Burgess v. King [2005] NSWCA 396

LEGISLATION CITED: Property (Relationships) Act 1984 s.20

Raymond Peter Burgess - appellant PARTIES: Sandra Elizabeth King - respondent

Mr. R. Maurice for appellant COUNSEL: Mr. J. Levy for respondent

Heazlewoods Bushby International, Epping for appellant SOLICITORS: Thurlow Fisher, Bankstown for respondent

LOWER COURT JURISDICTION: Supreme Court - Equity Division

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40260/05 SC 1635/04

MASON P HODGSON JA M.W. CAMPBELL AJA

Friday 18 November 2005 BURGESS V. KING Judgment 1 MASON P: I agree with Hodgson JA. 2 HODGSON JA: On 24 March 2005, Young CJ in Eq. gave judgment in proceedings in which the appellant and respondent had each sought orders under the Property (Relationships) Act 1984. For reasons given in that judgment, the primary judge ordered that the respondent pay the appellant $65,000.00, and that there be an equitable charge on the respondent's house property for that amount. On 17 May 2005, the primary judge ordered that the appellant pay the respondent's costs of the proceedings on an indemnity basis. 3 The appellant appeals to this Court from those orders.

CIRCUMSTANCES 4 The appellant was born in 1951 and the respondent was born in 1953. A de facto relationship between them commenced in 1989, and concluded in 2002. 5 Both had previously been married, and each of them had children from those marriages. The appellant has two children, one born in 1976 and the other born in 1988. The respondent has three children, born respectively in 1978, 1981 and 1985. There are no children of the relationship between the appellant and the respondent. 6 At the commencement of the relationship, the appellant had a 50% interest in his former matrimonial home, although this was never applied for the benefit of the relationship. Ultimately, the appellant received in satisfaction of this interest $60,000.00 in 1994 and $40,000.00 in 1999. He used about $70,000.00 in 1998 to purchase a unit at Wharf Road, Gladesville, subject to a $200,000.00 mortgage; and the balance was placed into an account or accounts in his own name. The appellant also at the commencement of the relationship had savings of $32,300.00, a motor car and personal effects. 7 At the commencement of the relationship, the respondent had a 50% interest in her former matrimonial home at Diggers Avenue, Gladesville, that half being worth $120,000.00 less a $20,000.00 mortgage; and she also had a motor car, furniture and personal effects. A year after the relationship commenced, the respondent purchased her former husband's interest in the Diggers Avenue property for $50,000.00. It appears there were then debts in respect of that property, which were paid off by using the appellant's savings of $32,300.00, the proceeds of a loan of $25,000.00 taken out by the appellant and respondent but repaid by the appellant, and proceeds of another loan of $20,000.00 repaid by the respondent. 8 During the course of the relationship, the appellant and the respondent guaranteed a loan of $25,000.00 made to a person described by the appellant as a mutual friend and by the respondent as the appellant's friend. That dispute was not resolved by the primary judge; but the guarantee was called on and a total of about $43,000.00 had to be paid, of which about $28,000.00 was paid by the appellant and about $15,000.00 by the respondent. 9 At the end of the relationship, the Diggers Road property was unencumbered. 10 During the relationship, there were renovations carried out on this property, on which the appellant and his father did considerable work; and the appellant paid for materials amounts which the primary judge found "may well have been in the area of $15,000.00 to $20,000.00". The respondent estimated that she paid $24,120.00 for various items, including $5,000.00 in respect of the kitchen.

STATUTORY PROVISIONS 11 The relevant statutory provision is s.20 of the Property (Relationships) Act 1984, which is in the following terms: 20 Application for adjustment (1) On an application by a party to a domestic relationship for an order under this Part to adjust interests with respect to the property of the parties to the relationship or either of them, a court may make such order adjusting the interests of the parties in the property as to it seems just and equitable having regard to: (a) the financial and non-financial contributions made directly or indirectly by or on behalf of the parties to the relationship to the acquisition, conservation or improvement of any of the property of the parties or either of them or to the financial resources of the parties or either of them, and (b) the contributions, including any contributions made in the capacity of homemaker or parent, made by either of the parties to the relationship to the welfare of the other party to the relationship or to the welfare of the family constituted by the parties and one or more of the following, namely: (i) a child of the parties, (ii) a child accepted by the parties or either of them into the household of the parties, whether or not the child is a child of either of the parties. (2) A court may make an order under subsection (1) in respect of property whether or not it has declared the title or rights of a party to a domestic relationship in respect of the property.

DECISION OF PRIMARY JUDGE 12 The primary judge indicated that where there was a conflict in the evidence, he tended to prefer the evidence of the respondent to that of the appellant. 13 The primary judge found the value of the Diggers Road property at the time of the hearing to be $780,000.00; and he noted and apparently substantially accepted evidence from the appellant's valuer that, without the renovations, the property would have been worth about $120,000.00 less. 14 Then, the primary judge took into account as contributions of the appellant to the Diggers Road property the cost of materials paid by him and the value of his father's labour, in so far as that increased the value of the property, all of which the primary judge found to amount to $40,000.00. He also found that the appellant made a cash contribution of $57,300.00 ($32,300.00 plus $25,000.00); and he found that, without the contribution of $32,300.00, the respondent would have had to sell the property. 15 The primary judge referred to matters relied on by the respondent as off-setting the appellant's contributions, including the respondent's contribution to the care of the appellant's two children on their visits, the circumstance that the respondent carried out the vast majority of cleaning, cooking, washing and other domestic duties, the circumstance that the appellant earned far less than the respondent during the period of the relationship, and the advantage of the appellant of having the benefit of accommodation in the respondent's house. 16 The primary judge took the appellant's contribution as amounting to about $97,000.00; and he reduced this by one-third because of the benefit of the respondent's care for him, and because he was living at a cheaper rate than before the relationship. That gave the figure of $65,000.00. 17 The primary judge then considered interest, in the following terms: 34 I have considered the question of interest. The plaintiff should not get interest on his father's contribution, the increase in value is not something that the defendant has yet realized, and the monetary contribution was made without expectation of it ever being repaid. Accordingly, I do not consider that it is a proper case to add interest to the $65,000. Interest will, of course, be payable on the judgment if not paid within 21 days of the date the judgment of the court becomes effective. 18 In his judgment on costs, the primary judge found that the respondent had offered to settle the proceedings, before they commenced, for $150,000.00 inclusive of costs. On the basis that the appellant had recovered less than half of this offer, the primary judge ordered the appellant to pay the respondent's costs on an indemnity basis.

ISSUES 19 The appellant relied on the following grounds of appeal: 1. His Honour erred in failing to give sufficient weight to the Appellant's contributions pursuant to secs 20(1)(a) and (b) of the Property Relationships Act 1984.

His Honour erred by focussing almost entirely upon the direct financial contributions of the Appellant only when assessing the Appellant's contributions.

His Honour erred in adopting a purely mathematical approach to assessing the Appellant's contributions.

His Honour failed to give adequate weight to the initial contributions of the Appellant notwithstanding that he found that they exceeded those of the Respondent.

His Honour erred in that he did not take into account the Appellant's contribution to the conservation of the property at 10 Diggers Ave Gladesville ("the home") in that the respondent would have had to sell the home absent the Appellant's direct financial contributions in 1989 and 1990.

His Honour erred by restricting the Appellant's contributions to the conservation and improvement of the home within the meaning of sec 20 of the property Relationships Act 84 only to money paid by the Appellant towards the mortgages secured over the property and the cost of the improvements effected to the home by the Appellant and his father.

His Honour erred by failing to make an adjustment in favour of the Appellant for the increase in the value of the home over the course of the relationship relative to the Appellant's contributions to it.

His Honour erred by finding that the Appellant's contributions to the renovations and improvement to have been worth only $40,000.

His Honour erred by failing to take into account as a contribution and make an adjustment in favour of the Appellant for his non financial, domestic and parenting contributions.

His Honour erred by further discounting the sum he found the Appellant had contributed to the property by one-third when arriving at the Appellant's award.

His Honour failed to give adequate reasons for arriving at the ultimate award made to the Appellant.

His Honour erred by making orders that were not just and equitable.

In relation to the costs judgment delivered on 17 May 2005: 13. His Honour erred in refusing to adjourn the hearing of the costs application until after determination of the Appeal.

14. His Honour erred by failing to give any reasons for refusing to adjourn the hearing of the costs application.

15. His Honour erred in making a costs order based upon an offer which did not indicate whether or not the sum offered was inclusive of costs.

16. His Honour erred by awarding indemnity costs against the Appellant: (a) Absent evidence of the quantum to be sought; and (b) Notwithstanding that such an order would deprive the Appellant of any award in the substantive proceedings.

17. His Honour erred by failing to give any or any adequate reasons for awarding indemnity costs against the Appellant. 20 The respondent put on the following grounds in her Notice of Contention: 1. It is submitted that his Honour should have found that the Appellant was able to acquire the property at Wharf Road due to his enjoyment of rent free occupation of the Diggers Avenue property and the financial contributions made by the Respondent.

It is submitted that his Honour also should have found that the Appellant was able to positively gear the rental income he received from his property at Wharf Road due to his enjoyment of rent free occupation of the Diggers Avenue property and the financial contributions made by the Respondent.

It is submitted that his Honour further should have found that the Appellant was able to achieve a substantial reduction in the mortgage over his property at Wharf Road and thus create a substantial equity in that property due to his enjoyment of rent free occupation of the Diggers Avenue property and the financial contributions made by the Respondent.

It is submitted that his Honour further should have found that the money spent on improving the Diggers Avenue property improved the amenity for occupation by the Appellant and his children.

It is submitted that his Honour also should have found that it was not open to the Appellant to submit that his income was anything other than the amount specified in his income tax return.

It is submitted that his Honour should further have found that the Appellant had failed to disclose all his assets to the Court and the Respondent.

It is submitted that his Honour should have included in the pool of assets available for distribution between the parties an amount of $75,000 (in the hands of the Appellant) being the balance of monies received by the Appellant from his former wife and for which he failed to account. 21 The main submissions for the appellant concerned the failure to give the appellant any share in the capital appreciation of the Diggers Avenue property, and the inadequacy of the overall result. This was spelt out by submitting that the principal assets available for division at the date of hearing were the Diggers Avenue property ($780,000.00) and the appellant's Wharf Road unit (valued at $425,000.00, from which was deducted a mortgage of $169,000.00). Of the net assets available of $1,036,000.00, the appellant was left with his home unit less the mortgage ($256,000.00) and the amount awarded ($65,000.00) being a total of $321,000.00, or about 31% of the assets available for distribution; whereas the respondent was left with assets worth $715,000.00. The contention of the appellant was that this was a plainly unreasonable result.

CAPITAL APPRECIATION OF DIGGERS AVENUE PROPERTY 22 The appellant had submitted below to the effect that, because it was a thirteen year relationship, and because the respondent had made a substantial contribution to the Diggers Avenue property which had saved it from being sold, he should receive some share of the capital appreciation. 23 The primary judge considered the appellant's contribution to the increase in value of the Diggers Avenue property due to the renovations, and considered whether the appellant should have interest, but did not otherwise consider whether the appellant should participate in the capital appreciation. In dealing with the question of interest, he considered it sufficient to justify giving the appellant no credit for the $57,300.00, apart from a return of the money itself, that the increase in value to Diggers Avenue was not something that the respondent had yet realised, and that the contribution was made without the expectation of it ever being repaid. 24 In my opinion, in these respects the primary judge was in error. In about 1990, the appellant had put into the property money amounting to nearly one-quarter of its value, and thereby saved it from being sold, this contribution being at about the commencement of a relationship which lasted thirteen years. Those circumstances raise a substantial question of whether the appellant, as a matter of what is just and equitable within s.20 of the Act, should have some benefit from the capital increase in the property, quite apart from any increase in value due to renovations. This increase in value, on figures apparently accepted by the primary judge, amounted to about $420,000.00 ($780,000.00 minus $240,000.00 minus $120,000.00). Although that was a real question raised by the appellant, the primary judge did not address it, except to the extent that he addressed it in considering interest. If the reasons given for denying interest were to be treated as the primary judge's reasons for denying a share in the capital increase, in my opinion they could not justify this. 25 In my opinion, the circumstances I have indicated would suggest, at least prima facie, that it would be just and equitable that the appellant participate in the $420,000.00 increase to the extent of the proportion which $57,300.00 bears to $240,000.00, that is about $100,000.00. Failure to consider that possibility, and/or the giving of erroneous reasons for rejecting it, is in my view an error sufficient to justify appellate intervention, at least unless this Court considers it made no material difference to the result. 26 I would not hold that the ultimate result in this case, giving the respondent about $400,000.00 more of the combined assets than the appellant, was so unreasonable as itself to have indicated error; but in the circumstances of the error I have identified, in my opinion it does sufficiently appear that this was material to the result, so as to require this Court to consider the matter for itself.

WHAT SHOULD THIS COURT DO? 27 If this Court merely adjusted the order to reflect its view on the error I have identified, the result would be to increase the order by about $100,000.00. 28 However, there is force in a submission made for the respondent that the primary judge could have weighed factors in favour of the respondent more heavily than he did, having regard to her much greater income over the years of the relationship and much greater contribution as a homemaker, as well as the benefits to the appellant from the provision of accommodation, all of which contributed to his ability to acquire his Wharf Road home unit and thereby make a capital gain of about $155,000.00; and that therefore, even if this Court does re-assess the matter, it should reach the same result. 29 The greater income of the respondent is not precisely quantified; but after taking account of income tax, and the effect of deductions for depreciation in the appellant's tax returns as indicating a greater cash flow to the appellant than suggested by his taxable income, the Court can estimate that the excess of the respondent's contribution of income over that of the appellant during the 13-year relationship was probably of the order of about $150,000.00 to $200,000.00. 30 Further relevant factors are that more of the household expenses went towards supporting the respondent's three children, who lived with the parties, than the appellant's two children who did not (although presumably the appellant used some of his income towards supporting his own children); and in assessing the benefit to the appellant of the accommodation, it should be taken into account that he had put up nearly one-quarter of the value of the house. 31 One further point is that the primary judge did not, in giving the appellant credit for $40,000.00 in respect of improvements to the property taken to be worth $120,000.00, allow anything for the appellant's own work on the renovation. Presumably this was because, in reaching his deduction of one-third to reflect the imbalance of other contributions, the primary judge took into account the appellant's own work on the renovations as reducing the balance in the respondent's favour in connection with the other contributions. If the primary judge did not do this, then the figure of $40,000.00 would seem far too low, as it would in effect value the respondent's contributions to the $120,000.00 improvements at $80,000.00. It would seem unlikely that the value of her expenditure plus her work could have amounted to more than about $40,000.00. 32 When one also takes into account that, on the approach I have taken, the respondent is entitled, as a matter of what is just and equitable, to $320,000.00 of the $420,000.00 increase in value (that is, $220,000.00 more than the appellant), the differential of about $400,000.00 referred to above is not of itself unreasonable. Indeed, it could be seen as unreasonable if this differential were reduced to about $200,000.00 by increasing the order by $100,000.00, particularly because the appellant had been able to make a capital gain of about $155,000.00 on his Wharf Road unit, by applying the $100,000.00 he received in respect of his former matrimonial home not for the benefit of his relationship with the respondent but for the purchase of this unit for himself. 33 Doing the best that I can, I think the order should be increased by $50,000.00, resulting in a differential of about $300,000.00 between the shares of the parties in the assets available for distribution. 34 In the result, in my opinion an order that the respondent pay the appellant $115,000.00, as at the date of the primary judge's judgment, would be an appropriate order.

COSTS 35 Before the proceedings were commenced, the respondent offered to settle the proceedings for $150,000.00, and such an offer was renewed after the proceedings had been commenced. The appellant offered to settle the proceedings for payment of something in the order of $380,000.00. The result achieved on appeal still falls short of the offer made by the respondent. In my opinion, the respondent's offer was a reasonable one, and the appellant's offer a wholly unreasonable one; and in my opinion the appropriate order for costs at first instance is that the appellant pay the respondent's costs. The respondent should be ordered to pay the appellant's costs of the appeal, but to have a certificate under the Suitors' Fund Act if otherwise eligible. 36 I do not think that the appellant should be ordered to pay the respondent's costs at first instance on an indemnity basis. Even successful use by a defendant of the offer procedure provided by the rules only gives rise to a prima facie entitlement to an order that the plaintiff pay the defendant's costs, not to a prima facie entitlement that the plaintiff pay the defendant's costs on an indemnity basis.

ORDERS 37 For those reasons, I propose the following orders: 1. Appeal allowed. 2. Orders below varied by substituting for the figure of $65,000.00 the figure of $115,000.00. 3. Appellant to pay the respondent's costs of the proceedings at first instance on a party and party basis. 4. Respondent to pay the appellant's costs of the appeal, and to have a certificate under the Suitors' Fund Act if otherwise eligible. 38 M.W. CAMPBELL AJA: I agree with Hodgson JA. **********

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