Fuller v Meehan [1999] QCA 37

Court of Appeal (Qld)|1999-02-26|Before: Jersey CJ, Pincus JA, Thomas JA

1. I have had the advantage of reading the reasons for judgment of Thomas JA. I agree with those reasons, with the orders foreshadowed, and the proposed further course for the appeal.

1 The appellant raised three points and I agree that they should all be disposed of as proposed by Thomas J.A., whose reasons I have had the advantage of reading. I set out below some considerations relevant to one of the points, concerning income tax; I am in substantial agreement with the reasons of Thomas J.A. on that and the other points, subject to what follows.

2 Mr Gore Q.C. argued for the appellant that the primary judge's allowance in favour of the respondent for income from the taxi business discussed in his Honour's reasons was too generous, because it made no allowance for the appellant's obligation to pay tax on that income. Towards the end of the hearing in this Court Mr Gore said that the correction in favour of his client on this account should be based on the view that the tax liability was $119,447 for the six years ended 30 June 1994. I have not been able to obtain that figure from the documents in the record. Mr Gore's initial submission was that the tax liability was $77,536, a figure derived from amended assessments issued in respect of the three years ended 30 June 1993. Examination of the assessments, however, shows that the liability for those three years in fact totalled $106,061; the figure of $77,536 represented not the whole tax, but the additional tax and penalties levied by the amended assessments. If one adds to the tax payable in respect of the three years ended 30 June 1993 Mr Gore's estimate - plainly a low one - of $21,320 for 1994 tax, the total exceeds Mr Gore's total of $119,447. It follows that the appellant's claim under this head was, as Mr Gore himself said, understated.

3 The impact of income tax on court judgments is a problem which is commonly ignored in litigation, partly because making an estimate of the amount by which an award should be adjusted, because of income tax considerations, can be a complex task. The present case illustrates this.

4 The sums for which the appellant is made liable under the judgment in this case include substantial interest, allowed by the primary judge on the basis that the appellant was able to make good use of money which he retained instead of sharing it with the respondent. The interest allowed, intended to represent the profit made by the appellant by retention of the money in question, is notional income and not actual income. But had it been actual income, substantial tax would have been paid on it; the fact that no claim was made under this head encourages the thought that the appellant's allowance for income tax liability, discussed above, is a modest one. Another complication is that, although it appears to me unlikely that any part of what the respondent receives under the judgment in her favour will be subject to income tax in her hands, that point is not absolutely clear. But this area of the law is one of considerable difficulty, exemplified by the variance in the opinions expressed in Atlas Tiles Ltd v. Briers [1978] HCA 37; (1978) 144 C.L.R. 202, and Cullen v. Trappell [1980] HCA 10; (1980) 146 C.L.R. 1. Since neither of the questions I have mentioned in this paragraph was argued before us, it is undesirable to say any more about them.

1 These proceedings are in respect of property claims made by Ms Meehan against her former de facto husband Mr Fuller. When they separated in 1994 he was the legal owner of most of the property that had been acquired during their relationship. She claimed that he held various assets upon constructive trust for her, and obtained an order from the learned trial judge that she was entitled beneficially to a one half share in a certain property ("Messines Crescent") and that she was further entitled to a beneficial interest in Mr Fuller's half share of Messines Crescent and in his two taxi licences to the extent of $310,000.00.

2 Mr Fuller now appeals against that judgment. It will be convenient to refer to the parties by name.

3 The learned trial judge found that the parties pooled their resources during their relationship and assisted each other in the earning of income and acquisition of capital assets. His Honour's declaration concerning Ms Meehan's entitlement to $310,000.00 was mainly based upon findings that at various times Mr Fuller withheld income from Ms Meehan leading to a corresponding financial advantage enjoyed by Mr Fuller in the acquisition of assets. It was also based to a small extent upon a finding of over-contribution by Ms Meehan in the acquisition of a particular asset. His Honour held that it would be unconscionable for Mr Fuller to assert that Ms Meehan did not have the entitlements that were identified and quantified.

4 At the time of trial Ms Meehan was aged 45 and Mr Fuller 55 years. They lived in a de facto relationship for 15 years, during the period 1979 to 1994. At the time of separation (March 1994) the trial judge found that the asset position of the parties (as reflected in the legal title) was as follows:

2 taxi licences, including associated shares, but excluding cars $ 760,000.00

5 The above assets were at the material time unencumbered. At the time of trial Mr Fuller had liabilities totalling about $80,000.00.

6 Between 1980 and 1984 the parties conducted a restaurant (called "The Den"). The proceeds of its sale were used to purchase two units at Mermaid Waters. Those units were later sold and the proceeds used for the purchase of Messines Crescent.

7 The amount of $310,000.00 to which Ms Meehan was found to be entitled resulted from three primary conclusions of the learned trial judge. There were:

(a) That in 1984 Ms Meehan contributed an additional $15,000.00 beyond her one half of the purchase price for the upstairs unit at Mermaid Waters for which Mr Fuller had never compensated her.

(b) That Mr Fuller retained the benefit of cash reserves of over $80,000.00 derived from the restaurant business up to the time of its sale in 1984, and that it would have been unconscionable for Mr Fuller to have denied her an interest in that fund amounting to $40,000.00.

(c) That Ms Meehan had a beneficial interest in proceeds derived from the taxi business between 1988 and March 1994 over and above the amounts actually paid to her during that period. His Honour calculated this at $126,442.00 and concluded that it would be unconscionable to deny her this further share in that income. His Honour opined that the nett proceeds should be shared equally, but that some allowance should be made to Mr Fuller for bearing the risk of that business, and therefore allowed the plaintiff 45% of "the nett proceeds of the taxi business". His Honour reconstructed the total income of that business between 1988 and 1994, and then deducted amounts ranging between $17,500.00 and $20,000.00 in each of the years to represent expenditure for joint purchases made from such income. His Honour then calculated 45% of the balance and arrived at an overall entitlement in favour of Ms Meehan over this six year period of $126,442.00.

8 His Honour then allowed compound interest on the amounts that Ms Meehan ought notionally to have received and brought the figures for each year up to the date of trial (1997). This produced an overall figure of $210,765.00.

9 His Honour likewise performed an exercise of allowing compound interest up to trial on the sums mentioned in paragraphs (a) and (b) in para 7 above so as to obtain a "present value" figure for those particular entitlements, arriving at a figure of $101,943.00.

10 The entitlements found by his Honour in paragraphs a, b and c in para 7 above were converted to a present value of $312,708.00 which his Honour rounded off at $310,000.00.

11 The relevant facts may be conveniently stated in the form of a brief agreed

Fuller purchased residential property at Newtown for $28,000.00.

Fuller purchased The Den restaurant for $15,000.00.

Fuller purchased land at Tweed Heads and constructed a duplex for a total cost of $59,000.00.

Fuller and Meehan purchased 2 units at Mermaid Waters for a total cost of about $117,000.00 partly funded by an exchange of Meehan's Bilinga unit at a notional value of $49,000.00.

The Tweed Heads duplex was sold for about $80,000.00, of which $15,000.00 discharged a debt, and $65,000.00 was lent upon security of a Noosa Heads property.

Fuller purchased a taxi licence for about $180,000.00, mostly funded by loans from relatives.

The Mermaid Waters units were sold for nett proceeds of $288,000.00.

Fuller and Meehan purchased the Messines Crescent property for $200,000.00, using the proceeds from Mermaid Waters and using the balance of those proceeds to reduce indebtedness associated with the taxi licence.

Meehan and Fuller entered into a deed to regulate property, custody and maintenance issues.

Fuller purchased a second taxi licence at a cost of $240,000.00, partly financed by a loan from Westpac of $155,000.00.

Due date for the payment by Fuller of additional tax and penalties of $77,536.00 following reassessment for the 1991, 1992 and 1993 years in the course of a tax amnesty.

12 It will be seen from the chronology that the parties entered into a deed in May 1989. This inter alia recited that the parties' main reason for entering into it was to avoid litigation on the matters mentioned in the deed at some future time, and the parties acknowledged that "this aspect of the agreement is to be regarded as paramount". Under the deed Mr Fuller undertook responsibility for certain expenses. The deed provided for various contingencies including cessation of cohabitation. In the events that happened Ms Meehan became legally entitled as tenant in common in equal shares with Mr Fuller to the Messines Crescent property while Mr Fuller became legally entitled to all other major assets, including the other half share in that property, the taxi licence and certain other assets.

13 The learned trial judge rejected Ms Meehan's assertion that she executed the deed in circumstances of duress, and similarly rejected her claim that the deed should be avoided because Mr Fuller had breached his commitment to meet household expenses. The main facts to be noted are that when the parties commenced to live together in 1979 Ms Meehan had about $5,000.00 in cash and an expectation of a further $15,000.00 from her deceased father's estate. At that time Mr Fuller owned a terrace house in Newtown, Sydney, and had between $5,000.00 and $10,000.00 in cash. In mid-1979 the parties moved to Bilinga where Ms Meehan purchased a home unit for $29,000.00 of which $18,000.00 was from her cash reserves, the remainder being borrowed. Further transactions and developments can be seen from the above chronology. It is enough to note that Mr Fuller brought capital of somewhat greater value to the association than Ms Meehan but that thereafter they were jointly involved in the acquisition and building up of assets, pooling their resources to do so.

14 Whilst Mr Fuller was the major income earner, in running the restaurant business and in the acquisition of taxi licences and the running of the profitable taxi businesses, Ms Meehan's contributions to these enterprises were by no means insignificant. His Honour likened their conduct of the restaurant business to a joint venture "using that expression in a non-technical sense", noting that each of them brought experience in the hospitality industry and their personal skills, talents and labour to the venture, and noting that Ms Meehan contributed by drawing less than she would have earned as an employee. In relation to the taxi business Ms Meehan contributed substantial time and effort, including performance of book-keeping and obtained a licence so that she could drive some shifts. His Honour observed that she may not have driven many shifts but that the security of the business was enhanced by the availability of another driver at short notice. His Honour further noted that Mr Fuller could not have worked such long hours but for the support of Ms Meehan, particularly so given that they had a child. His Honour observed that without Ms Meehan's home-making services Mr Fuller would have had to pay for them or would have been compelled to reduce his hours of work. His Honour concluded that overall the parties worked jointly for their mutual long term benefit and for that of their son.

"There is a substantial discrepancy between the asset position of the plaintiff at separation and that of the defendant, a discrepancy which in no way reflects their relative positions at the time at which the relationship commenced, nor their respective contributions to their total asset position as at the date of separation. This is because no allowance has been made for the benefit which the defendant has derived from having the use of money which he held for the benefit of the plaintiff".

16 Of course the mere fact that it would be unfair or against conscience or "unconscionable" for one party to have more assets than the other, or the fact that a party has withheld money from the other which he might reasonably be expected to have shared with that person, is not enough to justify a declaration of constructive trust. Such relief will only be available "if applicable principles of the law of equity require that the person in whom the ownership of property is vested should hold it to the use or for the benefit of another"[1]. In cases arising out of de facto domestic relationships such principles are sometimes found by analogy with a failed joint venture, and of course a number of fact situations in such cases (for example financial contributions, pooling of assets or resources, direct or indirect contributions to income or assets of either party, domestic assistance that permits the other partner to be a more productive earner or to acquire more assets, and declarations of actual intention of agreement) now provide some precedent for the giving or withholding of relief. These factors (or any relevant combination of them) are overarched by the requirement that it would be against conscience for the defendant to retain the advantage thereby attained. Further, it would seem in principle that before a constructive trust could be held to arise there would ordinarily need to be some nexus between the conduct giving rise to it and the property that it is to be impressed with the trust.

17 The precise reasoning that raises a constructive trust on behalf of Ms Meehan over particular assets of Mr Fuller out of his obtaining the above benefits was not expressly stated. However with respect to restaurant earnings withheld by Mr Fuller, his Honour observed:

"Had the parties separated while the defendant had that money in his hands, a constructive trust in favour of the plaintiff would have been imposed upon part of it".

"It would have been unconscionable for him to deny that her interest in that fund amounted to $40,000.00".

18 It would have been appropriate to charge such an entitlement upon the restaurant business in which both parties worked and from which Mr Fuller derived the relevant advantage, and in turn to treat Mr Fuller as constructive trustee with respect to that property. Pursuant to the equitable remedy of tracing it would be appropriate to take a similar approach to assets acquired in due course from the proceeds of sale of such property. Similarly, although his Honour expressed himself as "allowing" the plaintiff 45% of the nett proceeds of the taxi business in circumstances where the parties had not intended that Ms Meehan be an owner of either taxi licence, the critical finding was of "the unconscionability... of his conduct in asserting sole ownership of the licences". Just as the conduct of parties, who occupy a home without intending the claimant party to have any property rights in it, may ultimately establish an equitable entitlement in the claimant to such property, it would be open to Ms Meehan who worked substantially in the taxi business to establish her entitlements in the form of a constructive trust over the taxi licences. Similarly, Ms Meehan's entitlements under para 7(a) and 7(b) above arose in respect of the restaurant and the Mermaid Waters unit, the proceeds of which found their way into the assets of Mr Fuller which are now the subject of the constructive trusts.

19 No point was taken on appeal on these particular questions. I have discussed them with a view to understanding the basis of these particular orders and of his Honour's ultimate resolution of the case. Without a clear understanding of the basis of the declarations it is impossible to give proper consideration to the question of quantification of the interest.

20 Although the case was factually complicated, it is not necessary to set out the facts at greater length. They are fully stated in the comprehensive reasons published by the learned trial judge and are not challenged on the appeal. The parties' legal advisers deserve credit for narrowing the issues to the bare minimum and have been able to produce a short and concise record, as well as a substantially agreed statement of relevant facts in the outlines of argument.

21 The appeal is based upon three principal arguments, namely:

(1) His Honour's conclusions on unconscionable conduct gave no or insufficient weight to the 1989 deed.

(2) His Honour's calculation of the disposable income from the restaurant business took no account of the income tax payable on the nett taxable income.

(3) It was inappropriate to award compound interest on all of the above sums.

22 The deed seems to have been the product of a serious attempt by the parties to settle future differences which they at that time anticipated or feared. Detailed consideration was given by them to various contingencies including the possibility of cessation of cohabitation, and the deed recognised ownership by one party or the other of particular assets according to the events that might happen. Prima facie such an agreement ought to be recognised and given effect to[2].

23 Although his Honour declined to find any common law basis for setting aside the deed, (for example by reason of duress or repudiation), he did not state the weight, if any, that he attached to the deed in determining the parties' rights. The overall approach seems to have been that his Honour considered it unconscionable to give effect to it as barring further entitlements on Ms Meehan's part.

24 Counsel for Mr Fuller submitted that his Honour gave no effect to the deed, but that would not seem to be correct. Indeed his Honour's approach was to recognise the ownership of assets according to the outcome of the deed. Although the provisions in clause 7 are obscure, the parties are agreed that in the events that happened Ms Meehan became entitled to a half interest in Messines Crescent, notwithstanding that schedule A of the deed prima facie recognised her as having a one half interest in only the rear portion of that property upon which the matrimonial home stood. It would seem that the parties, recognising that the property was not subdivided, agreed that under sub-clause 7(iii) of the deed Ms Meehan's interest was as a tenant in common in equal shares in the whole of Messines Crescent. Similarly, consistently with the deed, his Honour accepted Mr Fuller as the owner of the other assets, and in particular the taxi licence mentioned in the deed, and the second taxi licence that he acquired in his own name subsequently. The basis of his Honour's judgment is a recognition of a money entitlement on Ms Meehan's part deriving from the withholding from her of money which in equity she should have received. In the end although his Honour's order is inconsistent with the overall disposition contemplated by the deed because Mr Fuller's assets have been made subject to Ms Meehan's equitable entitlements, it cannot be said that it has been completely disregarded.

25 It may be that the deed actually barred the making of the claim which Ms Meehan brought to court, although I do not understand that to have been either specifically pleaded or argued. Other than in sub-clause 7(iv) there is nothing explicit in relation to the bringing of claims, and although it expresses the parties' intention to avoid litigation on the matters mentioned in the deed, it is arguable whether it purports to exclude the making of equitable claims of the present kind. However I do not understand counsel for Mr Fuller to found his submission that his Honour disregarded the deed upon the fact that the claim was entertained.

26 Counsel for Mr Fuller further submitted that his Honour gave insufficient weight to the deed. A deliberate step taken by the parties such as entering into the deed might be capable of carrying some weight in the final resolution of the parties' dispute, such as producing a tendency or inclination towards the result that the parties had agreed, even if the court declined on the ground of unconscionability to enforce the deed as such. The making of such an agreement amounts to relevant conduct of the parties, as Pincus JA observed in Dunne v Turner[3]. Illustrations are available as to how an agreement may assist a court as an indication of admissions made against interest, even though the agreement as such is not enforced[4].

27 With this in mind it was submitted on Mr Fuller's behalf that the deed should have been regarded by the learned trial judge as important to, if not decisive of, the issue of unconscionable conduct, as prima facie it is not unconscionable for parties to regulate their rights by means of legal arrangements seriously undertaken. Counsel for Mr Fuller further submitted that the process performed by his Honour in relation to the $40,000.00 from the restaurant business is inconsistent with the deed which was entered into in the year after that business was sold. But in the end this submission cannot be decisive of the question of unconscionability of depriving Ms Meehan of that benefit. Counsel for Mr Fuller further submitted that whilst the income from the taxi business continued to be earned after the making of the deed, the deed had made it clear that the taxi licence belonged "solely and exclusively" to Mr Fuller. It does not follow however that Ms Meehan might not equitably be entitled to income from the enterprise to which she so materially contributed.

28 Upon analysis his Honour recognised the division of assets that the deed recorded. The judgment does not find unconscionability in the retention of ownership of relevant assets by Mr Fuller, including the all important taxi licences. It is based upon conclusions that it would be unconscionable for Mr Fuller to deny that Ms Meehan was entitled to a greater share of the income, namely "to a substantial part of the funds derived from the restaurant" and "a substantial share in the income derived from the taxi business", and upon other equitable financial adjustments. The judgment is based on those adjustments and on the shortfall in income from these sources that has been quantified and converted into a present day value which is now charged upon the assets retained by Mr Fuller consistently with ownership of items of property as stated in the deed.

29 In support of his Honour's preparedness to treat Ms Meehan as not strictly bound by the deed, counsel for Ms Meehan relied upon a number of inaccuracies in the deed which were noted by his Honour, and further submitted that her contribution to the Mermaid Waters property was substantial and considerably more than the 25% contribution recited in the deed. The Mermaid Waters property to which Ms Meehan significantly contributed netted $288,000.00, enabling the parties to purchase the Messines Crescent property and to reduce the debt on the first taxi by some $80,000.00. It may be noted that Ms Meehan in entering into this deed relinquished rights to maintenance in the event of separation, and contemplated receiving even less than her half share in the Messines Crescent property in that she accepted the possibility that she had only a half share in the house at the rear of the property. On this aspect his Honour observed "I consider it likely that her acceptance was based upon her less than full appreciation of the true financial position of the parties or of her entitlement" and "there is no suggestion that the acquisition was other than in equal shares until shortly before the execution of the deed". When these factors are taken into account along with the trial judge's findings concerning the co-operative long term approach of the parties, and the very substantial disparity in the contemplated ownership of assets, the conclusion that it would be unconscionable to enforce the deed was clearly open.

30 The unconscionability of enforcing the deed is most clearly seen when one takes into account the respective contributions of the parties over extended periods, including the circumstance that Ms Meehan is entitled to have account taken of domestic contributions that made it possible for Mr Fuller to undertake commercial activities. If the parties were confined to the effect achieved by the deed the result would be quite disproportionate. It gave Ms Meehan an assured legal entitlement to one asset only, with a value at the time of separation of $120,000.00 when the total value of the joint assets was over $1 million. Had effect been given to the deed she would have emerged from the separation owning a little under 12% of the assets. Having regard to the serious nature of their relationship, including the fact that they raised a child, to the fact that each contributed in a commercial way to improving their combined capital assets, and to the additional domestic contribution of Ms Meehan which enabled Mr Fuller to earn more than she could, the effect of the deed is suggestive of unfairness and oppression to Ms Meehan, and it might be thought unconscionable to give full effect to it.

31 It may have been open to his Honour to have given greater effect to the deed than appears to have been given in which case less could have been assessed as Ms Meehan's entitlement. However it cannot be said that his Honour erred in giving insufficient weight to it. The finding of unconscionability was open, and his Honour's approach in quantifying Ms Meehan's entitlement through financial assessment of particular advantages unfairly taken by Mr Fuller (that is to more income from the businesses than she received and other financial adjustments) cannot be said to be erroneous in principle. The separate question whether specific errors are shown in his Honour's assessment of those entitlements will now be discussed.

Failure to allow for obligation of Mr Fuller to pay tax

32 This point concerns the entitlement mentioned in paragraph 7(c) above.

33 His Honour in effect awarded Ms Meehan the equivalent of a greater share of the income of the taxi business over the period between 1988 and 1994. Assessment of this was complicated by the fact that Mr Fuller understated his income to the Taxation Authorities, leading to reassessments at a later time.

34 After adverting to the adjusted taxable income and adding on payments received by Ms Meehan from the business, his Honour arrived at the following "total income figures in each of the following years".

35 His Honour treated those amounts as available for distribution to the parties. Plainly this made no allowance for the tax that had to be paid. That would seem to be a plain error, as the essential concept being applied is the amount that Ms Meehan ought to have received out of available monies in Mr Fuller's hands.

36 The following table shows the process by which his Honour then, in each year, deducted joint expenses from the above income figures, finally taking 45% of the balance as the figure to which Ms Meehan would have been entitled to receive at that time.

Note: (i) $25,947.00 reduced by 25% to $19,460.00 because cohabitation ceased in March 1994.

37 On the submissions of counsel for Mr Fuller, if the figures are reconstructed to take into account the tax that the appellant ultimately had to pay in respect of those years, the error against Mr Fuller in consequence of failing to bring into account such tax is $119,447.00 in the Total Income column, and in turn in the Balance column. This error converts in the final column (45% of Balance) to $53,751.00. These figures are said to be conservative and no contrary submission was advanced. Counsel for Ms Meehan however submitted that Mr Fuller had the use of the undeclared monies over a five year period before he was required to pay the full amount of tax. There was no doubt some monetary advantage in that circumstance and arguably (although it was an unlawful advantage) it ought notionally to be shared with Ms Meehan. The evidence would not permit any reliable valuation of such benefit. In my view the advantage obtained by Mr Fuller in this respect must be quite slight by comparison with the disadvantage to which he has been subjected by an assessment which takes no account of his obligation to pay tax over the six year period. This argument is best dealt with by conceding it a small degree of merit which cannot be precisely calculated, but which can be accommodated by adjusting downwards any alteration made in favour of Mr Fuller for the omission to recognise his tax obligations.

38 Counsel for Ms Meehan also submitted that Mr Fuller had the benefit of income splitting during the years 1989 to 1994 but I do not consider that this affects the present exercise. Counsel for Ms Meehan further referred to an arguendo comment by the learned trial judge after delivery of his reasons when argument was proceeding on costs. His Honour observed that "[w]hat was really happening throughout the relationship, as I see it, was that the defendant was effectively enhancing his own position using proceeds which, in my view, ought to have been shared". Even if these comments are taken as further reasons for judgment they do not meet the argument that a calculation of the kind here undertaken should have taken account of taxation payments that Mr Fuller was obliged to make in those particular years.

39 Counsel for Ms Meehan submitted that although there were many figures and steps in the mathematical calculations, his Honour was in effect performing a broad exercise of discretion and that a broad brush approach was justifiable. I do not think that the "broad exercise of discretion" submission is sufficient reason to overlook what appears to be a clear oversight that has resulted in a material disadvantage to Mr Fuller. It was an error which was compounded by the application of compound interest for periods up to nine years.

40 In this respect an error has been made, and in the circumstances $50,000.00 should be deducted from the assessed figure of $126,442.00, before the question of interest is considered.

41 It is now necessary to consider how that sum and other notional entitlements of Ms Meehan should be converted to present day value.

42 It is not doubted that a court of equity may in an appropriate case direct a trustee to pay compound interest on trust monies withheld or misapplied by the trustee[5]. Of course the present constructive trusts were not asserted until the writ in 1994 and not established until the judgment in 1997, but that does not in principle insulate a constructive trustee, who is unaware of his trust, from an obligation to pay compound interest if the court considers that justice requires it to be paid.

"[T]here does not need to have been a curial declaration or order before equity will recognise the prior existence of a constructive trust... Where an equity court would retrospectively impose a constructive trust by way of equitable remedy, its availability as such a remedy provides the basis for, and governs the content of, its existence inter partes independently of any formal order declaring or enforcing it"[6].

43 However some caution might be appropriate before awarding compounding interest in such a case, particularly in the case of a party who has the assurance of the claimant in a deed into which they both seriously entered that the claims in respect of his property were limited.

44 Consistently with the above authorities "the question whether the interest to be awarded should be simple or compound depends upon evidence as to what the accounting party has, or is presumed to have done with the money[7]". The main object seems to be to prevent the trustee from making a profit out of his breach of trust.[8] The court does not award such interest by way of punishment, but rather by a perception of the use that has been made of the claimant's money. There is however a greater inclination to award such interest against a trustee who has retained money by fraud.[9]

45 The learned trial judge referred to the authorities supporting the existence of the discretion to award compound interest, and decided to do so in this case. However his Honour did not advert to the reasons why it was considered appropriate to do so.

46 Compound interest was allowed at 14% on the amounts in sub-paragraphs (a) and (b) for the period 1984 to 1988. His Honour then subtracted credits to which he held Mr Fuller entitled, comprising $31,200.00 in living expenses provided by him to Ms Meehan between 1984 and 1988 (which it may be noted had been progressively provided[10]), and a further $28,000.00 representing over-contribution by Mr Fuller in the purchase of the Messines Crescent property in 1988. His Honour then allowed further compound interest on the balance ($35,407.00) at 16% for 18 months to the end of 1989, and then at 11% for the remaining eight years to the date of trial.

47 On his Honour's findings the amounts assessed under paragraphs (a) and (b) of paragraph 7 above resulted in notional entitlements in 1984 of $15,000.00 and $40,000.00 respectively in Ms Meehan, and in a corresponding financial advantage to Mr Fuller to that extent. This would seem to have resulted principally in the application by him of additional monies towards domestic expenses and in payments towards the acquisition of assets including those which in due course were used in the acquisition of Messines Crescent which of course has benefited both parties. Some of the benefits can be seen to have flowed into the assets of which Mr Fuller has sole ownership (subject to Ms Meehan's charge) but this is certainly not a case where the extra monies held by him at the claimant's expense can be seen to have resulted in the sole or even close to sole commercial advantage of the trustee such as to justify the imposition of commercial compound interest.

48 So far as the retention by Mr Fuller of an excessive amount of the proceeds of the taxi business is concerned[11] the position is less clear. His Honour took the view that Mr Fuller had made effective use of the funds which were available to him in order to improve his asset position, and it would seem that that view was reasonably open. His Honour has allowed compound interest on the figure of $126,442.00 (which for reasons given above needs to be reduced to $76,442.00) over a period of up to eight and a half years. However I do not think that his Honour can be said to have erred in deciding that compound interest should be allowed on the excess funds held by Mr Fuller in this respect.

49 The appeal should be allowed. The monetary amount of $310,000.00 in the second part of the order below should be reduced in accordance with the conclusions expressed in these reasons. In particular -

(i) The amounts referred to in paragraph 7(a) and 7(b) of these reasons should be the subject of simple interest, at the rates specified by the learned trial judge, up to the date of judgment (22 December 1997);

(ii) With respect to the quantification of the entitlement mentioned in paragraph 7(c) above, the amount upon which interest is to be calculated should be $76,442.00. Compound interest should be allowed thereon at the same rates as those specified by the learned trial judge up to the date of judgment (22 December 1997).

The parties have leave to present submissions in writing, or an agreed letter stating the appropriate figures. Formal judgment will be postponed to a date after the receipt of such submissions or letter.

50 The appellant was justified in bringing the appeal, but the points upon which he has succeeded comprise a relatively small part of the contentions and ambit of the appeal. In the present circumstances I would order the respondent to pay one half of the appellant's costs of the appeal to be taxed.

[1] Per Deane J in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583, 616.

[2] Muschinski v Dodds above at p618; Harmer v Pearson (1993) 16 Fam LR 596, 596-599, 600.

[3] BC9604833, CA No. 196 of 1995, 20 August 1996, page 7, "Short of an agreement, a mere promise relating to property may be important or even decisive".

[4] Harmer v Pearson (1993) 16 Fam LR 596.

[5] Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125, 148; Wallersteiner v Moir (No 2) [1975] 1 All ER 849, [1975] 2 WLR 389, [1975] QB 373, 388, 397, 406; President of India v La Pintada Compania Navigacion SA [1984] 2 All ER 773, [1985] AC 104, 116.

[6] Per Deane J in Muschinski v Dodds above at p614.

[7] Per Scarman LJ in Wallersteiner above at p406. Compare Buckley LJ's comments ibid p397.

[8] Per Lord Denning MR in Wallersteiner at p388.

[9] President of India v La Pintada Compania Navigacion SA above at p116; Hungerfords v Walker above at p148.

[10] The deduction of living expenses as a lump sum at the end of the four year period instead of year by year would seem to err against Mr Fuller. However the point was not taken on appeal.

(1993) 16 Fam LR 596

At a glance

Court

Decision date

Before

Source

Judgment (91 paragraphs)

Parties

Cases Cited (3)