KENNEDY v KENNEDY SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL MAHONEY P, HANDLEY JA and POWELL JA 12 April 1996 [1996] NSWCA 301 The second appellant, the son of the first appellant, was the registered proprietor of a house. The respondent married the first appellant on 25 March 1991. He spent $8,738 on improvements to his stepson's house which had become the matrimonial home. In September 1991 the respondent paid $30,000 to discharge a mortgage on the house. On 28 March 1992 the respondent and first appellant separated. The trial judge ordered the stepson to pay the plaintiff/respondent $41,300 comprising $30,000 applied to pay off the mortgage, $4,500 for home improvements, and $6,800 for interest saved. The appellants appealed against the award for home improvements on the ground that no evidence had been led as to quantum, and the interest component. HELD, allowing the appeal in part: (1) The Judge was entitled to approach the question of the value of home improvements as a jury would and to infer an amount from the facts, (2) A cause of action of this kind for restitution accrues when retention of the benefit becomes unconscionable: Muschinski v Dodds (1985) 160 CLR 583, (3) Interest should therefore be calculated from the date of the break-up of the relationship, not the date of the payments. Handley JA. This is an appeal by the defendant from orders made following the break-up of the marriage between the defendant's mother and the respondent. The respondent married the defendant's mother in March 1991, but the marriage failed in March 1992. The spouses had lived during their short marriage in a home at 55 Barrenjoey Road, Ettalong Beach, owned by the appellant who was the son of the wife, by a prior marriage. Following the break-up of the relationship, the respondent sought, in accordance with the principles established by Muschinski v Dodds (1985) 160 CLR 583 to recover from the stepson, the appellant, the value of benefits allegedly conferred on him by the respondent during the short marriage. These comprised a sum of $30,000, which the respondent used to pay off a mortgage over the house in favour of Westpac; moneys spent on what were said to be permanent improvements to the property; and interest savings received by the stepson as a result of the discharge of the Westpac mortgage. The trial judge accepted the plaintiffs case and made orders in his favour in respect of sums totalling $41,300. Although originally in dispute in the appeal, the appellant, prior to the hearing, abandoned his challenge to the judge's award in respect of the $30,000, but maintained his challenge to the balance. This comprised $4,500 for what the judge found was the value of the work done or paid for by the respondent during the subsistence of the relationship, and $6,800 in respect of relief from interest otherwise payable under the Westpac mortgage. So far as the allowance of $4,500 is concerned, the appellant's challenge was limited to the submission that there was no evidence on which the judge could find that the respondent's expenditure on improvements had resulted in any 2 UNREPORTED JUDGMENTS permanent increase in the value of the property. The trial judge acknowledged that there was no evidence before him quantifying any increase in value due to this expenditure. He accepted that the respondent had in fact incurred expenditure totalling $8,738 on the home, and concluded that it was appropriate in the absence of direct evidence to approach the matter as a jury would, and onthat basis he allowed approximately half of the expenditure, being satisfied that it had increased the value of the property at least to that extent. Mr Powell for the appellant has submitted that his Honour was not entitled to take this approach. Since in his submission there was no direct evidence as to an increase in the value of the property as a result of this expenditure, this part of the respondent's claim should have failed. In my opinion, this submission should be rejected. The evidence of the nature of the improvements carried out by or at the expense of the respondent was not seriously in dispute, except on one aspect of quantum. The very nature of the improvements described by the respondent in his evidence, the construction of a concrete slab, a pergola, a gazebo, the modernisation of the kitchen, and the like, sufficiently indicates that that expenditure was beneficial and was more probably than not likely to increase the value of the property. There being evidence on which his Honour could draw that inference, and having drawn that inference, it was in my opinion open to him to use, like a jury, his knowledge of the world, and to make the conservative finding in favour of the respondent that he did, allowing slightly over fifty percent of the value of the expenditure on this aspect of the plaintiff's restitution claim. I would therefore reject the appellant's first ground of challenge. The remaining ground that was pressed on the hearing concerns his Honour's allowance for interest. There is no challenge to the rate adoptedby his Honour, but Mr Powell submits that his Honour allowed interest for an excessive period. If this were a mere matter of fact or discretion, I might have been disinclined to interfere. However, in my opinion, and with respect, his Honour's allowance for interest was vitiated by an error of principle. It was based on the period from August 1991, when he found that the payments were made, until the date of judgment in August 1993, a period of approximately two years. However, the relationship between the spouses continued until late March 1992. It is not clear whether the respondent discontinued payments for housekeeping after he had made the payments of $30,000 to Westpac. But even if it were to be accepted that those housekeeping payments continued, the fact remains that the payments were made in the course of, and pursuant to, a relationship which continued to subsist until late March 1992. The principles accepted by the High Court in Muschinski v Dodds (above) establish that the right to restitution accrues in cases such as this on the break-up of the relationship. This did not occur until March 1992, and in my opinion his Honour erred in principle in awarding interest prior to that date. A precise calculation would indicate that, on this basis, a sum of $1,981 should be deducted. It seems to me to be appropriate to round this to $2,000. I would therefore propose that to this extent the appeal shouldbe allowed, and the allowance for interest made by the trial judge reduced from $6,800 to $4,800. Subject to that, I would propose that the appeal be dismissed. Mahoney P. I agree with the judgment of Mr Justice Handley. In relation to the amount spent on repairs and/or improvements, the principle upon which allowance was to be made has not been in question in the proceeding. The URJ KENNEDY v KENNEDY (Mahoney P) 3 argument has proceeded upon the basis that it is necessary that there be shown an increase in value as the result of the expenditure, at least that is the assumption that has been made. It is proper to deal with the matter on that basis. There is no argument as to the work that was done. It is that specified in the appeal papers. The judge inferred that there was an increase in value of the property as a result of the work done. In my opinion, as Mr Justice Handley has said, there was evidence proper to base that inference. Having regard to the nature of the work that was done, I think it is proper to infer that there was some increase in value, using that term in the sense here relevant. The question to which Mr Powell, I think, directed the main thrust of his argument was whether there was evidence sufficient to warrant the quantification of that increase, as the judge quantified it, namely at $4,500. I think it was within the scope of the judge's judicial decision making power to arrive at such a figure, and I would not differ from that particular quantification. As to the question of interest, the quantification of the amount of interest was the only matter that was essentially in issue. The quantification depends upon the assessment, in a discretionary sense, of the various factors to be derived from the evidence. The judge arrived at a particular rate, and adopted a particular period of time, two years. As I understand the argument, there has been no substantial difference to the rate. If there has been, I would adopt the rate at which the judge arrived. The question has been whether the two year period that he adopted indicates an error. My inclination, I must confess, has been not to interfere with the assessment which the judge made, but in the circumstances, and for the reasons to which Mr Justice Handley has referred, treating the matter on the basis of the material before this Court, I feel that the deduction proposed by Mr Justice Handley should be made. I come to this conclusion with some hesitation because I have the suspicion that these matters were not argued or not argued in detail before the judge; at least they may not have been. But treating the matter, as the Court must, upon the basis of the evidence as it is before this Court, I think the deduction of some $2,000 ought to be made. I agree with the orders that have been proposed. Powell JA. I agree with Mr Justice Handley, and I would only add one observation. The decision of the High Court in Muschinski v Dodds isbut a particular example of the attitude which a court takes when it is faced by unconscionable conduct. In the present case the appellant's conduct did not become unconscionable, unless, and until, that time when he sought to retain for himself the benefit of the various payments which had been made towards the improvement of the property and the reduction of the mortgage debt, after the relationship which had produced the reason for those payments being made, had failed. If this be so, then, with respect, it seems to me that the learned trial judge fell into error when he sought to bring to charge against the appellant, interest which accrued prior to that time at which the appellant's conduct was revealed as being unconscionable. Mahoney P. The order of the Court therefore is that the appeal is upheld to the extent to which reference has been made. The form of the order to be made requires some attention. As I understand the order which has been made, and I am looking at pages 70 and 71 of the appeal papers, the effect of the Court's decision, 4 UNREPORTED JUDGMENTS so far as the substance of the case is concerned, would be achieved if paragraph 1 were amended to change $41,300 to $39,300. Is that the position gentlemen? RICH: Yes your Honour, some of the moneys have already been paid, and I think — but yes, and in paragraph 2 as well I believe. MAHONEY: You are perfectly correct, it would require an amendment to paragraph 2 as well. So it would appear then that theappropriate order to be made is that the appeal is upheld to the extent only that orders 1 and 2 made by the learned judge are varied by substituting for $41,300 there appearing, the sum of $39,300. That leaves the question of costs. Orders accordingly. Counsel for the appellant: R Powell/E Romaniuk Solicitors for the appellant: Bingham Finlay Turnell Counsel for the respondent: G Rich Solicitors for the respondent: Tonkin Drysdale Partners