Scharenberg v Sellar No. DCCIV-97-50969 Judgment No. D3927

SCHARENBERG v SELLAR
[1998] SADC D3927

Judge Robertson
Civil

Some time during the period between December 1988 and January 1989 the plaintiff and the defendant entered in a de facto relationship and thereafter lived together, apart from some short periods of separation, until 3 July 1996. At the time they entered into the relationship the plaintiff was 40 years of age and the defendant was 47 years of age. Following the cessation of their relationship the plaintiff now claims that certain real estate at Whyalla, registered in the name of the defendant, together with the assets of a nursery business which operates under the name of “Eight Mile Nursery” and a Cafe operating under the name of “Lazy Gardener Cafe” are impressed by a constructive trust in her favour. The plaintiff’s claim is that the defendant holds the property in trust for the plaintiff and the defendant as tenants in common equal shares.
The parties met in 1988. At that time the plaintiff was working as a receptionist at the Sundowner Hotel in Whyalla. She had been married and divorced many years prior to 1988. She had two children from her marriage both of whom were adults at the time she met the defendant. The defendant operated a nursery under the name “Eight Mile Nursery” on a property a short distance out of the town of Whyalla. There was also a house on the property in which the defendant resided. He too had been married and divorced previously with three children arising from the marriage.
In 1988 the plaintiff was renting a housing trust home in Whyalla. She had lived in that house for about fifteen to eighteen years. During 1988 the plaintiff would, from time to time, visit the Eight Mile Nursery for the purpose of making purchases for her garden. It was during these visits to the nursery that she came to know the defendant. The relationship between the two of them gradually developed. They commenced to see each other socially. Eventually, in late 1988 the plaintiff agreed to the defendant’s suggestion that they commence to live together in the house on the nursery property. There is a dispute between the parties as to the precise time when they commenced cohabitation. It is sufficient to say that they commenced cohabitation during the period December 1988 to January 1989.
In the course of discussions leading to their decision to live together, the defendant indicated that he needed assistance in his nursery. As a result it was the intention of both parties that not only would the plaintiff commence to live with the defendant but that she would become involved in the nursery business. Following her decision to commence to live with the defendant the plaintiff surrendered the lease of her housing trust home and about the middle of January 1989 terminated her employment with the Sundowner Hotel. When the plaintiff commenced to live with the defendant other than personal effects she only bought a few items of furniture into the house.
As I have mentioned, at the time of commencement of cohabitation the defendant was operating a nursery under the name of “Eight Mile Nursery” (“the Nursery”). The defendant had retired from his employment in 1985. It was his intention to establish a nursery on land upon which a nursery had previously operated. At the time the only improvement on the land was a shed. He was then in a defacto relationship with a woman by the name of Jackie Wood. The land was purchased in joint names. The purchase price for the land was $18,500 which was paid by the defendant. The defendant intended not only to develop a nursery business on the land but to also construct a house on it. The defendant had received $69,500 from the sale of his house in Whyalla which he intended to use in financing the development of the Nursery and the construction of the house. After acquiring the land it took about twelve months to complete the Nursery and a little longer to have the house constructed. For the purpose of financing the construction of the house the defendant and Jackie Wood borrowed $30,000 from the ANZ Bank (“the house loan”). In addition to that amount, a sum in excess of $30,000 was borrowed for the purpose of purchasing a van and financing the development of the Nursery business (“the business loan”). A further $5000 was borrowed through the South Australian Government as an interest free loan for small businesses.
Shortly before the plaintiff and defendant commenced to live together the defendant’s relationship with Jackie Wood had ceased. Following the termination of that relationship the defendant paid her the sum of $20,000 to acquire her interest in the land and the business of the Nursery. The land acquired by the defendant was a little under one hectare in area. The house was on one part of the land. A short distance from the house was the Nursery. At the time the plaintiff and the defendant commenced cohabitation the construction of the house had been completed and the surrounding garden was in the process of being established. The Nursery had been operating for over two years. At the time the plaintiff arrived there was a small shed situated on the Nursery section of the land which was used to house stock. It is unclear whether that shed was on the land at the time of purchase but it probably was the same shed. There was also a shade house area which was later expanded significantly. The Nursery business was operating profitably at the time.
It was the intention of both parties that when the plaintiff came to live with the defendant she would also commence to work in the Nursery business. The plaintiff did commence work in the Nursery. However, before I come to the circumstances of the plaintiff’s and the defendant’s life together and the involvement of the plaintiff in the Nursery I should say something about the evidence of the plaintiff and the defendant and give my views on the credit of each of them. They were the only witnesses who gave evidence. In my opinion, on occasions, each adopted extreme positions. No doubt this resulted from the bitterness between the parties following their failed relationship. This bitterness was clearly evident when they each gave evidence. Generally I felt that I could rely more on the evidence of the plaintiff than the defendant. However, I was not so impressed by the plaintiff that I could rely on her evidence in its entirety. Much of the evidence was not in dispute. However, there were two particular issues in which they were directly in conflict. The first related to the amount the plaintiff received weekly from the takings of the Nursery business. The second related to the circumstances leading to the failure of the plaintiff and the defendant to execute a Deed prepared by Mr Cruickshank, solicitor, some time in 1993. I will deal with these two issues in more detail later. For present purposes I indicate that I found the evidence of the defendant on both these topics most unconvincing. I do not accept his evidence on either of these issues. I accept the evidence of the plaintiff on both those subjects.
As I said earlier, it was the intention of both the plaintiff and defendant that the plaintiff would work in the Nursery business. The plaintiff commenced full-time work in the Nursery following her resignation from employment at the Sundowner Hotel in mid-January 1989. The business operated between the hours of about 8.30 to 9 o’clock in the morning until 5 o’clock in the afternoon. It opened 364 days a week. As might be expected in a trial of this nature, both parties tended to under play the role of the other in relation to the work performed by each of them in the Nursery. I am satisfied that both played equally significant roles in the operation and development of the Nursery during the period of their cohabitation. They were both involved in the sales area and in the general maintenance and development of the plants, shrubs, trees and other stock. Where the work was beyond the plaintiff’s physical capacity then this would be performed by the defendant. However, I have no doubt that the plaintiff did perform work, on occasions, of a physically demanding nature which was within her physical capacity. I find that both parties commenced work in the Nursery each day at about 8.30 to 9 o’clock in the morning and continued to work in the Nursery until some time after it closed at 5 o’clock in the afternoon. This regime operated for each day of the year except Christmas Day. In addition to the work the plaintiff performed in the Nursery she also kept the books of account relevant to the business. She also introduced improvements to the bookkeeping system. At this time the defendant did not have the training to keep the book. They had previously been prepared by Jackie Wood.
Each Spring the plaintiff made baskets for display and prepared topiary plants for sale. These were a specialty of hers. There were a number of new items of stock introduced by the plaintiff. She introduced a combination of silk and dried flower arrangements for sale. She would spend some of her evenings arranging the displays in the Nursery and preparing dry and silk flower arrangements in baskets for sale. The plaintiff also arranged with some ladies in Whyalla to place their ceramic artwork and other craft work in the Nursery for sale.
The plaintiff and defendant continued to work side by side in the Nursery until shortly before the middle of 1996. At that time they opened a Cafe on the Nursery premises called the Lazy Gardener Cafe (“the Cafe”). Due to the amount of work involved in that side of the business it was agreed that the plaintiff would concentrate her efforts in the Cafe. I will return to the development of the Cafe a little later.
At the time the plaintiff and defendant commenced to live together the garden surrounding the house was not fully developed. During the period of their relationship the plaintiff and the defendant further developed the garden. Inside the house both of them performed household chores. In giving their evidence on this subject both the plaintiff and the defendant sought to make light of the others role in the performance of household work. I accept the plaintiff’s evidence that she was the primary homemaker, cooking, cleaning, washing, ironing and shopping. In saying this, I do not over look the fact that about two years after the commencement of the relationship, a house cleaner was employed to regularly clean the house. Whilst I have concluded that the plaintiff was the primary homemaker I accept the defendant’s evidence that he also did some cooking and assisted in other housework from time to time.
During the course of their relationship additions were made to the house. A verandah was added to the back of the house and brick paving was laid. The cost of this was about $3500 and was paid from funds which the defendant held in an ANZ Savings Bank Account (“the Savings Account”). Some years later a small verandah together with some brick pillars and flower boxes were erected at the front of the house. The cost of the verandah was about $1,200 and was also paid by the defendant from his funds in the Savings Account.
The Nursery was also further developed during the time the parties lived together. Until 1994 the Nursery operated from the shed that was on the land when it was acquired. In 1994 a further storage shed was purchased and installed on the land by the defendant and a friend. The defendant said that he thought it cost about $4,500 but he was not certain. He said that amount was paid out of the Nursery business account. The concrete floor of the shed was laid at a cost of about $3,000. This amount was paid from the defendant’s funds in the Savings Account. In 1995 a further shed was constructed on the land. This was used to house a new office and the Cafe was also incorporated into it. Once again the defendant was unsure about the cost of the construction of the building but thought it was about $9,000. He said $3,000 of that amount was paid by him out of the Savings Account.
The shade house areas in the Nursery were also significantly increased. At the time of separation a total area of 1183 square metres were covered by shade houses. The shade houses were constructed of steel pipe, uprights and cross members supporting shade cloth which formed the roof and part of the walls. The defendant said, and I accept that the shade house area was increased by about two thirds of the original area during the time they were living together. The additional areas were required to store fruit trees and other outdoor trees. The construction of the additional shade house area was generally undertaken by the defendant with some assistance from the plaintiff. The cost of the piping was about $250 which was paid from the Nursery account and on one occasion the defendant paid cash. The evidence does not indicate the source of payment for the shade cloth. The defendant also constructed a galvanised iron fence on the rear and side boundaries of the property. Once again the evidence did not indicate the source of the payment of the materials used in the construction.
Earlier in these Reasons I mentioned that a Cafe was opened in June 1996. Work on the development of the Cafe commenced in 1995. The defendant had raised the subject of constructing and operating a Cafe within the Nursery complex sometime earlier. Nothing was done at that time. Shortly before the commencement of the development of the Cafe the plaintiff had travelled to Perth on a holiday. Whilst in Perth she observed the operation of a Cafe in a nursery complex. She returned from Perth with an enthusiasm to establish the Cafe in the Nursery. Following discussions with the defendant it was agreed that they would develop a Cafe in the Nursery. I find that both the plaintiff and the defendant were involved in the development of the Cafe. It was agreed that the plaintiff would operate the Cafe and would cease her involvement in other parts of the Nursery business. The Cafe seated one hundred and twenty people. It opened on the long weekend in June. The plaintiff operated the Cafe with the support of staff. She continued to operate the Cafe until 3 July 1996 when she ceased living with the defendant.
Finance was required to establish the Cafe. Initially an application was made to the ANZ Bank for a loan of $60,000 and an extension of the business overdraft from $20,000 to $40,000. However, shortly after that time, in about May of 1995, the defendant decided to purchase a vacant block of land known as Lot 12 Mulaquana Road, Whyalla Stuart (“Lot 12”) at a cost of $25,000. Finance was also needed for this purchase. The defendant finally borrowed from the ANZ Bank a fully drawn advance of $80,000 which was used to purchase Lot 12 and for the development of the Cafe. The sum of $25,000 was used to purchase Lot 12 and the balance of $55,000 was used for the construction and fitting out of the Cafe. On 4 June 1996 the overdraft limit on the trading account for the Nursery was increased to $40,000 for the purpose of working capital.
As I stated, the sum of $55,500, being part of the loan from the ANZ Bank, was used for the construction of the Cafe. However, more funds were required to purchase plant and equipment, chairs and tables and other items necessary to fit out the Cafe properly. At that time the defendant had a superannuation policy with the MLC Insurance Company. The defendant said that he took out the Superannuation policy in about 1985. He continued to maintain the policy during the time the parties were living together up to 19 March 1996. The contributions the defendant made to the policy were paid out from the income of the Nursery. On 15 March 1996 the defendant surrendered the policy and received the sum of $17,278. The defendant said that most of these moneys were used to the purchase the plant and equipment and other items required to make the Cafe operational. The sum of $1000 was paid into the separate Cafe bank account to establish the account.
I pause to mention that the evidence given during the hearing indicated that the Cafe business was operated by the plaintiff and the defendant in partnership. I queried why this asset was included in the plaintiff’s claim because it seemed to me that as it was an asset of the partnership it could not be property upon which a constructive trust could be imposed. Both counsel acknowledged this difficulty. I was informed by both counsel that for the purpose of these proceedings both parties wanted the Cafe business to be treated as an asset in which the legal and beneficial ownership resided in the defendant. As a result both counsel stated that it was an agreed fact that at all material time the Cafe business was owned by the defendant. For the purpose of these proceedings I will treat the Cafe business in accordance with that agreed fact.
I also mentioned earlier that there was a conflict between the evidence of the plaintiff and the evidence of the defendant regarding the regular weekly sum of money which the plaintiff received from the Nursery business during the period of cohabitation. It was not in dispute that shortly after cohabitation commenced a regular practice was established that on each Sunday evening the plaintiff and the defendant would each take cash from the takings of the Nursery for the previous week before it was banked. This practice continued until some time in 1994. The plaintiff said that on each Sunday evening she received $150 cash from which she was expected to purchase the household necessities for the following week. She said that she received no other monies from the takings other than the sum of $150 each week. It was the defendant’s evidence that prior to the plaintiff commencing cohabitation with him he indicated to her that she was to receive $150 per week which was classified as wages. He said that this $150 was paid to the plaintiff out of the takings on each Sunday evening. In addition the defendant said the plaintiff would receive cash from the takings to purchase household necessities for the ensuing week. It is not in dispute that the defendant would also take cash from the takings on a Sunday for his own personal use. The plaintiff did not indicate how much was taken by the defendant each week. The defendant said initially in his evidence that he would take $100 per week. Later in his evidence he said he would take $200 per week otherwise he would take $100 or $150 per week depending on the state of the income of the business at that time. He classified what he received as wages.
I earlier found that the evidence of the defendant regarding the cash the plaintiff received from the takings on each Sunday night as most unconvincing. I am not prepared to accept his evidence that the plaintiff received $150 each week which was classified as wages in addition to house keeping monies which he said varied from $100 to $150 per week. I prefer the evidence of the plaintiff on this subject. I felt her evidence was far more reliable. Accordingly, I find that up until some time in 1994 the plaintiff received $150 cash each Sunday evening from which she was expected to purchase household necessities for the ensuing week. I also find that in 1994 this amount was increased to $220 per week. The $220 each week was classified in the books of the Nursery business as “wages”. From this amount she was also expected to purchase the household necessities for the following week. The weekly amount received by the defendant was increased to $400 per week at the time the Cafe was opened. These latter weekly payments followed a unilateral decision on the part of the plaintiff to pay herself that amount. The defendant accepted the decision of the plaintiff.
There was also a dispute between the plaintiff and the defendant regarding what other monies the plaintiff received during the course of their relationship. The plaintiff acknowledged that on a few occasions the defendant would provide her with monies for her personal use. She further acknowledged that on one occasion he paid for her airfare to travel to Perth to see her daughter. On the other hand, the defendant said that he regularly gave the plaintiff monies for her personal use. In addition, he said that they would each take money out of the till when they needed to purchase some small items such as cigarettes. The evidence on this subject is an example, in my opinion, of the extreme positions taken by each of the parties on occasions. In my view, the truth lies somewhere in between the evidence given by each of them. I find that during the period of cohabitation that the plaintiff received from time to time some extra money for her own use which was in addition to the regular receipt of $150 each week.

During the period that the plaintiff and the defendant lived together there were occasions when the plaintiff separated from the defendant. The plaintiff said that she left the defendant on five or six occasions whereas the defendant said that she left him on about three occasions. It is unnecessary to resolve this issue by reaching a precise figure. It is sufficient to find that on at least three and possibly more occasions the plaintiff left the defendant. I accept the plaintiff’s evidence that she left the defendant on the first occasion within two years of the commencement of cohabitation. The plaintiff said, which I accept, that one of the reasons for leaving the plaintiff on each occasion was her feeling financial insecurity. She said that she had raised with the defendant on a number of occasions during their relationship her feelings that she should be included as an owner in the real estate and a proprietor in the Nursery business. On each occasion when the plaintiff left the defendant he would seek to persuade her to return and resume their relationship. The plaintiff returned to live with the defendant following each separation save for the last one. The period of separation on each occasion was short.
Following a separation in either 1991 or 1992 the defendant gave the plaintiff an engagement ring. The defendant said that he intended to convey, by giving her the ring, that he intended to marry the plaintiff. The plaintiff said, which I accept, that at the time that the ring was handed to her there was no discussion at the time concerning setting a date for the marriage. The plaintiff said that the defendant would often say that they would get married but nothing further was done about it. The defendant said that on one occasion he proposed marriage to the plaintiff but she rejected his proposal. The evidence he gave on this subject was unsatisfactory and unconvincing. It was never put to the plaintiff that the defendant had proposed marriage and she had rejected the proposal. I do not accept the defendant’s evidence that he proposed marriage to the plaintiff during the course of their relationship.
One such separation occurred during 1993. Following the separation, the defendant had a conversation with a friend of the plaintiff who indicated that the plaintiff felt financially insecure. With the intention of relieving the plaintiff’s feeling of financial insecurity the defendant instructed Mr Cruickshank, a solicitor in Whyalla, to prepare a Deed and Will. The Deed and the Will dealt with the defendant’s property and the interests in the property he was prepared to grant to the plaintiff. It was the defendant’s intention that both the plaintiff and the defendant would execute the Deed. The Deed contained provisions to the following effect:-

That if the plaintiff and the defendant cohabited for a period of less than ten years then the plaintiff would be entitled to 25o/o of the property and assets of the defendant.
If they cohabited for more than ten years but less fifteen years then the plaintiff would be entitled to 35o/o of the property and assets of the defendant.
If the period of cohabitation of the plaintiff and the defendant was more than fifteen years then the plaintiff would be entitled to 50o/o of the property and assets of the defendant.

There was an error in the Deed. Mr Cruickshank had been instructed by the defendant that for the plaintiff to be entitled to 25o/o of the property and assets of the defendant the required cohabitation period was ten years. However, as I have pointed out, the clause in the Deed provided that the plaintiff would be entitled to a 25o/o interest in the defendant’s assets if she cohabited for up to ten years.
The plaintiff’s evidence is that on attending at the office of Mr Cruickshank and following discussion regarding the terms of the Deed the defendant refused to execute it. She said that the defendant said words to the effect that he was not going to sign the Deed as she could take the money and run. The defendant denied that he refused to sign the Deed. He said that he was prepared to sign the Deed even though it did not comply with his instructions. He said that the plaintiff refused to sign it because she was not prepared to live with him on terms set out in the Deed. By that time the plaintiff and the defendant had been living together for a little under five years. I have already indicated that I found the evidence of the defendant on this subject most unconvincing. I do not accept his evidence that it was the plaintiff who refused to sign the Deed. I accept the evidence of the plaintiff as truthful and reliable. Accordingly, I find that the defendant refused to execute the Deed. In the period immediately following the meeting at Mr Cruickshank’s office there were a number of arguments but the parties continued to live together.
On 3 July 1996 the plaintiff terminated her relationship with the defendant. She left the defendant approximately one month after the Cafe opened. She explained that she was burnt out, broken down and could not go on any more. She said she virtually had a nervous breakdown and was admitted to hospital suffering from stress about five days after her departure. The plaintiff remained in hospital for a week. She remained on medication which was prescribed for her for about three months.
Some time after the separation the defendant sent the plaintiff a letter in which he expressed a wish to marry the plaintiff. He also expressed in the letter an intention that he would have a lawyer draw up documents handing half the business over to the plaintiff and preparing a Will that if he died before the plaintiff then all his assets would be hers. He also sent the plaintiff another letter which she destroyed. The plaintiff did not respond to either of those letters. The parties have remained separated since this time. When the plaintiff left the defendant she took with her a small number of items of furniture which included the items of furniture she originally brought to the house together with a few other small items of furniture. She also received the sum of $400 from the defendant a little later on. The defendant has continued to live in the house and conduct the Nursery business and the Cafe business.
Earlier I mentioned that at the time the defendant purchased the land, constructed the house and established the Nursery he obtained loans from the ANZ Bank and a small business loan through the South Australian Government. With respect to the small business loan of $5,000 the defendant thought that he may have repaid that within two or three years. There was some uncertainty in his evidence. It is probable that he had repaid some of the loan by the time cohabitation with the plaintiff commenced. However, I do not accept that it was entirely repaid at that time. Any repayments made after the parties commenced to live together came from the Nursery business account. The housing loan which stood at in excess of $26,000 at the time cohabitation commenced was paid off by March 1994. The business loan, which stood at in excess of $31,000 at the date of the commencement of cohabitation had been reduced to approximately $2,000 a short time before the parties finally separated. Whilst there is no direct evidence on the subject it is likely that the amount owing would have been further reduced by the time of separation. The funds for the repayment of both these loans were sourced from the Nursery business account.
At the time that the plaintiff and the defendant commenced to live together the defendant operated an account with the ANZ Bank for the Nursery business. He was the sole signatory to the account and remained the sole signatory during the period of the relationship of the parties. In July 1991 a temporary overdraft facility with a limit of $10,000 was approved to provide working capital. That facility was cancelled in January 1992. An overdraft limit of $5,000 was approved for the account in February 1992. The limit was increased to $10,000 on two occasions during the period up to March 1995 and then later reduced to a limit of $5,000. There was a further increase of the limit in March 1995. By May 1995 the overdraft limit was increased to $32,000. One reason for the increase was to assist in financing the construction of the Cafe and the office of the Nursery. On 4 June 1996, shortly before the termination of the relationship, the limit was increased to $40,000.
I have already stated that the defendant borrowed $80,000, of which part was used to develop the Cafe and the balance to assist in purchasing Lot 12. Following the separation, on 10 October 1996, the loan of $80,000 and the overdraft were amalgamated by the ANZ Bank into one loan. The amount owing to the Bank at that time was $126,125. In January 1997 an overdraft limit of $10,000 was approved for the Nursery business account in the name of the defendant. By the date of trial the loan to the ANZ Bank had been reduced from $126,125 to $109,000. The overdraft of $10,000 was repaid from the proceeds of the sale of Lot 12 which was sold in March or April 1998. By the date of trial the defendant had obtained approval for a further overdraft on the Nursery business account and the account was in debit to the extent of approximately $3,000.
At the time the Whyalla Council approved the development of the Cafe it made a condition of approval for a new toilet block. Since the date of separation the defendant has completed the toilet block except for the tiling. The cost of construction was $30,000 which has been funded either directly or indirectly by the income of the Nursery business and the Cafe business and the overdraft accommodation provided by the Bank. The cost to complete the toilets is approximately $5,000.
I have mentioned that Lot 12 was sold by the defendant in March or April of 1998. It was one of the properties upon which the plaintiff has sought the imposition of a constructive trust. From the net proceeds of $27,000 the Bank took $10,000 to discharge the amount owing by the defendant on the overdraft. The balance of nearly $17,000 was retained in a solicitors trust account. During the course of the hearing the defendant sought the release of those moneys to enable him to meet pressing creditors of the Nursery Business. After hearing evidence and submissions, I granted the defendant leave to use those moneys to pay the creditors which the defendant had identified in his evidence.
The defendant has denied that the plaintiff is entitled to an equitable interest in the assets, the subject of the plaintiff’s claim. The defendant says that the circumstances of this case do not give rise to a constructive trust. I now turn to consider the principles which may give rise to a constructive trust where a de facto relationship has terminated. In circumstances similar to that which pertain in this trial, the touch stone which leads to the imposition of a constructive trust by the Courts is that of unconscionability. Absence of intention on the part of the legal owner of property to grant an equitable interest in the property to another is not essential in determining whether a constructive trust should be imposed. In fact, because of the remedial character of a constructive trust, it may arise regardless of actual or presumed intention if equity calls for its imposition. It was not argued that the evidence indicates an actual or presumed intention on the part of the defendant to grant to the plaintiff an equitable interest on the assets. Therefore, the question which needs to be resolved is whether the defendant is acting unconscionably, as that term is understood in equity, in asserting that the plaintiff is not entitled to any interest in the assets, the subject of the claim.
The decision of Justice Deane in Muschinski v Dodds (1984-1985) 160 CLR 583 is most instructive in explaining the principle of unconscionable conduct and the remedy of the constructive trust in the context of a terminated de facto relationship. At page 617 he explained the effect of the remedial character of the constructive trust in the following terms:-
“Once its predominantly remedial character is accepted there is no reason to deny the availability of the constructive trust in any case where some principle of the law of equity calls for the imposition upon the legal owner of property, regardless of actual or presumed agreement or intention of the obligation to hold or apply the property for the benefit of another.”

His Honour then went on to observe that the touch stone for the imposition of a constructive trust is unconscionable conduct on the part of the legal owner of property. At pages 619-620 in Muschinski he said:-

“Like most of the traditional doctrines of equity, it operates upon legal entitlement to prevent a person from asserting or exercising a legal right in circumstances where the particular assertion or exercise of it would constitute unconscionable conduct: ... the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do; ... ”
(Emphasis added)

It was also emphasised by Deane J in Muschinski that idiosyncratic notions of fairness are not relevant in determining whether a constructive trust arises. He said at page 615:-
“The fact that a constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles... ”

And further at page 616 Deane J said:-

“The mere fact that it would be unjust or unfair in a situation of discord for the owner of a legal estate to assert his ownership against another provides, of itself, no mandate for a judicial declaration that the ownership in whole or in part lies, in equity, in that other: ... Such equitable relief by way of constructive trust will only properly be available if applicable principles of the law of equity require that the person in whom the ownership of property is vested should hold it to the use or for the benefit of another. That is not to say that general notions of fairness and justice have become irrelevant to the content and application of equity. They remain relevant to the traditional equitable notion of unconscionable conduct which persists as an operative component of some fundamental rules or principles of modern equity.”

At page 621 of Muschinski his Honour went on to discuss the notion of fairness and justice and the role they play within the boundaries of the exercise of determining whether conduct could be characterised as unconscionable:-
“Notions of what is fair and just are relevant but only in the confined context of determining whether conduct should, by reference to legitimate processes of legal reasoning, be characterised as unconscionable for the purposes of a specific principle of equity whose rationale and operation is to prevent wrongful and undue advantage been taken by one party of a benefit derived at the expense of the other party in the special circumstances of the unforeseen and premature collapse of a joint relationship or endeavour.”
The notion of fairness and justice was also addressed in Baumgartner v Baumgartner (1987) 164 CLR 137 when Chief Justice Mason and Justices Wilson and Deane, in a joint judgment, observed at page 148:-
“His Honour pointed out that the constructive trust serves as remedy which equity imposes regardless of actual presumed agreement or intention ‘to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle’ ... see also at p 617. In rejecting the notion that a constructive trust will be imposed in accordance with idiosyncratic notions of what is just and fair his Honour acknowledged that general notions of fairness and justice are relevant to the traditional concept of unconscionable conduct, this being a concept which underlies fundamental equitable concepts and doctrines, including the constructive trust.”
When considering whether there is unconscionable conduct which leads to the imposition of a constructive trust, in the context of a terminated de facto relationship, assistance is provided by judicial comments made in cases dealing with similar problems. In Parij v Parij (1997) 195 LSJS 359, Debelle J, in a judgment which provides a most helpful analysis of the authorities, said at 359-360:-
“It is necessary to determine the nature of the joint endeavour and the relationship of the parties: see Muschinski v Dodds at 620-622 ... It might be commercial, it might be personal, or a mixture of personal or commercial.
If the parties are husband and wife or have been living in a defacto relationship, any assessment of what would and would not constitute unconscionable conduct should have regard to the special contributions made by the parties in the period of the relationship. In this respect, there is commonly a need to take account of a practical equation between direct contributions in money or labour and indirect contributions in other forms such as support, home-making and family care; Muschinski v Dodds at 622.”
In Baumgartner contributions in money in the form of the pooling of earnings of both parties played a central role in the court determining that there was unconscionable conduct. At page 149 Chief Justice Mason and Wilson and Deane JJ said:-
“In this situation it is proper to regard the arrangement for the pooling of earnings as one which was designed to ensure that their earnings would be expended for the purposes of their joint relationship and for their mutual security and benefits. To the extent which the pooled funds were the source of payment of mortgage instalments by the appellant, the pool funds contributed not only to present accommodation expenses but also to the security of the parties’ accommodation in the future.
In the Queensland case of Dunne v Turner (Court of Appeal, 20 August 1996 unreported) a relevant factor, among others, was the contribution of labour by the claimant. Pincus JA said at page 4 of the unreported decision:-
“The respondent in the period 1966 to 1972, made a significant financial contribution through her labour and helping a shop (which the appellant had bought) to run at a profit; her labour contributed to the capital gain made when the shop was sold, and contributed to household expenses. But the proceeds of sale, in so far as they were not invested in the appellant’s name, were used to borrow a house in his name”.

Miller v Sutherland (1990) 14 Fam L R 416 is another example of where the contribution of labour played an important role in the decision that there had been unconscionable conduct.

I now turn to consider whether the defendant’s conduct is unconscionable in denying that the plaintiff is entitled to any equitable interest in the assets. The plaintiff and the defendant lived in a defacto relationship for approximately seven and a half years save for a few short periods of separation. During that time the defendant had raised the question of marriage with the plaintiff. At one point in 1991 or 1992 the defendant signalled his intentions by giving the plaintiff an engagement ring. He said that in so doing he intended to convey that it was his intention to marry the plaintiff. However, he did not at anytime actually ask the plaintiff to marry him.

They both equally participated in the Nursery business and towards the end of their relationship they both became involved in the Cafe business. During the period of the plaintiff’s participation in the Nursery business it made a net profit in each year. The gross sales of the business increased in each financial year until 1996 when the gross sales reduced marginally from the previous years. During this period the earnings from the Nursery business enabled the house loan to be paid off and the business loan to be nearly discharged. The evidence also indicated that the value of the land increased substantially during this period. It was agreed by the parties during the trial that the value of the land and building was $217,000. In a letter from the ANZ Bank, tendered in evidence, stated that the valuation of the land and buildings about May 1989 was $100,000. There is no evidence that the method of valuation adopted by the ANZ Bank was similar to the methodology used to reach an agreed value of $217,000. However, the two values, in my view do provide some evidence of the increase in value of the property. It should also not be overlooked that valuable buildings were added to the land during the course of the relationship of the plaintiff and the defendant.
The best that can be said about the Nursery business is that there is likely to have been some increase in its value between the time cohabitation commenced and the time it ceased. I specifically refer to the Nursery business as the Cafe business only commenced a short time prior to the relationship terminating. The parties agreed that the valuation of the two businesses was $79,600. They did not identify the separate value of each business. A valuation by Mr R.H. Brooke provides some assistance in determining the values of plant and equipment, stock and goodwill. However, it was also a valuation of both businesses. A perusal of the balance sheets of the Nursery business for the period from 1989 to 1996 indicate a substantial increase in the value of the stock on hand and the plant equipment. The evidence also indicates that there was a significant expansion of the Nursery business during the period of cohabitation. All these matters indicate the likelihood that the value of the Nursery business has increased. However, that is far as the matter can be taken.
The comments of Pincus J in Dunne at page 4, which I referred to earlier in these Reasons, would seem to be apposite here. The plaintiff has made a significant contribution through her labour and it is likely that her labour contributed to the increased value of the land and the increased value of the Nursery business. Whilst the plaintiff was likely to have retained some part of the weekly payment of $150 for her own benefit and she received other amounts from time to time that was minimal monetary compensation for the contribution which she made. Not only did the plaintiff’s labour contribute to the increased value of those assets it also contributed to generating funds which were used to repay the loans which the defendant originally took out with the ANZ Bank.
The comments of Mason CJ, and Wilson and Deane JJ in Baumgartner at page 147-148 are relevant to the resolution of the issue:-
“Dean J. (with whom Mason J. agreed) reached this result by applying the general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them.”
And further at page 149:-
“In this situation it is proper to regard the arrangement for the pooling or earnings as one which was designed to ensure that their earnings would be expended for the purposes of their joint relationship and for their mutual security and benefit. To the extent which the pooled funds were the source of payment of mortgage instalments by the appellant, the pooled funds contributed not only to present accommodation expenses but also to the security of the parties’ accommodation in the future.”
Whilst in a literal sense there has not been a pooling of earnings but a pooling of labour the reasoning in Baumgartner is equally applicable here. I suppose in one sense there has been a pooling of earnings here. The pooled labour generated earnings in the Nursery business and later in the Cafe business and those earnings remained “pooled”, save for the small amounts each received each week. In any event, whether the manner in which the plaintiff and the defendant conducted their commercial relationship is seen as a pooling of earnings or not, there is no doubt that they pooled their labour for their mutual benefit. In my opinion it is appropriate to regard the arrangement and the contributions made by each of them as designed for their mutual security and benefit for the present and the future. As the defendant explained at page 148 of the transcript:-
“Well we say we would build up the business and one day find somebody to buy it and we go back home where I came from and then come back to Australia, settle down together but it never eventuated.”
In my view, the plaintiff never intended that the contributions made by her were to be enjoyed by the defendant to the exclusion of herself. She had made that plain from time to time during their relationship. Neither party was to blame for their separation. Furthermore, in considering the question of unconscionable conduct I do not overlook the plaintiff’s contribution as the prime home maker. In the circumstances I have outlined the defendant’s claim to the legal and beneficial ownership of the assets to the exclusion of any interest of the plaintiff is, in my view, unconscionable conduct. Accordingly, such conduct attracts the imposition of a constructive trust on those assets.
I now turn to consider the terms of the constructive trust. In Baumgartner reference was made to the equitable principle that equity favours equality. Mason CJ and Wilson and Deane JJ at page 149 observed:-
“Equity favours equality and, in circumstances where the parties have lived together for years and have pooled their resources and their efforts to create a joint home, there is much to be said for the view that they should share the beneficial ownership equally as tenants in common, subject to adjustment to avoid any injustice which would result if account were not taken of the disparity between the worth of their individual contributions either financially or in kind”.

However, whilst the circumstances in some instances may suggest equality, it is important to recognise that the starting point is not equality. Expressed another way, there is no presumption of equality simply because the parties have lived together for some years and have pooled their resources. In each case the circumstances need to be examined to determine the terms of the constructive trust. (See: Parij per Debelle J at 354).

At the commencement of cohabitation the defendant had been operating the Nursery for some time. The Nursery was operated from land owned by the defendant. The house was also constructed on that land. At that time the balance owing on the house loan was slightly in excess of $26,000 and the balance owing on the business loan was slightly in excess of $31,000. There may have been a small amount owing on the $5000 loan obtained through the South Australian Government. Mention has also been made previously that the defendant had contributed $69,000 towards the purchase of the land and the construction of the house. He had also paid Jackie Wood $20,000 to acquire her interest in the land and the Nursery business. I have also mentioned the ANZ valuation of the land and the value of some of the assets of the business which were contained in the Nursery Balance Sheet. All this evidence demonstrates the significant capital contribution made by the defendant at the commencement of the relationship. In my opinion the initial capital contribution of the defendant must be recognised in determining the terms of the constructive trust. Examples of where the Court have taken into account the initial capital contribution can be found in the Miller and Dunne. An adjustment in Baumgartner was also made to take into account an initial capital contribution by one of the parties.
The relationship between the parties was a mixture of personal and commercial. The plaintiff’s contribution by way of labour to the commercial part of their relationship was equal to that of the defendant. During the relationship the defendant also contributed about $11,000 for capital works on the house and the nursery. These funds come from ANZ Savings Account. Some of those moneys came from the sale of the taxi owned by the defendant and some were from moneys he saved from his weekly cash drawings. The plaintiff contributed to the personal side of the relationship in that she was the primary home maker. These matters will all need to be taken into account in determining the terms of the trust.
I pause here to say that, in my opinion, the monetary benefits which each party received from the income of the businesses during the period of the relationship does not require any adjustment to be made to the contributions of the parties. The evidence does not permit a precise calculation to be undertaken of the monetary benefits they each received. In the end, the best that can be said is that they both probably received similar amounts by way of direct financial benefit from the businesses. In reaching that conclusion, I have accepted that from the regular weekly payments which were received by the plaintiff she was required to purchase the household necessities. However, such a reduction is balanced, to some extent, by the additional payments that she received from time to time from the defendant. As I said, in broad terms it would seem that both the plaintiff and the defendant received similar direct financial benefits from the businesses.
In dealing with the financial contributions by the defendant I must make reference to the contribution by the defendant to the Cafe business from the superannuation policy he surrendered. It was submitted by Mr Hogan, counsel for the defendant, that this contribution of $17,278 should be taken into account in determining the terms of the trust. The evidence is that the defendant took out the policy in 1985. During the period of cohabitation the premiums were paid out of the takings of the Nursery business. These takings were the product of the endeavours of the plaintiff and the defendant. As a result, in my opinion, the defendant is not entitled to have the entire amount taken into account as contribution made by him. He is only entitled to have taken into account that portion of the amount which represents the pre-cohabitation period of the policy.
I have earlier mentioned that the liabilities of the defendant to the ANZ Bank arising from the initial home loan and the initial business loan were virtually discharged during the period of the relationship. Furthermore, the value of the land appears to have increased significantly. The value of the Nursery business would also seem to have increased. The increase in values to some extent reflect the contributions by both parties during the period of cohabitation.
In my opinion the contribution of the defendant to the relationship was significantly greater than the plaintiff. This is brought about by the substantial initial contribution by the defendant in the form of the land and the Nursery business and to a much lesser extent by the contribution of capital during the relationship. On the other hand I need also to take into account the plaintiff’s contribution as the primary home maker. Considering all those factors and the fact that they both contributed their labour and effort equally in their commercial relationship I am of the view that the beneficial interests of the parties in the land and the two businesses should be in the proportions of thirty percent to the plaintiff and seventy percent to the defendant.
I have identified the assets, the subject of the constructive trust, as the land and the two businesses. In so doing I have not overlooked Lot 12. However, as stated earlier, Lot 12 has been sold and the net proceeds distributed, as to $10,000 to the ANZ Bank and the balance of $17,000 to pay the pressing creditors of the Nursery. If Lot 12 had not been sold then it would have been included as one of the assets impressed with the constructive trust. Therefore, it will be necessary to consider what adjustment needs to be made to deal with this.
There are, in my view, other adjustments which also need to be considered. As previously stated, the Whyalla Council’s consent to the development of the Cafe was conditional upon the construction of appropriate toilet amenities. Since the separation of the parties, the defendant has constructed the toilets at a cost of $30,000. The funds to construct the toilets were sourced from the takings of the businesses. The defendant has also reduced the ANZ Bank loan from $126,125 owing at 1 October 1996 to $109,000 to the date of trial. This is a total reduction of $17,125. On the other hand the defendant has had the benefit of living in the house since the date of separation. Furthermore, whilst there is no specific evidence on this subject, no doubt, he has also continued to draw money from the businesses for living and personal expenses. These benefits would need to be off-set against adjustments in favour of the defendant.
It was submitted by counsel for the defendant that the reduction in the liability to the ANZ Bank by the defendant since separation is off-set by the benefit the defendant has obtained by living in the house and obtaining benefits from the businesses during the same period. Furthermore, he submitted that the benefit obtained by the plaintiff as a result of the defendant incurring the cost of the construction of the toilet block is off-set by the benefits obtained by the defendant from receiving the entire proceeds of the sale of Lot 12. Counsel for the plaintiff generally accepted that such an approach was acceptable. As precision is impossible in the circumstances which pertain here, I am of the view that such an approach is an acceptable one. Therefore, the adjustments in favour of the defendant and the adjustments in favour of the plaintiff cancel out each other. As a result the position remains, as I expressed it earlier, namely that the beneficial interests of the parties in the land and the two businesses is thirty percent to the plaintiff and seventy percent to the defendant. It therefore follows that the defendant holds those assets in trust as to 30 percent for the plaintiff. The constructive trust is imposed only at the date of the publication of these reasons. This is done to ensure that the legitimate claims of third parties are not adversely affected. Of course, the constructive trust is subject to liabilities arising from mortgages or other securities presently secured over the assets, the subject of the trust.
Accordingly, I declare that the plaintiff has a 30 percent interest in:-

(i) the property at Section 439 Mulaquana Road, Whyalla Stuart in the State of South Australia being the land comprised and described in Certificate of Title Register Book Volume 5497 Folio 989; and

(ii) the goodwill, stock, and plant and equipment in the business of the defendant known as the “Eight Mile Nursery”; and

(iii) the goodwill, stock, and plant and equipment in the business of the defendant known as the “Lazy Gardener Cafe”.

I will hear the parties on the question of costs.

[1998] SADC 3927

8 December 1998