Oa**Hara and Oa**Hara and Ors
[2008] FamCA 189
•20 March 2008
FAMILY COURT OF AUSTRALIA
| O’HARA & O’HARA AND ORS | [2008] FamCA 189 |
| FAMILY LAW – PROPERTY – alteration of property interests – husband’s deliberate non disclosure – accrued jurisdiction – resulting trust – resumption of advancement – constructive trust – equitable estoppel – equitable charge – equitable contribution |
| Family Law Act 1975 (Cth) Part VIII s 79; 79(4)(d) – (g); 75(2); 75(2)(b); 78(2); 80; 106A Conveyancing Act (1919) s 66G |
| Kowaliw (1981) FLC 91-092 Dinsdale Bht Protective commissioner v Arthur [2006] NSW SC 809 Muschinski v Dodds (1985) 160 CLR 583; 11 Fam LR 930 Baumgartner v Baumgartner (1987) 164 CLR 137; 11 Fam LR 915 Giumelli v Giumelli (1999) 196 CLR 101; 161 ALR 473; 73 ALJR 547 Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 Cierpiatka v Cierpiatka and Cierpiatka (1999) FLC 92-864 Morris and Morris (1982) 1 NSW LR 61 Calverley v Green (1984) FLC 91-565 Ingram v Ingram [1941] VLR 95 at 102 Lord Napier and Ettrick v Hunter [1993] A.C. 713 Norbis & Norbis (1986) FLC 91-712 Lenehan & Lenehan (1987) FLC 91-814 Zyk & Zyk (1995) FLC 92-644 Weir & Weir (1993) FLC 92-338 Black & Kellner (1992) 92-287 Chang v Su (2002) FLC 93-117 Griffiths & Kerkemeyer (1977) 139 CLR 161 Gollins and Scott (2007) FLC 93-319; (2007) 37 Fam LR 428 |
| APPLICANT: | Mrs O’Hara |
| RESPONDENT: | Mr O’Hara |
| 2ND RESPONDENT: | Mr O’Hara (snr) |
| 3RD RESPONDENT: | Mrs O’Hara (snr) |
| FILE NUMBER: | SYF | 305 | of | 2003 |
| DATE DELIVERED: | 20 March 2008 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Watts J |
| HEARING DATE: | 18 - 20 February 2008 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Bridger |
| SOLICITOR FOR THE APPLICANT: | Kells The Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Watkins |
| SOLICITOR FOR THE RESPONDENT: | Somerville & Co |
| COUNSEL FOR THE 2ND & 3RD RESPONDENTS: | Mr Dura |
| SOLICITOR FOR THE 2ND & 3RD RESPONDENTS: | Levy Partners |
Orders
A declaration is made that the beneficial interest in the property known as the E property, being the land comprised in folio identifier … is held, as tenants in common, in the following proportions:-
1.1.Wife – 14.53%
1.2.Husband – 19.13%
1.3.2nd Respondent – 33.17%
1.4.3rd Respondent – 33.17%
The husband forthwith transfer to the wife 23.58% of his right, title and interest in the E property so that the wife holds a 19.04% interest in the E property and the husband holds a 14.62% in the E property.
Within 56 days of the date of these orders, the 2nd respondent and the 3rd respondent each pay to the wife an amount of $71,777.50 (a total amount of $143,555).
Contemporaneously with the payment referred to in Order 3, the 2nd and 3rd Respondents each cause to be paid to the wife the sum of $69,956.50 (a total of $139,913).
The 2nd respondent and the 3rd respondent hold their respective shares in the E property subject to an equitable charge in favour of the wife to secure the payment referred to in Order 3 and 4.
Contemporaneously with the payment referred to in Order 3, the 2nd and 3rd Respondents each cause to be paid to the husband the sum of $53,744 (a total of $107,488) subject to any other written agreement between the husband and the 2nd and 3rd Respondents.
Contemporaneously with the payments referred to in orders 3, 4 and 6, the wife and husband transfer their right, title and interest in the E property to the 2nd and 3rd respondents in equal shares.
In the event that the 2nd and 3rd Respondents do not pay the amounts referred to in Orders 3, 4 and 6 within 56 days from the date of these orders and unless the parties otherwise agree in writing to the terms upon which the E property will be listed for sale, by private treaty for a period of time, then the husband and the wife and the 2nd and 3rd Respondents do all acts and things and execute all deeds documents, instruments and writings necessary to procure the sale of the E property by public auction, and in particular:
8.1.Place the E property with auctioneers to be agreed upon between the parties and failing agreement to be determined by the President for the time being of the Real Estate Institute of New South Wales or his nominee (“the Auctioneers”) for the sale of the E property by public auction at the earliest possible date.
8.2.Execute all documents requested by the Auctioneers for the sale of the E property by auction.
8.3.Request the Auctioneers to recommend a reserve price to be placed on the E property for the purpose of the auction sale and accept such recommended reserve price.
8.4.Pay to the Auctioneers any sums required for advertising expenses relating to the auction.
8.5.Give such instructions to the Auctioneers for the preparation of an appropriate contract and other documents as are necessary for the sale of the E property by auction.
8.6.Cooperate in every way with the Auctioneers in relation to the auction of the E property including making a key available, allowing inspection of the E property at times requested by the Auctioneers, and ensuring that the E property is in a neat and clean condition at the time of inspection by prospective purchasers.
8.7.Attend the auction sale of the E property and negotiate with the highest bidder in the event that the reserve price is not reached.
8.8.Accept the advice of the Auctioneers as to the acceptance of a price less than the reserve price.
8.9.Execute the contract for sale.
8.10.Execute all other documents necessary to complete the sale of the E property.
The husband and the wife and the 2nd and 3rd respondents do all acts and things necessary, upon sale of the E property, to pay the proceeds of the sale in the following manner and priority:
9.1.Payment of agent’s commission and/or auction expenses due on sale.
9.2.Payment of legal costs of sale.
9.3.Payment to the wife of 19.04% of the net balance of the proceeds of sale.
9.4.Payment to the husband of 14.62% of the net balance of the proceeds of sale.
9.5.Payment to the 2nd Respondent of 33.17% of the net balance of the proceeds of sale
9.6.Payment to the 3rd Respondent of 33.17% of the net balance of the proceeds of sale.
9.7.Payment by the husband and in default by the 2nd and 3rd Respondents in equal shares to the husband’s trustee in bankruptcy of any money outstanding under the Deed of Settlement dated 5 February 2008.
9.8.The 2nd and 3rd Respondents each pay to the wife, from their share of the net balance of the proceeds of sale, an amount of $71,777.50 (a total amount of $143,555) together with interest on that amount at the rate prescribed in the Family Law Rules, which interest shall run from 56 days after the date of these orders.
9.9.Unless the husband and the 2nd and 3rd Respondents otherwise agree in writing the 2nd and 3rd Respondents shall each pay to the husband, from their share of the net proceeds of the sale of the E property, the sum of $53,744 (a total of $107,488) together with interest on that amount at the rate prescribed by the Family Law Rules which interest shall run from 56 days after the date of these orders.
The husband will be declared to have sole right, title and interest in monies held in the Greater Building Society, his household contents, his tools, his interest in C superannuation and any potential claim the husband has against his parents.
The husband will indemnify the wife in relation to any liability the husband owes to the 2nd and 3rd respondents and to the husband’s trustee in bankruptcy.
The wife will be declared to have sole right, title and interest in her motor vehicle, her household contents and the interest she has in the M superannuation fund.
The wife will indemnify the husband against any loan owing to the wife’s brother.
If any party refuses or neglects to sign (within fourteen (14) days of a written request to do so) any documents necessary to effect the terms of these Orders, the Registrar of the Sydney Registry of the Family Court of Australia is hereby appointed pursuant to the provisions of Section 106A of the Family Law Act to execute such documents on behalf of such party.
IT IS NOTED that publication of this judgment under the pseudonym O’HARA is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYF 305 of 2003
| Mrs O’Hara |
Applicant
And
| Mr O’Hara |
Respondent
And
| Mr O’Hara (snr) |
2nd Respondent
And
| Mrs O’Hara (snr) |
3rd Respondent
REASONS FOR JUDGMENT
INTRODUCTION
These are proceedings under Part VIII of the Family Law Act (“FLA”) and under the Court’s accrued jurisdiction.
There were six parties in this case. There are now four. The remaining parties are the wife, the husband, the husband’s father (2nd respondent) and the husband’s mother (3rd respondent). The husband’s brother ceased to be a party before the time of the hearing. All the remaining parties agreed at the commencement of the hearing that the husband’s trustee in bankruptcy be granted leave to withdraw from the case.
Whilst the husband and wife each have some other assets the principle focus in these proceedings is what is to happen to a property at E, being the whole of the land in Certificate of Title folio identifier … (“the [E] property”). The registered proprietors of this property have at all relevant times been the husband, the wife, the husband’s father and the husband’s mother in equal shares as tenants in common.
The orders sought by the wife are set out below. The wife seeks an order that the 2nd and 3rd respondents jointly and severally pay to the wife an amount of $143,487.82. In addition, the wife seeks a partition of the E property.
The husband applies for the wife’s interest to be transferred to him. He would then have one half of the interest in the E property and his parents the remaining half interest.
The 2nd and 3rd respondents seek a declaration that the husband and wife hold on trust for them an 11.75 percent interest in E. They further seek an order that the whole of the husband’s and wife’s interest in E be transferred to them for the payment of a sum of money.
The wife’s claim against her husband’s parents is based in equity. The wife asserts that she paid on behalf of her husband’s parents a coordinate liability that her husband’s parents had under their obligations in respect of firstly, a joint and several mortgage and secondly, in respect of a joint and several guarantee and indemnity. She seeks an equitable charge to support the contribution which she asserts she made on behalf of the husband’s parents.
In the normal course, the husband’s legal title in the E property would have vested in his trustee in bankruptcy. The husband asserted that his interest in the E property was protected pursuant to the provisions of s.116 of the Bankruptcy Act 1966 because the source of his current interest in the E property are monies received from damages or compensation for personal injury to him. This argument is not one which I need to determine given that Exhibit A (a deed made 5 February 2008 between the husband’s trustee, the husband and the husband’s parents) make it clear that in the event that the husband pays the trustee the sum of $110,000 then the trustee makes no claim in respect of the husband’s interest in the E property including such further interest as the husband might receive by way of order under s.79 of the Family Law Act.
DOCUMENTS READ
The evidence in this matter is contained in the following documents:-
9.1.Affidavit of the wife sworn 7.2.06.
9.2.Affidavit of the wife sworn 13.10.06.
9.3.Financial Statement of the wife filed 7.8.07.
9.4.Affidavit of the husband filed 8.2.05.
9.5.Financial Statement of the husband filed 6.11.06.
9.6.Affidavit of the husband filed 7.11.06.
9.7.Affidavit of the 2nd respondent filed 3.10.06.
9.8.Affidavit of the 3rd respondent filed 3.10.06.
9.9.Affidavit of Mr L filed 15.6.07.
APPLICATIONS
Wife
Exhibit B sets out the orders the wife seeks in the following terms:-
1.A Declaration that the 2nd respondent and the 3rd respondent are jointly or severally liable to contribute to the wife the amount of $97,237.82 with respect to repayments of [sic] loan standing in the names of the husband, the wife, the 2nd respondent, 3rd respondent and [R O’Hara] with the National Australia Bank and subject to Guarantee and Indemnity dated 6 February 2002.
2.A Declaration that the 2nd respondent and 3rd respondent are jointly or severally liable to contribute to the wife the amount of $46,250 with respect to repayments of [sic] loan standing in the names of the husband, the wife, the 2nd respondent and the 3rd respondent with the National Australia Bank and secured by registered mortgage No. […].
3.An order that the 2nd respondent and the 3rd respondent jointly or severally pay to the wife the amount of $143,487.82 within 28 days of the date of the order.
4.An order that the 2nd and 3rd respondents holds his/her respective interest in the property known as [E property] being the land contained in folio identifier […] subject to an equitable charge in favour of the wife.
5.An order that the husband, the wife, the 2nd and 3rd respondents do all acts and things and execute all deeds, documents, instruments and writings necessary to forthwith sell the [E] property by private treaty at a price agreed between the husband and the wife and the 2nd and 3rd respondents or, failing such agreement, at a price equivalent to the mean of two valuations by registered valuers being members of the Australian Institute of Valuers, one obtained by and at the expense of the wife and one obtained by and at the expense of the husband and the 2nd and 3rd respondents, such valuations to be made not more than 2 weeks apart from each other.
6.That in the event that the [E] property is not sold by private treaty within 3 months from the date of the orders, the husband and the wife and the 2nd and 3rd respondents within 3 months of the date of the orders do all acts and things and execute all deeds documents, instruments and writings necessary to procure the sale of the [E] property by public auction, and in particular:
6.1Place the [E] property with […] Real Estate of […] (“the Auctioneers”) for the sale of the [E] property by public auction at the earliest possible date.
6.2Execute all documents requested by the Auctioneers for the sale of the [E] property by auction.
6.3Request the Auctioneers to recommend a reserve price to be placed on the [E] property for the purpose of the auction sale and accept such recommended reserve price.
6.4Pay to the Auctioneers any sums required for advertising expenses relating to the auction.
6.5Give such instructions to the Auctioneers for the preparation of an appropriate contract and other documents as are necessary for the sale of the [E] property by auction.
6.6Cooperate in every way with the Auctioneers in relation to the auction of the [E] property including making a key available, allowing inspection of the [E] property at times requested by the Auctioneers, and ensuring that the [E] property is in a neat and clean condition at the time of inspection by prospective purchasers.
6.7Attend the auction sale of the [E] property and negotiate with the highest bidder in the event that the reserve price is not reached.
6.8Accept the advice of the Auctioneers as to the acceptance of a price less than the reserve price.
6.9Execute the contract for sale.
6.10Execute all other documents necessary to complete the sale of the [E] property.
7.That the husband and the wife and the 2nd and 3rd respondents do all acts and things necessary to procure than [sic] upon sale of the [E] property, the proceeds of be paid in the following manner and priority:
7.1Payment of agent’s commission and/or auction expenses due on sale.
7.2Payment of legal costs of sale.
7.3Pay to the wife the sum of $143,487.82.
7.4The balance to be divided 25% to each of the 2nd and 3rd respondents and 35% to the wife and the balance to the husband’s trustee in bankruptcy.
8.That order 8.1 has effect from the operative time:
8.1That in accordance with paragraph 90MP(1)(b) of the Family Law Act 1975, whenever a splittable payment becomes payable in respect of the superannuation interest of [the husband] from his interest in [C] fund, that [the wife] is entitled to be paid a specified percentage of 100% of the splittable payment and there is a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for these orders.
8.2That these orders bind the trustee of the [C] fund and these orders take effect from the operative time being fourth [sic] business days after the date of service of these orders on the trustee.
8.3That having been accorded procedural fairness in relation to the making of this order, this order binds the trustee of the [C] fund.
9.An order that the husband and the 2nd and 3rd respondents pay the costs of the wife of and incidental to the proceedings.
Husband
By way of amended response to an application for final orders filed 6 November 2006 sought an order in the following terms:
“That the applicant transfer all her right, title and interest in the property known as [E property], being folio identifier […] to [sic] first respondent.”
He also sought a declaration against his trustee in bankruptcy which is no longer a matter that concerns me given the deed dated 5 February 2008 between the husband, his parents, and the husband’s trustee in bankruptcy.
2nd and 3rd Respondents
Counsel for the 2nd and 3rd respondents, in final submissions, sought the following orders (as contained in Exhibit TT):-
1.That the court declare that the husband, [name] and the wife, [name], hold on trust for the second and third respondents a 11.75% interest in the property known as and situate at [E].
2.That within eight (8) weeks the second and third respondents cause to be paid to the husband and wife, in such proportion as the court determines, the sum of $281,000.
3.That simultaneous with order 2 above, the husband and wife do all acts and things to cause to transfer their right, title and interest in the said property to the second and third respondents.
4.That the sum of $175,000 be deducted from any amount payable to the husband pursuant to order 2 above, as may be determined by the court, in satisfaction of monies (sic) to them by the husband.
CREDIT
Although I approached the evidence of each of the parties with some caution, the doubt I have in relation to the husband’s evidence and the evidence of the husband’s parents far exceeds the doubt I have in relation to the wife’s evidence.
The husband in his affidavit says he suffers from dyslexia and has difficulties in reading documents.
The 2nd respondent also in his affidavit says he is not a good reader. In the witness box he was worse than “not a good reader”. The husband’s father basically indicated that he wasn’t able to read any document.
The husband presented during his cross examination as a person who was unable to read any words on any document apart from those words that were ones that were very familiar to him (for example his name and words such as ‘tax invoice’). This meant that counsel for the wife was unable to cross examine the husband about any documentation.
At times the husband indicated that he did not recognise what appeared to be a signature on a document in a space where his signature was called for.
The husband’s case was that all effective financial arrangements in relation to preparing financial accounts took place between the wife and his brother.
The wife in a case in reply gave evidence that a number of documents that were shown to the husband in cross examination where he denied that it was his handwriting were in fact written in the husband’s handwriting. I accept that the wife can recognise the husband’s handwriting.
The wife was able to recognise the husband’s handwriting (when the husband was not able to recognise his own handwriting) on the following documents:
Exhibit BB: executive committee meeting number 16
Exhibit CC: executive committee meeting number 18
Exhibit DD: executive committee meeting number 19
Exhibit EE: executive committee meeting number 1 A Holdings Pty Ltd
Signatures on the husband’s tax returns which form part of Exhibit M
A letter dated 11 July 2000 from R Company Pty Ltd (which is Exhibit S)
The husband denied that any of his writing on Exhibit PP was his. Exhibit PP is a calendar that the parties kept in October 1996. It has writing indicating when rental monies were to be received by the designation of the names “[N]” and “[M]”. The wife identified the husband’s handwriting in the blank boxes on the calendar above the dates 6 and 7; in the boxes on the calendar for the dates 6, 7, 13, 14, 20, 21 and 27 for the month of October 1996. The husband denied that any of that was his handwriting and said that the whole of the rental arrangements in relation to the cash payments from the tenants was handled by the wife.
The most powerful exhibit on the issue of the husband’s ability to read and write was the letter produced by the wife to the husband in cross examination which was MFI 3 and became Exhibit QQ. That document contains about 3 ½ pages of handwriting. The husband denied that it was his handwriting. The wife says it was his handwriting. Whilst the syntax and the spelling is written by somebody who may have difficulties with English as a written language, the conclusion one powerfully reaches in perusing the document is that it is written by a male expressing his love and feelings for the wife at a time when their relationship was in trouble or had broken down. The document is signed “love [husband’s name]”. I have no difficulty on balance accepting the wife’s evidence that this is a document written by the husband. Having accepted that, the document gives an insight as to the level at which the husband commands the English language in a written form. That level is not consistent with the husband’s performance in the witness box.
An example of a difference in evidence between the husband and wife where objective evidence demonstrates the wife’s version to be more accurate, relates to the acquisition and sale of the E business. The husband at paragraph 57 of his affidavit and in his case outline – chronology, asserts that:
“In 1998 I received a payout for my injuries and I purchased a [business] at [E] for $75,000 using some of those monies. The mother and I operated that shop successfully for about a year before we sold it. It had given us a good income but we lost money on the sale. We applied the sale proceeds of about $48,000 towards one of the mortgage loans that we had at the time.”
The wife at paragraph 74 asserts that the purchase price was $67,000 and with other disbursements, security bonds and stamp duty the overall acquisition costs were $70,986. In paragraphs 81 to 83 of her 2005 affidavit the wife sets out that the business operated until somewhere during the 2001 financial year. In paragraph 110 of her affidavit the wife says that the business continued until it was ultimately sold around the middle of 2000 for approximately $30,000 and that this represented a loss of approximately $37,000.
Annexure A to the wife’s affidavit makes it clear that her assessment of the purchase price was more accurate than the husband’s. The tax returns (Exhibit M) indicate income still being earned from the business in the financial year ended 30 June 2000. The husband’s evidence that the wife and the husband only operated the business “successfully for about a year before we sold it” is inaccurate unless the husband means by that that there was only one year (the first year) which the business ran profitably, but that’s not the way one would normally construe the second sentence of paragraph 57. This is one example as to where objective evidence demonstrates that the wife had a more accurate memory than the husband.
I conclude that the husband adopted a strategy in the witness box which was designed to stop any effective testing of the evidence that he had given or any testing of his evidence in respect of his current everyday involvement with the business activities of various companies.
The 2nd respondent was as equally unimpressive. He couldn’t remember almost anything about what was in his affidavit nor remember anything about what was in any other document.
I was unimpressed with the evidence given by the 3rd respondent. She was on occasions vague and on other occasions unconvincing when giving evidence in relation to the companies that she ostensively controls.
The wife’s evidence in relation to the deposit in respect of the E property is confused and I have not accepted it (see below). I also have found that the wife has sought to downplay her role in R Pty Ltd when it became obvious that it was to her forensic advantage to do so. Overall, however, I find that where the evidence of the husband and the 2nd and 3rd respondents differs to the evidence of the wife, I prefer, unless I otherwise indicate in these reasons, the evidence of the wife.
CHRONOLOGY
The wife was born in August 1972 and is currently aged 35.
The husband was born in June 1973 and is currently aged 34.
In 1989 the parties commenced living together. At that time the husband was employed in rural New South Wales. The parties then moved to the central coast.
The first child of the marriage, K, was born in November 1990 and is currently 17 years of age.
The parties married in January 1992.
The second child, T, was born in December 1992 and is currently 15 years of age.
In October 1992 the husband and wife purchased B1 property on the central coast for $38,000.
In May 1994 the wife commenced employment at a service station.
In July 1994 the husband obtained employment in north-western New South Wales and the following month the wife and the children moved to live with him.
In October 1994 the husband injured his right wrist and right shoulder at work and he was off work for five months.
In March 1995 the 2nd respondent settled a personal injury claim for $25,100 net of costs.
In April 1995 the 2nd and 3rd respondents sold their B2 property and received a net amount of $67,345.
In 1996 the parties together with the husband’s parents, purchased the E property. Contracts for the purchase of E property were exchanged on 28 August 1996. The purchase was settled on 25 September 1996. Details about acquisition costs are discussed below.
On 24 October 1996 the four registered proprietors of E property received an offer for a home loan from the National Australia Bank in the sum of $185,000 over the E and B1 properties (see annexure “B” to the affidavit of the wife of 13 October 2006). The bank already had an existing first mortgage over B1 property.
In June 1997 the 2nd respondent settled a personal injury claim and received an approximate net amount of $150,000.
In July 1997 the husband’s parents constructed a second dwelling on the property. The property was cleared, a new shed built and three dams were constructed. The husband’s parents moved into the newly constructed home.
In July 1998 the husband and wife purchased E business for $67,000 (total purchase costs were $71,000). The business operated as a partnership between the husband and wife. The wife did book work for the husband’s business.
In August 1998 the husband received $400,000 gross by way of compensation for his personal injury claim. Details of the net amount received are discussed below (and are set out in Exhibit U).
In August 1998 the husband and wife purchased a property at M for $183,000 as joint tenants. The purchase monies came from the husband’s workers’ compensation settlement monies.
In June 1999 a property at G was purchased in the wife’s name for $189,950. An amount of $182,300 was borrowed from the National Australia Bank to complete the purchase.
In June 1999 a property at T was purchased in the husband’s name for the sum of $289,000. The full acquisition costs were borrowed for this purchase.
In September 1999 the parties separated and the husband moved to live with his parents at the other dwelling on the E property. The wife and the children lived in the second house on the E property. The wife says that the husband, about a month later, moved away from the property and never resided in the former matrimonial home after the initial separation in September 1999. The husband did not dispute this version. The wife says that after September 1999 they would see one another several times each week. They would during these meetings discuss issues relating to the breakdown of the marriage and on a number of occasions they had sexual intercourse. Acts of intimacy between the husband and wife continued up until at least the beginning of 2001 when the third child of the marriage was conceived.
On 28 September 1999 the husband and his brother, R O’Hara, commenced a business through a company they incorporated called R Pty Ltd. The husband and his brother were directors and shareholders of this company (see Exhibit O). The wife, although she sought to downplay it during the hearing, played a significant role in R Pty Ltd, particularly between February 2000 and late 2002. In her 2005 affidavit she said she initially worked 25 hours per week attending to the development of the company and ten hours a week doing the bookwork for the husband’s E business as well as working 40 hours a week at the Service Station. In paragraph 117 of the wife’s affidavit she makes it clear that she regularly worked on the accounts and the administration of R Pty Ltd.
On 1 December 1999 the wife, along with the husband, his parents and his brother, signed a guarantee and indemnity to the National Australia Bank for advances to R Pty Ltd. The first mortgage on the E property was extended to cover the borrowings by R Pty Ltd.
In 1999 R Pty Ltd had cash flow problems. Payments under a number of large contracts were not made by third parties who owed the company money.
In February 2000 the wife resigned from the service station and commenced working full time for R Pty Ltd. The wife asserts that she was working ten to twelve hours a day on the administration and accounts of R Pty Ltd after she commenced working for the company full-time.
In the middle of 2000 E Business was sold for $30,000 (see Exhibit T).
In October 2000 the wife provided a further guarantee and indemnity to the National Australia Bank for further advances to R Pty ltd. Again, the E property was security for this further guarantee and indemnity.
In April 2000 the wife and the two children left the E property and moved and the wife then resided with her uncle.
In June 2001 the wife and children moved again to live with the wife’s grandmother.
On 21 September 2001 the third child Y was born.
In early 2002 the wife signed a further guarantee and indemnity for further advances to R Pty Ltd. The amounts secured by way of guarantee and indemnity at that time was in the approximate sum of $486,000.
In July 2002 documents were signed by the husband and wife with the National Australia Bank to provide them with collateral security over the M property. The borrowings at that time had escalated to $639,000. Further security documents were signed in July 2002.
In 2002 the husband’s brother’s partner, Ms W, advanced $70,000 to R Pty Ltd.
The husband says in September 2002 he received legal advice from advising him of the danger of allowing R Pty Ltd to trade whilst it was insolvent. A new company A Holdings was established. The directors of A Holdings were the husband and his brother. The shareholders were the husband, his brother as to one share each and R Pty Ltd as to 100 ordinary shares. A Holdings took possession of the equipment of R Pty Ltd and took responsibility for the leasing payments in respect of the equipment leased by R Pty Ltd. There was also a transfer of goodwill for an amount of $2.5 million. It was not suggested during the hearing that this was a realistic figure for the goodwill of R Pty Ltd. The wife had up until this time continued to provide services to R Pty Ltd.
In November 2002 the company by the name of P Pty Ltd was formed. On 21 January 2003 Mr P, a friend of the husband and a person who the husband asserts has from time to time resided on the E property, became the sole director and shareholder of this company.
On 30 December 2002 the wife and children moved back to live in the matrimonial home on the E property.
In February 2003 the wife and the children left the E property and initially lived with her mother and subsequently the wife obtained rented accommodation in the central coast area.
In March 2003 an order was made in the Supreme Court of NSW that R Pty Ltd be wound up (see Exhibit O). In the same month the wife received a formal demand from the National Australia Bank for monies advanced and the wife filed an application in the Family Court for orders relating to property settlement and parenting orders.
In July 2003 the husband’s solicitors wrote to the wife’s solicitors seeking an urgent sale of the properties in order to satisfy the bank’s debts. The wife did not agree to that sale. This failure by the wife was not pressed as an issue of relevance before me. Counsel for the husband conceded that no Kowaliw claim could be made against the wife for her alleged refusal to cooperate in the sales of the properties as there was no evidence before me as to what the properties were worth in July 2003. Consequently I was unaware as to whether or not the properties had increased in value between July 2003 and when each was sold in 2004 and whether any increase in value compensated for any money lost by way of interest and penalties in a period of delay which the husband alleged the wife caused.
In 2003 the husband’s brother and his partner Ms W sold their property at B (B3 property). Exhibit SS indicates that $115,102 went towards satisfying the liability owed to the National Australia Bank which was referrable to the joint guarantee and indemnities that had been signed by the five parties.
In August 2003 the husband filed an interim application to seek orders for sales of the properties of the husband and wife and orders were made on 17 October 2003 and 29 January 2004.
In December 2003 interim parenting orders were made. The eldest child K went and lived with his father.
In December 2003 the wife’s property at G was sold. After the first mortgage was discharged there was $56,500 held by the National Australia Bank in the wife’s name which the wife released in March 2004 to be applied to repay advances to the husband and R Pty Ltd.
In April 2004 the parties’ B1 property was sold and the net proceeds of sale were paid to National Australia Bank.
In April 2004 AP Pty Ltd was formed. Ms W was the sole director and shareholding of that company.
In June 2004 the jointly owned property at M was sold and the proceeds of sale were paid to the National Australia Bank.
The wife asserts in her case outline that in August 2004 the company O’Hara & Co Pty Ltd was established. I have no evidence of that date. The 3rd respondent is sole director and shareholder of O’Hara & Co Pty Ltd
The husband says that around the middle of 2004, A Holdings ceased operating and that from the middle of 2004 the husband says he had not spent any time being involved in the running of the operations of A Holdings Pty Ltd. The husband says that after the middle of 2004 he did management consultant work for a number of companies, including P2 Pty Ltd (another company allegedly owned and run by Mr P) and AP Pty Ltd (now known as A Pty Ltd). In his 2005 affidavit the husband estimated that his taxable income for the 2004 financial year was $25,000 and he expected his income for 2005 to be of a similar order.
In October 2004 the Australian Tax Office issued penalty notices against the husband in the amount of $74,154 personally.
In February 2005 the second child T came home from school with K and thereafter has primarily lived with the husband.
On 22 June 2005 P2 Pty Ltd was established. Mr P was the sole director and shareholder. His address was still the E property (Exhibit FF).
The wife in her case outline asserted in October 2005 AP Pty Ltd changed its name to A Pty Ltd. No ASIC search was tendered to verify this.
On 12 December 2005 a sequestration order was made against the husband and a trustee was appointed for the husband’s bankrupted estate.
The wife asserts that in February 2006 Ms W resigned as a director of A Pty Ltd and the husband’s cousin M O’Hara was appointed as its sole director. Again I have no evidence of this. Exhibit H does tell me that as at August 2007 Ms W is the sole shareholder and M O’Hara is sole director of A Pty Ltd. M O’Hara is a close relative of the husband and 2nd and 3rd respondents.
The wife asserts that in February 2006 O”Hara Investments Pty Ltd was formed for the purposes of being the corporate trustee for the O’Hara Unit Trust. Again there is no evidence of this. Exhibit H does tell me that as at August 2007 the 3rd respondent is the major shareholder and director of that company.
There is evidence that O’Hara Investments Pty Ltd owns land and intends to develop commercial premises on that property (Exhibit RR tab 14).
In February 2006 O’Hara Superannuation Pty Ltd was formed. The 3rd respondent was the sole director and shareholder of that company. The husband denies that he has any superannuation interest in that company.
The husband was employed as a supervisor with A Pty Ltd in October 2006.
The 3rd respondent resisted producing documents in relation to A Pty Ltd and O’Hara & Co Pty Ltd and subpoenas directed to those companies and the companies’ accountants were ordered by Cronin J on 16 November 2007.
In October 2006 the husband proposed a settlement with his trustee in bankruptcy. A deed was exchanged in December 2006 but by May 2007 the husband was unable to comply with the deed and the deed was terminated.
On 5 February 2008 the husband and his trustee and the 2nd and 3rd respondents entered into a new deed of settlement providing for the payment to the trustee of $110,000 securing that sum by charge against the E property. In return the trustee relinquished any claim he may have to the husband’s interest in the E property.
LEGAL PRINCIPLES
Accrued jurisdiction
The wife relies on accrued jurisdiction in respect of her claim against the 2nd and 3rd respondents and they rely upon it in their claim against the wife and husband. No party suggested that the court did not have accrued jurisdiction to determine the competing applications before me nor did any party suggest that the discretion to exercise accrued jurisdiction should not be exercised in this case. There is a single justiciable controversy. The central dispute concerns ownership and entitlement to the equity in one piece of property. The financial dealings of the 2nd and 3rd respondents are significantly connected to those of the husband and wife and arise out of a common sub-stratum of facts. Accordingly it is appropriate to exercise accrued jurisdiction in this case (see Warby (2002) 289 Fam LR 443).
The presumption of a resulting trust
A resulting trust is presumed to arise when one party acquires property using the funds provided by another party. The legal owner holds the property on trust for the person who provided the purchase funds.
Brereton J in Dinsdale Bht Protective Commissioner v Arthur [2006] NSW SC 809 neatly sets out some of the legal principles at paragraph 10 and 11:
“The prima facie position that the beneficial ownership of real property is commensurate with the legal title [Currie v Hamilton (1984) 1 NSW LR 687 at 690 (McLelland J)], is displaced by the presumption of a resulting trust arising from payment of the purchase, unless that presumption is in turn rebutted by a presumption of advancement, or by evidence [Martin v Martin (1959) 110 CLR 297; Calverley v Green (1984) 155 CLR 242]. Where parties contribute unequally to the purchase price of property, they are presumed to hold it beneficially pro-rata to their contributions to the purchase price [Martin v Martin (1959) 110 CLR 297; Calverley v Green (1984) 155 CLR 242 at 246 and 258-259]. As Deane J said in Calverley v Green (at 266-267):
Where two or more persons advance the purchase price of property in different shares, it is presumed that the person or persons to whom the legal title is transferred holds or hold the property upon resulting trust in favour of those who provided the purchase price in the shares in which they provided it.”
“For these purposes, the ‘purchase price’ includes costs, fees and disbursements incidental to the acquisition of the property [Ryan v Dries [2002) NSWCA 3 at [52]-[53]]. If the purchase price is funded in whole or in part by moneys raised on mortgage, the mortgage moneys are treated as a contribution by the person who is liable to repay them; where purchasers jointly borrow funds on mortgage loan, they are to be regarded as contributing the part of the purchase price so raised equally [Calverley v Green (1984) 155 CLR 242 at 251 (Gibbs CJ), 257-258 (Mason and Brennan JJ), 267-268 (Deane J)]. Although the presumption of a resulting trust may be rebutted by evidence [Napier v Public Trustee (Western Australia) (1980) 32 ALR 153 at 158 (Aickin J, with whom Gibbs CJ, Mason, Murphy and Wilson JJ agreed)], it is a presumption which is not displaced by slight circumstances [Shepherd v Cartwright [19555] AC 431 at 445; Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 365; Brown v Brown (1993) 31 NSWLR 582 at 596].”
Presumption of advancement
One matter not referred to in argument was the fact that half of any amount advanced by the 2nd and 3rd respondents over and above one half of the acquisition costs of the property was advanced to the husband who is the son of the 2nd and 3rd respondents.
The presumption of advancement operates from parents (both fathers and mothers) to children.
The presumption is that any property transferred by a parent to a child will include the transfer of the beneficial interest to the child and the presumption of a resulting trust is negated.
I have to consider whether or not the overall evidence would otherwise rebut that position bearing in mind that the presumption is not displaced by slight circumstances.
Constructive Trust
A constructive trust is both an institution and a remedy of the law of equity (Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 613; 11 Fam LR 930). The court both declares the existence of a constructive trust and relies upon it as a remedy.
A constructive trust based upon the contributions of the parties was formulated in Muschinski v Dodds and endorsed in Baumgartner v Baumgartner (1987) 164 CLR 137; 11 Fam LR 915.
A constructive trust is based upon a joint relationship or endeavour in circumstances where that relationship or endeavour has broken down or failed.
As Deane J said in Muschinski v Dodds (at page 620) a constructive trust arises 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 in circumstances in which it was not specifically intended or specifically provided that that other party should so enjoy it.”
In this case these principles are relevant when considering the improvements that were carried out by the 2nd and 3rd respondents to the E property.
Equitable estoppel and equitable charge arising out of improvements to property
The High Court in Giumelli v Giumelli (1999) 168 CLR 101; 161 ALR 473; 73 ALJR 547 said, when referring to a case where a son had worked on a property and built a house on the property on the reliance of promises by his parents:-
“In these cases, the equity which founded the relief obtained was found in an assumption as to the future acquisition of ownership of the property which had been induced by representations upon which there had been detrimental reliance by the plaintiff. This is a well recognised variety of estoppel as understood in equity and may found relief which requires the taking of very active steps by the defendant (at paragraph 6).”
The High Court went on to say:
“Before a constructive trust is imposed, the court should first decide whether, having regard to the issues in litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust.”
The High Court cited as an authority for this proposition Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 at 584-585 and Napier v Hunter [1993] AC 713 at 738,744-745, 752.
The notion that before a constructive trust is imposed in satisfaction of an equity arising by reliance or estoppel, the court should first decide whether there was an appropriate equitable remedy falling short of the position of a trust (such as an equitable charge) was specifically endorsed by the Full Court in Cierpiatka v Cierpiatkaand Cierpiatka (1999) FLC 92-864.
At paragraph 56 the Full Court concluded that the son’s equity in his mother’s property in that case could be satisfied by having an equitable charge. In doing so the Full Court referred with approval to similar statements made by McClelland J in Morris and Morris (1982) 1 NSW LR 61.
Equitable contribution by paying a mortgage or joint debt
Again, Brereton’s J provides the following concise summary at paragraph 19 of Dinsdale:
“As between themselves, persons who are under co-ordinate obligations, such as joint debtors or co-sureties, share the burden pro rata, with the consequence that one who pays more than his or her share is entitled to recover the excess by way of contribution from the other [Albion Insurance Co Ltd v GIO (1969) 121 CLR 342 at 350 (Kitto J)]. In particular, where one of several co-owners pays more than his or her share of the mortgage repayments or rates, that co-owner is entitled to recover the excess from the others [Ingram v Ingram [1941] VLR 95 at 102; Forgeard v Shanahan (1994) 35 NSWLR 206 at 224 and 225C (Meagher JA, Mahoney JA agreeing); Ryan v Dries, [56]-[57], [70]].”
Equitable charge arising out of paying a mortgage or joint debt
In Calverley v Green (155 CLR) Mason and Brennan JJ said at page 263:-
“If it is right to regard the payment of the mortgage instalments as having been made by the defendant out of his own funds and on his own account – that is, if he made those payments not intending the plaintiff ultimately to have the benefit of those payments – the defendant may be entitled to contribution from the plaintiff for her share of the payments and to an equitable charge to secure the making of her contribution – see Ingram v Ingram [1941] V.L.R. 95 at page 102. That question was not argued on appeal”.
In Ingram v Ingram O’Bryan J says “to the extent to which she paid more than her portion of interest and principle secured by the mortgages, she is entitled to contribution from her joint contractor the defendant, and is entitled to an equitable charge for such amount”.
The House of Lords in Lord Napier and Ettrick v Hunter [1993] A.C. 713 did find that a payment of damages to an insured could be the subject of an equitable lien in favour of the insurer who had already compensated the insured for the damage.
In discussing Lord Napier, the Honourable Justice Gummow (writing extra-judicially) said the following:-
“One consequence of the speeches in Lord Napier may be the payment of greater attention to the equitable lien in those Commonwealth jurisdictions where there is a growing attachment to the so-called “remedial constructive trust”. The question in all such cases must be the identification of the precise remedy which is sufficient to give effect to the equity established by the successful party. The full panoply of trust may exceed the needs of the particular case.”
(Gummow, W MC, “Names and equitable liens” (1993) 109 LQR 159)
There is a second basis upon which I can order an equitable charge in this case. The 2nd and 3rd respondents are seeking equitable relief and a court can condition equitable relief upon the payment by the 2nd and 3rd respondents of their obligations to the wife from the proceeds of any sale of the E property.
THE CLAIMS INVOLVING THE 2ND AND 3RD RESPONDENTS
The initial purchase of E
Exhibit E is the settlement statement for the purchase of the E property. The purchase price was $234,100.
In addition to that amount the 2nd and 3rd respondents assert they also paid stamp duty in the sum of $6,685.50. The contract for the purchase of E is not available so there is no actual corroboration of that amount in any document. Reference to s.32 Duties Act 1997 and the associated relevant scale indicates that stamp duty on a property with a purchase price of $234,100 is $6,683.50. I am consequently therefore prepared to accept that the assertion as to the amount of stamp duty paid contained in the affidavits of the 2nd and 3rd respondents is reliable.
It is not disputed that the 2nd and 3rd respondents paid $24,000 by way of initial deposit for the acquisition of the property.
After rate adjustments the balance amount required to settle the purchase was in the sum of $212,875.25 (this included rate adjustments and legal fees but not stamp duty). That money came firstly by way of an advance of the sum of $185,000 from the NAB secured by way of mortgage over the property in the four names of the husband, wife the 2nd and 3rd respondents. The balance amount of $27,875.25 came from a joint account of the husband and wife by way of a payment out of that account on 25 September 1996. That account had minimal funds in it until the 23 September 1996 when an amount of $27,370 was deposited into the account by way of cash and cheques.
Where did the $27,370 come from?
The wife’s position about the source of the sum of $27,875 is confused.
Exhibit D shows a deposit into the joint account of the husband and wife on 23 September 1996 in the sum of $27,370. That deposit was “cash and/or cheques”. No deposit slip is produced in relation to that deposit. There is no other independent evidence as to the source of those funds.
The wife in her affidavit sworn 6 February 2005 at paragraph 67 said :
“The respondent husband’s parents contributed $50,000 towards the purchase”
That part of the wife’s first affidavit was not read by counsel for the wife. During cross examination however she conceded that that was what she said in her 2005 affidavit. When asked why her position had changed and why she now asserted that the $27,000 came from savings of her husband and herself, she said it was because she had done more research of bank documents.
Reliance was placed on annexure A to the wife’s 2006 affidavit, being a letter from the NAB dated 25 September 1996. Counsel for the wife both on the first and second day of the hearing asserted that that letter was evidence that the husband and wife had paid the $27,875 and that that money had been borrowed from the bank.
That assertion seems to be based upon a misreading of annexure A to the wife’s affidavit. That document is a letter from the NAB to the four purchasers confirming that settlement was effected by the bank by the provision of an amount of $212,875.25 on settlement. What the wife’s counsel did not seem to appreciate was that apart from the money raised by way of mortgage ($185,000) the remaining balance of $27,875.25 came from a joint account of the husband and wife (account number ending 69333). The relevant page from that account is exhibit D which shows the payment out of the account on 25 September 1996.
By way of further confusion, the wife filed a document entitled “contributions of wife” as part of the papers provided to me at the commencement of the hearing. On that document is the following entry:-
“1996 – wife contributed to payment of loan of $27,875. The husband and wife, secured over property at [B1] to assist with purchase of property at [E].”
The evidence otherwise shows however that the parties had earlier borrowed money to acquire B1 property. I can find no corroborative evidence that any additional mortgage was taken over B1 property at the time of the acquisition of the E property.
The wife in paragraph 5.7 of her affidavit sworn 13 October 2006 says that the husband and herself contributed $27,875.25 “from our savings”. She gave some oral evidence to a similar effect. Again there was no documentary corroboration of that and it is directly contradictory to the sworn statement in the affidavit of the wife sworn in 2005.
The wife in her oral evidence said in the two years prior to the settlement of the purchase of the E property she earned $30,000 in the first year and $40-45,000 in the second year. The settlement of the acquisition took place on 25 September 1996 so that the financial years being referred to are years ended June 1995 and June 1996 respectively. I am satisfied that the wife gave inaccurate oral evidence as to her level of income in the two respective years. Exhibit M however also shows that the husband earned income in the 1995 financial year of $22,155 and in the 1996 financial year of $16,580. The source of those funds were substantially from Workers’ Compensation (NSW) Ltd in 1996 (the first page of the husband’s tax return for 1995 is not there but I assume that the bulk of his income in that year was also from workers’ compensation payments as the tax return indicates that he only earned a small amount of money from paid employment).
It is not inherently impossible that the $27,000 came from the savings of the husband and wife. The wife said that they lived frugally and there may have been savings that predated the husband’s accident. However there is no corroboration in any document of that.
It is the written and oral evidence of the husband’s mother that the balance of settlement monies came from savings from herself and her husband. An amount of $25,998.25 is nominated (see paragraph 7 and the 2nd respondent’s affidavit at paragraph 11). The oral evidence of the husband and 2nd and 3rd respondents was entirely unsatisfactory in as much as they indicated that they had almost no memory of what was in their written affidavit. There was at least however no inconsistency between their written affidavit and what they were saying in oral evidence.
The 2nd and 3rd respondents gave evidence about their source of funds for the purchase of E property (compensation monies, inheritance and gift).
What I most rely upon to determine this issue is the wife’s original sworn statement that her parents-in-law provided $50,000 towards the acquisition and the inaccuracy in her evidence in relation to her level of income in the 1995/1996 years.
Balancing the competing evidence in relation to the issue of the deposit of the amount into the joint account of the husband and wife on 23 September 1996 I prefer the version of the evidence which asserts that these monies came from the husband’s parents.
Accordingly of the amount of the acquisition costs for the E property was:
total purchase price $212,875.25
plus stamp duty $6,685.50
plus deposit 24,000.00$243,560.75
and this has been contributed as to $58,561 ($243,516 - $185,000) by the 2nd and 3rd respondents and as to $185,000 divided by 4 between the husband, wife, the 2nd and 3rd respondents ($46,250 each).
I find there are no circumstances in this case which would rebut the presumption of advancement. The presumption of advancement operates to defeat any resulting trust for the 2nd and 3rd respondents against their son. This means that the husband is entitled to an amount of $14,640 ($58,561 ¸ 4). Each of his parents are taken to have advanced him the sum of $7,320 ($14,640 ¸ 2).
The following calculation can be done in relation to each party’s contribution towards the acquisition of the E property:
Wife $46,250.00
Husband ($46,250 + $14,640) $60,890.00
2nd Respondent ($46,250 + ($58,561 ¸ 2) – ($14,640 ¸ 2) $68,210.50
3rd Respondent ($46,250 + ($58,561 ¸ 2) – ($14,640 ¸ 2) $68,210.50$243,561.00
When applying the equitable principles concerning resulting trusts and the presumption of advancement, the beneficial interest in the E property would be held in the following proportions:
Proportion Amount
Wife : 46,250 / 243,561 $139,570 (19%)
Husband : 60,890 / 243,561 $183,750 (25%)
2nd Respondent : 68,211 / 243,561 $205,840 (28%)
3rd Respondent : 68,210 / 243,561 $205,840 (28%)$735,000 (100%)
Improvements to the E property
In July 1997 the husband’s parents built a home on the E property and paid for all the construction costs in the sum of $112,000 together with painting, erection of pergola, tiling, installation of two water tanks and turfing.
These improvements increased the value of the property.
In that regard the Exhibit NN (being the joint balance sheet) has this entry at the bottom of it:
“Report [Mr L], 5 June 2007 – the parties (husband, wife and the Second and Third Respondents) are one-quarter owners as tenants-in-common, gross value $735,000.
Residence and improvements erected by [the husband’s parents] assessed at 23.5% of the value. The trustee asserts that the husband’s interest in the property vests in the trustee”.
That document was tendered by consent. An earlier report of Mr L (which apparently was the source of the note about the percentage of the value of the property that is represented by the residence and the improvements erected by the husband’s parents) was objected to by counsel for the wife and was not allowed into evidence because of the very late notice by the legal representatives for the 2nd and 3rd respondents who sought to rely upon that part of Mr L’s evidence. Given the opposition to that affidavit it is a little surprising that the note on annexure NN was not objected to. It is an admission by the parties as to that portion of the property that is represented by residence and improvements erected by the husband’s parents.
I accept at face value on their affidavits the amount that it cost them to have the home erected on the property being in the sum of $112,000. There was also no challenge in cross examination to the entries in paragraph 14 of the husband’s mother’s affidavit (duplicated in paragraph 19 of the husband’s father’s affidavit) detailing the following further expenditure:
Painting $4,000
Erection of pergola $4,000
Tiling $4,500
Installation of two water tanks $6,000Turf $3,000
There was controversy in relation to the construction of three dams for an amount of $9,000 paid to external contractors. The wife admitted that the major dam was installed by an external contractor but said that the other two dams were dug out by the husband using the 2nd respondent’s backhoe. In oral evidence the 2nd respondent said that he had paid $6,000 to … and $3,000 to … Excavations for the purposes of excavating two of the dams. He produced no documents to verify these claims, but given that one of the few things that the 2nd respondent seemed to clearly remember, was the names of these contractors, I am prepared, on balance, to accept his evidence on about these payments. He conceded that his two sons, the husband and R O’Hara, built the third dam with his backhoe.
Another issue which attracted some attention in cross examination was whether or not the 2nd and 3rd respondents had “paid for electricity to be brought onto the property at a cost of approximately $28,000”. It was agreed that the original dwelling on the property did have electricity supply to it already. The 2nd respondent gave evidence that he paid for approximately 700 – 800 metres of three phase electricity cable to be constructed on poles on the property. The evidence in his affidavit and the affidavit of the 3rd respondent is that the cost was $28,000. There is no reason for me to believe that that evidence is inherently unlikely to be true.
The debate about the construction of dams and whether or not the 2nd and 3rd respondents brought electricity supply onto the property is somewhat beside the point given the admission that has been made in Exhibit NN.
Excluding the cost of dams, the cost of the improvements made by the 2nd and 3rd respondents to the property in the middle of 1997 was in the sum of $161,500 ($112,000 + $4,000 + $4,000 + $4,500 + $6,000 + $3,000 + $28,000). This expenditure was made less than one year after the parties had acquired the property for an overall amount of $243,560.
When the acquisition costs and the costs of improvements are added together the improvements form 40 percent of the total of the two amounts ($161,500 ¸ $161,500 + $243,560). This gives me further confidence in accepting the concession made by the parties in Exhibit NN that the residence and improvements erected by the husband’s parents represent 23.5 percent of the current value of the property.
I infer the bulk of the cost of this construction was funded by monies received by the husband’s father on 15 July 1997 as a result of the settlement of a personal injury claim in the sum of $119,599.22.
Equitable charge or a constructive trust?
The circumstances of the payment by the 2nd and 3rd respondents towards the costs of improvements of the property lead me to consider whether or not the claim by the 2nd and 3rd respondents against the husband and wife in relation to the improvements to E property can be satisfied by an equitable charge or whether or not the husband and wife hold part of the interest in the E property, as constructive trustees for the 2nd and 3rd respondents.
The wife at paragraph 67 of her 2005 affidavit discusses the purchase of the E property. She does not give any evidence about any conversations that took place at the time of the acquisition.
The 2nd respondent in his affidavit says at paragraph 8:
“Prior to the purchase of the [E] property, I recall having a conversation with my wife and [the husband] where [the husband] said words to the effect of:
‘I know a good acreage you could build on Mum and Dad. You can build a new home on the property and [the wife] and I can live in the old house there’.
My wife said to [the husband] words to the effect of:
‘Can you and [the wife] live in an old house?’
and [the husband] replied:
‘We will cope, we will do it up, dad and I will be able to clear the property, we have got the machinery to do it’.”
In responding to that paragraph in her 2006 affidavit, the wife says she wasn’t privy to the conversation but:-
‘I also recall at the time that I had various conversations with the respondent husband about the purchase of the [E] property. I can recall my husband telling me ‘My parents only want a small section of the land to build a house. They are only going to pay a small amount on the purchase because the acreage will be ours not theirs’.”
In paragraph 10 of the 2nd respondent’s affidavit he says:-
“Shortly before we decided to proceed with the purchase of the [E] property, I recall there being a conversation between [the husband], [the wife], myself and my wife when we were purchasing the property when [the husband] said to us words to the effect of, ‘[The wife] and I don’t have any funds to qualify for a bank loan to purchase the property. We won’t be able to obtain a loan without your assistance’. My wife and I discussed the matter and then told [the husband] and [the wife] words to the effect of, ‘We will take out the mortgage in our name’. [The husband] then said to us, ‘Well, you and dad are going to then meet the costs of your new home and clearing the property so [the wife] and I will meet the loan repayments to the bank’.”
In response to that, the wife in her 2006 affidavit denies the conversation. She says:-
“I recall being involved in a conversation about the purchase of the [E] property which was to the effect of:
‘The husband said to his parents in my presence, ‘you pay part of the upfront price. [The wife] and I will borrow the rest and we will pay it off’. I also recall that at the time the [E] property was purchased, the husband and I used our interest in the property at [B1] as security for the loan which was incurred in order to purchase the [E] property’.
It is clear even from the wife’s evidence that there were discussions between the parties that led to a mutual understanding that the 2nd and 3rd respondents were going to build a house on the E property.
The parties had entered into a four way family arrangement in 1996 to acquire the E property so that it could accommodate two families comprising the husband and wife and their children on the one hand and the 2nd and 3rd respondents on the other. I am comfortably satisfied that what was being contemplated was a long-term relationship that went beyond co-ownership of the property and that it would be unconscionable for the husband and wife to share in the increased value of the E property brought about by monies invested in it by the 2nd and 3rd respondents improving the property by the construction of the dwelling in which they live.
The question is how this equity held by the 2nd and 3rd respondents arising from the monies they expended on the E property can be satisfied.
I have found that the costs of the improvements in the middle of 1997 were in the sum of $161,500. One approach would be to say that an equitable charge on the E property was created in favour of the 2nd and 3rd respondents. The value of that charge would usually be calculated as the sum expended plus interest (the Full Court in Cierpiatka cited this methodology as used by McClelland J in Morris and used it itself in Cierpiatka). In this case however there was no specific claim made in submissions by counsel for the 2nd and 3rd respondents for interest on the initial expenditure. The 2nd and 3rd respondents contented themselves with a claim in relation to improvements being 23.5 percent of the current value of the property based on the concession made by the consent tender of Exhibit NN. The 23.5 percent of the $735,000 equates to $172,725. Even if the most modest of interest rates was selected from 1997 until now, the initial sum of $161,500 would now have grown to more than the current claim in the sum of $172,725 of the 2nd and 3rd respondents in relation to improvements. Consequently it is clear that the 2nd and 3rd respondents are at least entitled to an equitable charge against the property in the sum of $172,725, which represents 23.5 percent of the property.
If I am wrong in relation to the adding of interest, then I find that I am not able to adequately recognise the equity that the 2nd and 3rd respondents have in the E property arising from the improvements, without considering whether or not the husband and wife hold part of their interest in the E property as constructive trustees for the 2nd and 3rd respondents. Considering the overall circumstances in this case and deciding in what way the 2nd and 3rd respondents’ equity in the E property arising from the improvements can be satisfied, I find, in the alternative, that the husband and wife do hold part of their interest in the E property as constructive trustees for the 2nd and 3rd respondents.
My findings in relation to equitable charge or constructive trust arising from improvements lead me to the same practical result.
The 23.5 percent of the current value of E property today is due to improvements paid for by the 2nd and 3rd respondents. 23.5 percent of $735,000 is $172,725 and the 2nd and 3rd respondents should each receive half of this amount. The balance value to be divided is in the sum of $562,275 ($735,000 - $172,725). This accounting would move the beneficial ownership in the following way:-
Wife 562,275 x 19% $106,832 (14.53%)
Husband 562,275 x 25% $140,569 (19.13%)
2nd Respondent 562,275 x 28% + ½ x 172,725 $243,799 (33.17%)
3rd Respondent 562,275 x 28% + ½ x 172,725 $243,800 (33.17%)
$735,000 (100%)
Mortgage payments
The wife relies on the equitable doctrine of contribution to make two different claims against the husband’s parents. The first is for one quarter of the amount of first mortgage on E property in the sum of $185,000 or an amount of $46,250 ($185,000 ¸ 4) against the 2nd and 3rd respondents combined. This is based on the assumption that there was a responsibility on the husband’s parents to pay one half of the mortgage and that they made no contributions towards the payment of the mortgage.
Between 1996 and 1999 the mortgage was regularly repaid out of the joint account of the husband and wife. The mortgage on the E property was paid out upon the sale of the M property. The sale of the M property was settled on 25 June 2004. The payout of the mortgage was $148,721.91. Counsel for the wife submitted that the whole of the repayment of the initial principle borrowed in the sum of $185,000 should be credited to the husband and wife. Counsel for the wife made no submissions in relation to the interest that had been paid on the borrowings between 1996 and 2004.
The adjustment that she sought in favour of the wife from the husband’s parents was in the sum of $46,250 (being one quarter of $185,000).
The claim by the wife assumes that the husband and wife paid down the principle from $185,000 to $140,000 between 1996 and 1999 without assistance from the 2nd and 3rd respondents. A claim was made by the husband that his parents paid cash from time to time. There is no such evidence in the parent’s affidavit and they gave no oral evidence to that effect. The regular repayments in relation to this borrowing came by way of automatic periodic transfer on a weekly basis from the joint account of the husband and wife.
The claim also flies in the face of facts admitted by the 2nd and 3rd respondents prior to the hearing. Tab 16 of Exhibit RR encloses a notice to admit facts and the answers to the notice. The notice to admit asks the 2nd and 3rd respondent to admit:-
“8. That as and from 25 September 1996 the husband and wife made payments of $442.00 per week to the National Australia Bank to satisfy the monies advanced to the husband, the wife, [the 2nd respondent] and [the 3rd respondent].”
The response in the notice disputing facts is in the following terms:-
“8.The 2nd and 3rd respondents cannot admit to the sum of the mortgage payments as alleged however believe that the husband and wife were responsible for meeting the mortgage repayments as and when they fell due.”
The only piece of independent information I have is contained in exhibit D. That exhibit does in fact show some deposits of cash into that account. On 15 October 1996 a cash deposit of $3,000 was made to that account. The wife in her evidence couldn’t tell me where that money came from. It was later suggested to the husband in cross examination that rent monies were being received from the B1 property and from a tenant on the E property. The wife refused to answer a question in cross examination as to whether or not that income had found its way onto her tax return. The husband was asked in cross examination about possible sources of cash and conceded that there were monies being received by way of rent from the property that the parties owned at B1 and from a dwelling on the E property. I am however on balance satisfied that the parties did receive cash funds by way of rent from two properties. I am not satisfied on the evidence placed before the Court that the husband’s parents made any contribution towards the payment of the mortgage and I find that the mortgage payments on the E property were made entirely by the husband and wife.
The wife’s evidence about the conversation in respect of the arrangements in relation to the purchase of the E property was that her husband said to his parents in her presence “you pay part of the upfront price. [The wife] and I will borrow the rest and we will pay it off”. I accept the wife’s version of the conversation.
I consequently accept the wife can seek an order for $46,250 to be paid back by the husband’s parents.
It also is the case that following the same reasoning, the husband has a similar claim that he has not exercised against his parents. This is a matter I will refer to when dealing with the wife’s claim under s.79 Family Law Act (“FLA”).
Occupation fee
There was no argument made before me that there should be any accounting for an occupation fee one way or the other. No evidence was led in relation to the rate of a reasonable occupation fee and accordingly I do not intend to make any adjustment arising from the occupancy of the property.
Guarantee and indemnity
The wife makes a second claim against the 2nd and 3rd respondents for equitable contribution.
By way of a series of guarantees and indemnities signed by the 2nd and 3rd respondents, secured by a mortgage over the E property, the 2nd and 3rd Respondents guaranteed, jointly and severally with the husband, wife and the husband’s brother, the debts of R Pty Ltd.
The husband’s brother’s property was sold and the bank took the balance of those proceeds after the discharge of the first mortgage on the property. The NAB commenced litigation against the parties in October 2003. In 2004 all the property of the parties was sold and the proceeds were used to pay bank debts of $1,260,265.55 (according to the husband’s case outline document). There was a surplus after the sale of the properties of $25,000 and that amount was divided evenly between the husband and the wife.
The details of the settlement of the sale of the properties at B1; M; T; G; B3 (the husband’s brother’s property), are contained in annexure F to the husband’s affidavit sworn 7 February 2005. The settlements of the sales of the properties took place between December 2003 and July 2004.
The parties handed up a document which analysed Exhibit F (it became exhibit SS). The effect of that document was that it was agreed between all parties that when all the properties were sold an amount of $516,189 was paid to the bank in relation to the debts of R Pty Ltd under a deed of guarantee and indemnity given by the four parties to these proceedings and the husband’s brother. The husband’s brother paid $115,102 and the balance of $401,087 was paid by the husband and wife.
Counsel for the wife in final oral submissions provided a calculation indicating that the figure that the wife should receive by way of equitable contribution arising from the indemnity and guarantee was in the sum of $97,265. There was a slight mathematical error made by counsel for the wife and the figure should have been $97,305.
That sum was calculated in the following way:-
Amount paid to Bank $516,189
Divided by the number of guarantors ¸ 5 $103,238
Less one half of the amount paid by the husband and wife ($401,087) $200,543
$97,305
Again the husband would be entitled to claim a similar amount from his parents.
Conclusion about wife’s claim for equitable contribution and equitable charge
I find that both the claims made by the wife relying on the equitable doctrine of contribution should succeed. The amounts to be ordered are $71,777.50 (46,250 + 97,305 ¸ 2) against each of the 2nd and 3rd respondents who should be each individually responsible for that amount.
As already mentioned, the husband would be entitled to claim from his parents a similar amounts (totalling $143,555).
Both the wife’s successful claim and the husband’s potential claim need to be added back to the balance sheet.
I note in passing that it seems that the husband’s brother paid an amount of $115,102 (which exceeded the amount of $103,228) by almost $12,000. He is not any longer a party to these proceedings and there is no claim by him for contribution back from the four other co-guarantors. The husband has not asserted in these proceedings that he owes any debt to his brother.
In this case, the equitable contributions by the wife arise out of the payment of the mortgage on the E property and the payment on the guarantees and indemnities secured upon the E property. I find that I should, in all the circumstances, order an equitable charge to secure the payment of the 2nd and 3rd respondents’ obligations to the wife.
ADJUSTMENT BETWEEN THE HUSBAND AND WIFE UNDER SECTION 79 FLA
Neither party made submissions as to whether I should adopt a global or asset by asset approach. I find that it is appropriate to deal with the assets of the husband and wife on a global basis (see Norbis & Norbis (1986) FLC 91-712; Lenehan & Lenehan (1987) FLC 91-814; Zyk & Zyk (1995) FLC 92-644).
In this matter my task is to:
188.1.Identify and value the property, assets, financial resources and liabilities of the parties;
188.2.Identify relevant contributions and assess them;
188.3.Consider relevant matters referred to in Section 79(4)(d) – (g) FLA;
188.4.Ensure my order adjusting the property assets and liabilities of the parties is just and equitable.
The approach taken in these reasons for judgment
In this matter my task is to:
189.1.Identify and value the property, assets, financial resources and liabilities of the parties;
189.2.Identify relevant contributions and assess them;
189.3.Consider relevant matters referred to in Section 79(4)(d) – (g) FLA;
189.4.Ensure my order adjusting the property assets and liabilities of the parties is just and equitable.
BALANCE SHEET
The parties agreed on the following balance sheet (Exhibit NN):
Assets
E property
367,500.00
Motor vehicle (W)
1,000.00
Household contents (W)
1,000.00
Greater Building Society (H)
600.00
Household contents (H)
500.00
Tools (H)
200.00
C Superannuation (H) (see Exhibit F)
17,644.00
M super fund (W) (see Exhibit C)
20,502.00
Liabilities
Husband’s parents (H)
34,000.00
Loan to wife’s brother
12,000.00
The balance sheet has updated the value of both the husband and wife’s superannuation entitlements.
The husband claimed that the amount that he now owes his trustee in bankruptcy of $110,000 under the deed that was entered into on 5 February 2008 should be added back onto the balance sheet as a liability against him. The wife says that should not happen.
There was a real argument in this case as to whether or not the whole of the husband’s interest in the E property had vested in his trustee in bankruptcy or whether or not some or all of it was protected as a result of the source of the discharge of the mortgage of the E property coming from protected monies, namely the husband’s workers’ compensation payout. If the trustee in bankruptcy had continued his cause of action before me and had the trustee been successful the result would have been that the husband’s interest in the E property would have been removed from the balance sheet. The wife at the commencement of the proceedings before me consented to leave being granted to the husband’s trustee in bankruptcy to withdraw from the proceedings. No submission was made that the deed of settlement reached between thee husband and his parents and the trustee in bankruptcy was other than a reasonable compromise in relation to the potential claims in this litigation. The effect of the deed is that the whole of the husband’s interest in the E property is available to add back onto the balance sheet. In those circumstances it is appropriate to add back to the balance sheet the liability of $110,000 which has been the means by which the husband’s interest in the E property has been retained by him.
As I have found in paragraphs 166, 175 and 177, the husband has a right to make a claim against his parents for amounts totalling $143,555 ($46,250 + $97,305).
In Kowaliw (1981) FLC 91-092 at 76,644, Baker J said that one of the circumstances in which a financial loss incurred by a party would be not shared was “where one of the parties has embarked on a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets”.
I find in this case that the husband’s inaction in asserting his claim against his parents during the course of this litigation, is a course of conduct designed to reduce the value of the matrimonial pool.
It follows from the discussion above that the following amounts have to be adjusted and added back to the balance sheet:
197.1.The value to the husband and wife of E property after taking into account the resulting trust in respect of the initial acquisition price and accounting for improvements is $247,401 ($106,832 + $140,569).
197.2.Add back of the amount that is going to be received by the wife from the husband’s parents ($143,555).
197.3.Add back a similar amount that the husband could claim against his parents ($143,555).
197.4.Add back the $110,000 liability the husband owes his trustee.
The amended balance sheet would be as follows:-
Assets
E property
247,401
Motor vehicle (W)
1,000.00
Household contents (W)
1,000.00
Greater Building Society (H)
600.00
Household contents (H)
500.00
Tools (H)
200.00
C Superannuation (H) (see Exhibit F)
17,644.00
M super fund (W) (see Exhibit C)
20,502.00
Money owing to wife by husband’s parents
143,555.00
Potential claim husband has against his parents
143,555.00
Total assets
$575,957.00
Liabilities
Husband’s parents (H)
34,000.00
Loan to wife’s brother
12,000.00
Payment owing to husband’s trustee in bankruptcy
110,000.00
Total liabilities
$156,000.00
Net Assets
$419,957.00
CONTRIBUTIONS
Wife says she should receive 73 percent of the net assets based upon the contributions of the parties and the husband says he should receive 90 percent.
Wife
The wife contributed her personal exertion income throughout the relationship.
In 1993 she contributed to the deposit of the purchase of the B1 property (see below).
The wife was a joint borrower with the husband of monies from the Greater Building Society in relation to the purchase of the B1 property and from National Australia Bank in relation to the purchase of E property. The wife contributed towards the repayment of the first mortgage to National Australia Bank in respect of the E property.
The wife contributed to the deposit of the purchase of the G property and thereafter to loan repayments to the National Australia Bank.
The wife provided guarantees and indemnities progressively in relation to the debts of R Pty Ltd as follows:-
December 1999 was $186,500
December 2000 increased to $340,000
February 2002 increased to $486,400
In July 2002 the wife provided collateral security over her joint interest in the M property for a facility for the sum of $639,000.
The whole of the proceeds of the sale of the G property, the B1 property and the M property went to repay mortgages on those properties and partially repay monies owed to the bank by R Pty Ltd (apart from an amount of $12,500 in surplus funds received by the wife as a result of the sales that took place in 2004).
The wife undertook bookwork, accounting and other services for E business and R Pty Ltd. The contributions to R Pty Ltd continued after the parties separated.
The wife throughout the marriage and up until December 2003 fulfilled the role of parent to the eldest child K and up until February 2005 fulfilled the role of parent to T. Throughout the wife fulfilled the role of parent to the youngest child M. The wife throughout the marriage participated in domestic duties and cared for and looked after the husband during the period of time that he was incapacitated as a result of injuries he suffered at work.
Husband
The husband worked from the commencement of the marriage until 1994 when he was injured.
The husband was home with the children from 1994 until 1998 and I accept that he fulfilled parenting responsibilities during that period.
The husband returned to work in 1998 initially at the E business and then as part of R Pty Ltd.
Husband made substantial contributions by way of contribution of his personal injury settlement monies (see details below).
The personal injury claim that he received in May 1998 was used directly to purchase the M property and his interest in the E business.
The M property was used as security for the acquisition of the G property and rental income from M property was used to make the repayments on the borrowings obtained to purchase the G property. The M property was used as collateral security for the T property and again rental income from the M property was used to make repayments on the monies borrowed for the purposes of acquiring the T property.
The husband contributed $80,000 of his personal injury claim towards the setting up of R Pty Ltd.
Husband has primarily parented the eldest child K since December 2003 and T since 2005.
Initial deposit for B1 property
There is a dispute between the parties about the source of the deposit for their original purchase of a property at B1. The property was purchased for $38,000 and the parties borrowed most of that money and built a dwelling on the property. The husband says his car was sold for $8,000 and those monies were used in the purchase. The wife says her grandfather lent the husband and wife $6,000 to use as deposit to purchase this vacant land. The husband conceded in cross examination that some monies were lent from the wife’s grandfather which were repaid to him but he dated this loan at a time after the acquisition of the B1 property. Given my findings in relation to credit I prefer the version given by the wife, although little turns on resolving this factual dispute in the wife’s favour.
The husband’s personal injury payout
In May 1998 the husband settled his personal injury claim and received compensation in the sum of $400,000 (see annexure B to the husband’s affidavit sworn 7 February 2005). It was an agreed fact that after payment of legal fees and other expenses the husband received a net amount of $278,724 and a further amount of $40,000 (see Exhibit U). The $40,000 was put into a term deposit (the figure of $278,724 is on some document which I saw, I think it is probably an exhibit.
A property at M was purchased in joint names in August 1998 for $183,000.
The settlement of the sale of the M property took place on 25 June 2004. The mortgage on the E property in the sum of $148,721 was paid from the proceeds of that sale.
The husband’s argument therefore is that fairly directly his workers’ compensation monies were used to payout the mortgage on the E property.
The husband in 1998 purchased E business for $71,000, that is a total of $254,000. That would leave a surplus of about $24,000 ($278,000 - $254,000) in addition to the $40,000 in the term deposit (a total of $64,000).
R Pty Ltd Constructions
In September 1999 the husband and his brother commenced R Pty Ltd. The husband and the brother were shareholders and directors. The husband asserted the wife was company secretary but ASIC records record that the husband’s brother was the company secretary. As I have already said, the wife did fulfil significant duties for the company (and continued to fulfil them after the parties separated). The husband asserts that in September 1999 he contributed $80,000 from personal injuries claim towards R Pty Ltd. Counsel for the wife during cross examination challenged that and asserted that mathematically there were insufficient funds for that to happen (as set out above there was about $64,000 left).
The company ran into financial difficulties as a result of major debtors of the company defaulting on monies that they owed the company. In 2002 the parties refinanced with the National Australia Bank (“NAB”) to increase the company’s overdraft limit to $350,000 and each of the parties at that time provided personal guarantees to the NAB in respect of the debt of the company. All the parties’ properties, including the property with the husband’s brother, were taken as security by the bank.
R Pty Ltd was put into liquidation in March 2003 and at that time the NAB formally demanded full repayment of loans provided to the company.
How much of the loss sustained by R Pty Ltd upon its liquidation and upon the bank selling the properties which secured it’s debts should be visited upon the wife?
The wife continued to be actively involved in the company for a period after the separation. Counsel for the wife wanted to categorise the wife’s involvement in the company as a paid employee for wages only. I do not accept that that was her role. I accept that she took a far more active role in the company than that. Although the wife lost as a result of the company’s activities and the money which she had guaranteed, the wife has not made out a Kowaliw case against the husband or the company. The evidence that I have is that the company went broke as a result of debtors not paying the company for big jobs. It could be said that that was poor credit control by the company (and the wife must have played some role in this) but these things happen in business activities without company directors being reckless.
The husband’s disclosure of his financial position
The husband at this time is a undischarged bankrupt. By definition he is extremely restricted in the property he can own.
The wife has run her case on the basis that her husband has not fully disclosed his current financial arrangements. There is strength to that case.
In Weir & Weir (1993) FLC 92-338 the Full Court said at page 79,5933:-
“Once it has been established that there has been a deliberate non disclosure ....the court should not be unduly cautious about making findings in favour of the innocent party.....the court’s jurisdiction to make an order going beyond the identified property arises once there is sufficient evidence to support a finding that the party has not made a full disclosure of his or her assets”
(See also Black & Kellner .(1992) FLC 92-287 and Chang v Su (2002) FLC 93-117).
As set out above, the husband and his brother in September 1999 incorporated R Pty Ltd which commenced a business.
In late 2002 a new company A Holdings was established by the husband and his brother. The assets and business operations of R Pty Ltd was sold to A Holdings.
In November 2002 P Pty Ltd was formed. On 21 January 2003 Mr P, a friend of the husband and a person who the husband asserts from time to time resided at the E property, became the sole director and shareholder of this company.
In March 2003 R Pty Ltd was wound up.
In April 2004 AP Pty Ltd was formed. The husband’s brother’s partner, Ms W, was the sole director and shareholder of that company.
At some time (the wife asserts that it was August 2004 but there is no evidence of that), the company O’Hara & Co Pty Ltd was established. The husband’s mother is the sole director and shareholder of O’Hara & Co Pty Ltd.
The husband asserts that in the middle of 2004 A Holdings ceased to operate and the husband says that after that time he hired out his services to various companies.
In June 2005 P2 Pty Ltd was established. Again Mr P was the sole director and shareholder and the ASIC search still shows his address at the E property.
At some point in time a company which now has the name of A Pty Ltd was incorporated. As at August 2007, the sole shareholder of A Pty Ltd was the husband’s brother’s partner and the sole director of that company was M O’Hara, who is a close relative of the husband and the 2nd and 3rd respondents.
At some point the husband’s mother formed O’Hara Investments Pty Ltd and she agreed in evidence that that company was the trustee of the O’Hara Unit Trust. There was evidence that O’Hara Investments owns land at U. The 3rd respondent admitted that she had heard that the husband had had his photograph taken and published in a newspaper in connection with this development. That hearsay evidence was not the subject of an objection. The husband however was not asked in cross examination whether or not he had been at a media event to announce the future development of the U property. There is evidence that indicates that A Pty Ltd intends to lease the U premises.
In February 2006 O’Hara Superannuation Pty Ltd was formed and the husband’s mother is the sole director and shareholder of that company.
The husband says that from time to time he offered his services to some of these companies. Exhibit I indicates that he worked for A Pty Ltd during the period 1 September 2005 to 30 June 2006 and was paid $12,430 for consulting services in that period. Exhibit K are tax invoices rendered by the husband to A Pty Ltd during 2005.
Exhibit J is a statement of affairs completed by the husband for the Insolvency and Trustee Service Australia dated 9 March 2006. In that document he asserts that he was a consultant for P Pty Ltd and was being paid fortnightly for 25 – 28 hours work at a rate of $500 net per fortnight. He asserted that rental board was being taken out of that money at a rate of $250 per fortnight (it is unclear to me what it was that the husband asserted he was renting). The form also says that the husband is receiving a benefit from A Pty Ltd by way of a motor vehicle and that he was employed by A at that time (March 2006).
Exhibit BB is the minutes of executive committee meetings (numbers 15 and 16) of R Pty Ltd. In meeting 15 conducted on 8 August 2002 it was recorded that a finance package was being put together to provide additional working capital for the husband “for his investments” as well as added credit facilities for the company. It was noted that that was the first step in getting R Pty Ltd free from relying upon personal security for its working credit lines. The same minutes talked about a master plan which involved the establishment of subsidiary companies. A batch of corporate names had been reserved for that purpose, including A Holdings Pty Ltd and various other companies starting with the designation “[A]”.
Exhibit EE is the executive committee minutes for A Holdings Pty Ltd dated November 2002. There are pencil notations on that document which are a diagrammatic representation of how a corporate structure involving subsidiaries could be arranged with A Holdings Pty Ltd as the main holding company.
Exhibit GG is minutes of a meeting of A Holdings of 2 December 2002. The husband was appointed as chairman of the meeting and appointed to execute all documents and perform all acts necessary to give effect to the purchase of the business in accordance with the contract with R Pty Ltd.
Exhibit HH is pages from a report of the ordinary meeting of the local Shire Council held in May 2004. Pages 155 to 158 deal with the tender by P Pty Ltd for a job with the council. P Pty Ltd were successful in tendering for this job for an amount of $206,347. The tender was successful over nine other tenderers. The council minutes record the following:-
“[P Pty Ltd] is a subsidiary company of [A Holdings] Pty Ltd based at [E]. One of [A Holdings’] other subsidiary companies is a specialist [contractor with the necessary equipment].
Although [P Pty Ltd] has not previously tendered to council it does have a record of successfully completing projects with […].
A check of [P Pty Ltd’s] referees indicates it to be a well managed and technically competent contractor with all of the plant, labour and financial resources to satisfactorily undertake the contract works.”
This council record directly connects the operation of P Pty Ltd with A Holdings Pty Ltd.
Exhibit RR contains (at tab 12) a profit and loss statement for A Holdings for the financial year ended 2003. The net profit of the company in that year was $146,187.
Exhibit RR at tab 2 contains financial statements for A Holdings for the financial year ended June 2005. It shows that at that date the company had plant and equipment of $411,735 but when intangible assets were taken into consideration the company had about $50,000 in assets. The net profit from ordinary activities before income tax was $368,264. The reliability of some of the accounts that had been tendered might be questioned given that under tab 4 in exhibit RR there is a profit and loss statement for R Pty Ltd from July 2002 to November 2002 which showed a trading profit of nearly $1.8 million (before it went into liquidation).
The husband during cross examination said he couldn’t remember specific dates or specific meetings or specific events. I don’t accept that he was being candid with me in relation to most of that evidence.
I accept that the husband has literacy difficulties. The husband said he had a difficulty in recognising words that he hasn’t seen on a repetitive basis. As I have said, in my view, he greatly exaggerated that difficulty.
The husband has been involved in business activities for a considerable period of time and I am satisfied he has a certain amount of street cunning and business acumen.
I was unconvinced by the evidence the husband gave about why it was the ASIC searches showed Mr P living at the E property, both in January 2003 and June 2005.
I have no doubt that the companies I have referred to above are interconnected, notwithstanding their different directors and shareholders.
One strong piece of evidence connecting some of the companies is Exhibit KK. This is a certificate of currency from L Firm dated 2? May 2006 (the exact date is not legible). That certificate indicates that the one insurance policy insures the three companies, O’Hara & Co Pty Ltd, A Pty Ltd and P Pty Ltd (the company said to be owned and controlled by Mr P), for the period 10 May 2006 to 30 June 2007.
Tab 5 of Exhibit RR is further documentation from L Firm arranging joint insurance for O’Hara & Co Pty Ltd, A Pty Ltd and P Pty Ltd. It again shows that the three companies jointly took out insurance. There is one policy for the three companies for material damage and public liability. The sum insured for contract works was $3 million. The insurance for existing property was $100,000.
Exhibit LL is a extract from a business record showing that A Pty Ltd, O’Hara Investments Pty Ltd and O’Hara & Co Pty Ltd were associated entities.
The 3rd respondent presented herself as being the controller of O’Hara & Co Pty Ltd. The husband’s mother however is involved in full time employment and has been so employed for some time. Whilst I accept that the 2nd and 3rd respondents have been involved in other businesses throughout their lives, I find that the 3rd respondent does not have control of the day to day operations of O’Hara & Co Pty Ltd. I am less than convinced that the 3rd respondent or Ms …, the “commercial manager” makes the major operational decisions for O’Hara & Co Pty Ltd.
The 3rd respondent, when she gave evidence towards the end of the second day, indicated that she would agree overnight to attempt to obtain the depreciation schedule of O’Hara & Co Pty Ltd.
When she gave evidence on the third day she told the court that she had taken the deliberate decision not to attempt in any way to obtain that information for the Court. I accept counsel for the wife’s submission that the inference to be drawn is that that information would not have assisted her son’s case.
I have a strong suspicion that some of the assets that were originally in R Pty Ltd have found their way into O’Hara & Co Pty Ltd but I am unable to resolve that matter given the deficiencies in the financial disclosure given by the husband and the 2nd and 3rd respondents.
I am not satisfied in this case that the husband has made a full and substantive disclosure of his financial affairs. The circumstances in which the corporate structures have been established leads to a strong influence that they have been set up in circumstances where the husband has needed to find a way to continue operating as he always has, notwithstanding his bankruptcy and the liquidation of R Pty Ltd. The husband should not be able to take any advantage from the fact that he has not fully disclosed to me what his involvement is in this group of companies. It is my view that the husband does exercise a degree of control over the operations of the companies. I find that it is probable that the husband will benefit from his involvement with these companies, once he is more freely able to do so, when he is discharged from his bankruptcy (I infer that that may be as early as the end of 2008).
The next question is whether or not there is any indication as to whether or not the company structure that is being run at the present time has any value to him. I think it probably does and it probably has been undisclosed.
I find the husband’s non disclosure is deliberate. Consequently I should not be unduly cautious about making findings in favour of the wife and I am able to go beyond the identified property.
The unusual feature of this case however is that the husband is an undischarged bankrupt. It means that any property that he actually does have that he might be warehousing would vest in his trustee in bankruptcy. The deed that the husband has entered into as trustee only extends to quarantining the husband’s interest in the E property. The trustee has not relinquished any claim in respect of other property which the husband might have. This fact cuts across the normal approach the court would take in a situation where the party has been involved in material non disclosure.
I think the more appropriate course in this case is to deal with the husband’s non disclosure under the provisions of s.75(2)(b) FLA and include it in the consideration of what future financial resources will be available to the husband once he is discharged from his bankruptcy.
The parties have $419,957 in net assets.
By far the most significant financial contribution was made by the husband when he received his personal injury payout in the sum of $318,724. I don’t have any details as to how that settlement was arrived at. Part of it must be referrable to the period of time that the husband had out of the workforce during the marriage. During this period the wife went back to full time employment and otherwise fulfilled her role as homemaker and parent. I have no information as to whether or not any part of the husband’s accident settlement contained a Griffiths & Kerkemeyer (1977) 139 CLR 161 claim.
Both parties also have made a myriad of other financial and non-financial contributions during the period of time that they were together and as parents after separation in the ways that I have already mentioned.
I find overall that based on the contributions made by the parties there should be a 70/30 division in the husband’s favour of the available assets.
SECTION 79(4)(d) – (g) FLA MATTERS
The wife says if on contributions I give an even or near even result she is applying for a 10 percent adjustment in her favour. If she gets the 73 percent result on contributions she is seeking, she would not seek any further adjustment by way of s.79(4)(d) – (g) FLA matters. The husband’s case outline says:
“If there is to be any adjustment for s.75(2) factors, it ought be in the husband’s favour.”
The wife is 35 and the husband is 34.
Both parties are in good health.
The husband has the care and control of children K and T.
The husband’s relationship with Ms D is obscure. The husband currently asserts that he and Ms D are separated (although he says that he hopes for a reconciliation). The husband has three other children to Ms D.
The wife has the care and control of the youngest child M who is now aged 7.
The debts incurred by the husband that resulted in him going bankrupt were as a result of him being involved in business activities which the wife was connected with (notwithstanding that those activities took place after the separation of the parties).
Given that the husband currently is a bankrupt, no significant property vests in him apart from those monies that he will receive as a result of orders made in these proceedings which can be categorised as the husband receiving “the husband’s interest in the [E] property”. However, as set out above, I find that the husband has not disclosed the financial resources that he will have available to him once he is discharged from his bankruptcy. This is in my view a weighty matter in assessing on an overall basis s.79(4)(d) - (g).
The husband says that he is currently employed as a “supervisor” and receives remuneration of $55,000 plus the use of a motor vehicle and superannuation contributions.
The wife is not currently in paid employment and currently her income consists of a single parent benefit. She does however say that she hopes to be able to shortly obtain full time employment at a similar level of remuneration as that which she obtained previously. Whilst the wife estimated that was in the sum of $45,000, the maximum amount that she ever earned in any year (her best year was June 1999) was $41,000.
I would assess the husband’s current ability to earn income as being stronger than the wife’s even though he is currently a bankrupt. I take into account the assets both parties will receive based on my findings as to contribution. As I have already said, I believe that the husband’s financial resources in the future will be significantly superior to the wife’s but given the husband’s non disclosure in this case I do not need to be unduly cautious about making findings in the wife’s favour in that regard.
I find that a significant adjustment should be made in the wife’s favour for s.79(4)(d) - (g) matters and that adjustment shall be 40 percent in the wife’s favour.
JUST AND EQUITABLE
Based upon the findings as to contributions and s.79(4)(d) - (g) matters, the wife is entitled to a distribution of assets as to 70/30 percent in her favour. That can be achieved by the following distribution:
H gets – 30% Assets Description Value E Property $107,488 Greater Building Society 600 Household contents 500 Tools 200 C superannuation 17,644 Potential claim against his parents 143,555 Total assets $269,987 Liabilities Description Value Husband’s parents $34,000 Payment owing to husband’s trustee in bankruptcy 110,000 Total liabilities $144,000 Net Assets $125,987 W gets – 70% Assets Description Value E Property $139,913 Motor vehicle 1,000 Household contents 1,000 M super fund 20,502 Monies owed by husband’s parents 143,555 Total assets $305,970 Liabilities Description Value Loan to wife’s brother $12,000 Net Assets $293,970
Standing back, and being mindful that the husband may not choose to exercise his legal entitlement against his parents, I consider this distribution of net assets to be just and equitable. I acknowledge that in the event the husband does not make any claim against his parents then the husband ends up with a net liability and may complain that the court should not order that the wife receive in effect more than 100 percent of the current available assets. That principle however does not apply in circumstances where a court finds that the husband has not made a full and frank disclosure of his financial position (see Gollins and Scott (2007) FLC 93-319; (2007) 37 Fam LR 428).
PROPOSED ORDERS
The 2nd and 3rd respondents in their application seek an opportunity to become the owners of the E property. The husband made no submission that that should not happen. The wife has not been living on the E property for some time now and there was no evidence that she had any interest in returning to the E property. In those circumstances I will give the 2nd and 3rd respondents the opportunity to purchase the E property.
It would have been possible, relying upon the accrued jurisdiction, to order a sale or partition pursuant to s.66G of the Conveyancing Act (1919).
I also however have available to me what in this case is a more convenient statutory power, being s.78(2) FLA. Once I have made a declaration in relation to the respective interests each of the parties have in the E property, I am able to make consequential orders including orders for transfer of the property on payment of money and in default an order for sale (see s.80 FLA).
I have found that, prior to any orders being made, the wife has a 14.53 percent interest in the E property and the husband has a 19.13 percent interest in the E property. I will make a declaration to that effect. Given the agreed value of the E property at $735,000 I have already calculated above that this means the wife’s interest in the property is, prior to any order being made pursuant to s.79 FLA in the sum of $106,832 and the husband’s interest is in the sum of $140,569.
Once the adjustment is made under s.79 FLA, the husband’s interest in the current gross value of the E property decreases from $140,569 to $107,488 (a reduction of $33,081). The wife’s interest in the current gross value of the E property increases from $106,832 to $139,913 (an increase of $33,081).
After the declaration between the four parties, the husband and wife will hold 33.66 percent of the interest in the E property. After an order is made under s.79 FLA the wife will be entitled to $139,913 (or 19.04 percent) and the husband $107,488 (or 14.62 percent). In order to achieve that changed percentage in the interest in the E property as between the husband and wife the husband will need to transfer to the wife 4.51 percent ($33,081/$735,000) of the total value of the property or 23.58 percent (4.51/19.13) of the husband’s interest in the property.
In order for the 2nd and 3rd respondents to acquire the wife’s interest in the property they will need to pay to her within 56 days of the date of these orders a total amount of $283,468, being the amount she is entitled to receive by way of equitable contribution in the sum of $143,555 and the amount of $139,913 being the interest that the wife has in the property after the husband transfers part of his interest pursuant to the order made under s.79 FLA.
In addition, the 2nd and 3rd respondents should pay to the husband for the transfer of his interest in the E property a total sum of $107,488, although the arrangements that the 2nd and 3rd respondent and the husband make as between themselves can otherwise be by written agreement.
The wife has sought a splitting order whereby she seeks 100 percent of the husband’s interest in the C superannuation fund. It is not necessary to make a splitting order in order to make a just and equitable alteration of property interests between the husband and wife. The husband did not indicate he consented to such an order and I have decided to adjust the property of the properties without needing make an order splitting the husband’s interest in C Superannuation Fund.
I have power under s.106A FLA, in the event that any of the four parties fail to execute a document, to appoint a Registrar to execute and do all acts and things to give validity and operation to that document.
I certify that the preceding two hundred and ninety-four (294) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts
Associate:
Date: 20 March 2008
Key Legal Topics
Areas of Law
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Family Law
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Property Law
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Equity & Trusts
Legal Concepts
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Remedies
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Injunction
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Costs
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Constructive Trust
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Jurisdiction
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