston said, inter alia:

“Q. I am not referring to your affidavit, I am asking for your recollection, what you remember was said at the time that Mr Neuhaus left the partnership about what might happen as far as that money was concerned?
A. Mr Neuhaus was retiring and he was owed sums of money as a consequence of buying the property at Ford Road [the subject property] and I said to Walter that, ‘I am currently in a Family Law Court dispute and all the money is on the table and if you would like your money, I suggest that you put in your two bob’s worth.’ So yeah, that’s what happened.
…
JACKSON Q. When you purchased the Maroubra property in 1990 did you have it in your mind at that time that Mr Neuhaus had an interest in that property?
A. Yes.
Q. Why did you have such a state of mind?
A. Well, because we took all the money out of the business and I wanted to reassure Mr Neuhaus that the money we were taking out of the business that he would, that he had a claim, he had some sort of claim to the money that was being taken out.
Q. Did you, in 1990, express such a view of a state of mind to Mr Neuhaus.
A. Yes.
…
Q. And did you promise him an amount of money from the proceeds of the sale of the property?
A. Well, I promised him an amount of money. As to where the money was coming from, because it was never quite sure that the property was going to be sold and, yes, he was promised a certain amount of money and if it came from the sale of the properties, that’s where it came from.
Q. It’s true to say you could not provide him with any money unless the property was sold?
A. That’s right, or refinanced the mortgage on the property or something.
…
Q. Is it your case that Mr Neuhaus is entitled to some money but not to an interest in the property?
A. Well, my recollection is that I said to Mr Neuhaus because I was taking the money to purchase the property that – to give him some sort of feeling of security that the money that we were taking out of the business to purchase the property that he would then acquire an interest in the property or if he didn’t acquire an interest in the property that he would have been paid money, but basically his surety was there’s a property there and you’ve put money into the property so you have a claim against it.”

24 Mr Swanston was cross examined at length by counsel for Mrs Swanston. However, as far as I could tell, he answered the questions honestly and to the best of his ability. If Mr Swanston was fabricating his evidence, I did not detect that, either from his demeanour or from the answers which he gave. Somewhat surprisingly, it was not squarely put to Mr Swanston in cross examination that he was fabricating his evidence or seeking to defraud his wife. The points put in cross examination went to matters of much less significance, for example, that in the Family Court proceedings he had shown a sum of $75,000 as due to Mr Neuhaus and had put this item under the heading “Loans” rather than stating that Mr Neuhaus had an interest in the property. For my own part, I consider that this point has little significance. Mr Swanston had a form to fill in. He filled it in as he considered appropriate. He disclosed the liability.

25 The general story told by Mr Swanston confirmed Mr Neuhaus’ claim. It confirmed that Mr Swanston had told Mr Neuhaus in 1990 that he would use partnership funds in the purchase of the unit and that, as a result, Mr Neuhaus would have an interest therein or would be able to claim against the property.

26 Some partnership accounts are in evidence. They do not disclose any transaction relating to the subject property. It did not become an asset of the partnership. The accounts do not disclose a borrowing by Mr Swanston from partnership funds.

27 Mr Swanston appears to have conducted the affairs of the partnership in a fairly loose way. There was no accounting as between partners when Mr Neuhaus left the partnership or when Mrs Swanston separated from Mr Swanston. However, accounting records were kept and each year there was a division of profits equally between the partners.

28 A crucial question is whether Mr Swanston used partnership moneys in the purchase of the unit. In his affidavit, Mr Swanston deposed:

“10. I purchased the unit in December, 1990 for $163,500.00, including legal expenses and stamp duty. The funds for the purchase came from the following sources:

(a)	Mortgage to ANZ Bank	$90,000.00
(b)	Withdrawal from partnership funds	55,000.00
(c)	Loan from Graeme Shaw	5,000.00
(d)	Loan from D.C. & J. Swanston	8,500.00
(e)	Loan from Lily Yeung	5,000.00
TOTAL:	$ 163,500.00 ”

29 On the first day of hearing, Mr Swanston did not have available any relevant bank statements to support his contention. When the case subsequently resumed, he had statements from the Maroubra Junction branch of the Westpac Savings Bank, statements of the Sovereign Bathrooms account at the Maroubra Junction branch of the ANZ Bank, records of a Common Fund maintained by ANZ Trustees, statements of a personal account which Mr Swanston maintained at the Maroubra Junction branch of the ANZ Bank and some cheque butts relevant to the Sovereign Bathrooms account at the ANZ Bank. The Sovereign Bathrooms account was entitled “Swanston Scott Trading As Sovereign Bathrooms”. Both Mr Neuhaus and Mr Swanston were entitled to and did operate on that account.

30 It appears that the account with Westpac, which was an account maintained by the partnership, closed in January 1990 and that the funds were transferred to the Common Fund maintained by ANZ Trustees. Mr Swanston gave evidence that other moneys of the partnership were deposited with ANZ Trustees from time to time in order to achieve the interest rate which the Common Fund provided

31 On 16 May 1990, $15,750 was paid from the Sovereign Bathrooms account at the ANZ Bank. Mr Swanston gave evidence that this was the deposit paid on the purchase of the unit. There is no reason to doubt this. The price of the unit was $157,500. I may add, as a matter of interest, that the relevant cheque butt, which for some reason was not tendered, shows that the $15,750 was paid to “L J Hooker”, a Real Estate Agent.

32 The evidence establishes also that, on 29 May, there was paid out of the partnership account at the Maroubra Junction branch of the ANZ $1,535 for loan approval, $4,004 for duty, and $253 to solicitors. On 7 June 1990, $34,000 was paid out of the partnership account as part of the purchase price and, on 19 June, $1,549 was paid for conveyancing fees. In subsequent months, $5,000 was paid out of the partnership account to Mr Graeme Shaw , from whom Mr Swanston had borrowed that sum to enable him to complete the purchase, and $6,000 was paid to Mr Swanston’s mother, who had lent him $10,000 for that purpose.

33 The total of all those sums is $68,091. I am satisfied by the evidence that this amount was paid out of the partnership bank account during 1990 and was used in the purchase of the subject property.

34 Accordingly, the evidence supports the claim made by Mr Neuhaus. If simple interest at the rates set out in Schedule J of the Supreme Court Rules is taken into account, the quantum of Mr Neuhaus’ claim would rise to over $70,000. There are ways of putting his claim which would arrive at much larger sums. It seems to me that the $70,000 at which Mr Neuhaus and Mr Swanston arrived is a fair and reasonable estimation of Mr Neuhaus’ entitlement.

35 I turn now to the defence put forward by Mrs Swanston. She swore two affidavits but there is very little in them which sets out relevant facts which were within her knowledge. Mrs Swanston conceded in her evidence that the crux of her case was that Mr Neuhaus and Mr Swanston were conspiring together to deprive her of moneys she might otherwise receive under an order of the Family Court. However there is nothing in her affidavits which establishes that contention.

36 In the defence filed on her behalf, Mrs Swanston did not admit that there was ever a partnership between Mr Neuhaus and Mr Swanston. Her affidavits constantly used the expression “I do not know and cannot admit”. On vital points, she denied facts deposed to by Mr Neuhaus or Mr Swanston by saying, for example,

“to the best of my knowledge and belief, by the 8 June 1990 the business had not acquired liquid assets of $65,000.00, as alleged by the First Respondent.”

37 The approach which Mrs Swanston took in her affidavits was not helpful because, rather than concentrating on relevant facts of which Mrs Swanston could give evidence, her affidavits sought to raise issues as if the affidavits were a pleading.

38 There is nothing in Mrs Swanston’s evidence of facts within her own knowledge which casts any substantial doubt upon the evidence given by Mr Neuhaus and Mr Swanston.

39 The only fact which emerged throughout the whole of the evidence which casts doubt upon Mr Neuhaus’ claim is the fact that nothing in the partnership records reflects the earning of substantial profits in the 1989/90 year from which the subject sums may have been paid.

40 There is in evidence an undated letter from W N Dolman and Associates who were the accountants for Sovereign Bathrooms. The letter set out gross income to 30 April 1990 and expenses to that date and projected income up to 30 June 1900 and expected expenses to that date. The letter suggested that the profit for the year would be $133,750. However, the information which Mr Swanston supplied to the accountants at the end of the year showed gross income of $368,529 and expenses of $296,128, giving a profit of $73,625. The main difference from the figures which Dolman and Associates had calculated is that, in the letter, materials were calculated to be $42,800 whereas the materials cost stated by Mr Swanston at the end of the year was $124,036. The income tax return for the year recorded income of $349,753 less expenses of $289,051 giving a profit of $60,702.

41 As Mr Neuhaus had drawings during the year totalling $30,700 and Mr Swanston must have had living expenses during the year, it is difficult to identify where the profits came from which enabled the partnership to pay out the funds which it did pay out in the purchase of the unit.

42 Nevertheless, what has been proved is that the relevant sums were paid from the partnership’s bank account. They were not paid from Mr Swanston’s personal account at the ANZ Bank, which is the situation one would have expected had the moneys used been Mr Swanston’s personal moneys. Thus, on 7 May 1990, $34,390 was drawn from the ANZ Trustees Common Fund and was paid into the partnership bank account. On the same day $34,000 was paid from that account towards purchase of the property. A possible explanation is that it was convenient at the time for Mr Swanston to use the Sovereign Bathrooms bank account. A more probable position is that the Sovereign Bathrooms bank account was used because the moneys were moneys of the partnership, as Mr Swanston stated in his evidence.

43 The materials before the Court are inadequate to enable the Court to reconcile the bank accounts with all items of income and expenditure. It is possible that Mr Swanston was giving false evidence or that the income stated in the tax return was understated or that the cost of materials was overstated. The evidence before the Court does not provide a satisfactory basis for a finding that the evidence given by Mr Swanston was false. Mr O’Kane adduced evidence from Mr Swanston that the tax income of the partnership may have been understated. Mr O’Kane also suggested that the materials may have been returned on an “incurred” basis but not paid for until the subsequent year. These are possibilities.

44 There is no evidence that Mr Swanston had a source of funds other than partnership income. It was not expressly put to Mr Swanston in cross examination that the moneys that were paid out of the Sovereign Bathrooms account were his personal moneys which had been derived from a source other than the partnership business. The relevant cross examination by Mr Jackson was as follows:

“Q. Would it be correct to say if we went right through the accounts that you have in front of you… all the deposits were derived from work that you had before in relation to the business?
A. That’s right.”

The relevant cross examination by Mr Smallbone was:

“Q. Mr Swanston, it’s true that you haven’t, for the purposes of giving your evidence here today, been through the bank accounts of the business and added up the total of all the funds deposited into those accounts, have you?
A. No.
Q. And nor have you been through those accounts and added up the total of all the withdrawals, have you?
A. No.
…
Q. But you don’t know, do you, if you made due allowance for that factor, whether the total of the deposits figure would be more or less than the sum of $348,529 on the income and expenditure account in Exhibit 1, do you?
A. That’s right.
Q. If after making due allowance for moneys taken out and put back in, the total deposits were more than $348,529, that would mean that additional moneys had been put in from other sources, wouldn’t it?
A. That’s right
…
Q. When you’re giving your answer please say yes or no, not mmm, because this has to be recorded. If the figure of the debtors after making due allowance for moneys taken out and put back is different to the figure of $289,051, which is in your income and expenditure account, that could be for a number of reasons, couldn’t it?
A. Yes
Q. One of those reasons might be that expenses were paid from other accounts or from other sources of funds?
A. No.
…
Q. And you’re not really able to tell from any calculations that you have done for the purposes of giving evidence today precisely how the figures in the bank account relate to this income and expenditure statement, are you?
A. Well, I would assume that they were related to the bank statements.”

45 That evidence shows no more than that Mr Swanston had not examined the bank statements for the purpose of reconciling them with the partnership income tax returns. It does not show that Mr Swanston had a source of funds other than the business of Sovereign Bathrooms. Mrs Swanston was living with Mr Swanston at the time and she assisted him with bank reconciliations and the preparation of tax returns. She did not proffer any source for the funds other than partnership income.

46 Nor does the evidence suggest that Mr Swanston used the partnership bank account as an account in which he mixed his own and the partnership’s moneys. The fact that Mr Swanston maintained his own personal account at the same branch of the ANZ Bank is a very strong indication that he did not. For example, the $5,000 borrowed from Mr Shaw and the $10,000 borrowed from Mr Swanston’s mother were paid into the personal account and, from that account $13,042.24 was paid towards the purchase of the unit. Mr Smallbone submitted:

“It was in truth an account in the name of the first defendant which he used largely but not solely for the purposes of the partnership business. He also conducted transactions of his own upon it.”

However, although the submission was put clearly and firmly, there is no evidence to support it.

47 The probability is not that Mr Swanston kept personal funds in the partnership account, but that, when the unit in which Mr Swanston and Lily Swanston were living was put on the market, he had few funds of his own with which to make the purchase. He therefore used available funds of the partnership and he borrowed additional moneys. It is also probable that, when he used the partnership moneys, he made a statement to Mr Neuhaus indicating that his interest in the moneys would be recognised. It may be that Mr Swanston’s intentions at the time of the purchase were ambivalent. The unit was used as the partnership’s business premises and partnership moneys were used in its purchase, but Mr Swanston did not wish the unit to be seen as a partnership asset as this would attract capital gains tax on a resale. Subsequently, the status of the unit as a private asset became confirmed or settled as Mr Swanston made payments off the mortgage from his own funds.

48 Mr Smallbone submitted that the onus of proof was not satisfied as the moneys in the partnership account could not be reconciled with the partnership’s income tax return. However, the onus of proof on the probabilities is satisfied by the evidence of Mr Neuhaus and of Mr Swanston and by the fact that the relevant moneys were paid out of the partnership’s bank account. The fact that there may be difficulties reconciling the income tax return with the moneys in the partnership bank account is not a sufficient factor to outweigh that evidence.

49 Mr Smallbone also submitted that the orders which I have set out in paragraph 3 do not coincide precisely with the relief set out in the statement of claim. I see no difficulty arising out of that. The orders are within the ambit of the relief sought and are appropriate having regard to the evidence given, the substance of which was set out in the affidavits filed in the proceedings.

50 Mr Smallbone concluded his written submission as follows:

“The claim as pleaded is not made out. The claim is misconceived. It is statute barred. The statute of frauds defence is good. The action was collusive and amounted to an attempt to perpetrate a fraud on the second defendant. The proceedings should be dismissed with indemnity costs.”

51 I have already indicated that the plaintiff’s claim has been proved. I find the allegation of collusion not to be established. I consider that Mr Neuhaus and Mr Swanston were honest witnesses and that their evidence should be accepted. I should add that I regard it as highly improbable that Mr Swanston and Mr Neuhaus would have instigated these proceedings just to deprive Mrs Swanston of $35,000, being one half of the sum for which relief is given. I saw no evidence of such bitterness on Mr Swanston’s part which such an action would require.

52 Mr Smallbone did not elaborate orally upon the defences that the action was statute barred and was contrary to the Statute of Frauds. I am not satisfied that Mrs Swanston has a sufficient interest to raise either defence, neither of which was pleaded on behalf of the registered proprietor of the unit, Mr Swanston. If Mrs Swanston has an interest in the property other than as a claimant for a discretionary order of the Family Court of Australia, that interest was not proved in these proceedings.

53 The plaintiff should have an order for costs as against both defendants. The plaintiff seeks indemnity costs as from 19 December 2001 having formally offered, on 4 December 2001, to settle for $55,000 plus costs. The first defendant would have accepted the offer but was unable to do so because of the proceedings in the Family Court. The second defendant rejected the offer on 19 December 2001.

54 Mr Smallbone submitted that indemnity costs should not be awarded as it was not until the second day of the hearing that Mr Swanston produced the bank records which established that the relevant moneys had been paid from the partnership’s bank account. However, although proof was slow, what was proved accorded with the plaintiff’s allegations.

55 Accordingly, I shall order that the plaintiff’s costs be paid by the defendants, such costs to be assessed on an indemnity basis as from 19 December 2001.

56 The first defendant seeks costs as against the second defendant. In my view, such an order is appropriate. The proceedings have been required by the second defendant’s opposition to the plaintiff’s claim.

57 Mr Smallbone submitted that there was no need for the first defendant to be represented. However, claims were made in the summons and amended statement of claim which, if accepted, would have justified an order having a monetary value much greater than the order which Mr Jackson and Mr O’Kane ultimately indicated was, in their view, appropriate. It was clearly appropriate for Mr Swanston to be represented. Although Mr Swanston and Mr Neuhaus would have resolved the matter if they could have done so, I had no sense that their representatives were working in the same interest or that Mr O’Kane’s presence was unnecessary. He represented his client very capably. His consistent stance was that, while Mr Swanston conceded that Mr Neuhaus had a claim against the land, he did not concede, and indeed opposed, many of the claims made in the amended statement of claim.

58 Accordingly I shall order that the first defendant ‘s costs, including the costs payable by him to the plaintiff be paid by the second defendant.

59 For these reasons I shall make the following orders:

1. The Court declares by way of a resulting trust that the first defendant holds in trust the property located at 9/4 Ford Road, Maroubra for the plaintiff, to the extent of $70,000 plus interest from this date;

2. The Court orders that:

(i) the first defendant pay to the plaintiff the amount of $70,000, and in addition, interest as referred to in paragraph (ii) below, within two months from the date of final property orders made in the Family Court of Australia in the Sydney Registry of the Family Court of Australia, proceedings number SY 7120 of 1999;
(ii) this amount be subject to an interest provision, with such interest to run from the date of these orders, and be subject to such rate of interest as is prescribed by the New South Wales Supreme Court Rules;
(iii) the plaintiff’s costs be paid by the defendants, such costs to be assessed on an indemnity basis as from 19 December 2001;
(iv) the first defendant ‘s costs, including the costs payable by him to the plaintiff, be paid by the second defendant.
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Last Modified: 05/30/2002