Brennan v Duncan [2006] NSWSC 851 | Case summary

3062/05 Mark Kenneth Brennan v Jennifer Mary Duncan JUDGMENT 1 HIS HONOUR: The parties have been unable to agree on the order to be made to give effect to my reasons for judgment of 27 and 28 June 2006. 2 The defendant submitted that a declaration should be made that the parties hold the property as tenants in common as to a 43% interest by the defendant and as to a 57% interest by the plaintiff, subject to the existing mortgage. 3 It emerged in argument that the defendant contended that the effect of such a declaration would be that if the property is sold and the proceeds of sale are applied in discharge of the mortgage debt, it is only the net proceeds of sale after the discharge of the mortgage which should be subject to a trust in the proportions of 57% for the plaintiff and 43% for the defendant. In other words, to characterise the issue in terms of old system conveyancing, the defendant submits that the trust should be declared only over the equity of redemption, so that, to the extent the proceeds of sale of the property are used to discharge the mortgage debt, the parties should be treated as owning those proceeds equally. 4 The defendant argued that as the property was subject to the encumbrance, and as I have found that the property was held on trust in unequal proportions, the parties should bear the burden of the mortgage debt in the same proportion as that in which they hold the property. It was submitted that this was necessary to prevent the plaintiff from receiving a windfall. I do not agree. 5 Such a declaration or order would not give effect to my reasons for judgment, as is clear from paragraphs 64, 65, 70 and 71 of my reasons. In my view, the logic on which the defendant's submission is based is false. As I explained in my reasons for judgment, the purchase price and associated expenses were paid by the joint borrowing by the parties of $481,000 and by a contribution by the plaintiff of $181,000. The plaintiff's contribution of $181,000 and half of the moneys raised on mortgage was $90,500 more than the contribution he would have made had the parties contributed equally to the purchase price. However, when the property was acquired, the parties held it as beneficial owners equally because the presumption of a resulting trust was rebutted. This meant that the plaintiff made a gift of $90,500, or about 14 percent of the purchase price, to the defendant. 6 A constructive trust on the principles of Baumgartner v Baumgartner (1987) 164 CLR 137 subsequently arose when the parties' relationship failed. It arose because the plaintiff had not specifically intended that the defendant should enjoy the benefit of his contribution in circumstances where their relationship failed immediately after the property was acquired. The defendant was not entitled to retain that benefit to the extent it was unconscionable for her to do so. 7 Prima facie, the benefit she was not entitled to retain was the 14% greater beneficial interest than that she would have enjoyed had the parties contributed to the purchase price equally. I then adjusted that benefit downwards to reflect the defendant's contributions to the parties' expenses, holding that, to the extent she made such contributions, it was not unconscionable for her to enjoy the benefit conferred on her by the plaintiff. However, as I explained, the calculation that the plaintiff effectively gave the defendant a 14 percent beneficial interest in the property at the time of purchase was predicated on her being credited with half the loan raised on mortgage which was applied towards the purchase price. 8 If the defendant were credited with less than half the loan raised on mortgage, the benefit she received, and which it would be inequitable for her to retain, would be that much higher. Thus, had the defendant borrowed nothing and contributed none of the purchase price, the benefit she would have got, arising from the rebuttal of the resumption of a resulting trust, would have been the full 50% beneficial interest she obtained on settlement. It is to this that I referred in paragraph 71 of my reasons. If she were credited with anything less than 50% of the borrowing as a contribution to the purchase price, a consequential adjustment would need to be made to the quantum of the benefit which it is unconscionable for her to keep. 9 As a joint borrower under the mortgage, the defendant is required to contribute equally to the mortgage payments (although, because of the special agreement the parties made, I have decided that that principle should apply only from August 2003). 10 If the mortgage debt is discharged after the property is sold, the plaintiff will not receive a windfall by the defendant's being required to contribute 50%, and not 43%, to the mortgage debt. The proceeds of sale will be owned in the proportions of 57% for the plaintiff and 43% for the defendant. That is because they were joint borrowers. If the defendant were to receive the benefit of 7% of the proceeds which belong to the plaintiff, it would be she who would receive the windfall. 11 My approach in my reasons for judgment of 27 and 28 June 2006, in this respect, is in accord with the reasoning of the Court of Appeal in Ryan v Dries (2002) 10 BPR 19,947; [2002] NSWCA 3 at [56], [74] and [75]. There, the trust was a resulting trust, not a Baumgartner constructive trust, but that makes no relevant difference. In that case, the respondent's joint borrowing on the mortgage gave him an equitable interest in the property of 43% on the basis of a resulting trust. The appellant was entitled to 50% contribution for the payments made under the mortgage. The appellant had been in occupation of the property. By majority, the Court of Appeal held that the appellant had to account for an occupation rent. That rent was apportioned 57% to the appellant and 43% to the respondent in accordance with their beneficial interests. 12 My reasons are consistent with this, as I have found that the defendant is entitled to 43% of the net income of the property, but must contribute to 50% of the mortgage payments. 13 For these reasons, I do not accept this part of the defendant's proposed short minutes or order. 14 Both parties sought to include in their short minutes of order a precise computation of the moneys which each contended would be due at specified dates. No such evidence was adduced before me at the hearing, and I made no findings on such matters. If there is a dispute as to who has paid what, that dispute can be decided on an inquiry before an Associate Judge. It may be, however, that the only dispute is one of principle, not as to the quantum or timing of receipts and payments. 15 I will clarify three matters. I had understood that the rent for the property was paid to reduce the capital on the mortgage debt up to August 2003, when the defendant stopped making mortgage payments. Figures prepared by the plaintiff are based on such rent having been applied in this way up to November 2003. I have been told that this is common ground. The plaintiff is to account for 43% of the rent from the time it was received by him rather than paid into the loan account. Likewise, the defendant's 7% contribution should be made up to the time the rent was received into the loan account and applied directly in reduction of the mortgage debt. If that date was November 2003, the plaintiff's calculations in annexure D to the affidavit of Margaret Amanda Parkin sworn 3 August 2006 are correct, provided of course that the figures are correct. 16 By the same token, the adjustments for water rates, strata levies, Council rates and other outgoings should be made for the same period, so that the net income of the property is accounted for in accordance with the parties' beneficial interests. 17 I said in paragraph 76 of my reasons of 27 and 28 June that the defendant should give credit for 7% of the rents received up to August 2003, as stated immediately above. That date should be November 2003 if the rents were applied in the manner indicated in the plaintiff's figures. However, the allowance to be made by the defendant should also be on a net basis, so that in effect, the plaintiff should account for 7% of the Council rates, water rates, and strata levies up to that time. 18 I will make orders to provide that if either party so requires, the proceedings should be referred to an Associate Judge to inquire into and certify the amount for which either party is required to account to the other pursuant to the orders which I will make. 19 There will also be liberty to either party to apply by notice of motion for the appointment of trustees for sale and consequential orders. 20 I turn to the question of costs. Both parties sought orders for costs. The plaintiff relied upon an offer of compromise dated 25 May 2005 by which he proposed that a declaration should be made that the defendant held her interest in the property in trust for the plaintiff, that an order should be made that she transfer that interest to the plaintiff, that he would pay $40,000 to the defendant, and that there would be no orders as to costs. 21 It was suggested, on the basis of figures provided by the plaintiff, that the result of the judgment is that the plaintiff has done better than would have been his position had the offer of compromise been accepted. The figures put forward by the plaintiff in summary were as follows. It was assumed that the net sale proceeds of the property would be $725,000. The defendant's share of those proceeds would therefore be $311,750, representing her 43% beneficial interest in the property. The mortgage debt is said to be $480,739, so that the defendant's half share of that debt is $240,369. This would give the defendant $71,380, before adjustments to compensate the plaintiff for having made the mortgage payments since August 2003, and to reflect the parties unequal share in the net income of the property. The result of those adjustments is said to bring the amount due to the defendant to $36,686, which is less than the $40,000 referred to in the offer of compromise. 22 There may be some minor adjustment needed to reflect the fact that the defendant should account for 7% of rent, net of outgoings, to November 2003, rather than 7% of gross rent, but on the defendant's figures this would only affect the calculation by about a thousand dollars. 23 However, it does not follow that the plaintiff has bettered the offer of compromise. I have made no order for the compulsory purchase of the defendant's interest. She or the plaintiff are entitled to have trustees for sale appointed so that the property is sold. Nor did the offer of compromise make any provision for indemnifying the defendant in respect of her liability for the mortgage debt. 24 The defendant relied upon a Calderbank offer made on 4 May 2006, whereby she proposed that the property be listed for sale subject to a reserve, and that the net proceeds of sale after discharging the mortgage debt be divided in the ratio of 38% to the defendant and the balance to the plaintiff. The defendant says that she has been found to have a 43% beneficial interest in the property. However, it is not demonstrated that the defendant has done better than she would have done had her offer been accepted. In effect, her offer requires that the defendant contribute only 38% to the discharge of the mortgage debt. Nor did her offer include the other adjustments which I have found should be made. 25 Therefore, neither party's offer to settle the proceedings assists him or her on the issue of costs. 26 The plaintiff has had some success, but he has not obtained any of the relief sought in the statement of claim. I noted in my reasons, at paragraph 76, that this may well have costs consequences. I also noted in paragraph 47 that the submission on which the plaintiff succeeded, namely a constructive trust on the principles in Baumgartner v Baumgartner, was only made belatedly. On most of the issues fought at the trial, the plaintiff failed. 27 In my view, the plaintiff should pay a proportion of the defendant's costs. He should not be required to pay the whole of the defendant's costs as he has had some success. He has also succeeded on the issue which was argued at some length yesterday. It is not practicable to make separate orders for costs in respect of separate issues. Taking a global view, I think it just that the plaintiff pay half the defendant's costs of the proceedings, including reserved costs. 28 For these reasons I make the following declarations and orders:

Brennan v Duncan

At a glance

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Before

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Judgment (21 paragraphs)

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Cases Cited (2)

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