New South Wales Supreme Court CITATION : SCURR v GRAY [2000] NSWSC 551 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 5180 OF 1997 HEARING DATE(S) : 02/06/2000 JUDGMENT DATE : 20 June 2000 PARTIES : GRANT RONALD SCURR v FRANCES TEAURERE GRAY JUDGMENT OF : Master Macready at 1 COUNSEL : M. Errington (P) C. Simpson (d) SOLICITORS : Fiddes Pogson Mackay (P) Adrian Twigg & Co (D) CATCHWORDS : Family Law. Application under the Property Relationships Act for adjustment of the parties' property interests. No matter or principle. DECISION : Paragraph 35 - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY Tuesday 20 June 2000. 5180 OF 1997 GRANT RONALD SCURR v FRANCES TEAURERE GRAY JUDGMENT 1 MASTER: This is an application under the Property Relationships Act in which the plaintiff seeks adjustment of the parties' property interests under s 20 of the Act and the defendant seeks certain relief by way of a cross claim in respect of a company in which both the plaintiff and the defendant were shareholders and directors. A Judge has referred the whole of the proceedings to a Master for hearing. 2 The parties are agreed that they lived in a bona fide de facto relationship between November 1993 and December 1995. There is no issue of the parties of the relationship and neither of them had children which were part of the household. Both the plaintiff and defendant worked substantially during the whole of the period of the relationship. 3 At the commencement of the relationship the plaintiff owned a property 4 Brent Street, Russell Lea worth $230,000 which was subject to a mortgage to the ANZ Bank of $68,000. He had furniture and furnishings and savings of about $1,000 and a Mazda sedan worth about $1,000. He was employed as a salesman at Bob Jane T Mart, Haberfield at a salary of $35,000 per annum. 4 At the commencement of the relationship the defendant owned a Ford Lazer sedan valued at $7,000 on which was outstanding a loan of $4,000. She had furniture, furnishings and personal effects. She was employed as a nanny at McMahon's Point. 5 The parties commenced to live together in the plaintiff's home at Russell Lea. 6 I will deal with some of the short history of the relationship. In April 1994 the plaintiff became the manager of Bob Jan T Mart at Brookvale. In June 1995 the parties purchased a Ford TX5 sedan for $22,000 in their joint names. $23,000 was borrowed from the ANZ Bank by the plaintiff and this loan was secured by a mortgage of the plaintiff's property at Russell Lea. I will return to the question of the repayments of that loan later. 7 In September 1995 the plaintiff arranged the purchase by the plaintiff and the defendant of a shelf company whose name was changed to Granfran (NSW) Pty Ltd. One share was held by the plaintiff and one by the defendant. On 8 October 1995 that company purchased the franchise of Bob Jan T-Mart, Brookvale for the sum of $450,000. The whole of the purchase price was borrowed from the Commonwealth Bank and was secured by way of mortgage over the plaintiff's property at Russell Lea. Each party guaranteed the bank loan and also the franchise agreement which was entered into with both of them. In addition there were guarantees given by Bob Jane Corporation Pty Ltd, Bob Jane T Marts Pty Ltd and Robert Jane. 8 In late December 1995 the de facto relationship concluded. The plaintiff retained possession of the Ford TX5 sedan saying to the defendant that it had gone. The defendant was anxious to take the sedan which she had been using during the period of the relationship. Shortly prior to the termination of the relationship the plaintiff, no doubt in anticipation of the break up of the relationship, signed notices to the Corporate Affairs Commission showing that the defendant had ceased to hold office of both director and secretary and his appointment of secretary in her place. 9 On 1 November 1996 the plaintiff signed an annual return for the company for the 1996 in which he showed that the only shareholder was himself and that he held two shares in the company. The plaintiff admits that both these documents were false and he conceded that in fact there had been no resignation by the defendant of her position as director and secretary nor had she been removed by a resolution of the company. He also conceded that she was still a shareholder in the company. 10 In March 1996 the plaintiff sold the Ford TX5 sedan for $18,000 and applied the proceeds of sale in reduction of his liability to the bank which was then some $17,000. He sold the car to his then partner and this was without the knowledge or consent of the defendant. There was, however, no evidence to suggest that the price was not appropriate or that the amount of the loan which was discharged was other than as alleged by the plaintiff. Proceedings were commenced in this matter on 18 December 1997. On 12 February 1998 the company Granfran Pty Limited changed its name to Grantyre Pty Limited although how that was done is not revealed in the evidence. The evidence shows that the plaintiff gave no notice of the meetings of the company to the defendant and failed to respond to requests for information as to the financial affairs of the company. On 31 August 1998 the defendant filed a defence and cross claim seeking various declarations as to the ownership of her share in the company, her position as a director and an order that the plaintiff purchase her shares in the company or, alternatively, that it be wound up. 11 On 4 March 1999 the Commonwealth Bank released the defendant from her liability under the guarantee. She still, however, has liabilities in respect of the performance of the franchise agreement to which she was a party. 12 It is necessary to look at the contributions and I will first look at the financial contributions. It is useful to note the wages that the parties received during the relevant period. 13 The plaintiff's taxable income for the year ended 30 June 1994 was $36,409 and for the year ended 30 June 1995 $54,529. That rate of income had continued until he purchased the franchise which was only three months before the termination of the relationship. His income was thus in the order of $103,032 for the period of the relationship. 14 The defendant's evidence in her affidavit as to her employment differed in a number of respects from her evidence in the witness box. Her affidavit evidence appeared to be generalised and over-stated her income position. At the commencement of cohabitation she was working as a full time nanny at McMahons Point on an income which on an annual basis was about $26,000. She ceased that work at the beginning of December when she did casual work until 13 January 1994 earning about $3,000. From January 1994 until September she worked in full time employment as a nanny at Drummoyne on a salary at a rate of $22,000 per annum. Thereafter in October 1994 the parties holidayed in New Zealand for two weeks. The defendant commenced work again in November 1994 at Goldmark Jewellers which position she held until termination of the relationship. Her income was at a rate of $26,000 per annum gross. Her income was thus in the order of $48,909 for the period of the relationship. 15 The parties seem to have shared household expenses such as food on an equal basis. When the parties went out to eat at restaurants normally the plaintiff would pay and this occurred perhaps on two or three occasions a week. Generally this seems to have occurred when the plaintiff did not wish to do his share of the cooking. 16 The other financial contributions to the household which were made by the plaintiff were that he solely met all utilities such as rates, electricity, insurance, telephone and maintenance in respect of the property. He also met the mortgage instalments or interest in respect of the loan secured on the property. The utilities cost about $4,200 per annum and mortgage repayments of $850 per month totalled $10,200 per annum. The defendant for her part paid an average of $70 per week from the commencement of the relationship in November 1993 until September 1994 by way of contribution to such expenses. This totals $3,031. From September 1994 until June 1995 $200 a week was paid by the plaintiff into a joint account operated with the defendant. Once the car was purchased in June the plaintiff continued making those payments into the plaintiff's account. The actual repayments of the loan for which the plaintiff was liable to the bank in respect of the car were also in the amount of $200 per week. For the period from purchase until separation the repayments of the loan totalled $4,333. Apart from these regular payments the defendant also contributed to the plaintiff' s account the sum of $1,900. The total of these is $14,811. The costs of a holiday to New Zealand ($2,000) seem to have been charged to the plaintiff's Visa card but repayments for such card were made from the joint account. 17 Substantially it can be seen therefore that both the plaintiff and the defendant have made financial contributions to the expenses connected with the house over the period of the relationship and the repayment of the car loan in the last five months of the period of the relationship. The total outgoings apart from food were in the order of $35,133 to which the defendant contributed $14,811. This is about 42% of the total expenditure. Although it is less than the plaintiff's contribution it is a greater percentage of her earnings (30%) compared with the plaintiff (20%). 18 I will pass for the moment from the financial contributions and leave aside the question of the company purchase. So far as non-financial contributions were concerned the extent of these only related to the homemaker contributions. The parties were at issue on the matter the plaintiff asserting that the homemaker contributions were approximately equal whereas the defendant suggested that her share was approximately 75%. It was the defendant who had lesser working hours and also had a day off during the week. It seems to me more likely that the defendant's version is correct and I accept that her contributions as a homemaker compared with that of the plaintiff were in the ratio 75% to 25%. However, in assessing these contributions it should not be forgotten that both parties worked and they had no children. 19 Fundamentally what is at issue in the case is the position of the franchise which was acquired per medium of the shelf company. It is perfectly clear from the defendant's evidence that she had nothing to do with the negotiations for the purchase of the business other than satisfying the franchisor of her bona fides as a de facto partner of the plaintiff and that she was a suitable person to whom the franchise could be granted. She played no part in the business, had no knowledge of its operations and would have no means of taking any active role in relation to the company which operated the business. The only matters that she advances in her evidence in respect of a contribution was the advice she gave the defendant to own up to a proposed misappropriation he was about to make before the business was purchased by him. Given the matters I have already adverted to as to the plaintiff's attitude to the signing of documents in relation to the company it would seem to me that I should prefer the evidence of the defendant to the plaintiff in respect of this incident and I accept her evidence. However, that being said it is of little moment. 20 It is necessary to see whether in fact it was intended that the defendant should have a beneficial interest in the business. The evidence given by the plaintiff in respect of this purchase appears in paragraphs 18 to 20 of his affidavit of 16 April 1999 which paragraphs are as follows:- "On or about 30 November 1995 I purchased a shelf company known as Granfran (NSW) Pty Limited of which the defendant and I held one share each and were office holders of the company. This was at a time when there was a requirement of more than one office holder in a company and the defendant's involvement in the company then was to meet that requirement. At this time I negotiated the purchase of the franchise of Bob Jane T-Mart, Brookvale in the name of Granfran (NSW) Pty Limited. The purchase price was $450,000 and funded entirely by a loan by the Commonwealth Bank. The loan was secured by a first registered mortgage over my home at Russell Lea. It was also guaranteed by Bob Jane Corporation. The defendant played no role in the acquisition of the shelf company. She played no role in the negotiation for the purchase of the franchise. She played no role in the operation of the franchise. She paid no monies in respect of the loan from the Commonwealth Bank. The defendant did not attend on the Bank in connection with the loan for the purchase of the franchise nor did she have any discussions with any Bank officers in relation to the loan. She signed documents of loan and the franchise agreement which I brought home. The only financial contribution which the defendant made in any way towards the acquisition of Granfran (NSW) Pty Limited and/or the obtaining of the franchise was that the sum of $800 was used from my account (to which the defendant had contributed as referred to in paragraph 13) to meet accountancy costs in connection with the establishment of Granfran (NSW) Pty Limited." 21 In response to that evidence the defendant raised a number of matters. She pointed out that the name of the company was a combination of each of the party's Christian names and referred to the advice she gave about a misappropriation that did not take place. She also referred to the fact that during the previous year the parties had entertained at home some of the management of Bob Jane T-Mart and that she had cooked on those occasions. Importantly she raised the fact that she had signed the guarantees both in respect of the bank loan, the franchise agreement and the performance guarantee under which she had a liability of up to $450,000. Some evidence became available as to negotiations prior to this matter coming on for hearing in which the defendant's solicitors indicated to the plaintiff's solicitors that the defendant had no part in negotiations or contribution towards the purchase price and that she merely signed documents for the loan and the franchise agreement. 22 What is outstanding about the paucity of evidence on this subject is that there is no evidence of any conversations between the parties as to their intentions in respect of the ownership of the shares in the company. Assuming that there were no such discussions one is left with the fact of the plaintiff being the owner of one of the two shares in the company. The suggestion proffered by the plaintiff in paragraph 8 in his evidence was that the defendant was simply there because two officers and members were required is not plausible. All that would be necessary if she were not to have a beneficial interest would be the execution of a standard and common form of declaration of trust in respect of her share. In the circumstances it would seem that the defendant has the beneficial ownership of the one share. 23 So far as adjustments are concerned in considering this matter for the purposes of the Property Relationships Act, the following should be noted. (a) The defendant played no role in the negotiations for the purchase other than satisfying the franchisor that she was in a de facto relationship with the plaintiff and was a suitable person. (b) The defendant made no contributions to the operation of the company nor was it intended that she would do so. (c) The plaintiff was the one who made all the contributions to the operation of the company as it was always intended that he should. (d) Both the plaintiff and the defendant were liable under guarantees given to both the bank and the franchisor. Although there were guarantees also by the franchisor to the bank loan the parties were liable to the franchisor who could claim in the event of any claim on them by the bank. There was thus an assumption by both of them of any risk of the business failing. It has not failed to date. 24 The plaintiff effectively declined to produce accounts in respect of the company for a long time prior to this matter coming on for hearing. By the time the hearing took place there were produced accounts for the year ended 30 June 1996, 1997 and 1998 in respect of the company. Although the 1999 accounts have been completed they were not produced by the plaintiff. I did not find his reasons in this regard credible. However, the fact of the matter was that the defendant who needed to establish the value of the company did not bring to bear the appropriate mechanisms such as the use of the subpoena procedure in time to have the accounts available for the purpose of valuing the company. The defendant maintained that she did not have the funds in order to engage an accountant to value the company and the plaintiff has filed no evidence as to its value. 25 The company is an operating company and one would have thought if the parties were to have it valued it might be done on the basis of its maintainable earnings. For the year ended 30 June 1996 the company had an operating profit after tax of $43,774.60 For the year ended 30 June 1997 the company made a loss of $10,660.30. For the year ended 30 June 1998 the company made a loss of $3,935. The company had a high turnover increasing from 30 June 1996 of $1,543,729 to $2,837,973 in 1998. Against this high turnover it is difficult to see that there is likely to be a value based upon the present earnings of the company. 26 So far as assets are concerned the balance sheets disclose that as at 30 June 1996 the net assets were $43,776.60. At 30 June 1997 they were $33,116.30 and 30 June 1998 they were $29,181.30. 27 It is not for the court to speculate in the absence of valuation evidence in respect of the defendant's share holding in the company. If the defendant wishes to advance that asset as having some value it is for the defendant to advance the evidence. In this case she has not done so. 28 However, one other thing that is apparent about the company is that it is supporting the plaintiff. In the expenditure of the company there is an item for franchisee remuneration. For the three years available that commenced at $30,334, moved to $43,351 in respect of the year ended 30 June 1997 and rose to $165,257 for the year ended 30 June 1998. The defendant has received none of that remuneration and accordingly it would appear that it has been received by the plaintiff, he being the other franchisee. One can thus see that the plaintiff does receive a substantial remuneration now from the business operated by the company. This is in marked contrast to his wage before purchase of the business. This fact can be taken into account when considering the final resolution of the matter. 29 If one turns to look at the matter from a general perspective taking into account the parties' contributions it is apparent that the plaintiff made available his house at Russell Lea for the benefit of the parties and that was a decision they both made. There was a mortgage on the property and the mortgage continued to be repaid during the period of the relationship in a minor part from contributions by the defendant. There is however no evidence of any increase in value of this property it being valued as at the date of commencement of the relationship in the sum of $230,000 being subject to a mortgage of $68,000. In the absence of any evidence of the increase in value one can not credit the defendant with some portion of this increase in value based upon her contributions to the general expenses which were used to meet mortgage payments. Indeed, there is no evidence of how much the mortgage was reduced over the period in respect of the principal outstanding. 30 The plaintiff kept the car that had been purchased but there is no suggestion that the equity in the car was any more than $1,000 at the date of separation. The defendant presumably has retained her car that she had at the commencement of the relationship and there has been no debate before me about the other items of personalty which the parties brought into the relationship. 31 This leaves one to consider the necessary adjustments bearing in the mind the financial contributions to which I have earlier referred, the non-financial contributions and the position in relation to the share held in the company by the defendant. Although the defendant claimed orders for the purchase of the share or, alternatively, winding up the company it would seem that this latter alternative is not an appropriate one. The matter is best considered as part of the process of adjustment pursuant to the Property Relationships Act. Any such adjustment logically should include a transfer of the share held by the defendant to the plaintiff with him obtaining a release from the defendant in respect of her liability under the franchise agreement. 32 The plaintiff in his statement of claim suggests that an appropriate adjustment following the transfer of the share to him in respect of the company would be a payment by the plaintiff to the defendant of some $10,000 with the plaintiff assuming liability for and effecting a discharge in respect of the defendant's liability concerning her shareholding including any taxation liability. The defendant suggests that the payment more appropriately would be $20,000. An important matter is whether or not an actual release from her franchise responsibilities can be obtained by the plaintiff. Assuming this is so I would have thought the figure suggested by the defendant was more appropriate than that suggested by the plaintiff. Although the plaintiff's financial contributions were substantially greater than that of the defendant the business was originally purchased by both parties and it is clear that it is now providing substantial income for the plaintiff. 33 The defendant has contributed her guarantees to that success and this should be recognised in an appropriate way as of course should her preponderance of non-financial contributions. 34 Accordingly, the orders that I make are :- 1. That the plaintiff by way of adjustment of the parties' interests:- (a) pay to the defendant the sum of $20,000. (b) procures the release of the defendant from any obligations under the franchise agreement and performance guarantee being Exhibit 1 before me and indemnifies her in respect of any taxation liabilities in respect of her shareholding in Grantyre Pty Ltd. 2. That upon the carrying out of the matters referred to in order 1 that the defendant transfer to the plaintiff her one share in Grantyre Pty Limited and tender her resignation as a director and secretary of the company. 3. Other than as provided above that each party retain as his or her own property respectively that which is in their individual ownership possession or control. 4. Reserve liberty to apply. 35 So far as costs are concerned it would seem that the adjustment which I have made is in an amount which does not exceed the prescribed amount at the time of commencement of the proceedings by s 12 of the Local Courts Civil Claims Act 1970. In these circumstances I am minded not to make an order for the plaintiff's costs with the intention that each party bear their own costs. However, I will hear submissions from the parties on this aspect. 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