Parsons v Storm [2009] NSWSC 166 | Case summary

1 The Plaintiff and the Defendant lived in a de facto relationship between about May 1995 and January 2000. There were no children of the relationship. The parties brought to their relationship assets of about equal value. They were both employed and had about the same income. They contributed equally to their living expenses. 2 In 1995, after they had commenced their relationship, they purchased as joint tenants a residential property at Botany in which they lived. They borrowed jointly to finance the purchase and by the time the relationship came to an end they had contributed equally to mortgage repayments and other expenses relating to that property. They agree that their contributions to the equity in the Botany property are approximately equal. 3 When the parties' relationship ended in early 2000 they endeavoured to reach an agreement about the disposition of the Botany property. They obtained a real estate agent's valuation which put the property at $700,000. On that basis, their nett equity was then about $503,000. The Plaintiff says that they reached an informal agreement to the effect that he would purchase the Defendant's half interest in the property for a little more than half the value of the nett equity, i.e. $260,000. 4 The Plaintiff says that, by 26 June 2000, the Defendant had received the sum of $251,800 which is almost exactly the amount which she ought to have received. 5 No document evidencing the agreement was signed and neither party did anything to transfer title to the property into the Plaintiff's sole name. 6 In May 2003, the Plaintiff sold the property for $1,210,000. The Defendant denied that an agreement for sale of her interest had been concluded and she required an accounting of the proceeds of sale on the basis that her equity in the property remained at fifty percent. As a result of this dispute the balance of the proceeds of sale, after certain payments out, was retained in a controlled monies account. However it was not until January 2006 that the Plaintiff commenced these proceedings. 7 The Plaintiff concedes that the alleged agreement between the parties is not expressed, that it is not evidenced in writing, that there are no unequivocal acts of part performance, no unequivocal representations by the Defendant, and that no estoppels arise. Mr A. Fox of Counsel, who appears for the Plaintiff, concedes that the alleged agreement is not enforceable either at law or in equity. The Plaintiff therefore invokes s 20 of the Property (Relationships) Act 1984 (NSW) seeking an order for the adjustment of the parties' interests in the property, now represented by the proceeds of sale, so as to effect the alleged agreement. 8 The Defendant has filed a Cross Claim seeking a declaration that the property was held for the parties equally and an order that there be an accounting between the parties of the proceeds of sale upon that basis. 9 The parties agreed that their de facto relationship ceased in January 2000, so that the Plaintiff requires leave under s 18(2) of the Act to bring these proceedings. The Defendant formally opposes the granting of leave. 10 Under s 18(2) the Court, in considering whether to grant leave, is to have regard to the hardship as between the parties in the light of all relevant circumstances if leave were to be refused. It is fair to say that both sides to this dispute have been slow in bringing it before the Court. 11 Between January 2000 and May 2003 both parties seemed content to let the adjustment of their property rights remain in a state of irresolution. It was only when the Plaintiff came to sell the property in 2003, for a much higher amount than the parties had thought achievable in 2000, that the problems became more focused. Even then, neither party did anything to bring the matter to Court for more than two and a half years. Neither side can now point to any circumstance in their financial and personal situations which would result in greater hardship to one or the other if leave under s 18(2) were granted or refused. The issue between the parties is who is entitled to a sum of money which has been reposing in a solicitor's trust account for years. 12 The Court's discretion under s 18(2) is broad. All that the Court requires, to use the words of Bryson J in Beavan v Fallshaw (1992) 15 Fam LR 686, at 687, is a "good reason" for granting leave. In my opinion, it is desirable that all aspects of a dispute which has smouldered for almost nine years be resolved once and for all, one way or another. In my opinion, that is a sufficiently good reason to grant leave to the Plaintiff to bring these proceedings out of time. 13 Leave under s 18(2) of the Act is therefore granted. The parties agree that the prerequisites of s 15(1) and s 17(1) of the Act are satisfied. 14 Section 14(1) provides: "Subject to this Part, a party to a domestic relationship may apply to a court for an order under this Part for the adjustment of interests with respect to the property of the parties to the relationship or either of them or for the granting of maintenance, or both."

(2) A court may make an order under subsection (1) in respect of property whether or not it has declared the title or rights of a party to a domestic relationship in respect of the property." 15 The Plaintiff concedes that the circumstances of the parties since their separation in 2000 have not changed and neither one is more necessitous than the other. The Plaintiff says, however, that while the contributions of the parties to the acquisition of the Botany property were equal, so that their interests in the property were equal as at the date of their separation, the Court may have regard to all relevant circumstances in determining whether it is just and equitable to adjust those interests under s 20(1). 16 The principal relevant circumstance in the present case, says the Plaintiff, is that in early 2000 the parties themselves made and acted upon an agreement that the Defendant would sell her half interest in the property to the Plaintiff for approximately $260,000. A subsidiary circumstance, says the Plaintiff, is that the Defendant used money from the sale of her share of the Botany property to the Plaintiff to purchase a property in her sole name in Victoria. She has subsequently sold that property at a profit. 17 The Plaintiff says that if the Defendant is to retain her fifty percent interest in the Botany property (now in the proceeds of its sale), as well as having been paid $251,000 for the sale of her interest, and is to retain as well the profit which she has made from the acquisition of her Victorian property, she would have a windfall at the expense of the Plaintiff: an adjustment of interests under s 20 is, therefore, warranted. 18 As I have said, the Defendant denies that she made the agreement which the Plaintiff alleges. She denies that the money which she has received on account of the proceeds of sale and out of the proceeds of sale of the Botany property had the character alleged by the Plaintiff. However, she says that even if such an agreement were made, the Court cannot have regard to it for the purposes of s 20(1). 19 The only relevant factor in the starkly simple facts of the present case, says the Defendant, arises under s 20((1)(a); that is, what financial contribution was directly made by the parties to the acquisition of the Botany property. As the parties agree that their contributions to the acquisition were equal and as their equal interests were reflected in their joint tenancy of the property and in equity, there is no warrant for any order under s 20. 20 Mr M.J. Watts of Counsel who appears for the Defendant says that the existence or otherwise of the alleged agreement between the parties is excluded from consideration. Mr Watts relies upon a decision of the Court of Appeal in Kardos v Sarbutt [2006] NSWCA 11. That decision was one of the a series of cases heard in 2006 in which the proper application of s 20 was in issue. 21 I think it can be said that it is not entirely settled how far the Court can have regard under s 20 to factors other than the contributions of the parties to the property of the relationship. The authorities, as they were in 2006, were reviewed by Barrett J in Paino v Paino [2006] NSWSC 218. His Honour felt compelled to follow the decision of the Court of Appeal in Kardos v Sarbutt , which his Honour understood to require the Court to have regard only to the parties' contributions to the acquisition of the relevant property and to no other circumstances. His Honour recognised that this was a somewhat problematical task since the Court was, at the same time, required to do justice and equity between the parties, which exercise necessarily would involve taking into account the factors other than mere financial or non-financial contribution to acquisition. However, as his Honour understood Kardos v Sarbutt , that was the approach that the Court was required to take. 22 There have been some decisions since Kardos v Sarbutt and Paino v Paino which leave the question in debate: see, e.g., Baker v Towle [2008] NSWCA 73 at [60]; Bilous v Mudaliar (2006) 65 NSWLR 615. I am relieved of the necessity to add to the debate by the particular facts of this case: the parties' financial contributions to the acquisition of the Botany property are equal and their personal and financial circumstances both before and after the acquisition are equal. 23 In the present case, it seems to me that the Court can alter the interests of the parties in the property as reflected in the state of the legal title only if there is an agreement enforceable in law or equity whereby the parties have made their own adjustments to those legal interests. That is so because there is nothing else in what the parties have done subsequently which could have affected the justice of their case for the purposes of s 20. 24 The Plaintiff concedes that there is no legally binding agreement between the parties. The Plaintiff nevertheless says that there was in fact a common understanding between them and it would be contrary to justice now for the Defendant to depart from it. The Plaintiff says that Court may, by means of s 20, enforce the Defendant's moral obligation to honour the common intention. 25 I do not see that a common intention or understanding, which the Plaintiff did not act upon to his detriment, nevertheless affects the justice of the case to a degree that the Court will, in exercise of the power under s 20 of the Act, give a remedy where one would not otherwise be available. Nevertheless, in case I am wrong in this conclusion, I turn to the critical question, was there a common understanding or a common intention between the parties formed in early 2000, as the Plaintiff alleges. I should say at once that I have come to the firm conclusion that there was no such common understanding or intention. 26 It is clear that the parties were still on fairly amicable terms by the time they decided to part company. They considered carefully the various financial implications for them both if they sold the Botany property outright or if the Plaintiff purchased the interest of the Defendant. Both parties are, to some extent, financially sophisticated. Perhaps the Defendant is slightly more so than the Plaintiff by virtue of her occupation and training as a bank manager. They formulated at least four possible ways of separating their financial interests. Those that concern us in this case are what have been called options 1 and 4. 27 Option 1 was that the Plaintiff would buy the interest of the Defendant in the Botany property outright. That option was soon realised to be impracticable because the Plaintiff had not sufficient assets or resources to be able to refinance sufficiently to afford the purchase. Discussion thereafter focused upon option 4 which was to the effect that the Plaintiff would buy out an interest, but not the whole interest, of the Defendant in the property. 28 The property was physically divided such that the larger part was used as a residence by the Plaintiff and the Defendant during their relationship, and the smaller part could be used for rental purposes. Option 4 revolved around the Plaintiff acquiring the Defendant's interest in the residential part of the property and the Defendant retaining the interest in the rental part of the property. The property was on one title and when the parties approached their respective legal advisors to endeavour to implement this arrangement it was soon realised that there were formidable difficulties in the way. 29 The correspondence between the parties and their respective solicitors from March 2000 onwards shows that there were endeavours by the solicitors to work out a deed of termination which met the parties' requirements that the Plaintiff would retain the whole of the benefit of the residential portion of the property and the Defendant would retain the benefit of the rental part. It is not necessary to engage in any discussion of the difficulties involved. Several drafts of the deed were exchanged between the parties; in the result, no document was signed. 30 The parties obviously realised that it would take some time to effect the resolution of their property difficulties and they made endeavours to get on with their lives. The Defendant wished to obtain money from the Botany property in order to proceed with the purchase of a property in Victoria as she had accepted a transfer in her employment there. Accordingly, the parties agreed to refinance the Botany property by increasing the loan secured against it on the supposition that, in due course, when the property settlement between them was achieved satisfactorily, there would be adjustments for the amounts which had been borrowed and used exclusively for the benefit of the Defendant. 31 Two loans were arranged by the Plaintiff and the Defendant, one for $320,000 in about May 2000 and one, a loan to the Plaintiff alone for which the Defendant signed a guarantee. 32 Pursuant to those arrangements, which were finalised on 26 June 2000, the Defendant received a sum of money which she then applied for her own purposes. The Plaintiff says that the money that she received was in payment of the purchase price for her half interest in the property, that being the common intention of the parties. The Defendant denies that this is the character of the receipt at all. She says, as I have recounted, that it was the proceeds of a loan essentially for temporary purposes while the property adjustments between the parties were being worked out. 33 If the common understanding of the parties was as alleged by the Plaintiff, one would have expected that the Defendant would have received at this time the full amount of her supposed consideration for the sale of her interest in the property, that is, some $260,000, and that would have been the end of matter. She did not receive that amount. She received an amount which was $9,000 less. 34 The discrepancy in the amounts suggests that the character of the receipt by the Defendant was not as the Plaintiff suggests. It is clear from the whole of the evidence emanating from the parties' solicitors that there was a continuing discussion at this time about the terms of the agreement which was being negotiated. That discussion continued until after the refinancing of the property was effected in June. 35 The Defendant continued to pay interest on the increased borrowing. She has paid some $15,000 on the increased borrowing to date. The Plaintiff says that it was the common intention of the parties that she be repaid this interest so that she would be free of liability for the Botany property and would receive the consideration in full for the sale of her interest to the Plaintiff. There is no evidence of any express agreement between the parties to this effect. 36 The fact remains that the Plaintiff has never paid that sum of $15,000 to the Defendant. That suggests that the arrangements between the parties were not clearly understood but were regarded by them as remaining inchoate from the time they were first discussed in January 2000 until the present time. 37 This lack of agreement was brought into sharp focus in May 2003 when the property was sold by the Plaintiff. It is significant that, even at that time, the Plaintiff was not asserting that the Defendant had agreed outright to a simple sale to him of a fifty percent interest in the property for a sum $260,000. In his instructions to his own solicitor he refers to the entitlement of the Defendant to a continuing 23% interest in the property, and asserts that the Defendant was seeking to claim from the proceeds of sale a greater percentage than that to which she was entitled. 38 In short, the evidence shows that while the parties discussed frequently and in great detail the various mechanisms by which they could extract themselves from their joint ownership of the Botany property, they never reached any clear understanding or agreement as to what was to be done. They made arrangements to extract money from the property for their own separate purposes on the basis of borrowings, relying upon an adjustment to be made later when the property was sold or when final agreement as to their adjustment of their rights was achieved. That remained the position as at May 2003, and it remains the position to this day. 39 There is nothing in the way in which the parties sought to achieve a temporary solution to their problems after January 2000 which requires the Court to adjust their rights, as established by their contributions to the acquisition of the property, under s 20 of the Act. The parties acknowledged that they each had a half interest in the property and in the proceeds of its sale. On that basis they incurred additional liabilities by way of borrowings against the property. They paid themselves separately part of the proceeds of those borrowings and there must now be an accounting as between them for what they have received. 40 The subsidiary point raised by the Plaintiff is that unless an adjustment of property rights is made the Defendant will gain a windfall at the Plaintiff's expense. I do not think this is factually correct because both parties have drawn upon the financial resource represented by the Botany property to acquire their own separate property: the Defendant a property in Victoria; the Plaintiff a property in Vacy. 41 The parties stand to benefit from those acquisitions for their own account according to the particular circumstances of those separate acquisitions. They also stand to benefit from the increase in value of the Botany property. There is no injustice or inequity arising from that situation. There is no warrant for deducting from the amount which the Defendant is entitled to receive from the sale of the Botany property any profit realised by her on the sale of her Victorian property. 42 In the accounting which will be necessary between the parties, there are a number of factors which will need to be considered. There is some contention as to who, between them, should be responsible for any GST payable. I have found that there was no agreement or common intention as to the disposition of the property, and their interests in the property and in the proceeds of its sale are equal. It follows, therefore, that their liability for GST, if any, is equal. 43 The next question is as to the rate of interest which should be payable upon any money found by the accounting to be due by the Plaintiff to the Defendant. The Defendant says, rightly, that her claim is essentially a money claim and it always has been a money claim since the property was converted into money in May 2003. The Defendant says that she should have interest on the money due to her as from the settlement of the property in May 2003 at the Supreme Court rate. That rate is higher than the rate which was earned on the balance of the funds retained in a controlled moneys account pending resolution of this dispute. 44 The Plaintiff, on the other hand, says that the delay in resolving the dispute is the fault of the Defendant and the Defendant should not have interest on the funds at all and certainly not at a rate higher than that which the funds actually earned. 45 Both parties have been dilatory in bringing these proceedings to Court. The Defendant made known very shortly after settlement of the sale of the property in May 2003 that she made the claim which she now presses. The Plaintiff delayed for some two and a half years before bringing that claim to Court and the Defendant has been kept out of her money in the meantime. It is true that during that time the Plaintiff sought elucidation of the Defendant's claim and the Defendant delayed in responding to that request for some eight months. The Plaintiff points the finger of blame at the Defendant in that regard but I find it surprising that the Plaintiff should have waited eight months before complaining about the Defendant's delay. 46 In the result, both sides have been equally at fault in bringing the dispute to a resolution. The Defendant probably will be found on the accounting to be entitled to additional money from the Plaintiff. It seems to me that the Defendant, having asserted in 2003 a just claim to a sum of money and the matter not having been brought diligently to the Court by the Plaintiff thereafter, the Plaintiff should pay interest at Supreme Court rates on the money found to be due to the Defendant. 47 The orders I propose to make are an order in terms of paragraph 1 of the Amended Statement of Claim. There will be judgment for the Defendant on the remainder of the Statement of Claim. 48 There will be orders made on the Amended Cross Claim. I will make a declaration in terms of paragraph 1. I do not think I should make any other declarations or orders founded upon calculation of amounts at this stage. The parties can either agree upon the calculation or, if they cannot agree, I will refer the matter to a Court appointed expert, who will be an accountant, for calculation in accordance with the reasons I have given. 49 The parties should bring in Short Minutes to reflect these reasons for judgment. I will hear argument as to costs now or on that occasion, as the parties wish. - oOo -

Parsons v Storm

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