NANSCHILD v PRATT

PARTIES : DEBORAH NANSCHILD TRACY PRATT

COUNSEL : G Brzostowski SC for the Plaintiff G F Foster for the Defendant

SOLICITORS : Dobinson Davey Clifford Simpson (Plaintiff) Campbell & Co Lawyers (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2008/277044 DEBORAH NANSCHILD v TRACY PRATT JUDGMENT - EX TEMPORE

HIS HONOUR: This is an application for orders pursuant to section 20 of the Property (Relationships) Act 1984 NSW. I heard the evidence from Monday to Wednesday and counsel addressed this morning. As I have reached a clear view and because it is in the interests of the parties, I will give my reasons this afternoon. 1 The plaintiff and the defendant lived together in a relationship which was mutually supportive from August 2000 until December 2005. They continued to live together until June 2006 but their lives were physically separate. 2 During the course of that relationship they intertwined their financial affairs to a considerable degree and in a short space of time acquired jointly, or in the name of the plaintiff, a remarkable number of properties. All of the properties were geared and substantial deductions against gross income were obtained as a result of the interest payments and associated borrowing expenses. 3 They also conducted together a partnership business. It was known as Indigo Alpacas. Each also owned personal property in her own name, including superannuation, which the parties have agreed should be left out of the calculation. 4 The issue on which my judgment is required is the appropriate adjustment to their property interests having regard to the criteria stipulated in section 20 of the Act. A feature of Section 20 is that the adjustment at which the Court is required to arrive must be an adjustment which "seems just and equitable". However, the factors which determine what an appropriate adjustment should be, and which must guide the exercise of that discretion, are constrained. They are relevantly in this case, financial and non-financial contributions made directly or indirectly by each party to the acquisition, conservation or improvement of any of the property of the parties or to their financial resources and any contributions made in the capacity of homemaker to the welfare of the other party to a relationship. 5 The plaintiff claims that there should be an apportionment of the divisible pool of property in her favour in the ratio of 75 to 25. The defendant claims that the apportionment should be, broadly speaking, 50/50. I have no hesitation in rejecting the plaintiff's proposed apportionment, which in my view does not reflect the reality of the evidence. 6 The history of the financial dealings of the parties is as follows:

Florey 7 The property known as 14 Elkington Street, Florey in the ACT was owned by the defendant at the commencement of the relationship. In 2000 it was mortgaged by the defendant to secure a loan of $78,000. It was subsequently used as collateral security for the purchase by the plaintiff and the defendant of a property at Towrang Road, Towrang to which the parties moved in 2001, and a property at Arthur's Road, Towrang in 2005. 8 There were subsequently further advances of $50,000 and $49,890 drawn down pursuant to the loan facility secured over the Florey property. I will explain later those advances and the uses to which they were put. In November 2005 the defendant sold her Florey property for $340,000. After discharge of the mortgage and payment of the expenses of sale the net proceeds available to the defendant were $138,543. The proceeds of sale were paid into a joint account of the plaintiff and the defendant. The plaintiff then arranged for the payment out of those monies, including the payment of $121,000, to her own NAB account, which on the same day was then transferred to her personal ING investment account. $9,840 was also transferred by the plaintiff to pay out an overdraft account held jointly by the parties with the NAB. 9 I am satisfied that the sum of $138,543 should be treated as a capital contribution by the defendant to the property of the parties. Downer 10 The property known as Allport Street, Downer was owned by the plaintiff at the commencement of the relationship. It was purchased in 1999 for $146,000 with a substantial mortgage. In August 2000 the plaintiff moved out of the Downer property and into the home of the defendant at Florey. From August to November 2000 the plaintiff's Downer property was rented. In November 2000 the Downer property was sold for $193,000. The settlement statement shows that after discharge of a mortgage to the NAB and the payment of certain expenses of both parties, including debts of the defendant to the St George Bank and the CBA, the plaintiff received a net sum of $13,726. The plaintiff says she contributed approximately $58,000 from the proceeds of the sale of Downer. The defendant says this figure should be $25,000. I find that the appropriate figure is $24,526, made up of the net balance of $13,726 recorded in the settlement statement as being received by the plaintiff together with the balance of deposit of $3,800. This totals $17,526. Together with the payouts of $7,000 St George Bank and the CBA, this amounts to a total of $24,526.

Aldinga Beach 11 The property known as 11 Nardoo Road, Aldinga Beach, South Australia, was purchased by the plaintiff well before the commencement of the relationship. In February 2005 it was sold for $195,000. The plaintiff says she applied the net proceeds for the benefit of the household that she had formed with the defendant and in payment for improvements on the property at Arthur's Road, Towrang, which was acquired in June 2005. The parties have agreed that the amount of this contribution should be $185,000.

Towrang Road 12 The property at 621 Towrang Road, Towrang was purchased in the joint names of the plaintiff and the defendant in April 2001. The purchase price was $245,000. It was funded by a mortgage advance of $196,000 to the plaintiff and the defendant; a sum of approximately $25,000 contributed by the plaintiff following the sale of Downer, which I have already explained; and a sum of $50,000 contributed by the defendant by a subsequent further advance pursuant to the mortgage secured over her Florey property. 13 The defendant's Florey property was provided as collateral security for the purchase. The loan secured by the mortgage over the defendant's Florey property was transferred into both names but the ultimate security remained that of the defendant. The property remained owned by her alone. 14 In December 2003 a further sum of $49,890 was drawn down pursuant to the Florey mortgage facility to pay for, what I infer, were effectively running expenses and stock purchases for the Towrang property and for the benefit of both parties. 15 The plaintiff and the defendant lived in the Towrang Road property until June 2006. There have been attempts to sell this property. It was passed in at auction in November 2007 for $550,000. The parties do not agree on its value. Arthur's Road, Towrang 16 The property at 86 Arthur's Road, Towrang was purchased in the joint names of the parties in June 2005. The purchase price was $460,000. It was funded by a variation to the existing borrowing arrangements with the Commonwealth Bank of Australia so that the mortgage loan which was advanced to purchase Towrang Road was converted to a line of credit facility with a limit of $660,000. 17 Following settlement of the Arthur's Road property the amount owing pursuant to the line of credit was $597,000. The agreed current value of the property is $547,500. The amount currently outstanding under the line of credit is in excess of the limit and is approximately $675,000. 18 In July 2005 the plaintiff drew down a further sum of $63,000 from the line of credit facility and paid it into her personal bank account No. 0512 at NAB. In August the plaintiff transferred $58,000 from that account to her ING savings account. Chermside 19 The property known as Unit 4, 64-68 Wallace Street, Chermside in Brisbane was purchased in March 2002 in the plaintiff's name for $212,000. The original intention was that the plaintiff and defendant would purchase this property as joint tenants. In fact, the registered proprietor became the plaintiff. 20 The purchase was funded by a loan from the National Australia Bank to the plaintiff for $230,000. The property was sold in January 2010 for $402,000. The plaintiff retained $166,000 from the net proceeds of sale, of which $80,000 was applied by her towards the purchase of another property at Loberthal by the plaintiff and her sister.

Goulburn 21 The property at 22 Wilmot Street, Goulburn was purchased in the joint names of the plaintiff and the defendant in December 2002. The purchase price was $141,000. It was funded by an interest only loan of $150,000 from the National Australia Bank. 22 The Towrang Road property was provided as an additional security. The Goulburn property was sold in September 2006 for $165,000. After the discharge of mortgage and payment of expenses of sale no significant net proceeds resulted.

McDowall 23 The property at 23 Karen Street, McDowall was purchased in September 2003 in the plaintiff's name. The price was $233,110. It was funded by an interest only loan from the National Australia Bank secured by a mortgage over the property. 24 The McDowall property was sold June 2008 for $370,000. After discharge of the mortgage and payment of the expenses of sale the net proceeds were $138,000, which were retained by the plaintiff.

Retained Monies 25 I should say something about certain of the property of the plaintiff which was described as retained monies. In relation to the net proceeds of sale retained by the plaintiff from Chermside and McDowall, the defendant contends that she should be entitled to 50 per cent of those monies on the basis that they represent the fruits of the relationship even though the properties were purchased in the name of the plaintiff. 26 I assess the defendant's contribution to the acquisition of these properties as amounting to one third. This is a holistic value judgment. I have reached this view on the basis that the enmeshing of the parties financial affairs, their joint and prosperous lives during the period 2002 to 2006, the collaboration and assistance which they provided to each other, and the greater capital contributions of the defendant, to which I will come, which were achieved by raising moneys on the security of the Florey property, and then subsequently by contributing the net proceeds of sale of Florey, facilitated indirectly but in a material sense, the acquisition and maintenance of the Chermside and McDowall properties. 27 These factors enabled and encouraged the plaintiff to acquire and maintain these properties and to achieve the ultimate net proceeds of $304,000, which resulted from them. These monies should be added back to the pool of the property of the parties. 28 The defendant also contended that a sum of $68,000 in the plaintiff's ING account at separation should also be added back. The plaintiff contended that these monies could be explained by reference to substantial consultancy fees paid to the plaintiff. The evidence on which the plaintiff relied was highly conjectural and was not the subject of careful analysis or explanation by the plaintiff, when it could have been. 29 In the result, I think that $58,000, not $68,000, should be added back. This is because of the initial redraw of $63,000 in July 2005. Those funds were initially paid into a joint account and then most of the funds were transferred to the plaintiff's NAB account No. 0512 of which $58,000 was then transferred to the plaintiff's ING account. I am not satisfied that anything other than the sum of $58,000 should be treated as monies retained by the plaintiff at separation which should be added back.

Alpaca Partnership 30 I have mentioned the partnership between the plaintiff and the defendant in relation to the Alpacas which they owned. The name of the partnership was Indigo Alpacas. The evidence before me included financial statements of the partnership which showed that at 30 June 2007, the equity in the partnership was $248,696. 31 I am not prepared in the exercise of my discretion to make any adjustment order in relation to what is said to be a greater share of the former partnership assets said to have been retained by the plaintiff. 32 The defendant relied upon tax returns of the plaintiff and the defendant which indicated prima facie that the respective shares of the stock and the plant and equipment retained by each of the plaintiff and the defendant differed in size and value and that the disparity was in the sum of $130,000. 33 I am not prepared to make any adjustment in relation to this property because, firstly, there was no evidence of current value, only historical accounting figures. Secondly, I was left to make an educated guess about how much of the greater share said to be retained by the plaintiff was in fact constituted by fixtures on the Towrang land and should, therefore, be excluded from my calculation. And, thirdly, the evidence of the parties was that the apportionment between them following separation was consensual. The defendant said she just went along with what the plaintiff proposed. The evidence did not reveal disagreement or complaint by the defendant and I do not infer that the defendant was coerced against her will. For those reasons I will leave the assets of the Alpacas business as they stand.

Continuing Occupation 34 I have taken into account the plaintiff's continuing occupation of the Towrang properties since separation to the exclusion of the defendant, but I did not think any allowance is necessary because the benefit she has received from occupation has been offset by payments made by her towards the joints indebtedness of the parties. The defendant, for understandable emotional reasons, has not contributed to that indebtedness for sometime.

Bank Accounts 35 I have referred to the enmeshing of the parties financial affairs and their bank accounts. The plaintiff's principal bank accounts were her accounts with the NAB No. 1331, which was described as the School of Leadership account and which was the primary repository of her consultancy fees; her NAB savings account No. 0512 and her ING account. 36 The parties established joint bank accounts. They were, the NAB account No. 1273, which did not have a cheque facility; NAB account No. 6635, which had a $10,000 overdraft facility; and, significantly, the Commonwealth Bank of Australia line of credit with a limit of $660,000. 37 The defendant's own bank accounts were less complex. She had entered the relationship with a Commonwealth Bank of Australia account, which was closed after the relationship commenced, and she then opened a NAB account and an ING savings account.

Non-Financial Contributions 38 I should say something about the non-financial contributions of the parties. I am satisfied that during the relationship the defendant and her family made many non-financial contributions, particularly after the parties owned the Towrang properties and the Alpaca stud. I am satisfied that the defendant was, for practical purposes, the primary farm manager and undertook the majority of the physical labour required for maintenance of the farm, even taking into account the illness which she suffered in 2003. 39 This included fencing, clearing timber, installing plumbing, assistance with tanks, welding, tractor fertilising and hand seeding the paddocks, attending to the Alpacas, and all of the other matters that go with the conduct of an Alpaca stud. I am also satisfied that the defendant's mother assisted in these matters. 40 The plaintiff, on the other hand, handled all the finances and she was adept at doing so. I do not say that in any sense in a critical way. She was sophisticated financially and the defendant trusted and permitted the plaintiff to handle their financial arrangements. The plaintiff controlled and operated their joint bank accounts and, of course, her own bank accounts. 41 The plaintiff earned substantially more income than the defendant, especially in 2003 when the defendant was ill and receiving treatment for breast cancer. I accept that the plaintiff contributed more of her income to the relationship in connection with the day to day living, accommodation and borrowing expenses of the parties. She was the dominant partner in many respects, although her capital contributions were not as great as those of the defendant.

Contributions - Financial & Non-Financial 42 I should say, in relation to the capital contributions, that I find that the plaintiff's capital contributions consisted only of $25,000 following the sale of the Downer property; $185,000 from the sale of the Aldinga Beach property; and approximately $10,000 from the sale of shares. This is a total of $220,000. 43 The defendant's capital contributions consisted of $100,000, consisting of further advances pursuant to the Florey mortgage loan facility, being $50,000 in 2000 and $49,890 in 2003. They also included $138,543 representing the net proceeds of sale when the Florey property was sold in 2005. And there were other contributions relating to her redundancy package ($46,412) and the trade-in of a vehicle to part fund the purchase by the plaintiff of another vehicle ($11,740). The total of those two items is almost $60,000, and the sum total of all of her capital contributions was approximately $300,000. 44 The plaintiff and the defendant acted on the basis that their contributions to the mortgage payments relating to the two Towrang properties would be unequal. This was partly because the consequence to the defendant of moving to Towrang was that she had to commute over 100 kilometres to Canberra each day until 2003; partly because the plaintiff was using Towrang as the base for her consultancy business activities and wanted to maximise the deductions available to her against her gross income; and partly because of the defendant's contributions to the primary production activities of the parties. 45 As I have said, I accept that the defendant was the person who took more interest in and was primarily involved in the maintenance of the Towrang properties and the conduct of their primary production activities. 46 The last two capital contributions by the defendant, which I have summarised, consisted of the following. The first was the contribution made by her following a voluntary retirement package which she took at the end of 2002. I assess the amount of this contribution as being $46,412, which is made up of a gross sum of $56,599, and a further sum of $8,213, from which I have deducted the sum of $18,400 paid by the defendant in discharge of a debt owing to her father. 47 The second was the trade-in by the defendant of her car to part fund the plaintiff's purchase of a Ford wagon. There was no dispute that the amount of the defendant's contribution represented by this transaction is $11,740.

Credit 48 I should make some observations about the credit of both of the plaintiff and the defendant. In arriving at a value judgment of the worth of the respective financial and non-financial contributions of the parties I have placed more weight on the evidence of the defendant. The defendant's evidence was, to my mind, more reliable, more consistent with the probabilities, more consistent with the contemporaneous objective facts, and more tempered. 49 I am afraid to say the plaintiff was combative and defensive and not always correct. Although, it does not necessarily indicate that her evidence should not be accepted, she did frequently seek to denigrate the defendant's contributions, or her evidence, when there was no real justification for doing so. Where there were differences between them I found the defendant's evidence more plausible.

Just & Equitable Adjustment 50 For the reasons that I have explained I assess the defendant's capital contributions as approximately $300,000. I assess the plaintiff's capital contributions as approximately $220,000. 51 Except in the case of the Chermside and McDowall properties, the plaintiff's greater income contributions are, in my view, offset by the defendant's greater capital contributions and her non-financial contributions. 52 In my view it is appropriate in this case to adopt an holistic approach in the assessment of the parties relationship and their respective contributions. The property of the parties, in the relationship from which it emerged, was more than the sum of its financial parts. Except in the case of the Chermside and McDowall properties, it was, in my view, an equal personal and financial relationship where, until it broke down, each party reposed trust and confidence in the other. They collaborated together in their property and investment decisions, they enmeshed to a considerable extent their banking arrangements, they shared their material lives and their possessions. Furthermore, the defendant, as I have said, trusted implicitly the plaintiff who managed their financial affairs and dealings. 53 I do not regard a reductionist, asset by asset, approach as appropriate in this particular case, but it is convenient to address the divisible pool of property, and the parties' contributions to it, in three categories. 54 The defendant contended for a division of the pool of property into two categories. I think the evidence indicates three. The three categories constituting the divisible pool of property are, in my view, as follows. The first consists of the two properties at Towrang and the line of credit secured over them. The second consists of the net proceeds of sale retained by the plaintiff from the Chermside and McDowall properties. The third consists of certain funds retained by the plaintiff in her ING account at separation. This amount, I have said, should be assessed at $58,000. The second and third categories are what have been described as add-backs. 55 I have reached the view that an adjustment which reflects the respective financial and non-financial contributions of the parties and which is just and equitable having regard to those contributions in relation to each of those categories is as follows. 56 In relation to the Towrang properties, a just and equitable apportionment is, in my view, 50 per cent to each of the plaintiff and the defendant. 57 In relation to the net proceeds of sale which have been retained from Chermside and McDowall, a just and equitable apportionment is two thirds to the plaintiff and one third to the defendant. When rounded out this results in a figure of $100,000 for the defendant. 58 In relation to the funds retained by the plaintiff in her ING account at separation, a just and equitable apportionment results in a 50 per cent apportionment between each of the plaintiff and the defendant, which is $29,000. 59 I direct the parties to bring in short minutes of order to give effect to these reasons. They should do so by 7 May. 60 I will reserve costs. 61 The parties should provide written submissions, no longer than two pages, on the question of costs, if they wish to do so, by next Friday, 30 April.

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.