New South Wales Supreme Court CITATION : Cano v Schiliro [2008] NSWSC 992 HEARING DATE(S) : 16/07/08, 17/07/08 JUDGMENT DATE : 25 September 2008 JURISDICTION : Equity JUDGMENT OF : Macready AsJ at 1 CATCHWORDS : Family Law. Application for adjustment under s 20 of the Property (Relationships) Act 1984 and a claim for maintenance under s 27 of the Act. - Order for adjustment made. No order for maintenance. No matter of principle. PARTIES : Cano v Schiliro FILE NUMBER(S) : SC 6359/06 COUNSEL : Mr SM Stewart for plaintiff Ms PR Carr for the defendant SOLICITORS : Walter Madden Jenkins for plaintiff Burridge & Legg for defendant - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Associate Justice Macready Thursday 25 September 2008 6359/06 Hilda Noemi Cano v Luigi Schiliro JUDGMENT 1 His Honour: This is the hearing of an application under s 20 of the Property (Relationships) Act 1984 for adjustment of the parties' property interests and a claim for maintenance of the plaintiff under s 27 of the Act. The parties lived together in a de facto relationship from December 1992 until October 2005. There were no children from the relationship and each party had children from a previous relationship. The plaintiff's two children lived with the parties during the relationship at various times. The plaintiff's children commenced living with the parties at the commencement of the relationship. Pablo was then 21 and Gabriel was 24. Pablo left the family home in 1995 and Gabriel left in 1996. Chronology 2 The defendant was born in Italy in January 1933. He came to Australia in 1955. The plaintiff was born in Argentina in October 1945. The plaintiff, having obtained permanent resident status, came to live in Australia in 1988. 3 The parties met in 1990 from which time they saw each other on an increasing basis. In 1991 the plaintiff obtained Australian citizenship. According to the plaintiff, in February 1997 at the defendant's request, the plaintiff ceased employment. She remained living with her sons. 4 The plaintiff says that on 18 December 1992 the parties commenced to reside together in a de facto relationship at the defendant's home. According to the defendant, it was in 1993 but he was somewhat hesitant in his recollection on this aspect. I accept the plaintiff's more precise evidence. They resided in a large home owned by the defendant which was situated on a five-acre block at Elanora Heights. The home had seven bedrooms, five bathrooms, a kitchen, two living rooms, two dining rooms and a study. 5 In 1994 the parties arranged the construction of a driveway on the Elanora property in which they lived. The plaintiff said that she helped with the construction and provided food and drinks for the concreter. At this time the defendant was diagnosed with high blood pressure. The plaintiff made sure that he obtained appropriate medical attention and that his diet was modified. The parties continued to discuss and implement other improvements to the Elanora property. 6 In 1995 the defendant and his daughter, Gae, set up a business importing shoes and clothing from Italy. The plaintiff says that she became involved in the daily workings of the business and other tasks, such as catering for business meetings. 7 In 1996 the plaintiff cared for the defendant's cousin, then aged 75 who came to live with them for three months. The cousin suffered from low blood pressure and depression and required help with personal hygiene and toileting. In July 1997 the parties moved to a separate accommodation on the Elanora property. The defendant then made the main residence available for tenants. The plaintiff cleaned the property between tenants. 8 In 1995 the defendant suffered from kidney stones. The plaintiff attended him in hospital and cared for him upon his return home. These problems reoccurred in 1998. 9 In June 2000 the plaintiff cared for the defendant's niece who came to live with them for four months. In December 2000 the plaintiff cared for the defendant's father when he visited them for two months. In 2001 the plaintiff looked after the defendant's nephew for four months. At various times the nephew and others friends would visit and stay and on all these occasions the plaintiff cooked, cleaned, washed and ironed for all family members. 10 It was in October 2001 that the defendant was diagnosed with diabetes. The plaintiff attended a seminar to help her to care for the defendant. This included cooking, measuring blood glucose levels and keeping accurate records. 11 On 11 October 2005 the defendant told the plaintiff to leave his home. She moved out to reside with her son, Pablo, with whom she now lives. Property of the parties at the commencement of the relationship 12 The plaintiff had some items of personal property and savings of about $800. 13 The defendant had real estate and other assets of at least $2,602,782. These included: 5 acre home at Elanora Heights $1,500,000 Former home at Forestville value not available Debt due from Schilero family trust $978,782 Interest in a property at Wyong $124,000 14 The evidence does not disclose that any party had liabilities at this time. The defendant operated a business but that was not valued or elaborated on in the evidence. Property of the parties at the conclusion of the relationship 15 The plaintiff only had some items of furniture and household nature and savings of $3500 dollars. By the time of the hearing these savings had been reduced to $10. 16 The defendant had real estate and other assets at the conclusion of the relationship of at least $4,766,143 and at the hearing of $5,840,261. The details are as follows: Property Value at separation Value at hearing Elanora Heights $2,500,000 $2,750,000 Former home at Forestville not available $725,000 Debt due from Schilero family trust $1,119,509 $617,282 Interest in property at Wyong not available $300,000 Interest in property at Leichhardt $341,749 $404,625 Interest in property in Beacon Hill $208,504 $284,375 Interest in property at Dandenong $462,546 $572,000 Shares in Public Companies $133,835 $186,979 17 There was also a property at Manly Vale that was purchased in November 2004 for $937,216 and then sold to the defendant's daughter in 2006 for $550,000. There was no investigation of the circumstances of this sale. 18 Apart from a debt on the home for $500,000 by the time of the hearing there is no evidence of the parties having any debts at separation or hearing and the defendants business has not been valued. 19 There was no evidence of the defendant's income at the time of the trial. The plaintiff was by the time of the trial in receipt of a widow's pension of $550.07 per fortnight and her usual expenses amounted to $225 per week. Financial contributions 20 The plaintiff made no financial contributions to the defendant's assets. The plaintiff had no income during the relationship except for a period of six months when she was employed in the defendant's business, earning $250 per week and it was the defendant who provided the necessities of life at home. He also provided the plaintiff with a fund of $16000 for a trip to Argentina to cover her airfare and living costs and paid for extensive dental work for her amounting to $23,000. In addition, there were trips to Europe and elsewhere by the parties and the defendant met all these expenses. It was part of the lifestyle which the parties adopted. Non-financial contributions 21 The plaintiff's contributions were of a non-financial nature and included those of a homemaker and parent in respect of the plaintiff's children, which were accepted by the parties into their household. She also says she contributed to the defendant's business operations. 22 It is clear that the plaintiff cooked for the parties although she would occasionally stay in bed and not make breakfast. She cleaned the house and, as I have mentioned, she would clean the part of the house that was rented in between tenants. The defendant conceded in evidence that the plaintiff cleaned the house well. Although the plaintiff did not have a licence to drive she used to accompany the defendant when he attended his doctors. The plaintiff was overseas when the defendant was hospitalised for six nights for a prostate operation. As I have mentioned above it was not only the defendant the plaintiff cared for but also various members of his extended family who would stay with them from time to time. The plaintiff's housework included the washing, ironing and other related activities. 23 The plaintiff attended to the defendant's personal grooming as a result of her training as a beautician prior to the relationship. She assisted with sewing and ensured that the defendant's clothes fitted and she also made curtains and tablecloths for the house. 24 The plaintiff suggested that she had an involvement in the defendant's business. However, this was limited apart from a period of six months when she was actually paid a wage for work in one of his businesses. From time to time she would help to clean the exterior of defendant's commercial premises which included a garage and car park area and at times she would accompany him to assist with selling items related to his business. It seems that the defendant would discuss his business with the plaintiff and real estate decisions in which he was involved. Although there was this discussion there is no evidence that the plaintiff had a substantial involvement in these matters. Effectively the defendant has obtained his wealth as a result of the property which he had at the commencement of the relationship following the break up of his marriage and his later endeavours. Discussion 25 Apart from her claim for a property adjustment the plaintiff also made a claim that the defendant pay to the plaintiff maintenance in the sum of $700 per week. The powers of the Court in respect of maintenance are limited. Section 27 of the Act is in the following terms: "Order for maintenance (1) On an application by a party to a domestic relationship for an order under this Part for maintenance, a court may make an order for maintenance (whether for periodic maintenance or otherwise) where the court is satisfied as to either or both of the following: (a) that the applicant is unable to support himself or herself adequately by reason of having the care and control of a child of the parties to the relationship or a child of the respondent, being, in either case, a child who is, on the day on which the application is made: (i) except in the case of a child referred to in subparagraph (ii)—under the age of 12 years, or (ii) in the case of a physically handicapped child or mentally handicapped child—under the age of 16 years, (b) that the applicant is unable to support himself or herself adequately because the applicant's earning capacity has been adversely affected by the circumstances of the relationship and, in the opinion of the court: (i) an order for maintenance would increase the applicant's earning capacity by enabling the applicant to undertake a course or programme of training or education, and (ii) it is, having regard to all the circumstances of the case, reasonable to make the order. (2) …. 26 In the present case the only relevant section is section 27 (1)(b). 27 It seems plain from the evidence including evidence from witnesses other than the parties that the defendant required the plaintiff to cease working and to live with him on a full time basis. Indeed she has not been working, apart from six months employment with the defendant, for the twelve and a half years of the relationship. However, there was no evidence led by the plaintiff of any particular course or programme of training or education which would enable her to increase her earning capacity. In these circumstances there can be no claim for maintenance. 28 This is a case where the plaintiff entered the relationship with little property and departed with no other property. Nothing was purchased in her name and in contrast the defendant had substantial assets at the commencement of the relationship and even more substantial assets as a result of his business dealings at the end of the relationship and at the time of the hearing. 29 There is a useful discussion concerning the role of initial contributions in the Court of Appeal in Baker v Towle [2008] NSWCA 73. Basten JA gave the leading judgment and in this regard the other members of the Court agreed with his comments. At paragraph 51 Basten JA said the following: 51 The cases do not suggest that any of this exegesis in relation to the "three steps" is necessarily controversial: it merely seeks to ground in the language of the section the shorthand in which those steps are expressed. It also provides a basis upon which to address a topic which has proved controversial, namely the proper treatment of initial contributions to a relationship. These have been dealt with differently in different cases. At least in part, the differential treatment can be explained by reference to the particular circumstances of each case. To the extent that comments in the course of the reasoning are at odds, these do not suggest any dispute in relation to the correct construction of the Act. It is convenient to illustrate the point by considering how some hypothetical examples might fit within the statutory language. 52 First, it is sometimes assumed that any property owned by a party to a domestic relationship which had been acquired, but not divested, before the relationship commenced, should be treated as a "contribution" within s 20(1)(a). However, this assumption may not hold good in all cases. For example, one party may, prior to the relationship, have owned jewellery, works of art or other valuable objects which are at all stages held in safe-keeping and not used, either by way of personal adornment or in any domestic residence. The fact of prior ownership may well mean that there was no contribution to their acquisition for the purposes of the section. Assuming the other party made no contribution to their conservation or improvement, directly or indirectly, it would seem that the first limb of paragraph (a) would not be engaged. Although the objects might be seen to be either the property or part of the financial resources of one party, it is difficult to see that their prior ownership constitutes a relevant "contribution". The same reasoning might apply to assets acquired by one party during the course of the relationship through a bequest from a parent. The recipient would not necessarily be said to have made any contribution to the acquisition, conservation or improvement of the property or to his or her own financial resources simply by being the recipient of the bequest. 53 Of course, most property does not fall within that category and the most common item provided by way of initial contribution will be a house, business or car, which is actively used, maintained or changed into other property during the course of the relationship. Nevertheless, the importance of questioning the initial assumption as to whether there is a "contribution" is reflected in the fact that the value of property may decrease as well as increase. If one party enters the relationship with a share portfolio which loses value during the course of the relationship, it is doubtful whether the mere existence of the share portfolio will necessarily constitute a relevant "contribution". 54 Further, it is necessary to recall that what is being adjusted by an order of a court is not that which constitutes a contribution, but that which constitutes property of one of the parties. Thus, where all the valuable assets are held in the name of one party, but the Court is satisfied that the other has made a significant contribution to the welfare of that party, the Court may think it just and equitable to require that some interests in property be transferred to the welfare provider. Such an order may be made despite the fact that the relevant property was all property owned by the other party prior to the commencement of the relationship. Whether the value of the property has increased during the period of the relationship may be a factor which is taken into account in determining the appropriate order, but it does not necessarily matter that the increase in value cannot be said to be a "contribution" made by the owner of the property (or indeed the other party) during the relationship. 55 On the other hand, there may be cases where the contribution of each party during the course of the relationship is equal and it is just and equitable that each should take out of the relationship the property he or she brought in, or, where the property has been changed, equivalent proportions of the existing property at the end of the relationship as the proportions in which assets were held at the beginning. 56 In many cases the pre-relationship property and financial resources of the respective parties will be used for the material benefit of the parties during the relationship. Dwellings and motor vehicles tend to be prime examples of this situation. Two questions have arisen in such cases, the first being how one should take into account the value of the property owned by one party before the commencement of the relationship and the second being how one should take into account any change in value of the property during the course of the relationship. The problem is illustrated, in an artificially simplified case, where one party owns a home which becomes the domestic residence during the course of the relationship and is still owned by the same party when the relationship ceases, the parties having no other material assets. Assuming that the parties have contributed equally during the course of the relationship, if the first party's ownership of the sole asset prior to the commencement of the relationship is to remain intact, the other party will leave with nothing. That has been accepted as an inappropriate result under the Family Law Act 1975 (Cth) and the cases referred to in Howlett at [30]-[33] and in Kardos v Sarbutt [2006] NSWCA 11 at [65] have identified an "erosion principle" so that the contribution of one party over the course of the relationship would gradually be reflected as an increasing entitlement in the initial asset of the other party. 57 In Howlett the Court held that whilst it was proper to have regard to the ownership of an asset at the beginning of the relationship, the "erosion principle" had no clear application under the Act. That view was confirmed in Bilous v Mudaliar [2006] NSWCA 38; 65 NSWLR 615 by Ipp JA (with whom Giles and McColl JJA agreed), his Honour adding that it might create an effective onus on one party to demonstrate that his or her property should not remain in the sole name of the other, when the Act imposes no such burden: at [56]. 58 The second question is one of greater practical importance because it is concerned with increases in the value of property over time which, in recent times and in many places, have significantly exceeded the general rate of inflation. In Kardos , the Court held that the correct approach was one which recognised that "capital gains are the product of the initial introduction of the property, rather than of ongoing contributions" at [61]. This approach was said to be in contrast to that adopted in Howlett which may "in at least some cases, result in the serious undervaluation of initial contributions". The latter approach, the judgment continued, "treats any increment in capital value of an asset held at the outset of the relationship as if it were part of the fruits of the relationship, when it is not: it is the result of the asset having been held by one of the parties at the commencement of the relationship, and not the result of joint efforts …." 59 In Bilous Ipp JA stated at [63]: "Determinations as to what orders should be made under s 20 are to be made solely on the grounds of the justice and equity of the case. The justice and equity of the case may derive from the fact that the party who owns the family home or other property was able to retain that property, while the market value increased, because 'of joint efforts of wage earning, homemaking and parenting, and mutual support'. In some instances the non-financial contributions of one party may result in property of the kind in question not having to be sold. In other instances, the non-financial contributions of one partner may allow the other to advance his or her career and earn a high income that enables the property in question to be maintained and retained. Thus, an increment in capital value may well result, indirectly, from 'joint efforts of wage earning, homemaking and parenting and mutual support'." 60 The primacy of s 20 of the Act in identifying the proper approach to applications made under it is undoubtedly correct. To the extent that Kardos purported to state principles which are not consistent with or fetter the broad discretion conferred by that section, it should not be followed. However, a number of recent cases have tended to talk in terms of assets owned by one party before the relationship began as "initial contributions" or as contributions "to the relationship". The inference is that assets owned by the parties to a domestic relationship are in someway pooled even though they are not jointly owned. This approach is not reflected in the language of s 20. Rather, s 20 assumes that the parties have "interests with respect to" property, a concept which will include both individual and jointly held property. It is those interests, as at the date of the application, which are sought to be "adjusted". The use of the term "contributions" in this context is inapt because it reflects the language of paragraphs (a) and (b), defining the "contributions" to which the Court must have reference in considering an appropriate adjustment. 61 As Ipp JA noted in Bilous contributions by one party, whether financial or not, may result in pre-relationship property in the name of the other being conserved or improved, not necessarily by protecting the property from dispossession. It is also true that non-financial contributions of one party may result in the other being able to increase substantially his or her financial resources. However, a non-financial contribution must be recognised in a possible adjustment in property interests even though it has no such beneficial economic effect for the other party. In such a case the Court is required to translate, in a manner which is "just and equitable", the contribution of one party to the welfare of the other party or of the family, into an interest with respect to the property of the parties. 62 I remain of the view that in Kardos (in which I participated), being a case in which each party brought significant assets to the relationship, in which the relationship lasted for a little under three years and involved no children and each party had a remunerative occupation, it was appropriate that the assets be distributed proportionately to the value of the assets owned by each at the commencement of the relationship. However, I accept that, as this Court stated in Bilous , there are comments in the judgment in Kardos which are not consistent with earlier authority of this Court and which do not conform to the statutory scheme of the Act. I agree that they should not be followed. " 30 It will be noted that at the commencement of the relationship the home at Elanora Heights was valued at $1,500,000 and at the time of the hearing its value had increased to $2,750,000. That increase in value was not simply as a result of the increase in property prices. During the period of the relationship substantial alterations were made to the property which involved a new property at No 15B on the same block of land as well as other self-contained accommodation elsewhere on the land. All these improvements were carried out at the expense of the defendant and the evidence does not detail what was involved from a financial point of view when making these changes. Thus one cannot attribute the whole of the increase to capital gains and it is, in the absence of evidence, probably not appropriate to attribute anything to such gains. 31 The evidence of the defendant's assets was sketchy. At the commencement of the hearing the parties endeavoured to come to an agreement on the value of his property. It will be noted that I described his assets at the commencement of the relationship as being at least $2,602,782. There was another home which the defendant owned which was not included in that valuation. At the time of the hearing the defendant's assets had increased to $5,840,261. It is apparent from the evidence that the defendant had dealings in a number of properties during the course of the relationship. Apart from the house, only one property was owned at the commencement of the relationship. It increased in value from $129,000 to $300,000 over twelve years. The other properties showed modest increases between separation and the hearing. The interest in Dandenong was acquired in 1999, Beacon Hill in 2001 and Leichhardt in 2003. Thus they were mostly acquired towards the end of the relationship. 32 The defendant was also involved in a number of business ventures. The evidence did not descend into any detail or description of his activities and one is merely left with an overall increase in his wealth over the years of the relationship. There was no evidence of his income over the years and thus I cannot make findings as to whether the plaintiff's non-financial contributions allowed the home or other property to be retained and not sold. 33 I have earlier referred to the homemaking contributions which were made by the plaintiff. The fact is that the defendant wanted the plaintiff to be at home to care for him and participate in the work involved in these contributions which she made. It is clear that the homemaking contributions made by the plaintiff were primarily in relation to the home but also included acting as hostess while entertaining business colleagues. 34 This appears to be a case where the defendant wanted support from the plaintiff in his personal life and it also extended to assistance in terms of indirect support for his business activities. Plainly the homemaker contributions of the plaintiff were substantial compared with the contributions of the defendant in that respect. This is not to deny the fact that the defendant was the person who provided the finance for the lifestyle they both enjoyed. As I have mentioned it was a lifestyle that included overseas trips and holidays. 35 As has been pointed out in Baker v Towle at para 54 above in circumstances such as in the present case it may be just and equitable to require that some interest in property held by the party who owns all the property in the relationship, be transferred to the welfare provider to reflect some part of the increase in value of the property during the relationship. 36 In her statement of claim the plaintiff claimed an adjustment in the sum of $750,000. The defendant sought an order that her claim be dismissed with costs on the basis that the benefits provided during the relationship to the plaintiff were sufficient. The plaintiff made no financial contribution to the home or the defendant's property but there have been gains in value in excess of $400,000 during part of the relevant period. 37 Having regard to the matters to which I have referred in this judgment I think an appropriate adjustment is that the defendant pay to the plaintiff the sum of $300,000. 38 I will hear the parties' submissions on costs. ********** 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.