New South Wales Supreme Court CITATION : Han v Cramond [2005] NSWSC 1230 HEARING DATE(S) : 25, 26, 27, and 28 October 2005 JUDGMENT DATE : 2 December 2005 JURISDICTION : Equity Division JUDGMENT OF : Windeyer J at 1 DECISION : Order for adjustment in favour of the plaintiff. CATCHWORDS : DEFACTO RELATIONSHIPS - claim for adjustment of property interests pursuant to s20 of the Property (Relationships) Act 1984 LEGISLATION CITED : Property (Relationships) Act 1984, s20 CASES CITED : Howlett v Neilson [2005] NSWCA 149 Leonie Han (Plaintiff) PARTIES : Murray David Cramond (Defendant) FILE NUMBER(S) : SC 4962 of 2003 Mr P M Connor (Plaintiff) COUNSEL : Mr M W Anderson (Defendant) Abbott Tout (Plaintiff) SOLICITORS : Doolan Wagner & Callaghan (Defendant) LOWER COURT JURISDICTION : - 8 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J FRIDAY 2 DECEMBER 2005. 4962/03 LEONIE HAN V MURRAY DAVID CRAMOND JUDGMENT 1 This is a claim under the Property (Relationships) Act 1984 2 The plaintiff, Leonie Han (Han) and the defendant, Murray David Cramond (Cramond) lived in a de facto relationship from June 1998 until May 2002 with the exception of a period of separation for about five months commencing at the end of April or the beginning of May 1999. 3 Han was born on 10 October 1961 and is now aged 45 years. Cramond was born on 23 July 1965 and is now aged 40 years. They lived together first in a rented home at Naremburn and then in a rented house at St Ives and finally in a home at 60 Corymbia Circuit, Oxford Falls. 4 At the commencement of the relationship Han was managing director of a company Computer People and Solutions Pty Ltd (CPS). CPS was the trustee of the Leonie Han Family Settlement, a unit trust established in 1993. She was a beneficiary under that trust and a director of CPS. Her mother had been a director but resigned in 1997. At the time the relationship commenced Cramond was employed as a sales representative by a company Progress Maintenance Pty Ltd. 5 The case proceeded on the basis that the assets of the trust were the property of Han. She was a discretionary beneficiary as to income and capital and the only asset of the trust was the CPS business. When the business was sold, as I will explain later, the whole of the proceeds were distributed to her. 6 It is generally fundamental to claims for adjustment of property interests under s20 of the Property (Relationships) Act 1984 to establish the assets of the parties at the commencement of the relationship; the assets acquired during the relationship and by whom; the assets of the parties at the end of the relationship; and contributions of each party to the acquisition, improvement and conservation of the separate or joint property: Howlett v Neilson [2005] NSWCA 149. Little in the way of evidence of these basic matters was available. There was no evidence of the value of the CPS business or the trust at the commencement of the relationship nor of the value of a company owned and controlled by Cramond at the end of the relationship, namely CPS Corporate Imaging Pty Ltd (CPSCI). Most of the other assets owned by either party had no proved value. Thus all the court can do is to list the assets of the parties at the commencement as follows: Plaintiff Value Trust assets being in essence the CPS business Not known Savings with National Australia Bank Not known but probably about $600 Superannuation Not known BMW Motor vehicle Not known Furniture Not known Liabilities Not known Defendant Value Savings about $20,000 Superannuation Not known Clothing, furniture etc Not known Motor Vehicle Not known Liabilities Personal Loan $13,000 Credit Union overdraft account Not known Personal Loan account Not known Mastercard debt Not known 7 The accounts of the Leonie Han Trust for the year ended 30 June 1998 show a deficiency of assets over liabilities of $44,613. On the other hand the business was sold for $1 million eighteen months later, although only $600,000 of the sale price was received. I will return to this. The period of the relationship 8 While Cramond's credit union and personal loan debts at the commencement of the relationship are not entirely clear Han did make a fortnightly payment of $100 into the credit union account and a monthly payment of $392 into the personal loan account for at least one year from the commencement of the relationship. These payments were made by CPS but charged to Han's loan account with that company. 9 While the parties lived in rented accommodation Cramond paid either one quarter or one third of the rent of the rented property. Han said she paid all the other outgoings and for most of the food and I accept that to be so. It is not possible to find the particular amounts paid by each party nor is it necessary. It is clear that Han contributed considerable sums in payment of Cramond's liabilities and that she paid more towards general household expenses than he did. To some extent this was understandable as Han's son was living with her in the Naremburn and St Ives properties, as was another friend at the commencement of the relationship. 10 It is convenient at this stage to deal with the claim of Cramond that he made a contribution to the welfare of Han's family by "cooking dinner most weeknights for the cross-defendant and Brendan which allowed the cross-defendant to work extended hours". That claim is not made out. It is true that the plaintiff worked long hours, but I do not accept the evidence of Cramond as to his cooking meals nor as to the extent to which he assisted Brendan. I do accept the evidence of Brendan and Mr Dale Whitten who was the man who lived at the Naremburn property for a time, which is contrary to the evidence of Cramond. No doubt Cramond gave some help to Brendan and no doubt he cooked some meals, but this claim like a lot of his claims was exaggerated. 11 Other conflicting evidence as to who did the shopping, the cleaning, the lawn mowing and the pool cleaning can be disregarded. These are parts of the everyday life of couples living together. Apart from the fact that no claim is made for adjustment based on them they could not give rise to any claim one way or the other in this action. The only thing the evidence of either party did was to bring forward conflicting claims of the other side of no significance to this decision. Ryde property 12 In September 1998 Cramond purchased a home unit at Ryde for $186,000. He paid some of the deposit with proceeds of the sale of his motor car and borrowed the balance from RAMS. The property was rented but there was a shortfall between the rent and the mortgage payments. Both parties contributed to the shortfall, the plaintiff's contributions being through CPS charged to her loan account. There is a dispute about why the property was purchased in Cramond's name alone, but that does not matter. The mortgage loan was refinanced through the National Australia Bank in July 1999 and about that time Cramond guaranteed the CPS overdraft account with the National Australia Bank which was increased over time from $30,000 to $60,000 to $100,000. This was not directly secured on the Ryde property, but once Cramond guaranteed the loan his assets were at risk. In June 2000 Cramond transferred a one half interest in the unit to Han, the title being placed into their names as joint tenants. While the transfer document showed a consideration of $105,000 it was never intended that amount be paid. Han paid the stamp duty on the transfer. She said that the change of ownership took place at her request as another property at Oxford Falls bought largely with her money had been placed in joint names. Cramond said the reason the Ryde property was not placed in joint names originally was that there were some problems with Han's credit rating, but that later she told him the black mark had been removed so that it was possible to put the property into both names. Like a lot of the conflicting evidence in this case this does not need decision. By this time the parties were in sharing mode whatever the reason. The CPS or trust business 13 Originally the plaintiff and her mother were directors of CPS. Her mother resigned through ill-health in 1997. Han asked Cramond to become a director in 1998. Her evidence that she did this at the time her mother resigned was not true. By this time Cramond had left his employment with Property Maintenance. According to Han, at the time the relationship commenced CPS was operating well. Core customers such as Telstra had been obtained and the plaintiff worked very long hours in the business. The plaintiff's version of events is that she assisted Cramond to set up his own company CPSCI, allowed the name to be used and gave him space in her office and other facilities there at no cost. In exchange for this Cramond was to do some invoicing and accounting work for CPS two days a week. He would receive director's fees and the plaintiff would continue her payments to the credit union and his personal loan account. The evidence of Cramond is that he did far more than this; that he worked for CPS on a full time basis, mostly in accounts; that he attended meetings with clients and worked from July 1998 until December 1999, 30 to 40 hours per week. Neither party's evidence can be accepted in full. Cramond clearly did more for CPS than the plaintiff admitted; but he was not such an important person in the company as he sought to make out. A lot of his time in the office was spent on building up the Corporate Imaging business, which was producing a reasonable income, at least by 2002. There were advantages for the plaintiff from the defendant's work at CPS and there were considerable advantages to the defendant in his work arrangements and from the assistance and training he obtained from Han for this. As is often the case the arrangements worked well enough while the relationship continued and when it came to an end the rosy glow faded. 14 The CPS business was sold to Alexander Mann Australia Solution Providers Pty Limited (AMA) under an asset sale agreement dated 14 January 2000. Cramond had resigned as a director on 18 November 1999 at the request of Han. His employment was not continued by AMA. Most of the other employees of CPS were continued as employees of the purchasing company. The business sold was described as "the business of providing professional recruitment both permanent and contract and related services". The sale price was $1 million, payable as to $600,000 in cash and the balance to be satisfied by the issue of 40 B Class shares in the purchasing company, which shares under a shareholders agreement had certain rights of conversion and redemption after a period of years. The purchase price of $1 million was apportioned $949,999 to goodwill, $50,000 for plant and equipment and $1 for intellectual property rights. Han entered into and was required under the contract to enter into a service agreement as managing director on a base salary of $180,000 per annum. According to the plaintiff's first affidavit, she was entitled to convert her shares to $400,000 cash over five years. Although this was not really challenged it was not clear that that was the position under the relevant agreement, but in any event it is accepted the shares became worthless. Han's contract of employment was terminated in August 2001, and she was unemployed until November 2002. Later on and after the relationship ended, Han commenced proceedings against AMA in the Industrial Relations Commission on the basis of unfair contracts for damages for wrongful dismissal and breach of contract. The action was settled but it is not really relevant here as it does not go to the value of the assets as at the date the relationship ended. That is because although it appears the claims included one that the asset sale agreement was unfair, it was not suggested the settlement amount in some way related to the lack of value of the B class shares. The plaintiff was unemployed, as I have said, until November 2002, during 12 months of that time she was not able to work through illness. 15 Insofar as it is necessary to make some assessment of the value of CPS at the date of commencement, it is obvious any value was in the goodwill as there was a deficiency of tangible assets over liabilities and no history of maintainable earnings. A core client base had been established. I find that the defendant made a contribution to the value of the business during the period from July 1998 until December 1999 at least to the extent he was underpaid. His contribution may require some adjustment, but not a great one, having regard to the assistance rendered by the plaintiff to him in the building up of his business. Oxford Falls property 16 Property 62 Corymbia Circuit, Oxford Falls, was purchased as vacant land in January 2000. The plaintiff's affidavit and the statement of claim were quite misleading indicating that it was purchased in her name alone. In fact the purchase price was $465,000 for the vacant land which was purchased in joint names. The plaintiff paid $250,000 towards this from the proceeds of sale of CPS, by then distributed to her from the trust. The balance of $215,000 was borrowed on mortgage from National Australia Bank. Both parties were borrowers and mortgagors. The plaintiff's evidence was that as she and Cramond were going to be married she thought it right to purchase the property in both names. There is no doubt she hoped to married; she probably had reason for this hope after the reconciliation. Cramond's father said that Han was anxious to marry but his son would not commit himself. The parties decided to build a house and selected one for a basic price of $280,000 this amount being added to the National Australia Bank loan. The plaintiff paid the stamp duty and costs on the purchase. Contrary to one claim she did not make all the mortgage payments. Both parties contributed until the defendant left the property. In paragraph 38 of her affidavit the plaintiff set out details of the payments she made for the house. This is a hopeless mishmash including some claimed payments for transfer of Ryde, some for furniture, and some for outgoings such as rates. No lawyer should have put forward evidence in this form. Insofar as the plaintiff paid the costs of a swimming pool of about $20,000; and costs of landscaping of about $8,900 these should be taken into account. Other payments for furniture, insurance and the like need not be counted as the plaintiff will probably keep the furniture in any event. Many of the items appear to be doubled up. 17 As with the business, Han says Cramond did little to assist in the construction or in the garden layout for Oxford Falls. Cramond said that he saved a lot of money in organising an alternative excavator and in managing a lot of the drainage and landscape works. For the most part I accept his evidence on this and find that his efforts did reduce the cost of the works for the house and garden. On the other hand I do not accept his version of the hours which he says that he spent there as that would really not have been possible with the work which he says he was doing in his ordinary occupation. 18 It is agreed that Cramond paid $6,314 for construction works and other improvements of the Oxford Falls property. He claims to have spent more than this figure, but this could not be proved, although I do find that he spent some additional amount as well as that agreed. The agreed present value of Oxford Falls is $1,200,000. The agreed value at termination of the relationship is $900,000. The Cowra property 19 A small 20 acre property at Cowra was purchased by the parties as joint tenants in May 2001 for $62,500. The whole of the purchase price was borrowed from the National Australia Bank on the security presumably of that property and Oxford Falls. Cramond's father owned the next door property which was one reason for the purchase. The property had a shed converted into a living area as a cabin. It is agreed that Cramond spent $1,717 on the Cowra property or improvements to it. Both worked on the cabin improving it. Its agreed present value is $145,000. Sale of Ryde property 20 The unit was sold in October 2002. After discharge of mortgage the net proceeds of sale were about $152,000. After various payments out of that sum there was approximately $72,000 held in a controlled money account so that there has been expenditure of about $80,000 from it. I find that the parties withdrew approximately equal amounts. Property liabilities 21 The amount owing on the mortgage for Oxford Falls is approximately $434,752; the amount owing on the mortgage on Cowra is about $56,408. Additional Facts 22 As I have said the value of Cramond's business, namely CPSCI, is not established. The plaintiff is now employed through a company, in a new business, but as that is after the relationship ceased this does not really matter. The plaintiff has a large income tax liability of which a considerable part is clearly tax on $143,358 being assessed as capital gain on the sale of the CPS business. In other words it is not correct to say that she received $600,000 cash from this sale, because as a result of the sale she was subject to a tax liability of about $68,800. 23 After the relationship ended the plaintiff severed the joint tenancies on both properties so that the titles now stand in the names of the parties as tenants in common in equal shares. This was explained on the basis the plaintiff was concerned about her health. I accept that. 24 Like of lot of these cases, this is a sad one. Although Han's evidence is to the contrary, I have no doubt she and Cramond hoped to lead a happy life together in the Oxford Falls home, although no doubt the plaintiff's view of this was based on her understanding they would marry. Now she has found out this will not happen, her view of Cramond and her view of the facts has changed. 25 The base Oxford Falls costs were $465,000 for the land plus $280,000 for the building, totalling $745,000. Of this the plaintiff would be considered to have contributed $250,000 cash and half of the balance obtained on mortgage, namely $247,500. The defendant would be taken to have contributed $247,500. In other words the plaintiff's contribution, if that is to be taken into account is about two-thirds as opposed to the defendant's one-third. I have added the basic cost of the building to the value of the land to roughly work out the interest and equity on the basis of the contributions, but not on the basis of the intentions or rights. As I have said the agreed value is $1.2 million, and on that basis the plaintiff's interest could be said to be $792,000 and the defendant's $396,000. There is no doubt that the interests in the Cowra property are equal at the present time without any adjustment. 26 The plaintiff made no contribution to the Ryde property other than paying the stamp duty and costs involved in the transfer to joint names and some contribution towards the bank loan shortfall being the difference between the rent and the mortgage payments. On any basis I consider on the basis of contributions that the remaining $72,000 should be regarded as money of the defendant. Claims 27 The submission of the plaintiff is that the defendant should take the Cowra property and $50,000 from the sale of Ryde and that she should take the Oxford Falls property and $22,000 from the sale of Ryde subject to the mortgage. This would mean that the defendant would end up with CPSCI and otherwise the figures would be as follows: Defendan t Cowra Property 145,000 Less mortgage (56,408) 88,592 Plus share of Ryde 50,000 138,592 Plaintiff Oxford Falls 1,200,000 Less mortgage 434,752 765,248 Plus share of Ryde 22,000 787,248 28 The submission of the defendant, through his counsel, is that he should take the Cowra property, subject to his paying the plaintiff one half of the equity in it, namely $44,296 and that the plaintiff should take the Oxford Falls property subject to mortgage, and subject to payment to the defendant of one half of the equity in it. It is not certain what is claimed in respect of $72,000 and I will deal with it separately. Without it this would result in the following: Defendant: Cowra property 145,000 Less mortgage (56,408) Equity 88,592 Less payment to plaintiff (44,592) ½ equity in Oxford Falls 382,624 Total 427,216 Plaintiff: ½ equity of Cowra 44,592 Oxford Falls 1,200,000 1,244,592 Less Oxford Falls mortgage: 434,752 Less ½ equity in Oxford Falls 382,624 817,376 Balance 427,216 29 The $72,000 on this basis could be left to adjustment either way. The defendant would claim it should all go to him as apart from anything else he purchased the property and when he signed as guarantor for the CPS National Australia Bank overdraft this put the property at risk yet assisted the business to expand. 30 Unfortunately neither party has moved from the intransigent stance taken by that party from the start. There are some important matters that must be considered: (a) the plaintiff made only a small contribution by way of mortgage payments towards Ryde; (b) the Oxford Falls property could not have been acquired without the plaintiff's funds coming from the sale of the business which business must have had a real goodwill value at the commencement of the relationship and although the defendant assisted there and his work was for the most part unpaid it was the plaintiff who was substantially responsible for its success and its sale; (c) the defendant has made no attempt to value the CPSCI business which the plaintiff helped him develop by providing instruction and free office space and services; (d) the plaintiff did not put all the proceeds of sale of the business into Oxford Falls, but she certainly put more than the original $250,000 towards the purchase of the land. The paragraph 38 mishmash claims were not challenged and while they need careful scrutiny and could not be accepted in total at least $60,000 should be accepted as additional costs paid by the plaintiff for the construction and improvement of the property. (e) the plaintiff spent $40,000 of the proceeds of sale on an overseas holiday for herself, her son and the defendant and she was off work through illness for over one year having to resort to her savings to live during that time; (f) the plaintiff also had a considerable taxation liability existing at the date of separation, part of which arose as a result of the capital gain on the CPS business; (g) the relationship was a short one with an interruption of five months. 31 The basic assets relevant to this matter at the date of termination of the relationship but not their value at that date but rather the present position are: Equity in Cowra property $ 88,592 Equity in Oxford Falls $ 765,248 Proceeds of the Ryde unit $ 72,000 Total $ 925,840 In addition to this there is the value of the CPSCI business and the balance of the proceeds from the sale of the CPS business not spent on Oxford Falls. As neither of these are properly accounted for I propose to treat them as being roughly equal. 32 If there were an equal sharing, the parties would each take assets in an amount of about $462,920. My conclusion is that an adjustment of those figures is required under s20 of the Act having regard to the matters mentioned in paragraph 30 and to the fact that the Cowra property was acquired without any monetary outlay, but upon the security of not only that property but also of the Oxford Falls property. It is also necessary to recognise that there has been a substantial increase in the value of the Oxford Falls property since the date the relationship came to an end and that the mortgage payments from the time the defendant left that property have all been kept down by the plaintiff. I consider a proper adjustment pursuant to s20 of the Act requires orders (a) recognising that the plaintiff should have an 80% interest in Oxford Falls and, (b) that the balance of the proceeds of the sale of Ryde should go to the defendant, the plaintiff having, I consider, received a proper share of the balance purchase moneys by the payments to her of about $49,000 of those moneys. The plaintiff has paid for most of the furniture at Oxford Falls and she should be entitled to it and the defendant should be entitled to the contents of the Cowra property. 33 It was accepted by the parties that provided the necessary financial arrangements could be put in place, the Cowra property should be transferred into the sole name of the defendant and the Oxford Falls property into the sole name of the plaintiff. If possible, there will need to be arrangements made for the necessary releases of one party from the mortgages over those properties or for suitable indemnities to be provided. 34 In accordance with that decision and on the agreed figures for the equity in the property the plaintiff should be entitled to acquire the defendant's interest in Oxford Falls for the sum of $153,000. The defendant should be required to purchase the plaintiff's equity in the Cowra property for $44,000 to be set off against the $153,000 leaving a balance of $109,000 to be paid by the plaintiff to the defendant. The parties should bring in draft minutes to give effect to these reasons. If transfer of the property interests cannot be arranged in accordance with this judgment, different orders would have to be made bringing about similar financial adjustments upon sale of the real estate properties. 35 As neither side has had complete success it is likely there should be no order as to costs, but if necessary I will hear short argument on that when the draft orders are brought in. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.