Segal v Barel - [2013] NSWCA 92

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Segal v Barel [2013] NSWCA 92
Hearing dates: 9 April 2013
Decision date: 29 April 2013
Before: McColl JA (at [1]); Barrett JA (at [2]); Preston CJ of LEC (at [140])
Decision:
The parties are to bring in agreed short minutes of orders giving effect to paragraphs [130] to [134], [136] and [137] of the judgment; and to make submissions in writing on [135].
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: REAL PROPERTY - partition of land - partition or sale in partition actions - statutory trust for sale or partition - where primary judge granted one co-owner's application for appointment of trustees for partition in preference to the other co-owner's application for appointment of trustees for sale - finding that partition would be "more beneficial for" the co-owners than sale - nature of the "more beneficial" assessment - whether non-financial matters may be taken into account - nature of "partition - whether partition achieved if each co-owner receives one lot in a strata subdivision - nature of equitable co-ownership of strata scheme common property by lot owners discussed - such equitable co-ownership incompatible with partition - REAL PROPERTY - partition of land - ancillary matters - financial adjustments - "equality money" - taking of account to ascertain co-owners' contributions to expenditure enhancing the value of the land
Legislation Cited: Conveyancing Act 1919, Division 6 of Part 4, ss 66F, 66G, 66H
Partition Act 1868 (Eng), ss 3 and 4
Real Property Act 1900
Statutes of Partition (31 Hen 8 c 1 and 32 Hen 8 c 32)
Strata Schemes (Freehold Development) Act 1973, ss 18(1), 20(a) and (b), 24(2)
Strata Schemes Management Act 1996, s 11(1), Schedule 2, clauses 12(2), 15(4),18
Cases Cited: Barel v Segal [2011] NSWSC 1181
Barel v Segal (No 2) [2012] NSWSC 1054
Barel v Segal (No 3) [2012] NSWSC 1319
Brickwood v Young [1905] HCA 12; (1905) 2 CLR 387
Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 at 245
Carre v Owners Corporation - Strata Plan 53020 [2003] NSWSC 397; (2003) 58 NSWLR 302
Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784
Comptroller of Stamps v Christian [1991] 2 VR 129
Cryer v Ossher [1997] NSWSC 613; (1997) 8 BPR 15,831
Drinkwater v Ratcliffe (1875) LR 20 Eq 528
Dunston v Dunston (unreported, NSWSC, Cohen M, 14 September 1983)
Ellison v Cleghorn [2013] EWHC 5 (Ch)
Foregard v Shanahan (1995) 35 NSWLR 206
Gilbert v Smith (1879) LR 11 Ch D 78
Hayward v Skinner (1981) 1 NSWLR 590
Hopper v Hopper [2008] EWHC 228 (Ch)
Jabs Construction Ltd v Callahan (1991) Can LII 1877
Leigh v Dickeson [1881] 15 QBD 60
McCormick v McCormick [1921] NZLR 384
McMahon v Public Curator (Qld) [1952] St R Qd 197
Nevin v The Beneficiaries of The Peppermint Beach Estate Trust [2002] WASC 300
Nullagine Investments Pty Ltd v Western Australian Club Inc [1993] HCA 45; (1993) 177 CLR 635
Pannizutti v Trask (1987) 10 NSWLR 531
Pemberton v Barnes (1871) LR 6 Ch App 685
Re Darby [1999] 2 Qd R 350
Re Pavlou [1993] 1 WLR 1046
Ridis v The Proprietors Strata Plan 10308
[2005] NSWCA 246; (2005) 63 NSWLR 449
Ryan v Dries [2002] NSWCA 3; (2002) 10 BPR 19,497
The Owners - Strata Plan 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272; (2007) 13 BPR 24,789
The Owners - Strata Plan No 43551 v Walter Construction Group Ltd [2004] NSWCA 429; (2004) 62 NSWLR 169
T S Swaminatha v Official Receiver of West Tanjore (1957) AIR 577
Turner v Morgan (1803) 8 Ves 143; 32 ER 307
Wong Chun Kei Johnny v Poon Vai Ching [2005] HKCFI 19
Wood v Drew (1864) 33 Beav 610; 55 ER 505
Texts Cited: Halsbury's Laws of England, First Ed, Vol 21
Category: Principal judgment
Parties: Phillip Segal - Appellant
Elie Barel - Respondent
Representation: G R Waugh - Appellant
J A Loxton - Respondent
Low Doherty Stratford - Appellant
Coopers Law Firm - Respondent

File Number(s): 2012/367918
Decision under appeal

Citation:

Barel v Segal [2011] NSWSC 1181; Barel v Segal (No 2) [2012] NSWSC 1054; Barel v Segal (No 3) [2012] NSWSC 1319

Before:

Pembroke J

File Number(s):

2010/412807

Judgment

McCOLL JA: I agree with Barrett JA's reasons and the orders his Honour proposes.

BARRETT JA: This appeal concerns statutory provisions under which the Supreme Court can put an end to co-ownership of land. The provisions are contained in Division 6 of Part 4 of the Conveyancing Act 1919 headed "Statutory trusts of property held in co-ownership". The appeal also raises issues about financial rights and obligations between the co-owners of the particular land.

Background

The appellant and the respondent are the registered proprietors under the Real Property Act 1900 of a parcel of land at Dover Heights. They hold as tenants in common in equal shares. The parties acquired the land with a view to development of it by the construction of two dwellings, one for each of them. One of the dwellings has been completed and is occupied by the respondent and his family. The other is at an advanced stage of construction.

In proceedings in the Equity Division of the Supreme Court brought by the present respondent as plaintiff against the present appellant as defendant (and in which the latter brought a cross claim against the former), Pembroke J made a number of orders of which the first was:

"1. Order, pursuant to Section 66G(1) of the Conveyancing Act 1919 that:

(a) Margaret Colleen Hole of Level 7, 9 Barrack Street, Sydney and Michael Osborne of Level 14, 6 O'Connell Street, Sydney be appointed trustees of the land situated at XXXX Street, North Bondi (also referred to as Dover Heights) in the State of New South Wales being the whole of the land the subject of folio identifier 152/740177.

(b) the said lands be vested in such trustees, subject to any incumbrances affecting the entirety, but free from any encumbrances affecting any undivided shares, to be held by them by the trusts referred to in orders 2 and 3."

Orders 2 and 3, referred to at the end of Order 1, were:

"2. Contingent upon and subject to the grant of subdivision approval by Waverley Council, the trustees shall:

(a) partition the said lands generally in accordance with the plan of strata subdivision to which Waverley Council has already given in-principle approval as stated in its letter to the plaintiff dated 29 May 2012;

(b) convey and assure Lot 1 in the said plan of strata subdivision when partitioned to the plaintiff (subject to any encumbrances); and

(c) convey and assure Lot 2 in the said plan of strata subdivision when partitioned to the defendant (subject to any encumbrances).

3. Direct the trustees, before submitting a plan of subdivision to Waverley Council, to prepare a scheme of partition in accordance with Section 66G(5) of the Conveyancing Act 1919 and in so doing consult the plaintiff and the defendant and entertain such submissions from them as the trustees see fit on the three planning matters referred to in paragraphs [17]-[21] of the Court's reasons for judgment dated 21 September 2012."

The judge expressly declined to make any order for the payment of "equality money".

The judge also undertook an inquiry into the state of the account between the parties in connection with expenditure on the acquisition and improvement of the land and related matters. He struck a sum to be paid by one to the other to cause equality to be achieved between them.

Three judgments were given. The first (Barel v Segal [2011] NSWSC 1181 dated 19 October 2011) canvassed the respective merits of partition and sale and expressed a preference for partition, subject to consideration of further submissions. It also foreshadowed referral of certain matters to a referee for inquiry and report. The second (Barel v Segal (No 2) [2012] NSWSC 1054 dated 21 September 2012) considered the report of a referee, confirmed the preference for partition over sale and dealt with a number of financial matters outstanding between the parties. The third (Barel v Segal (No 3) [2012] NSWSC 1319 dated 2 November 2012) dealt with the form of the final orders and the matter of costs.

Statutory provisions

The first order with respect to the land itself is expressed to be made under s 66G(1) of the Conveyancing Act. Section 66G, omitting parts of no present relevance, is in these terms:

"(1) Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.

. . . .

(3) (a) Where the entirety of the property is vested at law in co-owners the court may appoint a trust corporation either alone or with one or two individuals (whether or not being co-owners), or two or more individuals, not exceeding four (whether or not including one or more of the co-owners), to be trustees of the property on either of such statutory trusts.

(b) On such appointment the property shall, subject to the provisions of section 78 of the Trustee Act 1925, vest in the trustees.

(4) If, on an application for the appointment of trustees on the statutory trust for sale, any of the co-owners satisfies the court that partition of the property would be more beneficial for the co-owners interested to the extent of upwards of a moiety in value than sale, the court may, with the consent of the incumbrancers of the entirety (if any), appoint trustees of the property on the statutory trust for partition, or as to part of the property on the statutory trust for sale, and as to part on the statutory trust for partition, but a purchaser shall not be concerned to see or inquire whether any such consent as aforesaid has been given.

(5) (a) When such trustees for partition have prepared a scheme of partition they shall serve notice in writing thereof on all the co-owners of the age of eighteen years or upwards, and any of such co-owners dissatisfied with the scheme may, within one month after service upon him or her of such notice, apply to the court for a variation of the same.

. . .

(6) In relation to the sale or partition of property held in co-ownership, the court may alter such statutory trusts, and the trust so altered shall be deemed to be the statutory trust in relation to that property.

(7) Where property becomes subject to such statutory trust for sale:

(a) in the case of joint tenancy, a sale under the trust shall not of itself effect a severance of that tenancy,

(b) in any case land shall be deemed to be converted upon the appointment of trustees for sale unless the court otherwise directs.

. . . "

The expressions "statutory trust for sale" and "statutory trust for partition" take their meaning from s 66F(2)(a) and (3), which are as follows:

"(2) (a) Property held upon the "statutory trust for sale" shall be held upon trust to sell the same and to stand possessed of the net proceeds of sale, after payment of costs and expenses, and of the net income until sale after payment of costs, expenses, and outgoings, and in the case of land of rates, taxes, costs of insurance, repairs properly payable out of income, and other outgoings upon such trusts, and subject to such powers and provisions as may be requisite for giving effect to the rights of the co-owners."

"(3) Property held upon the "statutory trust for partition" shall be held upon trust:

(a) with the consent of the incumbrancer of the entirety (if any) to partition the property and to provide (by way of mortgage or otherwise) for the payment of any equality money, and

(b) upon such partition being made to give effect thereto by assuring the property so partitioned in severalty (subject or not to any mortgage created for raising equality money) to the persons entitled under the partition, but a purchaser shall not be concerned to see or inquire whether any such consent as aforesaid has been given."

The only other provision calling for attention at this point is s 66H:

"So far as practicable trustees on the statutory trust for sale, or on the statutory trust for partition, shall consult the persons of the age of eighteen years or upwards and not subject to disability for the time being beneficially entitled to the income of the property until sale or partition, and shall, so far as consistent with the general interest of the trust, give effect to the wishes of such persons, or, in the case of dispute, of the majority (according to the value of their combined interests) of such persons, but a purchaser shall not be concerned to see that the provisions of this section have been complied with."

The claims at first instance

The respondent, as plaintiff in the Equity Division, sought by reference to s 66G(1) an order that a named solicitor be appointed trustee of the Dover Heights property "to be held on a statutory trust for partition into lots 1 and 2 and the common property in the strata plan certified by the surveyor Jonathan Saxon on 8 February 2011". There were also claims concerning financial matters.

The appellant, by his cross claim, sought an order that the solicitor named by the respondent be appointed trustee of the property and that it be vested in that person upon the statutory trust for sale under Division 6 of Part 4 of the Conveyancing Act. Again, there were claims referable to the financial aspects of the parties' relationship.

Three things may be noted at the outset about the Conveyancing Act claims. First, each party contemplated that one individual would be appointed trustee - something that is inconsistent with s 66G(3)(a) and was attended to in the orders made. Second, the respondent's claim referring to "statutory trust for partition" specified, by means of an identified plan prepared by a surveyor (and therefore in precise detail), the particular result sought. Third, upon and by reason of the filing of the appellant's cross claim, there was extant "an application for the appointment of trustees on the statutory trust for sale", as referred to in s 66G(4).

The parties accept that the case is within s 66G(4) by reason of the appellant's cross claim; and that it was therefore for the respondent, as the party seeking partition rather than sale, to satisfy the court, in terms of s 66G(4), that partition would be "more beneficial for the co-owners interested to the extent of upward of a moiety in value" than sale. They also accept that, because they hold as tenants in common in equal shares, the s 66G(4) question goes to what is "more beneficial for" both of them.

The claims on appeal and grounds of appeal

Leaving to one side at this point the aspects of the proceedings concerning financial matters arising from the parties' relationship, the appellant's claims on appeal challenge the judge's decision to appoint trustees for partition rather than trustees for sale. The appellant contends that Order 1 should be varied so that the named trustees hold on the statutory trust for sale instead of the trust specified in that order; and that Orders 2 and 3 should be set aside.

The appellant's challenge to Orders 1, 2 and 3 proceeds on three broad bases:

1. To the extent that, in determining what was "more beneficial" for both parties, in terms of s 66G(4), the judge had regard to factors other than pecuniary or financial factors, he exceeded the function prescribed by the legislation.

2. The judge's decision on the "more beneficial" issue cannot stand both because it was affected by certain extraneous or irrelevant matters and because certain material considerations were not taken into account.

3 In any event, strata subdivision into two lots and the vesting of one lot in each party does not constitute "partition" in the sense contemplated by the statute.

The appellant further says that, even if the order for partition stands, the judge erred in declining to award "equality money" to the appellant. This aspect is closely related to the separate claims concerning financial aspects of the relationship.

The appellant acknowledges that Item 3 above was not, in a direct sense, an issue before the primary judge, although it was indirectly acknowledged by a submission on behalf of the respondent that strata subdivision was an inappropriate method of division since it did not entail a "clean break". The respondent does not oppose Item 3 being raised on appeal. It involves a question of law only and it is appropriate that it be addressed. Both parties made submissions on the matter.

Items 1 and 2 concern the court's function under s 66G(4) and the aspect of the judge's decision reflecting his being "satisfied" that partition of the property would be "more beneficial for" both co-owners than sale.

The convenient course is to consider first Items 1 and 2 and the judge's approach to and conclusions on the evaluative question whether partition is "more beneficial" to the co-owners than sale. Attention will then be given to Item 3 and the question whether, apart altogether from the judge's decision on the "more beneficial" issue, a result that sees one of two strata lots allocated to each party is consistent with the statutory provisions.

If the appellant is successful in its contention that the judge erred in appointing trustees for partition and Orders 1, 2 and 3 are set aside, the appellant's claim for an order appointing trustees for sale will be extant. There is no dissent from the proposition that, in that event, it will be appropriate that this Court make that order. The questions about the state of the account between them will remain relevant if that position is reached. That aspect of the appeal must therefore be determined whether or not the appellant succeeds on the question of sale versus partition.

A "preferred remedy"?

Before considering the issues arising on the appeal, I should say something about certain observations which, although not directly challenged, informed the judge's decision-making and much of his reasoning. He referred on several occasions to the notion that, under Division 6 of Part 4 of the Conveyancing Act, sale is the "preferred remedy" and that, in the ordinary course, an order for the appointment of trustees for sale should be made in preference to an order for the appointment of trustees for partition.

His Honour rejected that view, saying that he did not think that "it is entirely accurate to say that the legislation makes sale the 'preferred' remedy" (at [6] of the first judgment). He emphasised that s 66G(1) contemplates either sale or partition as alternative remedies, so that "a judge does not start with a predisposition towards sale simply because it is cleaner, simpler and more straightforward. The choice of sale or partition will depend on the particular facts and careful consideration of the discretionary factors" (at [8] of first judgment).

But it is important to pay attention to the way the statute works. If one co-owner applies for partition and there is no counter-claim for sale, the only question the court will have occasion to consider is whether or not there should be partition. No question of sale will arise; nor will any question of "preferred remedy". Likewise, if one owner seeks the appointment of trustees for sale and is not met by a counter-claim for partition, the question of termination of co-ownership by sale will be the only question to be decided and there will be no issue of "preferred remedy". If, however, there are competing claims - one for the appointment of trustees for sale and the other for the appointment of trustees for partition - the position will be that, having regard to s 66G(4), the claim for partition will not succeed unless the person pressing that claim satisfies the court that partition is, in the sense referred to in s 66G(4), "more beneficial" than sale. The co-owner who advances the competing claim for sale, by contrast, is not called upon to show that that remedy is "more beneficial" than partition.

If the co-owner claiming partition does not satisfy the court that partition is more beneficial than sale, the only remaining alternative would be sale of the property. This does not mean that sale is the "preferred remedy", only that once the court is not satisfied that partition is the more beneficial remedy, sale of the property remains as the only remedy available.

If, however, the co-owner claiming partition does satisfy the court that partition is more beneficial than sale, it does not follow that the court must order partition. The court still retains a discretion to choose the remedy of partition over sale

Because of the additional onus that an applicant for the appointment of trustees for partition must always discharge when pitted against an applicant for the appointment of trustees for sale, the situation is not in truth one of choice between two equally available alternatives.

Once that onus is discharged, however, the court is in a position to choose between the two outcomes according to the justice of the case. That is the point that Kearney J made in Hayward v Skinner (1981) 1 NSWLR 590, a case the judge cited in connection with the proposition that sale should not be regarded as the "preferred remedy". Kearney J referred (at 593) to the possibility that, although partition had been shown to be more beneficial than sale for the owners interested as to more than one-half, there "may, for example, be circumstances imposing considerable hardship on a minority of co-owners if the greater benefit to the majority should prevail". It is only after the s 66G(4) condition is satisfied that any notion of equally available alternatives comes into play.

The nature of partition

Under s 66G(3)(a), the function of trustees for partition is "to partition the property". The legislation makes no attempt to define "partition". The expression must therefore be given the meaning it has had at least since 1539 and 1540 when the Statutes of Partition (31 Hen 8 c 1 and 32 Hen 8 c 32) made joint tenants and tenants in common of any estate of inheritance compellable to make partition between them in the way the common law allowed for tenants in coparcenary. The common law action by writ of partition was similar to, but probably not derived from, Roman law's actio communi dividundo. Although the statutes of Henry VIII referred expressly to common law courts, the Court of Chancery quickly developed a similar jurisdiction.

In Comptroller of Stamps v Christian [1991] 2 VR 129, both Young CJ (at 133) and O'Bryan J (at 140) quoted with approval the following description of "partition" in vol 21 of the first edition of Halsbury's Laws of England (which has been repeated in later editions):

"The legal term 'partition' is applied to the division of lands, tenements and hereditaments belonging to co-owners and the allotment among them of the parts, so as to put an end to community of ownership between some or all of them."

Two examples were given in footnotes. The first was:

"[I]f three persons are co-owners, tenants in fee simple of Blackacre, Whiteacre, and Greenacre the transaction by which one of them becomes sole owner tenant in fee simple of Blackacre, another of Whiteacre, and the third of Greenacre, is a partition."

The second footnote dealt with a more complex situation based on the same assumed facts:

"[A] transaction by which one person becomes sole owner of Blackacre, while, the other two remain co-owners of Whiteacre and Greenacre, is a good partition This can only be by agreement of those persons between whom a community of ownership is left subsisting "

The effect of partition, as described by Brennan J in Nullagine Investments Pty Ltd v Western Australian Club Inc [1993] HCA 45; (1993) 177 CLR 635 at 650, is "the termination of the existing co-ownership and the passing of full title to an owner who, without requiring the concurrence of a co-owner, can occupy and use the land as he sees fit or determine its further disposition".

Where, as in this case, there are two co-owners, partition of their land entails the division of it into two parts followed by action causing each person to become the sole owner of one of those parts. If possible, the two parts must conform, as to value, to the proportions in which the parties hold in co-ownership. In some cases of enforced partition, inconvenience arising from physical features of the land cannot be avoided. In Turner v Morgan (1803) 8 Ves 143; 32 ER 307, for example, Lord Eldon confessed himself unable to make a better partition for parties holding a house in the proportions two-thirds to one-third than one that saw one take a part containing all the chimneys and fireplaces and the only staircase while the other took the remainder of the building devoid of such facilities. Where division reflecting, as to value, the parties' proportionate co-ownership is impracticable, financial adjustment will be necessary.

It is of the essence of enforced partition between two co-owners that the divided parcels passing to them severally should represent, in their aggregate, the whole of the co-owned land. No part of the original parcel may remain in co-ownership; nor may any part be put into the ownership of someone other than the co-owners. These propositions are inherent in the nature of enforced partition as a process by which persons who are in a relationship of co-ownership that one wishes to quit should neither be compelled to continue in that or any like relationship nor, viewed together, lose any part of their original parcel.

The nature of partition, thus understood, is recognised in s 66F(3)(b) of the Conveyancing Act which, in describing the "statutory trust for partition", refers to the trustees giving effect to the partition "by assuring the property so partitioned in severalty . . . to the persons entitled under the partition". The twofold message here is that the trustees can transfer only to the co-owners ("the persons entitled under the partition") and that those persons are to take the partitioned property "in severalty", that is, with each person taking his or her distinct part to the exclusion of the other person or persons.

Under s 66G(6), the court has power to alter the statutory trust for partition. It is clear, however, that any such variation cannot cause the process to be something other than "partition". This is because, according to the opening words of s 66G(6), the power to alter the trust is exercisable only "[i]n relation to the . . . partition of land held in co-ownership". A variation therefore cannot interfere with the process by which there is an assurance to the co-owners in severalty (and to them alone) of parts that together make up the whole.

"Equality money"

Section 66G contemplates the possible payment of "equality money" in case of partition. Section 66F(3)(a) includes in the functions of trustees for partition:

"... to provide (by way of mortgage or otherwise) for the payment of any equality money".

The primary judge described "equality money" as follows (at [22] of the second judgment):

"Equality money is an amount that may be ordered to be paid to one party when land is partitioned in unequal shares. It is recognised in s 66F(3) and derives from general equitable principle. Its purpose is, of course, to prevent injustice. See Chatterton v Chatterton (1989) 52 SASR 337 at 340-341 (Jacobs J); Croghan v Grosvenor (1991) 57 SASR 545 at 549; Story, Equity Jurisprudence (14th ed, 1918) at p 661 [654]; Butt, Land Law (6th ed, 2010) at [1495]."

His Honour then referred to T S Swaminatha v Official Receiver of West Tanjore (1957) AIR 577, a decision of the Supreme Court of India, as providing an example of the application of the principle.

The concept is a simple one. If, as here, there are two co-owners holding in equal shares, any partition should see them receive parts of equal value. For any one of many reasons, it may be impossible to achieve that precise result. The owner who receives the part of smaller value may then be regarded as having given part of his or her half share to the recipient of the part of greater value. Monetary adjustment by way of "equality money" - sometimes called "equality of partition" or "owelty of partition" (Wood v Drew (1864) 33 Beav 610; 55 ER 505) - will be required in such a case.

While redressing of inequality in value is the chief purpose of equality money, the concept can extend more widely. Thus, in Hopper v Hopper [2008] EWHC 228 (Ch) at [125], Briggs J referred to "the equality money necessary to avoid partition causing any beneficial advantage to one party or the other"; and in Ellison v Cleghorn [2013] EWHC 5 (Ch) the same judge approached the matter of equality money by way of a detailed examination of the actions of the parties to a co-ownership venture similar to that in this case and, in particular, whether the actions of one of them had had an adverse effect on the development value of the property.

That approach to equality money reflects thinking that informs a broader aspect of equity's jurisdiction in proceedings for partition or sale. In Re Pavlou [1993] 1 WLR 1046 at 1048, Millett J said:

"On a partition suit or an order for sale adjustments could be made between the co-owners, the guiding principle being that neither party could take the benefit of an increase in the value of the property without making an allowance for what had been expended in order to obtain it. . . . The guiding principle of the Court of Equity is that the proportions in which the entirety should be divided between former co-owners must have regard to any increase in its value which has been brought about by means of expenditure of one of them." (Citations omitted)

Millett J also said (at 1049):

"The same applies in my judgment to any capital element in the repayment of mortgage instalments. The repayment of the capital element in each instalment increases the value of the equity of redemption which inures to the benefit of both joint tenants"

His Lordship referred, in connection with this principle, to Leigh v Dickeson [1881] 15 QBD 60. The first of the quoted passages from his judgment echoes what Cotton LJ said in that case. In Brickwood v Young [1905] HCA 12; (1905) 2 CLR 387 at 394-395, Griffith CJ acknowledged the principle, noting that it was of comparatively recent development and had been doubtful until Leigh v Dickeson. The quoted passages in the judgment of Millett J were among several approved by Sheller JA in Ryan v Dries [2002] NSWCA 3; (2002) 10 BPR 19,497 at [5].

In the present case, the judge dealt separately with the question of equality money and the taking of an account of the parties' contributions. He struck a figure to equalise the contributions but allowed no equality money. The appellant contends that, because the parts of the property allocated to the parties are acknowledged to be of unequal value, this approach by the judge involved a fundamental inconsistency productive of error that this Court must correct. I shall return to that matter.

The "more beneficial" question

In coming to the conclusion that, in terms of s 66G(4) of the Conveyancing Act, partition of the property would be relevantly "more beneficial" than sale, the primary judge took a particular view about the nature of the "more beneficial" test. The appellant challenges that view.

The terminology in s 66G(4) had its origin in earlier partition legislation. A "more beneficial" criterion was included in the Partition Act 1868 (Eng) but for a purpose different from that which it serves in s 66G(4) of the Conveyancing Act.

It was the Partition Act 1868 (later copied by New South Wales legislation no longer in force) that introduced judicial sale as an alternative to a decree of partition. Sections 3 and 4 created separate and parallel regimes under which sale might be ordered instead of partition. It was s 3 that used the "more beneficial" terminology. It enacted that, in a partition suit where a decree for partition might have been made, the court could, at the request of any party, direct sale instead of partition:

"if it appears to the Court that by reason of the nature of the property to which the suit relates, or of the number of parties interested or presumptively interested therein, or of the absence or disability of some of those parties, or of any other circumstance, a sale of the property and distribution of the proceeds would be more beneficial for the parties interested than a division of the property between or among them."

This provision directed attention to what would be "more beneficial for the parties interested", that is, the co-owners collectively; and it did so in a context where the remedy would be partition unless sale was shown to be "more beneficial for" all.

The emphasis in the Conveyancing Act provision is different. Where a case for disengagement is made out, sale is to be the remedy unless it is shown that partition would be "more beneficial for" co-owners whose interests account for more than one-half by value. Attention is therefore directed to what is "more beneficial for" some only of the co-owners unless, as here, there are only two and they are equally entitled. In the present case, the question is whether partition is "more beneficial for" both the co-owners than sale.

The primary judge noted the statement of Jessel MR in Drinkwater v Ratcliffe (1875) LR 20 Eq 528 at 533 that the "more beneficial" criterion is to be approached "in a pecuniary sense" and that the court "cannot go into questions of sentiment" and "must look merely to the monetary results". The primary judge also noted that, in Cryer v Ossher [1997] NSWSC 613; (1997) 8 BPR 15,831, Young J said of Jessel MR's statement (at BPR 15,832):

"That opinion has been acted on, as far as I can see, ever since. In Rogers v Squire (1978) 23 ALR 111 at 121, Gallop J, when a judge of the Supreme Court of the Northern Territory, considered that the only matters that he needed to look at were financial matters, following Drinkwater's case, though he also took into account the fact that there would be expense involved in getting the Minister's consent and that on the evidence before him, the circumstances militated against the parties being able to get the Minister's consent. The point was not considered when the Full Federal Court dismissed the appeal from Gallop J, Squire v Rogers [1979] FCA 48; (1979) 27 ALR 330. In Panizutti, the point was not actually argued, though Needham AJA said at page 542 that he considered that the benefit referred to was a financial one; Kirby P was not quite so sure, see page 540. I think, however, if one looks at 540, what Kirby P was saying was that when one is exercising the discretion that may be imported by the word 'may' later in the section, one can look at emotional factors as well."

The reference here to "Panizutti" is a reference to the decision of this Court in Pannizutti v Trask (1987) 10 NSWLR 531. Kirby P there said (at 540) by way of obiter dicta:

"The meaning of 'beneficial' has not, apparently, been elaborated. It would appear primarily to be addressed to economic benefits, having regard to the subject matter of the subsection. But the references in the cases, including in the passage from Lord Hatherley LC's speech in Pemberton, suggest that emotional and other considerations might be relevant to the discretion being exercised. Again, it is not necessary finally to determine this question in the present appeal."

Needham AJA said (at 542);

"My present view is that the benefit referred to is a financial one, but the point was not argued and so should be kept open."

The primary judge also referred in his first judgment to the decision of White J in Re Darby [1999] 2 Qd R 350 (on comparable Queensland legislation) where the following passage appears (at [15]):

"What is 'beneficial' appears primarily to be addressed to economic benefits but emotional and other considerations might be relevant, Pemberton v Barnes (1871) LR 6 Ch App 685 at p 693."

It may be, as Young J suggests, that the statement by Kirby P regarding the possible relevance of "emotional and other considerations" was concerned with the ultimate discretion to make an order, as distinct from the "more beneficial" assessment. If that is so, Kirby P's statement says nothing about how a court is to approach that assessment. The same possibility does not exist in relation to the judgments of Needham AJA and White J. Each clearly identifies non-financial considerations as potentially relevant to the "more beneficial" question.

After referring to what had been said in the earlier cases he mentioned and to the respect that he naturally had for the reasoning of Young J, the primary judge stated his conclusion that the "more beneficial" inquiry went beyond an evaluation of the financial consequences of the respective methods of separation. He was satisfied that non-monetary factors could and should be taken into account. His Honour then embarked on an examination of the history of the parties' relationship and identified (in both the first and second judgments) a number of matters that he saw as relevant to the "more beneficial" inquiry. These included the respondent's emotional attachment to the part of the property in which he had lived with his wife and children for several years, the parties' shared objectives in their original form, the fact that partition would remove the source of the parties' disputation and the fact that each party would become the sole decision-maker in relation to his own portion and would "control his own destiny" (these last two matters would, of course, have flowed also from sale). In his second judgment, the judge stated (at [14]) a firm conclusion on his approach to the "more beneficial" inquiry:

"I should make clear at the outset that this is not a case requiring comparison of the respective economic benefits to be derived from partition and sale."

The primary judge was of the view that the ability to have regard to non-financial considerations was supported by the express reference by Kirby P and White J to Pemberton v Barnes (1871) LR 6 Ch App 685. That, however, was a case arising under s 4 of the Partition Act 1868, not s 3. Section 4 dealt with the situation where co-owners interested to the extent of one moiety or upwards requested the court to order sale rather than partition. In such a case, the court was required to order sale "unless it sees good reason to the contrary". The judicial task there was quite unlike the s 3 task of deciding what was "more beneficial for" relevant co-owners. The speech of Lord Hatherley LC contained a passage (at 693) quoted by Kirby P (and obviously referred to by White J), as follows:

"... that is to say, the onus is thrown on the person who says the

Court ought not to order a sale, to shew some good reason why it should not do so; otherwise, the Court is bound to order it. The scope of the enactment appears to me to be this: there being, as I have said, reasons that may induce some of the part owners to wish for a partition, and others to wish for a sale and a division of the proceeds, the Legislature says that if the votes are equally divided, one half of the persons interested in the property desiring a sale and the other half a partition, then the half requiring the sale shall have the preponderating voice, and the Court shall be bound to give them a sale wholly irrespective of the 3rd section [providing for partition]. But still there is a certain discretion left to the Court, so that the Court can refuse a sale where it is manifestly asked for through vindictive feeling, or is on any other ground unreasonable ...."

In that passage, the Lord Chancellor was not discussing the "would be more beneficial" test in s 3 of the Partition Act. He was concerned wholly with the "good reason to the contrary" question posed by s 4; and it was natural for him to canvass issues much wider than the confined issue to which s 3 directed attention. For this reason, I am of the view that Lord Hatherley's observation, as quoted by Kirby P and relied on by White J, provides no assistance in interpreting the criterion in s 66G(4) defined by the words "partition of the property would be more beneficial for the co-owners interested to the extent of upwards of a moiety in value than sale".

The primary judge stated another reason for thinking that the "more beneficial" criterion was concerned with factors going beyond financial matters. He said (at [14] of the first judgment):

"In any event, in his subsequent decision in Gilbert v Smith (1879) 11 LR Ch D 78, Jessel MR applied the criterion of 'more beneficial' broadly by reference to considerations such as the nature of the property and the number of parties interested."

Gilbert v Smith (1879) LR 11 Ch D 78 was a case involving s 3 of the Partition Act. It therefore focussed directly on the "more beneficial" question. That Jessel MR should have proceeded as he did in that case is not surprising when regard is had to the terms of s 3, as set out at [50] above. The section itself defined, by the words "by reason of", a particular context within which the "more beneficial" question was to be approached by the court. One element of that context was the number of the persons interested so that, for example, if there were numerous equal co-owners of a very small plot, the fact that partition would place an unsaleable parcel in the hands of each would be a financial factor relevant to the "more beneficial" assessment. The Master of the Rolls paid attention to that and certain other factors when evaluating what was financially "more beneficial" because that is what the legislation required him to do. But his assessment remained one based on evaluation of financial considerations.

On analysis, it is seen that neither Pemberton v Barnes nor Gilbert v Smith provides any basis for the primary judge's rejection of the proposition that financial considerations alone are relevant to the "more beneficial" question posed originally by s 3 of that Act and now (although in a somewhat different way) by s 66G(4) of the Conveyancing Act.

In the first judgment, the primary judge referred, in a connection other than the present, to the decision of Master Cohen (as he then was) in Dunston v Dunston (unreported, NSWSC, Cohen M, 14 September 1983). The judgment in that case contains the following passage concerning s 66G(4):

"It seems clear that where the section refers to matters being more beneficial it is intended to mean in a pecuniary sense rather than beneficial for sentimental reasons. Under the Partition Act (Imp) the court could in certain circumstances order sale of property if it were more beneficial to the parties. It was held by Jessel, M.R in Drinkwater v Ratcliffe, (1875) 20 Eq 528 that the court can only look at what is beneficial in a pecuniary sense."

Master Cohen observed that the meaning he considered applicable had been accepted in proceedings under s 66G by the parties and by the court in Hayward v Skinner (above). A perusal of the judgment of Kearney J in that case, particularly at page 594, shows that that assessment is correct.

It is also relevant to note that the approach taken by Jessel MR in Drinkwater v Ratcliffe has been approved in several other jurisdictions where a "more beneficial" test is employed in a similar statutory context: Jabs Construction Ltd v Callahan [1992] 1 WWR 748; Nevin v The Beneficiaries of The Peppermint Beach Estate Trust [2002] WASC 300; Wong Chun Kei Johnny v Poon Vai Ching [2005] HKCFI 19.

In my respectful opinion, the statement of principle by Young J in Cryer v Ossher is correct. It is true that decided cases contain a few tentative references to the theoretical possibility that non-financial factors may be taken into account. But no one has tried to explain how the process of comparison would work if those factors were included in the mix. I do not accept that s 66G(4) allows some process of accounting in which an imaginary balance sheet contains not only factors that, of their nature, are capable of expression in money terms but also matters such as emotional attachment and originally shared objectives to which no money value can be attached. Such a hybrid collection of balance sheet items would provide no intelligible basis for making the comparison that s 66G(4) requires.

It follows that I accept the submission of counsel for the appellant that the primary judge misdirected himself as to the matters properly to be taken into account in applying s 66G(4) and making the evaluative judgment called for by that section. The inquiry should have been confined to financial considerations.

The judge's decision on the "more beneficial" question

A major factor in the judge's decision that partition would, for both parties, be more beneficial than sale was his finding that it was more probable than not that on a strata subdivision the value of the lots would exceed the value of the total parcel. That factor, being of a financial nature, was properly taken into account. But the appellant contends that the judge's finding was unavailable because there was no evidence to support it. That contention is valid. The finding had no foundation in evidence before the judge. There was evidence of the respective values of the parts but no evidence of the value of the undivided whole. His Honour himself put to the defendant when he gave evidence the proposition on which he ultimately relied but the defendant did not accept it. Even if he had, his opinion would have had no probative value.

The appellant then points to several factors, some of which have already been mentioned briefly, that influenced the judge's decision on the "more beneficial" question and which, the appellant says, were extraneous or irrelevant factors, namely:

(a) strata subdivision was, in his Honour's view, "the obvious and logical choice" based on his own "examination of the plans" (first judgment at [2], [25], [33]; second judgment at [10]);

(b) partition would enable the respondent to remain in the house where he and his family had lived since 2005 (first judgment at [34]);

(c) the respondent had "invested considerable monetary and emotional capital, not to mention fifteen years of his life, in the project" (first judgment at [34]);

(d) "for both the plaintiff and the defendant partition will involve certainty and security of title in accordance with their original objective" (first judgment at [34]);

(e) partition "will enable both of them to re-finance on a separate basis their current joint indebtedness to the Commonwealth Bank" (first judgment at [34]);

(f) partition "will remove the source of their disputation" (first judgment at [34]);

(g) "the bank's proceedings for possession of the jointly owned property should be resolved" (first judgment at [34]);

(h) the court should seek to give effect to "the parties' earlier objective" concerning development of the land (first judgment at [37]).

With the possible exception of (e), these are factors of a sentimental, emotional or psychological kind foreign to the analysis that the court is required to undertake. In addition, several of them are equally applicable to sale (for example, (e), (f) and (g)); and some are irrelevant - particularly those that pay attention to the parties' original intentions.

The appellant also identifies factors which, he says, were relevant to the proper assessment of what was "more beneficial" for the co-owners but were not taken into account, namely:

(a) the legislation aims to provide a simple and inexpensive method of terminating co-ownership;

(b) partition on the basis the judge ordered would not be either simple or inexpensive when compared to sale;

(d) the appellant was entitled to choose not to cooperate with the respondent;

(e) it was for the respondent to satisfy the court that partition would be more beneficial for the co-owners than sale;

(f) transfer of the proposed lot 1 to the respondent without the payment of equality money would not be more beneficial to the appellant.

I accept that these are, by and large, factors of a financial kind relevant to the s 66G(4) assessment.

The major factor identified by the judge that was of the relevant financial kind was that the value achieved through transfer of the separate lots to the parties would exceed the value achieved for each through sale of the whole. But, as I have said, the judge had no evidence before him that would have supported that view. Beyond that, there was reference to the perceived benefit of being able to refinance the Commonwealth Bank loan if each held a separate lot. But, of course, each would have money with which to clear the bank debt if there were a sale, given that, as the judge mentioned at [31] of the second judgment, the loan balance at 3 September 2012 was $894,172.29, a sum that, as is indicated by the valuation evidence referred to at [126] below, might confidently be expected to be significantly less than that which would be realised by a sale of the unsubdivided property.

In summary, I accept that the judge's finding that partition in the particular way would be more beneficial for the co-owners than sale was reached on the basis of irrelevant considerations and that an appropriate financial comparison was not undertaken. For that reason, the necessary foundation for a finding that partition would be the more beneficial remedy was lacking and the finding cannot stand.

Strata subdivision

I turn now to the ground of appeal based on the strata titles legislation, noting again that the matter was not argued before the primary judge.

When a strata plan is registered under the Strata Schemes (Freehold Development) Act 1973 in respect of particular land, there occurs, by force of that legislation, a division of that land (including the buildings forming part of it) into "lots" and "common property". Separate certificates of title under the Real Property Act are issued for each lot and the common property. Each lot has a "unit entitlement" specified in the strata plan.

The lots are, in effect, cubes of airspace defined by a combination of lines and other markings on the registered strata plan and physical features of the buildings such as the surfaces of floors, walls and ceilings. The common property is so much of the original land (including buildings) as is not included in the lots. In a residential setting, lots usually comprise living quarters and car parking spaces, while the common property is typically outdoor areas (lawns, gardens, paths, driveways and the like) together with the fabric of the buildings excluding the inner surfaces of floors, walls and ceilings. This aspect of the strata titles legislation was explained by this Court in The Owners - Strata Plan 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272; (2007) 13 BPR 24,789.

Upon registration of a strata plan, s 11(1) of the Strata Schemes Management Act 1996 causes an "owners corporation" to come into existence as a body corporate and s 18(1) of the Strata Schemes (Freehold Development) Act causes the common property to be vested in that owners corporation. If the relevant land is held by two co-owners before registration of the strata plan and that plan creates two lots, the two co-owners together become the first owners of both lots and, under s 20(a) of the Strata Schemes (Freehold Development) Act, the owners corporation holds the common property "as agent for" them. If, at a later time, the two co-owners each become the sole proprietor of one of the two lots, s 20(b) has the effect that the common property is held by the owners corporation "as agent for" the two persons "as tenants in common in shares proportional to the unit entitlements of their respective lots". By s 24(2), the "beneficial interest" of a lot proprietor in the common property held by the owners corporation as agent for that proprietor "shall not be capable of being severed from, or dealt with except in conjunction with," his or her lot.

The effect of these provisions, as they affect the common property, was described in the following passage in Carre v Owners Corporation - Strata Plan 53020 [2003] NSWSC 397; (2003) 58 NSWLR 302 at [28]-[29] quoted with approval by Spigelman CJ (Ipp and McColl JJA concurring) in The Owners - Strata Plan No 43551 v Walter Construction Group Ltd [2004] NSWCA 429; (2004) 62 NSWLR 169 at [45] and by McColl JA in Ridis v The Proprietors Strata Plan 10308 [2005] NSWCA 246; (2005) 63 NSWLR 449 at [119]:

"[28] ...The statute seems clearly enough to proceed on the footing that each proprietor of a lot is to be regarded as the equitable owner of an undivided interest as one of several tenants in common in the estate or interest of which the owners corporation is the legal owner. ...

[29] It is clear from the statutory scheme that an owners corporation is in no sense the beneficial owner of common property. Its ownership is always in a representative capacity identified by the Act as that of 'agent', with the lot proprietors, as the owners in equity of undivided interests as tenants in common, each identified as having a 'beneficial interest'."

Thus, while the lots in a strata plan are vested in the lot proprietors severally, the common property is vested in the owners corporation (a body corporate) which holds as trustee for all the lot proprietors in proportion to their unit entitlements; and they are equitable tenants in common of that common property accordingly but on the footing that their interests in the common property cannot be alienated except in conjunction with their respective lots.

The strata subdivision in this case

The judge's orders contemplate partition in accordance with an identified draft strata plan. That plan provides for the creation of two strata lots. Lot 1 lies to the north of (and above) Lot 2 which abuts the street. Each lot includes a multi level dwelling. There are five levels in all and, with one exception, each level incorporates one or more parts of each lot. The exception is level 5, which does not include any part of Lot 1.

The draft strata plan expressly designates various parts as common property. For example, it is stated that any service line serving one lot and located within the other lot forms part of the common property. In addition the driveway is designated common property. Photographs included in a valuation report in evidence show that the driveway is, for part of its length, within a tunnel one wall of which is a natural rock face while the other is made of bricks. The ceiling is concrete and there are supporting concrete columns along the side adjacent to the rock face.

The primary judge said at [15] of his second judgment that "[t]here is currently minimal common property. And there may be even less when the trustees for partition have prepared a scheme pursuant to s 66(5)(a)". The tunnel could not be regarded as "minimal" and no amount of adjustment could overcome the effect of the strata titles legislation referred to at [81] above.

The strata titles legislation compels the conclusion that, as the appellant contends, implementation of the judge's order will not bring about partition in the sense relevant to s 66G of the Conveyancing Act; and this will be so whatever adjustments or refinements the trustees might impose as part of a scheme of partition. The parties will remain, in equity, tenants in common in equal shares of such parts of the original land as become the common property of the strata scheme. While that result may see the original bond of co-ownership dissolved, that bond will be immediately replaced in the eyes of equity by a like bond in respect of the strata scheme common property. There will be no assuring of the whole of the property the subject of the strata subdivision in severalty only to the appellant and respondent and to no other person, as required by a "statutory trust for partition" in s 66F(3)(b) (see [37] above).

I do not accept the submission made on behalf of the respondent that implementation of the orders will, in truth, bring about partition because the existing relationship of co-ownership will be brought to an end, albeit in circumstances where a new statutory form of co-ownership supersedes it. Equity regards the parties today as tenants in common in equal shares in respect of the whole of the land, as does the common law. After implementation of the orders, equity will regard the parties as tenants in common in equal shares of the part of the land that has become the strata scheme common property and the common law will regard the owners corporation as the sole owner of that part. Because partition is granted or withheld in equitable jurisdiction, it is the view of matters taken by equity that must prevail.

Another aspect of the draft strata plan should be noted. Its schedule of unit entitlements ascribes an entitlement of five to each lot, so that the aggregate unit entitlement is ten. The Strata Schemes Management Act requires certain matters concerning a strata scheme to be determined by a general meeting of the owners corporation. In a case where there are only two owners, the quorum for such a meeting is two (Schedule 2, clause 12(2)). Motions put to a meeting are to be determined by the votes of owners on the basis of one vote per lot except in the case of a poll or special resolution, in which event voting is according to unit entitlement (Schedule 2, clause 18). The chairperson does not have any casting vote if the votes are equal (Schedule 2, clause 15(3)). Under Part 2 of Chapter 3, the owners corporation has certain duties and powers in relation to the common property.

These provisions about meetings and voting show that, if the parties become lot owners in the strata scheme, the potential for dispute and deadlock between them will continue and there will exist no ready means of breaking such deadlock. The aspect of partition that sees each owner freed altogether from the tie that comes from co-ownership and the need to co-operate accordingly will be denied if the strata subdivision is implemented.

Because co-ownership in equity will continue in respect of part of the land now co-owned and there will be no disengagement of the parties in relation to decision making regarding that part, the vesting in each party of one of the lots in the strata subdivision will not result in partition of the currently co-owned land in the sense relevant to s 66G of the Conveyancing Act.

Conclusions to this point

The claims of the appellant succeed on two bases. First, the primary judge misdirected himself on the nature of the inquiry under s 66G(4) and is therefore shown to have answered the question posed by that section by reference to certain irrelevant considerations and without regard to certain relevant considerations. The decision on the s 66G(4) issue, which is crucial to the making of an order appointing trustees for partition, was therefore erroneous.

Second, the appellant has shown that a strata subdivision of the type proposed as the means of achieving partition between the parties would not, as a matter of correct legal classification, achieve that result at all.

It follows that the appeal should be allowed, that the orders for the appointment of trustees for partition should be set aside and that this Court should make orders for the appointment of trustees for sale generally as sought in the appellant's cross claim.

It remains necessary, however, for the state of the financial account between the parties to be settled. I therefore proceed to address the grounds of appeal dealing with that aspect.

The taking of an account

As I have mentioned, the primary judge undertook, as an adjunct to his determination of the question of termination of co-ownership, an inquiry into the state of the account between the co-owners in respect of moneys outlaid in connection with the acquisition, retention, preservation and improvement of the property owned by them in common. His Honour did so on the agreed basis that, as the parties owned in equal shares, they were entitled to financial benefits equally and bound to bear financial detriments equally.

The parties agreed that their contributions to the purchase price of the land and other acquisition costs were appropriately dealt with in the same way as outlays on retention, preservation and improvement. In the absence of such agreement, a different approach would have been indicated. Where, as here, there is no relationship attracting a presumption of advancement, the respective contributions of co-owners to the acquisition of co-owned property (with jointly borrowed purchase money being regarded as provided in equal shares) are presumed to indicate the proportionate equitable interests of persons who, at law, are equal co-owners: see, for example, Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 at 245. The presumption is, however, rebuttable; and the fact that the parties have, in this case, proceeded in the way described may be taken as sufficient evidence of their intention to displace it, at least in the context of the taking of the account in the agreed manner.

The taking of the account proceeded in a somewhat unusual way. In consequence of his first judgment delivered on 19 October 2011, the judge foreshadowed that certain relevant matters would be referred to a referee for inquiry and report. He directed that the parties attempt to agree a list of matters to be the subject of the reference and that they inquire as to the availability of a particular barrister to act as referee. By the time the matter came back before the judge on 3 September 2012, the referee had delivered his report. His Honour said in relation to that report in his second judgment (21 September 2012) at [7]:

"The reference did not manage to achieve everything which I had hoped, but with the commendable assistance of counsel at this hearing, the remaining issues were narrowed and the residual forensic dispute was limited."

His Honour also said, in relation to the hearing that began on 3 September 2012 (at [42] - [44] of the second judgment):

"42 As events transpired at the hearing, the parties adopted a pragmatic approach to the findings in the referee's report. Both counsel co-operated in identifying the findings with which they agreed and those with which either one of them disagreed. Where there was no relevant finding, evidence was led and I was asked to arrive at the correct figure. In effect, the addresses of counsel subsumed their individual objections to particular findings in the report in more general submissions designed to persuade me to reach the figures for which each respectively contended. The principal focus, putting aside the amounts claimed for equality money and an occupation fee, was on the amount of the parties' respective contributions towards the construction costs and the amount of the plaintiff's proportionate responsibility for the Commonwealth Bank loan.

43 The defendant's counsel led the way in this sensible, co-operative and pragmatic approach. The hearing was largely conducted by reference to a schedule which he prepared. It was described as 'Defendant's Combined Schedule 04.09.12 (Agreed figures in green)'. As I have already mentioned, only three items appearing on the schedule were in dispute. I have identified those items and my reasoning in relation to them in paragraphs [35] to [38] above.

44 The resolution of those three disputed amounts necessarily implies some adoption, rejection or variation of findings by the referee. It also required, in part, an attempt by the defendant to have me engage in the determination of whether, on some issues, there was sufficient evidence before the referee to support the plaintiff's claim or the referee's finding. In addition, there was one issue on which the plaintiff's evidence in support of a particular claim had not been put before the referee but was tendered before me."

He then referred to principles concerning motions for the adoption, rejection and variation of referees' reports as stated by McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 and noted that the court's discretion, in that respect, "is wide". The second judgment continued (at [48] - [49]):

". . . In this case, it has been influenced by the fact that I have conducted a further hearing which covered much of the same factual ground and was designed to finalise the position between the parties. I readily allowed the parties to tender further evidence and to put further submissions on matters that had been agitated before the referee. The objective was to finalise the accounting on all issues between the parties, not all aspects of which had been achieved in the reference.

49 The result has been that I have acquired a good appreciation of the issues, the evidence and the competing contentions that are relevant both to the merits and to the questions of adoption, rejection or variation of the report. The process has enabled me to be confident about where the interests of justice lie and the extent to which my discretion should be exercised - either to intervene in the findings of the referee or to refrain from doing so. Where a clear mistake was demonstrated, even of a factual nature, I have thought it appropriate to correct it in accordance with the evidence that was tendered in the hearing before me. Where the referee was unable to make a finding because of the absence of evidence, and that evidence was tendered before me, I have made the finding that I thought was appropriate. Where the defendant contended that the evidence before the referee did not support the finding made by him, I have taken into account the plaintiff's opposing contention, considered the nature and quality of the evidence that was available to the referee, and in each case exercised my discretion to refrain from interfering with the findings in issue."

Two things should be said about these observations. First, the judge's action in "correcting" what he saw to be "clear mistakes" of fact in the referee's report is at odds with the approach that should be taken in such matters, at least where the correction concerns a disputed question of fact and there is factual material sufficient to entitle the referee to reach the conclusions he or she did. Ordinarily, the court does not interfere with findings of fact by a referee where the referee has based the findings on a choice between conflicting evidence. Intervention is, however, warranted if there has been a patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding producing a conclusion that no reasonable tribunal of fact could have reached. These propositions are enunciated at items (6) and (7) of the statement of principle by McDougall J in Chocolate Factory Apartments Pty Ltd v Westpoint Financial Pty Ltd (above) at [7].

Second, however, the parties were content, as a practical matter, to acquiesce in the process that saw a combination of agreement between them and acceptance of the referee's conclusions narrow their differences until only a few remained. They were further content for the judge to decide the remaining matters. His Honour did so and recorded his findings in the second judgment. Even then, some matters of "arithmetical calculation and adjustment" remained, but the result, in broad terms, was as described in the following part of the second judgment (at [41]):

"The difference in contributions towards the building and construction costs appears to be approximately $1 million in favour of the plaintiff. Against that, the plaintiff's proportionate responsibility for the Commonwealth Bank loan is likely to be approximately $800,000 when Mr Low's calculations are re-worked. The net balance in favour of the plaintiff will therefore be in the order of $200,000. After delivery of these reasons, I will allow a short further opportunity to the parties for the purpose of finalising these amounts and settling appropriate orders. The plaintiff will be entitled to an order for payment of the net balance. He will also be entitled to an equitable charge over the defendant's [proposed] Lot 2 to secure the monies owing to him."

The appellant contends that the primary judge erred in three respects in reaching this conclusion. The alleged errors will be considered in turn.

The first alleged error: $86,941

The respondent, an electrician by trade, carried out extensive work on the dwelling that, according to the parties' original plan, would be the appellant's house. The work was done between February 2005 and March 2007. The respondent invoiced the appellant periodically for this work. The parties agreed that the appellant paid the respondent $480,715 in this connection. The judge found (at [39] of the second judgment) that there was an unpaid balance of $86,941 and that that sum should be allowed against the appellant and in favour of the respondent in the accounting between them.

The appellant says that there was no basis for this allowance because neither party asked the judge to address the issue. It is also said that he failed to give reasons for his decision on it and therefore cannot be seen to have taken into account a number of relevant matters raised by the appellant.

Counsel for the appellant accepted, however, that the origin of the $86,941 was readily discoverable from the materials that were before the judge. These included a schedule of "contributions in cash or kind to purchase and development" split into two sections, "Defendant's version" and "Plaintiff's version", showing against the same set of headings in each version items that were agreed and items that were not agreed. There were three items in the latter category. One of them was for labour and materials supplied. It was agreed that the respondent had contributed $985,486 for labour and materials and that the appellant had contributed at least $480,714.80. The proposition in dispute was whether the respondent's total contribution was $567,655.80, that is, $86,941 more than the agreed sum of $480,714.80.

When regard is had to this schedule, the position is, to my mind, clear and a sound basis can be seen for the way in which the judge decided that there should be an allowance of $86,941 in favour of the respondent.

The schedule, read together with the footnotes, showed that the $480,714.80 claimed by the appellant formed part of the $567,655.80 and that the respondent had done work to the value of $567,655.80 and been paid $480,714.80, so that the difference of $86,941 was owing by the appellant to the respondent. As Mr Loxton of counsel pointed out, this interpretation also accords with a finding of the referee that there was a credit to the respondent for work done in 2006-2007 which the referee quantified at $86,896. That figure does not correspond exactly with the $86,941 emerging from the schedule but the fact that the figures are very nearly the same and that, after the receipt of the referee's report, the parties engaged in a process that involved refinement and agreement warrants a finding that the respondent was correctly regarded as entitled to an allowance or credit of $86,941.

There is a paucity of explanation and reasoning by the judge on this matter. He stated conclusions without reference to the evidence supporting them. It is sufficiently clear, however, that the evidence supports the conclusions in the way I have described.

The appellant's contention on appeal concerning the $86,941 allowance therefore fails.

The second alleged error: $75,000

The parties obtained construction financing from the Commonwealth Bank. The taking of the account proceeded on the footing that each was responsible for one-half of all moneys owing to the bank.

A drawdown of $150,000 was made under the bank facility in August 2005. The referee found at [19] of his report that the drawdown was obtained "for the benefit of the plaintiff as to $75,000 and the defendant as to $75,000". The judge, having reviewed the evidence, found that to be an incorrect conclusion. His Honour said (at [33] of the second judgment):

"The correct analysis of what occurred is that, in the events which happened, the defendant received the benefit of the whole of the drawdown of $150,000. The referee's finding in paragraph [19] of the report that 'a further $150,000 was drawn down on 15 August 2005 for the benefit of the plaintiff as to $75,000 and the defendant as $75,000', represents an incorrect statement of the factual position. In fact, the $75,000 received by the plaintiff was set off against monies due by the defendant."

He continued, also at [33]:

"Whether or not the referee had the benefit of the evidence I received, the correct position should be recognised and acted upon."

The primary judge did not identify the evidence to which he referred. It was suggested in submissions before this Court that the evidence consisted of an entry in an invoice delivered by the respondent to the appellant in which there is an item dated 26 August 2005 as follows:

'Received 75.000 from Phill S".

(This was accepted as being a reference to the appellant, Phillip Segal.)

There was thus evidence that the appellant paid $75,000 to the respondent and that the respondent received $75,000 from the appellant, with the result that a benefit of $75,000 flowed to the respondent at the expense of the appellant. In the context of pre-existing indebtedness of the appellant to the respondent, that benefit served to reduce that indebtedness of the appellant - or, in the judge's words, "was set off against" what the appellant owed to the respondent.

Although the judge's exposition is cryptic, resort to the evidence serves to identify the reasoning process and to show that it was correct. The adjustment should therefore stand. To the extent that that outcome entails rejection of part of the referee's report, that outcome is warranted by what can be seen to have been a patent misunderstanding of the factual position by the referee.

The third alleged error: occupation fee

As has been noted, the respondent and his family have lived in the completed house for some years. The primary judge nevertheless did not accept that a liability of the respondent for an occupation fee should be recognised upon the taking of the account.

The judge referred in the second judgment to a number of decided cases (including Ryan v Dries (above) at [6] (Sheller JA), [12] (Giles JA), and [27], [61] and [75] (Hodgson JA); Luke v Luke (1936) 36 SR (NSW) 310 at 314 (Long Innes CJ in Eq); McMahon v Public Curator (Qld) [1952] St R Qd 197 at 201 (Macrossan CJ); and McCormick v McCormick [1921] NZLR 384 at 387-388 (Salmond J)) and quoted the following passage from the judgment of Meagher JA in Foregard v Shanahan (1995) 35 NSWLR 206 (at 223):

"As far as equity is concerned, an occupation fee will be exacted in at least two circumstances: first, in a partition suit (or related litigation): if there has been an exclusion, the tenant in occupation will be charged with an occupation fee (see, eg Pascoe v Swan (1859) 27 Beav 508; 54 ER 201); this is an example of equity following the law: and secondly, if the owner in occupation claims an allowance in respect of improvements effected by him, equity will permit such an allowance only on terms that he is accountable for an occupation fee - this is an example of he who comes to equity having to do equity: see Teasdale v Sanderson (1864) 33 Beav 534; 55 ER 476.

His Honour then said (at [28]):

"Both circumstances explained by Meagher JA contemplate one co-owner in occupation and another that is not: Forgeard at 223-4 (Meagher JA) and 215 (Kirby P). The above quoted passage from Forgeard is preceded by the following prefatory words which explain and confine its operation:

'Turning to the liability of a co-owner in occupation to pay an occupation fee, the position at law is fairly clear. He was not liable unless he excluded his co-owner.'"

The judge then went on to find that, although the respondent and his family had taken up residence in the completed house, there had been no relevant exclusion of the appellant from the land. There is no challenge to that factual finding. In the result, therefore, no occupation fee was payable.

The appellant submitted in this Court that the second part of the formulation in Foregard v Shanahan (the part dealing with the situation where the co-owner in occupation claims an allowance for improvements), which the judge did not mention, supported the allowance of an occupation fee.

It is true that the judge did not deal with that alternative basis. But there was no occasion for him to do so. The appellant's cross-claim was quite explicit in this respect. It pleaded as follows:

"The cross defendant [present respondent] is liable to pay the cross claimant [present appellant] an occupation fee for the period in which he has enjoyed exclusive possession of this property."

The case presented at trial was wholly on the basis of this pleading premised on a finding of exclusive possession. The claim for allowance of an occupation fee was not founded on any claim by the respondent for recognition of improvements effected by him.

The appellant sought to rely on a statement in [63] of its Short Outline of Submissions to the court below that "where the plaintiff [the respondent on the appeal] is effectively claiming an allowance for improvements effected to the common property (ie in the sense of commonly owned property, not common property in the strata title sense), he must submit to being charged with an occupation rent". However, the appellant made no application to amend his pleadings to raise this alternative claim. Furthermore, the appellant's immediately following submissions in [64]-[66] proceeded on the basis of the originally pleaded claim that the plaintiff and his family had been in occupation and had "very much greater use of the property". I do not accept, therefore, that the appellant put his case at trial on the alternative basis or should be permitted to advance this alternative basis on appeal.

This challenge to the judge's decision does not succeed.

Conclusions in relation to the account

The appellant has not succeeded in showing that any of the challenged aspects of the account (concerning the $86,941, the $75,000 and the occupation fee) requires revision of the result.

Because the appellant has succeeded in showing that the order appointing trustees for partition cannot stand, there is no need to revisit the matter of equality money. It can, however, be said that, had that order stood, it would have been necessary to vary the judge's orders by adding a requirement that the respondent pay equality money to the appellant. Among the judge's orders was a declaration that, upon partition the respondent was entitled to receive from the appellant the sum of $428,080.50 "by way of equitable accounting". This resulted from a finding that the respondent had made greater contributions than the appellant to the expenses of acquisition, retentionand improvement of the property owned by both. The particular adjustment brought about equality in the bearing of the burden of those contributions.

But the effect of the division the judge sanctioned, had it occurred, would have been to cause the parties to own separate properties of different values. The judge had valuation evidence before him. The witnesses' opinions as to the value of the proposed Lot 1 ranged from $2,610,000 to $2,900,000. The range for the proposed Lot 2 was $2,375,000 to $2,287,500. The judge did not come to any concluded view of the value of either proposed lot. But he did recognise that the proposed Lot 2 that was to become vested in the appellant was less valuable than Lot 1 which was to pass to the appellant. Given, therefore, that the adjustment of $428,080.50 would have equalised the parties' contributions and the partition decreed would have seen the appellant disadvantaged by receiving a lot of lesser value than the lot the respondent received, why did the judge not make provision for equality money?

The answer is found in the following part of the second judgment (at [24]-[25]):

"The proposed Lot 2 to which the defendant will be entitled happens to be less valuable currently than the proposed Lot 1 to which the plaintiff is entitled simply because the defendant has chosen to cease carrying out construction work on the dwelling house that was intended to be his. That house is incomplete while the plaintiff's house, in which he lives with his family, is complete. The current value of the proposed Lot 2 is understandably less than that of the proposed Lot 1. But the lesser value of the proposed Lot 2 is a function of the defendant's own conduct.

I will in due course adjust the rights of the parties to take account of their unequal contributions in cash and in kind to the construction of the buildings on the land. I will also adjust their rights to take account of their different proportionate responsibilities for the Commonwealth Bank housing loan. But there is no occasion or necessity to provide for equality money to prevent any injustice to the defendant."

There was, in that explanation, no good reason for refusing to allow monetary compensation for the smaller value of the part to be taken by the appellant. The position is presented as one of delinquency of the appellant in failing to pursue construction. But any such notion of delinquency was irrelevant once financial adjustment had produced a situation where each party had borne one half of the cost of bringing each house to the state in which it existed, whether as a completed and inhabitable dwelling or as a partially completed dwelling.

Had it been appropriate to allow the order appointing trustees for partition to stand, it would have been necessary for this Court to order the allowance of equality money in favour of the appellant in an amount equal to one half of the difference in value between Lot 1 and Lot 2. Whether this Court could have determined the quantum on the evidence available or would more appropriately have remiited that question to the Equity Division is a question that it is not necessary to decide.

Disposition

It follows from the several conclusions I have stated that, in my opinion, the appeal should be allowed.

The order appointing trustees for partition should be set aside. In its place, this Court should make an order for the appointment of trustees for sale. The persons originally appointed as trustees for partition are suitable persons to be appointed trustees for sale. There should, however, be no such appointment unless their written consent is furnished to the Court.

The orders of the primary judge in respect of the referee's report should stand, as should the declarations concerning the balance outstanding under the Commonwealth Bank loan and the entitlement of the respondent to receive money from the appellant upon termination of the co-ownership (but with the latter varied to reflect the fact that the termination will be by sale rather than partition).

The orders concerning the entitlement of the respondent to a charge on the strata lot passing to the appellant for the moneys that the respondent is entitled to receive from the appellant should be replaced by an order requiring the net proceeds of sale to be divided in such a way that allowance for those moneys is made against the appellant and in favour of the respondent.

There should be an order for the payment of all expenses of sale out of the proceeds of sale before the entitlements of the parties to the net proceeds are struck.

The parties should make submissions on the question whether the costs order made by the primary judge should be varied and, if so, how.

The respondent should be ordered to pay the appellant's costs of the appeal.

The respondent should have a certificate under the Suitors Fund Act 1951, if qualified.

The parties should be directed to bring in agreed short minutes of orders giving effect to the foregoing [130] to [134], [136] and [137]; and to make submissions in writing on [135].

The Court should defer the making of orders until the short minutes and submissions have been received.

PRESTON CJ of LEC: I agree with Barrett JA.

.

**********

Decision last updated: 29 April 2013

Medium Neutral Citation:	Segal v Barel [2013] NSWCA 92
Hearing dates:	9 April 2013
Decision date:	29 April 2013
Before:	McColl JA (at [1]); Barrett JA (at [2]); Preston CJ of LEC (at [140])
Decision:	The parties are to bring in agreed short minutes of orders giving effect to paragraphs [130] to [134], [136] and [137] of the judgment; and to make submissions in writing on [135]. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	REAL PROPERTY - partition of land - partition or sale in partition actions - statutory trust for sale or partition - where primary judge granted one co-owner's application for appointment of trustees for partition in preference to the other co-owner's application for appointment of trustees for sale - finding that partition would be "more beneficial for" the co-owners than sale - nature of the "more beneficial" assessment - whether non-financial matters may be taken into account - nature of "partition - whether partition achieved if each co-owner receives one lot in a strata subdivision - nature of equitable co-ownership of strata scheme common property by lot owners discussed - such equitable co-ownership incompatible with partition - REAL PROPERTY - partition of land - ancillary matters - financial adjustments - "equality money" - taking of account to ascertain co-owners' contributions to expenditure enhancing the value of the land
Legislation Cited:	Conveyancing Act 1919, Division 6 of Part 4, ss 66F, 66G, 66H Partition Act 1868 (Eng), ss 3 and 4 Real Property Act 1900 Statutes of Partition (31 Hen 8 c 1 and 32 Hen 8 c 32) Strata Schemes (Freehold Development) Act 1973, ss 18(1), 20(a) and (b), 24(2) Strata Schemes Management Act 1996, s 11(1), Schedule 2, clauses 12(2), 15(4),18
Cases Cited:	Barel v Segal [2011] NSWSC 1181 Barel v Segal (No 2) [2012] NSWSC 1054 Barel v Segal (No 3) [2012] NSWSC 1319 Brickwood v Young [1905] HCA 12; (1905) 2 CLR 387 Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 at 245 Carre v Owners Corporation - Strata Plan 53020 [2003] NSWSC 397; (2003) 58 NSWLR 302 Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 Comptroller of Stamps v Christian [1991] 2 VR 129 Cryer v Ossher [1997] NSWSC 613; (1997) 8 BPR 15,831 Drinkwater v Ratcliffe (1875) LR 20 Eq 528 Dunston v Dunston (unreported, NSWSC, Cohen M, 14 September 1983) Ellison v Cleghorn [2013] EWHC 5 (Ch) Foregard v Shanahan (1995) 35 NSWLR 206 Gilbert v Smith (1879) LR 11 Ch D 78 Hayward v Skinner (1981) 1 NSWLR 590 Hopper v Hopper [2008] EWHC 228 (Ch) Jabs Construction Ltd v Callahan (1991) Can LII 1877 Leigh v Dickeson [1881] 15 QBD 60 McCormick v McCormick [1921] NZLR 384 McMahon v Public Curator (Qld) [1952] St R Qd 197 Nevin v The Beneficiaries of The Peppermint Beach Estate Trust [2002] WASC 300 Nullagine Investments Pty Ltd v Western Australian Club Inc [1993] HCA 45; (1993) 177 CLR 635 Pannizutti v Trask (1987) 10 NSWLR 531 Pemberton v Barnes (1871) LR 6 Ch App 685 Re Darby [1999] 2 Qd R 350 Re Pavlou [1993] 1 WLR 1046 Ridis v The Proprietors Strata Plan 10308 [2005] NSWCA 246; (2005) 63 NSWLR 449 Ryan v Dries [2002] NSWCA 3; (2002) 10 BPR 19,497 The Owners - Strata Plan 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272; (2007) 13 BPR 24,789 The Owners - Strata Plan No 43551 v Walter Construction Group Ltd [2004] NSWCA 429; (2004) 62 NSWLR 169 T S Swaminatha v Official Receiver of West Tanjore (1957) AIR 577 Turner v Morgan (1803) 8 Ves 143; 32 ER 307 Wong Chun Kei Johnny v Poon Vai Ching [2005] HKCFI 19 Wood v Drew (1864) 33 Beav 610; 55 ER 505
Texts Cited:	Halsbury's Laws of England, First Ed, Vol 21
Category:	Principal judgment
Parties:	Phillip Segal - Appellant Elie Barel - Respondent
Representation:	G R Waugh - Appellant J A Loxton - Respondent Low Doherty Stratford - Appellant Coopers Law Firm - Respondent
File Number(s):	2012/367918
Decision under appeal	Citation: Barel v Segal [2011] NSWSC 1181; Barel v Segal (No 2) [2012] NSWSC 1054; Barel v Segal (No 3) [2012] NSWSC 1319 Before: Pembroke J File Number(s): 2010/412807