Bennett v Parker [2000] VSC 401

Supreme Court of Victoria|2000-10-05|Before: O'Bryan J

DE FACTO RELATIONSHIP - adjustment of property - Property Law Act 1958, Part IX.

The defendant, who was born in October 1949, had been married and was in the course of completing a marriage property settlement. Save for his beneficial interest in the property settlement the defendant's only asset was a desk. He was employed as a travelling salesman in smallgoods earning a weekly salary and a bonus based upon sales volume.

The defendant asserted that the plaintiff had a bank debt of about $10,000 when they met but the plaintiff denied the debt and no credible evidence was adduced by the defendant to substantiate the allegation. Because of the generally poor impression I formed of the defendant's reliability as a witness I accept the plaintiff's evidence and find that the plaintiff was not in debt when the de facto relationship commenced.

The de facto relationship was to continue until April 1999 when the defendant vacated the home and the business of a horse stud partnership known as Raintree Arabians situate at Labertouche in South Eastern Victoria.

As often happens, when a partnership founded partly upon sexual relations between the partners and partly upon a business relationship terminates, a dispute commences over their rights to real and personal property. In the present case the inevitable happened and the plaintiff issued a writ in June 1999 seeking declarations and orders pursuant to Part IX of the Property Law Act 1958. The plaintiff sought declarations and orders in respect of the property at Labertouche comprising a house and 20 acres of rural land of which the defendant was the registered proprietor, various items of personal property including furniture and chattels, tools, computer, tractor and trailer and motor vehicles, 12 Arabian horses, horse equipment and a superannuation fund accumulated by the defendant over about 12 years, the period of the de facto relationship and the partnership.

The defendant contests most of the claim, save as to six horses and certain horse equipment used in the partnership business, some furniture and a motor car. By counterclaim the defendant seeks an order that the partnership was dissolved as at 30 June 1999 and an order for the taking of accounts.

Since the writ was issued the parties have agreed upon a scheme to sell a number of the assets including 12 horses and to distribute the proceeds in accordance with the adjustment of interests I determine is just and equitable. The Labertouche property was sold recently for $400,000 and the net proceeds of sale is $262,401.

The Property Law Act, Part IX - Property of De Facto Partners

Part IX of the Property Law Act was first enacted in 1987. Amendments made in1998 extended the definition of property to include personal property. It is common ground that the plaintiff and the defendant were, for about 12 years, de facto partners in a de facto relationship.

Section 279 of the Property Law Act provides:

"(1) A court may make an order adjusting the interests of the de facto partners in the property of one or both of them that seems just and equitable to it having regard to -

(a) the financial and non-financial contributions made directly or indirectly by or on behalf of the de facto partners to the acquisition, conservation or improvement of any of the property or to the financial resources of one or both of the partners; and

(b) the contributions, including any contribution made in the capacity of homemaker or parent, made by either of the de facto partners to the welfare of the other defacto partner or to the welfare of the family constituted by the partners and one or more of the following -

(ii) a child accepted by one or both of the partners into their household, whether or not the child is a child of either of the partners; and

(2) A court may make the order whether or not it has declared the title or rights of a de facto partner in respect of the property."

Relevantly, the court must consider evidence relating to the financial and non-financial contributions made directly or indirectly by or on behalf of the plaintiff and the defendant to the acquisition, conservation or improvement of any of the property. The financial resources of the plaintiff and the defendant include an entitlement in respect of a superannuation fund and property includes real and personal property. I am satisfied that the plaintiff made a contribution in the capacity of homemaker throughout the partnership and this factor must be taken into account.

The powers of the court exercising its powers under Division 2 of Part IX are set out in s.291. The powers include:

"(b) order the sale of property and the distribution of the proceeds of sale in any proportions that the court thinks fit; and

(d) order payment of a lump sum, whether in one amount or by instalments."

Throughout most of her life the plaintiff has had a passion for pure bred Arabian horses. She worked in a business which allowed her scope to work with horse equipment and to develop her knowledge of horse husbandry. Her passion demanded considerable financial resources, more than she was able to provide through her employment. I formed the impression that she was encouraged by her parents to pursue an interest in horses and horse breeding.

The defendant had a fondness for the land and developed an interest in horses after he met the plaintiff. He was employed as a salesman, earning a good income throughout the de facto relationship. Unlike the plaintiff whose occupation required her to work extended hours, often at weekends, the defendant had more leisure time available to work on, and improve, two properties upon which the parties conducted in partnership a horse stud business. The first property purchased and registered in the name of the defendant was situated in Drouin South. The second property purchased and registered in the name of the defendant was situated in Labertouche.

The evidence revealed a significant disparity in the gross income earned by each partner during the de facto relationship. However, partnership loses sustained over about eight years enabled the plaintiff to obtain a full refund from the Taxation Office annually. The defendant also received a refund of about 75 per cent of the taxation deducted by his employer from his gross income over about nine years. The disparity between the two incomes was, nevertheless, significant throughout the de facto relationship.

Whilst it is impossible to assess the income of the plaintiff accurately over a 12 year period due to financial records being incomplete I am prepared to accept an analysis of income prepared by Mr O'Shannessy of counsel for the defendant as a reasonable guide to income earned over a period of about nine years. On page 2 of an Aide Memoire As To Contribution, the total income of the plaintiff is calculated at $229,556 using equal average for the financial years 1988 to 1990 and the total income of the defendant is calculated at $506,345. This reflects, I consider that throughout the term of the de facto relationship the financial contribution of the plaintiff from earnings was about 32% and the defendant's contribution was about 68%

The more difficult task is to calculate the non-financial contribution of the parties during the de facto relationship. In this area the evidence of the parties is very different. The plaintiff's account was that she made a real and sustained contribution to improving and maintaining the first property at Drouin by her labour. She provided physical labour in tearing down old buildings, whipper snipping the 8 acres, cleaning up the ground, helping to establish a garden area, attending to the needs of the horses and, generally, working early in the morning before work and until late at night after returning home from work.

The horses had to be fed and put out into the pastures and the stables cleaned in the morning. In the evening the horses had to be brought in, the paddocks cleared of manure pads and the horses groomed. The plaintiff said: 'Sometimes I wouldn't finish until 11 at night, but that's what you do, it's a labour of love when you have horses". I am satisfied that the plaintiff laboured hard over 5½ years (October 1988 to May 1994) on the Drouin South property

When the parties moved to Labertouche in May 1994 her workload increased. The acreage was two and a half times greater than the acreage at Drouin. I am satisfied that the plaintiff's evidence about her physical contribution to improving Labertouche was not exaggerated. The work was constant, particularly when a new horse barn was under construction and required paint work and varnishing over a long period of time. A new garden was established by the plaintiff with help provided by her mother, who became a live-in boarder. The horse work continued on a larger scale at Labertouche.

The account of the plaintiff's contribution was supported by other witnesses, particularly by her mother, whose evidence I accept as fair and accurate.

The evidence of the defendant down played the working role of the plaintiff on the properties. I was unimpressed by the tenor of his evidence. His testimony, in my opinion, was motivated by a perceived need to minimalise the non-financial contribution which his former partner made by her physical work. On the other hand, I considered the plaintiff's evidence provided a fair and honest picture of the non-financial contribution each partner made.

It is not unfair to observe that the defendant treated the plaintiff as a chattel throughout the relationship, to be used for his pleasure and worked for his financial benefit. The defendant was a very parsimonious man, he charged his mother-in-law $50 per week for food, although Ms Bennett made a considerable contribution towards establishing and maintaining a substantial garden and helping her daughter in the house. The defendant said that after they began to live at Drouin he required the plaintiff to pay rent for the horse paddock. The plaintiff denied that she paid rent. I accept her evidence. The defendant kept financial records in a large journal. I think that the ledgers were prepared to support a claim that the Drouin property was being used for rural purposes. Rent was never paid by the plaintiff, it was a notional item for a short time.

The remarkable feature of the case was that the plaintiff tolerated for so long her inferior position. She was very naive and not money-conscious.

It cannot be disputed that the plaintiff earned less income from personal exertion for more hours work than the defendant. The defendant had more leisure time during daylight hours, particularly each weekend, than did the plaintiff. It is common in the society in which we live that the female is paid at a lower wage level, often for longer hours, than the male.

As a consequence, the plaintiff's non-financial contribution in the form of labour was made in more difficult circumstances than that of the defendant. She had to work early in the morning and late at night on the properties. These matters must be taken into account in calculating the financial and non-financial contributions of the parties.

There is also a need to recognise the contribution the plaintiff made as "homemaker". Notwithstanding that for a period Mrs. Bennett senior lived in the Labertouche house I consider that the evidence supports a finding that the plaintiff made a substantial and not a token contribution as a homemaker over a period of years. It is impossible to place a financial value on the role of the plaintiff as a homemaker over about 11 years. A casual employee earns about $10 per hour doing housework. A global approach must be taken to the calculation. In my opinion, a contribution of $5,000 per annum would be reasonable over 11 years, the calculation produces $55,000.

When the plaintiff's contribution is taken into account as a money amount the income disparity noted earlier as 32:68 becomes 36:64. A further adjustment ought to be made, in my opinion, on account of the matters referred to in paragraphs 23 and 24 above to reduce the disparity to 40:60. In money terms I have allowed the plaintiff about $30,000 over 11 years as the value of her work in difficult circumstances over and above the work of the defendant.

When an order adjusting the interests of the de facto partners in the property is made it will be just and equitable to apportion property 40% to the plaintiff, 60% to the defendant and not 50% to the plaintiff as sought by Mr. Edmunds of counsel for the plaintiff.

The Drouin South property was purchased in 1988 for $105,000. The defendant was the purchaser and became the sole registered proprietor. I am satisfied that the defendant was able to purchase Drouin South after he received a settlement from the property dispute with his wife. The defendant's contribution was probably about $47,000, the balance was borrowed from a bank secured by a mortgage. The plaintiff had no money available to contribute to the purchase of the land. She provided the furniture. All her earnings had been expended on the needs of her horses and general living, such as food and clothing. She had a Commonwealth Bank account but was not asked by the defendant to provide funds for the purposes of the Drouin property. The plaintiff said in evidence that the defendant said to her at the time: "that he would be able to buy me a property and then I'd have somewhere to be able to keep my horses and that. And he often said, 'oh, you know I told you I'd always get you somewhere for you'." The defendant denied saying that he would buy the plaintiff a property where she could keep her horses. I am disposed to find on the balance of probabilities that the defendant did use those words but he did not intend at the time to create a trust.

Although the personal relationship was in its early days, I consider that the plaintiff already had a strong emotional attachment to the defendant. She used her earnings to provide for her horses and some of the household needs while the defendant used his earnings, or a significant portion of them, for capital items on the property and to pay the mortgage debt. The decision to acquire a small farm property had dual purposes, in my opinion. It was to provide the equivalent of a matrimonial home and broad acres for the purposes of a horse stud business to be conducted in partnership.

In the circumstances existing in 1988 I do not consider it is possible to find a common intention to create a trust with respect to the Drouin property when it was purchased. The defendant had the financial resources of his own to buy the property and to make payments due to the bank on account of the mortgage. When he received the property settlement money his financial position improved for he had the means to service a bank mortgage. If there was not a common subjective intention at the date of purchase to create a trust, is the plaintiff entitled to relief by way of constructive trust retrospectively? The following circumstances are relevant to the remedial character of a constructive trust. First, the plaintiff brought to the de facto relationship assets, other than horses, totalling $7,000. Second, notionally she pooled her earnings with the earnings of the defendant over a period of years. Third, the defendant required the plaintiff to expend her income to fund the horse stud partnership and pay general living expenses while he used his income mainly to service the loan. Fourth, it was the common intention of the parties to improve the property by their joint efforts with a view to later increasing the size of the property holding. Fifth, the plaintiff and the defendant were equal partners in business as they were in the de facto relationship. Taxation returns were prepared upon the basis that the partners shared losses equally.

By the time a decision was made to purchase the Labertouche property and sell the Drouin South property the commercial venture was well and truly established as a 50/50 partnership, earnings were being pooled, if not actually mingled, and used for the purposes of the commercial venture and the de facto relationship. The parties did not advert to the consequences of the defendant having made the initial contribution to the purchase of the Drouin South property when they agreed to purchase Labertouche. But it was unconscionable for the defendant to assert, as he did, that the plaintiff did not have 40 per cent ownership of the Drouin South property having regard to the circumstances referred to above which had prevailed now for six years. The plaintiff had made contributions both financial and non-financial to improving the Drouin property and the partnership was on-going. That was the expectation of both parties in April 1994 when the Contract Note for Labertouche was signed.

When the Drouin South property was sold for $195,000, a capital gain of $90,000 over about five years was achieved by hard work. The property at Labertouche was purchased for $270,000, funded in part from the net proceeds from Drouin and in part by a bank mortgage.

In my opinion, a constructive trust arising from the commercial and personal partnership means that when the Labertouche property was purchased it was held by the parties upon a constructive trust: 40 owned by the plaintiff and 60 per cent owned by the defendant.

During the time the plaintiff and the defendant resided on the Labertouche property from time to time they bought and sold horse floats and vehicles. Any profit realised was taken by the defendant. The amount involved over a period of four or five years was not great. The plaintiff bought an interest in a horse, Montego Bay, on behalf of the partnership, and had to pay the cost of bringing him to Australia from the United States of America When Montego Bay was purchased the plaintiff obtained a bank loan from the Commonwealth Bank and met the monthly payments from her account until she received her next taxation refund cheque which enabled her to repay the loan. Montego Bay was sold recently and the moneys realised are part of the property to be adjusted.

The plaintiff said in evidence that she gave the defendant her tax refund cheques to deposit in his Access Account on or about 1 July 1995, the defendant's Access Account at the ANZ Bank became a joint account and the account name was changed to Bennett and Parker. Tax refund cheques were deposited into the joint account thereafter.

After 1994, and until the defendant left the Labertouche property, the parties continued to make financial and non-financial contributions towards the mortgage, improving the property and generally enhancing their business partnership. At the end of the de facto relationship in April 1999 the defendant vacated the Labertouche property and the plaintiff remained, caring for the horses and generally managing and maintaining the property. It is of no consequence to the claim that the defendant continued to make weekly payments in respect of the mortgage after he left and until Labertouche was sold. Such contributions were no greater in value than the contributions made by the plaintiff in doing the things she did on the property. The plaintiff was a good manager and when the property was presented for sale it was in very good condition.

The parties are now agreed as to the value of three assets of the de facto relationship.

Mr. O'Shannessy urged me to find that because horses were the plaintiff's passion and hobby and a business loss venture throughout the de facto relationship the business did not contribute to the acquisition, conservation or improvement of the defendant's property. In my opinion, the value of both properties increased considerably as a result of the properties being converted to horse stud purposes with quality improvements. As the valuer noted in April 1999, the Labertouche property had quality layout and presentation, the home was sound and well maintained and set amid pleasant established garden.

The Raintree Arabian business was not valued or sold, it was the real property that was sold.

Mr. O'Shannessy did not submit that the plaintiff had no equitable interest in the assets of the de facto relationship but argued that the defendant's initial contribution, indexed to 1999 value, together with the disparity revealed in earnings means that the plaintiff's share in the amount of $273,601 is no greater than 25%.

As earlier indicated I am of the opinion that a just and equitable adjustment of the interests of the de facto partners in the assets of an agreed value of $273,601 is 2:3 or 40 per cent plaintiff, 60 per cent defendant.

The parties are agreed that an amount of $20,000 needs to be set aside to meet a contingent liability to the Taxation Office for Capital Gains Tax assessed on the Labertouche property. Should any part of this amount not be required for Capital Gains Tax the parties will receive a dividend divided 40:60.

In the Writ the plaintiff claimed that during the de facto relationship the defendant was able to acquire significant superannuation benefits and that it was an implied term of the relationship that the plaintiff and defendant would share equally the superannuation benefits accumulated by the defendant during the relationship. This claim was denied by the defendant.

The definition of "financial resources" in s.275 includes entitlements in respect of a fund under which superannuation benefits are provided.

In evidence the plaintiff said that during the relationship the defendant told her "he was putting in extra in his super fund" and "when I retire I'll be able to pay the rest of the property off with the superannuation and then we can go on holidays". (T25) Evidence regarding the defendant's superannuation fund revealed that his personal contribution over the years of the de facto relationship was quite small as against employer contributions.

The defendant joined a Plan in 1981 and contributed $8.72 per week. At 30 June 1994 the defendant had contributed $534 (including interest) to the fund and his employer had contributed $4,890. The employer's contribution was in the nature of a bonus credited annually to the defendant's fund and unrelated to salary sacrifice by the defendant.

In approximately January 1993 the defendant forfeited his rostered days off (one day per month) to be paid into his superannuation. This amounted to $19 per week. By April 1999, when the de facto relationship ended, the total contribution from this source was $6,000 approximately.

The defendant's superannuation fund is not available to him until retirement, at earliest, in 2004 (age 55) or in 2014 (age 65). The plaintiff has a smaller superannuation fund because she earned significantly less than the defendant. The evidence did not reveal whether the plaintiff salary sacrificed to increase her superannuation fund. I consider it is unlikely that she did so.

To the extent that the defendant salary sacrificed during the period 1993 to 1999 and contributed $6,000 (approximately), I am of the opinion that the plaintiff is entitled to an order adjusting the interest of the defendant in the amount he contributed to the superannuation fund by salary sacrifice upon the following basis. The practice of the de facto partners was to use their incomes for the purposes of the acquisition, conservation and improvement of the Labertouche property, the Raintree Arabian business and household living expenses. By putting aside $19 per week from his salary during the period of the de facto relationship the defendant put out of reach of the plaintiff a small portion of his income which she was entitled to share as a partner. Now it is just and equitable that it be brought into account. Using the proportion basis earlier calculated 2:3 the plaintiff is entitled to $2,400.

Counsel referred to a number of authorities, some in this court, some in the Supreme Court of New South Wales based upon the De Facto Relationships Act 1984 (NSW) and some in the Federal Court of Australia based upon the Family Law Act 1975. The authorities decided in Victoria: Coun v Martusevicus 91991) DFC 95-109; Lesiak v Foggenberger (1995) DFC 95-167; and Fleeton v Seddon 18 December 1997 (unreported) Southwell J based upon Part IX of the Property Law Act before it was amended by Act No. 23 of 1998. The definition of "property" was widened to include personal property and consequential amendments were made to ss.285 and 291. In each of those decisions the learned judges relied upon a passage in the judgment of Handley JA in Dwyer v Kaljo (1992) DFC 95-127 at 76-598 where His Honour said:

"The power to make a just order must therefore authorise orders to remedy any injustice the applicant would otherwise suffer because of his or her reasonable reliance on the relationship (a reliance interest) or his or her reasonable expectations from the relationship (an expectation interest)."

A Full Bench of the New South Wales Court of Appeal considered whether the construction of the New South Wales De Facto Relationships Act expressed by Handley J in Kaljo or the more restrictive construction expressed in Wallace v Stanford was to be preferred: Evans v Marmont (1997) DVC 95-184. The court decided that Dwyer v Kaljo should not be followed and Wallace v Stanford (1995) DVC 95-165 should be followed. Meagher JA said:

"Section 20 (s.285 in the Property Law Act (Vic)) enables a court to 'make such order adjusting the interests of the partners in the property as it seems just and equitable having regard to two specified factors. Those two factors both relate to the contributions, direct and indirect, made by each of the partners to either the property or the welfare of them both. As a matter of English that can only mean that the court may have regard to each of the two factors and not to any other factors. In particular it precludes the court, in a s.20 application; from having any regard to fault, needs, maintenance, compensation, expectation, damages, reliance damages or quasi equitable damages". (77-624)

The Court was constituted by Gleeson CJ, Mason P, Priestley JA, Meagher JA and McLelland CJ in Equity and all the members of the Court agreed in the decision to allow the appeal, but for different reasons. The decision in Evans is highly persuasive, based as it is on legislation in New South Wales drafted in very similar language to the Victorian legislation. Cf. s.20 New South Wales Act 1984 and s.285 Property Law Act 1958 (as amended in 1998).

The two specified factors in s.20 are almost identical to the two specified factors in paragraphs (a) and (b) of s.285(1) and no other factors are specified in s.285.

I propose to follow the decision in Evans and will not follow the decisions referred to above in Victoria which were decided on different legislation.

Other authorities relied upon by counsel are less helpful, particularly those founded upon the Family Law Act where the legislative framework was drafted in the context of the parties being husband and wife.

It has not been an easy task to unravel the financial and non-financial contributions of the de facto partners. This is so because the plaintiff had few contemporaneous financial records and had to rely upon her memory as to her non-financial contributions. She was a trusting partner and accepted what she was told to do by the male partner. The defendant kept records but their preparation suggested that entries may have been made at the same time rather than as a continuous record. Further, because he treated the plaintiff meanly throughout the de facto partnership, I suspect that I did not receive a full account of the financial affairs of the parties.

Fortunately, the parties are agreed as to sale proceeds of Labertouche and Montego Bay. They are also agreed that three assets - a horse float, a Honda motor car and a horse treadmill with a total value of $26,500 belong to the plaintiff. They are also agreed that five assets - a trailer, a tractor carryall and rotary hoe, a horse treadmill, a utility vehicle and a computer with a total value of $31,000 belong to the defendant.

The total value of the assets upon which there is agreement as to their value is $331,101. This amount is made up of the following:

The parties are agreed that $20,000 should be deducted from $273,601 and set aside to meet a contingent tax liability estimate by the defendant's accountant not to exceed $20,000.

Mr. Edmunds for the plaintiff is seeking an order that the interest of the de facto partners in the property be divided 50:50 Mr. O'Shannessy says the property should be divided 25:75 in favour of the defendant. In my opinion it is just and equitable that the plaintiff should receive 40 per cent of $253,601, ie $101,440. It is just and equitable that the plaintiff should receive 40 per cent of $6,000, the superannuation set aside by the defendant from his salary during the de facto relationship. The total entitlement of the plaintiff is increased by $2,400 to $103,840. The assets agreed to be retained by the plaintiff to the value of $26,500 are ordered to be transferred to the plaintiff. The result is $103,840 which will be paid to the plaintiff as a lump sum from the Labertouche sale proceeds.

A number of assets have been identified as belonging to the former Raintree Arabian partnership but the parties are unable to agree upon their value. There is furniture, tools, horse equipment and 12 horses which must be sold, if agreement is not reached by the parties. The terms of sale are yet to be agreed. If agreement cannot be reached as to all the chattels and horses and the terms of sale I shall refer the matters in dispute to a Master appointed by the Senior Master.

The amount realised from the sale should be apportioned, as to 40 per cent to the plaintiff and 60 per cent to the defendant.

The order of the court is that the plaintiff is entitled to receive $103,840 out of the Labertouche sale proceeds presently held on trust. No claim is made for interest.

The plaintiff is entitled to an order that her costs be paid by the defendant unless reasons exist for some other order. The plaintiff's costs should also be paid out of the Labertouche sale proceeds when taxed.

De Facto Relationships Act 1984(NSW)

New South Wales Act 1984

At a glance

Court

Decision date

Before

Source

Judgment (77 paragraphs)

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Legislation Cited (2)