New South Wales District Court CITATION: Antoinette Howard v Gregory Trosse [2008] NSWDC 328 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S): 29/10/08 - 31/10/08 and 01/12/08 JUDGMENT DATE: 5 December 2008 JURISDICTION: Civil JUDGMENT OF: Rolfe DCJ DECISION: See paragraphs 47-49 of Judgment CATCHWORDS: Claims for adjustments of property pursuant to Property (Relationships) Act 1984 - Approach to be adopted, including allowance for indirect financial contribution in terms of salary foregone to establish and run joint business. LEGISLATION CITED: Property (Relationships) Act 1984 Chanter v Catts (2005) NSW CA 411 CASES CITED: Paino v Paino (2008) NSW CA 276 at 72 Vitali v Stachnik (2001) NSW SC 408 at 47 PARTIES: Antoinette Howard (Plaintiff) Gregory Trosse (Defendant) FILE NUMBER(S): 5119/07 COUNSEL: T Hodgson (Plaintiff/Cross-Defendant) N Carney (Defendant/Cross-Claimant) JUDGMENT 1 These proceedings concern applications by both the plaintiff and defendant for orders for adjustment of property pursuant to the provisions of s 20 of the Property (Relationships) Act 1984. The approach to be adopted by the Court in making an adjustment of property order in accordance with the Act involves the three steps identified by Hodgson JA in Chanter v Catts (2005) NSW CA 411. At paragraphs 2-25 his Honour stated that, essentially, the steps involved from the Court's point of view were: 1. The identification and valuation of the property of the parties. 2. The identification and evaluation of the respective contributions of the parties of the types referred to in s 20 and 3. Having regard to the contributions, a determination of what order is just and equitable in the circumstances. 2 There is no doubt that the Court has a broad discretion in determining the approach in carrying out the three steps referred to. A global approach is quite permissible but, so too is an asset by asset approach. If the latter is adopted, care must be taken to avoid the risk of undermining any indirect financial contributions or any domestic and non-financial contributions because the outcome must be a just and equitable one, which has regard to all of the contributions identified in S 20. 3 The case was not without its difficulties because of the attitude of each of the parties, clearly demonstrated by each of them whilst giving evidence. In the case of the plaintiff, there was a thread running through her evidence that the defendant was to a large extent the cause of all of her woes. (In this regard the Court does not for one moment discount the plaintiff's individual trials and tribulations and her medical history). 4 In the case of the defendant, he demonstrated an approach in the witness box of wanting to deny that the plaintiff made any contribution to their relationship. To use his own words, this was "because she left me". The defendant was therefore prepared to say whatever needed to be said in order to enhance his prospects of defeating the plaintiff's claim and succeeding with his own. The plaintiff was also motivated by a desire to win and so her evidence was tainted as well, although to a lesser extent. 5 The result of the Court's assessment, which I have set out above, is that careful regard needs to be had to the contemporaneous records which have been put in evidence by the parties in support of their various contentions. 6 The plaintiff is 41 years of age at the present time. She was raised in xxxxx by her mother and grandmother and moved to Sydney in xxxx to attend university. The plaintiff obtained a Bachelor of Science degree in bio-medical science from the University of Technology Sydney and is accredited in cytology, the study of cancer cells. At present, the plaintiff is undertaking a masters of business administration at Deakin University. 7 The defendant is a carpenter who is presently aged xx years. It appears he has lived all his life in Sydney. 8 The plaintiff and the defendant met in January 1997 through their work. The plaintiff was working as a manager at a pathology laboratory and the defendant did part-time courier work which brought him to the laboratory. His main area of work was that of a carpenter. 9 In August 1997 the plaintiff and the defendant commenced living in a defacto relationship. They separated and have remained apart since September 2003. 10 After the parties separated the defendant remained in a property at North Sydney which the parties jointly owned until it was sold on 22 September 2008. 11 After the parties separated the plaintiff had to find other accommodation and, as her affidavit evidence discloses, she had to endure some squalid conditions from time to time. The impression the Court gained was that, fortunately, the plaintiff's current circumstances have improved insofar as her family have been very supportive of her (as indeed the defendant's family have been of him). 12 The assets, liabilities and superannuation entitlements of the parties as at the present time are as follows. Property Item Ownership Value Vacant Land at Whale Beach Defendant $700,000 Funds in Bank (as at 14/7/08) Defendant $22,000 Funds in Bank Plaintiff $200 Mitsubishi Motor Vehicle Defendant $20,000 Mitsubishi Motor Vehicle Plaintiff $2,000 Tools Defendant $3,000 Liabilities Creditor Debtor Amount Owed St George Bank Ltd Plaintiff & Defendant $68,000 Visa Card Plaintiff & Defendant $4,500 Superannuation Entitlements Plaintiff Superannuation $63,200 Defendant Superannuation $45,000 13 To get the above into perspective, it needs to be understood that, at the commencement of the relationship, the plaintiff had very few assets. She owned a second-hand Toyota Cressida motor vehicle worth about $8,000. Although the plaintiff said in her evidence-in-chief she had about $12,000 in a bank account, this was not correct. The plaintiff in fact owed the National Australia Bank approximately $11,000 as the bank statements in evidence as annexure C to exhibit 1 disclose. However, the plaintiff was earning a greater income than the defendant. The records establish that for the financial year ending 30 June 1997 the plaintiff earned $63,407 taxable income and the defendant earned $24,384. 14 On the other hand, the defendant brought to the relationship valuable assets. First of all, he owned the vacant block of land referred to above, which he had purchased in either 1990 or 1991. There was no valuation evidence before the Court as to what Whale Beach was worth in 1997, however, the Valuer General valued it at $358,000 on 1 July 2000. In these circumstances it is permissible for the Court to do the best it can to put a figure on such an asset, bearing in mind that it is well known that in Sydney, (until earlier this year, in any event) that property prices have been on the increase for some time (Paino v Paino (2008) NSW CA 276 at 72). Looking at it this way, the Court would have to conclude that the Whale Beach property was worth at the very least $200,000 at the commencement of the relationship. 15 The evidence establishes that there was a mortgage on the Whale Beach property at the time the parties commenced to cohabit and the amount owed to the lender was approximately $75,000. 16 At the commencement of the relationship the defendant also owned the property at Fairy Meadow, which he had inherited from his father. There is no evidence as to what it was worth when the defendant acquired it. 17 In July 1997 the parties purchased an apartment at North Sydney for $182,500. The property was purchased in joint names. The whole of the purchase price was borrowed plus sufficient to cover stamp duty and other expenses. The total amount of borrowings was approximately $200,000. In order to secure such a loan the defendant provided the Fairy Meadow property as collateral security for the loan over North Sydney. 18 Apart from a period of six months in the year 2000 when some renovations were being done to the North Sydney property, the parties lived in it for the whole of their relationship. As mentioned earlier, it was sold on 22 September 2008 and exhibit 17 discloses that on settlement $299,000 was applied to reduce the parties' joint liability under the mortgage to St George Bank and a further $23,000 was deposited to the parties' joint bank account. 19 In January 1999 the defendant sold the Fairy Meadow property for a price of $160,000. Of this, $71,000 was applied to discharge the mortgage over the Whale Beach property. Of the remaining funds, $10,000 was applied to pay off the plaintiff's personal loan for her car and monies owing to her sister. An additional amount of $54,000 was deposited into an account operated by the defendant known as the St George pulse rate account. The defendant ceased to operate this account and opened a new one, being a portfolio cash management account number xxxxx. As to the balance of the moneys left from the sale of Fairy Meadow, about $28,000, I am satisfied the defendant used these for his own benefit. 20 After the Fairy Meadow property was sold the defendant had to provide the Whale Beach property as substitute third party security in relation to the loan for North Sydney. 21 In August 1999 the parties purchased a unit at Potts Point for $132,000. The parties borrowed the whole amount from the St George Bank. Rent from Potts Point to the tune of $28,000 went towards the interest which was due. 22 On July 2003 the parties sold Potts Point for $184,000, all of which was used to reduce the parties' joint debt to the St George Bank. 23 In 1999 the plaintiff had decided that there was an opportunity to establish a medical training recruitment and support consultancy for the medical profession. She spoke to the defendant about it and the company, Mediskill Pty Limited, was incorporated. The evidence establishes that, apart from the capital contributed to this company by the defendant, the business was under-capitalised and it was a failure. 24 The liquidator was appointed on 23 March 2006 and his report to creditors (exhibit 11) discloses that after taking into account assets, there was an amount owing to creditors of $395,950.43. Of this, the Australian Taxation Office was owed $237,528.83. 25 The plaintiff's counsel conceded that the company was a dismal failure but submitted that it was a joint enterprise and the efforts of the parties in relation to the company ought be taken into account. Although it is true that the defendant was a director but did very little in association with the company, I am satisfied that the company's operations were in the nature of a joint enterprise between the parties. The plaintiff devoted the whole of her time to the unsuccessful operation. In this respect, her counsel submitted that, notwithstanding the company's failure, the critical feature which the Court ought take into account in exercising its discretion was that the plaintiff suffered a reduction in her earnings during the time Mediskill operated. In this respect, the plaintiff's taxable income prior to Mediskill commencing its operations and for the year ending 30 June 1999 was $59,000. The year before it had been $63,000 and $63,000 for the year before that. On the other hand, for the 2000, 2001, 2002 and 2003 years the plaintiff only earned $24,000, $21,000, $24,000 and $40,000 respectively. The point was that if the plaintiff had continued to earn at a pre-Mediskill rate (adjusted for CPI increases etc) of, say, $65,000 for those years, she would have earned another $150,000. Thus, it is submitted that the plaintiff's foregoing of this salary is a significant factor which ought be taken into account. 26 It does seem to me that the Court should take this into account in exercising its discretion. It can be viewed as an indirect financial contribution, but it does not carry the same weight as a capital injection of funds into the business (Vitali v Stachnik (2001) NSW SC 408 at 47). 27 In terms of the defendant's contribution to Mediskill, the Court is satisfied that the defendant contributed $51,886.98 entirely from his own funds. (I have included the amount of $14,500 paid into the account on 15 February 2000 because I am satisfied on the balance of probabilities, although the documentary evidence is not as clear, that the amount came from the defendant). 28 I am also satisfied that $132,000 was deposited into the Mediskill account. The source was the parties' joint overdraft account with St George Bank. 29 Importantly, with regard to the overdraft account, I am satisfied that all of the defendant's wages went into that account (annexure EE to exhibit 1) totalling $311,729.65. 30 On the other hand, of the plaintiff's wages, only $22,758.68 went into this account (annexure FF to exhibit 1). On balance, I am satisfied that the plaintiff contributed the remaining part of her wages to the parties' joint living expenses. 31 The defendant also made further contributions from his own cash management account with St George. Annexure AA to exhibit 1 discloses that $13,496.96 was spent on outgoings on the parties' properties, $6,824.29 was spent on renovations, $2,810 was spent on vehicle maintenance and $834 was spent on entertainment. In addition, the plaintiff received $1,692.20 from this account. The account also shows drawings by the defendant of $5,585.52, but the evidence discloses these went towards outgoings on the property at Whale Beach. 32 In terms of drawings from the Mediskill account itself, on balance, I am satisfied that the plaintiff received more personally than the defendant, to the tune of at least $8,000 (see annexure W to exhibit 1). 33 Although the defendant sought to assert that other drawings from the joint account after separation were substantially in the plaintiff's favour, on balance, I am not satisfied that this is the case. Each party was guilty of drawing further funds on the overdraft account after they separated in about equal amounts. 34 Although there was evidence that the plaintiff made joint loan repayments from her account in the order of $38,000, the evidence also showed that the defendant deposited $29,000 into the plaintiff's account. 35 In terms of wages earned by each of the parties during the time they cohabited, there is not a lot of difference when one takes into account workers compensation received by the defendant. The plaintiff's taxable income for those six years was in the order of $295,000 and the defendant's was $289,000. (Annexure P to exhibit 1 shows the workers compensation payments that were received and deposited into the parties' joint account). 36 In terms of other contributions, the plaintiff asserted she built a series of steps and assisted the defendant to purchase a kit shed for the Whale Beach property. There were no photographs of the work that was done. The defendant denied any work was done. On balance, I am satisfied that some work was done, but it was not of a substantial nature. 37 The defendant denied the plaintiff assisted him in his studies and in obtaining employment. However, he conceded in cross-examination that he was not computer literate. I am satisfied the plaintiff was computer literate and I am satisfied on balance she did provide the defendant with some assistance in his studies and typed some of his assignments and so on for him and assisted him in looking for jobs. 38 As mentioned, the defendant was the recipient of some workers compensation payments as a result of some accidents he suffered at work. He denied the plaintiff helped in any way with regard to this aspect, but I am satisfied that being the manager type of person that she was, that she assisted the defendant in processing some of his claims. 39 The plaintiff also sought to make out a contribution of homemaker. The fact was, however, that the parties were living in a small apartment in North Sydney and both worked long hours. On balance, as between the two of them, I think the plaintiff probably did a little bit more cooking than the defendant but otherwise the domestic chores were shared and they frequently went out to dinner. 40 The defendant complained that the plaintiff had sold a car which he owned and sought an order that the plaintiff pay him the proceeds. However, I am satisfied it was a car the parties acquired for the plaintiff's use; so no order should be made requiring the plaintiff to pay the defendant the proceeds of sale. 41 It also needs to be taken into account that the defendant had the benefit of residing in North Sydney to the exclusion of the plaintiff for nearly six years, although, true it was, he was making the mortgage payments. 42 As will be seen from the foregoing, the plaintiff owns assets (including superannuation) currently worth $65,200 and the defendant owns assets currently (including superannuation) worth $790,000. The parties' joint debts are $72,500. 43 The Court is satisfied that, as between the plaintiff and the defendant, both made contributions to the relationship, but the defendant's contributions were by far and away the greater of the two as he came into the relationship with valuable real estate assets and contributed more funds along the way. The plaintiff contributed virtually nothing to the maintenance of Whale Beach and got the indirect benefit of the funds which were realised when Fairy Meadow was sold. 44 As far as the plaintiff is concerned, I am satisfied that an allowance should be made for the foregone salary whilst she was running Mediskill Pty Limited and for the fact that her share of rent from Potts Point and the net proceeds of sale of Potts Point and North Sydney went towards the parties' joint debt. I have also taken into account the non-financial contributions which I have found that the plaintiff made. 45 As the plaintiff's counsel would have it, the plaintiff should be allocated $250,000 (after allowing for the joint debts to be extinguished). That is an over-optimistic submission. Such a figure represents about one-third of the defendant's current assets. 46 Counsel for the defendant submitted that an order should be made in favour of his client in the amount of $250,000. This ignores the plaintiff's contributions, is complete unrealistic and would be unjust and inequitable. 47 In the circumstances, having regard to the matters I have referred to, this is a case where it would be just and equitable for orders to be made requiring the defendant to discharge the parties' joint indebtedness, currently $72,500 and otherwise pay the plaintiff the amount of $75,000. The result of this order, in effect, is an adjustment of property in favour of the plaintiff in the amount of $111,250, a bit less than 15% of the value of the defendant's assets. 48 I will stand the matter down so the parties can bring in short minutes to give effect to these reasons. 49 I direct that the exhibits be returned. ********** 02/10/2009 - Confidential information deleted - Paragraph(s) 6, 7, 12 (property table), 14, 16, 17, 19, 28, 29 & 31. 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