R v M
[2007] QSC 237
•10th September 2007
SUPREME COURT OF QUEENSLAND
CITATION: R v M [2007] QSC 237
PARTIES: R
(Applicant)
v
M
(Respondent)
FILE NO: S5 of 2005 (Mackay)
DIVISION: Civil
PROCEEDING: Trial Division
DELIVERED ON: 10th September 2007
DELIVERED AT: Mackay
HEARING DATES: 9th August 2007
JUDGE: Dutney J
ORDERS: 1) That pursuant to section 334 of the Property Law Act 1974, the orders made by the Magistrates Court at Mackay on 1 May 2002 and 21 January 2003 be varied as follows.
2) That the respondent pay the sum of $80,000 to the applicant by way of property adjustment by 10 December 2007.
3) That if the said sum is not paid by the due date, that the respondent do all acts and things and sign all documents required to procure a sale of the property situated at 177 Bedford Road, Andergrove in the State of Queensland, more particularly described as Lot 2 on Registered Plan 732577 (“the Bedford Road Property”) by public auction on the following terms:(a) the auctioneer to be as agreed between the parties or failing agreement, as appointed by the Chief Executive Officer of the Real Estate Institute of Queensland;
(b) the reserve price shall be as agreed between the parties or failing agreement , as determined by the auctioneer.
4) That if the Bedford Road property is not sold within 14 days of the first auction, the respondent shall forthwith do all acts and sign all documents required to procure a second auction of the property on the same terms and conditions as applied to the previous auction
5) That the sum of $80,000 payable by the respondent to the applicant be paid from the net proceeds of sale second in priority after payment of the money owed to the secured creditor.
6) Either party has liberty to apply on the giving of 7 days notice in writing, one to the other, of their intention to apply to the court to appoint a trustee for sale to give effect to orders 3 to 5.
7) Save for the purpose of complying with these orders the respondent be restrained and an injunction is hereby granted restraining her by herself, her servants or agents from doing or permitting the sale mortgage or encumbering or further mortgaging or encumbering the Bedford Road property.
8) Otherwise, each party retain all property in his or her respective ownership or possession, free from any claim by the other and remain solely liable for all liabilities in his or her own name and indemnify the other party in relation to such liabilities.
9) In the event either party fails to sign any document required to give effect to these orders, on application by either party, the higher courts registrar at Mackay is appointed to sign all documents necessary to give effect to these orders instead of the defaulting party.CATCHWORDS: DE FACTO RELATIONSHIP – PROPERTY SETTLEMENT – ADJUSTMENT OF ORDERS – Property Law Act 1974 (Qld) Part 19 – where parties made separation agreement – where separation agreement a recognised agreement -where consent order made to reflect settlement agreement - where parties amended separation agreement by consent in Magistrates Court – where applicant did not comply with terms of consent order – where impractical to carry out amended separation agreement –.where property value subject of separation agreement increased – whether amended separation agreement should be set aside pursuant to Part 19 Property Law Act – whether division of property should be amended pursuant to s.334 Property Law Act or whether the division proposed by separation agreement should stand.
LEGISLATION: Property Law Act 1974 (Qld), Part 19 considered.
CASES:In the Marriage of Parker [1983] 9 Fam LR 323, applied.
Harris v Minister for Public Works (1912) 12 SR (NSW) 148 AT 153, applied.
COUNSEL: Mr G Waterman for the applicant
Mr M A Fellows for the respondent
SOLICITORS: Jones Mitchell Lawyers for the applicant
Macrossan & Amiet for the respondent
The Application
This is an application under s 334 of the Property Law Act 1974 (“the Act”) to set aside orders made in the Mackay Magistrates’ Court under s 286 of the Act giving effect to a separation agreement. In lieu of the agreement the applicant seeks a property adjustment order.
The Statutory Regime
A recognised agreement is defined in s 266 of the Act to include a separation agreement in writing, properly signed and witnessed and in which all of the parties’ significant assets are set out.
Under s 274 of the Act the court is not permitted to make a property adjustment order inconsistent with a recognised agreement except in the limited circumstances set out in s 276. Section 275 also requires a court to ignore a provision of a recognised agreement if it has been revoked by the parties.
Section 334 of the Act entitles an order under Part 19 to be varied, inter alia, if circumstances render the carrying out of the order impracticable or where there has been default. Section 334 provides:
“334 Variation and setting aside of orders
(1) On the application of a person in relation to whom an order has been made under this part, a court may vary the order if satisfied—
(a) there has been a miscarriage of justice because of fraud, duress, suppression of evidence, the giving of false evidence, failing to disclose matters as required by this part or another circumstance; or
(b) because of circumstances that have arisen since the order was made, it is impracticable for the order or part of the order to be carried out; or
(c) a person has defaulted in carrying out an obligation imposed on the person by the order and, because of circumstances that have arisen because of the default, it is just and equitable to vary the order; or
(d) a child of the de facto partners (or the applicant if the applicant has the care of a child of the de facto partners) will suffer hardship if the court does not vary the order because of circumstances of an exceptional nature relating to the welfare of the child that have arisen since the order was made.
(2) In this section—
vary includes—
(a) set aside; and
(b) set aside and substitute another.”
Subject to these restrictions sections 286 and 333 of the Act give this Court wide general power to adjust the parties’ property interests.
Subdivisions 3 and 4 of Part 19 of the Act set out considerations which must or may be taken into account in considering a property adjustment order. These relevantly include contributions to property or financial resources, contributions to the family, the age, health and earning capacity of the parties, the length of the relationship and the parties other commitments.
The History
The applicant in this matter was the male partner in a de facto relationship with the respondent.
The relationship commenced in 1996 and lasted until the parties separated in 2002.
At the time of separation, the applicant was a self employed building contractor. Throughout the relationship, the respondent was engaged in home duties.
When the relationship commenced, the applicant owned a property at 1 Finger Street in Mackay the value of which was estimated by him at $70,000. There was a mortgage over that property securing a debt of approximately $45,000. In addition, the applicant had a boat, some leased equipment, furniture and tools of trade with a collective value in his estimation of about $50,000.
At the commencement of the relationship, the respondent owned an unencumbered property at 44 Tolcher Street Mackay which she estimates had a value of around $130,000. She also owned a car, furniture and some insurance policies which she estimated at a value of about $27,000.
In 1998, the Finger Street property was sold and a vacant land purchased at 30 Fairmeadow drive at Greenfields. The parties borrowed $220,000 to build a house on this land. The Tolcher Street property was mortgaged to provide security for this loan. This property was sold in 2000 at a loss and after the sale about $9,000 remained owing to Perpetual Trustees. This remained secured over the Tolcher Street property.
In 1998 the parties bought a property at Bedford Road, Andergrove. This was registered in the respondent’s name solely. An office and sheds were built on the Bedford Road property from which the applicant conducted his business. The applicant also planted a number of trees on the property. These were mainly palms. The intention was to allow the trees to mature and then sell them to landscapers.
At the time of separation, the parties still owned the Tolcher Street property which they then estimated as having a value between $155,000 and $150,000. The parties also owned the Bedford Road Property which they value between $230,000 and $212,000. This real estate was mortgaged to secure an amount between $157,000 and $152,000. Of this $61,500 was owed to the National Bank and represented the applicant’s business overdraft. The balance was the money still owing to Perpetual Trustees after the sale of the Fairmeadow Drive property.
The relationship lasted five and a half years. At the time of separation the parties owned the property the respondent had brought to the relationship and the Bedford Road property. In a sense this might be regarded as the successor to the Finger Street property.
Apart from this each party still had most of the other property with which they had commenced the relationship.
Although the parties descend into considerable detail in their affidavits outlining the various amounts they spent during the relationship, what is clear is that the assigned roles were that the applicant earned the income and the respondent contributed by maintaining the home. This reflected the fact that the respondent was not in paid employment when the parties commenced co-habitation and had the responsibility for a child during the early part of the relationship. She also suffered poor health. I am not persuaded that anything paid for by the applicant exceeded the normal expectations on the income earner in a relationship with the roles defined as they were here.
Both parties were represented by solicitors for the purpose of disentangling their financial affairs following separation.
On 24 April 2002, they signed a separation agreement. On the evidence, the agreement signed set out all the significant assets of the parties and satisfies the requirements for a recognised agreement under s 274 of the Act. This agreement was converted into a Court order on 1 May, 2002.
Under the order, the respondent was to receive the Tolcher Street property free of encumbrance. She was to be discharged from all liability for the secured debts and was to receive $40,000. In exchange she was to transfer the Bedford Road property to the applicant. Apart from this each party was to retain the personal property they had brought to the relationship.
The essential effect of the order was that the respondent was to take out of the relationship a house to live in and an amount of $40,000. The applicant was to be responsible for the debts. Apart from the money component, this largely restored the respondent to the position she was in at the start of the relationship.
The applicant was unwilling to comply with the order. Finance to enable him to carry out the terms of the order was offered to the applicant but it was not taken up by him. He said in evidence that he was seeking a better interest rate, but the effect of his refusal to take up the offer was that he was unable to comply with his obligations under the order. Ultimately, these proceedings have been brought about by the applicant’s failure to comply with the terms of the order.
The loans secured over the properties fell into arrears.
On 5 December 2002, the National Australia Bank served a demand on the respondent as guarantor of the applicant’s business overdraft.
On 21 January, 2003, the original order was varied to provide for the sale of the Bedford Road property. Out of those proceeds the applicant was to discharge the secured liabilities. The respondent was to retain the Tolcher Street property free of encumbrance. Further, payment of the $40,000 payment was to depend on the sale price of the Bedford Road property. If the sale price exceeded $295,000 the respondent would receive an additional $35,000 together with interest at 9% from 1 June 2002 until completion of the sale. $5,000 of the original $40,000 had been paid earlier by the applicant. If the sale price was less than $295,000 the amount received by the respondent would reduce by $5,000 for each $10,000 the sale price fell short of $295,000. In those circumstances, no interest would be payable.
After the amended order, events moved swiftly.
On 19 February, 2003, Perpetual Trustees served a notice of exercise of power of sale over the Tolcher Street property.
On 31 March 2003, the National Australia Bank commenced proceedings against the respondent for possession of the Tolcher Street property. The bank also sued the respondent to recover the debt which she had guaranteed.
The Bedford Road property was never sold. This was not the fault of the respondent. Initially, the applicant thought it was worth something of the order of $350,000. Eventually, a contract was signed by the respondent on 23 March, 2003 for $230,000 subject to finance. The purchaser was unable to obtain finance and the contract was rescinded.
Under pressure from the lenders, the respondent sold the Tolcher Street property for $158,000 with settlement on 28 May, 2003. The whole of the proceeds of sale were paid to the secured creditors together with a further sum of about $18,000 borrowed by the respondent from her father to make up the shortfall. In total the respondent borrowed $27,880.55 from her father. In May 2003, the respondent moved into the Bedford Road property which had been vacated by the applicant and has remained there since.
The issue
The applicant seeks to set aside the orders of May 2002 and January 2003. In lieu of those orders, he seeks an order that the Bedford Road property to be sold and that he receive half the net proceeds plus $57,500 with the respondent receiving the balance.
The respondent submits that no orders should be made and that the present position should continue.
Current Financial Position of the Parties
The Bedford Road property is now valued at $525,000. It is currently mortgaged to secure a debt of $75,000. The respondent used this money to repay the money borrowed from her father and the balance to effect some improvements to the property.
There was evidence that the trees on the Bedford Road property were worth $81,280 if sold separately. The cost of removal would have been of the order of 50% of the sale price if all were removed at the same time and higher if the trees were removed piecemeal. No estimate was given for the cost of rectification of the property after the trees were removed. Since the valuation of Bedford Road was on the basis that the trees were in place, it seems to me that on balance the trees added nothing to the value of the property and the applicant seemed to accept that position after hearing the evidence.
As contemplated by their original agreement, the respondent would have left the relationship with the Tolcher Street property and $40,000. The applicant would have been left with the Bedford Road property and his business but would have been liable for the debts.
After the order was varied and depending on the sale price of Bedford Road, the applicant would have been left with his business and the sale proceeds of Bedford Road having paid the debts, the costs of sale and the respondent’s entitlements.
The applicant’s financial position has not significantly improved since the original settlement. His business failed. He moved to Brisbane where he works as a subcontract bobcat operator. The applicant’s current partner earns $360.00 a week gross and receives $296.00 a week in child support. Late last year the applicant and his present partner bought a property at Greenbank near Brisbane for $480,000. No value is attributed to that property in the evidence on the basis that it was acquired too long after separation to be relevant. It is said to be fully encumbered.
The applicant and his current partner depose to a combined gross income of about $13,000 a month. Although the applicant does not depose to his current earnings, deducting the amounts received by the applicant’s partner both as wages and child support from the total shows that the applicant has gross earnings of a little over $10,000 a month. The applicant has heavy commitments including mortgage repayments, car and boat payments and payments on equipment. I accept that his position is far from secure. On the other hand, much of the this commitment appears to be for the repayment of discretionary debt.
The respondent has not done any better. She has a house to live in, albeit a more valuable one than was originally intended. She was unemployed at trial but had been earning about $16,000 to $17,000 a year in various unskilled positions. She earns $2,000 a month from renting the shed on the property. On the evidence, the respondent has no particular skills and her earning capacity is limited. Her current partner is unemployed following a workplace injury although he was previously earning a good income in the mining industry.
As can be seen, the parties’ respective financial positions have not changed in favour of the respondent since the date of the orders. The only benefit the respondent has obtained is a notional increase in the value of the Bedford Road property since the date of the second order. I refer to this as a notional benefit because if she is forced to sell the property there will have been a corresponding increase in the cost of purchasing an alternative property.
Having regard to the value of the Bedford Road property at the time the varied order was made, had the order been carried out the applicant would have ended up with an amount of approximately $58,000. This takes account of the payments of $96,040.95 to Perpetual Trustees and $69,455.44 to the National Australia Bank which the respondent actually made, agents commission for the sale of $5,950 and a notional $553.61 for the costs of sale. It assumes that rates were kept up to date by the applicant. Based on the contract price of the Bedford Road property, the respondent would not have received the additional $35,000.
Alternative Scenarios
To restore the parties to the position they would have been in had the orders been carried out there are three possible scenarios. The first is to compensate the respondent for the loss of the Tolcher Street property by giving her Tolcher Street’s present value. The second is to compensate the applicant for the additional value of the property the respondent obtained by retaining the Bedford Road property instead of the Tolcher Street property. The third is for the respondent to pay the applicant the amount he would have received if the Bedford Road property had been sold instead of the Tolcher Street property.
There is no evidence as to the present value of Tolcher Street. At the time of its sale it was worth 68.7% of the value of Bedford Road as fixed by the price in the contract which failed to settle. If it retained that proportional value, it would now be worth something of the order of $360,000. The respondent would not have received a cash amount from the settlement because of the value of Bedford Road.
To leave the respondent with what she was entitled to receive under court orders, the current mortgage debt needs to be deducted from the value of the Bedford Road property. It represents either improvements which contribute to the present value or the payment of debts which were the responsibility of the applicant. This would leave equity for the applicant in the Bedford Road property of $90,000. This scenario would require the Bedford Road property to be sold and for the applicant to bear the costs of sale. To fully restore the respondent’s position she would also be entitled the costs of purchasing an equivalent property to the Tolcher Street property. This would have to be deducted from the $90,000. In the absence of proper evidence of the present value of the Tolcher Street property and the stamp duty and other costs associated with acquiring an alternative property, this approach requires assumptions about value and costs to be made, for which there is no reliable evidence: See Harris v Minister for Public Works (1912) 12 SR (NSW) 148 at 153. In any case the outcome is not materially different from outcome under the alternative approaches.
The respondent having retaining the Bedford Road property instead of the Tolcher Street property, the same financial position as was contemplated by the order could be achieved by the respondent paying the applicant the difference in value between the two properties as at the date the orders were to have been carried out. That difference is $72,000 if the sale price of Tolcher Street is deducted from the contract price of Bedford Road. To carry out the intention that the applicant be responsible for the debts, that sum would have to be reduced by the $18,000 which the respondent paid to the mortgagees from her own resources. This would leave a net payment to the applicant of $54,000. If interest was added to this sum at the rate of 9% referred to in the second order for the four years and three months since the sale of the Tolcher Street property, it would amount to $20,655 making a total of $74,655.
The third scenario is for the respondent to pay the applicant the amount he would have received after complying with the terms of the orders. On the basis I have calculated that this would be an amount of $58,000 which, with interest for four years and three months at 9% would increase to $80,185.
The resolution
Under s 274 of the Act, a court making a property adjustment order is required to give effect to the recognised agreement unless to do so is impractical or to do so would result in serious injustice. The orders which the applicant now seeks to set aside were therefore made without any consideration of the merits of the competing claims.
Despite this, I am satisfied that the agreement to which the parties came was a fair adjustment of their property interests. It allowed each party to take out of the relationship approximately what that party brought in. The respondent would have been a little better off under the first order if she had received the $40,000. As a result of the second order, that advantage was lost. The parties’ position had not advanced materially during the relationship which was not a long one.
Because of the sale of the Tolcher Street property, it is now impractical to carry out the literal terms of the existing orders.
In view of the impracticability of carrying out the existing orders it is necessary to determine whether such orders need to be set aside or whether the intention of the orders can be given effect by simply varying the existing orders.
As I have already indicated, the intention of the existing orders was that the respondent would have a home and the applicant would have the net proceeds of the sale of the Bedford Road property after all debts were paid. That result would still be achieved by adopting one of the possible scenarios I have outlined.
I am not persuaded that I should set aside the existing orders. Rather, I consider that I should vary the orders to enable the intended result to be achieved. The parties considered the agreement fair. It was not carried out because of the failure of the applicant to meet his obligations under it. Neither party is financially comfortable. Their relative positions are not significantly different from what they would have been at the time of the second order if it had been carried out.
Further, the failure of the original settlement was in my view predominantly the responsibility of the applicant who was liable under the terms of the second order to keep the mortgage payments up to date. He failed to do so and the respondent was forced to sell the Tolcher Street property. It seems to me to be unjust to the respondent that the applicant should profit from his default by making it possible to make a fresh application for a property adjustment order outside the contemplation of the original orders.
I do not read s 334 of the Act as requiring a completely new consideration of the property orders previously made where all that is necessary to give effect to the existing orders is a variation. This is clear from the inclusive definition of “vary” in subsection (2). Except in circumstances outlined in s 334 (1) (a) or (d), neither of which is applicable here, the variation need only be sufficient to overcome the impracticality of compliance with the order or to adjust for the non-performance of a defaulting party: see In the Marriage of Parker [1983] 9 Fam LR 323 at 328-329.
In those circumstances, I consider it appropriate to vary the order and the underlying agreement so as to give effect to the intention of the parties at the time of the second order.
In the event that I am wrong in concluding that the existing order should be varied, I should indicate what orders I would have made if I were to consider the matter afresh in the light of the matters set out in Subdivisions 3 and 5 of Part 19 of the Act.
As I have indicated, the parties entered into the relationship in relatively weak financial positions. By the end of the relationship, the financial positions of the parties had not materially improved. The evidence does not suggest that either of the parties is in a comfortable financial position now. If the respondent loses the benefit of the Bedford Road property without receiving sufficient money from the sale to purchase an alternative home, it is unlikely she will be able to acquire another residence. However, I consider the applicant has a greater earning capacity than the respondent as evidenced in part by his recent acquisition of further property without recourse to any of the property the subject of these proceedings. In that event I regard any proper adjustment of property between the parties should be such as to enable the respondent to acquire an alternative property to the Bedford Road property as a residence. This reflects the positions of the parties as at the commencement of the relationship.
I consider that both parties contributed throughout the relationship in accordance with their respective abilities as discussed above.
Given the circumstances outlined, I do not consider it necessary to set aside the existing orders except to the extent that fresh orders would comply with the intention underlying the existing orders.
Therefore, having considered the circumstances of the relationship and the parties in the light of Subdivisions 3 and 4 of Part 19 of the Act, I would make the same orders whether by way of variation of the existing orders or by setting aside the existing orders and reconsidering the matter ab initio.
The orders
In the result I will set aside the order of 1 May 2002, as amended by the order of 21 January 2003 and, instead of the transfers and payments contemplated by those orders, I will order that the respondent pay the sum of $80,000 to the applicant. In the event that that sum is not paid within three months of the date of this order, I will order that the property at Bedford Road be sold and that the applicant receive the sum of $80,000 from the proceeds of sale.
As this matter should not be allowed to drag on much longer, I should put in place a mechanism for the sale of the Bedford Road property if the payment I intend to order cannot be raised by the respondent within the next three months.
As far as formal orders are concerned, I order as follows:
1. That pursuant to section 334 of the Property Law Act 1974, the orders made by the Magistrates Court at Mackay on 1 May 2002 and 21 January 2003 be varied as follows.
2. I order that the respondent pay the sum of $80,000 to the applicant by way of property adjustment by 10 December 2007.
3. If the said sum is not paid by the due date, I order that the respondent do all acts and things and sign all documents required to procure a sale of the property situated at 177 Bedford Road, Andergrove in the State of Queensland, more particularly described as Lot 2 on Registered Plan 732577 (“the Bedford Road Property”) by public auction on the following terms:
(a) the auctioneer to be as agreed between the parties or failing agreement, as appointed by the Chief Executive Officer of the Real Estate Institute of Queensland;
(b) the reserve price shall be as agreed between the parties or failing agreement , as determined by the auctioneer.
4. That if the Bedford Road property is not sold within 14 days of the first auction, the respondent shall forthwith do all acts and sign all documents required to procure a second auction of the property on the same terms and conditions as applied to the previous auction
5. That the sum of $80,000 payable by the respondent to the applicant be paid from the net proceeds of sale second in priority after payment of the money owed to the secured creditor.
6. Either party has liberty to apply on the giving of 7 days notice in writing, one to the other, of their intention to apply to the court to appoint a trustee for sale to give effect to orders 3 to 5.
7. Save for the purpose of complying with these orders the respondent be restrained and an injunction is hereby granted restraining her by herself, her servants or agents from doing or permitting the sale mortgage or encumbering or further mortgaging or encumbering the Bedford Road property.
8. Otherwise, each party retain all property in his or her respective ownership or possession, free from any claim by the other and remain solely liable for all liabilities in his or her own name and indemnify the other party in relation to such liabilities.
9. In the event either party fails to sign any document required to give effect to these orders, on application by either party, the higher courts registrar at Mackay is appointed to sign all documents necessary to give effect to these orders instead of the defaulting party.
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