Thelma Langford v Deva and Diane Reddy

[2014] NSWSC 609

Supreme Court

New South Wales

Medium Neutral Citation:	Thelma Langford v Deva and Diane Reddy [2014] NSWSC 609
Hearing dates:	15 May 2014
Decision date:	15 May 2014
Jurisdiction:	Equity Division
Before:	Sackar J
Decision:	See paragraphs [21], [22], [23]
Catchwords:	EQUITY - parties entitled to proceeds of sale of property - no dispute as to existence of improvements to property or that some money borrowed under mortgage to fund improvements - dispute over exact sum spent on improvements as opposed to personal expenditure - where paucity of documentation in relation to some amounts said to be expended on improvements - where Court does "the best it can"
Cases Cited:	Ali v Nationwide News Pty Ltd [2008] NSWCA 183 Cubillo v Commonwealth of Australia [2000] FCA 1084; (2000) 174 ALR 97 McCrohon v Harith [2010] NSWCA 67 Paino v Paino (2008) 40 Fam LR 96 Thelma Langford v Deva and Diane Reddy [2012] NSWSC 289
Category:	Consequential orders
Parties:	Thelma Langford (plaintiff) Deva Reddy (first defendant) Diane Reddy (second defendant)
Representation:	Counsel: A McQuillan (plaintiff) M B Evans (first and second defendants) Solicitors: Jenman Lawyers (plaintiff) O'Brien Lawyers (defendants)
File Number(s):	2009/289222

Judgment

Proceedings

1. I gave judgment in these proceedings on 29 March 2012 and the background facts are adequately set out there: see Thelma Langford v Deva and Diane Reddy [2012] NSWSC 289.

1. In that judgment, I made a declaration that the first and second defendants held their legal ownership of 42 Caley Street, Chifley (the property) subject to a constructive trust of a life estate in the property in favour of the plaintiff.

1. On 19 June 2013 I made orders by consent that the property the subject of the litigation be sold subject to the supervision of the Court and in accordance with certain orders and directions as to the sale process, and the proceeds of such.

1. The property was sold on 19 December 2013 and the purchase was settled for $1.170 million on 30 January 2014. The amount owing to the mortgagee was paid out and was initially held in a trust account held by the solicitors for the defendants. As a result of a directions hearing on 27 February 2014, a joint account was to be opened that could only be operated upon the joint authority of the solicitors for both parties.

1. The question that remains for determination is as to how much is owed to the first and second defendants from the proceeds. The essence of the dispute is the challenge made by the plaintiff to certain amounts borrowed under the mortgage and alleged by the defendants to have been spent on improvements to the property. The plaintiff asserts that part or the whole of these amounts were in fact spent on purposes unrelated to the improvement of the property.

Legal principles

1. The hearing of this issue was conducted on the papers. Although affidavits were filed there was no cross examination.

1. Generally speaking, a trial judge is in no way restricted in his or her assessment of a witness; he or she is not bound to accept any of that which the witness attests to or indeed may only accept part thereof: Cubillo v Commonwealth of Australia [2000] FCA 1084; (2000) 174 ALR 97 at [188]-[123].

1. However the court is not necessarily obliged to accept evidence, even in the absence of cross-examination. In Ali v Nationwide News Pty Ltd [2008] NSWCA 183 Tobias and McColl JJA observed at [112]:

There can be no doubt that where factual evidence is not cross-examined upon, prima facie it should be accepted. However, it ought not necessarily be accepted where, as Tobias JA said in Multiplex, there is a credible body of evidence of a substantial character in direct contradiction of the non cross-examined evidence. In the present case there is no such body of evidence.

1. In addition the task here is not an easy one given the paucity of contemporaneous documentation. Clearly, a court should do the best it can. I consider I should follow the approach taken by the Court of Appeal in Paino v Paino (2008) 40 Fam LR 96 and McCrohon v Harith [2010] NSWCA 67, by doing the best I can even if there is a need to "guess" to assess damages, rather than reaching a grossly unfair zero result.

Discussion

1. Upon the sale of the property the mortgage then outstanding to the Commonwealth Bank was $135,877.37. The first and second defendants were at all times the mortgagors. The debate before me therefore is whether and if so to what extent that amount can be seen as referable to the construction of a granny flat, refurbishment of the main house and ongoing maintenance over a ten or twelve year period. These matters were touched upon in my judgment at paragraph [186]. There is no issue in the proceedings but that the first and second defendants borrowed monies for the purpose of construction of the granny flat and undertook refurbishment of the main house including a new bathroom and kitchen, landscaping and ongoing maintenance.

1. A number of affidavits were relied upon before me including affidavits recently sworn in February, March and April 2014. For example, I have an affidavit from a Ms Jenman, the plaintiff's solicitor, dated 5 February 2014 and additional affidavits from Ms Diane Reddy and Mr Deva Reddy (sworn in 2014). In the latter case, Mr Reddy in particular has attempted to verify various amounts expended in relation to the various items I have already referred to.

1. The plaintiff prepared a schedule (Exhibit P1), as did the defendants (Exhibit D1), to which I will return.

1. The affidavit of Ms Jenman of 5 February annexes some documents obtained from the Commonwealth Bank by subpoena. One document in particular (Annexure A3) purports to be a home loan / investment loan application form dated 20 February 2001 prepared by the Bank. It appears to indicate that a total of some $160,000 by way of loan was sought and seemingly lent on a twenty year term at an interest rate of 5.95%.

1. The $160,000 would appear to be calculated by reference to a schedule which identifies a number of items but in particular an item ("purchase price finance amount" of $117,000). At that point the first and second defendants, described as a chemical mixer and carer, appear to have gross annual incomes of $33,176 and $26,000 respectively. In a later loan application, Mrs Reddy appears to have her occupation listed as a nurse with a gross income of $68,544 and Mr Reddy as a labourer with a gross income of $21,799. On any view of the available evidence, their joint income would appear to be modest and this would have limited their borrowing capacity.

1. The original loan application documentation records that the loan was described in the following terms:

Applicants are building a house on mother's property. After house built, land will be transferred to applicants.

1. The bank documents amply support in my view that at least the bank was told and accepted that $117,000 was going to be expended on the construction of the granny flat. Whilst it may be the bank had no underlying documentation, it seems to me that they must have made some enquiry to satisfy themselves that monies of that order were likely to be spent on that construction. There is no issue but that such a construction was undertaken and completed and paid for by the defendants. Further bank documents appear to show that by December 2005 the loan had been reduced to $143,000 but was increased in April 2009 to $191,000. Evidence has been filed as I have already indicated in which the defendants purport to verify the expenditure they incurred. Some of the items are supported by some sort of documentation or other, whilst other items have no supporting documentation at all. Exhibit D1 indicates that there are documents supporting expenditure of approximately $196,950.14. However in his affidavit, Mr Reddy purports to identify numerous other items totalling $70,150 where no documentation would appear to exist. It is accepted by counsel for the defendants that there may be some duplication and or overlap between amounts claimed and said to be supported by some documentation and those that are not.

1. I note there was no request to cross-examine Mr or Mrs Reddy in relation to any of their affidavits. Having carefully assessed those materials and although some assertions are unsupported by underlying invoices, I do not consider for example Mr Reddy's account to be implausible or lacking in credibility. He and his wife were solely responsible for the expenditure and are in the best position to provide such evidence as they can to support it.

1. The plaintiff's approach was largely with the aid of Exhibit P1 to point to the lack of documentation in relation to many of the items referred to by Mr Reddy in one or other of his affidavits. Neither the plaintiff nor her lawyers, it was submitted, have really been able to come to grips with the alleged expenditure in relation to the items I have already referred to. It was said with some force that it was really for the defendants to discharge the onus with respect to the amounts expended. I have proceeded on that basis.

1. There is little doubt that the structure was built, the main house refurbished and unsurprisingly maintenance was expended over the years. The first and second defendants have been solely responsible for that expenditure and for any interest that accrued from time to time on the mortgage. There is not an entirely clear explanation in the increase in the facility in April 2009 except on Mr Reddy's account there was approximately $36,000 of the increase expended on various items. No documents are provided for some of these, except the concreting of the driveway in respect of which there is material supporting the sum of $16,700. There was also apparently a repayment of a loan to Mr Reddy's sister of some $30,000 which she had loaned to him over the years 2003-2009. Mr Reddy asserts those monies were also used for the purposes of work to be done on the house.

1. The exercise I am undertaking is a difficult one because of the lack of documentation in particular the lack of invoices and receipts and bank statements underpinning the defendants' alleged expenditure. However I am satisfied however that to the extent of at least $196,950.14 there is sufficient material to persuade me that on balance those amounts were relevantly expended. The amounts contained in that total do not include the kitchen and bathroom renovation said to have taken place in 2006 and totalling $30,000 for which there is no underlying documentation. There is no doubt such construction was done at the defendants' expense. However Mr Reddy does assert that other amounts were expended which he nominates without underlying documentation but about which he was not challenged in cross-examination. If one looks at the figure of $117,000 as a reasonable indication of the estimated cost of the granny flat alone together with a number of the items which I think are proven (see Exhibit D1 items 1-16) and one tries to do an interest calculation on any view depending on interest rates from time to time (which started at 5.75% in 2001, and was it seems 7.32% in 2005 and 5.64% in 2009) the rough calculations even using a modest figure of 4.5% over the whole term would suggest that somewhere between $60,000 and $85,000 may well have been expended on interest alone. This calculation was done on either the basis of $117,000 alone or alternatively $143,000 which was the amount to which the loan had been reduced as a result of the efforts of the defendants by April 2009. This is a rough calculation but in the circumstances I consider it is not inappropriate to undertake such an exercise.

1. I am satisfied on the balance of probabilities that the amount of the mortgage at the date of settlement (30 January 2014) of $135,877.37 was more likely than not referable to a combination of the construction of the granny flat, the refurbishment of the main house and the ongoing maintenance over the ten or twelve year period together with interest which obviously accrued from time to time. On that basis, doing the best I can on the available documentation, that is the amount which ought properly be attributed to those items.

1. It follows that the defendants are entitled to be credited with that amount when the proceeds are otherwise distributed.

1. I will hear the parties separately on costs and the appropriate short minutes of order finally disposing of the matter.

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Decision last updated: 20 May 2014