Reported Decision : (2004) NSW ConvR 56-068 New South Wales Supreme Court CITATION : Ross v Byrne & ors [2003] NSWSC 11 revised - 10/02/2003 HEARING DATE(S) : 14, 15 August 2002 (additional evidence, 5 November 2002) JUDGMENT DATE : 3 February 2003 JURISDICTION: Equity JUDGMENT OF : Master McLaughlin DECISION : See paragraph 43. CATCHWORDS : Real property - Co-ownership - Statutory trust for sale - Liability of co-owners for outgoings, costs and expenses - Expenditure incurred for an illegal purpose - Expenditure incurred after appointment of statutory trustee for sale - Property did not increase in value as a result of expenditure - One of four co-owners neither authorised nor was informed of that expenditure - Liability of that co-owner for contribution to such expenditure. LEGISLATION CITED : Conveyancing Act 1919 CASES CITED : Forgeard v Shanahan (1994) 35 NSWLR 206 Catherine Jane Ross (Plaintiff) PARTIES : Donna Byrne (First Defendant) Glenn Peter Byrne (Second Defendant) Matthew Neil Byrne (Third Defendant) FILE NUMBER(S) : SC 5675/01 G. Drake (for Plaintiff) COUNSEL : D. Charles (First and Third Defendants) M. Dawson (Second Defendant) Mark Phillip Symonds, Solicitor (Plaintiff) SOLICITORS : Staunton Beattie Solicitors (First and Third Defendants) Philip Gengos & Co Solicitors (Second Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER McLAUGHLIN Monday, 3 February 2003 5675/01 CATHERINE JANE ROSS -v- DONNA BYRNE and ORS JUDGMENT 1 MASTER: These proceedings were instituted by summons filed by the Plaintiff Catherine Jane Ross on 23 November 2001. That summons names three Defendants, being Donna Byrne, First Defendant; Glenn Peter Byrne, Second Defendant; Matthew Neil Byrne, Third Defendant. By that summons the Plaintiff claims relief pursuant to the provisions of Part 4 Division 6 of the Conveyancing Act 1919 in respect to certain land situate at and known as 58 Kellet Street, Potts Point. The summons also seeks further relief, to the nature whereof I shall shortly refer. 2 The land at 58 Kellet Street, Potts Point (to which I shall refer as "the subject property") consists of two lots in a strata plan (being Lot 1 in strata plan 16453, being Folio 1/SP16453, and Lot 15 in strata plan 16453, being Folio 15/SP16453). 3 The title to the subject property at all material times up to the making of the orders pursuant to Part 4 Division 6 of the Conveyancing Act was held as follows. The subject property was held in a tenancy in common as to two half shares therein. One of those half shares was held by the Plaintiff and the Second Defendant, holding that half share between themselves as joint tenants, whilst the other half share was held by the First and Third Defendants, holding that half share between themselves as joint tenants. The Plaintiff was formerly in a relationship with the Second Defendant. The Third Defendant is the brother of the Second Defendant and is the husband of the First Defendant. 4 I have already referred to the summons seeking relief additional to that under the foregoing provisions of the Conveyancing Act. That additional relief includes the following, 4. An order that the said trustee, in addition to the trust contained in Order 2, be given the powers contained in section 56 of the Trustee Act 1925 in dealing with the interest of the Plaintiff and the Second Defendant and to hold the interest of the Plaintiff and the Second Defendant upon trust to apply the net proceeds of the undivided share to each of the Plaintiff and the Second Defendant individually after the taking of accounts as sought in Order 5 herein. 5. An order pursuant to Part 48 Rule 3 of the Supreme Court Rules 1970 that accounts be taken inter partes by the said trustee under the provisions of Section 40 of the Trustee Act 1925. 6. An order that the proceedings between the Plaintiff and the Defendants in the Local Court in the Downing Centre being file number 8606 of 2000 be stayed. 5 When the matter came on for hearing before me on 21 February 2002 the Defendants did not oppose the making of the orders sought in prayers 1, 2 and 3 in the summons in respect to the appointment of a statutory trustee for sale pursuant to section 66G of the Conveyancing Act. However, the Defendants opposed the order sought for the taking of accounts by that statutory trustee. For the reasons set forth in the ex tempore oral judgment delivered by me on that date, I made the following orders: (1). Orders as in prayers 1, 2 and 3 in the summons. (2). Reserve to the parties and to Permanent Trustee Company Limited liberty to apply in respect to the disbursement of the net proceeds of sale of the land referred to in prayer 1 in the summons ("the subject property"). (3). Order that the Defendants pay one half of the costs of the Plaintiff up to and including today and that the balance of the costs of the Plaintiff be paid out of the net proceeds of sale of the subject property. (4). Order that the costs of the Defendants up to and including today be payable out of the respective shares in the net proceeds of sale of the subject property to which the Defendants be found ultimately to be entitled. 6 The Plaintiff on 19 March 2002 filed a notice of motion, which sought relief of an injunctive nature in respect to the subject property; an order for the delivery up to the Permanent Trustee Company Limited of all keys held by the Defendants; an order that the Defendants, and, in particular, the Third Defendant, indemnify the Plaintiff against all claims made in respect of certain transactions upon the Mastercard account of the Plaintiff between 12 February and 25 February 2002. The notice of motion then sought declaratory and consequential relief concerning the liability of the Plaintiff for outgoings, costs and/or expenses in respect of the subject property from March 2000, that relief being set forth in paragraphs 4, 5 and 6 in the notice of motion, as follows, 4. A declaration that the Applicant is not liable for outgoings, costs, and/or expenses in respect of the property referred to in Order 1 herein as and from March 2000 with the exception of the following:- (a) mortgage (b) council rates (c) strata levies (d) water rates 5. A declaration that the calculation of liability for the outgoings referred to in Order 4 herein and the entitlement of each of the parties to a distribution of the net proceeds of sale of the property referred to in Order 1 be made upon the basis of the interests set out in the Certificates of Title to the said property. 6. That the interests of the Applicant and the Second Respondent in the said property be adjusted inter partes to give effect to these orders. 7. That all parties undertake to take no further step in the proceedings between the applicant and the respondents in the Local Court proceedings 8606 of 2000. 7 That notice of motion came on for hearing before Acting Justice Davies on 13 May 2002. On that date orders were by consent made in accordance with a document entitled Consent Orders signed by Counsel for the respective parties. Those Consent Orders included final orders in the terms of paragraphs 1 and 2 in the notice of motion filed on 19 March 2002 and an order that that notice of motion be otherwise dismissed. The Consent Orders then contained the following, 3. orders that accounts as to the costs, expenses and disbursements of the property at 58 Kellett Street, Kings Cross ("the property") be taken between the parties by the Master or as the Master may further order; 4. orders that the Master determine the issues between the parties arising on an account as set out in Orders 4, 5 and 6 of the Notice of Motion dated 19 March 2002; 5. directs that the Defendants file and serve all affidavits setting out the accounts relied upon and the basis upon which they say that the Plaintiff is liable as to her share of the costs, expenses and disbursements of the property on or before 31st May 2002. 8 The Consent Orders then set forth certain directions concerning the filing of affidavits and the further progress of the proceedings, and noted that the Defendants undertake to discontinue the proceedings in the Local Court and to pay their own costs of those proceedings, whilst the Plaintiff undertakes to not seek costs of those proceedings. The Consent Orders concluded with an order (order 9) that the costs of the notice of motion dated 19 March 2002 be reserved. 9 The matter ultimately came on for hearing before me in respect to the relief sought in paragraphs 4, 5 and 6 of the notice of motion filed on 19 March 2002. 10 The hearing occupied 14 and 15 August 2002. Mr Drake of Counsel appeared for the Plaintiff; Mr Charles of Counsel appeared for the First and Third Defendants; Mr Dawson of Counsel appeared for the Second Defendant. At the conclusion of the hearing on 15 August 2002 I reserved my decision. 11 Whilst my decision herein stood reserved, the proceedings were brought back before the Court by way of an application made ex parte on behalf of the First and Third Defendants to Justice Bryson, sitting as Duty Judge in the Equity Division, on 4 November 2002. Upon the return of the notice of motion filed by the First and Third Defendants on that date, Justice Bryson made orders which were consented to by the parties, and, for the oral reasons delivered by His Honour on that occasion, made orders in respect to costs. The orders made by Justice Bryson on 5 November 2002 included the following: The beneficiaries, being the First and Third Defendants, with the Plaintiff will advise the Trustee that they have no objection to M Byrne, meaning the Third Defendant, or his nominee purchasing the property at $385,000 on the basis of the issued contract, with immediate exchange and settlement, and no later than the Trustee notifying a settlement time. The First and Third Defendants will raise no objection to the Plaintiff advising Master McLaughlin of the fact of the sale and the sale price. 12 His Honour also made an order in the following terms, which were agreed to by the parties, The Court grants leave to the Trustee to sell the trust property to a co-beneficiary at the best price. 13 Subsequently, by letter dated 5 November 2002, the solicitor for the Plaintiff communicated to me the following information, With consent of the First and Third Defendants, I advise that the property at 58 Kellett Street, Potts Point is to be sold to the Third Defendant (or his nominee) at the price of $385,000. 14 Essentially, the hearing before me turned upon the question of the liability of the Plaintiff to pay certain outgoings, costs and/or expenses which had been incurred in respect to the subject property (Those outgoings, costs and expenses were referred to in the evidence and in the submissions as "discretionary expenditure".) The Plaintiff did not dispute her liability in respect to the appropriate proportion of the mortgage payments, council rates, strata levies and water rates. That acknowledgement on the part of the Plaintiff is reflected in the terms of the declaratory relief sought in paragraph 4 of the notice of motion of 19 March 2002. 15 I have had the benefit of receiving a written outline of submissions from Counsel for the Second Defendant. Those written submissions will be retained in the Court file. 16 In order to understand the circumstances in which the Defendants assert, and the Plaintiff denies, that the Plaintiff is liable to contribution towards the discretionary expenditure in respect of the property, it is necessary that I should refer, at least in summary, to the circumstances in which the property was acquired and in which those expenses were incurred. 17 The property was purchased by the parties in May 1999 for the sum of $390,000. It was acquired by them as an investment property. I have already set forth details of the title held by the parties in the property. At the time of the acquisition of the subject property the Plaintiff was in a relationship with the Second Defendant. That relationship came to an end in March 2000. 18 The subject property consists of two floors of a terrace house, which, until about December 1998, had been operating as a licensed restaurant and bar. It was zoned for commercial use and had a liquor licence. The subject property was purchased with the assistance of mortgage funds borrowed from the Commonwealth Bank of Australia by all parties as joint mortgagors. The parties themselves contributed about $142,000 towards the purchase price and stamp duty. Of that amount the Plaintiff and the Second Defendant contributed the sum of about $69,500, whilst the balance of that amount (approximately $72,500) was paid by the First and Third Defendants. As between the Plaintiff and the Second Defendant, the Plaintiff provided the sum of about $41,500, whilst the Second Defendant provided the sum of about $28,000. 19 After the termination of the relationship between the Plaintiff and the Second Defendant, it was the desire of the Plaintiff that the subject property should be sold. The Second Defendant left Australia for Singapore in December 2001. It would appear that that departure was, at the outset, merely for the purposes of a holiday, but subsequently the Second Defendant obtained employment in Singapore and returned to Australia only shortly before the hearing in August 2002. During the period of the Second Defendant's absence from Australia his brother, the Third Defendant, held his power of attorney, given on 3 December 2001. All the discretionary expenditure in respect to the property was incurred at the direction of or by authority of the Third Defendant. 20 An attempt was made to sell the property in early 2000. However, the auction proposed for 8 April 2000was not held, and no subsequent attempt was made to auction the subject property. The reserve price proposed for the abortive auction on 8 April 2000 was in the vicinity of $400,000. In early January 2000 an offer of $450,000, was received, but that sale did not proceed. A proposal in April-May 2000 that the Plaintiff sell her interest in the subject property to any or all of the Defendants for $30,000 proved abortive. 21 A considerable quantity of affidavit evidence was filed in these proceedings, and much of that affidavit evidence was relied upon at the hearing before me. The Plaintiff and the Third Defendant were each cross-examined at the hearing. Much of the evidence of those parties was in dispute. It is appropriate, therefore, that I should express my views concerning the credibility of each of those two witnesses. 22 I regarded the Plaintiff as a reliable witness, whose credit was not adversely affected under cross-examination. The Third Defendant, on the other hand, I regarded as a most unsatisfactory and unreliable witness. At times he was evasive (in my view, deliberately so) in his responses. He frequently answered questions, "I can't recall". He asserted that his memory was "not that good". I consider that at times the Third Defendant gave deliberately untruthful answers to the Court (for example, in respect to a claim made by the Defendants against the Plaintiff in the Local Court and the calculation by the Third Defendant of an amount of $6,888 asserted to have been paid by the Defendants by way of mortgage payment and in respect to the unauthorised use of the Plaintiff's credit card account). Where the evidence of the Third Defendant was in dispute with that of the Plaintiff and was otherwise unsupported, I am not prepared to accept the evidence of the Third Defendant. 23 None of the items of discretionary expenditure was incurred with the authority of the Plaintiff. I am satisfied that the Third Defendant before incurring such expenditure made no attempt to inform the Plaintiff (let alone to obtain her consent thereto) of his proposals for structural alterations to the property. (The purpose of those structural alterations was to convert the subject property into residential flats.) In this regard it should be recorded that the Third Defendant, although having had previous experience concerning alterations to buildings, neither sought nor obtained the appropriate development approval from the South Sydney City Council for the alterations which were effected to the subject property. He admitted under cross-examination that he knew that the building work which he caused to be performed on the subject property contravened the Council's building requirements. It should also here be mentioned that the Third Defendant did not see fit to obtain even an estimate, let alone a quotation, in respect of the costs of that building work. 24 The attitude of the Third Defendant appears to have been that, since the Plaintiff and the Second Defendant (who, it will be appreciated, is the brother of the Third Defendant) were no longer in a relationship, and since the Third Defendant had, apparently, the authority of his own wife, the First Defendant, and was the attorney under power for the Second Defendant, he could deal as he chose with the subject property, totally disregarding the rights and interests of the Plaintiff therein, and could then look to the Plaintiff for at least one half of the discretionary expenditure. Such an attitude had no legal basis or justification. (It will be appreciated that, even if the First and Third Defendants were entitled to look to their co-owners of the other one half share of the subject property for payment of one half of the discretionary expenditure – and I do not accept that they were legally so entitled in the circumstances of this case – they could look only to the Plaintiff and the Second Defendant conjointly. They could not look to the Plaintiff alone for the totality of such share of the discretionary expenditure.) 25 It should also be recorded that the Third Defendant did not see fit to inform the statutory trustee of the fact that he was performing this work and incurring expenses in respect of the property. Indeed, a considerable quantity of the discretionary expenditure was incurred after the appointment of the statutory trustee for sale of the property. That is, that expenditure was incurred at a time when the Defendants had no legal right to deal with the property. The Third Defendant did not either inform the statutory trustee of the work that was being performed or inform the builder of the existence of the order of 21 February 2002 (which deprived the Defendants of the right to deal in such manner with the property). The conduct of the Defendants (and, in particular, of the Third Defendant) in this regard is such as to attract the disapprobation of the Court. 26 Further, the Third Defendant, purporting to be authorised in that regard not only by the First and Second Defendants but also by the Plaintiff, in early 2002 instructed a firm of solicitors, Maddens Commercial Lawyers, in relation to the registration of an amended strata plan and an application for a subdivision certificate. The Third Defendant had no authority from the Plaintiff to do so. Neither did he see fit to inform that firm of solicitors of the existence, and the currency, of the present proceedings, which had been instituted by the filing of the summons on 23 November 2001, or of the making of the orders of 21 February 2002 (including the order, made by consent of the Defendants, for the appointment of the statutory trustee for sale). The Third Defendant thereby placed that firm of solicitors in a most embarrassing situation. 27 Another relevant matter to which reference should here be made relates to the water rates in respect to the subject property. Not only were those water rates paid on the Plaintiff's credit card account (without her authority), the Second Defendant continuing to operate on that account long after his authority to do so had been terminated by the Plaintiff, but, to add insult to injury, a credit of about $800 in respect of those water rates was then, totally without the authority or the knowledge of the Plaintiff, transferred, at the Third Defendant's direction, to reduce the liability of the Third Defendant for water rates owing on his own residence. 28 Further, a considerable quantity of chattels (including items referred to by the generic description of whitegoods) were purchased by the Third Defendant and delivered to his residence, payment being charged to the Plaintiff's credit card account without her knowledge or authority. That conduct on the part of the Third Defendant was totally dishonest and was possibly criminal. It was quite apparent that the conduct of the Third Defendant in this regard (consistent with his conduct in respect to his failure to inform the Plaintiff of recovery proceedings which had been brought by Sydney Water against all three Defendants, as well as against the Plaintiff, and of which proceedings the Plaintiff could not have become aware unless so informed by the Third Defendant, since she was not served personally with the originating process and since her address shown thereon was in fact the address of the Third Defendant) was motivated by his dislike of the Plaintiff. 29 I regarded the responses given by the Third Defendant under cross-examination on these topics (that is, the use of the Plaintiff's credit card account and the recovery proceedings brought by Sydney Water) as totally discrediting the Third Defendant and his testimony. Many of his responses on these and other topics can only have been deliberate falsehoods motivated by his animus against the Plaintiff (for example, the evidence concerning his assertion in a fax of 3 July 2000 addressed to the Plaintiff that he had made a mortgage payment of $6,888, and concerning the claim of the Defendants in the Local Court proceedings against the Plaintiff in respect to that alleged (and non-existent) payment). That the Third Defendant maintained a personal animus against the Plaintiff clearly emerged during his oral evidence. 30 At the hearing it was stated by Counsel for the First and Third Defendants that those Defendants accepted that there should be a declaration in the terms of paragraph 5 of the notice of motion. Even if those Defendants had opposed the granting of that relief, I am satisfied that the Plaintiff is entitled to a declaration in the terms of paragraph 5 of the notice of motion, and I propose to make such a declaration. 31 It was submitted on behalf of the First and Third Defendants that the Plaintiff should bear at least part of the discretionary expenditure. Otherwise, so it was submitted, the Plaintiff might have the benefit on the ultimate sale of the property, without being responsible for the costs of obtaining that benefit. It was suggested that the Court should refrain from expressing any conclusion concerning the relief sought in prayer 4 until after the property had been sold. The Court has now been informed that the property is to be sold at the price of $385,000. That price is less than the price for which the property was originally purchased and is less than the price for which the property could probably have been sold at a much earlier stage and before the discretionary expenditure had been incurred. There is no evidence that the discretionary expenditure had the effect of increasing the value of the subject property. In consequence, therefore, the foregoing submission lacks the factual basis upon which it was sought to be grounded. 32 It was submitted on behalf of the Second Defendant that the essential matter in issue is whether the discretionary expenditure had contributed to an increase in the value of the property. (See Forgeard v Shanahan (1994) 35 NSWLR 206.) In that regard, so it was submitted, the consent of the Plaintiff to that expenditure was not determinative. If the foregoing submission on behalf of the Second Defendant be accepted, then it will be seen that the discretionary expenditure did not in fact contribute to an increase in the value of the property. In consequence, therefore, there is no reason why the Plaintiff should be required to contribute to what can only be regarded as rash and foolish expenditure on the part of the Defendants. Much of that expenditure can properly be regarded as being for an illegal purpose (since development approval for the building works had been neither sought nor obtained). Much of that expenditure was incurred when the Defendants had no legal standing to deal with the subject property (since the statutory trustee for sale had by then already been appointed). 33 It will be recognised that the Plaintiff is not claiming equitable compensation or damages from the Defendants. The Plaintiff in the present proceedings is resisting an attempt on the part of the Defendants that she be required to contribute to expenditure (which she did not authorise and concerning which she was neither informed nor consulted), which expenditure has resulted in a loss to the parties. In those circumstances I am in agreement with the submission of the Plaintiff that the onus is on the Defendants to establish that they are entitled to such contribution by the Plaintiff and that it is for the Defendants to show that otherwise the Plaintiff will receive an unjust profit. 34 The items of discretionary expenditure which are the subject of the declaratory relief sought by the Plaintiff were incurred without the authority of the Plaintiff. They were unnecessary. They had the effect of reducing the value of the property and have resulted in additional expenses to the Permanent Trustee Company (which has been under the necessity of borrowing funds and which has incurred additional legal costs) – to the detriment of all parties. 35 I am satisfied therefore that the Plaintiff is not liable for any part of the discretionary expenditure. She is entitled to a declaration in the terms of paragraph 4 in the notice of motion. 36 Further, I am in agreement with the submission on the part of the Plaintiff that any additional costs or expenses incurred by the Second Defendant should be borne by that part of the proceeds of the sale of the property to which the Second Defendant would otherwise be entitled, and should not be paid out of the half share of the proceeds of sale to which the Plaintiff and the Second Defendant are conjointly entitled. That is, the Plaintiff's interest in that undivided half share should not be eroded by such additional costs or expenses. 37 It follows, therefore, that the Plaintiff is also entitled to a declaration as sought in paragraph 5 of the notice of motion, and an order that the share of the discretionary expenditure applicable to the one half share in the subject property held by the Plaintiff and the Second Defendant be borne by that part of the proceeds of sale of the property to which the Second Defendant would otherwise be entitled. 38 I observe that on 21 February 2002 I reserved to the parties and to Permanent Trustee Company Limited liberty to apply in respect to the disbursement of the net proceeds of sale of the subject property. I propose now also to reserve to the parties and to Permanent Trustee Company Limited a general liberty to apply. 39 Since the Plaintiff has succeeded in obtaining the relief sought in paragraph 4, it is not necessary for there to be a taking of accounts between the parties. 40 The orders made by Acting Justice Davies did not include an order that I should deal with the costs of the hearing before me. Those costs must therefore be dealt with by His Honour, consequent upon the reservation by the Consent Orders of 13 May 2002 of the costs of the notice of motion of 19 March 2002. 41 I would, however, observe that the Plaintiff has been entirely successful and that the Defendants have been entirely unsuccessful. Further, the proceedings have been made necessary solely as a result of the conduct of the Defendants, in particular, of the Third Defendant, concerning the incurring (without the authority of the Plaintiff) of the discretionary expenditure. The conduct of the Defendants concerning the use of the Plaintiff's credit card account was reprehensible, and was possibly criminal. 42 For the assistance of His Honour in this regard, I would, therefore, express my view that the costs of the Plaintiff of the hearing before me should be paid by the Defendants and should be a first charge upon the respective shares in the net proceeds of sale of the property to which the Defendants would otherwise be entitled. 43 I make the following orders: (1). I make declarations as sought in paragraphs 4 and 5 in the notice of motion filed by the Plaintiff on 19 March 2002. (2). I order that the outgoings, costs, and/or expenses referred to in paragraph 4 in the aforesaid notice of motion, for which the Plaintiff is not liable, be borne equally by that part of the proceeds of sale of the subject property to which the First and Third Defendants conjointly would otherwise be entitled and by that part of the proceeds of sale of the subject property to which the Second Defendant would otherwise be entitled. (3). I note that the costs of the hearing before me will be determined by Acting Justice Davies pursuant to the terms of order 9 of the Consent Orders made on 13 May 2002. (4). I reserve to the parties and to Permanent Trustee Company Limited liberty to apply generally. (5). The exhibits may be returned. ********** Last Modified: 02/11/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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