LAND LAW - Conveyancing Act 1919 (NSW), s 66G - orders consequent on appointment of trustees for sale - costs and disbursements.
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Original judgment source is linked above.
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LAND LAW - Conveyancing Act 1919 (NSW), s 66G - orders consequent on appointment of trustees for sale - costs and disbursements.
Judgment (2 paragraphs)
[1]
Judgment - EX TEMPORE
Revised and reissued 25 March 2019
This matter has returned to Court following orders which I made in September last year for the sale of the property, the subject of the proceedings: Groch v Knights [2018] NSWSC 1365. The reasons for the orders I now make should be understood in the light of those reasons which I will not repeat.
The sale of the property has been completed. Contracts were exchanged earlier in January for $227,000. Before settlement there was a reduction of the price by $10,000 in circumstances which I will describe in more detail below.
Settlement was completed on 13 February. Fees for the solicitors and real estate agent retained by the trustees for the sale were deducted from the proceeds.
In my earlier judgment at [61] I suggested that the sale would give rise to a capital gains tax liability. At that stage the evidence before the Court suggested that the property would fetch between $245,000 and $260,000. Unfortunately the change in market conditions has resulted in less than that being received and accordingly no question of a capital gain arises.
At settlement, the outstanding mortgage liability to the bank of approximately $144,000 was paid out. Also paid out were unpaid council rates and adjustments for water rates. The net proceeds are approximately $62,000.
The trustees claim reimbursement of disbursements and costs in the sum of approximately $4,500. There has been no objection to this amount from any party and I see no reason not to approve it. There will be an order in due course that the trustees are entitled to deduct this sum from the proceeds of sale which they hold. This leaves net proceeds of approximately $57,400 to be divided among Ms Groch and Mr Knights, subject to claims for allowances out of that amount.
Groch v Knights [2019] NSWSC 308 | Case summary | Zoe
I should note in passing that at [34] of my judgment I suggested that the difficulties that Mr Knights has had in meeting the claim against him in these proceedings might, to an extent, be self-inflicted. One of the reasons I gave for this was that Mr Knights was likely to receive approximately $100,000 from the sale of the property and therefore that Mr Knights' failure to retain a solicitor was not necessarily the result of financial difficulties. In making that statement I had overlooked the fact that the mortgage debt (which was not, I believe, quantified in the evidence before me at that stage) would have to be paid. I also took account of the higher net proceeds which were then expected. But I went on to point out that even if hardship, other than self-inflicted hardship, were established, that would be irrelevant and the difficulties that Mr Knights experienced in meeting the claim would not be a reason for the Court refusing relief to which Ms Groch is entitled under the law.
The principal issue before me now is how the sale proceeds should be divided. At [44] of my judgment I foreshadowed four potential adjustments which might be sought by one party or the other and which would result in an unequal division. Not all of those are in issue before me now but a new point has been raised by Ms Groch concerning the $10,000 deduction from the purchase price to which I have referred. Ms Groch also seeks a costs order assessed on a lump sum basis and payable out of the proceeds of the property.
The first claim with which I will deal is the claim by Mr Knights that he paid for improvements to the land and he should be entitled to an allowance in his favour in this regard. In support of this claim, Mr Knights relied on a statutory declaration of Fiona Leigh Gray. Late last year Ms Gray was approached by Mr Knights and asked to recover what Mr Knights claimed was his personal property from the Kyogle address. Ms Gray has not apparently met Mr Knights face-to-face but had earlier met him through a mutual friend when he was seeking bail for the offences with which he was charged.
Ms Gray made several visits to the property between mid-December and mid-February. Her statutory declaration contains a description of the features of the property; it also attaches a diagram showing where those features are located and eighteen photographs taken by Ms Gray at the property at some point between December and February.
In her statutory declaration Ms Gray described features of the property which she had been told by Mr Knights that he had been responsible for and had been undertaken to "drought-proof" the property. These features included access tracks, pipes, valves, earth works and culverts. The statutory declaration states that Ms Gray had retrieved from the property an earth moving vehicle with an excavator (backhoe) which, it was suggested, was used by Mr Knights to do the relevant earth works.
The statutory declaration also refers to the existence of outdoor plumbing fittings, tanks and taps. It also describes a shack and a shed on the property and refers to some solar panels which supply the shack with power. Mr Knights asserted, although there was no evidence of this, that he had spent tens of thousands of dollars installing these features on the property.
I dealt with principles which apply to a claim of this type at [46]-[48] of my earlier judgment. A critical element of such a claim is that it is a claim for increased value attributable to improvements undertaken. It is not enough to demonstrate that one of the co-owners has spent money in improving the property. It is necessary to show that those improvements have increased the value of the property beyond the value that it would have had they not been undertaken. The amount of the resulting compensation is the increased value, not the amount of the expenditure.
Thus, in a claim of this character, there needs to be evidence which demonstrates that the improvements have increased the value of the property, and by how much. In the present case there is no satisfactory evidence that Mr Knights even undertook these improvements at his own cost. But even if he did, that does not matter, because there is no evidence before the Court that would allow the Court to determine how much of the sale price was attributable to the improvements.
The Court, in this regard, does not act on assertions from lay people about increased value of the property. Generally speaking, this would be a matter for expert evidence. It must have been completely clear to Mr Knights, had he read and understood my first judgment, that it was necessary for him to have proper valuation evidence on this subject. In the absence of such valuation evidence, his claim cannot succeed.
There is one potential qualification to what I have said. The evidence about the reduction in purchase price, to which I will refer in more detail shortly, suggests that the reduction may have resulted, at least in part, from the removal of the solar electricity system from the property. To that extent, it might be said that there is some evidence before the Court that that system increased the value of the property. But I do not need to consider this further, because there is no evidence that that particular system was paid for by Mr Knights alone. For these reasons, Mr Knights' claim for an allowance in his favour for his improvements fails.
The next allowance claimed is by Ms Groch. She seeks an adjustment in her favour for having made all of the mortgage repayments while Mr Knights has been in gaol. This claim is not now disputed by Mr Knights. The allowance in Ms Groch's favour which results is approximately $9,400. This reduces the available balance to approximately $48,000.
Ms Groch next claims that the $10,000 reduction in the purchase price should be attributed wholly to Mr Knights thus increasing her share of the balance by $5,000 to $29,000 and reducing Mr Knights' share to $19,000. The evidence on this subject comes from one of the trustees, Mr Herd. His evidence is that on 7 February he received a telephone call from Ms Gray in which she asked to make arrangements to remove Mr Knights' personal property from the land at Kyogle. Mr Knights told Ms Gray that, so far as he was aware, there were no particular items on the property beyond a generator, the dwelling shack, some solar panels and some motor vehicles. Mr Herd mentioned that the generator, inverter and batteries associated with the solar panels as well as the panels themselves could be regarded as fixtures. Ms Gray said that she would nevertheless be removing them.
Subsequently the purchasers claimed the reduction in the purchase price to which I have already referred. That claim was supported by a statutory declaration of one of the purchasers, Janette Ann Scharf. Ms Scharf's statutory declaration stated that prior to entering into the contract for the purchase of the land, she and the other purchaser inspected the property and noted the presence of the solar panels, inverter and batteries. She said that these were still present on the property on 10 January, which was the day after exchange. She later heard that someone (presumably Ms Gray) had been asked to attend the property to remove property belonging to the vendors. She then visited the property on 16 January and it had been "trashed". The solar panels, inverter and batteries were gone. The statutory declaration contains some black and white photographs which depicted the property at that point.
I observe that there is an inconsistency between this and what Mr Herd was told on 7 February, which suggested that the removal of property by Ms Gray was still to take place, but nothing turns on this for present purposes.
Ms Scharf also attaches to the statutory declaration a quote for the supply of a replacement set of solar panels, inverter and batteries. The quoted cost was approximately $22,000.
Mr Herd said in light of the claim, he was anxious to ensure the contract was not rescinded and he wished to avoid a potential claim for damages. The $10,000 was negotiated as a deduction to allow the settlement to proceed.
Counsel for Ms Groch submitted that it was the conduct of Mr Knights' agent, Ms Gray, which resulted in the price being reduced. Implicit in counsel's submission was the proposition that the removal of the solar panels and associated electrical works was unjustified as they formed part of the land which passed under the contract. A difficulty with this submission is that the contract, which was in standard form, contained provision for improvements to be identified. None were. A list of inclusions and exclusions also appeared on the contract. The list of inclusions provided for solar panels to be identified as inclusions but the relevant box was not marked.
It may be possible to argue that the solar panels and associated equipment were fixtures and that they passed under the contract even if they were not specifically mentioned as inclusions. This would require some consideration of the terms of the contract and of practice in this State and all I have is the first page of the contract. I was not presented with any submissions by counsel or reference to authority which would assist in resolving this question.
More importantly, the question whether particular equipment which may be brought on to the land and attached to it is, in law, a fixture and is one which ultimately depends upon the facts, and specifically on the degree of attachment and the intention (considered objectively) with which the particular items were attached. Fine distinctions may arise. The evidence before me falls far short of enabling me to be satisfied these items were in fact fixtures.
It may be that the purchasers' claim for a reduction was also occasioned by the manner in which items, including Mr Knights' personal chattels, were removed. It is difficult to interpret the photographs attached to the statutory declaration in this regard, but the suggestion that the property had been "trashed" was not contradicted in any of the evidence before me.
I would assume that there is a provision in the contract which would make it a breach for the vendor not to maintain the property in proper order. It may be that a breach of that contract would separately give rise to a right to damages. Presumably the measure of damages would be the cost of putting the property in the state it should have been in, namely, with the items removed but without rubbish scattered around. There is no evidence before me which would identify whether any such specific claim could have been made or how much it was worth.
None of this should be understood as any criticism of the trustees' conduct in making the allowance for $10,000 and completing the sale. The trustees were put in a difficult position by Ms Gray's conduct. Mr Knights has not suggested that the trustees should be made responsible for allowing the reduction and there is nothing in the material before me which suggests that the trustees acted otherwise than reasonably and in good faith in doing so in order to complete the contract.
But I am not satisfied that Mr Knights should bear responsibility for the $10,000. I decline to make an allowance for that in the division of the proceeds.
The final issue is costs. As I understood him, Mr Knights opposed a costs order being made in Ms Groch's favour. His argument was not developed except by reference to the fact that, as I referred to in my earlier judgment, initially the Summons included a claim for the sale and division of some chattels of the property, which was not pressed.
This, and other matters, might give rise as to debates about quantum, but in my view there can be no doubt, in principle, that Ms Groch is entitled to an order for her costs of the proceedings. The evidence shows that she attempted, through her lawyers, to resolve the sale of the property informally and only commenced the proceedings when Mr Knights did not agree to that course. In saying that, I acknowledge that Mr Knights, in the course of the proceedings before me, said on more than one occasion, that he was open to settling the proceedings. But despite these hopeful suggestions, Mr Knights ultimately opposed the making of the orders for sale and following the sale he maintained his claim for an allowance in his favour out of the proceeds.
Ms Groch has come to Court to vindicate her rights and she has succeeded in doing so. I am required to make a costs order in her favour unless there is some good reason to the contrary. I see nothing in the circumstances of the case to displace her entitlement in this regard.
The next question is whether the costs should be on a gross sum basis or whether I should, instead, leave Ms Groch to quantify the costs in the ordinary way by assessment, if agreement cannot be reached on the question of quantum. The evidence from Ms Groch is that her costs of the proceedings, so far billed, are $53,000, of which Ms Groch has paid approximately $34,000. I assume there will be further costs associated with today's hearing.
Counsel for Ms Groch was prepared to accept that this sum should be discounted by 35 per cent to reflect reduction on assessment and a further 15 per cent to reflect the claims with respect to the chattels which were not pursued. Those two reductions result in a figure of approximately $26,500. Counsel indicated that Ms Groch would accept a lump sum order of $25,000. Counsel also indicated that Ms Groch would be prepared to accept Mr Knights' share of the proceeds in full satisfaction of any costs liability. On the findings that I have made that would be approximately $24,000.
There needs to be a sufficient reason for the Court to depart from its usual practice and make an order on a gross sum basis. In my view the circumstances of the present case are sufficient for this purpose.
The long history of the matter; the fact that Mr Knights is in gaol, which would create great difficulties in proceeding with a contested assessment, both from his point of view and from Ms Groch's point of view; and the relatively small amount of money involved, are the facts which, in my view, are the most important. Having regard to my experience of the case, which has now been before me on numerous occasions extending over a period of approximately a year, I think it is highly unlikely that if Ms Groch proceeded to a formal assessment, she would receive less than $24,000. Indeed, I think it likely that the recoverable figure would be much higher than that.
In these circumstances I propose to fix the costs in a gross sum as the amount remaining after the payment out of the trustees' fees and Ms Groch's share of the net proceeds of sale.
The orders of the Court are:
I order that the trustees' costs and disbursements, in the sum of $4,527.60, be paid out of the proceeds of sale of the property.
I order that the plaintiff be paid out of the proceeds of sale of the property, the sum of $33,380.82, representing her half share of the property, including adjustment for mortgage payments in her favour.
I order that the defendant pay the plaintiff's costs of the proceedings in the gross sum of $23,998.32, being the remaining moneys held by the trustees, and I direct the trustees pay that sum of money out to the plaintiff.
I order that upon distribution of the proceeds of sale in accordance with these orders, the trustees be discharged.
[2]
Amendments
24 February 2023 - insert "No 2" in case name
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Decision last updated: 24 February 2023