Greenwood v Merkel [2004] NSWSC 43 | Case summary

JUDGMENT 1 Burchett AJ: By proceedings commenced in the District Court at Penrith on 2 February 2001, but subsequently removed to this court, Mr Greenwood sued Ms Merkel claiming the sum of $156,975.28. His Statement of Liquidated Claim alleged that, in or about 1994, the parties jointly purchased a restaurant business in Leura which they renamed Gracie's on the Mall, funding the purchase by a joint borrowing of the sum of $150,000 from two individuals, Malcolm Miller and Melita Bugeja; and then, in about late 1995 or early 1996, the Defendant bought the Plaintiff's share in the business for $65,000, on condition that the loan (at that stage standing at $120,000) "was to remain a debt of the Business". It is further alleged that the parties jointly borrowed the sum of $130,000 from the Commonwealth Bank of Australia, the Defendant's half share of this loan being paid to the Plaintiff as the payment due from the Defendant to the Plaintiff in respect of the purchase of the business. 2 Next, the Plaintiff pleaded that in 1998 the parties agreed that the Plaintiff would make repayment of the loan from Mr Miller and Ms Bugeja (that is, $120,000) on condition that the Defendant would "repay the loan on or before 30 June 2000". As a particular of this last allegation, it was alleged that the Defendant signed an acknowledgment of debt dated 4 July 1998, and it was further alleged that the Defendant was required to pay to the Plaintiff interest at the rate of $1100 per month. The Statement of Liquidated Claim went on to allege further claims relating to a Citibank supplementary credit card. The latter claims were abandoned during the hearing, but the claims associated with the partnership are pursued. 3 By Notice of Grounds of Defence, Ms Merkel, while admitting the partnership, and alleging that the Plaintiff abandoned work in it on or about 29 March 1995, pleaded that the parties, "[i]n the course of the partnership", had "instructed an accountant to prepare the partnership returns for the years 1994 - 1995 and the Plaintiff's accountants to prepare partnership returns for the years 1995 - 96, 1996 - 97". The period covered by these returns, it will be appreciated, extends long after the alleged sale of the Plaintiff's interest in the partnership in about late 1995 or early 1996, and their existence is inconsistent with its having been carried into legal effect. Instead of the borrowing from the Commonwealth Bank of Australia in the sum of $130,000 being a means of implementing the alleged sale, the Defendant pleaded it was for the express purpose of paying out the debt owed to Mr Miller and Ms Bugeja, but the Plaintiff took the proceeds of that loan for his own use and benefit to the exclusion of the Defendant. This allegation should be qualified to the extent that Ms Merkel also alleged a purpose of a portion of the loan (the amount of $10,000) was the purchase of a new dishwasher for the restaurant, and in another part of the pleading her case is put on the basis that, with the exception of that sum of $10,000, "the Plaintiff applied the balance of the proceeds of the loan to the Victory Theatre [an antique business, started or purchased by the Plaintiff, at one stage intended to include a café, located in a disused theatre] and Kurrara [a guesthouse], for his own purposes and to the exclusion of the Defendant". The Grounds of Defence denied the debts alleged and that the defendant was bound by the contracts alleged, and in particular it was claimed that the document pleaded as a contract of 4 July 1998 should be set aside under the Contracts Review Act 1980. 4 A Cross-Claim was also filed by Ms Merkel in the District Court, in which it was alleged that the parties had a de facto relationship, and also a partnership which "has ceased to operate as a partnership but has not been formally terminated". Particulars of the last allegation were that no partnership return had been prepared since 1997; that the partnership had not been formally wound up; and that no accounts had been taken of the partnership. In the Cross-Claim, a claim was made under the heading "DE FACTO RELATIONSHIP CLAIM". It was pleaded that between "approximately June 1992 and March 1998 the Cross-Claimant and Cross-Defendant had an emotional and sexual relationship and from time to time lived together as husband and wife on a bona fide domestic basis, although not married to each other, and in a de facto relationship within the meaning of s 3 of the De Facto Relationships Act 1984 as amended". It was alleged that at the commencement of the cohabitation the Cross-Claimant owned a delicatessen business (being Gracie's Gourmet in Katoomba) which she sold in 1994, household goods and effects, a motor vehicle and some savings, all of which she employed for the benefit of the relationship between the parties. The Cross-Defendant then had the Kurrara Guesthouse and a motor vehicle. During the relationship, the pleading alleges, the Cross-Claimant made direct and indirect financial and non-financial contributions to the acquisition, conservation and improvement of the property of the parties including making available the goodwill and proceeds of sale of Gracie's Gourmet, the work which the Cross-Claimant did and the income she earned, payments made in reduction of the loan from Miller and Bugeja, payments made in reduction of the loan from the Commonwealth Bank of Australia, and various forms of household work. The Cross-Defendant did not make a direct contribution to the purchase price of the business of Gracie's on the Mall, but he arranged for the loan from Mr Miller and Ms Bugeja to be obtained. It was also alleged that the Cross-Claimant made a contribution to the welfare of the Cross-Defendant during the relationship, and in this regard entertainment of relatives and friends and purchase of family gifts, as well as the performance of household duties, were relied upon. 5 This Cross-Claim was filed outside the required two years period, and thus can only be maintained under the De Facto Relationships Act by leave. Leave is sought pursuant to s 18 of the Act. 6 Further claims are made in the nature of claims to enforce constructive trusts and under the Contracts Review Act. 7 By an amended Statement of Liquidated Claim, Mr Greenwood pleaded that on 11 September 2003 he paid out the full amount owing in relation to the Commonwealth Bank of Australia joint loan, that amount being $65,532.47 in respect of which he seeks a contribution from the Defendant of half. The document re-calculates the total sum claimed at $199,641.51, from which must be deducted the amount of $9475.28 abandoned during the hearing. 8 Although Ms Merkel's pleadings seek a taking of accounts, which would normally be necessary for the resolution of a dispute about the financial consequences of partnership activities, Mr Greenwood opposes this, asserting that the contractual claims he sues to enforce are separate from the partnership, and counsel for Ms Merkel in submissions in reply put her position as being: "Given the extent of the evidence and submissions in this case, a taking of accounts may not be necessary and the claims may be apportioned on the general principles of justice and equity." In the way the case was fought, it seems to me the matter comes down to a question of the nature and extent of the contractual rights established, or at least put forward in reasonably precise terms, by Mr Greenwood, and whether in answer to those rights, assuming them to have been established, Ms Merkel is entitled to rely to some extent, and if so to what extent, upon the provisions of the De Facto Relationships Act. If that Act provides a complete answer to the claims propounded, it may be unnecessary to consider some other defences that have been raised or, having regard to the attitudes adopted respectively by the parties, to order the taking of accounts and the making of enquiries. 9 It is necessary to take some time to outline the rather tangled history of the matter but, before embarking upon that task, I should say something about the credit of the Plaintiff and the Defendant. For their versions differ at many points, and the Court can only proceed to consider the issues after it has determined the conclusions to be drawn from the conflicting evidence. Both were cross-examined, and I had an opportunity to assess their credit. I formed a very poor opinion of the credit of Mr Greenwood. On his own version, he was a knowing party to a fraud on the Commonwealth Bank of Australia. His assertion that there was complicity on the part of a bank officer is no answer, for there is simply no room to doubt that Mr Greenwood understood the arrangements he claims to have entered into had the purpose of deceiving the bank. On this, and on a number of other matters, I considered Mr Greenwood tailored his evidence in an attempt to gain an advantage. At several points in his evidence, he was unable to explain objective circumstances that were inconsistent with it. In particular, he could not explain the signing of tax returns which plainly asserted that the partnership was still in existence a significant period after he claimed Ms Merkel had bought out his share. Nor could he explain satisfactorily accounting documents showing that money he claimed to be absolutely entitled to had in fact been lent by the partnership, not by him, to a company in which he was the sole shareholder. I shall refer to various specific matters on which his evidence failed to convince me and in relation to which I prefer other evidence. It is sufficient to say here that, apart from such matters, his demeanour left me with the impression that his evidence was not to be accepted unless independently corroborated or, on a particular matter, in accordance with what I thought to be the probabilities. 10 Turning to Ms Merkel, I formed a quite different impression of her. She is a woman of very limited capacity, and indeed psychological evidence was tendered in her case which supported this conclusion. I am not speaking of the psychologist's views about the transactions alleged to have been entered into, to which I have had no regard, but of his specialist evidence about her capacities. Generally, I thought she was reliable within the limitations of her ability to appreciate the issues and recall what occurred with some degree of accuracy. There was one aspect of her cross-examination which certainly embarrassed her. She was challenged on the question of her fidelity to the de facto relationship she alleges existed between her and Mr Greenwood. The challenge was obviously made on instructions, but in re-examination the explanation that emerged (and was uncontradicted) left the substance of her claim to faithfulness over the six years of the relationship intact. At the same time, the incident, which may have occurred before the relationship had become firmly established, while it was discreditable to both of them, was raised in cross-examination (as I have no doubt, upon Mr Greenwood's instructions) in a quite misleading way. Had Ms Merkel, for her part, been less frank than she ultimately was, the Court might well have been misled. 11 Ms Merkel was born on 20 May 1953; married and had two sons (now adults); divorced her then husband in about 1984; and met Mr Greenwood about 1991 or 1992, when he came into a delicatessen shop in Katoomba which she was conducting in partnership with a platonic friend. Mr Greenwood was born on 18 May 1950, and had worked for many years with Qantas, rising to a supervisory position in which he trained staff such as stewards. He had also been married, with children, but had been long separated from his wife. In 1991, he used a redundancy payment from Qantas to purchase a two thirds interest in Kurrara Guesthouse in the Katoomba area. 12 From about June 1992, Mr Greenwood and Ms Merkel formed a relationship which involved her spending a substantial number of the nights of the week at his place and him spending some nights at her place at the various addresses in the Katoomba area at which each of them was from time to time resident. This relationship continued, with a few short interruptions (not, I think, exceeding a few weeks) and some changes of living arrangements, to which I shall refer, until March 1998 when Mr Greenwood ended it because he had, a few months before, formed a new relationship with a Ms McGregor. He had not previously told Ms Merkel of this new relationship. 13 Although Mr Greenwood conceded that some kind of relationship existed during much of the period I have mentioned, he was at pains to attempt to present to the Court the impression that this relationship was merely in the nature of repeated but intermittent casual indulgence in sexual intercourse unaccompanied by any mutual emotional dependence, which did not exclude other sexual partners and should not be regarded as a de facto relationship within the meaning of the relevant legislation. Because the relationship ended in March 1998, that legislation was the De Facto Relationships Act 1984, as it stood up until the 1999 amendments by virtue of which it became the Property (Relationships) Act 1984 (see s 6(2) of the latter Act). For many reasons, I do not accept the view of the relationship between the parties put forward by Mr Greenwood. For one thing, I accept the evidence of Ms Merkel that the parties slept together much more frequently than Mr Greenwood conceded, that she was faithful to him and he claimed to her that he also was faithful, that she performed various domestic tasks on his behalf, and that they professed and in different ways sustained the supportive relationship of a couple. They were involved with each other's families and relations to some extent, shared some family Christmases, and she provided to him, and he accepted, much assistance, both in work and in money in matters of business. They entered into a partnership in which it is plain that he relied on her to undertake a part involving a much greater burden than anyone would have been likely to accept in the absence of a relationship going well beyond a mere matter of business. Very tellingly, when Mr Greenwood decided in about December 1994 or January 1995 to apply for a position with Air Seychelles which would involve living in the Seychelles, he invited Ms Merkel to accompany him on a visit to the Seychelles at the end of January, saying: "We will have to go to the Seychelles first to see if you could live there as well." They did in fact go together, although ultimately Mr Greenwood decided in March 1995 to take up a position as Training Manager at the Sheraton on the Park in Sydney instead. 14 For a period of approximately seven months up to January 1996, Ms Merkel did not have separate accommodation of her own, but lived in Mr Greenwood's house at Evans Lookout Road Katoomba, paying some rent because Mr Greenwood said it was only fair his sister (who also had an interest in the house) should receive some return. The reason that she moved out in January 1996 was that her two sons, who had previously been with their father, had come to live with her, which had led to some difficulties between them, or one of them, and Mr Greenwood. Ms Merkel has a very dependent personality and very limited business capacity. Mr Greenwood, on the other hand, has occupied positions both with Qantas and with the Sheraton on the Park indicative of the ability to direct others, and I think he has a somewhat dominant personality. I accept Ms Merkel's evidence to the effect that she accepted his direction and trusted him, without understanding matters of business he put before her. He was accustomed to calling her a "dumb blonde" and tended to relegate her to the kitchen. Mr Greenwood, despite the stance he took about the nature of their relationship, admitted in evidence that she was in love with him. In my opinion, the considerable business assistance he was able to obtain from her, which was always to his own advantage, is itself an indication of the depth of the relationship, at least from her side. 15 By s 3 of the De Facto Relationships Act, a de facto relationship "means the relationship between de facto partners, being the relationship of living or having lived together as husband and wife on a bona fide domestic basis although not married to each other". This definition, of course, underwent some remoulding in the 1999 amendments, but the parties were agreed that relevantly for present purposes the changes made little difference. The particular arrangements pursued by husbands and wives may vary very greatly, and the same is true for de facto partners. Although the relationship between the parties in the present case did not pursue the course that the majority of marriages pursue, except perhaps for the period of six months I have mentioned and in relation to the Seychelles, in my opinion they lived together as husband and wife on a bona fide domestic basis in the way that suited them, and such breaks as there were were too brief to destroy the continuity of their de facto relationship within the meaning of the statute over the period between 1992 and 1998. Many a normal marriage may suffer the occasional disturbance of similar intermissions. They certainly lived together in a de facto relationship for a period of not less than two years within the meaning of s 17 of the Act; and, in any case, as will appear later in these reasons, I am satisfied Ms Merkel has made substantial contributions of the kind referred to in s 20(1)(a) and (b) for which she would otherwise not be adequately compensated if no order were made by the Court; and that the failure to make an order would result in serious injustice to her. Thus I find both branches of s 17 of the Act satisfied. 16 S 18 provides a time limit for the making of an application under the Act of two years after the day on which the de facto partners ceased to live together as husband and wife on a bona fide domestic basis. In this case, the cross-claim was filed over three years after March 1998. However, the section empowers the Court in its discretion to grant leave "where the court is satisfied, having regard to such matters as it considers relevant, that greater hardship would be caused to the applicant if that leave were not granted than would be caused to the respondent if that leave were granted". The nature of the issue expressly raised by this provision requires that I defer consideration of it until I have dealt with the matters bearing on the relevant hardship relating to each of the parties. 17 At the time the relationship between Ms Merkel and Mr Greenwood commenced, in the months following May 1992, Ms Merkel was conducting a delicatessen business known as Gracie's Gourmet in Katoomba in partnership with one Colin Dunford. He was very ill in 1993 and died on 14 March 1994. He had no family, and during his illness Ms Merkel took over the business. In the early days of her relationship with Mr Greenwood, Ms Merkel also did cleaning and cooking in connection with his guesthouse, Kurrara. He disputed her evidence about this, and produced some records to show that Gracie's Gourmet had actually charged him for catering at the guesthouse. I do not think too much should be made of this particular dispute, as I think it is likely that Gracie's Gourmet would have charged for catering it did, at least during the lifetime of Colin Dunford, and I note that Ms Merkel's affidavit of 10 September 2002 refers to such a payment; however, I also accept her evidence that there were occasions after the commencement of the relationship between Ms Merkel and Mr Greenwood when she cooked meals at the delicatessen and brought them home for him and guests and friends at Kurrara without payment. Also, I do not think Mr Greenwood's records were particularly reliable - in at least one instance cross-examination provided good ground to think falsification had occurred, very possibly to reduce taxation. 18 Late in 1993, the parties learned that a restaurant or café in Leura was on the market, and they decided that Ms Merkel would sell the delicatessen and they would buy the restaurant business and run it together. I am satisfied it was Mr Greenwood who was able to arrange finance by way of a loan of the sum of $150,000 from Mr Miller and Ms Bugeja who were old friends of his. They took a mortgage over Kurrara to secure the loan, but Mr Greenwood made no contribution in cash. Ms Merkel's ability to contribute the value of the delicatessen business was, on Mr Greenwood's own account, a factor in the obtaining of the loan. For when he was negotiating it, Ms Bugeja asked him: "How long would you want it for?" and he replied: "About six months; we should be able to repay it when Fiona sells the deli." In the event, the delicatessen business was sold in about the middle of 1994 for a return to Ms Merkel of about $35,000, which she contributed to the capital of the restaurant business. She conceded that some part of this may have off-set wages paid to keep the delicatessen business going until its sale when she was working in the restaurant, but it was not shown that a large amount was involved in that, and in any case the work done by her in the operation of the restaurant by the partnership far exceeded the work done by Mr Greenwood. The evidence shows that Ms Merkel also contributed some items from the equipment of the delicatessen and successfully diverted some of its goodwill to the restaurant at nearby Leura. It was not in dispute that she had acquired a reputation, in particular, for certain tandoori chicken pies which she supplied from the delicatessen, and which were in great demand from customers at the restaurant who remembered her. Thus it was not for nothing that the parties chose to rename the restaurant so as to take advantage of the goodwill of the delicatessen which had traded under the name Gracie's Gourmet. They called the restaurant Gracie's on the Mall. 19 At a very early stage, the sum of $30,000 was repaid in respect of the loan from Mr Miller and Ms Bugeja from the business; no doubt the receipt or impending receipt of the monies provided by Ms Merkel from the sale of the delicatessen business contributed to the ability of the parties to achieve this. 20 The purchase of the restaurant business was settled on 14 March 1994 at a price of $110,000, including over $70,000 for goodwill. The sum of $40,000, part of the borrowing from Mr Miller and Ms Bugeja was thus not required for the purchase price, although it is clear that some of it was expended in refurbishment. However, the existing stove was kept; the restaurant refrigerator was replaced by the utilisation of the refrigerator from the delicatessen; and new equipment for the kitchen (such as a dishwasher which became the subject of dispute in the evidence) was acquired over time. Having regard to the evidence, including the relevant depreciation schedule of the partnership, I accept Ms Merkel's statement that about $25,000 was spent on equipment. That still leaves $15,000, and I also accept Ms Merkel's evidence to the effect that from time to time Mr Greenwood withdrew amounts of cash, only some of which he repaid. This continued to occur long after the purported sale of Mr Greenwood's interest in the business to Ms Merkel in about January 1995, and the fact that it did so is another matter inconsistent with the carrying into effect of any sale at that time. 21 I also accept Ms Merkel's evidence that she assisted Mr Greenwood with the purchase of furniture for a later business enterprise of his and provided cash on more than one occasion in 1996 at his request, the amounts totalling several thousand dollars. In the nature of the relationship, and after this lapse of time, it is not possible to be precise about the net amount obtained from the restaurant business in cash by Mr Greenwood and not returned (some monies were returned), but I am satisfied the amount was substantial. 22 It is important to appreciate that although Mr Greenwood continued to benefit from the restaurant business in these and other ways to which I shall refer, he played no significant part in its day to day operations after 29 March 1995, when he went to work for the Sheraton on the Park, except at some weekends and for a period of about six weeks in early 1996. It was actually in December 1994 that he indicated that he was now bored with the restaurant and wanted to do something else. The investigation of the possibility of their moving to the Seychelles followed, and then the job with the Sheraton on the Park. 23 As at 29 March 1995, the joint account of the business had a credit balance of about $1,189, and the amount of the borrowing from Mr Miller and Ms Bugeja stood at approximately $139,000. There was some inconclusive mention between the parties of the possibility of selling, but the restaurant was not placed on the market. At some stage, Mr Greenwood referred to the possibility of Ms Merkel buying him out. It is common ground that the parties saw a Mr Poulos, a real estate agent, who "said he thought the business could fetch a price of $280,000", but the evidence does not disclose what Mr Poulos was told, whether he ever saw the restaurant, or whether he was shown any of the accounts of the business. If he had been shown the books on the basis of which the tax return and accounts were prepared for the financial year ending 30 June 1995, they would have revealed that there was an excess of liabilities over assets of $3,206.53. Depending just when Mr Poulos was spoken to, it is also relevant that upon the partnership tax return for the year ended 30 June 1996, which was signed by Mr Greenwood, being prepared, it showed an excess of liabilities over assets of $52,080. In Mr Greenwood's own return for that year, he showed a loss of $9,286 from the partnership of Gracie's on the Mall. There was no suggestion, in cross-examination or otherwise, that this loss represented any inappropriate treatment of receipts or expenditure by Ms Merkel, or was other than a genuine reflection of the performance of the business. Indeed, the indication in the evidence is that the business had actually been struggling for some time, for Mr Greenwood and Ms Merkel were sued by the Commissioner of Taxation upon the basis that, from 1 July 1994 to 31 July 1996, they had deducted tax from wages of employees but failed to remit it to the Commissioner under the relevant section, nearly all of the amount being alleged to be due for the period to 30 June 1995, when Mr Greenwood admits that he was a partner and during most of which he was fully engaged in the business. Consistently with the conclusion that the difficulties of the business at that time were not a mere hiccup, the taxation problems have continued and multiplied, and are still the subject of litigation. Apart from all these matters, it is relevant to observe that 1995 was only the very next year after the purchase of the business for $110,000, and it would be somewhat remarkable if the money and effort put into it had so quickly increased its value by two and a half times.

She became intimidated, assented, and they "went in and signed for the loan". 29 I have no hesitation in preferring, in substance, the version given by Ms Merkel. I do not believe that she had any clear understanding of the figures put to her by Mr Greenwood, if he really made any attempt to explain them, and I think ultimately she was overborne because, despite the doubt she expressed, she trusted him to arrange their mutual affairs for their mutual advantage. By the end of 1995, they had both been involved in the conduct of the restaurant for a period of about 18 months and, having regard to the circumstances revealed by the accounts and tax returns, circumstances which existed even if the documents had not yet been prepared, and on all the evidence, I infer that Mr Greenwood knew well the complete disproportion between the worth of the business and the sum for which he now says he sold his interest in it. Had Ms Merkel done other than simply trust him, as he knew she did, in the making of an arrangement which she did not understand, I have no doubt she also must have known that a business that was not even maintaining its obligations to remit tax deductions from employees' wages could not bear the burden of debt involved in the cumulative loans. 30 Another curious feature of the documentary evidence which is inconsistent with Mr Greenwood's version of events is the balance sheet forming part of the financial accounts of the partnership for the year ended 30 June 1996. It is, of course, in itself inconsistent with his evidence that he should have signed such a return, as it indicated that the partnership was still in operation at 30 June 1996. In fact, the accountants, who were his accountants, prepared and submitted a further return for the partnership for the year ended 30 June 1997, and Mr Greenwood's personal return for the latter year showed the receipt by him of income being $10,406 from "Gracie's on the Mall…Partnership". But that is not the point to which I am now adverting. In the balance sheet for the year ended 30 June 1996, a fixed asset of the partnership is shown as an unsecured loan to Victory Antique Theatre in the sum of $107,219. On Mr Greenwood's evidence, there was no such loan from the partnership, which had ceased to exist by reason of his having been bought out prior to his acquisition of the business described as Victory Antique Theatre. Had there been a loan, it should have been from Ms Merkel. But, on his version, the sum of $130,000 was utilised in the purchase of the Victory Theatre antique business, of which $65,000 was his own money, being his share of the borrowing from the Commonwealth Bank of Australia, and the other $65,000 was also his own money, being a part of the borrowing from the Commonwealth Bank of Australia utilised by Ms Merkel in effecting payment to him upon his sale to her of his share in the partnership. Mr Greenwood acknowledged in cross-examination that he did not at all understand "that piece of accounting". In the 1997 return for the partnership, the same unsecured loan is shown in the reduced amount of $60,896. This figure being closer to the sum of $65,000, Mr Greenwood attempted in cross-examination to justify the latter entry as having some relation to his allegation of a sale for $65,000; however, he remained unable to explain why the amount was shown as an unsecured loan from the partnership of Mr Greenwood and Ms Merkel trading as Gracie's on the Mall. 31 Mr Greenwood's case might appear superficially to receive some small support from evidence given by Ms Merkel that the Bank's loans officer told her on the telephone, after the drawing of the full amount of the loan moneys had been delayed, that they could be used for a purpose other than that for which they had been lent. But not only was this a different occasion from the interview in dispute; she did not suggest the Bank had approved the use of a loan to the partnership conducting Gracie's on the Mall for the purposes of an entirely separate venture of Mr Greenwood involving the Victory Theatre at Blackheath. On any view, the diversion of the money that actually occurred was a fraud on the Bank. I am satisfied no purpose other than those originally stated was ever disclosed to the Bank, and if Mr Greenwood's purpose had been disclosed the loan would not have proceeded as it did. 32 The balance of the loan from the Commonwealth Bank of Australia, $120,000, was credited to the cheque account of Mr Greenwood and Ms Merkel as proprietors of Gracie's on the Mall on 7 March 1996, and Mr Greenwood proceeded to purchase the Victory Theatre business, for that purpose drawing approximately $130,000 from the account. As has already been made clear, Mr Greenwood's involvement in the partnership did not then immediately cease and, for her part, Ms Merkel gave him some assistance at auctions and by the provision of money in the setting up of Mr Greenwood's venture in the Victory Theatre. However, the operation of the restaurant Gracie's on the Mall devolved upon Ms Merkel alone. She assumed the burden of providing from that business the repayments to the Bank at the rate of $1,598 per month, made by direct debit from the Gracie's on the Mall account (although, at some stage, transfers equal to half of this amount from an account of Mr Greenwood to the Gracie's on the Mall account were set in place and continued until 14 June 1999), and of making the monthly payments of $1,100 in respect of interest to Mr Miller and Ms Bugeja. 33 The next significant event was the ending of the relationship between Mr Greenwood and Ms Merkel in March 1998. Some months later, on 4 July 1998, a document was signed by Ms Merkel which had been written out by Mr Greenwood in his own handwriting and put before her for signature. He did not then or for long after provide her with a copy. That document reads as follows: "I Fiona Catherine Merkel agree to pay Edward Alan Greenwood the sum of $120,000-00 (one hundred and twenty thousand dollars) on or before 30th June 2000. This sum of money is to repay a loan on behalf of " Gracie's on the Mall café". Should " Gracie's on the Mall" sell prior to 30th June 2000 the debt will be repayed immediatly [ sic ] from the proceeds of the sale. Interest on this loan will be payed [ sic ] monthly to the account nominated by E. A. Greenwood at the rate of $1100/month on or before 28th day of each month." There is some dispute as to the precise circumstances in which this document came to be signed. However, one thing is clear - that the reference to repayment of a loan on behalf of Gracie's on the Mall was a reference to the loan made by Mr Miller and Ms Bugeja, which had originally been made to Mr Greenwood and Ms Merkel to enable them to purchase the restaurant business, and had later been kept on foot so that the money borrowed from the Commonwealth Bank of Australia could be used in the purchase by Mr Greenwood of the Victory Theatre business. 34 Ms Merkel's version on this matter is that Mr Greenwood arrived, without prior warning, at the restaurant at the middle of the day on Saturday 4 July 1998. Midday on Saturday was her busiest time at the restaurant, and she was in fact very busy. He simply required her to sign the document, and she felt under pressure to comply so that he would go away. She did sign and he did proffer her a cheque to give to Mr Miller and Ms Bugeja, but she said: "It's your loan. You give it to them. They're your friends." Mr Greenwood, on the other hand, gave evidence that there had been a prior telephone conversation in which he had said to Ms Merkel: "Malcolm and Melita want the money back. What are we going to do?" To this, she replied: "I don't have the money" and he said: "They want it back because Kurrara has been sold. I could lend you the money for a short time to allow you to trade out and pay the debt back to me or to sell the business." According to Mr Greenwood, it was following this telephone conversation that he went to Gracie's on the Mall with a cheque and a document which was either written out by him then and there or had been written out by him just before entering the restaurant. He said: "I've got a cheque here for $120,000. I'll lend it to you for up to two years if you pay me the same interest that you are currently paying Melita and Malcolm." She said: "What if I can't pay it back in two years time?" to which he replied: "We'll work it out at the time but I'll obviously need the money." According to Mr Greenwood, he "gave [Ms Merkel] a cheque for $120,000" and "[s]he took this from me and signed the document". He added in his affidavit: "I believe the balance due on the loan from Mr Miller and Ms Bugeja of $120,000 was subsequently paid by Ms Merkel." 35 On this, as on other matters, I prefer, in substance, the version given by Ms Merkel. I do not believe that she accepted the cheque proffered by Mr Greenwood. I think it more probable that, having yielded to the extent of signing the document, she took the stand about the delivery of the cheque to Mr Miller and Ms Bugeja which her evidence asserts. I also think that the use of the word "we" of which Mr Greenwood speaks in his version of what he said to Ms Merkel in relation to the repayment, as well as in earlier conversations alleged by him, is of some significance. Whether or not there is truth in his evidence of these conversations, this evidence recognises a mutual interest in the transactions. Consistently with the evidence of his continuing involvement in Gracie's on the Mall, including the submission of tax returns and financial documents acknowledging his interest in it, it seems to me that whether or not, first, the terms on which the $130,000 loan from the Commonwealth Bank of Australia was utilised by Mr Greenwood, and secondly, the arrangement for repayment of the $120,000 to Mr Miller and Ms Bugeja, were intended ultimately to have some legal effect, they were regarded by the parties as somewhat fluid in nature so as to be capable of alteration as circumstances might make desirable. It was only after the relationship came to an end in March 1998 that the positions of the parties inevitably became more fixed, and by July 1998 Ms Merkel's habitual dependence on Mr Greenwood had not entirely evaporated, nor had his expectation that she would join with him in working out what would be a mutual solution. It must have been perfectly apparent to him that the question he attributed to her - "What if I can't pay it back in two years time?" - represented the reality, as the business was simply not capable of bearing the contemplated repayment. 36 Following Mr Greenwood's repayment of the loan from Mr Miller and Ms Bugeja, Ms Merkel paid to him five payments of $1100 up until 28 July 1999, and from 29 July 1999 to 28 July 2003, he gives her credit in his claim for $799 per month, one half of the regular repayments made by her in respect of the loan from the Commonwealth Bank of Australia. This, he claims, was in accordance with an arrangement reached in July 1999 at the Victory Theatre because she fell behind in the payments of $1100 per month. She did not recall the alleged meeting at the Victory Theatre, but accepted that he had put to her such an arrangement and she had assented. In his final submissions, counsel for Mr Greenwood claimed $178,214.23, being $145,448 in respect of his repayment of the loan from Mr Miller and Ms Bugeja (allowing credit only for the repayments to which I have just referred) plus $32,766.23 being one half of his repayment on 11 September 2003 of the loan from the Bank, without giving any credit for any payment by Ms Merkel of his share of the instalments paid in respect of that loan. 37 On 19 June 2003, Ms Merkel sold the business of Gracie's on the Mall for $185,000, or $95,000 less than the amount at which it was valued about eight years before, according to Mr Greenwood, for the purposes of his sale of his interest to her. Of course, there had been changes in various respects in the meanwhile; but at least it can be said that a disposal at $185,000 in the money of eight years later, after unsuccessful attempts to sell it continued over a period of years, lends no support to Mr Greenwood's claim. Nor is it likely, when outstanding tax claims have been met, to recoup Ms Merkel any significant sum. I accept that she is left with very little. It is less clear how the transactions ultimately left Mr Greenwood. He owns his own house, subject to mortgage, but the ability to buy that may have come from assets outside the relationship. He sold in 2003 59 Evans Lookout Road for $200,000, of which he was able to pay $25,000 to his two adult children and $20,000 to Ms McGregor as wages. On 24 July 2003, the Victory Theatre business was sold by the company Cullwalla Pty Ltd, in which he holds the shares, for the sum of $300,000, and from the proceeds the sum of $65,532.47 (the total of the Bank loan in respect of the payment of which he claims half) was paid, as well as other mortgages and an employees' superannuation and long service leave payment of $62,862.38, leaving a balance of $76,612.65 held in trust. He has said the company has a tax claim of $85,000 to meet. 38 In my opinion, the Bank loan in question, while originally raised for the purposes of Gracie's on the Mall, was applied, as to $120,000, together with an additional $10,000 drawn from the business, and several thousands in smaller amounts, towards the acquisition and establishment of the Victory Theatre business. Whether or not the transaction by which Ms Merkel assented to this was otherwise liable to be set aside, or was unenforceable against her, it at least amounted to a contribution by her to the acquisition of his asset of the borrowing power of her interest in Gracie's on the Mall, as well as some actual money. The fact that further security was required of him does not alter that, though his provision of it is consistent with the proposition that he saw the loan as for his benefit. That in large measure the interest which deferred repayment for some seven and a half years and half of the capital was paid by her was a major further contribution. In addition, she assisted in other ways which have been mentioned in the establishment of his business, and her acceptance of the full burden of work during much of the existence of the Gracie's on the Mall partnership set him free to earn in paid employment (at the Sheraton on the Park) and to establish the Victory Theatre business. Earlier in the story, she had contributed to the establishment of the partnership business itself, by devoting to it the proceeds of sale of the delicatessen business, by transferring to it physical assets, and also goodwill, of that business, and by work. 39 But not only does Ms Merkel's contribution in all these ways to the Victory Theatre business raise questions about the Bank loan. It also raises questions about her liability in respect of the loan for Mr Miller and Ms Bugeja which was the subject of the document of July 1999. For that loan was part of the business structure utilised for the purposes stated, and further, she only assumed Mr Greenwood's share of it as part and parcel of the arrangement relating to the Bank loan. The conduct of the parties over the two years following that arrangement and before the break-up of their relationship confirms that the arrangement was seen as principally concerned with the obtaining of the finance Mr Greenwood required. There was no formal agreement and the partnership was not wound up, even informally. He continued to obtain money from it from time to time and personal assistance from Ms Merkel. They furnished partnership returns and showed a large cash contribution ($107,219) in their financial documents as an unsecured loan from the partnership to Victory Antique Theatre. The effect of what was done - whatever the intention - would have left him free to participate in the benefits had Gracie's on the Mall become really profitable, while he was able to distance himself from its burdens in the event. At the same time, her continued acceptance of the whole burden of the conduct of the partnership and of the payments of interest at $1100 per month to Mr Miller and Ms Bugeja improved his liquidity and continued to free him to establish a valuable new business. The ability to do that without having personally and immediately to shoulder the burden of repaying loan finance directly or indirectly utilised is what he sought to gain, and provides a measure of the value of her contribution. 40 In addition to her substantial contributions in these ways to the acquisition and improvement of Mr Greenwood's property and to his and their financial resources, Ms Merkel contributed in the capacity of homemaker to Mr Greenwood's welfare. He denigrated that contribution, referring to their unusual lifestyle. But a home is not bricks and mortar. That is a house. Ms Merkel, I find, did contribute as homemaker to his welfare over a period of years by affectionate domestic care. As I have said, he admitted she loved him, while professing not to have returned that love. However, I am satisfied he accepted its benefits. 41 Having reached this point, I can return to the question whether leave should be granted to Ms Merkel under s 18 of the De Facto Relationships Act. The Court has this discretion where it is "satisfied, having regard to such matters as it considers relevant, that greater hardship would be caused to the applicant if that leave were not granted than would be caused to the respondent if that leave were granted." If leave were not granted, Ms Merkel would be caused the loss of a defence to the whole or part of a claim for over $200,000, adding in costs. The hardship to Mr Greenwood if leave were granted would be the liability to be met with a defence to his claim. I do not consider s 18 should be understood as requiring the Court, on a nice balance of that kind, to hold the hardship must be equal; for the section is clearly meant to have a sensible operation, and such a view would be almost scholastically subtle. The Court is to have "regard to such matters as it considers relevant", and I consider it relevant to take account of the context in which the respective hardships would be suffered, including their reasonably direct effects. The loss of the defence would also deny Ms Merkel any remedy for the very great deal she contributed to the aspects of the relationship relevant under the Act, as well as expose her, very likely, to bankruptcy; whereas Mr Greenwood's hardship is simply the risk of failing to establish a monetary claim, which her financial position and presently limited earning capacity render unlikely in any case to yield a full recovery. 42 In arguing for a refusal of leave, Mr Greenwood's counsel asserted Ms Merkel was more than one year and three months out of time because the cross-claim, when filed, did not specify the relief now sought. This point, while relevant to my discretion, would not go greatly to the respective hardships unless, in the extra time, Mr Greenwood had changed his position in reliance on the absence of a claim. But the cross-claim did, from the beginning, make it clear the Act was being raised as a cross-claim in answer to the claim. I do not accept that, on a fair reading, it failed to make application for an order under the Act in respect of the property being or relevant to the debts alleged. But, if amendment was required, it was certainly not the case that Mr Greenwood was left with the impression no claim under the Act was made; he swore an affidavit designed to answer just such a claim. 43 For Mr Greenwood, it was put that he "has entered into numerous property transactions on the basis that there were no outstanding issues to be dealt with and, further, he has access to less funds now than he did before". In an affidavit, he verified this, but proved too much, since he related those property transactions to the period from January 1996 (that is, over two years before the termination of the relationship). Nevertheless, I do take the transactions into account, although my conclusion about Mr Greenwood's credit limits the extent to which I can rely on their alleged basis, and for the same reason I am less than confident about his current resources, which were challenged in cross-examination. 44 I have come to the conclusion that the balance embodied in s 18(2) favours Ms Merkel, and that I should exercise my discretion so as to grant leave, whether the question should be considered as at the date of the filing of the cross-claim or as at the date of its final formulation at the hearing. Accordingly, leave is granted. 45 That leaves the question whether it is "just and equitable" to make an order "to adjust interests with respect to the property of the de facto partners or either of them". The Court may do so "having regard to" the contributions described in the section to which I have already referred, and bearing in mind s 19. 46 I was referred to some authorities by which the legislation has been interpreted; and in particular, to Jones v Grech [2001] NSWCA 208 and Powell v Supresencia [2003] NSWCA 195. The latter case provides authority for the proposition that it was not the intention of parliament to equate de facto relationships with marriage or to make the same provision with respect to de facto partners as existed for married people at the time the De Facto Relationships Act was enacted. By s 20, the Act rather requires the Court to have regard to particular aspects of the relationship singled out by the statute, although of course they must be seen in the context of that particular relationship, and prescribes "the focal points by reference to which the discretionary judgment as to what seems just and equitable must be made" so that "by having regard to those matters…the court may adjust property interests in a just and equitable manner", as Sheller JA (with whom Tobias JA and Einstein J agreed) made clear (at [24]) by reference to the earlier decision in Evans v Marmont (1997) 42 NSWLR 70. Sheller JA also held (at [76]) that a contribution may be taken into account notwithstanding that it is difficult or impossible to determine its precise value. For his Honour said: "In order to determine whether an adjustment should be made and if so what adjustment, it is not possible to give the respondent's contribution an exact value, particularly having regard to the fact that a substantial part of the appellant's contribution came from an inheritance. I think it is appropriate to value the respondent's welfare contribution as approximately equal and make a decision accordingly. But it must be acknowledged that the respondent's contribution to the appellant's welfare and the welfare of the family made up of the appellant, respondent and the child did not bring with it the usual return of companionship or what the Acting Master described as emotional input, from the appellant." In Jones v Grech, Ipp AJA (as he then was) stated (at [82]), in a judgment with which on this point Davies AJA agreed (at [24]) that "there is no difference in principle between contributions made before the de facto relationship commenced and those made thereafter. The Court may have regard to both." By "those made thereafter", the context makes it plain (see, especially [80]) that Ipp AJA meant "after the de facto relationship had terminated". 47 In my opinion, the contributions made by Ms Merkel to the property of Mr Greenwood which I have described earlier in these reasons far outweigh the relevant contributions made by him, by securing the original finance, providing security for it, and providing her with a limited amount of assistance, or otherwise, so that the making of an order adjusting their interests with respect to their property would be just and equitable, and is required under s 20(1)(a). Furthermore, her contribution in the capacity of homemaker to his welfare over a period of nearly six years should also be reflected (under s 20(1)(b)) in the order. The order which seems to me just and equitable would not go so far as counsel for Ms Merkel seeks and, in particular, so far as to affect directly his rights in relation to the proceeds of the sales of the Victory Theatre business and real estate belonging to him, notwithstanding that I have found Ms Merkel did contribute (in a small way) to his guesthouse and (much more significantly) to the acquisition, conservation and improvement of the Victory Theatre business. Some share in the proceeds of the sale of these was sought by Ms Merkel's counsel, but that issue never, I think, loomed large in the case, and it took up very little time at the hearing. The order that should be made is one with respect to the debts alleged by Mr Greenwood in this proceeding; and its effect should be to set them aside and release Ms Merkel from any obligation in respect of them. I decline to order the taking of an account or the making of inquiries, both because the exercise of discretion I have found appropriate includes a decision that what is just and equitable extends so far as I have said and not further, and because I have sought to comply with s 19 which favours relief that finally determines the financial relationships between the parties and avoids further proceedings between them. 48 In the result, it is not necessary to consider other defences raised to Mr Greenwood's claim, which must be dismissed. 49 I direct Ms Merkel to bring in, on a date to be fixed, short minutes of orders appropriate to be made in the light of these reasons. At that time, I shall hear the parties as to the order I should make in respect of costs.

Greenwood v Merkel

At a glance

Court

Decision date

Before

Source

Judgment (9 paragraphs)

Parties

Cases Cited (3)

Cited By (1)