New South Wales Supreme Court CITATION : Dow v Smith [2007] NSWSC 992 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 03/09/07 JUDGMENT DATE : 20 September 2007 JURISDICTION : Equity JUDGMENT OF : Associate Justice Macready at 1 DECISION : Paragraph 42 CATCHWORDS : Family Law. Application for adjustment of parties' property interests under s20 of Property (Relationships) Act 1984. Order for adjustment. No matter of principle. PARTIES : Andrew Hunter Dow v Ross Smith FILE NUMBER(S) : SC 3364 of 2006 COUNSEL : Mr G Gould for plaintiff Ms P Carr for defendant SOLICITORS : Adams & Partners for plaintiff EM Tebbutt & Sons for defendant - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Associate Justice Macready Thursday 20 September 2007 3364 of 2006 Andrew Hunter Dow v Ross Elliott Smith JUDGMENT 1 His Honour: This is the hearing of an application under the Property (Relationships) Act (the Act) 1984 for the adjustment of the parties' property interests under section 20 of the Act. The parties lived together in an admitted de facto relationship from January 1998 until 1 August 2005. Short chronology 2 The defendant was born on 28 of December 1962 and the plaintiff was born in Scotland on 21 April 1971. They met in Australia on 31 December 1997 and commenced their relationship in January 1998. At that stage they lived in a property at Marrickville owned by the plaintiff as to 75% and by his parents as to 25%. 3 In July 1988 the parties travelled to Dundee Scotland and stayed in the plaintiff's apartment. They worked together to prepare it for sale. In August they returned to Australia where they lived in the defendant's mother's house at Bronte. She allowed them the use of the house at no charge. 4 The plaintiff sold his apartment in Dundee and in December 1998 he received the sum of $26,819 from the proceeds of sale after payment out of the mortgage. He paid this into his Westpac account. In January 1999 the plaintiff obtained a working visa and studied to be a fitness instructor. In April of 1999 the parties moved back to the Marrickville property. The defendant had received $50,000 from the aircraft noise project for the purposes of insulating and air-conditioning the Marrickville property and this work was done. 5 In May 1999 the plaintiff began part-time work as a gym instructor. After being granted a resident's visa in December 1999 he commenced full-time work. In September 2001 the defendant let the Marrickville house to students and the parties moved back into the defendant's mother's place at Bronte which once again she allowed them to use without any charge. 6 On 26 July 2002 there were a number of transfers of property. The defendant's parents transferred their 25% interest in the Marrickville property by way of gift to the defendant. There was also a transfer of the defendant's mother's Bronte property to the plaintiff and defendant as tenants in common. The plaintiff held a 35% interest and the defendant a 65% interest. The proportions were negotiated in discussion between the parties and the defendant's solicitor. The consideration for this transfer was $330,000 which was paid together with certain other sums such as approximately $72,000 to the defendant's mother to cover capital gains tax for which she would be liable. The existing mortgage on the Marrickville property was repaid and after completion of the transactions there was a joint mortgage taken by the plaintiff and defendant over the Bronte property for $420,000 and a mortgage by the defendant over the Marrickville property for $142,720. The Bronte property was valued for stamp duty purposes at the time of transfer at $450,000. Stamp duty was paid on that value. 7 In August 2003 the parties commenced renovation on the Bronte property. For five months they lived in rented accommodation. The plaintiff paid the rent totalling $6,933 while the defendant paid the mortgage payments on the properties. 8 On 6 August 2003 the defendant sold the Marrickville property for $702,000. He discharged both mortgages from the sale proceeds and placed $135,000 into the party's joint account. Immediately thereafter he purchased a Toyota RAV 4 motor vehicle for $27,600 for the plaintiff. 9 In late 2003 the parties took out a loan from the teachers credit union for $190,000 to fund renovations and furnishings for the Bronte property. These funds were used for this purpose together with the defendant's funds in the joint account. By May 2004 all of the renovations were completed and the plaintiff closed his Westpac account and paid the balance of $4668 into the joint account. 10 In December 2004 the plaintiff received a gift from his grandmother of $2,433 which was transferred into the joint account. The parties separated on 1 August 2005 with the plaintiff vacating the property. He took the Toyota motor vehicle and various items of furnishings and personalty. The defendant has continued in occupation and has paid all mortgage payments, Council rates and utilities. The property of the parties of the commencement of the relationship 11 At the commencement of the relationship the plaintiff owned an apartment in Dundee Scotland which was subject to a mortgage of approximately 40,000 pounds. He had 2,000 pounds in a savings account and an investment account policy worth 4,138.98 pounds which matured in June 2002. He also owned an upright piano, various items of furniture and appliances in the Dundee property which at that stage was leased. 12 At the commencement of their relationship the defendant had a three-quarter share in the Marrickville property with the other quarter share being owned by his parents. He had an upright piano, two German grand pianos and a church organ estimated to have a value of $10,000. He also owned various items of household furniture. His liabilities at that stage consisted of a mortgage to the Commonwealth Bank of approximately $140,000. At the time he was employed as a schoolteacher and also worked part-time as a music teacher. The property of the parties at the conclusion of the relationship 13 At the conclusion of the relationship the parties jointly owned the Bronte property in the proportions to which I have referred. The parties are agreed that, as at the date of the hearing, the property has a value of $850,000. There is a mortgage on the property of $164,500. At or about the time of separation the defendant purchased a piano for the sum of $8,000, which was acquired using the redraw facility on the mortgage, which sum is included in the figure I have just mentioned. That purchase was for the defendant's benefit and, accordingly, the relevant parties' equity in the property is $693,500. 14 In addition the plaintiff has retained the Toyota RAV 4 motor vehicle and taken various items of furniture and personalty which have not been valued. The parties' financial contributions 15 It is plain that the plaintiff made no direct contribution to the purchase of the Bronte property other than his contribution as a joint borrower on the loan used to finance the purchase. In respect of those borrowings he made no contributions directly to the mortgage repayments. Plainly the defendant, by paying out the initial borrowings following the sale of Marrickville, has effectively financed the purchase of the property. Once the Marrickville funds were expended there were further borrowings to carry out the improvements on the Bronte property. The plaintiff and the defendant contributed to those mortgage repayments. From March 2004 until separation in August 2005 each of the parties contributed $18,000 in mortgage repayments making a total of $36,000. 16 The plaintiff contributed financially to the Marrickville property and in a non-financial way to the Bronte property. By the end of 1999 the plaintiff had funds totalling $16,000 remaining from the proceeds of the sale of his Dundee property while a sum of $10,000 had already been used on living expenses. Therefore the plaintiff contributed $16,000 to renovations on the Marrickville property. Part of this sum was used to replace the front veranda of the property and to construct a deck at the rear of the property. There was work done on the internal courtyard and an outdoor courtyard was installed. There were some improvements inside the property such as the sanding of the floors and the installation of some parquetry flooring. 17 There is no evidence of the effect that these improvements would have had on the value of the Marrickville property. Given the nature of the improvements the sale price achieved was likely to have been increased. As I have said, the funds from that sale flowed through to the Bronte property and in that sense there was a contribution to the Bronte property by the plaintiff resulting from his expenditure on Marrickville. 18 After completing the aircraft noise renovations in 2000 at a cost of $50,000, the parties decided that the Marrickville property should be used to run a bed-and-breakfast business. The defendant by virtue of his ownership of the Marrickville property received a Government grant of $50,000 to carry out this work. Two new bathrooms were built in order to accommodate this change in plans. The defendant concedes that the plaintiff spent some $10,000 on these improvements. These funds seem to have been drawn from the $16,000 which the plaintiff received from the sale of his apartment. I accept that the plaintiff contributed a total sum of $16,000 to renovations to the Marrickville property. 19 Once the parties had moved into the Bronte property the plaintiff spent $2,000 having the carpets removed and the floors sanded. He purchased kitchen cupboards for $799 and spent $2,700 on the electrical and hot water systems. 20 The plaintiff maintained a separate bank account into which his own funds were deposited. The account was initially with Westpac and later with the Teachers Credit Union. The defendant's only account was a joint account which he held with the plaintiff and into which his salary was deposited. The plaintiff received an amount of $9,169 from his insurance policy in August 2003. He has identified a total of $12,724.29 in payments made towards renovations at about this time. I accept that he spent the funds he received on renovation and improvements to the Bronte property. 21 I have earlier outlined the parties' employment history. The defendant was employed full-time as a teacher and also did part-time work. In 2004 he ceased teaching at the school and concentrated on his part-time work. This did not have a substantial effect on his income. The evidence before me discloses that the taxable income of the parties to the extent known in the relevant years was as follows:- Year ended Defendant Plaintiff 1998 $51,000 Not known 1999 $54,547 Not known 2000 $52,817 $9,988 – estimate 2001 $41,758 $30,059 – estimate 2002 $55,405 $21,350 2003 $73928 $21,234 2004 $49,629 $19,852 2005 $45,396 Not Known 22 Having regard to the fact that the plaintiff was not working in the early stages of the relationship it is unlikely that he contributed much to the parties joint endeavours in 1998 and early 1999. As I have earlier identified contributions were made by the plaintiff by paying rent for premises which were occupied during the course of the renovations to the joint property. However, at that time it was the defendant who was meeting the substantial mortgage repayments. 23 The plaintiff closed his Westpac account and later the Teachers Credit Union account which was in his name. He transferred an amount of $4,678.94 to the joint account with the Teachers Credit Union in May 2004. This account funded, inter alia, the renovations to the Bronte property. 24 Further, the plaintiff received the amount of $2,433.50 as a gift from his grandmother which was used on renovations to the Bronte property in December 2004. Apart from the purchase by the plaintiff of a car for $4,000 early in the relationship and later the purchase of a car by the defendant which he registered in the plaintiff's name, the parties did not spend their money on other matters. The incomes they received were used for their joint purposes and towards the renovations of the Bronte property. 25 During the relationship the defendant contributed the majority of the funds by way of earnings. It is to be remembered that the plaintiff and the defendant agreed on the shares in which the Bronte property would be held when it was purchased. Such an agreement is not binding upon me when carrying out the functions of adjusting the parties' property interests under the Act. 26 Looking at the position at the date of purchase of the Bronte property and assuming that the previous contributions of $16,000 to the Marrickville property were to be regarded as a contribution to the purchase of the Bronte property, the plaintiff's contribution was small compared with the $450,000 value of the Bronte property at that time in percentage terms. Even compared with the agreed purchase price of $330,000 the quantum of the plaintiff's contributions pale in significance. It is therefore necessary to consider the non-financial contributions alleged by the parties to the Marrickville property and later to the Bronte property. Non-financial contributions 27 In 1998 after the commencement of the relationship the parties started work on the Marrickville property. The plaintiff tidied up the garden and in March they started work demolishing an old bathroom. The plaintiff removed the wall tiles and the defendant the floor tiles. In April 1999 after the move back to the Marrickville property from the Bronte property the plaintiff gave evidence of work which he did in the garden. It seems that the plaintiff was more interested in the garden and he purchased a number of pots and landscaped the garden beds and did other matters in the garden. 28 In November 1999, after the plaintiff received the proceeds from the sale of his apartment in Dundee, Scotland, the parties commenced a further round of improvements to the Marrickville property including replacing the carpets. Two extra bathrooms were added so that the house could be used as a bed and breakfast business. An architect drew up the plans while the two parties supervised the work and chose the internal fittings. 29 The parties undertook the renovations to the Bronte property with the assistance of an architect. According to the plaintiff he and the defendant contributed to the renovations by performing various labouring functions and removing building waste. The plaintiff says he chose the builders and subcontractors and it appears that the contractors carried out most of the work. No doubt the plaintiff spent some time on colour schemes and fittings while the plaintiff managed the bank accounts, organised transfers of funds and payments to tradesmen. 30 It seems that in respect of the non-financial contributions to the properties the plaintiff did more work than the defendant on the Marrickville property. However, in respect of the Bronte property the evidence is not clear on this aspect and it is more likely that the parties' contributions were about equal. 31 So far as homemaker contributions are concerned it is plain that these would only relate to contributions to household duties in respect of the properties. When considering these contributions it is to be borne in mind that the parties were for most of the time working and there were no parenting responsibilities in the relationship. 32 The plaintiff suggested that he did all the household duties at the Marrickville property which included vacuuming, scrubbing bathrooms, mopping floors, wiping and dusting surfaces. He claimed to have performed these duties for the housemates. The defendant denied this suggestion. There was evidence given by Jennifer Anne Turnbull, a friend of the parties, who lived in the Marrickville property from Easter 1997 until September 1998, describing the carrying out of household duties. She said the plaintiff, the defendant and the boarders attended to their own laundry and ironing while shopping was occasionally done by individuals and sometimes as a group. Ms Turnbull used her car to take people to the shops and she described other household duties as being evenly distributed between the plaintiff, the defendant and the boarders. Ms Turnbull also played a role by collecting contributions to utilities and paying bills. Having regard to her evidence, on which there was no cross-examination, it seems to me that I should accept that the parties performed household duties equally at the Marrickville property. So far as the Bronte property is concerned it seems the plaintiff did more household duties than the defendant. However the defendant says he vacuumed after his music students had left the property. 33 In his statement of claim the plaintiff sought to receive 45 percent of the proceeds of sale of the Bronte property. At the hearing before me this claim was reduced to 35 percent which is the figure of his percentage ownership in the property. The defendant suggested that an appropriate resolution would be the transfer to the defendant of the plaintiff's interest in the Bronte property and a payment by the defendant to the plaintiff of $20,000. 34 The plaintiff submitted that the amount claimed by him was justified by the fact that the relationship was for a period of seven years and seven months during which the parties had worked together for their mutual advantage. It must be remembered that in applications under the Act the focus is on the contributions made by each of the parties and which is referred to in the sub-sections of section 20 of the Act. 35 I have spent some time in this judgment referring to the plaintiff's contributions. In summary these are:- 1. Contributions of $16,000 from the sale of his apartment in Dundee. 2. Accepting a liability under the mortgage over the Bronte property. 3. Mortgage repayments of $18,000 from March 2004 to August 2005. 4. Rental on a leased property $6,933. 5. Gift from grandmother $2,433. 6. Miscellaneous improvements to the Bronte property of $5,499. 7. Transfer of funds to joint account of $4,668. 8. Insurance payout in August 2003 of $9,169 used for improvements. 36 In contrast, the defendant's direct financial contributions effectively funded the whole of the purchase of and improvements to the Bronte property using the sale price of $702,000 from the Marrickville property. The defendant met the mortgage repayments during the initial renovations to the Bronte property. The plaintiff and the defendant each paid $18,000 towards the mortgage at a later date and they both had a liability under the mortgage over the Bronte property. 37 Overall the defendant's contributions exceeded those of the plaintiff. 38 As well as considering the financial contributions of the parties the non-financial contributions going towards the improvement of the properties and the household duties/homemaker contributions have to be taken into account. In the overall consideration of the matter it is important to recognise the time value of money and the fact that some contributions were made at an earlier stage of the relationship. 39 The parties are agreed that the plaintiff should retain the Toyota RAV 4 motor vehicle which was purchased by the defendant for $27,600 in August 2003. Its present value was not addressed in the evidence before me. The net equity in the property at the date of hearing is $693,000 to which I have referred earlier in my judgment. Having regard to the various contributions it seems to me that an appropriate figure to be paid to the plaintiff which would recognise the relevant contributions and taking into account that he will keep the vehicle but give up his share in the Bronte property, would be a sum of $50,000. 40 Guidance has recently been provided by the Court of Appeal as to costs in matters under the Property Relationships Act 1984. In Kardos v Sarbutt [No2] [2006] NSWCA 206. Mr Justice Brereton, with whom the other members of the Court agreed dealt with a number of matters concerning costs as follows: "26 The first is the quantum of the adjustive order. Particularly where only a small adjustive order is made, which would have been within the jurisdiction of the Local Court, a successful plaintiff will prima facie not be entitled to costs [ SCR Pt 52A, r 34; UCPR r 42.30], and even if the Court otherwise orders, the costs order may still be "capped", so that the costs are not disproportionate to the result. There are many reasons why the Court might "otherwise order". The amount of an adjustment ultimately ordered may not bear any relationship to the extent of the pool of property in issue in the case; a large pool of property, which involves complex valuation issues, may nonetheless ultimately produce only a small adjustment. Insofar as the rules of court are intended to promote selection of the appropriate forum, the wide ambit of the range of judicial discretion in this field means that such a rule should be applied with caution, except in the most obvious cases. The business of the Local Courts is such that they are not well equipped to hear lengthy cases involving large property pools. Nor is it likely that the costs of such a case, if conducted in a Local Court, would be significantly less than in the District Court. Although the Deves "rule of thumb" is of some utility in maintaining proportionality between the costs of proceedings - and thus the detail in which and extent to which they are litigated on the one hand - and the value of the interest at issue on the other, it is at best a rough and arbitrary guide; its shortcomings are illustrated by the circumstance that the costs of a successful defendant are not limited, regardless of how little was in dispute. 27 The second consideration is the analogy with matrimonial proceedings, in which the starting point is that each party bear his and her own costs. In this respect, the Law Reform Commission Report (NSWLRC 36 (1983)), "De Facto Relationships", which presaged the introduction of the predecessor of the Property (Relationships) Act 1984, although containing extensive reference to provisions of the Family Law Act , by way of comparison and contrast with the proposed jurisdiction to adjust financial relations between de facto partners, has no specific discussion of costs. There appears to have been no consideration as to whether the approach of Family Law Act , s 117 should be adopted. In respect of the enforcement of orders, the Law Reform Commission Report envisaged that the rules of court relating to the enforcement of its ordinary judgments and orders would cover the enforcement of judgments given or orders made pursuant to the adjustive property jurisdiction; it may be inferred that the question of costs in such proceedings was likewise not seen as requiring special consideration, but would fall in the court's general discretion as to costs. 28 However, the costs of adjusting property interests consequent upon the failure of a domestic relationship are an incident of the failure of a joint relationship, usually without attributable fault. In this sense, there is an analogy with partnership disputes. In partnership proceedings, it was once the rule that no costs would be given up to the decree directing the account, a position that was not departed from except in cases of gross misconduct [ Hawkins v Parsons (1862) 8 Jur (NS) 452; Parsons v Hayward (1862) 4 De GF&J 474]. The prevailing rule nowadays is that the costs of both parties of an action for dissolution are paid out of the partnership assets, unless there is some good reason to the contrary [ Hamer v Giles (1879) 11 Ch D 942], except where the action is one which in substance is to try some disputed right, in which case the unsuccessful party will be ordered to pay the costs [ Hamer v Giles ; Warner v Smith (1863) 9 Jur (NS) 169]. The costs of taking accounts, although disputed, are usually defrayed out of the partnership assets [ Butcher v Pooler (1883) 24 Ch D 273; Newton v Taylor (1827) 19 Eq 14]. Similarly, in proceedings under Conveyancing Act , s 66G, for the appointment of trustees of sale of jointly held land, the costs are usually paid out of the proceeds, the rationale being that the costs of such an application are an incident of joint ownership. 29 In this type of litigation, it is artificial to resolve liability for costs according to the accident of who is plaintiff and who is defendant, so as to leave a plaintiff free to litigate confident that he will receive costs however unreasonable his claim, unless the defendant betters her offer. There is no reason why the defendant should bear the risk of costs to the exclusion of the plaintiff where neither makes a realistic offer. Similar views have been expressed by Hislop J, with whom Mason P and Ipp JA agreed, in Vollmer v Hauber Davidson [2006] NSWCA 79…. ……. 33 The third consideration is whether any party has been wholly or substantially (in the sense already described) successful (in obtaining the order sought), or has "bettered" an offer of compromise. 34 A fourth consideration is the conduct of the parties in the proceedings, and in particular whether one has been disproportionately responsible for the incurring of costs through the manner in which he or she has conducted the proceedings. 35 The second and third considerations support the view that, except where one party has been wholly or substantially successful, or has "bettered" its offer of compromise, the starting position should be that each party should bear its own costs. The first consideration suggests that that will be all the more so where the quantum of the adjustment is within the jurisdiction of the Local Court." 41 I will consider whether there are any other matters which the parties wish to bring to my attention in relation to costs. 42 The orders that I make are as follows: 1. I order that by way of adjustment of the parties' property interests that the plaintiff transfer to the defendant his interest in the property at Bronte, identified in the statement of claim, upon payment to him of the sum of $50,000. 2. Simultaneously with the transfer referred to in order 1 the defendant is to procure the release of the plaintiff from any mortgage over the Bronte property. 3. I declare that each party is the owner of the personalty that he acquired during the relationship which is now in his possession. 3. Subject to submissions I make no order as to costs with the intention that each party should bear his own costs. ********** 21/09/2007 - Wrong name of defendant - Paragraph(s) heading 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.