Metcalf v Zhang

Supreme Court of NSW|2017-12-14|Before: Slattery J, Bryson J

Muschinkski v Dodds (1985) 160 CLR 583; [1985] HCA 78 West v Mead [2003] 13 BPR 24431; [2003] NSWSC 161 Category: Principal judgment Parties: Lex Metcalf (plaintiff/cross defendant) Lijuan Linda Zhang (defendant/cross claimant) Representation: Counsel: G W McGrath SC (plaintiff/cross defendant) L Zhang in person (defendant/cross claimant)

Solicitors: Pryor Tzannes & Wallis Solicitors (plaintiff/cross defendant) File Number(s): 2016/371835; 2017/100262 Publication restriction: No

Judgment

Mr Lex Metcalf brings two proceedings against Ms Lijuan Zhang. They both live with their son in an apartment in suburban Waterloo. They agree that they do not live there together now as a de facto couple.

A Preliminary Overview

But before the parties' relationship is analysed, a high level summary chronology is required. In 1990, the parties commenced living together in Glebe, in Mr Metcalf's apartment. In March 1994, they jointly purchased as tenants in common the Alexandria property, from which Mr Metcalf began to conduct his business. Later the same year, they purchased the Waterloo property, as joint tenants. They took out joint mortgages over each property. Their son was born in 1995.
In 2001, Mr Metcalf ceased to carry on his business from the Alexandria property. Between 2001 and 2008, the Alexandria property was leased to a single reliable tenant. From about 2002, Ms Zhang collected the Alexandria property rent from this tenant.
In the same year, in November 2002, on Ms Zhang's initiative, the parties combined their loan debts on the Alexandria property and the Waterloo property into one composite Homeside Lending Account with the NAB. This was split into two sub-loans in 2004. From 2009 on, the Alexandria property was let out to other less reliable tenants in arrangements that were left largely under Ms Zhang's control.
Finally, in 2012, the parties opened a joint off-set account with the NAB, into which monies could be paid by the parties to reduce the interest payments on their mortgage with the NAB.
In July 2016, the Alexandria property was sold to a developer, along with other neighbouring properties. In September 2016, the proceeds of sale were paid into the parties' joint NAB Account 1856 at Newtown.
Finally, on 19 September 2016, Ms Zhang removed monies from Account 1856 without Mr Metcalf's authority, leading him to taking the Alexandria property proceedings. He obtained freezing orders over all of Ms Zhang's accounts into which she had paid the proceeds of sale of the Alexandria property.
The next section of these reasons serves as an important framework to the main issues in dispute. The state of Mr Metcalf and Ms Zhang's relationship over time is an important integer in inferring what they are each likely to have done with their joint and separate financial affairs. A reasonably sound picture of the state of that relationship can be determined. Then these reasons deal with the acquisition of each of the two properties.

Mr Metcalf and Ms Zhang's Relationship

The parties disagree about when their personal relationship commenced and ended. Mr Metcalf says that his relationship with Ms Zhang ended no later than 2002. Ms Zhang, on the other hand, says that their relationship had not broken down until 13 December 2016, the day that Mr Metcalf notified her of the commencement of these proceedings.
The Court concludes that Mr Metcalf is correct on this issue. The Court reaches this conclusion even though the parties say it is not necessary to decide this issue. It is important background.
The relationship between Mr Metcalf and Ms Zhang ended no later than 2002. The Court has had the advantage of observing both Mr Metcalf and Ms Zhang in the court room. Because Ms Zhang represented herself, the Court had an opportunity to observe her more closely than it would otherwise have done had she been legally represented. Mr Metcalf's and Ms Zhang's interactions, their manner of giving evidence about one another, and their attitudes to one another came through very clearly. Quite apart from the Court's findings in the historical narrative of findings in this section, the parties appearances in the court room gave every impression of a couple whose relationship had not just broken down in 2016. At the hearing in late 2017, it was quite evident they had ceased to be a couple in any sense of the word for very many years. They had had their son together in 1995. But by the time of the hearing, they were two people who happened to share the same accommodation and happened to have joint but disputed interest in two real estate assets. Otherwise their personal and financial lives were separate.

The Parties' Relationship Before 2002

The parties commenced living together 28 years ago, in about December 1990. Mr Metcalf says that he and Ms Zhang have never really lived as a couple. He says at no time have they shared a bedroom, nor have they gone out together in public as a couple, at least within the last 15 or 16 years.
The Court does not accept that Mr Metcalf and Ms Zhang were never a couple. In my view, they were a couple in a domestic relationship from about 1990 when Ms Zhang moved into the two bedroom unit that Mr Metcalf was then renting in Glebe. They remained a couple in such a domestic relationship until at least October 1995, when their son was born. But after their son's birth, their relationship changed.
I accept Ms Zhang's evidence that, after their son was born, she and Mr Metcalf commenced sleeping in separate bedrooms as a matter of convenience, so that she could look after their son without interrupting Mr Metcalf's sleep.
The change in their sleeping arrangements, in my view, was likely to have had wider implications for their relationship. Ms Zhang's strong devotion to their son and the preeminent importance of being a mother in her life was symbolised by Mr Metcalf's departure from the bedroom at that time. Mr Metcalf seemed quite bewildered even in 2017 about what had then changed in his relationship with Ms Zhang and why. But he accepted that, long ago, he had come second in Ms Zhang's life compared to the relationship that she had with their son. But he did not disagree that she was an excellent mother. But such attitudes on her part are likely to have engendered a readiness to make his own way in life. In my view, that is what happened and although they lived in the same household somewhere by the late 1990s he was living an independent existence.
Both parties agree that, Mr Metcalf does his own domestic work, including washing and ironing, and that he never shares meals with Ms Zhang.
Neither party adduced evidence of any sexual relationship between them, before or after 2002. But Mr Metcalf acknowledges that he is the father of their son and that he has done "[his] best to fulfil that obligation". Mr Metcalf has not had the day-to-day care of his son - that responsibility has fallen predominately on Ms Zhang. Mr Metcalf says that Ms Zhang is and has always been an excellent mother to their son and that: "They [have] a very close bond, it is incredibly close, and I am excluded from that. And I am not complaining about it. I just acknowledge that as that's the way life is. I don't know whether that's to his detriment or not, but if there is anything I can do for him, I am always happy to do that."
Mr Metcalf said that any money required for their son's upbringing came from his business bank account, up until about 2008 or 2009 when that business bank account was closed. Thereafter, money for their son came from the rental proceeds derived from the Alexandria property. From Mr Metcalf's perspective, "there wasn't any problem with him receiving the funds that he should have". Ms Zhang says that she was substantially financially responsible for their son's upbringing.

The Parties' Relationship From 2002

Despite the break down in the parties' domestic relationship in the mid to late 1990s, one important aspect of their relationship continued uninterrupted. Ms Zhang is a competent book keeper. Mr Metcalf was always content for her to do the books of his business and then in relation to their joint investment in the Alexandria property. Her evidence shows her close familiarity with the parties' financial affairs. From about 1992-1993 onwards, Ms Zhang took care of the accounts of Mr Metcalf's business. She attended to the payment of bills and levies, internet banking and various other business payments. Mr Metcalf was busy at work so he would leave signed cheques from the account that he operated for his business and she would pay for utilities and other business expenses. Her book keeping then transferred over into their domestic life.
But, at a personal level, things had completely changed by 2002. Although it is the Court's view that their relationship had broken down by the late 1990s, Mr Metcalf uses a date of 2002 as a termination point and it is convenient to adopt that time for the purposes of analysis, as, in my view, it is undoubtedly correct. Mr Metcalf said, and the Court accepts, that long before 2002 that he and Ms Zhang had "already diverged apart in our life, ideas and everything else". Mr Metcalf says, and the Court accepts, that since 2002, although they have lived in the same premises, they have lived separately and apart. Mr Metcalf explained to the Court's satisfaction why he was still living in the house with Ms Zhang even though they were not in a domestic relationship. He said: "If I left the house I would probably just be giving away my title on the house… In other words, I can't ask Linda to pay me out or anything like that".
On Mr Metcalf's version, there has indeed been hardly any communication between them since 2002, including the exchange of common courtesies and greetings around the home like "hello, how are you?" From Mr Metcalf's evidence, it is accepted that there has effectively been little to say of common interest between them since about 2002.
But aside from living the Waterloo property together, Mr Metcalf and Ms Zhang have dealt with each other occasionally since 2002. There are examples of this. In around November 2002, Mr Metcalf received a phone call from Ms Zhang when he was inter-state in Victoria. She wanted to discuss the refinancing of the Alexandria property and the Waterloo property.
In March 2003, Mr Metcalf took Ms Zhang to see a broker for advice about a proposed investment in foreign exchange trading. Mr Metcalf gave Ms Zhang approximately $4,000 from the proceeds of his business for her to invest. Mr Metcalf thought that, given Ms Zhang's accounting experience, foreign exchange trading would allow her to obtain some income of her own, separate to that which derived from the proceeds of his business. But this was essentially mutually convenient financial co-operation and not evidence of a domestic relationship.
But even their common bond through their son resulted in very little communication between them, as Ms Zhang had wholly monopolised the parental relationship with him. But there are examples of some mutual contact about their son. In 2008, when Ms Zhang took their son to Canberra to participate in various athletic events, Mr Metcalf paid them a visit as he was passing through Canberra after returning from business in Junee. He stayed in Canberra for one to two days and saw them. But he did not stay in the same accommodation as Ms Zhang and his son, nor did he attend any of the sporting events with them.
After 2002, Mr Metcalf also discussed with Ms Zhang her collecting the weekly rent from the leasing of the Alexandria property. Mr Metcalf was content for Ms Zhang to collect the rent from the Alexandria property. And he expected that she was using that rent for domestic purposes. I accept, as Mr Metcalf said, that Ms Zhang could use the rental proceeds for "whatever she wished. I didn't ask for any receipts or… accounting or any of it. I wasn't concerned… whatever she did… it was her business".
Mr Metcalf and Ms Zhang were both on the title on both the Alexandria property and the Waterloo property. They were joint borrowers on the Waterloo property mortgage. He was the borrower on the Alexandria property mortgage. The Court accepts that Mr Metcalf had no interest in finding out what Ms Zhang did with the rental proceeds from the Alexandria property even though the property was jointly held. Mr Metcalf explained why: "Well, she needed some sort of income, and she doesn't drink or anything like that, she's an honest person, she is a good mother to her son, and I just thought it was quite reasonable just to let her have that money. It wasn't, you know, a great amount of money. I never asked for any of it."
Ms Zhang substantially corroborated this continuing financial arrangement between them. She said that Mr Metcalf asked her to collect the rent arising from the leasing of the Alexandria property after 2002 and that he trusted her to collect it and put it in his business account, to which she had access. Mr Metcalf conceded that he agreed to her request to collect the rental monies and to have access to his business account from 2002 to 2008, to set up internet banking and BPay from the business account, and to transfer money from the account between themselves. Mr Metcalf also conceded that Ms Zhang made factory loan account payments, other business payments and paid other bills, such as their son's school fees, out of his business account.
But this was just a convenient continuing financial arrangement. Ms Zhang is a competent book keeper. She offered to do the books. Mr Metcalf accepted that as it was convenient. This part of their relationship drifted on because it worked. Neither of them seemed particularly interested in any kind of long term financial settlement. It seems as though neither of them wanted to face up to it. That being said, the financial relationship they had involved some common assumptions and objectives.
Ms Zhang disputes that her relationship with Mr Metcalf ended in 2002. She says nothing happened at that time which would have triggered this alleged separation. She says that, if she and Mr Metcalf truly had separated in 2002, she would have "certainly severed our financial ties completely".
She says that she acted quite to the contrary. Instead, she says, that she refinanced and consolidated Mr Metcalf's business loan with their home loan in 2002 and that she voluntarily put most of the rental income into his bank account from 2002.
Ms Zhang's account is partly right and partly wrong. She is right when she says that nothing in particular happened in 2002 to trigger an alleged separation. In my view, the relationship had ended years before that. But she is wrong when she says that had the relationship ended she would have completely severed their financial arrangements. In my view, there is a very good reason why she did not do so. This is that the financial arrangements worked reasonably well for her and in particular for their son. In 2002, their son was only seven, and they had a roof over their head. Severing financial arrangements and reaching a settlement would have created uncertainty for them, including a possible loss of their domestic residence. It suited her to continue the loose and unspecified financial arrangements that had grown up between her and Mr Metcalf.
Ms Zhang's account of their recent relationship is that, although their relationship has "deteriorated gradually in the last five years" that neither she nor Mr Metcalf has expressed "the intention to separate the mutual involvement and ownership of the properties until the sale of the [Alexandria property] became relevant"
But the Court does not accept this. Long before the last five years Mr Metcalf and Ms Zhang led separate lives. He was seeing other women. They had not made any arrangements between themselves about either property. They had a continuing financial relationship only.
But before examining the acquisition of both properties, it is convenient in this section of these reasons to resolve a number of contentious disputes between the parties about particular payments between them. These are mostly undocumented assertions on each side that can be dealt with at this point.
First, Ms Zhang says that, for a period of approximately two years in 2008 and 2009 when Mr Metcalf had been badly affected by the global financial crisis and was unemployed, she paid him approximately $200 per week for his personal expenses. Ms Zhang estimates that the total amount she gave to Mr Metcalf to be in the vicinity of $16,825.56.
To her first affidavit, Ms Zhang annexes a list of payments she said she made during this period to Mr Metcalf, amounting to $15,052.56. But whatever these payments are they do not support a contention that she regularly paid him $200 a week, as she asserts. They are in odd amounts. Being the competent book keeper that she was, it is surprising, in my view, that she did not document this arrangement better than she did. Mr Metcalf disputes that Ms Zhang gave him $200 per week for the period of two years. Her evidence on this is not fully accepted. But there are some payments out of her account that are consistent with some payments totalling $2,400 being paid out of her account at the time. But they are only few.
Second, Ms Zhang deposes that "the period from 2005 to 2008 was a very tough time. Since 2004 I had given up work and took on the full-time care of our child who was born on 29 October 1995. I told my sisters that my biggest burden was the loan repayment, so my sisters offered me several interest free funds [sic]".
But the Court finds this very hard to accept. Ms Zhang is obviously a competent book keeper. By 2004 their son was nine. Judging by what she was like in 2017, she is likely to have had a real capacity from employment as a book keeper in 2004. If this was a financially stressful time for her she did not take the obvious course that suggested itself of obtaining a job. The financial assistance from her sisters is not documented in a way that would persuade the Court to accept it.

Purchase of the Alexandria Property

On 31 March 1994, Mr Metcalf and Ms Zhang purchased the Alexandria property as tenants in common in equal shares. Ms Zhang says that the purchase occurred because Mr Metcalf was having difficulty finding affordable premises to rent to carry on his business. This is probably right. She says that, as a solution, she suggested that together they buy a property with Ms Zhang paying 30% cash to meet the bank loan requirement and Mr Metcalf paying the remaining 70% by taking on a loan.
Mr Metcalf's evidence about the financial structure of the purchase of the Alexandria property is accepted. It was purchased for $248,000. The source of those funds was: (a) a loan of about $173,000 from the Commonwealth Bank to Mr Metcalf ("the CBA loan"); (b) a cash advance of about $70,000 by Ms Zhang; and (c) a cash advance of about $14,400.00 from Mr Metcalf.
Ms Zhang's affidavit evidence concerning the purchase of the factory is less clear, but is to similar effect. Her evidence confirms that there was CBA loan of $173,000, a cash advance of about $70,000 on her behalf, and a cash advance of about $20,000 from Mr Metcalf (rather than the $14,400 Mr Metcalf says he contributed to incidental transactional costs and expenses).
Mr Metcalf carried on his business, Cutting Room Equipment, from the Alexandria property after its purchase in 1994 up until about 2001, when he sold the business for $120,000.
The parties dispute what happened to these proceeds of sale. This is largely a case of word against word because the documents from 2001 are not available. Ms Zhang says that Mr Metcalf kept this money for himself. Mr Metcalf says he paid it into his business account, which was used as a resource to repay the mortgage to the NAB.
The Court prefers Mr Metcalf's account on this issue. He did show financial responsibility in creating a stable, domestic situation for their son. He did not have, and nor has it been suggested, there was any other investment into which this money went. And he was conscious of the need to have funds to meet the mortgage payments after he closed the business. He seemed resigned to a role of distant financial support for their domestic arrangements. In my view, paying the $120,000 into his business account was consistent with that approach to life on his part.

The Deed

Mr Metcalf contends that it was always agreed between him and Ms Zhang that the Alexandria property was to be owned by them equally. An undated deed, executed by Mr Metcalf and Ms Zhang ("the Deed") exists. The Deed is the result of their consulting the solicitors, acting on the purchase who wrotre to them both on 17 March 1994 as follows: "Dear Lex & Linda, Re: YOUR PURCHASE FROM ST GEORGE COMMERCIAL CREDIT CORP LTD PTY: 10/620-632 BOTANY ROAD ALEXANDRIA We are endeavouring to effect completion of the purchase on Friday next, the 25th instant. We shall let you know as soon as we have details of the amount required to complete the purchaser [sic] and we shall need to obtain from you bank cheques for the balance purchase moneys. You previously informed us that Linda was contributing $70,000.00 in cash towards the purchase and therefore was accepting liability for less than one half of the total loan. We have prepared a Deed of Indemnity in relation to this matter as instructed and enclose this Deed for execution and return. You will note that we have not incorporated the amount of the loan and this should be inserted in the document. Will you also please note that your signatures should be witnessed by some adult person. Yours faithfully, MURPHY & MOLONEY with PRYOR TZANNES & WALLIS"
The Deed provided that Ms Zhang would pay so much of the principal and interest of the periodic instalments due under the CBA loan as, when added to her cash contribution of $70,000, would equate to an equal contribution by her to the purchase price of the Alexandria property. The Deed was executed in the following terms: "THIS DEED made the day of One thousand nine hundred and ninety four BETWEEN LEX METCALF of 12/19 Forsyth Street, Glebe (hereinafter referred to as "Lex") of the one part AND LIJUAN LINDA ZHANG of 12/19 Forsyth Street, Glebe (hereinafter referred to as "Linda")of the other part WHEREAS the parties have agreed to purchase as tenants in common in equal shares certain property known as 10/620-632 Botany Road, Alexandria ("the property") pursuant to contract for purchase dated 10th March, 1994 AND WHEREAS Linda has agreed to contribute Seventy thousand dollars ($70,000.00) in cash in or towards the purchase of the property which amounts exceeds the cash contribution of Lex AND WHEREAS the parties have agreed to borrow dollars ($ ) from the Commonwealth Bank of Australia ("the loan") AND WHEREAS it is agreed that Linda will only be liable for so much of the loan ("Linda's share") which when added to the aforesaid sum of Seventy thousand dollars ($70,000.00) equals one half of the purchase price for the property together with all costs of acquisition. IT IS HEREBY AGREED AS FOLLOWS: 1. Linda hereby agrees to pay all interest and instalments in respect of that portion of the loan hereinbefore referred to as Linda's share. 2. Lex hereby agrees to pay all interest and instalments in respect of the balance of the loan and to indemnify Linda in respect of any loss or damage suffered by her arising out of or in respect of any default by him in paying such interest or instalments."
The executed Deed is evidence of an express agreement between the parties that they were to hold the Alexandria Property jointly, in equal shares on the conditions it specifies. Mr Metcalf now claims a ½ share of the sale of proceeds of the Alexandria Property which was sold in September 2016. Ms Zhang now claims a 71% beneficial interest in the Alexandria Property, based on the parties' alleged unequal contributions made to the acquisition of this property.
The Deed served both parties' purposes quite well. It explained why she was only getting a half share in the property although she contributed much more of the initial purchase price. But it had the advantage from her point of view that it limited her liability on the mortgage as between the two of them to her share, and it ensured that it could not be said later on that she had a greater responsibility for the mortgage payments that he did.
The substantive effect of the Deed of the date that it was signed was to prevent her claiming more than a 50 per cent interest in the property by reason alone of her greater cash contribution to the acquisition of the property. Part of her logic in the present case is to contradict that agreement by claiming a 71 per cent interest in the property.
Between 1994 and 2008, Mr Metcalf says, and the Court accepts, that he made interest only loan repayments of $1,250.66 per month on the mortgage for this property and that these payments were made out of his business bank account. Ms Zhang does not dispute that Mr Metcalf made these monthly interest repayments from May 1994.
In 2001, Mr Metcalf and Ms Zhang re-financed the Alexandria Property with the NAB by obtaining a "Homeside Lending advance". By this stage, they had already acquired the Waterloo property in 1996. The Homeside Lending advance had the effect of consolidating the loans on both properties.

Lease of the Alexandria Property and the Rental Proceeds

From about August 2001 up until its sale in 2016, Mr Metcalf and Ms Zhang leased the Alexandria Property to Eurosport Autowerks Pty Limited. It was quite unclear from Ms Zhang's cross-examination just how much rent was obtained from the property for that period. But the clearest picture that can be drawn from her evidence is that the rent between 2002 and 2008 was approximately $660 per week, and from 2008 to 2016 the rent was approximately $930 per week, increasing in 2010 to $960 per week. The rental proceeds from the Alexandria property were collected by Ms Zhang, and deposited in Mr Metcalf's business bank account. The rental proceeds were used to pay both the periodic loan repayments in relation to both the Alexandria property and also the Waterloo property, as well as other general expenses.
Ms Zhang had practical day-to-day control of this business account after 2008, and used it without accounting to Mr Metcalf for what she did with its contents.
The bank statements for NAB Homeplus Package Standard Loan from 1 July 2011 to 30 December 2016 (Exhibit A) described as the "Factory Loan Statements" show that from 2011, the monthly loan repayments were $1,197.32 per month, and that from 2012-2016 when the Alexandria property was sold, the loan repayments were $1,226.23 per month (Exhibit A).
Ms Zhang said that the loan repayments were paid using the rental proceeds obtained from the Alexandria property. Mr Metcalf submits that, as equal owners of the Alexandria property, Mr Metcalf and Ms Zhang were equally entitled to the rental proceeds arising from its lease. The plaintiff submits that as those rental proceeds were used to repay the loan secured over that property, and as the remaining amount due on the loan was ultimately discharged using the proceeds of sale of that property, the parties' respective contributions to the loan advances secured over the Alexandria property have in fact been equal. In my view, subject to certain advances that Ms Zhang made into the offset account this is correct.

Sale of the Alexandria Property

The sale of the Alexandria property was effected as a result of Mr Metcalf's efforts. It was an industrial unit in line with a number of others. He organised the owners of these several units to band together to sell their units to a developer. His efforts undoubtedly maximised the sale price of the unit.
In July 2016, Mr Metcalf and Ms Zhang entered into a contract for the sale of the Alexandria property, which was completed on 16 September 2016.
On 19 September 2016, the gross proceeds of sale in the amount of $1,837,797.02 were deposited into Mr Metcalf's and Ms Zhang's NAB joint offset account 1856, in two tranches. The statement for that bank account shows those two credits to that account on that day: a credit of $1,694,748.93 for which a special clearance was obtained; and a credit for cheque deposit for $143,048.09. Before the proceeds of sale were deposited into the NAB joint account, the account had an existing balance of $50,680.76.
On 19 September 2016, without telling Mr Metcalf, Ms Zhang electronically transferred the sum of $1,615,000.00 from the NAB joint offset account into an account solely in her name and to which Mr Metcalf did not have access.
On 21 September 2016, Ms Zhang transferred an additional $147,500 out of the NAB joint offset account into her bank account, leaving a credit balance of $125,977.78.
Ms Zhang says that she transferred everything out of the offset account except for the $126,000 which was the amount of the loan balance.
In November 2016, Mr Metcalf became aware that most of the sale proceeds had been removed from the joint offset account by Ms Zhang. He had a conversation at that time with Ms Zhang to the following effect: Mr Metcalf: "Where is the money? The money from the sale of the factory?" Ms Zhang: "It's mine, if you want to know where it is you will have to get a lawyer to find out."
A short time after this, on 6 December 2016, Mr Metcalf withdrew the sum of $123,288.00 from the joint offset account and deposited it into his own personal bank account with CBA to which Ms Zhang did not have access, he says, in order to preserve those funds.
On 12 December 2016, the Court made orders in the Alexandria property proceedings, restraining Ms Zhang until 15 December 2016 from dealing with the monies transferred out of the NAB joint offset account, account number ending 1956 on 19 and 21 September 2016 amounting to $1,762,000 ("the funds"). The Court also ordered the NAB to take all reasonable steps to freeze the funds and any traceable parts thereof in Ms Zhang's bank accounts.
The Court made further orders on 15 December 2016 by consent but without admissions, vacating the freezing orders made on 12 December and requiring St George Bank and Citigroup Pty Ltd take all reasonable steps to freeze funds in accounts belonging to Ms Zhang until further order. The Court also ordered the payment of $225,406 to Mr Metcalf's solicitors, Pryor Tzannes & Wallis Solicitors and for the discharge of the factory loan.
Mr Metcalf says that, the proper deductions from the proceeds of sale of $1,837,797.00 are in the total sum of $295,567.00. He put further submissions about the proper accounting that should take place if a declaration is made that the parties own the Alexandria property as he contends. But the Court does not need to deal with those submissions now. The parties should be required to do an accounting as a result of these reasons. 1. All payments made under the factory unit loan during the period from the completion of the sale of the Alexandria property to the discharge of the loan , as well as the lump sum payment made by Ms Zhang to discharge the loan pursuant to the Court's 15 December 2016 orders; and 2. The GST arising from the factory unit sale.
Taking into account those deductions from the proceeds of sale, the quantum of the net proceeds of sale to be divided between Mr Metcalf and Ms Zhang is $1,542,230. If that amount is correct, each party's one half share of the net proceeds of sale is $771,115.00.
But further deductions need to be taken into account:

Purchase of the Waterloo Property

On 3 May 1996 (being the date of completion), Mr Metcalf and Ms Zhang purchased the Waterloo property as joint tenants for a purchase price of $179,000.00. The purchase price of the Waterloo property, including transaction costs and incidentals, was $186,000.00. First Mortgage Corporation advanced a loan of $120,000.00 to himself and Ms Zhang. Ms Zhang contributed about $60,000.00 to the purchase. Mr Metcalf made a contribution of about $6,000. Ms Zhang says that, in October 1994, she put down a $1,000.00 deposit for holding the Waterloo property, which was off the plan.
Ms Zhang's evidence on the financing of the Waterloo property is a little different to Mr Metcalf's but only to the extent that she acknowledges that he paid some expenses, but does not recall how much they were. She also deposes that she contributed about $66,000.00 to the purchase price, instead of the $60,000.00.
Ms Zhang says that from May 1996 Mr Metcalf he made monthly payments of $1,076.00 on the loan for the Waterloo property. These seem to have ended or been taken over by her in about 2002. Thereafter she seems to have kept up the loan payments on the Waterloo property out of the business account.
The loan on the Waterloo property was fully paid out by February 2009.
It is Ms Zhang's case that she holds a 78% interest in the Waterloo property based on her financial contributions to the loan repayments and purchase price.

Ms Zhang's Other Financial Contributions to the Properties

In her affidavit of 20 April 2017, Ms Zhang deposes that between 15 August 2008 and 24 April 2015, she made six lump sum payments totalling $88,406 "into the loan and loan offset account" ("the lump sum payments"). Her reference to "the loan account" is a reference to the home loan account with NAB, selected bank statements of which became Exhibit B in the proceedings. Her reference to "the loan offset account" is a reference to an offset account that Ms Zhang and Mr Metcalf opened with the NAB in 2012.
Her evidence about these payments is accepted. Annexed to her affidavit is an unverified document titled "The statement of my lump sum payments", accompanied by a number of bank statements. That document sets out the breakdown of those lump sum payments as follows: "The Statement of My Lump Sum Payments: Supporting documents: The Bank Statements Lijuan Linda Zhang 10 May 2017 - 15/08/2008 $5,000 Direct debts from my CBA XXXX3868 into NAB loan XXXXX5447 - 03/02/2009 $23,406 CBA check [sic] made from my CBA XXXX3868 deposit into NAB loan XXXXX5447 - 30/10/2012 $10,000 Transfer from my CBA XXXX3868into NAB loan offset XXXXX1856 - 01/11/2012 $20,000 Transfer from my CBA XXXX3868 into NAB loan offset XXXXX1856 - 11/07/2013 $10,000 Transfer from my CBA XXXX3868 into NAB loan offset XXXXX1856 - 24/04/2015 $20,000 Cash I bought in from China deposit into NAB loan offset XXXXX1856 TOTAL $88,406"
The first two payments recorded above were indeed made to the NAB home loan account number 5447. Those payments are contained in the various NAB statements for the Home Loan Account.
The other four payments, totalling $60,000 were paid into the NAB offset account. Ms Zhang has provided NAB and CBA bank statements which verify that those four payments were made to the loan offset account.
Ms Zhang says that she and Mr Metcalf received a benefit in the reduction of interest on the loan in the total sum of $9,568 because of her lump sum payments. Ms Zhang did not transfer that $60,000 from the NAB joint offset account into the home loan account.
Mr Metcalf says, and the Court accepts, that he was not aware of the fact that Ms Zhang paid six lump sum payments totalling $88,000 to reduce the principal on the mortgage. Mr Metcalf thought "the accounts were separate. They never came to me. I didn't get statements. In some cases I didn't even know where the accounts were. I never asked." Mr Metcalf clarified his answer, saying "I was not aware that money was put into these accounts and I didn't see the accounts. I didn't get a statement every month and some of those accounts, I didn't even know where they were held".
The Court put to Mr Metcalf whether any income he had earned in the last 10 years as an engineer had been used to pay off the loans secured over the properties. Mr Metcalf's evidence was that it had not. He said that he was not asked to do so, and that he did not see the accounts. This is accepted. He also said that, in any event, he had already been told that the Waterloo property had been paid off sometime before 2012. He insisted that if he had been asked to "put money into something… of course, I would do it, but I was not asked anything like that. In my view, this is what happened.

Credibility of the Parties

Mr Metcalf and Ms Zhang were the only witnesses in the proceedings in evidence. Cross-examination of each of them was quite limited. But the Court was able to glean some impressions of them from this process. Ms Zhang addressed the Court herself. The Court could gain other impressions about her through this process.
Mr Metcalf. Mr Metcalf was cross-examined by Ms Zhang, who was not legally represented throughout the proceedings. It was difficult to assess his credibility as a result. At times, he looked resigned but nevertheless held firm in his own views. But his cross-examination did not seriously challenge his credit, coming as it did from a non-legally qualified cross-examiner. His evidence was mostly reliable.
Ms Zhang. Ms Zhang was born in Beijing, China. English is not her first language. The Court found Ms Zhang difficult to follow at times. She spoke heavily accented English. But when speaking slowly, as she did mostly, she could be understood. She came across to the Court as being an astute person who was aware of her own financial interests and as having a reasonable understanding of fundamental legal concepts in the Anglo-Australian legal system such as the difference between a legal and beneficial interest. She had a reasonably good memory for detail and acquitted herself in oral submissions quite effectively. She was quite prepared to assert her own rights and was prepared to assist on things that she thought were right from her own perspective.
But with respect to both witnesses, because some of the events in question were so old, aspects of their evidence the Court did not find entirely reliable. The Court assesses both of them as witnesses of truth. But ultimately the Court was not fully confident about all the detail of their testimony.

Jurisdictional Issue

The Court raised a preliminary issue as to whether it had jurisdiction to hear these proceedings in light of the amendments to the Family Law Act 1975 (Cth) ("FLA") in 2009.
The Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2009 (Cth) ("the Amendment Act") came into effect on 1 March 2009. Relevantly, it inserted a new part VIIIAB "Financial matters relating to de facto relationships" into the FLA. Part VIIIAB gives effect to agreements made between certain States and Territories and the Commonwealth to refer financial matters arising out of the breakdown of de facto relationships to the Commonwealth.
Before these legislative changes were effected, de facto couples who were separating were able to issue proceedings in the federal family law system under the FLA in relation to their parenting arrangements. But, any disputes concerning financial matters or property had to be brought in their State or Territory system, under the relevant State or Territory legislation. This position was different to that of separated married couples who were able to access the federal family law system for all their parenting, financial and property disputes under the FLA.
The Amendment Act was intended to simplify proceedings for parties involved in the breakdown of a de facto relationship. This was partly to reduce the need for couples to expend costs in litigating in two court systems. An incidental effect is said to be the reduction of the administrative burden on both the federal and state court systems: Davies v Richardson [2011] NSWSC 810 [19]].
The question raised by the Court was whether Part VIIIAB precludes these proceedings from being heard in this Court and requires them to be heard in the federal family law jurisdiction instead.
Mr Metcalf submits that the amendments to the FLA do not affect this Court's jurisdiction to entertain these proceedings. Mr Metcalf contends that, de facto partners whose relationship ended prior to 1 March 2009, and who wish to seek a property settlement scheme under a statutory scheme, may either apply for a property settlement under the Property (Relationships) Act 1984, or may choose to "opt in" to apply for a property settlement under the provisions of the FLA, as amended by the Amendment Act. For de facto partners whose relationship ended after 1 March 2009, and who wish to avail themselves of a statutory scheme dealing with property matters, only have recourse to the scheme provided under the FLA. Mr Metcalf submits that nothing in the provisions of the FLA precludes the parties from applying to the Courts of a State or Territory for relief that is carved out of the exclusionary provisions of the FLA by s 90RC(2) (Relationship with State and Territory Laws) of the FLA. In my view, this is correct. FLA, s 90RC(2) does not prevent the pursuit in State Courts of general law actions between former de facto couples such as this one.
The operation of Conveyancing Act 1919, s 66G is not affected by the FLA.
Although it may be preferable, in many cases, for parties to seek wider reaching remedies in the Federal Circuit Court or Family Court of Australia, this Court has jurisdiction to hear and determine proceedings such as these that have been carved out by FLA, s 90RC(2).
This Court can, and should, hear these proceedings for a number of reasons: 1. Neither Mr Metcalf nor Ms Zhang have made an application under either the State or Commonwealth statutory scheme for the distribution of property of parties to a de facto relationship. Any such application is now well out of time. 2. Ms Zhang has had legal advice at an earlier time in relation to these proceedings, and, having obtained such advice, she decided not to bring an application under the provisions of the FLA in the Family Court of Australia. 3. Both Mr Metcalf and Ms Zhang ask this Court to determine the proceedings.
The Court has jurisdiction to deal with these proceedings.

Applicable Legal Principles - Resulting and Constructive Trusts

The applicable legal principles may be shortly stated. The High Court decision of Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59 ("Baumgartner") has, in the words of Campbell J in West v Mead [2003] 13 BPR 24431; [2003] NSWSC 161 ("West v Mead"), significantly extended the law of constructive trusts concerning property acquired in the course of a domestic relationship. Campbell J stated the following in reference to the majority judgment in that case (at [56]): "One equitable principle which is inherent in their Honour's reasoning is that the beneficial title to an asset ought be proportionate to the contributions made to its purchase price. This is a notion which is familiar in the law concerning resulting trusts. It gets transmuted in several ways in being applied to this area of the law of constructive trusts. One way is that an extended notion of "contributions" is used, so that non-monetary contributions are taken into account."
Campbell J set out the requirements for establishing that a constructive trust in accordance with the principles opined in Baumgartner exists between parties (at [59]): "… a plaintiff needs to establish that there is indeed a joint endeavour between the parties, in which expenditure is shared for the common benefit. It is also necessary to identify what the scope of that joint endeavour is. It is a question of fact, for any couple, what the scope of the joint endeavour they are engaging in is. Further, for any couple, the scope of the joint endeavour they are engaged in might change from time to time."
Campbell J continued, explaining the presumption of equal beneficial interest (at [59]): "If, within the scope of a joint endeavour which lasts for years, an asset is acquired, as a result of contributions both parties have made, and for a purpose of the ongoing joint endeavour of the parties, this gives rise to the presumption that the beneficial interest ought to be shared equally."
But Campbell J reasoned that the presumption of equal beneficial interest can be displaced if one party is able to show that the contributions, both financial and non-financial to that asset should be regarded as unequal. A party seeking to assert that the title should be held unequally has the onus of attributing a value to the non-financial contributions alleged to have been made towards the acquisition of the asset (at [59]).
West v Mead also emphasised that, in addition to non-financial contributions to purchase price, a "contribution" may also include the payment of mortgage instalments (both principal and interest) (at [60] and[61]): "…the mortgage instalments may be taken into account in deciding the terms of the constructive trust. Continual payment of the interest on the loan which finances the family home is every bit as much a part of the joint endeavour of maintaining the family unit and providing for its future as meeting other recurrent but necessary expenses… But the fact that part of the instalment is a payment of interest means that the beneficial interest in property acquired as a result of paying an instalment is not likely to be equal in value of the amount of the instalment paid. It is the proportions in which contributions to the purchase price are made which matter in determining beneficial ownership, not the absolute amount of such contributions."
Unlike resulting trusts, which seek to give effect to the intention of the parties by making a presumption about what that intention was, the Baumgartner type of constructive trust operates to avoid an unconscionable assertion of legal title in circumstances where the parties have no express intention about the division of the legal title to be held in the property in the particular circumstances that arise (West v Mead at [62]).
But that is not to say that the intention of the parties will be entirely irrelevant in the Court's determination of whether a Baumgartner constructive trust arises. Relevantly, the intention of the parties may be taken into consideration by the Court where the parties have contemplated, in advance, the particular circumstances that arise, and agree, in advance, in what proportions the title to the property will be held between them. In such a case, it is not unconscionable for the Court to hold the parties to their agreement (West v Mead at [63]).

The Alexandria Property

Mr Metcalf submits that neither a resulting nor constructive trust arises in respect of the Alexandria property.
In respect of the Alexandria property, Mr Metcalf contends that where there is an express agreement that parties beneficially hold a property in equal shares, such as in this case, there is no room for the operation of equitable principles concerning resulting trusts. He submits that the Title to the Alexandria property recorded that he and Ms Zhang held those equal shares as tenants in common. This was an express agreement that he and Ms Zhang would purchase the Alexandria property as tenants in common, which agreement is recorded in the first recital of the Deed between them.
Further, Mr Metcalf submits that even if they had no made the express agreement in the form of the Deed, that there were no disproportionate contributions that could give rise to a resulting trust.
Ms Zhang, on the other hand, submits that she and Mr Metcalf have made unequal contributions to the acquisition of the Alexandria property and the loan repayments. She claims she is entitled to a 71% beneficial interest in the Alexandria property. She says "it would be gravely unjust if the properties were divided equally".
The plaintiff undertakes her calculations for the Alexandria property as follows: The initial contribution of each party to the cost of the acquisition Mr Metcalf $16,000 16000/259600 = 6.16% 33.12% Ms Zhang $70,000 70000/259600 = 26.97% The contribution of each party to the loan repayment Ms Metcalf 1/3 1/3 x (173600/259600) = 22.29% 66.87% Ms Zhang 2/3 2/3 x (173600/259600) = 44.58% The total contribution of each party to both parts Mr Metcalf 6.16% + 22.29% = 28.45% Ms Zhang 26.97 + 44.58% = 71.55%

She says her contributions, financial and non-financial, to the acquisition of the properties are the following. First, she says that "the parties have made unequal contributions to the purchase money to both properties (sic)". Secondly, she says that the parties have made unequal contributions to the loan repayments. Ms Zhang says that she has "paid a total of $88,406 to the loan" which she says "equates to one third of the loan amount". Her reference to the "$88,406" seems to include a reference to the lump sum payments she made to the parties' NAB joint offset account. She says that her lump sum payments were "made out of necessity" as "Mr Metcalf's legal title of both properties [had] been granted mostly by our agreements that he would solely pay the mortgages. Mr Metcalf, however, never committed to fulfilling this obligation and as a result, he failed". She submits that she made the lump sum payments because she "had to take up this responsibility to commit to the loan repayment (sic)". She also says that she has made "most of the financial and non-financial contributions" in the upbringing and care of their son. But qualifies that contribution by later saying, "however, there is no easy way to measure these kinds of inputs, so it seems that using the lump sum payments is a more precise way to quantify the part of my equitable interest".
Ultimately, she says that she is responsible for making a contribution of two thirds to the loan repayments. She says that one of her two thirds is comprised of the lump sum payments she has made into the NAB joint offset account. She says that the other one third she has contributed, and the one third that Mr Metcalf has contributed, derive from the loan repayments paid using the rental income from the Alexandria property to which they are equally entitled and ultimately, the sale of proceeds used to discharge the loan upon the sale of the Alexandria property.

The Waterloo Property

In respect of the Waterloo property, Mr Metcalf submits that he and Ms Zhang were in a personal relationship at the time they purchased the property in 1996 as joint tenants. They made unequal contributions to its purchase price of $186,000.00 with Ms Zhang contributing $6,000 more than Mr Metcalf, with the result that Mr Metcalf contributed about 35% of the purchase price, and Ms Zhang contributed about 65% of the purchase price.
However, Mr Metcalf submits that there is evidence sufficient to rebut any presumption that he and Ms Zhang hold the Waterloo property beneficially pro-rata to their said contributions to the purchase price. First, Mr Metcalf contends that immediately after the completion of the purchase in 1996, he began paying not merely his pro rata share but rather the full sum of monthly instalments on the home loan out of his business account, initially in the sum of $1,076.00. Second, for at least four years between 2004 and 2008, the whole of the home loan repayments in the total sum of about $48,000.00, not just Mr Metcalf's pro rata share, were made from Mr Metcalf's business account (into which rent from the Alexandria property was paid and one-half of the rental payments were funds to which he was entitled). Mr Metcalf further submits that in the circumstances, it would not be unconscionable for him to retain the benefit of a one-half interest in the Waterloo property given that for a considerable period, up to 2008, the whole of the home loan repayments, and not just his pro rata share, were made from funds in his business account to which he had an entitlement. Furthermore, from 2002 up until September 2016, Ms Zhang collected and used the Alexandria property rental income to pay for the mortgages for both the Alexandria property and the Waterloo property, the bills and outgoings for both properties. To the extent that the rental income was not needed for such purposes, she had the use of it for her own purposes.
Ms Zhang makes the same argument in respect of the Waterloo property as she does for the Alexandria property, except that she claims she is entitled to a 78% beneficial interest in the Waterloo property based on a calculation similar to the one above in relation to the Alexandria property.
She says she made a direct initial financial contribution of 35% of the purchase money to the Waterloo property and that she contributed 43% of the acquisition costs of the Alexandria property. A s a result, she says she is entitled to 78% in the Waterloo property.

Consideration

In my view, the following analysis is appropriate. As to the Alexandria property, the parties formal Deed benefitted both of them. In particular, it defined that Ms Zhang had an obligation to pay the mortgage but that it was limited. She benefitted significantly from that arrangement. In my view, it reflects their continuing intention in relation to that property. Both parties could have consulted lawyers to vary that arrangement had they wanted to. It was certainly not beyond Ms Zhang's competence to do so.
But the Deed does not reflect one future aspect of their relationship. She advanced $60,000 into the joint offset account and should be given full credit for the interest and capital effect of that advance, which undoubtedly occurred. But apart from that, in my view, the scope of the joint endeavour of these parties with respect to the Alexandria property results in a declaration in accordance with the Deed that they owned the proceeds of sale 50/50.
But the situation is different with respect to Waterloo. The Court accepts Ms Zhang's case as to her initial and continuing contributions to that property. There was no agreement between the parties about the ownership of that property after its initial acquisition as joint tenants. But their ultimate joint endeavour varied greatly from those first years. Mr Metcalf distanced himself entirely from financial and personal arrangements to do with that property and largely handed over management to Ms Zhang. In my view, that reflects the general acceptance on his part that, so far as this joint endeavour was concerned, he was content with the arrangements that she was making with respect to that property as she recounts. They largely reflected the arrangements that he was making in his personal life with respect to their child. The Court will declare that she has an interest in the Waterloo property of 78% as claimed.
This is clearly a case where trustees for sale should be appointed to the Waterloo property and the Court will appoint them.

Conclusion and Orders

In summary, the Court will declare that the Alexandria property is held in equal shares between the parties but that a proper account should be taken of the benefits flowing from Ms Zhang's advance of $60,000 to the mortgage offset account for that property.
The Court will declare that Ms Zhang has a 78% interest in the Waterloo property, which will be vested in trustees for sale.
Accordingly, the Court orders the parties to bring in agreed short minutes of order to give effect to these orders and to deal with issues of costs on 8 February 2019 at 9.30am.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 December 2018

Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2009(Cth)

At a glance

Court

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Before

Source

Judgment (22 paragraphs)

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Legislation Cited (2)

Cases Cited (13)

Cited By (2)