Davis v McElwaine & Ors [2008] NSWSC 1360 | Case summary

3927/06 Davis v McElwaine & Ors JUDGMENT Preliminary 1 His Honour: This judgment concerns the plaintiff's claim against the first defendant under the second amended statement of claim for the adjustment of property under s 20 Property (Relationships) Act 1984 (the Act) which was heard on 1 December 2008. By consent, the hearing of her claims against the second, third, fifth and sixth defendants, and the various cross-claims in these proceedings was postponed until after delivery of judgment on this claim. The plaintiff's counsel stated that the proceedings which concerned the fourth defendant had been resolved. 2 There was no appearance by the first defendant, and he has not filed a defence. The evidence in the affidavits of Warwick Kenneth Gilbertson, the plaintiff's solicitor, of 29 October 2008, Lynette Walsh, the solicitor for the second and third defendants, of 17 September 2008, and of each of the process servers, Angela Dahms and Barry Marsh of 24 October 2008 establish that from about May 2007 attempts to serve process on the first defendant have failed, that he made no response to letters sent to him at various addresses, and that his present whereabouts are unknown. I note that the statement of claim was personally served on him on 7 August 2006, and on 7 September 2006 a notice of address for service was filed on his behalf by Baker Love Lawyers, of Wallsend, who corresponded with the plaintiff's solicitors until 7 March 2007 when they ceased to act for him. I also note that, on the plaintiff's application of 31 October 2008, Young CJ in Eq ordered that service of documents including the second further amended statement of claim and the affidavits to be relied upon at the hearing be deemed to have been served upon the first defendant 14 days after publication of advertisements in the newspapers "The Sydney Morning Herald" and "The Newcastle Herald" notifying him that the matter would proceed in his absence unless he appeared in court on the appointed day. The advertisements were published on 4 November 2008. Accordingly, I find the first defendant to be a defendant in default within Pt 16, r 16.2(1) Uniform Civil Procedure Rules and liable to such judgment as may be given against him as the plaintiff appears to be entitled on her second further amended statement of claim under Pt 16, r 16.10. 3 The plaintiff seeks an order for the adjustment of property under s 20 of the Act by which the first defendant transfer to her his interest in the property situated at no. xx Maitland Street, Stockton (the property), and ancillary relief. 4 The evidence relied upon was contained principally in the affidavits of the plaintiff sworn 3 September 2008, Lynette Walsh of 17 September 2008, Warwick Kenneth Gilbertson of 29 October and 7 November 2008, Michael Barry Davis of 19 September 2008, and Ian Stirrat of 28 November 2008. There was no oral evidence. Also in evidence were documents which included relevant mortgage instruments and caveats, tendered at the resumed hearing on 11 December 2008. Background 5 The evidence establishes the following history. I have been assisted with the information included in the memorandum from counsel for the plaintiff, which I have initialled and dated 11 December 2008. It is to remain in the court file. The facts stated therein are supported by the evidence. 6 The plaintiff was born on 7 August 1975, and is now 33 years of age. The first defendant was born on 21 October 1971 and is now 36 years of age. For convenience, I refer to them collectively as "the parties". They lived together in a de facto relationship continuously from about Easter 1995 until they separated on 27 July 2004. There are two children of their union, a son born on 17 March 1998, and a son born on 9 July 2003, both of whom are residing with, and are being maintained by, the plaintiff. 7 At the time of commencement of the relationship the plaintiff was in full-time employment as a manager of a photographic store in Newcastle. From about this time until about mid 1996 she also worked regular shifts for the first defendant and his parents in their café business at Newcastle known as "Picnics on the Mall". The parties lived together in rented accommodation, and each contributed to rent and household supplies from their incomes. 8 On 15 February 1997 the parties purchased the property for the sum of $270,000. It is comprised of lot 1 in DP 195226 and lot 55 in DP 753191. The plaintiff and the first defendant are the registered proprietors as joint tenants. They embarked upon the development of the property by the construction of a two unit duplex building to replace the then existing dilapidated residence. The development was to be a ground floor unit to be sold to finance the development, and a first floor unit to be owned by the parties. It was proposed that the ground floor unit would consist of three bedrooms and a double garage, and the first floor unit would consist of four bedrooms, and that the two stores would be subdivided pursuant to a strata plan of subdivision into lots 1 and 32. 9 A deposit of $10,000 was paid by the plaintiff from monies given to her by her father. The first defendant sold a boat for $17,000 and applied those monies towards the purchase. The balance of the purchase price was financed by a loan from Trust Bank to the parties of the sum of $216,000 secured by a mortgage over the property. The parties shared all living costs, household expenses and outgoings, and mortgage repayments. 10 Between mid 1996 until its sale in mid 1997 the plaintiff worked full-time for wages at "Picnics on the Mall". She was then employed by the first defendant's parents as a supervisor in their restaurant known as "Sir Francis Drake", Heatherbrae, until the birth of the child on 17 March 1998. 11 By contract dated 13 May 1999 the parties agreed to sell lot 1 the ground floor unit, off the plan, to the fifth and sixth defendants for the price of $250,000. The fifth defendant is the plaintiff's father. The sixth defendant is her stepmother. The contract required the fifth and sixth defendants to undertake specified construction work for the development of this unit. They paid the deposit sum of $25,000 to the parties. It was released to the parties who applied it towards the payment of construction costs and mortgage instalments. The completion was to take place in 18 months. 12 During 1999 the plaintiff commenced employment at the Stockman's Café, Beresfield. It was operated and owned by the first defendant and his friend, one Robert Pout. Her duties were wide ranging and, principally, managerial. She worked about 12 hours per day, six days per week, for a wage of $12 per hour. Her recollection was that the first defendant received more than $650 per week as his share of profits. 13 On 30 September 1999 the parties obtained a further loan from the Trust Bank of the sum of $150,000 for completion of the development of the property, resulting in a total indebtedness to the bank of about $360,000. Repayments were about $2300 per month. 14 Pursuant to agreements of 17 April 2001 and 4 August 2001, the fifth and sixth defendants made loans to the parties of the sum of $25,000 in each case to assist them in carrying out their obligations under the contract of sale. These amounts were used for mortgage repayments, and for improvements to the property. 15 During 2001 the first defendant and Mr Pout established a take away business at Wickham. The plaintiff worked there in conjunction with her employment at the Stockman's Café for the same wage. At the same premises the first defendant and Mr Pout, as directors of Mangrove Jack's Newcastle Pty Ltd (the company), also established and operated a new licensed restaurant known as "Mangrove Jack's Seafood Restaurant". The plaintiff provided substantial assistance in the establishment and fitting out of this business and its premises. 16 To fund the fit out and their business activities the first defendant and Mr Pout borrowed the sum of about $685,000 from National Australia Bank Ltd in about April 2002. The property was provided by the parties as part of the security required for the loan. Repayments of the loan were made from the restaurant's profits. 17 At the same time the parties refinanced the loan from Trust Bank by a loan from National Australia Bank Ltd in the sum of $385,000 secured against the property. The loan was used to discharge the mortgage with Trust Bank by the payment of about $360,000, and the balance was applied towards various costs including incidentals for the home. 18 In 2002 the Stockman's Café was sold for what the plaintiff understands to be the sum of $500,000. These monies were utilised to repay loans and debts incurred in relation to the operation of the business of the café. 19 The plaintiff continued to assist the first defendant in the running of "Mangrove Jack's Seafood Restaurant" and the take away business, for which she was paid about $15 per hour and worked on a full-time basis. She continued so working until the birth of their second child on 9 July 2003. 20 The plaintiff was off work for about four months following the birth, and returned as a casual waitress in the first defendant's businesses. By this time he had opened another take away business known as the "Stockton Bite Take Away", in which the plaintiff also came to work. The first defendant's income was about $700 per week drawn from the businesses, from which he met the parties' living costs, mortgage expenses, household accounts and outgoings. 21 On 27 July 2004 the parties separated. The family had been residing in the property for about one year. The plaintiff left the property taking the two children to reside elsewhere. She said that she separated because his violent and drunken behaviour caused her to fear for the safety of herself and the children. Upon separation she ceased working as described above. She had no other employment. 22 For some time thereafter the plaintiff, to the extent that she was able, continued to make repayments to the National Australia Bank Ltd, at times assisted with money from the first defendant. By the end of 2004 she was unable to continue with the repayments, and the first defendant refused to provide her with money for this purpose. She received some benefit from Centrelink together with a family allowance. She rented a home for a rent of $220 per week. In due course she ceased making mortgage repayments, leaving it to the first defendant to do so. In March 2005 the company applied to the second defendant to refinance the existing loan from National Australia Bank Ltd in respect of its restaurant. The parties also made an application to the second defendant for a home loan to refinance their loan with National Australia Bank. 23 On 31 May 2005 the second defendant advanced to the company the sum of $710,000 by way of a fully drawn advance facility, and the sum of $100,000 by way of a fluctuating overdraft facility (the commercial loan). Security provided included a guarantee and indemnity by each of the plaintiff, the first defendant and Mr Pout, and also a second registered mortgage over the property. Its purpose was to assist in refinancing the loan from National Australia Bank Ltd and to fund the business activities of the company. 24 On the same day the second defendant lent to the parties the sum of $390,000 as a home loan to discharge their debt to National Australia Bank Ltd. Security was provided by a first registered mortgage over only part of the property, namely lot 1, DP 195226. 25 On 2 November 2005 the parties were informed by the second defendant that they were in default under the home loan and payment of arrears was required. As at 31 December 2005 they were indebted to the second defendant in the sum of $392,216.34. 26 On 26 July 2006 the plaintiff commenced these proceedings against the first defendant. 27 Since about September 2006, and continuing, the company has defaulted in payments under the commercial loan. By notice of 6 November 2006 under s 57(2)(b) Real Property Act 1900 the second defendant demanded payment of the arrears by the parties and Mr Pout as guarantors, but none has been made. 28 Since about September 2006, and continuing, the parties have defaulted in payments under the home loan. By notice dated 6 November 2006 under s 57(2)(b) Real Property Act 1900 the second defendant demanded payment as mortgagors, but none has been made. 29 On 17 August 2007 the company was wound up and a liquidator appointed. It was then indebted to the second defendant in the amount of $513,238.49. 30 As at 13 November 2008 the amount outstanding to the second defendant was $1,233,182.10, being $693,402.81 under the home loan and $538,779.38 under the commercial loan. The principles 31 The Court's jurisdiction is under s 20(1) of the Act which provides: "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." 32 In Powell v Supresencia [2003] NSWCA 195; (2003) 30 FamLR 463, Sheller JA explained the matters for a court's consideration: "8. Section 20(1)(a) is directed to financial and non-financial contributions to the acquisition, conservation or improvement of the property of the parties or either of them or to their financial resources (compare s79(4)(a) and (b) of the Family Law Act ). Section 20(1)(b) is substantially concerned with contributions to the welfare of the other party or of the family constituted by the parties. 9. On an application to adjust interests with respect to property the Court is empowered to make such order adjusting the interests of the parties in the property "as to it seems just and equitable" but having regard to the financial and non-financial contributions described in para (a) and the contributions described in para (b)." 33 In Kardos v Sarbutt [2006] NSWCA 11; (2006) 34 FamLR 550, Brereton J (Basten JA and Hunt AJA agreeing) said: "29 The exercise of jurisdiction under s 20 involves three main steps. The first is the identification and valuation of the property of the parties, which determines the "divisible pool of property" - that is, "the property of the parties to the relationship or either of them" referred to in s 20 which may be the subject of an adjustive property order under that section. The second is the evaluation and balancing of the respective contributions of the parties of the types referred to in s 20, and typically though not invariably results in an apportionment between the parties on a percentage basis of the overall contributions of the types referred to in s 20 of each of them, made to the date of hearing. The third is the determination of what order is required sufficiently to recognise and compensate the applicant's contributions, and typically results in an order which leaves the applicant with that percentage identified in the second step of the divisible property identified in the first step. This is a simplification of the four step approach first formulated by Powell J in D v McA (1986) 11 FamLR 214; (1986) DFC 95-030. … 32 As to the second step, a number of principles have been established relating to the evaluation and balancing of the respective contributions of the parties of the types referred to in s 20. 33 First, where there is a division of roles in the relationship between the homemaker and parent on one hand and the breadwinner on the other, contributions of a de facto partner as a homemaker and parent are not to be regarded as inferior in any way to the financial contributions made by the other partner [ Black v Black (1991) 15 FamLR 109; (1991) DFC 95-113; Evans v Marmont ]. The approach endorsed by the High Court to the evaluation of contributions under the Family Law Act 1975 (Cth) in Mallet v Mallet (1984) 156 CLR 605 is applicable to the evaluation of contributions under the Property (Relationships) Act [ Jones v Grech , [33]-[35] (Davies AJA)]:- In Mallet v Mallet (1984) 156 CLR 605 at 635-636, Wilson J, after referring to a number of judgments of the Family Court of Australia in which that Court had adopted the notion of 'equality is equity' as a convenient starting point to s79(4)(b) of the Family Law Act , 1975 (Cth), went on to say:- 'In the earliest of these cases, Rolfe [(1977) 5 FamLR 146 at 148] ..., Evatt CJ referred to s79(4)(b), saying: 'The purpose of s 79(4)(b), in my opinion, is to ensure just and equitable treatment of a wife who has not earned income during the marriage, but who has contributed as a homemaker and parent to the property. A husband and father is free to earn income, purchase property and pay off the mortgage so long as his wife assumes the responsibility for the home and the children. Because of that responsibility she may earn no income or have only small earnings, but provided she makes her contribution to the home and to the family the Act clearly intends that her contribution should be recognized not in a token way but in a substantial way. While the parties reside together, the one earning and the other fulfilling responsibilities in the home, there is no reason to attach greater value to the contribution of one than to that of the other. This is the way they arrange their affairs and the contribution of each should be given equal value.' … 38 As to the third step - the determination of what order is required in order sufficiently to recognise and compensate the applicant's contributions - the court is concerned with what is just and equitable having regard to, and only to, the respective contributions of the parties of the type referred to in s 20, and there is no warrant for regard to other factors such as the respective means and needs of the parties, which are made relevant to equivalent applications under the Family Law Act by s 79(4)(e) of that Act, an equivalent of which is conspicuously absent from the Property (Relationships) Act , and the omission of which was deliberate, as appears from the Law Reform Commission's report of June 1983: Report on De Facto Relationships , No 36 of 1983, to which the draft Bill was an appendix, and from which the policy underlying the legislation appears [ Wallace v Stanford (1995) 37 NSWLR 1; (1995) 19 FamLR 430; Evans v Marmont , 81]. … 51 The legislation does not dictate the employment of any particular method in the formulation of an appropriate order for the adjustment under s 20 of property interests, and it is not desirable to attempt to formulate principles or guidelines designed to constrain judicial discretion within a predetermined framework [cf Norbis v Norbis (1986) 161 CLR 513; (1986) 10 FamLR 819; (1986) FLC 91-712 (Wilson and Dawson JJ)." 34 As to the first step, his Honour pointed out (pars 30, 31) that the exercise of the identification and valuation of the property of the parties is undertaken typically, though not invariably, as at the date of the trial. This is usually the preferable approach although appropriate separate and special consideration should be given to contributions to value made between separation and trial. Determination 35 The evidence supports the findings, which I make, that there was a de facto relationship between the parties from about Easter 1995 until 27 July 2004, being a period of over nine years, and that the application for the orders sought was made within the period of two years after the date on which the relationship ceased at a time when the plaintiff was resident in New South Wales. Accordingly, the requirements of s15(1), s 17(1) and s 18(1) of the Act are met. 36 The asset of the parties for the purposes of s 20(1) is the property at Stockton which is held by them as joint tenants. The building thereon consists of two unfinished units, one downstairs and one upstairs, each of four bedrooms with a double garage. At the date of trial the estimated market value of the downstairs unit (unit 1) was between $600,000 and $650,000, and of the upstairs unit (unit 2) was between $690,000 and $740,000. Thus the total estimated market value is between $1,290,000 and $1,390,000. 37 There is no evidence of other assets of either the plaintiff or the first defendant at the date of separation or at trial with exception of the first defendant's interest as a shareholder in the company until it was wound up on 17 August 2007. 38 The liabilities of the parties are as follows: 39 As at 13 November 2008 the parties were indebted to the second defendant in the total sum of $1,233,182.10 of which the sum of $693,402.81 is payable under the home loan, and the sum of $539,779.38 is payable under the commercial loan. The second defendant claims recovery of the debt from the parties. 40 The parties are liable under the contract for the sale of unit 1 to the fifth and sixth defendants, and for the repayment of the loans from them of $50,000. The fifth and sixth defendants claim that the provision of the property as security for the home loan and the commercial loan was made without their knowledge and consent. In their cross-claim against the parties they seek orders that the plaintiff and the first defendant complete the works stipulated in the contract for sale of land dated 13 May 1999 to enable the registration of the strata plan, that they register the strata plan necessary to complete the sale and transfer provided for in the contract for sale and that they pay the cross-claimants' costs of the proceedings. 41 Outstanding council and water rates payable to Newcastle City Council are estimated at between $15,000 and $20,000. 42 With respect to contributions made directly or indirectly to the acquisition and maintenance of property, and to the parties' financial resources, the evidence does not enable the making of a detailed analysis or findings as to quantum or extent. However, it is clear that during the relationship each made payments from earnings or other resources under the mortgages and towards the costs and expenses of the property and the household. For example, for the property the plaintiff paid the deposit of $10,000 from monies given to her by her father, and the first defendant put in sum of $17,000 received from the sale of his boat. It is also clear that contributions were made by each from time to time to meet living, household, and family needs. 43 It is significant that throughout their relationship it was the common intention and underlying purpose of the parties that the purchase and development of the property would be to provide the home for themselves and their children. The purpose of the sale of unit 1 to the fifth and sixth defendants, and of the borrowings from them of $50,000, was to provide funds for the development of unit 2 which was to become their actual home. 44 In addition to the substantial assistance provided to the first defendant by her activities as homemaker and parent, the plaintiff also facilitated directly and indirectly the furtherance of his commercial interests. She made non-financial contributions to the acquisition and improvement of the Stockman's Café by work of a managerial kind which included staff training, rostering, purchasing stock, cooking, banking and accounting. She provided similar assistance for the businesses of "Mangrove Jack's Take Away", "Mangrove Jack's Seafood Restaurant", and "Stockton Bite Take Away". As to some of these, she was also directly involved in activities which included design and set up, the selection and purchase of furnishing, cutlery, and utensils. 45 So far as I have been able to ascertain, neither party has made any contribution towards the property since about the end of 2005. 46 Since separation the first defendant has, in effect, abandoned the plaintiff and the children, and has made no contribution towards their support or welfare. He has also abandoned her to meet alone the claims of the second, fifth and sixth defendants in these proceedings which, if successful, would result in the loss of the property and the likelihood of her bankruptcy. The inescapable fact is that in leaving the plaintiff in this situation, the first defendant has failed to honour and recognise the extent of the contributions, taken overall, which she has made to the property, and to his business activities. All that remains of the assets of the parties is the property at Stockton. The first defendant has brought about the situation whereby her contributions to it, and interest in it, has been lost. The present situation 47 The mediation of the numerous issues raised in these proceedings was conducted on 2 June and 3 June 2008. With the exception of the first defendant, all parties attended. Heads of agreement for the resolution of the claims and cross-claims were made on 3 June 2008 and were in evidence. It is unnecessary to recite the details of the competing claims which are to be found in the pleadings. 48 Relevantly, the heads of agreement to which the plaintiff, the second, third, fifth and sixth defendant are parties included the following provisions: "1. In respect of the proceedings against Mr McElwaine, Ms Davis will apply to the Court for orders that any interest of Mr McElwaine in the title to the Stockton property (being comprised in Lot 1 in DP 195226 and Lot 55 DP 753191) be transferred to her. … 6. Upon obtaining the orders referred to in clause 1 Ms Davis will transfer the property to Mr and Mrs Davis as joint tenants. 6a. This transfer shall constitute completion and discharge of the contractual obligations of Mr and Mrs Davis and Mr McElwaine and Ms Davis in respect of the contract for sale of the land dated 13 May 1999 for the Stockton property. … 8. Upon the making of the orders referred to in clause 1 above, the existing mortgages held by NPBS will be discharged on receipt of the sum of $850,000.00 ('Settlement Sum'). … 10. Upon receipt of the payment of the Settlement Sum NPBS will release Ms Davis from her obligations under or in respect of the Home Loan and the Commercial loan (including guarantees and mortgages) and any liability arising out of the indebtedness of Mr McElwaine, Mr Pout or Mangrove Jacks to NPBS. 11. NPBS retains its rights to pursue Mr McElwaine and Robert Pout in respect of the Commercial loan but will indemnify Ms Davis in respect of any claim for contribution against her by Mr McElwaine or Mr Pout arising from the Commercial Loan."

Davis v McElwaine & Ors

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Judgment (11 paragraphs)

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Cases Cited (17)