AUDREY MAY MILLER v NEVILLE JOHN BARKER SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON CJ, PRIESTLEY and MEAGHER JJ 28 August 1990, 27 September 1990 [1990] NSWCA 125 De Facto Relationships Act s20 Contributions to relationship — partnership asset — valuation principles — valuation of rural land Gleeson CJ In this matter I have had the benefit of reading in draft form the judgment of Meagher JA. I agree with the orders proposed by his Honour and with his reasons for those orders. Priestley JA I agree with Meagher JA. Meagher JA This is an appeal by the plaintiff, Miss Miller, from an order madeby Hodgson J. under s20 of the De Facto Relationships Act, 1984 in her favour in the sum of $202,000.00. She says the order should have been larger, in fact $328,500.00. The facts are relatively simple, and except as later indicated, not in dispute. Miss Miller was born on 12 November, 1934. She has one child, Glen, born in 1958 from a previous relationship. The defendant, the present respondent, Neville John Barker, was born on 21 January, 1944. He has two children of a previous marriage. Miss Miller and Mr Barker commenced their liaison in 1971 or 1972, and it continued until January, 1987. At the commencement of this relationship, she owned a house at | Braidwood Road, Goulburn and he owned a home in Middle Arm Road, Goulburn. Both parties contributed financially to the liaison. She earned wages as a cook until 1981, performed most of the household duties, and from her wages paid most of their living expenses. He earned wages as an insurance manager until about 1981, and applied his earnings towards the purchase of various items of plant and equipment. To the same end he applied moneys earned by him from share-farming and doing various farming and cartage jobs. In 1976, she received a little over $8,000.00 from her mother's estate, and applied this to their joint benefit. On 30 September, 1977, they acquired a property called "Mildare Park" for $93,000.00, she supplying the deposit of $3,000.00, the balance of the purchase price being provided as to $50,000.00 by a vendor's loan and as to $40,000.00 by a loan from the Commonwealth Bank. In 1977 also, she sold her Braidwood Road property for $24,000.00. Of this money, $1,600.00 approximately was applied to pay the legal expenses for acquiring "Mildare Park", and $21,923.00 was applied towards partially discharging the vendor's loan on "Mildare Park". A further sum of $28,077.00 was borrowed from the Commonwealth Bank to complete the discharge of that loan. In May, 1978, his Middle Arm Road property was sold for $38,500.00. Of the proceeds of sale, $9,000.00 was used to repay a loan from his parents and the balance was employed partly in erecting improvements on "Mildare Park" and partly in repaying the loan from the Commonwealth Bank, which seems to have been fully discharged at about this time. 2 UNREPORTED JUDGMENTS On | June, 1978 they commenced a partnership known as Mildare Park Co. Both of them sold assets to the partnership. The property "Mildare Park" was sold to the partnership for $96,456.00, and half of this amount is shown in the property accounts as a contribution by each of the parties. On 28 November, 1978, a property called "Groganville" was purchased by Mr Barker and a company called Kilrae Nominees Pty Ltd as tenants in common in equal shares. Mr Barker paid $95,000.00 for his half share: this was financed almost in full by a loan from the Commonwealth Bank, with a small contribution from partnership funds. In February, 1980 he purchased the other half share of Kilrae Nominees Pty Ltd for $152,729.00. $100,000.00 of this amount was also lent by the Commonwealth Bank, the balance coming from partnership funds. The capital and interest owing on both Groganville loans were paid from partnership income. The property Groganville was shown as a partnership asset in the books of the partnership until 30 June, 1983, despite the fact that the legal title to the property was in the sole name of Mr Barker. Until May, 1981, the parties lived together in Mildare Park, and from 1981 until 1987 they lived at Groganville. When the parties moved from Mildare Park to Groyanville, Mildare Park was sold for $130,000.00. Of this amount $70,000.00 was lent to the purchaser, and was secured by a mortgage to Miss Miller alone. In the books of the partnership this was treated as a withdrawal by her of $70,000.00 from the partnership. The balance of $60,000.00 was applied in reduction of the Groganville loans. The $70,000.00 loan was paid in September, 1985. During its currency it earned Miss Miller interest of about $40,000.00, part of which she used as contributions to the capital of the partnership. In the financial year ending 30 June, 1983, the accounts of the partnership show "'Groganville" being taken out of the partnership. The accounts show that this was reflected in a reduction of Mr Barker's capital account by an amount of $207,000.00. This amount was derived by deducting from the original purchase price of the property ($254,107.00) the amount of the loans then outstanding ($47,337.00). Why "Groganville" was "taken out" of the partnership, the evidence does not disclose. However, his Honour found that it was done without Miss Miller appreciating what was involved. In 1983 Mr Barker's daughter came to live on Groganville and stayed there at least until 1985. For five months during this period his son Keith also came to live on the property. While they were there, Miss Miller looked after them. Also in 1983, Miss Miller and her son then purchased a property called "Adare" which adjoined "Groganville". The purchase price was $175,000.00. Of the deposit of $17,500.00, $4,000.00 was paid by Glen and $13,500.00 by Miss Miller, she using part of the interest on her $70,000.00 mortgage to that end. The balance was paid by the Commonwealth Bank. The stamp duty was paid mainly by Glen, although there was a small contribution from partnership funds. Miss Miller and Glen thus became tenants in common of "Adare", each having a one undivided half share. In 1984 Glen and his de facto wife, a Miss Shepherd, sold the property which they owned in Goulburn, and From the purchase price Miss Shepherd contributed the sum of $20,000.00 towards the repayment of the Commonwealth Bank mortgage over "Adare". In return for her contribution, Miss Miller and Glen transferred a one third interest in the property to her, so that henceforth "Adare" was owned by Miss Miller, Glen and Miss Shepherd as tenants in common, each having an undivided one third share in it. URJ AUDREY MAY MILLER v NEVILLE JOHN BARKER (Meagher JA) 3 In January, 1987 Miss Miller and Mr Barker severed their relationship; in July, 1987 she gave him notice of termination of the Mildare Park Co partnership; and it is common ground that the partnership was dissolved on 17 October, 1987. In these circumstances, Miss Miller sought an order from the Court under s20 of the De Facto Relationships Act for a lump sum which would both compensate her for her contribution to "Groganville" and recompense her for what was owing to her from the partnership. His Honour embarked on that task, and no exception was taken by either party to his doing so. This necessitated his Honour ascertaining what were the the assets of each of the parties, what "contribution" each made to those assets in the terms of s20 of the Act, what recognition and compensation Miss Miller had received in respect of any contribution which she had made, whether such compensation was sufficient, and if insufficient what order should be made to redress the balance. In so doing, his Honour had to decide numerous questions both of fact and law, and in deciding the questions of fact he had to analyse in some detail the financial transactions of the parties. The appellant, Miss Miller, takes no exception to his Honour's primary findings of fact, or to his methodology in approaching the various issued between the parties, or to any of his findings relating to "Adare" or to the much more complicated questions arising out of the dissolution of the Mildare Park Co partnership. However, exception is taken to his Honour's findings as to "Groganville". On this issue, his Honour found that the present value of "Groganville" was $450,000.00, ie $243,000.00 more than Mr Barker purchased it for from the partnership ($207,000.00), and of that $243,000.00 Miss Miller should have been entitled to 25% (or $60,000.00) as recompense for her contribution to that property. For the appellant, Mr Brereton has submitted that his Honour should have found a present value of $580,000.00 for the property, an increase of $373,000.00 over the purchase price from the partnership; and that Miss Miller is entitled to be recompensed for 50%, not 25%, of this increase. In my opinion, both submissions should be accepted. On this question of the valuation of "Groganville", a valuer called Mr Eggleton gave evidence for Miss Miller, and a valuer called Mr Woods gave evidence for Mr Barker. The former's valuation was $580,000.00, the latter's $390,000.00. Four important facts should be stressed about the evidence of these gentlemen. The first is that Mr Eggleton produced not only a valuation of "Groganville", but also a valuation of "Adare", which was, as I have said, adjacent to "Groganville". He concluded that "Adare", a property of 197.4 hectares, was worth $225,000.00; that it had the capacity to carry 1,300 sheep, that its dry sheep equivalent (DSE) was 6.6 per hectare, and that consequently it was worth $173.07 per DSE. Mr Woods, who made no independent effort to value "Adare", accepted Mr Eggleton's valuation of it. The second is that there was no difference in methodology between the two valuers. The third is that both valuers agreed that the only comparative sale which was of any guidance was the sale of a property called "Brundah", which was subject to a forced sale by a mortgagee in December, 1987, which forced sale was not completed, resulting in the property being finally sold in March, 1988 to the under bidder at the auction. The fourth is that both valuers gave evidence of a somewhat sketchy character. The discrepancy between the two valuers can be limited to two factors, carrying capacity and increased value due to inflation. On the former issue, Mr Eggleton favoured a carrying capacity of 3,426, Mr Woods a carrying capacity of 3,000. The larger figure yields a DSE of 6.00 per hectare, the smaller figure a DSE of 5.25 per hectare. On the latter issue, Mr Eggleton, whilst not being able 4 UNREPORTED JUDGMENTS to point to any specific sales in the area justifying his claim, opined that there had been a rise in the value of land in the area of 25% in the six months after the date of the forced sale, which increase was still continuing at the date of trial; whereas Mr Woods denied that there was any increase in the value of land between December, 1987 and the date of trial, although conceding that there was a strongly increasing demand for land in that period. His Honour, having summarised the valuation evidence said: "Mr Woods reached his assessment of carrying capacity by seeking the opinions of the owner of Brundah and of the defendant as to the capacity of their respective properties, and finding himself in agreement with those opinions. Although I accept that Mr Woods genuinely held the opinion he expressed, I do not think it a satisfactory way to approach valuation in effect to be led by the opinion of the owner. On the other hand, the DSE figures adopted by Mr Eggleton were figures supplied by the Pastures Protection Board. These figures have some objectivity, and may indeed themselves be a factor in the market; but they are based on information supplied to the Board by the owner. Mr Eggleton did not make any independent assessment of carrying capacity. So far as concerns the 25%, Mr Eggleton was not able to support this by comparable sales, but relied on impression. There was also the problem that the sale of Brundah took place in March 1988, even though this was following upon an auction in November, 1987, with the sale being made to one of the bidders at the auction. However, I do accept that the market was increasing strongly through the middle of 1988, and I think it would be appropriate to apply some increment for this reason. Having regard to these factors, in my view, a valuation of $450,000.00 is appropriate." It will be observed that this reasoning gives no indication how his Honour reached his result. Indeed, it would be surprising if the figure of $450,000.00 were the result of any precise calculation. Despite his Honour's finding that Mr Eggleton's approach on both the disputed issues was preferable to Mr Woods', his Honour could have given but little credence to Mr Eggleton's approach. If he had accepted Mr Eggleton's DSE figures in their entirety, he would have reached a figure in excess of $450,000.00. If he did not accept those figures at all, he does not explain why he did not do so after finding Mr Eggleton's approach on this issue preferable to Mr Woods'. If he had applied Mr Eggleton's 25% figure to Mr Woods' base figure of $390,000.00 he would have reached a figure in excess of $450,000.00. He may have discounted both Mr Eggleton's DSE figure and his inflation figure very drastically, although this sits very ill with any general preference for Mr Eggleton. In truth, one cannot tell by what route the $450,000.00 figure was derived. The more one contemplates the question the more likely it would seem that the figure was a mere guess, unrelated to any principle of valuation; and, moreover, a guess which was out of line with his Honour's own findings. In the case of Commonwealth v Milledge (1953) 90 CLR 157 the High Court overruled the decision of a trial judge in a valuation case, where on one view the trial judge simply averaged the figures found by the various experts. In a joint judgment, Dixon CJ and Kitto J said (at 161): "We think that the valuation made on this basis ought not to be sustained. Even if all the witnesses had used the same material as one another, and had approached the problem in the same way, the average of the values they respectively reached would most likely be a figure URJ AUDREY MAY MILLER v NEVILLE JOHN BARKER (Meagher JA) 5 which each of them would consider to be wrong. But what is worse is that it would be a figure not arrived at by the application by the Court of the established principles of valuation". This principle has often been applied; see, for example, Lenehan v Lenehan (1987) 11 Fam LR 615, Brewarrana Pty Ltd v Commission of Railways (19731 6 SASR 541 and Chick v Chick (1987) 12 Fam LR 64. In the present case, it is a fortiori applicable, as his Honour's figure does not even result from an averaging process, and whatever it does result from is not the application of any established principle of valuation. That is not, of course, to deny that a valuation judge, like any other judge, when confronted by two or more different opinions, is not obliged to accept in totality the evidence of any one witness, but merely to assert that if a finding is made which does not accord entirely with the evidence of any witness that finding must be based on some principle and not be reached arbitrarily. Moreover, there appear to be two significant errors of fact contained in that part of his Honour's reasons which I have quoted. Mr Eggleton said that he derived the carrying capacity of "Groganville", which he estimated at 3, 426 and hence his DSE figure of 6.0 per hectare for the property, from the "rated carrying capacity" figures supplied to him by the Pastures Protection Board, and that he derived his DSE figure of 7.4 for "Brundah" from the same source. What is more, in cross-examination it was never suggested to him either that he had not derived these figures from the Board or that it was inappropriate for him to do so. His Honour found that this was a more objective source than the sources used by Mr Woods for his figures, but added that the Board's figures were "based on information supplied to the Board by the owner." This is not so. Under the Pastures Protection Act, 1934, which relevantly remained in force at the relevant time, an owner of rural land was each year on 30 June, required to inform the Board of the stock then carried on the land (not of the stock capable of being carried), by s39 of the Act; but the rateable carrying capacity of the land was to be determined by the Board (s32), and clearly this figure might be either greater or less than the figure for stock carried. Under the new Pastures Protection (Rates) Amendment Act 1985, the same scheme is in essence retained: the owner furnishes to the Board returns as to stock carried (s29), the Board itself determines the carrying capacity (s25). The figures supplied to Mr Eggleton were, therefore, a good deal more objective than his Honour thought, and in no way could be described as "supplied to the Board by the owner". The second error which is disclosed in his Honour's reasons is that his Honour held that Mr Eggleton considered himself bound by the Board's figures and made no independent estimate from his own observation of the carrying capacity of "Groganville". However, Mr Eggleton said in evidence that he looked at "Groganville" and from his observations of it he concluded the Board's figure was appropriate. He was not cross-examined to contradict this assertion that there had been a visual observation. It follows that his Honour's criticism of Mr Wood's attributing total reliance on the word of the owner of the two properties must stand: it is far too subjective: it was in the interests of the owner of "Brundah" who was trying to sell his land to maximize its stated carrying capacity and of the owner of "Groganville", Mr Barker, who was hoping for as low a valuation as possible of his property, to minimize its stated carrying capacity. On the other hand, his Honour's far more muted criticisms of Mr Eggleton's attitude appears on examination to be baseless. 6 UNREPORTED JUDGMENTS There are other reasons, also, which indicate that Mr Eggleton should be preferred to Mr Woods. One is that, in cross examination, Mr Woods at one stage agreed that Mr Eggleton's figures were possibly correct, although he later resiled from this view. Another is that Mr Eggleton had been familiar with the area in which "Groganville" was situated for at least twelve years, whereas Mr Woods had had no previous experience in that area, his practice having concentrated on the Temora and Mudgee areas. Another is that both valuers agreed that "Adare", a property adjoining "Groganville" had a DSE of 6.6 sheep per hectare, which would make Mr Woods' figure of 5.25 sheep per hectare for ""Groganville" look inexplicably anomalous. For these reasons I am of the view both that his Honour should have preferred Mr Eggleton's figures on the carrying capacity of "Groganville" to those of Mr Woods and that there is no reason to choose any figure intermediate between these figures. On the question of the inflationary increase in the value of the property, the evidence is as follows: Mr Woods thought there was no increase in property prices from December, 1987 to August, 1988, although conceding that there was, in this period, a sharply rising demand for land. Mr Eggleton, on the other hand, estimated that there was a rise in value of about 25% in the six months following his abortive auction of "Brundah" in November, 1987 (which would take one to May, 1988). Bearing in mind that the relevant valuation date must have been the date of hearing (August, 1988) and that the actual sale of "Brundah" was not completed until March, 1988, one would have thought the relevant period to consider was the period from March, 1988 until August, 1988, not the period from November, 1987 until May, 1988. However, a careful reading of Mr Eggleton's evidence does suggest that in his view the trend apparent from November, 1987 until May, 1988 was still continuing in August, 1988. His Honour accepted that there was some increase; but there is no evidence as to the rate of increase other than Mr Eggleton's, and no evidence to rebut his evidence of the rate of increase. In these circumstances, I do not see what option was open to his Honour other than to embrace his figure of 25%. It follows, in my view, that the appellant's contention on the valuation of "Groganville" should be accepted. There remains the question of the appellant's contribution to "Groganville". Under the De Facto Relationships Act, 1984 s20 the court is enjoined to make such orders as are just and equitable in dividing the assets of the parties, having regard to the contributions made by each of them in the acquisition, management and improvement of those assets. His Honour analyzed the several "contributions" made by Miss Miller and Mr Barker to each relevant asset. When considering the parties principal asset, the Mildare Park Co. partnership, he first calculated what the partnership owed to each of the parties on the face of the partnership books, and then concluded that that prima facie position should not be disturbed. He held that whilst the financial contributions of Mr Barker to the partnership might have exceeded those of Miss Miller, her contributions were substantial, "although in many respects not being reflected in the production of money". Hence, he concluded, "in my view, there is no such inequality of contribution that would justify reducing then plaintiff's entitlement in respect of the Mildare Park partnership". No challenge has been mounted by either party to this finding. URJ AUDREY MAY MILLER v NEVILLE JOHN BARKER (Meagher JA) 7 When his Honour came to consider the respective "contributions" to "Groganville", he concluded that Mr Barker's contribution to that property was significantly greater than Miss Miller's, although hers was substantial. He valued her contribution as 25% of the amount by which the true value of 'Groganville" exceeded the $207,000.00 for which Mr Barker purchased it from the partnership. This seems illogical. It is quite clear that the deposit, purchase price and mortgage payments in respect of "Groganville" were all paid by the partnership. This was common ground between the parties. It was accepted by his Honour. The parties had equal shares in the partnership, and, as has been seen, his Honour found no reason to disturb that equality. It must follow that the parties contributed equally to the acquisition of "Groganville" in accordance with their partnership shares. A finding that the parties were equal partners is inconsistent with a finding that they contributed unequally in the acquisition of an asset purchased with the funds of that partnership. After all, it is clear that, on his Honour's findings, if "Groganville" had remained a partnerhsip asset instead of having been "taken out" of the partnership without Miss Miller's knowledge, she would have been entitled to one half of its full value. It is true that his Honour stated that the parties did not require him to consider the matter on "trust principles', but that did not entail his Honour to disregard the substance of the parties' beneficial interests. Three reasons are advanced by his Honour for what seems a very curious result: Mr Barker's financial contributions to "Groganville" were said to be greater than Miss Miller's; it was his initiative to purchase the property; and his capital account in the partnership exceeded hers. As to the first of these reasons it is, as I have said, inconsistent with a finding that the partnership purchased "Groganville"; and, further, insofar as he made financial contributions - and it is beyond doubt that he did so very substantially - they were reflected in the partnership accounts as increasing his capital account. As to the second, it is difficult to see that it is a contribution at all. As to the third, it is irrelevant. It does not matter what the relative balances of the capital accounts of the partners were in the books of the partnership. What is relevant is that they were entitled equally to the profits of the partnership; and this means both that the acquisition of "Groganville" reduced the profits otherwise available to be distributed equally between them and that any increase in the value of "Groganville" should belong to them equally. (In these reasons I have adopted his Honour's expressions "capital accounts", "property accounts" and "current accounts". But where, as here, the partnership agreement provides that the capital contributions are equal and the profits and losses are to be shared equally, either party's "contributions", whether on a capital loan account or any other account, must be accounted for as if they were loans to the partnership, having no effect on the partner's entitlement, on dissolution, after payment out of all loans, to share equally in any balance.) It therefore follows, in my opinion, that the difference between the true value of "Groganville" (ie $580,000.00) and the purchase price at which Mr Barker acquired it from the partnership (ie $207,000.00) should be regarded as contributed to equally by the parties. In the result I am of the view that the following orders should be made: 1. Appeal allowed and order 1(a) below set aside. 2. In lieu thereof, order that the respondent pay to the appellant the sum of $328,500.00. 8 UNREPORTED JUDGMENTS 3. The respondent to pay the appellant's cost of the appeal, but to have a certificate under the Suitors' Fund Act. Counsel for Appellant: P Brereton Solicitors for Appellant: Garland Seaborn Counsel for Respondent: AJ Young Solicitors for Respondent: Bernard L Galland and Co (Goulburn)