Smith v Forbes

[2009] NSWDC 62

CITATION:	Smith v Forbes [2009] NSWDC 62
HEARING DATE(S):	07/04/2009
EX TEMPORE JUDGMENT DATE:	9 April 2009
JURISDICTION:	District Court - Civil
JUDGMENT OF:	Sidis DCJ
DECISION:	1. The property interests of the parties are adjusted pursuant to section 20 of the Property Relationships Act 1984 so that the sum currently held in the trust account of the plaintiff’s solicitor is to be held for the benefit of the plaintiff. From that sum the liabilities relating to the Bathurst properties are to be discharged and the balance to be paid to the plaintiff. 2. The plaintiff is to indemnify the defendant in respect of any liabilities pertaining to the Bathurst properties, in particular the liability to the Office of State Revenue. 3. The defendant is to indemnify the plaintiff in respect of the liabilities of the company, Derm Pty Limited. 4. The defendant is to pay the plaintiff’s costs of the proceedings on a party and party basis. 5. The Exhibits are to be kept with the file for 28 days
CATCHWORDS:	Adjustment of property interests
LEGISLATION CITED:	Property (Relationships) Act 1984
PARTIES:	Erin Smith (Plaintiff/Cross Defendant) David Forbes (Defendant/Cross-Claimant)
FILE NUMBER(S):	222/08
COUNSEL:	Mr Levick (Plaintiff/Cross Defendant) Self-Represented (Defendant/Cross-Claimant)
SOLICITORS:	Shane Boesen Solicitor (Plaintiff/Cross Defendant) Self-Represented (Defendant/Cross-Claimant)

JUDGMENT

1 The parties in this matter were in a de facto relationship from May 2004 until, on the plaintiff’s evidence, September 2006, or on the defendant’s evidence, October 2006. They seek orders from the Court for an adjustment of their property interests under section 20 of the Property (Relationships) Act 1984.

2 The principles established by the authorities as to the manner in which I adjust those interests involve a three stage process that requires me:
1. to identify and value the assets and liabilities at the time of the hearing;
2. to assess the contributions to the relationship of the parties, financial and non-financial; and
3. to decide whether, having regard to the rights and interests as they stood at the time of the hearing, an
adjustment should be made that would reflect their contributions in an equitable manner.

3 There were no children of the relationship. At the commencement of the relationship, the plaintiff owned a share portfolio that she valued at more than $16,000. She said she also had furniture and clothes. The defendant provided no evidence concerning his asset position at the time. He claimed to hold shares in Telstra which were not valued, but there was no evidence that they were disposed of during the relationship, and I assume that he still holds them.

4 The plaintiff was in paid employment at the commencement of the relationship and she also operated a business registered under the name of Sydney Wine and Party that conducted wine tastings.

5 The defendant operated his own business as a personal trainer.

6 In the course of the relationship, the plaintiff purchased two properties in Bathurst. The first, in Bant Street, was purchased with funds obtained through the sale of the share portfolio, with the benefit of a first home owner’s grant and stamp duty concession, and through a loan secured by a mortgage against the title to the property. The second, in Carlingford Street, Bathurst, was purchased with the assistance of funds redrawn on the Bant Street mortgage account and a further loan secured against the title to the Carlingford Street properties.

7 In the course of the relationship, the parties set up a business through a company named Derm Pty Limited. The business name Sydney Wine and Party was transferred to that company.

8 Derm operated a business of liquor retailing on the Central Coast from premises at Wyong. The set up costs were provided by redrawing on the Bant Street mortgage account. Those costs were said by the plaintiff to have been about $21,000.

9 In the course of the relationship, the plaintiff’s mother lent to the plaintiff the sum of $80,000. $75,000 of this loan was paid into the Bant Street mortgage account and it provided the redraw facility that I have already referred to.

10 The plaintiff lost her job in January 2005 and thereafter, during the period of the relationship, appeared to earn very moderate amounts of income from her personal exertion.

11 Rents from Bant Street and Carlingford Street were applied to the mortgages and to the plaintiff’s living expenses.

12 The defendant throughout continued to operate his personal training business which provided for the majority of the couple’s living expenses. Those expenses included the payment of rent on the flat they shared in Lane Cove.

13 It was not disputed that the plaintiff managed the two properties and that she received the income them. It was not disputed that the defendant provided labour and items of furniture and fittings to the benefit of those properties.

14 The plaintiff worked in the business operated by Derm and for a period resided rent free with the defendant’s mother at Wyong.

15 The plaintiff worked full time for Derm for about twelve months, that is from September 2005 until the relationship ceased in September or October 2006. The only evidence that the plaintiff received a wage or salary from Derm was contained in exhibit C, which was an extract from the company’s wages book. This extract recorded three payments totalling $425.

16 The Bant Street and Carlingford Street properties have been sold. There was no return on the Carlingford Street property, and a conveyancing cost relating to the sale remains outstanding in the amount of $254.34.

17 There was a small capital gain on the sale of Bant Street of $37,724.87. This sum was retained in the trust account of the plaintiff’s solicitor pending the outcome of these proceedings. From this amount it will be necessary to repay to the Office of State Revenue $15,265.25 plus interest. This amount is repayable because the conditions for the grants earlier referred to were not complied with. Interest has accumulated because no agreement was forthcoming from the defendant to release this sum from the trust account held by the plaintiff’s solicitor. The interest is said to amount to approximately $2,000.

18 Thus, the net amount remaining as the result of the investment of the properties appears to be approximately $20,000.

19 The business of Derm did not flourish as anticipated by the parties. The plaintiff resigned her offices with the company and transferred her shares to the defendant without payment of consideration. This occurred after separation.

20 The defendant continued to operate the company’s business but the Court was informed that winding up proceedings have been instituted and it is likely that the company will be placed in liquidation in the near future.

21 It was agreed that at the date of hearing the company was of no value.

22 The plaintiff claimed that her contributions during the relationship were such that property interests should be adjusted so that she retained the balance of the sum held by her solicitor after repayment of the amount due to the Office of State Revenue.

23 The defendant claimed that the plaintiff should pay him the sum of between $115,000 and $132,000. The defendant stated that he made no claim against the capital gain made on the sale of Bant Street or for rents received from the properties. At the same time, however, he argued that returns from the sale were diminished because of the plaintiff’s failure to make mortgage payments after separation.

24 The defendant also made statements relinquishing any claim in respect of amounts he provided for living expenses and rents, his share of the losses and expenses of Derm, his efforts in renovations at Carlingford Street, or the costs involved in the transfer of the liquor licence associated with the company’s business.

25 What he did claim was as follows:

26 The sum of $31,718.38 said to have been provided towards the acquisition of Bant Street and repayment of the mortgage on that property. Details of this claim were set out in paragraphs 18 and 25 of his statement. There are attached to the statement a number of banking records that are said to support the claim. From my perusal of those records I located evidence of payment of a $500 holding deposit, $105 for a conveyancing kit, $94 for a search and $979.68 said to be payment of rates. The evidence did not indicate by whom those amounts were paid. The plaintiff did concede that the defendant assisted her, and therefore I am prepared to find in his favour on this part of the claim in the sum of $1,678.68.

27 The defendant claimed further assistance by way of a loan of $10,000 on 22 November 2004. It was said that this loan was the subject of a deed. The mortgage account statements that were in evidence did not disclose any payment of $10,000 against the mortgage at this time. There was no deed in evidence concerning this sum of money. It was therefore not allowed.

28 The defendant claimed further payments were made in January 2005 of $2,000; March 2005 of $2,000; and February 2006 of $4,000. The payments were said to be evidenced by documents in annexure K to the defendant’s statements. Those documents indicated that sums were withdrawn from the defendant’s accounts. There was no evidence to establish what was done with those funds, although a number of lump sum payments appear in the mortgage account in January and February 2005.

29 The plaintiff agreed that the defendant provided financial assistance, including a sum of $5,000, and other assistance from time to time in meeting mortgage payments.

30 In the absence of evidence of the precise amounts involved, I am prepared to allow a further $5,000.

31 On this head, therefore, I assess the defendant’s contribution towards the acquisition of Bant Street at $11,678.68.

32 The sum of $10,885.69 was said to have been transferred from the accounts of Derm Pty Limited to the plaintiff’s account. This claim was based on calculations set out in paragraph 42 of the defendant’s statement. The defendant stated that this calculation was based on figures extracted by his mother from various bank statements. The defendant conceded that he did not check the figures extracted by his mother. After initially denying that the amount of $3,000 set out in the calculation was withdrawn from the Derm account on 4 June 2006 and paid into his account, the defendant was shown documents that indicated that this sum was in fact paid into his account.

33 These figures were supplied in support of a claim of misappropriation by the plaintiff of company funds. This was a very serious allegation and it was not made out on the evidence.

34 This part of the claim was rejected for the following reasons:
1. It was apparent from the evidence of both parties that they intermingled their personal funds with those
of the company.
2. The figures provided were not verified by the defendant and they do not take account of amounts
withdrawn by the defendant for his own benefit, or amounts claimed by the plaintiff to have been paid
on behalf of the company.

35 The defendant claimed $1,396 said to have been fines incurred by the plaintiff and paid for by the defendant. It was claimed that they related to two parking fines and one speeding fine, whilst the plaintiff was using a company vehicle. Those claims were rejected because there was no evidence firstly that a speeding fine was incurred, and secondly, the documents relating to the parking fine indicated that they were incurred whilst the plaintiff was engaged in company business and that they were therefore likely to be a company liability.

36 The sum of $1,747.83 was claimed for furniture provided by the defendant, that was retained or sold by the plaintiff. The plaintiff agreed that the defendant supplied two wardrobes and that they were damaged by a tenant of the Bant Street property. The plaintiff agreed that she recovered $1,400 from the tenant in respect of those damaged wardrobes. I accept, therefore, that this part of the claim has been made out to the extent of $1,400.

37 The sum of $40,940.31 was claimed to be funds retained by the plaintiff that were allegedly payable to Derm. Again, the defendant made a serious allegation of deceit, coupled with breach of trust and misappropriation. Again, those allegations were not made out. It was entirely unclear how the amount was calculated. Paragraph 45(d) of the statement claimed misappropriation of $57,981. Particulars to paragraph 45(e) contained tables of figures amounting to $12,169.42 and $12,763.60. Neither of those amounts equalled the sum now claimed.

38 The plaintiff claimed to have made payments from her own accounts to meet company expenses as identified in exhibit A. I repeat that it was apparent to me that there was an intermingling of the funds of the parties and the company, and in the absence of proper financial accounts reconciling the payments claimed to have been received and the payments claimed to have been made, it was not possible to accept this part of the defendant’s claim, and it was rejected.

39 The sum of $21,675.06 was claimed as one half of the debts of Derm Pty Limited as at the date of separation. Alternatively, $38,653.46 was said to be the amount that could be recovered by creditors to whom the plaintiff gave personal guarantees when she was managing the business.

40 Paragraph 46 of the defendant’s statement set out his calculation of those debts. This part of the claim was rejected for the following reasons:
1. They were debts of the company and not those of the plaintiff personally.
2. There was no evidence that any personal guarantee was enforced against the plaintiff.
3. The debts for which invoices were provided related to stock supplied to the company. The defendant
has been operating the company’s business solely at least since October 2006. There was no
accounting for sales of stock held by the company at the time of separation. There was no evidence
that the debts were paid by the defendant personally rather than by the company through the sales of
that stock.
4. A number of the invoices supplied in support of the claim related to stock supplied after October 2006.
There was a dispute concerning the date at which the plaintiff left the company; however, she could
have no liability for debts incurred after October 2006.
5. It was apparent that the defendant, with the assistance of his mother, operated the business from
October 2006. He conceded that he did so with a view to operating it at a profit, and that the debts
outstanding at separation were paid with that intent in mind. The plaintiff was not responsible for the
conduct of the company from the time that she left the relationship.

41 The sum $6,878.35 was claimed for extra costs associated with the liabilities. I assumed that this part of the claim related to the figures set out in paragraph 52 of the defendant’s statement. They appeared to relate to costs incurred as a result of the defendant’s decision to continue to operate the company’s business, and they are therefore rejected.

42 The result was that in respect of the defendant’s financial contributions during the course of the relationship, the evidence indicated that they amounted to $13,078.68.

43 The defendant claimed to have met all living expenses, including rent. This was not conceded by the plaintiff, who provided in exhibit A her evidence of amounts she claimed to have contributed towards those expenses.

44 Details of the defendant’s income from his personal training business were not available to the Court, but he freely conceded that it was throughout the relationship and still remains, a profitable enterprise.

45 The plaintiff, on the other hand, for a substantial part of the period of the relationship, engaged in a business that was not profitable. It was a business that was jointly established by the parties with a view to operating it profitably. The defendant conceded that he took no part in the business, and that through the plaintiff’s efforts in running the company, he continued to have the opportunity to develop his own profitable commercial activities.

46 Thus, I accept, as I have already noted, that it was very probable that the defendant supplied the greater proportion of the cash funds for the parties’ living expenses.

47 Against this, however, was the evidence that the plaintiff was employed full time in their joint business. It was apparent from the defendant’s cross-examination of her that she worked very long hours at times. It was also apparent from the many copy invoices attached to the defendant’s statement that the plaintiff was very active in the business. I have already noted that the only evidence of wages paid to her during the period was $425, and, as already noted, the evidence indicated that company funds were used by both parties to meet their personal expenses.

48 Thus, in my view, it could not be said that one party contributed to a greater extent than the other to their general living requirements.

49 The result is that there was a generally equal contribution by the parties in terms of their day to day living requirements, and that, as far as cash contributions were concerned, the plaintiff and her family contributed to the extent of $96,500 whilst the defendant contributed $13,078.68.

50 Having regard to that result, I consider that the adjustment proposed by the plaintiff to be more than fair and equitable.

51 The plaintiff sought an order for costs against the defendant, acknowledging that the amount, which was the subject of the final adjustment, was within the jurisdictional limit of the Local Court and in those circumstances an order for costs would not normally be warranted.

52 It was argued that there were special circumstances, namely that the parties, at the time of commencement of the proceedings, appeared to hold a mutual view that the company had some value, although it was conceded by the time of the hearing that there was no value in the company.

53 Secondly, it was noted that on the day the statement of claim was filed the defendant, through his solicitor, claimed on the plaintiff a sum in excess of the Local Court’s jurisdiction, the amount claimed being in excess of $100,000.

54 Thirdly, it was noted that when the defendant filed a cross-claim, it claimed the amount of $106,000, which would have brought the proceedings before this Court in any event.

55 In response to the claim for costs, the defendant argued that he had, on a number of occasions, requested a meeting be held between the parties in order to resolve their issues. He stated that he had correspondence that would indicate that those requests were made. However, the materials provided to me in support of the plaintiff’s application for costs contained no reference to any meeting or mediation, and they indicated that at all times the defendant maintained the position in respect of the adjustment of interests that he pursued during the course of the proceedings.

56 In the circumstances, I am satisfied that there were special circumstances that warrant the making of an order for costs in the plaintiff’s favour. The plaintiff sought an order for indemnity costs from the time of the exchange of correspondence in December 2008. In the circumstances of this particular case, I did not think that it is appropriate that indemnity costs be awarded.

57 The orders which I make are as follows.
1. The property interests of the parties are adjusted pursuant to section 20 of the Property
(Relationships) Act 1984 so that the sum currently held in the trust account of the plaintiff’s solicitor is
to be held for the benefit of the plaintiff. From that sum the liabilities relating to the Bathurst properties
are to be discharged and the balance to be paid to the plaintiff.

2. The plaintiff is to indemnify the defendant in respect of any liabilities pertaining to the Bathurst
properties, in particular the liability to the Office of State Revenue.
3. The defendant is to indemnify the plaintiff in respect of the liabilities of the company, Derm Pty Limited.
4. The defendant is to pay the plaintiff’s costs of the proceedings on a party and party basis.

**********