W v D
[2012] SASCFC 142
•21 December 2012
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
W v D
[2012] SASCFC 142
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Anderson and The Honourable Justice David)
21 December 2012
REAL PROPERTY - GENERAL PRINCIPLES - INCIDENTS OF ESTATES AND INTERESTS IN LAND - JOINT TENANCY AND TENANTS IN COMMON - GENERALLY
Appeal against orders made for the division of the interests of the parties in land as tenants in common and for the accounting between them of their expenditure on the land and the benefits they received from it.
The appellant complains that: (1) the Judge erred in deducting the occupation fee from the appellant’s capital share in the proceeds of the sale – (2) the Judge wrongly failed to give credit to the appellant for depositing his tax refunds into the joint bank account during cohabitation – (3) the Judge made no allowance for the appellant’s physical work in maintaining and repairing the property – (4) the Judge failed to discount the agistment rent to make allowance for drought in the region in that period – (5) the Judge did not reduce the occupation fee to take into account the storage of personal items which the respondent had left in the house.
The cross-appellant complains that: (1) the Judge was wrong to calculate the mortgage payments on the basis of proportion of payments into the joint bank account – (2) the Judge’s calculation of the payments made to the mortgage after separation proceeded on a mistaken assumption.
Held: appeal allowed – parties are entitled to share in the proceeds of sale in proportion to their contributions subject to a deduction against the appellant for redrawing on the loan. The occupation fee was properly offset against the appellant's claim for contribution to the mortgage instalments and other recurrent charges on the land paid by him but was not chargeable against the appellant's proportion of the capital value of the land.
Domestic Partners Property Act 1996 (SA) s 9(3); De Facto Relationships Act 1996 (SA), referred to.
Forgeard v Shanahan (1994) 35 NSWLR 206; Leigh v Dickeson (1884) 15 QBD 60, discussed.
Baumgartner v Baumgartner (1987) 164 CLR 137; Muschinski v Dodds (1985) 160 CLR 583; Scapinello v Scapinello [1968] SASR 316; Paroz v Paroz [2010] QSC 203; Luke v Luke (1936) 36 SR(NSW) 310; Ford v Lord Grey (1703) 91 ER 253; Teasdale v Saunderson (1864) 33 Beav 534; Williams v Williams (1899) 68 LJ(Ch) 528; Swan v Swan (1820) 8 Price 518; Callow v Rupchev [2009] NSWCA 148, considered.
W v D
[2012] SASCFC 142Full Court: Kourakis CJ, Anderson and David JJ
KOURAKIS CJ: This is an appeal against orders made for the division of the interests of the parties in land as tenants in common and for the accounting between them of their expenditure on the land and the benefits they received from it.
The appellant, W, and the respondent, D, first met in 1985. In the years that followed they formed a close relationship. They maintained separate homes but cohabited from time to time. In August 1987 W was transferred by his employer to Port Lincoln. In 1989 he was transferred again to Port Augusta. D continued to reside in Adelaide but visited W both in Port Lincoln and Port Augusta. After he returned to Adelaide, D and W purchased as joint tenants a house and surrounding farmlet in the Adelaide Hills. They resided in that house until the relationship broke down in late 1997. W and D mutually agreed that D would return to her own house because W was better equipped to manage the farmlet. W later commenced a romantic relationship with another woman who has resided with him on the farmlet since 2005.
Steps were not taken to settle the parties’ capital interests in the property for many years. The reasons for the delay are not clear but between 2005 and 2007 W and D attempted to negotiate the sale of the farmlet to a third party, LM, for a purchase price in excess of $1 million. After the negotiations with LM failed, each of W and D offered their interest in the farmlet to the other at a price which reflected the high price it had been hoped LM would pay. No agreement was reached. They soon came to appreciate that the farmlet might have to be placed on the market and in preparation for a sale they severed the joint tenancy. Unfortunately, negotiations on the division of the proceeds and on an accounting of their respective contributions broke down.
In October 2009 both W and D stopped making mortgage repayments. Soon thereafter D instituted proceedings for a sale of the land and the division of the equity in the farmlet in accordance with their respective contributions. W counterclaimed that he was entitled in equity to a proportion of the proceeds of sale which exceeded the proportion in which he contributed to the purchase of the farmlet. W also sought an extension of time pursuant to s 9(3) of the Domestic Partners Property Act 1996 (SA) to bring an action for an adjustment order pursuant to that Act. He claimed an entitlement to more than 50 per cent of the equity in the property on the basis of his greater contribution to its acquisition, maintenance and improvement. By an amendment made in May 2010 to her Statement of Claim, D sought a division of the proceeds of sale between her and W on a basis which required W to account, by way of an occupation fee, for his sole use of the farmlet after she had left it.
The Judge’s findings
The Judge dismissed W’s application for an adjustment of property pursuant to the De Facto Relationships Act 1996 (SA). W has not appealed against that order. The Judge also ordered the sale of the farmlet. That order is not challenged on this appeal.
Both W and D have appealed against the orders made by the Judge as to the division of the proceeds of sale. On that issue the Judge proceeded first to determine the respective capital shares held by W and D in the farmlet. The Judge found that they held their interests as joint tenants, and later as tenants in common, in shares proportionate to their contributions to the purchase of the property. The Judge rejected W’s contention that D held her interest on a constructive trust, or on any other basis, in equity, for his benefit.
The Judge determined their respective interests in accordance with the contributions set out in the following table:
Capital Contributions W D $ $ Contributions to Purchase Price 40,000.00 10,000.00 Joint Loan 145,000.00 145,000.00 Settlement Costs 14,780.00 Total 199,780.00 155,000.00 Percentage Contributions (rounded) 56 per cent 44 per cent
The Judge then turned to the competing claims of W and D as to how their use of and expenditure on the farmlet should be taken into account by way of adjustment to their capital interests in the farmlet. The following table summarises the adjustments ordered by the Judge.
Item W Contributions W
Total CreditsD
Contributions/ OffsetsD
Total Credits$ $ $ $ 1. Contributions to mortgage
1993-1998 (5¼ years)31,200.00 pa 24,000.00 pa 2. Difference
1993-1998 (5¼ years @ $7,200 per annum)37,800.00 3. March 1998-October 2009 Annual Contribution
15,600.00 pa 14,400.00 pa 4. (11½ years @ $1,200 per annum) differential
12,600.00[1] 5. Rates and Taxes since separation
19,229.00 6. Home and Farm Building Insurance since separation
6,846.00 7. 44 per cent of rates, taxes and insurance
11,473.00 8. Market rental since separation 15,000.00 to 20,000.00 pa 9. Discounted rental for joint occupation
10,400.00 pa 10. Agistment rate
15,000.00 pa 11. Occupation fee for whole land
25,400.00 pa 12. Charge W for 44%
11,176.00 pa 13. Total occupation fee (13½ years)
150,876.00 14. Funds redrawn on mortgage by W to buy farm vehicles after separation.
17,500.00 Totals
61,873.00 168,376.00 [1] This subtotal was miscalculated by the Judge. The product of 11½ years at $1,200 is $13,800. See [27] below.
It can be seen from the table that the occupation fee credited to D on account of W’s sole occupation after their separation exceeds the total credit to which he is entitled. The Judge ordered that the difference in credits in D’s favour be deducted from W’s 56 per cent capital share in the proceeds of sale.
The parties complain about the Judge’s approach to all but two[2] of the adjustments in the table and the decision not to make some other adjustments. The major controversy between them is, however, over the adjustment for an occupation fee.
[2] There is no complaint about Item 7. Nor is there a complaint about Item 14. The vehicle was purchased by W by borrowing additional funds on the mortgage facility to purchase a vehicle for his exclusive use after the parties had separated.
The Judge ordered that the final credit of $106,503 standing in D’s favour be deducted from W’s capital share in the farmlet. W contends that the occupation fee can only offset only against the payments made in discharge of the parties’ joint financial obligations arising out of their joint ownership of the land. W contends that an occupation fee might cancel out his claim for a contribution to the mortgage repayment but cannot be deducted from his capital share in the proceeds of sale. If that contention were accepted only the redraw in Item 14 would be deducted from W’s capital share.
I would hold that the Judge erred in deducting an occupation fee from W’s capital share. An occupation fee can only be offset against W’s claims for contributions to the joint debts he discharged. It is inequitable for W to claim contributions to the outgoings, which he paid after the breakdown of the relationship so that he might enjoy the sole occupation of the farmlet, when D’s obligation to pay those outgoings was premised on the continuing existence of a domestic relationship and her joint occupation of the home. However, it is not unconscionable for W to claim a proportion of the proceeds of sale in accordance with his capital share, without accounting for his continuing occupation, because D had consented to him remaining on the farmlet. Moreover, she was at liberty at any time to bring an action for sale of the farmlet and division of the proceeds. My reasons for the conclusions just stated and on the other issues in contention follow.
Miscellaneous Adjustments – W
It is best to start by disposing of some issues which can be dealt with relatively briefly. First, W complains that the Judge wrongly failed to give him credit for depositing his tax refunds totalling $17,800 into their joint bank account during the period of the cohabitation.
The evidence showed that the mortgage payments were automatically drawn from the joint account. W and D made regular deposits into the account from their salary and business earnings respectively. The money deposited was also used to pay for general living expenses. The accounting exercise on which the Judge was engaged was not to determine the shares in which the property was held on a constructive trust of the sort described by the High Court in Baumgartner.[3]Nor was the Judge engaged in an adjustment of property pursuant to the Domestic Partners Property Act 1996 (SA).
[3] Baumgartner v Baumgartner (1987) 164 CLR 137; Muschinski v Dodds (1985) 160 CLR 583 at 620.
The accounting exercise undertaken by his Honour was to identify the respective contributions of W and D to the mortgage for which they were jointly and severally liable and to identify any credit for which one or the other was entitled. W and D reached an agreement between themselves as to their respective contributions to the joint account and had agreed that their common living expenses, including their obligations under the mortgage, would be met from that account. There was no evidence that they had contemplated that, in the course of their continuing relationship, they would account to each other for any inequality in their contributions to the joint account. That notion is quite inconsistent with the way in which parties to domestic relationships conduct their financial affairs. In the course of a domestic relationship disagreement may well arise over the extent of their parties’ respective contributions. In the ordinary course those disagreements are settled periodically by an adjustment of contributions. However, in the absence of an express agreement to the contrary, contributions to a joint fund, from which common liabilities are paid, settle all questions of contribution as between the parties to that relationship.
In this case, the expenditure from the account on personal items was not closely examined to attribute particular items to one or the other. If W’s position were to be adopted it would have been necessary to do so. It would have been a tedious and unrealistic exercise.
Secondly, W complains that the Judge made no allowance for his physical work in maintaining and repairing the property. The work he described was largely necessary to repair damage caused by his own use of the property and in particular his agistment of cattle on it. W should not be compensated for work performed as part of the enjoyment of his exclusive occupation of the property. W also made temporary repairs. For example, he temporarily fixed loose iron roofing during a storm. The roof was later more properly repaired by tradespeople whose charges were met by the insurer. There was no evidence that the temporary repair work contributed to a permanent increase in the value of the property, and no evidence on which to quantify that increase. In any event, in his evidence in chief, W eschewed any claim for maintenance and repair work. The Judge’s accounting should not be disturbed on this ground.
Thirdly, W complains that the Judge failed to discount the agistment rent for the fact that the region was in drought for much of the period for which the agistment rent was calculated. W gave evidence that during the six “drought” years he had to check the water levels for his cattle each morning, topping it up when necessary. W gave no evidence about the effect of the “drought” on the level of pasture in those years. The valuer, on whose evidence the Judge relied, expressed surprise that the drought which affected much of South Australia in that period had extended into the Adelaide Hills and Nairne. I share that surprise.
The evidence adduced by W falls short of establishing a basis for reducing the allowance which the Judge made for agistment. Even if it were accepted that Nairne was in drought, and that the drought reduced the quantity and quality of the farmlet’s pasture, its agistment value may well have been enhanced precisely because of the more severe drought in other parts of the State. W adduced no evidence that the “drought” he described had any appreciable effect on the value of the land for agistment purposes. The Judge’s allowance for an agistment fee should not be disturbed.
Fourthly, W complains that the Judge did not reduce the occupation fee to take into account the storage of personal items which D had left in the house. W testified that, soon after D left, he and his daughter packed all of her belongings and placed them in the lounge room of the home. W testified that D’s goods occupied nearly all of the space in the lounge room. D testified that her goods were left in the shed. It is not necessary to resolve this dispute. Whether D’s goods were stored in the house or in a shed, they were there at W’s choice. He was free to store the goods where he saw fit, or to return them to D. The claimed adjustment on this head was trifling and the Judge was right to ignore it.
Miscellaneous Adjustments – D
I turn to the complaints made by D.
First, D complains that the Judge was wrong to calculate their respective contribution to the mortgage payments on the basis of the proportions to which they contributed to the joint bank account kept for domestic purposes from which those payments were automatically drawn. The validity of the Judge’s approach depends on the terms of the agreement or, at least, the understanding, on which W and D managed their domestic financial affairs through the joint bank account. In particular, it depends on whether W and D agreed, or should be taken to have agreed, that the payments from the joint bank account were made on the basis that their respective liabilities to contribute as between themselves to the mortgage payments were satisfied by their mutually agreed deposits into that account. I would uphold D’s contention for the same reasons I rejected W’s complaint that the Judge failed to take into account the deposit of his tax refund cheques into the joint account as additional payments to the mortgage.
The question can be further tested in this way. Let it be assumed that W and D continued to reside together for several years in which time they paid the rates and taxes on the farmlet out of a joint account to which they had contributed, by agreement, in different proportions from their respective incomes. Let it be assumed that, on separation, the farmlet is immediately sold and the proceeds of sale divided between them in accordance with their capital contributions to its purchase. Would W nonetheless be entitled to claim a contribution from D as a joint debtor, on the basis that she had not paid her proper share of the mortgage and other joint liabilities, because her contributions to the joint bank account were less than proportionate to her share of the joint liabilities? In my view, it is, generally speaking, implicit in the establishment of a joint bank account by a couple in a domestic relationship, for the purpose of meeting their living expenses, that payments made out of that account to satisfy a joint debt satisfies their liability, as between themselves, to contribute to the repayments of that debt made by the other.
In this case, D testified that prior to the purchase of the property she and W agreed that they would have “an offset account” into which she would deposit $2,000 a month and W would deposit his wages. It was agreed that the mortgage and other domestic expenses would be paid from that account but that D would, on some occasions, buy food and other consumables through her business.
W’s recollection of the arrangement was not very clear but ultimately he agreed that a joint account had been established for the payment of the mortgage and other outgoings.
It is implicit in the arrangement so described that it subsumed the rights of contribution which W and D might otherwise have had with respect to the mortgage payments. Their agreement as to the contribution into the account was an agreement as to their respective contributions to their joint liabilities. It was a necessary implication of the arrangement that it satisfied their respective liabilities under the mortgage and for other debts incurred by reason of their joint ownership of the farmlet.
Therefore, I would hold that the Judge’s calculation of Items 1 and 2 should be adjusted so that there is no credit to W in Item 2.
Secondly, D contends that the Judge’s calculation of the payments to the mortgage made after the separation proceeded on a mistaken assumption that D only paid $600 per fortnight into the joint bank account. W’s counsel had asserted in his submissions that her payments were only $600 per fortnight but D’s counsel provided the Judge with an aide memoire derived from bank statements which had been received into evidence. Those statements showed that D had, from time to time, made additional payments and that in total she had paid $2,100 more than W into the account in the period after separation. That submission too should be accepted. Item 4 should be adjusted so that it shows a credit in D’s favour of $2,100.[4]
[4] W contended that his Honour miscalculated the loan repayments made by him in the period March 1998 to October 2009. It can be seen from line 3 that, during that period of 11 and a half years, the Judge found that W paid $1,200 per annum more than D. The Judge miscalculated the product of those two figures to be $12,600 when in fact it is $13,800. However, the arithmetic mistake no longer has any relevance because, as I explained in the preceding paragraph, the Judge was wrong to find that W’s annual contributions in that period were greater than D's contributions.
Liability to account for sole occupation
It is finally necessary to deal with the vexed question of whether W must account in the division of the proceeds of sale for the benefit of his sole occupation of the farmlet after separation.
The primary principle governing the legal relationship of joint tenants and tenants in common is the unity of possession which they enjoy in law. Each co‑owner is entitled to use and occupy the entire property subject to the enjoyment of the same right by the other co‑owners. The entitlement to possession carries with it an entitlement to the fruits of the exploitation of that possession. The productive capacity of land may be realised by the co-owners directly working on it or, derivatively, through rents charged to others.
As a general rule, one co-owner who exercises his or her right over the whole property because of the other co-owners absence incurs no liability to account to the absent co-owner for his or her sole enjoyment of the land or for his or her appropriation of the entire product of the exploitation of the land.[5] I will refer to this rule as the primary rule.
[5] Scapinello v Scapinello [1968] SASR 316 at 320.
In Forgeard v Shanahan,[6] Meagher JA explained:
… Indeed, the whole bias of the law against making a co-owner in occupation liable to account is precisely based on the rationale that if such a liability were to exist a co‑owner could, by abstaining from entering into occupation, turn his co-owner into an involuntarily bailiff.
[6] (1994) 35 NSWLR 206 at 223.
If the occupying co-owner does more than merely take advantage of the other co-owner’s voluntary absence and actually excludes the absent co-owner from the land, he or she trespasses on the property interest of the excluded co‑owner.
The co-extensive rights of occupying co-owners might also result in operational inconsistencies if one were to exercise his or her rights without regard to the rights of the other. Exercising the right to possession over the whole of the land in a way which compromises the capacity of another co-owner to equally enjoy the right might constitute an exclusion and amount to a trespass.[7]
[7] Paroz v Paroz [2010] QSC 203 at [33]-[36] per Peter Lyons J.
A trespassing co‑owner is liable to an excluded co-owner for damages by way of mense profits or otherwise.[8] A trespassing co-owner is also liable to account to an excluded co-owner for his or her wrong on a subsequent partition of the land. I will refer to this rule as the trespass exception.
[8] Luke v Luke (1936) 36 SR(NSW) 310; Ford v Lord Grey (1703) 91 ER 253; Forgeard v Shanahan (1994) 35 NSWLR 206 at 221-222.
Co-ownership and the entitlement to use and occupy the entire property does not carry with it an obligation on the part of a co-owner to contribute to the cost of an improvement of the land undertaken by another co-owner. If one co-owner sees an advantage in improving the land he or she cannot, by reason of the co‑ownership alone, demand a contribution to the costs of that improvement.[9] A co-owner might improve the land at his or her own cost for any number of reasons. For example if the other co-owner is voluntarily absent, the resident co‑owner may feel confident that he or she will be enjoy all, or the large part, of the benefits brought by the improvements.
[9] Forgeard v Shanahan (1994) 35 NSWLR 206 at 223-224; Teasdale v Saunderson (1864) 33 Beav 534; 55 ER 476; Williams v Williams (1899) 68 LJ(Ch) 528.
Alternatively, co-owners may contract as to the basis on which improvements will be paid for and used.
In the absence of a contractual arrangement, a co-owner who has paid for an improvement may still bring the costs of the improvement into account on a partition application if it has enhanced the value of the land. The amount bought to account is the lesser of the cost of the improvement or a credit for the increase in the value of the land. I will refer to this rule as the enhanced value rule. This rule is essentially equitable in nature in that it would be unconscionable for a co‑owner, who has not expended money on an improvement, to insist on the full measure of his or her rights in law to the enhanced proceeds of the improved land without accounting for a proper share of the costs of achieving that higher value.[10] In Leigh v Dickeson,[11] Cotton LJ explained the reason for the rule in this way:
…[N]o remedy exists for money expended in repairs by one tenant in common, so long as the property is enjoyed in common; but in a suit for partition it is usual to have an inquiry as to those expenses of which nothing could be recovered so long as the parties enjoyed their property in common … [such as] improvements or repairs: the property held in common has been increased in value by the improvements and repairs; and whether the property is divided or sold … one party cannot take the increase in value, without making an allowance for what has been expended in order to obtain that increased value; in fact, the execution of the repairs and improvements is adopted and sanctioned by accepting the increased value. There is, therefore, a mode by which money expended by one tenant in common for repairs can be recovered, but the procedure is confined to suits for partition.
[10] Swan v Swan (1820) 8 Price 518; Teasdale v Saunderson (1864) 33 Beav 534.
[11] (1884) 15 QBD 60 at 67.
However, the enhanced value rule is subject to a qualification. A co-owner in occupation who seeks to charge the share of an absent co-owner for the improvement must account for the benefit of his or her sole occupation. This rule too is equitable in nature and recognises the connection which will often exist between the sole occupation and the making of the improvement.
The rules to which I have just referred were developed in very different socio‑economic circumstances to those which pertain today. In times past, land ownership was restricted to a relatively smaller proportion of the population than it is today. Ownership of land was more often acquired through inheritance, or assignments made within families, than by sale on the open market. Ownership of land by women was rare. The purchase of land by couples in a domestic relationship as co-owners and co-occupiers was very rare, if not unknown. The common law rules pertaining to co-ownership of land were designed to quell very different controversies to those which now commonly arise.[12]
[12] Forgeard v Shanahan (1994) 35 NSWLR 206 at 211-212 per Kirby P; Callow v Rupchev [2009] NSWCA 148 at [31]-[34].
The disputes between co-owners which have come before Australian courts and the courts of other Commonwealth countries in recent times often concern land purchased by de facto partners as co-owners for the purpose of cohabitation. Not all domestic relationships are regulated by statute.[13] Frequently the land is purchased by a combination of a deposit paid from the savings of the couple and by loan funds. The loan is commonly made to the domestic partners jointly and severally and secured by a mortgage over the jointly owned land. One joint debtor has a legal and equitable right to contribution from the other for any repayments he or she makes. Difficult legal issues arise when a domestic relationship between co-owners breaks down with one of the co-owners leaving the residence. If the parties fail to reach an agreement on the disentanglement of their property and financial relationship, the taking of accounts of their respective contributions on an action for partition is problematic. In particular accounting for the benefit, to the partner who remains in the home, of his or her occupation and making adjustments for the costs of improvements, rates and taxes, and mortgage payments presents real difficulties.
[13] See, for example, Domestic Partners Property Act 1996 (SA); Family Law Act 1975 (Cth) ss79, 90SM.
If a co-owner in a domestic relationship is excluded from a jointly owned home, for example by changing of locks or a course of violence, there is no difficulty in applying the trespass rule pursuant to which the resident co‑owner would account for his or her occupation to his or her former domestic partner. More commonly, cohabitation comes to an end because the domestic relationship has broken down for reasons which do not include violence or force. In those cases the co-owner who vacates the premises must pay for alternative accommodation whilst remaining jointly liable for the loan which was taken out to purchase the property. The trespass rule, in its traditional form, does not naturally apply to circumstances of that kind. It could hardly be supposed, for example, that on the breakdown of a domestic relationship the co-owner who leaves the home could bring an action in trespass against the one who remains. The primary rule more naturally applies to those circumstances. Pursuant to the primary rule, the vacating co-owner would not be entitled to an occupation rent or mesne profits from the resident co‑owner and no account could be taken of the occupancy on partition.
The rules to which I have referred have received considerable attention in the context of domestic relationships in a line of New South Wales authorities. It is necessary to consider those decisions in some detail to identify the existing state of the law as to the taking of accounts on the partition of jointly owned property after the breakdown of a domestic relationship.
In Forgeard v Shanahan,[14] the Court of Appeal of New South Wales held, by majority, that the principles governing partition and similar cases were applicable to an exercise of the statutory discretion conferred by s 66G of the Conveyancing Act 1919 (NSW). In Forgeard it was accepted that the resident and absent co‑owners held equal shares as joint tenants in the home that they had purchased with a view to cohabitation. No declarations of a resulting or constructive trust were sought.
[14] (1994) 35 NSWLR 206.
The resident co-owner, Mrs Shanahan, sought to bring into account, on the distribution of the proceeds of sale, Mr Forgeard’s liability to contribute to the mortgage, rates, insurance and other payments she had made. Mr Forgeard claimed his liability to contribute should be offset by an occupation fee charged to Mrs Shanahan. The occupation fee charged exceeded the mortgage and other payments. Mr Forgeard sought to have the excess deducted from Mrs Shanahan’s capital share.
In Forgeard the trial Judge had treated the mortgage payments as if they were expenditure on improvements, and offset Mr Forgeard’s obligation to contribute to them with the occupation fee. Meagher J assumed, in the absence of a cross-appeal against that finding, that an occupation fee could properly be offset against mortgage payments effectively dealing with them as if the payments had effected an improvement. However, Meagher J expressed some misgivings. Mortgage payments undoubtedly have the same practical effect as improvements, in increasing the value of the underlying equity in the property. However, as Meagher J explained, a resident co-owner’s claim for contribution from the co-borrower of the purchase funds is founded on the mutual obligations which are an incident of their joint debt, and not on their joint ownership of the property.
Meagher JA held that Mrs Shanahan’s expenditure on maintenance, repairs and insurance premiums were not improvements for the purpose of the enhanced value rule because they were not permanent and additional improvements to the land.
Meagher JA upheld the decision of the trial Judge not to deduct the occupation fee from Mrs Shanahan’s capital share of the proceeds.
Mahoney JA agreed with Meagher JA. Kirby P in dissent held that the occupation fee could be charged against Mrs Shanahan’s capital account.
In Biviano v Natoli,[15] the Court of Appeal of New South Wales considered the apportionment of the proceeds of sale of the home of former domestic partners. Ms Biviano had been the sole registered proprietor of the land. Ms Biviano obtained an apprehended violence restraining order which excluded Mr Natoli from the home. Beazley JA, with whom Stein JA agreed, held that Mr Natoli had not been wrongfully excluded from the home by Ms Biviano who had done no more than exercise her statutory entitlement to obtain orders protecting her from domestic violence. After the restraining order was made, Mr Natoli sought an order for sale and division on the ground that Ms Biviano held the property on a trust for both of them in equal shares. Ms Biviano denied Mr Natoli’s claim that he was a co-owner but a finding was made on that issue in Mr Natoli’s favour. It followed that Ms Biviano had wrongfully denied Mr Natoli’s joint title and she was found liable to pay an occupation rent from the time of her wrongful denial of his title. At trial Mr Natoli proved the market rent of the home and Ms Biviano accepted that it was appropriate to quantify the occupation fee at 50 per cent of that amount. Notwithstanding that concession Beazley JA suggested, obiter, that the market rent was not the appropriate measure of an occupation fee because a stranger renting the home would have to share it with the occupying co-owner.[16]
[15] (1998) 43 NSWLR 695.
[16] 704D.
Beazley JA explained that an occupation fee is in fact mesne profits and not rent, and that mesne profits are calculated by reference to the open market.[17] It can be accepted that, if the appropriate measure of the damages is the lost opportunity to lease the joint interest in the land, the damages should reflect the lower rental value attributable to the obligation to share the property with another. On the other hand, the cost of obtaining alternative accommodation which reasonably replaces the standard of accommodation lost by reason of the trespass would, in my view, more closely compensate the excluded owner.
[17] At 704A citing Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 39; Rock Bottom Fashion Market Pty Ltd (In Liq) v HR & CE Griffiths Pty Ltd (unreported, Court of Appeal Queensland, 6 March 1998 at 10-12 per Dowsett J; Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 at 252 per Somervell LJ.
In Ryan v Dries,[18] the Court of Appeal of New South Wales considered a claim made by one of the co-owners of a rural property that the other held his share on a resulting or constructive trust. The appellant, Mr Ryan, and the respondent, Ms Dries, had been in a romantic relationship. On purchase, the property was transferred to Mr Ryan and Ms Dries as tenants in common in shares of six-sevenths and one-seventh respectively. Mr Ryan and Ms Dries jointly borrowed 60 per cent of the purchase price from a bank and the remainder was paid from their savings. Mr Ryan resided on the property and used it for his business. Ms Dries continued to reside with her parents but stayed over on weekends. When the relationship ended, Mr Ryan excluded Ms Dries by changing the locks.
[18] [2002] NSWCA 3.
Mr Ryan contended that there was a common intention that the property would be held on the shares stated in the title, thus rebutting the presumption of a resulting trust in proportion to their contributions. That claim was rejected by the trial Judge.
On appeal, Ms Dries accepted that her interest could not exceed 45 per cent having regard to her direct contribution to the purchase price and her share of the joint loan. The Court of Appeal accepted Mr Ryan’s contention that the settlement costs should be regarded as a contribution to the purchase price for the purpose of calculating their respective interests in the capital of the property. For that reason the Court of Appeal reduced Ms Dries’ interest in the land to 43 per cent.
On the accounting of relevant matters subsequent to the purchase, Mr Ryan sought contribution to the mortgage payments which he had made from Ms Dries. Ms Dries claimed an occupation fee to offset her liability to contribute to those payments. Mr Ryan accepted that his share was chargeable with an occupation fee pursuant to the trespass rule from the time he changed the locks but not earlier.
In determining the controversy in Ryan Hodgson JA, with whom Sheller JA concurred, disagreed in several respects with the reasons of Meagher JA in Forgeard.
Firstly, Hodgson JA took a different view on the question of the charging of the cost of repairs, holding that a resident co-owner was entitled to an allowance for repairs, and not just additional or new improvements which increased the value of the property.
Secondly, Hodgson JA expressed the view that the principles applicable to partition actions also applied to the quantification of the interests in property claimed under resulting or constructive trusts.
Thirdly, Hodgson JA held, contrary to the doubts expressed by Meagher JA in Forgeard, that a co-owner who claimed a contribution to mortgage payments on equitable grounds was required to do equity, as he or she would, if making a claim for improvements. In Ryan v Dries the claim for a contribution to the mortgage payments was not made pursuant to an action in law but was made, instead, by way of an equitable set off to Ms Dries’ claim for a resulting trust.
Hodgson JA calculated an appropriate occupation fee and ordered Mr Ryan to account to Ms Dries for 43 per cent of the value of his greater use of the property during the relationship and of his exclusive use of it thereafter. The principle applied by Hodgson JA appears to be that it was unconscionable for Mr Ryan to enforce his right to an equal contribution to mortgage payments by which he secured the continuing possession of land of which he had a much greater use.
Hodgson JA postulated an alternative route to the same conclusion based on an equitable estoppel arising from a representation, or common assumption, that Mr Ryan would not seek any contribution to the interest component of the mortgage payments because of his greater use of the property.
In Ryan v Dries the occupation fee was less than the share of the mortgage payments to which Mr Ryan was entitled leaving a credit in his favour. The question of deduction of an occupation fee from the resident co-owner’s capital share which had divided the Court in Forgeard therefore did not arise.
In Callow v Rupchev[19] the Court of Appeal of New South Wales considered the competing claims of former domestic partners to the proceeds of the sale of their former home. Ms Callow and Mr Rupchev purchased a home in joint names borrowing the whole of the purchase price from a bank. Mr Rupchev’s father, Mr Rupchev senior, was a guarantor of the loan. Mr Rupchev senior’s exposure was secured by a second mortgage over the home. The couple separated three months after the purchase but Mr Rupchev continued to live in the property paying the mortgage for many years. When he could no longer do so, his father made the payments. The property was eventually sold and the balance of the proceeds after payment of the mortgages was paid into court.
[19] [2009] NSWCA 148.
Mr Rupchev senior brought an action against both Ms Callow and Mr Rupchev to enforce his security. Ms Callow sought, by cross-action, to set aside the mortgage for undue influence and sought an order that she and Mr Rupchev were the owners of the property as joint tenants in equal shares. Mr Rupchev, by cross-action against Ms Callow, sought an order that she held her share on a constructive trust for him but abandoned that claim at trial. Mr Ryan also claimed a contribution from Ms Callow for the mortgage payments he had made. He also sought to offset the costs of certain improvements against her share of the proceeds.
Ms Callow sought an allowance for an occupation fee to offset the mortgage and improvement contributions Mr Rupchev sought from her. Ms Callow also claimed that she left the home because she feared for her safety after an incident in which Mr Rupchev placed his hands around her throat. Mr Rupchev claimed that he had only put his hands on her collarbone. The trial Judge preferred Mr Rupchev’s account of that incident. It was common ground, however, that there were frequent arguments. The trial Judge described the relationship as a tempestuous one.
Mr Rupchev, unlike Mr Ryan in Ryan v Dries, brought his claim in law to recover a contribution from Ms Callow for his repayments of the joint debt. Mr Rupchev contended that the occupation fee could not be offset against his right of contribution in law for payments which he had made on their joint debt. The Court rejected that submission. The Court held that equitable defences to claims in equities for contribution were equally available if the same remedy was sought in law.[20]
[20] Callow v Rupchev [2009] NSWCA 148 at [28]-[29] citing Burke v LFOT Pty Ltd (2002) 209 CLR 282 at [14]-[15], [38], [143]. See also Armstrong v Commissioner of Stamp Duties (1967) 69 SR(NSW) 38 at 48; Cunningham-Reid v Public Trustee [1944] KB 602.
The Court of Appeal in Callow held that the entitlement of a co-owner for an occupation fee was not dependent on actual or constructive ouster.[21] The Court adopted the general principle stated by Millet J in Re Pavlou (A Bankrupt)[22] to the effect that a co-owner remaining in the jointly owned home, in circumstances in which the other co-owner is not, for all practical purposes, able to remain and enjoy his or her interest in the home, is liable to the absent co‑owner for an occupation fee. The Court in Callow said at [46]:
Under the traditional principles an actual ouster by the occupying co-owner involved a civil wrong, either a trespass to the person by assault or battery, or a physical obstruction which prevented the absent co-owner from exercising his right to occupy the property: Jacobs v Seward (1872) LR 5 HL 464 at 472-3. One can describe the breakdown of a domestic relationship as an ouster, but such relationships can break down without attributable fault on the part of either party. To describe such a breakdown as an actual ouster involves a fiction and it is better to recognise such a breakdown as an independent ground for charging the co-owner who remains with an occupation rent.
[21] Callow v Rupchev [2009] NSWCA 148 at [36].
[22] [1993] 1 WLR 1046.
The Full Court in Callow[23] approved the following statement of principle in the judgment of Brereton J in McKay v McKay:[24]
… I, therefore, agree with Purchas J in Dennis v McDonald and Beazley JA in Biviano v Natoli, that the basic principle that a tenant in common is not liable to pay an occupation rent by virtue merely of his being in sole occupation of the property does not apply in the case where a matrimonial or similar relationship has broken down and one party is, for practical purposes, excluded from the family home. Upon breakdown of a domestic relationship, if it becomes no longer reasonable or practicably sensible to expect the partners to co-occupy the one property, the one who remains in possession may be taken to do so to the exclusion of the other, and to be liable to pay an occupation fee. At present, however, Biviano would seem to restrict that to a case in which the exclusion was not authorised by a court order – whether under matrimonial legislation or an [apprehended personal violence order].
[23] Callow v Rupchev [2009] NSWCA 148 at [59].
[24] [2008] NSWSC 177 at [51]. In McKay the dispute was between a daughter and her husband on the one hand and her father on the other. They were the registered proprietors of a home which it was intended they would reside so that Ms McKay could care for her ailing father. The relationship broke down. Brereton J held that the home was held on a constructive trust for the parties in accordance with their respective contributions but charged the father’s share with an occupation fee.
The Full Court in Callow limited the payment of an occupation fee to those periods during which it was unreasonable to expect the parties to live together and pointed out that different considerations apply if the property is left vacant. The Court explained:[25]
An occupation fee is chargeable, inter alia, where it is unreasonable to expect co-owners to continue to live under the same roof after a domestic relationship has collapsed, and one party moves out. However when the premises later become vacant for an extended period the party who initially remained may not be obtaining any financial benefit, or the same level of financial benefit from the property. If neither co-owner is using the property for residence or storage it may not be appropriate or equitable for either to be charged with an "occupation rent" unless a proper basis for this is established. Ms Callow's assertion that Mr Rupchev was exercising control was just assertion based on evidence relating to an earlier period. As the relevant issues were simply not explored and she bore the onus of proof, she must fail on this issue. We express no concluded view on the legal position where it is sought to charge a co-owner with an occupation rent in respect of a vacant property.
…
Because, absent ouster, the basis for setting off a notional occupation fee is the unreasonableness of requiring the joint owners to reside together, it would be necessary, in a case where the party claiming contribution has vacated the premises for a period, for the other party to demonstrate affirmatively that it was unreasonable to expect him or her to return to the premises during that period. That task was not assayed by Ms Callow in the present case and accordingly the notional occupation fee should be limited to the period during which Mr Rupchev was actually in physical occupation of the premises.
[25] [2009] NSWCA 148 at [71], [74].
The calculation of the allowable adjustments in Callow resulted in a balance in favour of Mr Rupchev. The question of whether an occupation rent which exceeded the claim for contribution or improvements made by the occupying co‑owner was chargeable against his or her capital interest did not arise. However, the judgment in Callow proceeds on the assumption that the occupation rent should not exceed the contribution claimed for mortgage payments.[26]
[26] Callow v Rupchev [2009] NSWCA 148 at [73].
It is necessary in this case to consider whether the decision of the majority in Forgeard should be followed in this Court having regard to the subsequent decisions to which I have referred. In my view the circumstances which make it impracticable for domestic partners to continue to cohabit in their jointly owned residence do not in any sense involve a denial of title. Plainly a relationship breakdown, without more, could not amount to exclusion for the purposes of a common law action in trespass against the remaining co-owner. To my mind, treating all relationship breakdowns as constructive exclusions by reason of a legal fiction is not a satisfactory solution.
The unsatisfactory nature of the fiction is best illustrated by a case in which a home is purchased without a loan and with funds equally contributed by the co‑owners. If one of the co-owners leaves after the breakdown of the relationship, it would deny the primary rule to deduct from the resident co-owner an occupation fee. The resident co‑owner’s claim for his or her proportionate share of the capital of the residence on a partition is not unconscionable merely because he or she remained alone in the premises after the breakdown of the relationship.
In the case of a home, so purchased, which is improved by a resident co‑owner, the enhanced value rule would entitle him or her to charge a proportionate share of the cost of the improvement or the value of the enhancement. In such a case, the absent co-owner would be entitled to offset that charge with an occupation fee. However, as Meagher JA observed in Forgeard v Shanahan,[27] to allow the offsetting occupation fee to exceed the resident co‑owner’s claim would infringe the primary rule; a co-owner cannot unilaterally be burdened with the obligations of an involuntary bailiff. To allow the excess of the occupation fee over the cost of the improvement to be deducted from the resident co‑owner’s capital share subverts the primary rule and places the resident co-owner who improves the land at a disadvantage relative to a co‑owner who enjoys the whole of the land in the absence of his or her co-owner and does not improve the land.
[27] (1994) 35 NSWLR 206.
Should the same reasoning apply when an occupation fee is offset against a claim for contribution to mortgage payments? The New South Wales decisions to which I have referred show that there is considerable scope to defend a claim made by a co-owner of land for a contribution to payments discharging a joint liability arising out of that co-ownership by claiming an occupation fee as an equitable set off. The cases hold that it is unconscionable for a resident co‑owner to claim a contribution to repayments of a joint loan without bringing to account the benefit he or she has received from remaining in occupation of the residence. The basis for that approach is not difficult to see. The price for retaining the benefit of the continued occupancy of the residence after the domestic partner, with which the property was intended to be shared, has left is to bring into account an occupation fee. Indeed, the resident co-owner is likely to have made the mortgage payments precisely so that he or she can remain in occupation free of any disturbance from the mortgagee.
However, if the absent co-owner were to be allowed to charge the capital share of the resident co-owner with an occupation fee where it exceeded the mortgage payments, the primary rule of legal co-ownership would be infringed.
I acknowledge that in equity the shares of the beneficiaries under a constructive trust may be adjusted to take into account an occupation fee. The occupation fee may, in such a case, reduce the capital account of the party who remained in occupation after the failure of the basis on which the property was purchased.[28] However, in those cases the greater occupation by one of the beneficial owners is taken into account in determining his or her proportionate interest as a beneficiary of the constructive trust. It is quite a different matter to deduct an occupation fee from a pre-existing legal or equitable interest in land.
[28] Callow v Rupchev [2009] NSWCA 148; Calverley v Green (1984) 155 CLR 242.
On the approach I have outlined a co-owner who leaves the residence is not able to bring to account the benefit of the continuing occupation enjoyed by the resident co-owner if the resident co-owner fails to make any mortgage repayments. In those circumstances the only remedy of the resident co-owner is to bring and prosecute a partition application promptly and expeditiously.
The principles governing the quantification of an occupation fee are not settled. I earlier referred to the decision of Beazley JA in Biviano. The confusing state of the authorities was summarised in the following submission of the respondent:[29]
In Mackay v Mackay[30] the figure was based on one half of market rent. In French v Barcham[31] the amount was assessed at ‘one half of the letting value’[32]. In Dennis v McDonald the amount was assed at ‘one half of a fair rent’[33]. In Biviano v Natoli[34] the basis was the open market value of the premises discounted to take into account the fact of a co-tenant in occupation. In Bernard v Josephs[35] the amount was to be worked out by reference to mortgage payments.
[29] Outline of Submissions of the respondent at [30].
[30] [2008] NSWSC 177 at [54].
[31] [2009] 1 WLR 1124.
[32] at 1142 [46]. See also Rock Bottom Fashion Market Pty Ltd (In Liq) v HR & CE Griffiths Pty Ltd (Court of Appeal, Queensland, 6 March 1998, unreported) at 10-12. “The measure … is a reasonable sum in the nature of rent”: see Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 at 252. This is often proved in fact by relying on the amount of rental payable under an existing lease: see Atkin's Encyclopaedia of Court Forms in Civil Proceedings, 2nd ed, vol 24, par 22; Halsbury's Laws of England, 4th ed, vol 27, par 255.
[33] Dennis v McDonald (1982) 2 WLR 275. The concern in that case was that allowing a full market rent that a tenant would pay would be unfair because that would be a function of scarcity in the market, so that in the circumstances the fair rent would be the value of the rent of the house in an unfurnished state and calculated in accordance with sections 70 (1) and (2) of the Rent Act 1977 (UK) without regard to any other provisions of the Act.
[34] (1998) 43 NSWLR 695.
[35] [1982] 1 Ch 391.
When there has been a breakdown of a domestic relationship without an ouster, I would value the occupation fee by reference to the value of the occupation to the resident co-owner without discounting it for the burden of the occupancy being a joint one. The resident co-owner who continues to pay the mortgage does so in order to enjoy the occupation of the entire property in the knowledge that the breakdown of the domestic relationship makes it unlikely that he or she will again be bound to share it with his or her former partner. Over time the resident co-owner may, as in this case, also come to share the home with another partner. In such a case, there may be what I earlier referred to as an operational inconsistency which amounts to an ouster. There would be even more reason in those circumstances not to discount the occupation fee.
Accordingly, in my view there should be no discount of the market rent in calculating the occupation fee. The occupation fee should bear the same proportion to the market rent as the absent co-owner’s proportionate interest in the land.
Conclusion
My conclusion that D is not entitled to have the excess of the occupation fee charged against W’s interest means that parties’ complaints about many of the items in contention have no effect on the final result. On any view the occupation fee far exceeds W’s claims for a contribution to his payments of their joint liabilities arising out of the ownership of the farmlet.
The parties are entitled to share in the proceeds of sale in proportion to their contributions subject only to a deduction against W for Item 14 in the table. The appeal should be allowed. I would hear the parties as to the orders which should be made.
ANDERSON J: I agree that the appeal should be allowed for the reasons given by Kourakis CJ.
DAVID J: I agree that the appeal should be allowed. I agree with the reasons of the Chief Justice.
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