Zych v Franke
[2003] VSC 503
•23 December 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 5991 of 2001
| JAROSLAW ZYCH | Plaintiff |
| v | |
| BEATA FRANKE | Defendant |
No. 4428 of 2002
| GEORG WENZLAWSKI & LEOKADIA WENZLAWSKI | Plaintiffs |
| V | |
| BEATA FRANKE & JAROSLAW ZYCH | Defendants |
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JUDGE: | BONGIORNO J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10-13, 16-19 June 2003 | |
DATE OF JUDGMENT: | 23 December 2003 | |
CASE MAY BE CITED AS: | Zych v Franke | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 503 | |
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Equity – trusts – defacto relationship – common intention to create trust – adjustment - s 285 Property Law Act 1958.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff in Action 5991/2001 & Second Defendant in Action No 4428/2002 | Mr C. Northrop | Stephen Farmer |
| For the First Defendant in Action No 5991 of 2001 | Mr R. Spicer | Behan & Speed |
| For the Plaintiffs in Action No 4428 of 2002 | Mr S. Lethlean | Kelly & Chapman |
HIS HONOUR:
By a writ filed in this Court on 28 May 2001 Jaroslaw Zych brought a claim against his former defacto wife Beata Franke. In a 76 paragraph statement of claim attached to the writ he made some 18 claims against her, the most significant of which was a claim for a declaration that she holds a property known as 2 Claude Street East Bentleigh (the Claude Street property) on trust for herself and him as tenants in common and (sic) equal shares. The statement of claim alleges various agreements and situations said to give rise to equitable and statutory entitlements pursuant to Part IX of the Property Law Act 1958 (the defacto property provisions)[1]. The defendant has denied the plaintiff’s claim and has counter-claimed seeking various declarations and other equitable and statutory relief, also relying upon the defacto property provisions.
[1]Although Part IX of the Property Law Act 1958 has been amended and now uses the expression "domestic partners" to take into account same sex relationships, the Act as amended does not apply to cases (such as this) where a relationship ended before 8 November 2001.
On 14 February 2002 Beata Franke’s stepfather and mother Georg and Leokadia Wenzlawski filed a writ against their daughter and Dr Zych. In this proceeding Mr and Mrs Wenzlawski claim that they own the Claude Street property by reason of contributions which they claim to have made to its purchase pursuant to an agreement between them and their daughter, which agreement, they allege, their daughter’s former defacto husband knew of and acquiesced in. Their statement of claim also seeks payment of some $41,000 from a trust entitled the B & J Family Trust of which it is alleged Dr Zych is the trustee. The final claim made by Mr and Mrs Wenzlawski relates to an antique French dresser the return of which they seek from Dr Zych.
Beata Franke has not contested her parents' claim. She supports it. Dr Zych contends, consistently with his claim in the proceeding in which he is the plaintiff, that the Claude Street property is held by his former defacto wife, not on trust for her parents, but on trust for him and her as tenants in common. He denies Mr and Mrs Wenzlawski’s claims in relation to the B & J Family Trust and the antique French dresser and seeks, by counter-claim, a declaration that they have no equitable interest in the Claude Street property.
On the trial of these two proceedings, which were heard together, over almost 2 weeks Mr and Mrs Wenzlawski and Ms Franke were separately represented by both counsel and solicitors even though there was no conflict whatsoever between the positions they each took or the orders they all sought. This was unnecessary. Not only was there no need for separate representation, there was no need for the second proceeding at all. Ms Franke’s parents could have been joined in the first proceeding so that all issues between all parties could have been resolved in that proceeding. The total costs of determining the questions in dispute have been thus considerably increased. Having regard to the conclusions which I have reached and the costs orders which, absent complicating factors such as effective offers of compromise, will probably follow, Mr and Mrs Wenzlawski and Ms Franke will bear most, but not all of this extra unnecessary expense. This is extremely unfortunate.
Each of the parties gave evidence in support of their respective cases and witnesses were called on behalf of Dr Zych and Ms Franke. Although witness statements were prepared for all witnesses called, in many cases those tendered on behalf of Ms Franke and the Wenzlawskis had to be subjected to heavy editing to remove inadmissible material as being variously irrelevant, hearsay, opinion or conclusion. The witness statements sworn to (unnecessarily) by Mr and Mrs Wenzlawski were (saving gender and pronoun changes) virtually identical, each with the other. Each matter contributed to an unsatisfactory situation which made the use of witness statements difficult, lengthened the trial and, in the case of Mr and Mrs Wenzlawski, added considerably to the difficulty of the assessment of them as witnesses.
Dr Zych’s evidence was, for the most part, cogent and generally credible. He made concessions, but displayed an hostility towards Ms Franke such as is not uncommon in cases of this nature. I am satisfied however that such hostility did not materially affect the credibility of his evidence.
A number of witnesses were called on Dr Zych's behalf including the estate agent who negotiated the sale of the Claude Street property and the finance broker who negotiated the loan. They were acceptable and credible witnesses as was Mr Chelotti, an accountant, who advised Dr Zych and his medical partners with respect to the practice in Mentone.
Ms Franke, whose witness statement had to be substantially edited, was unimpressive as a witness. In answering questions she tended to try to improve her case and from time to time gave the impression that she was inventing answers as the questions were asked. In general, where her evidence conflicted with that of Dr Zych I preferred the evidence of Dr Zych. Ms Franke also called a number of witnesses including Dr & Mrs Szatsznajder. Dr Szatsznajder's evidence consisted mainly of alleged admissions made by Dr Zych concerning the Wenzlawskis' ownership of the Claude Street property. At one point he said that Dr Zych had told him that he and Ms Franke were "going to purchase the house on behalf of and for the parents". When cross examined as to the phrase "on behalf of and for" he maintained that Dr Zych had used that exact phrase. I found his evidence to be partisan and both he and his wife over anxious to assist Ms Franke.
A witness statement of a Dr Waluk was, after heavy editing, admitted into evidence without cross examination. It was of little assistance in the resolution of this case.
Mr and Mrs Wenzlawskis' evidence suffered from the problem I have already adverted to. They gave their oral evidence through a Polish interpreter although their witness statements had in fact already been sworn with no reference to an interpreter in the jurat. Mr Wenzlawski was cross examined on his affidavit and said that friends had translated it for him before it was sworn. His evidence overall, even allowing for the problems of interpretation, gave an impression of evasion and of being anxious to have his case accepted. He tended to over emphasise those parts of it which he considered (often incorrectly) as being of importance. Mrs Wenzlawski gave evidence to similar effect and conveyed a similar impression. Having regard to their daughter’s acceptance of their case, the principal importance of the Wenzlawskis' evidence was to depose to alleged admissions made to them by Dr Zych as to their ownership of the Claude Street property. As I explain hereunder, I do not accept that Dr Zych made such admissions, at least in terms which would justify a conclusion that he was admitting that the Wenzlawskis owned the Claude Street property.
Background
Dr Zych and Ms Franke, who was already divorced from the father of her child Arthur, met in about May 1994. Dr Zych was still married. He has three children of that marriage. Between 1995 and 1997 he worked at the Mildura Base Hospital whilst he studied for and eventually passed the examinations necessary for him to obtain registration as a medical practitioner in this State. Whilst he worked in Mildura he spent regular weekends with Ms Franke, either in Mildura or in Melbourne, although he also continued to spend time with his wife and children.
In August 1996 Ms Franke had commenced a beauty therapy business under the name “B-For-Beauty” at the rear of premises occupied by a hairdresser, Anthony Robert Lunn, in Charman Road Cheltenham.
Upon Dr Zych’s return to Melbourne he commenced living with Ms Franke and her son Arthur at her townhouse. Subsequently they lived in other rented premises in Beaumaris. Ms Franke dates the beginning of her co-habitation with Dr Zych as being about 20 January 1997. It would appear that this date is probably approximately correct. They separated in about January 2000. Thus their period of cohabitation was almost exactly three years.
From about March 1997 Dr Zych commenced working as a sessional medical practitioner in a number of Melbourne medical practices. In that month he also bought Ms Franke’s beauty therapy business from her and commenced to employ her on a salary of $1,400 gross or about $1,100 nett per fortnight. Following his acquisition of the business Ms Franke commenced earning an income which, I am satisfied, was far in excess of what she had earned from the business when she ran it on her own account. Dr Zych, for his part, was able to deduct the loss incurred in the business as a result of paying Ms Franke such an income from his other taxable income earned as a medical practitioner. He was thus able to confer a considerable benefit upon his defacto wife in a way which was tax effective from his point of view. This arrangement placed Ms Franke in a better position from which to seek a loan to buy a house and improved her chances of being able to sponsor her parents’ migration from Germany.
The “B-For-Beauty” business continued until early 1998 when Dr Zych closed it. The evidence establishes that Ms Franke’s attention to this business was less than diligent, particularly perhaps after she became an employee of Dr Zych. Mr Lunn, the hairdresser, at the rear of whose shop the business operated observed her working over the whole of the period in which she operated the business and described such work as being “part time”. Despite her evidence that she gave cash which the business earned to Dr Zych I am also satisfied that no significant amount was ever in fact given to him by Ms Franke. She produced no records or accounts of the business in support of this contention. Dr Zych denied the receipt of money from her.
After Dr Zych closed the “B-For-Beauty” business Ms Franke operated another beauty therapy salon in Brighton called “V E Aesthetics”. This business continued until about June 1998. Ms Franke claimed that during the period of its operation it earned a profit of $200 (sic) but no accounts verifying even this very small income were ever produced in support of her evidence. Its apparent failure further reinforces the probability that “B-for-Beauty” was less than a thriving enterprise and really existed for the purpose I have already referred to; the conferring of a benefit on Ms Franke by Dr Zych.
At the time co-habitation between Ms Franke and Dr Zych commenced and thereafter until the Claude Street property was purchased in November 1997 Dr Zych and Ms Franke discussed the acquisition of such a property. Dr Zych maintains that it was at all times his and Ms Franke’s intention that they would own the property equally. Ms Franke, on the contrary, says that all discussions were about purchasing a home for her parents. I accept Dr Zych's evidence in respect of this matter.
Ms Franke maintains that when the Claude Street property was purchased she purchased it pursuant to an arrangement she had with her parents who, she said, had sent her a number of sums of money from Germany (totalling over $34,000) for this purpose between February 1995 and August 1998. This money, so Ms Franke asserted, was a trust fund from which a house would be purchased for her parents to live in when they migrated. However, it is clear from Ms Franke’s bank statements that although her parents did send her a number of sums of money from Germany between February 1995 and August 1998 totalling about $34,440, she had spent a considerable portion of that money before they eventually arrived and before the Claude Street property was purchased. Whatever might have been Mr and Mrs Wenzlawski's intention (and even the intention of Ms Franke at the time she received the money) by the time the Claude Street house was purchased most of the money in Ms Franke’s bank account was derived from her employment by Dr Zych in the “B-For-Beauty” business which, as I have already described, was an arrangement entered into between Mr Franke and Dr Zych for the purpose of giving Ms Franke a regular income to her advantage in a number of respects whilst permitting Dr Zych legitimately to deduct the cost of running the business from his taxable income derived from his personal exertion as a medical practitioner. She admitted that she had used money sent by her parents for her own purposes. I accept Dr Zych’s evidence that she cautioned him not to mention the fact that she had spent some of her parents' money in conversation with them. She also used not inconsiderable sums from the same account to pay legal and other expenses connected with her parents’ proposed migration to Australia.
Purchase of the Claude Street property
The Claude Street property was purchased in November 1997 through an estate agent, Pamela Ross, who was known to Dr Zych. Ms Ross said, in her evidence, that she had had many discussions with Dr Zych about buying a property suitable for sub-division and development. She said that on 19 November 1997 she negotiated the sale of the Claude Street property to Dr Zych and Ms Franke for $142,000. A preliminary deposit of $1,000 was paid on that day; the balance, $13,200, being paid the following day. Receipts for both amounts were made out by Ms Ross in Ms Franke’s name and it is clear that the source of the entire $14,200 was Ms Franke’s bank account. Dr Zych does not assert otherwise.
The purchase of the Claude Street property was financed through a finance broker with Aussie Home Loans. Sometime after mid 1997 Judith Goorjian, who described herself as a “consultant finance introducer”, had two discussions with Dr Zych and Ms Franke together about obtaining finance for a house to be purchased by them. In the course of one or other of those discussions Dr Zych said, in the presence of Ms Franke, that the house had to be purchased in Ms Franke’s name as he had problems with an ex-wife who might make a claim upon him. Ms Goorjian said that one or other of Dr Zych and Ms Franke told her in the presence of the other that it was their intention to buy a house which could be demolished and replaced with two units or townhouses.
A day or so after the purchase of the Claude Street property Ms Goorjian assisted Dr Zych and Ms Franke to make a loan application for $120,700 from Aussie Home Loans, such loan to be taken out in Ms Franke’s name alone.
At the time the Aussie Home Loan application was made it was realised by Dr Zych and Ms Franke that there would be a shortfall of $10,000 to $12,000 between the amount being borrowed and the amount required for settlement of the purchase of the Clause Street property. One of the parties told Ms Goorjian in the presence of the other that this shortfall would be made up by Dr Zych. Ms Goorjian explained to Dr Zych and Ms Franke that, as lenders were concerned to satisfy themselves as to the solvency of borrowers, it would be necessary for Dr Zych to acknowledge a “non-repayable gift” to Ms Franke of the amount he was to contribute. Accordingly, on the day Ms Franke made the loan application Dr Zych signed a document confirming that he had made a gift to her of $12,000.
In her witness statement Ms Franke characterised the contribution made by Dr Zych to the purchase of the Claude Street property (which in the event was $10,000 not $12,000) as repayment by him of money she had advanced to him or spent on him or on his behalf. In her oral evidence she went further and asserted a promise by Dr Zych: “to repay the money we both spent together”. Her particularisation of such spending was however so sparse as to be almost non-existent. She referred to a holiday in Perth which they had taken whilst he was working in Mildura and for which she had allegedly paid and a bed she had bought but gave no evidence as to how the amount said to be owing by Dr Zych was calculated. Ms Franke said the amount was much more than $10,000 but, as only $10,000 was required to make up the shortfall, that was all he “repaid”. Dr Zych, on the other hand, characterised the payment of the $10,000 by him as a contribution to the purchase of the property.
About 18 months after the Claude Street property was purchased Dr Zych and Ms Franke decided to undertake the development of it by sub-dividing it and building two townhouses. To this end they sought and obtained approval for an interest only loan from the Bank of Melbourne which would enable them to pay out the original Aussie Home Loans loan and permit subsequent drawings to cover building costs. Although Ms Franke asserted that Dr Zych was only a guarantor in respect of this loan, it was in fact a loan taken out by both of them as borrowers with security being provided by Ms Franke by way of a first mortgage over the relevant property of which she was the sole registered proprietor. This loan was intended to, and did, repay the Aussie Home Loan loan which had earlier been used to finance the purchase. Thus both Dr Zych and Ms Franke were then and are still the borrowers in respect of the loan secured on the Claude Street property. That loan was serviced from rent received for the property until the Wenzlawskis moved into it in January 2000 and took over the interest payments and outgoings.
In the course of her evidence Ms Franke deposed to Dr Zych having, on many occasions, made admissions as to her parents being the intended owners and, later, the owners of the Claude Street property. Her parents gave similar evidence as did Dr and Mrs Barbara Szatsznajder. It was said that he used a Polish phrase which described the property as “parents’ house”. Having regard to what I find were the circumstances surrounding the selection, purchase and financing of the Claude Street property I do not accept that Dr Zych made the admissions alleged. In any event, even if he did make reference to the house to be purchased in terms which suggested some connection with Ms Franke’s parents such references are explicable in terms other than ownership. It seems, on the totality of the evidence, that whatever property was eventually purchased, Ms Franke’s parents would probably live in it, either with Dr Zych and Ms Franke and/or, as appears to have been the developing plan after Claude Street was bought, (and probably before) in one of the two units or townhouses to be built on it.
Mr & Mrs Wenzlawski’s case that they were the beneficial owners of the Claude Street property depended upon discussions they had with their daughter, money they sent to her and alleged admissions made by Dr Zych. The discussions are all conceded by Ms Franke and the money was certainly received by her and disposed of as I have already discussed however the admissions attributed to Dr Zych are disputed.
The Wenzlawskis gave evidence, in identical terms, that on or about 19 November 1997 Dr Zych made admissions in a telephone call to them in Germany in that he congratulated them on the purchase of the Claude Street property and said it was a perfect property for them and would provide them with a great start when they arrived in Australia. In their oral evidence they gave similar evidence without the same degree of specificity or detail.
The Wenzlawskis also gave evidence that as a result of conversations with their daughter, building permits were applied for before they arrived in Australia for
re- development of the Claude Street property to accommodate two townhouses. The fact that this occurred seems to be common ground; Dr Zych saying, in effect, that he was prepared to provide accommodation in one of the townhouses for his defacto parents-in-law whilst living in the other with Ms Franke and her son. The Wenzlawskis characterised this activity as activity on their part which would lead to the same result but with them owning the property. In fact, by the time they moved into the Claude Street house in January 2000 the relationship between Dr Zych and Ms Franke was virtually at an end. The units were never built and a planning permit obtained to allow them to be built has now presumably finally lapsed.
I do not accept that Dr Zych made admissions in the terms attributed to him. He may very well have had discussions with the Wenzlawskis on the mutual understanding that they would live in the Claude Street property, either in the form it was in when purchased or in one of two units or townhouses to be built on it. However I am unable to accept that anything Dr Zych did was a concession by him that the Wenzlawskis would own the Claude Street property or, after it was acquired, that they did own it. The probabilities are against such a situation. Were it the case Dr Zych would have provided, either directly or indirectly, the vast majority of the money which would constitute the equity in the Claude Street property to enable the Wenzlawskis to live in a house which they owned whilst he and Ms Franke lived in rental accommodation. His case, that he and Ms Franke were to own the Claude Street property and to permit the Wenzlawski’s to live there, particularly after the units were built, is far more probable. I accept it.
I am satisfied that when the Claude Street property was bought it was the intention of both Dr Zych and Ms Franke that they would own it together. It was purchased in Ms Franke’s name for the reason advanced by Dr Zych, namely to minimise the possibility of his ex-wife making a claim against him for a property settlement consequent upon their divorce. I reject Ms Franke’s characterisation of Dr Zych’s $10,000 contribution towards the purchase price. Not only was her evidence as to Dr Zych becoming indebted to her unsatisfactory and improbable, if it were true there would have been no need for Dr Zych to confirm a non-repayable gift to Ms Franke to satisfy Ms Goorjian’s requirements. He could simply have repaid the debt which he owed, thereby enhancing Ms Franke’s capacity to buy the property herself. She would then have been able to do so from her own resources, even if, in fact, virtually all of those resources (with the exception of whatever money sent by her parents had not been already spent) derived from Dr Zych. Despite Ms Franke’s assertions to the contrary I am satisfied that the “B-For-Beauty” business in respect of which Dr Zych paid Ms Franke an income was a highly unprofitable venture from his point of view. That he persisted with it as long as he did thus enabling Ms Franke to acquire much of the money which she eventually put into the Claude Street property purchase provides a further reason, if one was needed, for accepting Dr Zych’s case that the parties had a common subjective intention that the property would be owned by both of them.
I am satisfied that insofar as Ms Franke still had any of the money sent by her parents from Germany she used it in the purchase of her share of the Claude Street property. As Ms Franke does not contest her parents’ claim against her that she holds the Claude Street property on trust for them it is not necessary for me to further consider questions of equitable interests as between the Wenzlawskis and Ms Franke. The orders the Court will make will take into account Ms Franke’s concession in favour of her parents. Those orders will reflect not only the common subjective intention which I have found existed but also the consequence of that concession.
As I have found that the parties intended that they acquire the Claude Street property together there is no need for me to consider further other ways in which the same result might have been reached. It is necessary however to examine the question as to whether Ms Franke holds the property on trust for her and Dr Zych jointly or as tenants in common. Neither relevant counsel made any submission on the question although Dr Zych’s claim has always been that there was a tenancy in common.
In Baumgartner v Baumgartner when it was before the New South Wales Court of Appeal[2] Priestley JA resolved the same question by inferring an intention in the parties to hold the property the subject of that litigation as tenants in common. Although his general conclusion was not accepted on appeal by the High Court[3] his Honour’s conclusion as to how he inferred a tenancy-in-common from the circumstances surrounding the parties’ relationship was not the subject of comment.
[2](1985) 2 NSWLR 406.
[3](1987) 164 CLR 137.
There is no evidence in this case which goes directly to the question. There are references in Dr Zych’s evidence to “owning the property equally” and that the property was “purchased on behalf of both of us”. Such statements are, of course, equivocal as to the issue of tenure. However, at the time the parties bought the Claude Street property they were not married and although they intended their relationship to continue they were each conscious of their continuing responsibilities arising from their former marriages. Dr Zych had children in respect of whom he made maintenance payments and Ms Franke had a child in respect of whom she was the principal care giver. Taking all of these matters into account, as Priestley JA did in Baumgartner, I am prepared to infer that had the parties turned their minds to the issue of tenure they would have opted to hold the Claude Street property as tenants-in-common. Accordingly, their respective interests will be so declared.
Dr Zych’s other claims
As well as claiming an interest in the Claude Street property Dr Zych, by his statement of claim, made a number of other claims against Ms Franke. However, in the course of the trial and, specifically, in his counsel’s final written submissions he said that he did not persist in such claims, although submitting that they should be taken into account when the Court was considering competing contentions for the purposes of Part IX of the Property Law Act 1958. In light of the Court’s findings hereunder there is no need for them to be considered further.
Ms Franke’s counter-claim
By an amended counter-claim filed 15 November 2002 Ms Franke seeks a number of orders relating to property which, she alleges, form part of a pool of assets acquired by her and Dr Zych as defacto partners. She relies upon Part IX of the Property Law Act 1958.
Ms Franke says in her witness statement that when Dr Zych returned to Melbourne from Mildura in January 1997 and their defacto relationship commenced he had no employment, no money and no savings. She claims that she fully supported him for about six weeks until he commenced locum and sessional work in various medical clinics.
Ms Franke deposed that she had assets of over $60,000 at this time as follows:-
Furniture and personal effects valued at approximately $25,000.00 A bank account of approximately $15,558.33 Cash on hand of approximately $3,500.00 A Subaru Vortex motor vehicle valued at approximately $12,000.00 The business of “B-for-Beauty” valued at approximately $7,000.00. She said she had no debt or liabilities at the time the defacto relationship commenced.
No valuations of any of these assets were ever the subject of evidence. The money in the bank account was also claimed by Ms Franke in other evidence to have been (or contained part of) the trust fund sent by her parents from Germany from which their contribution to the purchase of the Claude Street property was derived. So far as the “B-for-Beauty” business in concerned not only was there no evidence as to the $7,000 value put upon it by Ms Franke, such evidence as there was as to that business generally leads to the conclusion that it would have had little or no value. Dr Zych said in his witness statement that the Subaru Vortex which Ms Franke owned was purchased in a damaged condition from an auction for $4,000 in 1996 although it was later repaired. That evidence was not challenged. It would be unlikely to be valued at $12,000 after such repairs.
Dr Zych said that his assets at the same time consisted of two cars and $10,000 in a National Australia Bank Account. There was much disputation as to this $10,000 and as to the possession of one of the motor cars during the course of the trial but in the overall conclusion which I have reached such disputation assumes little or no significance.
In the financial year ended 30 June 1996, according to their tax returns, Ms Franke earned $8,738 entirely from social security benefits and Dr Zych earned $67,607 from his work as a medical practitioner. In the following year Ms Franke included in her income $17,000 paid to her as an employee of Dr Zych in the “B-for-Beauty” business, the details of which have already been referred to.
In 1998 Dr Zych set up a medical practice in Mentone with two partners, a Dr Gallic and a Ms Czydel. Later, Ms Czydel, who was not a medical practitioner but a practice manager, was replaced as a partner by a Dr Eldridge.
Ms Franke gave evidence that prior to the setting up of this clinic she carried out extensive investigations to find an appropriate site for it and when the site was finally selected she put much exertion into setting the clinic up. This evidence was proffered in support of a submission that she thus contributed to the capital value of Dr Zych’s interest in the clinic. Although her counterclaim made a similar assertion as to a clinic in Richmond which Dr Zych and his colleagues later set up, Ms Franke did not give any evidence verifying this claim.
I do not accept Ms Franke’s evidence in this respect. It was contradicted by both Dr Gallic and Dr Zych and seems, in any event, implausible. Whilst it is quite possible, even probable, that Ms Franke made suggestions to Dr Zych as to an appropriate place for a medical clinic and that they discussed it I do not consider that any activity of Ms Franke in this regard could be characterised as a contribution towards the acquisition of an asset by Dr Zych for which she should have credit as a contribution for the purposes of Part IX of the Property Law Act 1958.
At the time Dr Zych and his partners set up the medical clinic in Mentone they obtained advice from a Mr Walter Chelotti, an accountant. He gave evidence that a family trust, the B&J Family Trust was established in September 1988 with Kern Pty Ltd as trustee. The B&J Family Trust, in turn, owned one third of the units in the Balcombe Unit Trust whose trustee was Melaluka Pty Ltd. The Balcombe Unit Trust administered the practice in that it employed the non-professional staff, held the lease of the premises and paid the ordinary running costs of the practice. The practice itself, Mentone Seven Day Clinic Pty Ltd employed each of the doctors on a sessional basis. Mr Chelotti agreed that Dr Zych is presently earning at the rate of about $150,000 per year although his tax returns in the years leading up to the cessation of his defacto relationship with Ms Franke demonstrated a much lower income, perhaps, at least for a short time because of illness necessitating surgery.
After the Mentone clinic was established Ms Franke operated a business there in her field of beauty therapy. Rent for her room was paid by Kern Pty Ltd which paid her a salary and for the few months that this arrangement continued it would appear that employment by Kern Pty Ltd was her only source of income.
In late 1998 Ms Franke ceased operating her business at the Mentone Clinic. Between that time and the date co-habitation ceased she worked in what was referred to as the Bakler joint venture, a business involving the B&J Family Trust and a family trust associated with the Szatsznajders, from which the B&J Family Trust derived income and provided a salary to Ms Franke. For the year ended 30 June 1999 Kern Pty Ltd received $5,472 as its share of income from the Bakler joint venture but paid $12,500 in wages to Ms Franke. She also performed some quasi-medical treatment with a laser machine at home for fees, the receipt of which was a matter of contention. In the circumstances the dispute as to these relatively minor amounts does not have to be resolved.
Although much time was spent in this case on evidence concerning financial transactions, often of a complicated and difficult nature, there is very little evidence concerning the actual assets of the parties such that an assessment can be made of the “pool” of assets the interests in which might be adjusted between them as contemplated by s 285 of the Property Law Act 1958. No such “pool” was identified by Mr Spicer of counsel for Ms Franke and although he made an unsuccessful attempt to call evidence as to the value of Dr Zych’s medical practice he was ultimately forced to rely upon a statement Dr Zych had made in the application by which the parties sought the second loan on the Claude Street property in June 1999. This statement was to the effect that “1/2 clinic” had a market value of $200,000. It is difficult to align this alleged admission with the uncontested evidence that as at June 1999 Dr Zych was an employee medical practitioner working at sessional rates with two other doctors similarly employed by a corporate entity ultimately owned by a group of family trusts. No other assets (save for the Claude Street property) have been identified by Mr Spicer whose client, as claimant, bears the onus of establishing the conditions upon which the Court should exercise the discretion conferred by s 285 of the Property Law Act 1958.
Even if there are unspecified assets which could have formed part of a “pool” in respect of which an adjustment of interests could have been made, or Dr Zych's position as a possible beneficiary of the family trust which held a one third interest in the medical practice meant that he had access to a financial resource within the meaning of the legislation, any financial contribution towards such assets or resources must have come almost entirely from Dr Zych for the reasons already referred to. Such contributions as Ms Franke would have been able to make from her income would have been minimal although, of course, contributions as a home-maker were undoubtedly made by her and she is entitled to such credit as they would attract. In this regard it should be noted that she also had the primary care of her son who was a child of the parties’ household.
Having regard to the orders which will be made concerning the Claude Street property, the contributions made by each of the parties to its acquisition and the contributions made by each of them to the household they briefly established, both financial and non-financial, and the brevity of their relationship, I am not satisfied that it would be just and equitable to make any further order adjusting any interest either party might have in any other property or assets they might have acquired. Ms Franke would have been entitled, as against Dr Zych, to a half share in the Claude Street property but, as she has ceded any interest she might have had to her parents, the order which will be made will exclude her completely from its beneficial ownership.
By her counter-claim Ms Franke made a number of other claims including two small claims for money sums relating to motor vehicles. There is no evidence upon which any orders could be made in respect of those claims. In due course the defendant’s counter-claim in this proceeding will be dismissed.
The Wenzlawskis’ case
In deciding that Dr Zych and Ms Franke purchased the Claude Street property as tenants in common in equal shares I have already dealt with the position of the Wenzlawskis. They did not acquire any interest in the property as against Dr Zych. Their daughter concedes, and has always conceded, that any interest she has in the property she holds on trust for them so that the end result of these two proceedings will be a declaration that Beata Franke holds the Claude Street property on trust as to one undivided half share for Jaroslaw Zych and as to the other undivided half share for Georg Wenzlawski and Leokadia Wenzlawski jointly. This will dispose of the principal claim made in the Wenzlawskis’ proceeding.
The Wenzlawski’s amended statement of claim makes two other claims against Dr Zych alone. The first is that the B&J Family Trust of which Dr Zych is alleged to be the sole trustee, owes Mr and Mrs Wenzlawski $20,500 each as unpaid distributions made during the financial year ending 30 June 1999.
As has already been noted the B&J Family Trust was established on 4 September 1998 by a deed entered into between Stuart Nicol as settlor and Kern Pty Ltd as trustee of a discretionary trust, the beneficiaries of which were Dr Zych, Ms Franke, any parent, child or grandchild of either of them and any spouse widow or widower of either of them or of any of their parents, children or grandchildren. Thus it was a common form family trust. Whilst it contained a power to appoint a new trustee in the place of an existing trustee and conferred that power upon Dr Zych in the first instance it prohibited him from appointing himself. Notwithstanding this prohibition, in about the middle of 2001 Kern Pty Ltd was replaced as trustee of the B&J Family Trust by Dr Zych. This manoeuvre was undertaken by Dr Zych without reference to Ms Franke.
In the course of his evidence Mr Chelotti produced a copy of a loan account from the books of the B&J Family Trust which demonstrated that on 30 June 1999 a distribution was made to each of Georg and Leokadia Wenzlawski of $20,500. However that loan account also showed a number of deductions so that each of them was owed $10,103 as at 30 June 2000.
The trust deed provided that the trust may make a distribution by crediting a beneficiary’s loan account to the effect that such credit then constituted a loan at call without interest. In this case the Wenzlawskis have to rely on that loan account as the only evidence of the trust’s indebtedness to them. Thus they must accept that loan account as it appears in the books of the trust; that is to say that the trust is indebted to each of them in the sum of $10,103. They cannot rely upon one part of the Trust's financial records without also accepting the debit entries.
Mr Lethlean, counsel for Mr and Mrs Wenzlawski did not mention this aspect of their claim in his written outline and made little mention of it in his oral submissions. He did not address the question of the loan accounts to which I have referred nor did he address the argument of Mr Northrop to the effect that as Dr Zych had replaced Kern Pty Ltd as the trustee of the B&J Family Trust after the distribution claimed was made to them they cannot now sue Dr Zych and that the debt is a debt of Kern Pty Ltd.
Mr Northrop’s submission ignores a principle of trust law that if the trust property is transferred to a new trustee then any liability of the trust is likewise transferred. The complicating factor in this case is that Dr Zych’s appointment as trustee is a breach of the trust deed, but having undertaken that step himself it cannot lie in his mouth now to deny that he is the trustee of the B&J Family Trust and as such liable in that capacity to the Wenzlawskis, subject to the right of a trustee to indemnity from the trust as to the amount paid.
Accordingly the Wenzlawskis are entitled to recover $10,103 each without interest from Dr Zych in his capacity as trustee of the B&J Family Trust.
The third claim made by the Wenzlawskis related to the detinue and conversion of an antique French dresser. This claim was abandoned in the course of the trial.
Dr Zych's Counterclaim
Dr Zych himself counterclaimed in the Wenzlawski action but as he has succeeded in his principal claim the relief claimed by him now has no utility. His counterclaim will be dismissed.
Conclusion
Although there was evidence before the Court as to the value of the Claude Street property and evidence as to plans for its development the matter having now reached this point it is not appropriate that the Court do anything other than make an appropriate declaration as to the interests of the various parties in that land. Liberty to apply will be reserved should the parties require any further orders such as an order for sale or other consequential orders. It would be premature to make such orders at this time without giving the parties an opportunity to consider the declaration the Court will make and act upon it consensually if they are able to.
Mr Northrop for Dr Zych sought an order for the taking of accounts in respect of the difference between the sums paid by the Wenzlawskis in respect of the loan secured on the Claude Street property and the proper rent which, he contends, they should have paid since they began living in the property in January 2000. The amounts involved would be minimal, the interest payments (which they have paid) being only slightly less than an economic rent. As Dr Zych will obtain half the benefit of those interest payments and the Wenzlawskis the other half, the matter should now be resolved without further enquiry, with any loss remaining where it falls.
As it is proposed that there should be only one declaration made in respect of the Claude Street property it is appropriate that a formal order for consolidation of proceeding no. 5991 of 2001 with proceeding no. 4428 of 2002 be made pursuant to RSC r 9.12
Orders
The Court will make the following orders:-
1.That there be a declaration that Beata Franke holds all her right title and interest in and to the land described in Certificate of Title Volume 8382 Folio 789 on trust as to one undivided half share for Jaroslaw Zych and as to the other undivided half share for Georg Wenzlawski and Leokadia Wenzlawski jointly.
2.That otherwise the plaintiff’s claims in proceeding no. 5991 of 2001 be dismissed.
3.That the defendant’s counter-claim in proceeding no. 5991 of 2001 be dismissed.
4.That there be judgment for Georg Wenzlawski in the sum of $10,103 against Jaroslaw Zych as trustee of the B&J Family Trust.
5.That there be judgment for Leokadia Wenzlawski in the sum of $10,103 against Jaroslaw Zych as trustee of the B&J Family Trust.
6.That otherwise all claims by Georg Wenzlawski and Leokadia Wenzlawski be dismissed.
7.That Jaroslaw Zych's counterclaim in proceeding no. 4428 of 2002 be dismissed.
8.That Jaroslaw Zych, Georg Wenzlawski and Leokadia Wenzlawski each have liberty to apply generally with respect to the property referred to in paragraph 1, on notice.
I shall hear the parties on the question of costs.
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