LAND LAW - Conveyancing Act 1919 (NSW), s 66G - application for appointment of trustees for sale - discretionary considerations - hardship or unfairness not a basis to refuse application
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LAND LAW - Conveyancing Act 1919 (NSW), s 66G - application for appointment of trustees for sale - discretionary considerations - hardship or unfairness not a basis to refuse application
Judgment (9 paragraphs)
[1]
Judgment
This is an application under the Conveyancing Act 1919 (NSW), s 66G, for the appointment of trustees for the sale of a property at Kyogle in northern New South Wales.
The plaintiff, Larissa Jane Groch, and the defendant, Keith Charles Knights, are the registered proprietors of the property as joint tenants in equal shares. They acquired the property in around March 2011. It is a 40-hectare rural block with a timber building on it.
Mr Knights and Ms Groch were previously in a relationship. After it ended, Ms Groch moved to Victoria. Mr Knights continued to live, on and off, at the property. He is now being held on remand in Cessnock Correctional Centre awaiting trial on unrelated criminal charges. Mr Knights is unrepresented and defends the proceedings in person by video link from the Correctional Centre.
On behalf of Ms Groch, an additional order was initially sought under the Conveyancing Act, s 36A, for the division of certain chattels located at the property that were allegedly acquired by Ms Groch as co-owner. Counsel for Ms Groch abandoned this claim at the hearing on 1 August 2018. It is not necessary to consider it any further.
The issues for determination are whether to make the order under s 66G and, if so, what share of the proceeds the parties are entitled to.
The course of the proceedings has not been smooth. The proceedings were commenced by Summons in December 2017. An affidavit from Ms Groch was filed in support of the Summons. Four directions hearings took place before the proceedings were fixed for final hearing on 14 May 2018. Mr Knights was taken into custody virtually at the time the proceedings were commenced. He was unable to attend any of the directions hearings and no arrangements were made for him to appear by video link.
Mr Knights did not retain a solicitor to act for him in the proceedings. He approached the Lismore office of Legal Aid. Legal Aid declined to act for him, but a solicitor in the Lismore office did forward a letter to the Court at Mr Knights' request. In that letter, Mr Knights complained that documents were not reaching him at the gaol or were only reaching him after a long delay. Questions arose as to whether the documents had been properly served on Mr Knights, given the requirements of Uniform Civil Procedure Rules 2005 (NSW) r 10.25 which requires that a document to be served on a prison inmate be served on the general manager of the relevant prison.
Video link arrangements were made in advance of the hearing on 14 May and Mr Knights appeared by video link on that day. After some debate I adjourned the hearing to 13 July. I had no means of knowing whether what Mr Knights said about not receiving documents was correct. I wanted to ensure that he would definitely have sufficient time to consider Ms Groch's evidence and submissions. I also urged him to retain a solicitor to act for him in the proceedings. Unfortunately that has not occurred.
In May, a supplementary affidavit was filed from Ms Groch. At the resumed video link hearing on 13 July, Ms Groch's affidavits of December 2017 and May 2018 were read. No affidavit had been filed from Mr Knights. I allowed him to give evidence and he was cross-examined. At the end of the argument, counsel for Ms Groch indicated that the claim under the Conveyancing Act, s 36A, with respect to the chattels, might be abandoned. Counsel sought further time to clarify the position. I allowed an adjournment to give counsel this opportunity.
At the end of the hearing, the evidence was left in a confused state. Ms Groch was not at the hearing. Mr Knights had not sought to have her attend for cross-examination. She did not reply to his evidence. Counsel for Ms Groch cross-examined Mr Knights but the cross-examination did not deal exhaustively with all of the points he made. In saying this, I am not criticising counsel for Ms Groch. Mr Knights' evidence was hard to follow and his submissions frequently contained assertions of fact which went beyond the evidence. This situation was difficult for counsel, Mr Knights and the Court.
The video link hearing continued before me on 1 August. Counsel for Ms Groch confirmed that the claim with respect to the chattels was abandoned. Before the hearing, a further affidavit of Ms Groch had been filed before the hearing on 18 July. The affidavit provided further details of Ms Groch's contention that she was entitled to allowances for making mortgage repayments. The affidavit also attached further documents. No direction had been made for the filing of any further affidavits. Mr Knights had received the affidavit but claimed that he only received it shortly before the hearing. Again, I had no way of knowing whether this was correct. While I have looked at the affidavit to identify what it contained, I did not proceed to have it formally read.
Many of the topics about which Ms Groch and Mr Knights gave evidence concerned financial dealings which would have originally been reflected in legal and financial records. While some of those records may no longer exist, most of the transactions took place within the last six years or so and records should have been available. Ms Groch did annex some documents to her affidavits of December 2017, May 2018 and July 2018; even so, I was left in a state of uncertainty about whether all relevant documents had been produced.
Being in gaol, Mr Knights had limited documents to hand. He had no practical ability to subpoena any documents and I am not sure that he understood the Court's procedures for discovery or production of relevant documents on notice; if he did, he did not seek to take advantage of those procedures.
[2]
Summary and analysis of evidence
The evidence provides only a partial narrative of the events leading up to the acquisition of the property. Ms Groch said in her December 2017 affidavit that she initially met Mr Knights sometime in 2007. This was disputed by Mr Knights who claimed they met earlier in Melbourne in 2005 when he asked Ms Groch to run kitchen operations for an event in Echuca in northern Victoria. Mr Knights said from that point onwards the parties were involved in a not-for-profit business called "Canopy" that provided art and transportable infrastructure for festivals around Australia. Mr Knights' account was not addressed in any of Ms Groch's affidavits and without her evidence it is impossible to make any firm factual findings on the issue.
Whenever it is the parties first met, it appears they lived together in rental accommodation in Brisbane for part of 2007 until sometime in 2008. For reasons not explained by the evidence, the relationship broke down in 2008 following which Ms Groch moved to Western Australia where she worked as a teacher, living there until 2012. Despite the breakdown, the parties remained in contact with one another from 2008 until 2011 and, sometime in late 2010 or early 2011, Ms Groch and Mr Knights rekindled their relationship.
Mr Knights gave evidence of the events around the time of the acquisition of the property. He said that he was told by the previous owners of the property of their interest in selling the property in 2011. Mr Knights first intimated his intention to buy the property to Ms Groch when they were both at a festival in Ballarat in Victoria in 2011 (presumably, if one were to accept Mr Knights' description of the parties' business relationship, to assist in the festival's operations). Mr Knights said that Ms Groch gave him an ultimatum that if she could not be a joint owner of the property, she would sabotage the business venture they were involved in. In light of this threat, Mr Knights allowed her to be joint owner of the property. Again, in the absence of Ms Groch's account and cross-examination of Mr Knights on the issue, it is not possible to make any factual findings as to whether what Mr Knights said is true.
On Mr Knights' evidence, a major reason for acquiring the property was to turn it into some sort of community enterprise. Mr Knights called this the "Kyogle Project" in his oral evidence, although a document tendered by Mr Knights, which purported to be an investor prospectus of the community enterprise, refers to it as the "Klyoogle Project". The investor prospectus was sent by facsimile from the Correctional Centre to the chambers of counsel for Ms Groch who tendered the document on Mr Knights' behalf. Unfortunately, owing to the form of transmission the document is of poor quality and apart from the headings and sub-headings it is difficult to make out any of the writing. It is not possible to ascertain from the document whether the enterprise has advanced beyond its formative stages. Mr Knights did not suggest that it was operational, nor did he suggest that the community enterprise generated any income or profit.
There is no evidence which shows the date on which the contract to acquire the property was signed or exchanged nor the date on which the parties registered the property in their names. It is only possible to state the property was acquired in around March 2011. Ms Groch said in her affidavit that the parties purchased the property for $235,000. She also said that both parties jointly granted a mortgage over the property to the Commonwealth Bank of Australia ("the Bank"), securing a loan from that institution of approximately $188,000. Documentation for the loan facility and mortgage are not in evidence but a search of the folio annexed to Ms Groch's December 2017 affidavit reveals the Bank's mortgage is registered (although the date of registration is not apparent).
Ms Groch attached a number of statements from her accounts with the Bank to her December 2017 and May 2018 affidavits. These documents were said to show evidence of her financial contributions to (1) repayments on the mortgage to the Bank; and (2) council rates and other outgoings. Ms Groch made claims for an allowance in her favour in both of these categories.
In the first category, Ms Groch said the account statements prove that she contributed to half of the mortgage repayments since 2011. Ms Groch also said that since December 2017 Mr Knights had made no further contributions to the mortgage and that as a consequence she had paid all mortgage contributions since then. An account statement of the joint mortgage account from 1 July 2016 until 31 December 2016 showed minimum monthly repayments of $1,251. According to Ms Groch, this amount remained the same from 2011 when the loan was initially provided.
The account statements showed a regular pattern of deductions each month from one of Ms Groch's personal accounts into another account. Ms Groch claimed this other account was a joint savings account in the name of both parties but there is no account statement of the joint account in evidence to confirm this. The monies in the joint savings account were then allegedly transferred to a joint mortgage account. A summary statement from this joint mortgage account is in evidence but it is impossible to confirm from inspecting the document whether what Ms Groch said is accurate because the summary does not provide any breakdown of transfers into that account.
As to the second category, Ms Groch said she has paid all the council rates from December 2017, referring to a transaction in one of the account statements which she alleged was a payment of the whole of council rates due for the payment period ending in December 2017. But there was no documentary evidence from the Council showing the amount that was payable for that period. In the absence of such evidence, the account statement itself does not establish that Ms Groch paid more than her share.
The parties lived at the property from September 2012 until June 2013 when, on Ms Groch's evidence, the relationship broke down again and she moved out. It is not clear from Ms Groch's evidence why the relationship ended. Mr Knights alleges the relationship broke down in September 2014. He says the relationship cannot have broken down in June 2013 because a $2,000 payment to Mr Knights appears in Ms Groch's account statement of 1 April to 19 September 2014 which was said to cover the cost of Mr Knights' travel to Western Australia to help launch a business venture operated by Ms Groch. He further claims that the relationship broke down because of the tension created when Ms Groch's new business venture began to work in competition with Canopy. Mr Knights alleged Ms Groch's manoeuvre involved a breach of trust that resulted in the deterioration of the relationship. Again, none of the factual assertions made by Mr Knights are addressed in Ms Groch's affidavit evidence. Neither did counsel for Ms Groch cross-examine Mr Knights on this aspect of the evidence. In these circumstances, I cannot reach any firm conclusions of fact on this issue.
Following her departure, Ms Groch said she approached Mr Knights about selling the property or for Mr Knights to buy out her interest as co-owner. Ms Groch allegedly raised this with Mr Knights several times a year. At first, Mr Knights expressed an interest in buying out Ms Groch's share but after that she was met with silence. Mr Knights said that Ms Groch told him she wanted to sell the property but she did not respond to proposals he made for him to buy out her share (these proposals were not described but presumably, given Mr Knights' position in these proceedings, would have involved some sort of deferral of payment).
Ms Groch said to the best of her knowledge that Mr Knights continued to live on the property from the time of her departure until sometime in 2017. Counsel for Ms Groch put this to Mr Knights. Mr Knights responded to the effect that he used the property as a base while doing various work around Australia. In response to questioning by counsel, Mr Knights said that he did not pay any rent during the period in which he had sole occupation of the property.
There was some dispute about whether Mr Knights made improvements to the property, either before or after Ms Groch's departure. Simon Tough, a real estate agent based in Kyogle, swore an affidavit with an appraisal of the property annexed. Attached to that appraisal are several photos of different areas of the property. In the affidavit, Mr Tough said he was instructed to look for "improvements" as well as chattels located on the property. In the appraisal, Mr Tough stated after a summary inspection and a comparison of other surrounding properties that the market value of the property was estimated to be around $245,000 to $260,000. The appraisal expressly considered as improvements to the property a timber building, three shipping containers and a carport. The appraisal also stated the property is heavily treed and needs rubbish removal.
Ms Groch said in her 29 May affidavit that Mr Knights made no improvements during the period in which she resided at the property with Mr Knights. She said that the property had been poorly maintained and that the caravan and timber building were already there when she and Mr Knights purchased the property in 2011. She also said that based on the photos annexed to the appraisal there was no sign that any improvements were made to the timber building since the last time she saw the property in 2013.
Mr Knights disputed both Ms Groch and Mr Tough's evidence, claiming he personally made improvements to the property by installing tankage and irrigation systems, drought-proofing the property, creating garden beds, and installing a reticulation network and off-grid solar power supply system. Mr Knights asserted that none of these improvements were considered in Mr Tough's appraisal.
On the evidence before me, it is not clear if Mr Knights made any such improvements or repairs. But I am not satisfied that such improvements or repairs did not occur either. Although Mr Tough said in his affidavit that he took the solar panels into account, the appraisal does not state so expressly. Neither does the appraisal consider any of the improvements or repairs that Mr Knights now claims in his oral evidence. Counsel for Ms Groch did not cross-examine Mr Knights on any of his claims about repairs or improvements.
[3]
Appointment of trustees for sale
Mr Knights resisted an order being made for the sale of the property under s 66G. It was not easy to discern Mr Knights' precise arguments or to relate them to evidence actually before the Court. Nevertheless, I think Mr Knights' position can be distilled into two interrelated arguments.
Firstly, Mr Knights resisted the Court making the order on grounds that it would be unfair for this Court to sell the property at a time which is unsuitable to him. Mr Knights asserted that the sale of the property at this point will frustrate ventures on which he has been working since the property was acquired. He said that if the sale were delayed, that would in fact be more favourable to Ms Groch because she would get more out of it in the end. Mr Knights' second contention was that Ms Groch was acting wrongfully in bringing the application. He said that she was taking advantage of his vulnerability when he is detained in gaol. Mr Knights further alleged he was blackmailed by Ms Groch to become involved in purchasing the property; that Ms Groch was otherwise involved in a number of illegal activities; and Ms Groch commenced the present proceedings to obtain a financial advantage by deception.
The principles on which the Court acts in exercising its power under s 66G are well established by authority in this State, including authority of the Court of Appeal. Those principles were summarised by White J (as his Honour then was) in Tory v Tory [2007] NSWSC 1078 at [42] and by Ward CJ in Eq in Myers v Clark [2018] NSWSC 1029 at [81]-[91]. The law takes the view that, in general, a co-owner is entitled to use the s 66G procedure to realise his or her interest in a co-owned property irrespective of the wishes of the other co-owner. A plaintiff in an application of this sort is thus entitled to an order virtually as of right. An order will not be made if that would contravene a legal obligation recognised by law, such as a contractual or fiduciary obligation, or an obligation arising by estoppel. But otherwise, hardship or unfairness, in the sense that the sale will disadvantage the other co-owner, is not a basis for refusing the application.
Applying these principles, Mr Knights' first argument must be rejected. There is little, if any, evidence to provide objective support for Mr Knights' prediction that delaying the sale of the property would work to both parties' advantage. But even if there had been, that would not make any difference. Under the law which I must apply, Ms Groch is the sole judge of what her best interests demand. She is pressing her application and the fact that that may inconvenience, or cause financial hardship to, Mr Knights is not enough to refuse it.
As to Mr Knights' second argument, I accept that his being in gaol has made it hard for him to respond to Ms Groch's application. Those difficulties may to an extent be self-inflicted; there was no evidence before me that Mr Knights was unable to retain a solicitor to assist him. Since Mr Knights is likely to receive approximately $100,000 from the sale of the property there is no reason to suppose that Mr Knights' failure to retain a solicitor is necessarily the result of financial difficulties. But, again, even if hardship, other than self-inflicted hardship, were established, that would be irrelevant. Ms Groch is not to blame for the fact that Mr Knights is in gaol, as he conceded in the course of the hearing.
There is no evidence to establish Mr Knights' assertions of blackmail or illegal activity on the part of Ms Groch. Mr Knights also did not explain how or why those allegations should result in the order being refused. No evidence was tendered to support Mr Knights' claim that Ms Groch was using these proceedings for any improper purpose.
For these reasons, I consider that on the evidence before me Ms Groch has established her entitlement to have trustees appointed to sell the property. But the potential difficulty with proceeding immediately to making an order is that, as I will explain in more detail below, the Court is not in a position to deal finally, at this stage, with the parties' respective claims for allowances in their favour out of the proceeds. It is necessary to consider whether an order can be made for the sale of the property in such circumstances.
The relevant subsections of the Conveyancing Act, s 66G, provide:
(1) Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.
…
(6) In relation to the sale or partition of property held in co-ownership, the court may alter such statutory trusts, and the trust so altered shall be deemed to be the statutory trust in relation to that property.
(7) Where property becomes subject to such statutory trust for sale:
(a) in the case of joint tenancy, a sale under the trust shall not of itself effect a severance of that tenancy,
(b) in any case land shall be deemed to be converted upon the appointment of trustees for sale unless the court otherwise directs.
Section 66F(2)(a) contains a definition of "statutory trust for sale":
Property held upon the "statutory trust for sale" shall be held upon trust to sell the same and to stand possessed of the net proceeds of sale, after payment of costs and expenses, and of the net income until sale after payment of costs, expenses, and outgoings, and in the case of land of rates, taxes, costs of insurance, repairs properly payable out of income, and other outgoings upon such trusts, and subject to such powers and provisions as may be requisite for giving effect to the rights of the co-owners…
The effect of an order under s 66G is to change the nature of the parties' interest in the property. The property is transferred out of the names of the co-owners and vested in the trustees. A trust is thereby constituted: Application of Richard Albarran; Harb v Harb (2010) 17 BPR 33,295; [2010] NSWSC 1251 at [16]-[20]. The parties' rights as co-owners of the property are replaced by rights as beneficiaries under that trust.
Usually, the beneficiaries' interests in a trust are defined when the trust is first constituted and continue for the life of the trust (subject to any power of amendment which may be reserved by the trust instrument). There might be thought to be a difficulty with making a s 66G order if, at the time the order is made and the trust for sale is established, the financial contributions of the parties, and hence their respective shares of the proceeds of the sale, are unknown. But, on analysis, I do not think it is a problem. The definition of the term "statutory trust for sale" makes the parties' ultimate entitlements "subject to such powers and provisions as may be requisite for giving effect to the rights of the co-owners". In effect, those words build into the terms of the trust a power to determine incidental questions of entitlement after having made an order for sale.
Certain equitable doctrines allow for the Court to make an order determining entitlement to relief at a general level, with further directions made as necessary to carry the order into effect. An example is an order for specific performance, which may be followed by directions and other interlocutory orders to carry it into effect: Caird Seven Pty Ltd v Attia (2016) 92 NSWLR 457; [2016] NSWSC 1452 at [17]. In Coshott v Crouch [2018] NSWSC 853 I suggested that a s 66G order could be seen as another order of this type (at [36]-[38], [45]). The making of directions to determine claims by the parties for allowances in their favour fits comfortably within such a scheme.
If I am wrong in thinking that a power to give such directions is "built in" to the standard form definition, then the Court may be able, by subsequent order under s 66G(6) to vary the parties' entitlements, at least before the proceeds of the property are distributed by the trustees. As Hamilton J pointed out in Dobrijevich v Burge (2001) 10 BPR 19,525; [2001] NSWSC 1176 at [3], the power of variation under s 66G(6) is not expressed to be limited in point of time.
On behalf of Ms Groch, a solicitor and a chartered accountant practising in Sydney were nominated to act as the trustees for sale. Mr Knights did not advance any argument against appointing these individuals should the application succeed and did not suggest anyone else. Accordingly I will make an order appointing the individuals proposed by Ms Groch as trustees for sale.
[4]
Allowances out of proceeds of sale
There are four matters which might potentially give rise to allowances in favour of one or other of the parties. They are:
(1) improvements to the property allegedly effected by Mr Knights;
(2) sole occupation of the property by Mr Knights for part of the time since 2011;
(3) allegedly disproportionate contributions to the mortgage repayments made by Ms Groch;
(4) allegedly disproportionate contributions to rates made by Ms Groch.
The principles that apply to such contributions are rather complex. But it is sufficient for the purposes of this judgment to refer to three Court of Appeal authorities. Forgeard v Shanahan (1994) 35 NSWLR 206 arose out of an application under s 66G. Meagher JA, with whom Mahoney JA agreed, gave the leading judgment. Ryan v Dries (2002) 10 BPR 19,497; [2002] NSWCA 3 arose out of a resulting trust claim. Hodgson JA, with whom Sheller JA agreed, gave the leading judgment. Callow v Rupchev (2009) 14 BPR 27,533; [2009] NSWCA 148 concerned the entitlement to the proceeds of property that had been sold. The Court (consisting of Beazley and Basten JJA and Handley AJA) gave a joint judgment.
[5]
Improvements
It is well established that improvements and lasting repairs made to a property by one co-owner may give rise to a right to an allowance out of the sale of the property in an application under s 66G. In Forgeard v Shanahan Meagher JA said (at 223):
If a co-owner, in occupation effects improvements on the co-owned property he may claim an allowance for any improvements in value effected by him. Such an allowance may be claimed in an action for partition. The allowance is not a reimbursement of the amount expended, but an allowance in respect of the amount by which the value of the property has been increased, not exceeding the amount expended, the "value" to be ascertained at the commencement of the action. …Thus, in summary, a tenant who effects repairs, is entitled to an allowance for the lesser of the value of the enhancement of the property and the cost of effecting the repairs.
Meagher JA referred (at 224) to an exception to the rule that the allowance is based on value created rather than the cost, in a case where the other co-owner is entitled to an account of rents or profits received from the property and those rents or profits have been used to finance the repairs or improvements. But because there is no evidence that the community enterprise generated any profits in the present case, it is unlikely this exception would apply.
As pointed out at [26]-[29] above, the evidence leaves open Mr Knights' claim that he undertook improvements to the property but does not establish it. Furthermore, there is no evidence as to whether the alleged improvements have increased the value of the property and if so, by how much.
[6]
Occupation fee
If one co-owner excludes the other from the property, that co-owner may be required to make an allowance in favour of the excluded co-owner by way of occupation fee. The traditional view was that where there is no ouster (actual or constructive) or exclusion there was no entitlement to an occupation fee. There was, however, a recognised exception where the co-owner in possession claimed an allowance for repairs or improvements. In Forgeard v Shanahan Meagher JA said (at 223):
…if the owner in occupation clams an allowance in respect of improvements effected by him, equity will permit such an allowance only on terms that he is accountable for an occupation fee - this is an example of he who comes to equity having to do equity: see Teasdale v Sanderson (1864) 33 Beav 534; 55 ER 476.
But in Callow v Rupchev the Court of Appeal adopted a more expansive view, recognising what the Court described as a "new" ground for recovery that is not dependent on forceful ouster or constructive denial of title. The Court held (at [71]) that an occupation fee is available on this ground where:
…it is unreasonable to expect co-owners to continue to live under the same roof after a domestic relationship has collapsed, and one party moves out.
The Court continued, addressing whether it is appropriate to charge this kind of occupation fee where the co-owner in occupation temporarily leaves the property (at [71]):
…when the premises later become vacant for an extended period the party who initially remained may not be obtaining any financial benefit, or the same level of financial benefit from the property. If neither co-owner is using the property for residence or storage it may not be appropriate or equitable for either to be charged with an "occupation rent" unless a proper basis for this is established.
The Court continued (at [74]):
Because, absent ouster, the basis for setting off a notional occupation fee is the unreasonableness of requiring the joint owners to reside together, it would be necessary, in a case where the party claiming contribution has vacated the premises for a period, for the other party to demonstrate affirmatively that it was unreasonable to expect him or her to return to the premises during that period.
This "new" principle might be available in this case, depending on the nature of the relationship between the parties. But even on the assumption that it does apply, it is not possible on the evidence before me to make a finding as to when the relationship broke down. Neither is it possible to make any findings on the question of whether it was unreasonable to have expected Ms Groch, who left the property in June 2013, to continue living on the property after the relationship fell apart (whenever that may have occurred). And if one were to accept Mr Knights' evidence that he only used the property as a base, on the approach taken in Callow it would be for Ms Groch to show that it was unreasonable for her to return to the property during Mr Knights' absence.
Even on the traditional view, if Mr Knights were entitled to an allowance for improvements to the property it would be open to Ms Groch to set an occupation fee off against any such entitlement. But even if such an allowance is appropriate, whether on the traditional view or the "new" principle in Callow, there is no evidence before the Court that would allow a proper occupation fee for the property to be quantified.
[7]
Mortgage repayments and rates
In Forgeard v Shanahan, Meagher JA said (at 224):
Apart from questions of improvements and occupation fees, which arise from the relationship of co-owners, it will also often happen that co-owners are joint debtors (for example, on a mortgage, or because rates are levied on the property). If one co-owner pays such a debt in full he is entitled to require the other co-owner to contribute a rateable amount; at least that is the prima facie position. In this regard the parties' rights arise from the equitable doctrine of contribution, not from the law of property (see Gibbs CJ in Muschinski v Dodds (1985) 160 CLR 583 at 596-597), that is, they would apply in the case of all joint debts even if the debtors owned no property.
But Hodgson JA in Ryan v Dries said that Meagher JA's analysis was obiter and expressed some qualifications to it. He responded to what Meagher JA said about mortgage repayments as follows (at [71]):
…once an occupier is required to do equity because he or she is seeking equity, there is no reason to distinguish between improvements or repairs effected to the property on the one hand, and the reduction of a charge on the property through mortgage repayments on the other.
This aspect of Ryan v Dries would support a set-off of Ms Groch's mortgage contributions against any entitlement Mr Knights might have by way of allowance for improvements (after deduction of any occupation fee). But it would not necessarily support a freestanding entitlement to an allowance in favour of Ms Groch if Mr Knights had no entitlement to an improvement allowance in his favour. If one accepts, in accordance with what Hodgson JA said, that allowance for mortgage repayments is permitted because of the increase in the equity of redemption, it would apply to the capital component of the repayments but not the interest component (although no such distinction appears to have been recognised in Ryan v Dries itself). In the present case, the evidence does not allow the mortgage repayments by Ms Groch to be separated into capital and interest.
But it might be possible to put the claim in a different way. On the analysis of Meagher JA in Forgeard v Shanahan, there is an entitlement to contribution for any joint liabilities. For this purpose, there would appear to be no distinction between capital and interest payments. Other outgoings of a recurring nature, such as rates, would also give rise to a right of contribution.
This would suggest that it was open to Ms Groch to mount a claim for contribution towards both mortgage repayments and rate payments. But in my view, before admitting such a claim it would be necessary to consider whether there is anything in the circumstances which would make it inequitable for Ms Groch to claim contribution for those expenses without making other allowances in favour of Mr Knights. On Mr Knights' account there were broader financial dealings between the parties. It might be necessary to look at the mortgage and rate payments in the context of those broader dealings, and the evidence before the Court does not allow this at present.
It might be asked why, given that the proceedings were fixed for final hearing on 14 May and there have already been two adjournments, the Court should not simply proceed to determine the parties' claims for allowances out of the proceeds of sale of the property and dismiss those claims if they are not supported by adequate evidence or legal submissions. But the fact is that neither party has presented a full and adequate case in this regard, and to deal with the claims on the current unsatisfactory state of the evidence and submissions would do a disservice to both of them. An order for sale can be made now and it will be some time before the property is sold. To allow the parties a further opportunity to present their cases on the division of the proceeds will not therefore lead to any delay or prejudice and the failure of any party to present adequate evidence or submissions to this point can be dealt with in the ultimate order for costs.
There is a further point. Among the responsibilities of the trustees for sale will be the preparation of a tax return or returns for the trust. On the face of it, the sale of the property will be a "capital gains event" which will potentially give rise to a liability for capital gains tax if the proceeds exceed the "cost base" of the property: Income Tax Assessment Act 1997 (Cth), s 104.10. The cost base of the property will therefore need to be worked out by the trustees in order to lodge the return. Determining the cost base of the property will involve determining how much was spent in acquiring and improving it. The cost base will also include any expenditure on the property of a capital nature: Income Tax Assessment Act 1997, s 110.25.
The questions raised by the exercise are not exactly the same as those raised by the parties' claims for allowances. For instance, for the purpose of determining the cost base, what has been spent on improvements is what matters, rather than the extent to which the improvements contribute to the current value of the property. But there is a significant overlap. It is in both parties' interests to obtain the maximum value from investigation of the relevant facts, and if the parties are given a further opportunity to present their cases fully on the allowances question, this may simplify the task of preparing the accounts and tax returns.
Any such further opportunity for the parties to claim allowances need not necessarily require a full-scale hearing by the Court. It may be appropriate to refer any necessary enquiries and accounts to the trustees, who could undertake the task subject to the ultimate direction of the Court. I will address this further when the parties have had an opportunity to consider this judgment.
[8]
Orders
For these reasons, the orders of the Court are:
Order pursuant to Conveyancing Act 1919 (NSW), s 66G(1), that Ken Herd of 1/233 Darlinghurst Road, Darlinghurst NSW 2010, and Daniel Whitely of 211/61 Marlborough Street, Surry Hills NSW 2010 ("the Trustees"), be appointed as trustees for the sale of the land situated at [XX] Blackhorse Creek Road, Kyogle NSW 2474, being the land contained in folio identifier 11/860567 ("the Land").
Order that the Land vest in the Trustees subject to incumbrances affecting the whole of the respective properties but free from incumbrances (if any) affecting any undivided share therein to be held by the Trustees on the statutory trust for sale under Division 6 of Part 4 of the Conveyancing Act 1919 (NSW).
Direct that within 21 days of today's date the plaintiff bring in short minutes of order providing for the further conduct of the proceedings.
Reserve the costs of the proceedings to date.
[9]
Amendments
18 December 2018 - Corrected minor typographical errors.
24 February 2023 - [34] grammatical correction
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Decision last updated: 24 February 2023