Smith v Pearson

[2011] NSWSC 600

Supreme Court of NSW|2011-05-16|Before: Macready J

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Source facts

Court

Supreme Court of NSW

Decision date

2011-05-16

Before

Macready J

Source

Original judgment source is linked above.

Judgment (17 paragraphs)

[1]

Judgment 1His Honour : This is the hearing of the plaintiff's application for adjustment of the parties' property interests pursuant to section 20 of the Property (Relationships) Act 1984 ('the Act'). A notice of motion filed 9 February 2010, was stood over to hearing in which the plaintiff sought certain relief against the defendant in connection with the parties' possible capital gains tax liability. 2The plaintiff and defendant commenced a de facto relationship in January 1997 and the relationship ended in April 2006. There was one child of the relationship, Madison, who was born in January 2001. The plaintiff had three children from a previous marriage and two of these children, Luke and Tiffany, came to live with the parties in 2004. At that stage they were aged 13 and 12 respectively.

[2]

Background 3The plaintiff was born in 1965 and the defendant in 1968. The defendant had not been married. The plaintiff had married in 1988 and separated in 1996. 4During the marriage, both parties worked, except during a period after the birth of their child, Madison. From January 1997 until January 2001, the plaintiff was employed, as an administrative officer at Midstate Security Services, an administrative clerk at Newham's Security of Liverpool and as a Customer Service Consultant with St George Bank. 5Shortly before the plaintiff gave birth to Madison, the plaintiff resigned her employment and engaged in Madison's full-time care until December 2003. From December 2003 until April 2006, the plaintiff was in part-time employment. The plaintiff continued to care for Madison. 6From January 1989, the NSW Police Service employed the defendant. According to the plaintiff, that employment ceased in 1999. According to the defendant, that employment ceased in 2000. I will accept the defendant's evidence on this aspect. From 2000 until August 2006, the defendant was employed as an RSPCA Inspector. 7Initially the parties lived in rental accommodation at a number of places. They decided to move to the South Coast because of the relocation of the defendant's employment and in September 2000, the defendant purchased a property at Wirreanda Place, Long Beach near Bateman's Bay for $167,000. The defendant had shortly before received a retirement payout from the police force of $46,547.17. He used to $22,471 from this payout to contribute to the purchase and the balance was borrowed from the St George Bank in the sum of $148,000. 8At the end of 2001, the defendant incorporated a company Seiei Pty Ltd. At that stage the defendant was the only shareholder. The defendant refinanced the existing mortgage on their property by taking a new mortgage in the name of the company. 9In 2003, the company purchased an investment property at Narooma for $267,000. After some minimal refurbishments, the property was rented at $250 per week. On a 23 July 2004, the plaintiff was appointed an additional director of the company and issued with 50 fully paid ordinary shares in the company. The defendant held 100 fully paid ordinary shares in the company. 10As I have mentioned the parties separated in April 2006 and on 14 June 2006, the plaintiff left the Wirreanda property. Thereafter there were disputes concerning the residence arrangements for their child Madison. The upshot is that she resided with the defendant and thereafter the plaintiff made child support payments to the defendant for her care. 11In December 2006, the company sold the Narooma investment property for $290,000. After paying out the mortgage and also the finance on the car, which the plaintiff took on separation, there was a balance of $47,000 which was initially held in a St George Bank account in the name of the company. 12On 13 July 2008, the company Seiei Pty Ltd was deregistered. On 28 November 2008, the defendant withdrew $47,483.78 from the company's account. The defendant transferred these funds into a Police Credit Union account in the defendant's sole name. He has subsequently used those funds for his living expenses. Seiei Pty Ltd has a liability for unpaid CGT in respect of this sale. That liability is at present unknown. 13These proceedings were commenced out of time on 18 December 2008.

[3]

Extension of time 14The plaintiff seeks an extension of time within which she may bring the proceedings. Section 18 of the Property (Relationships) Act is in the following terms: "18 Time limit for making applications (1) If a domestic relationship has ceased, an application to a court for an order under this Part can only be made within the period of 2 years after the date on which the relationship ceased, except as otherwise provided by this section. (2) A court may, at any time after the expiration of the period referred to in subsection (1), grant leave to a party to a domestic relationship to apply to the court for an order under this Part (other than an order under section 27 (1) made where the court is satisfied as to the matters specified in section 27 (1) (b)) where the court is satisfied, having regard to such matters as it considers relevant, that greater hardship would be caused to the applicant if that leave were not granted than would be caused to the respondent if that leave were granted. (3) Where, under subsection (2), a court grants a party to a domestic relationship leave to apply to the court for an order under this Part, the party may apply accordingly." 15In Selmore v Bull [2005] NSWCA 365 the (then) President of the Court of Appeal had the following to say in respect of the section: "12. The applicable principles were not in dispute. Section 18 does not lay down a general time-limit, giving a discretion to the Court to extend it. Rather, it makes two different provisions. That found in subsection (2) is expressed in terms of power to grant leave to apply, not as a power to extend the primary time limit. As Bryson J. pointed out in Beavan v Fallshaw (1992) 15 Fam L R 686 at 687: This section appears... to treat an application for leave to apply as a normal event, calling for the Court to consider two stages, a finding relating to hardship and the exercise of discretion, without any special jealousy for the observance of the time limit or particular concern for it... In considering whether a Court should exercise of discretion conferred by statute to make an order in favour of some course, it is usual to consider whether there is a sound and positive ground or a good reason for making the order. Ultimately however it is not... legally necessary to define exactly the ground on which a discretion is exercised favourably to an applicant. 13. It is not mandatory that there be an explanation for delay ( Carlon v Carlon (1982) FLC 91-272). 16And later at paragraph 20: "The Master correctly recognized that section 18 (2) required him to consider the preponderance of hardship and also whether the residual discretion ought to be exercised in the applicant's favour. His reasons for a favourable exercise of discretion are found at pages 58 to 67 and 80." 17I also note that the question of delay is referred to by Bryson J in the case of Beavan v Fallshaw to which the President referred in Selmore v Ball in these terms: "The section appears to me to treat an application for leave to apply as a normal event calling for the Court to consider two stages, a finding relating to hardship, and the exercise of discretion." 18At page 687 he said: "I regard it as relevant to the exercise of that discretion to consider what explanation for delay is offered, but my primary concern ought, in my opinion, to be whether the case put forward is an appropriate case for the plaintiff to apply for an order." 19The plaintiff accepted that she must demonstrate that she will suffer hardship if leave is not granted and that this outweighs any detriment to the defendant if leave is granted: Kemp v French [2010] NSWSC 971 at [13] per Hallen AJ. See also Mills v Nicholson [2009] NSWSC 586. 20Her submission was that she would suffer significant hardship if leave is not granted because: (a) She presently has assets of approximately $200. (b) She made significant financial and non-monetary contributions to the finances of the parties and to the welfare of the defendant and their family during the term of their relationship. (c) The defendant is the sole registered proprietor of the Wirreanda Property, and other assets to which it is argued that the plaintiff contributed. 21The plaintiff also points out that the defendant was put on notice of a potential claim in May 2006 (one month after the conclusion of the relationship) as a result of a caveat over the Wirrendea Property that she lodged on 25 May 2006. The plaintiff claimed an interest in the property pursuant to section 8 of the Act. There is no explanation for the delay but the period of delay is not substantial. 22In order to decide this matter it is necessary for me to consider the nature of the claim she has made, which she would lose if an extension of time is not granted and also any detriment the defendant will suffer. I will now turn to the nature of claim and will return later to the question of whether leave should be given.

[8]

30It is worth noting that the Narooma property was sold not long after separation and the mortgage was paid out, as well as the finance on the car that the plaintiff took over. After that, the balance left was $47,483.78, to which I have referred earlier. There was a dispute between the plaintiff and the defendant as to the value of the items of furniture taken by the plaintiff after separation. According to the defendant, the replacement cost of the items was about $25,000. The plaintiff in cross-examination suggested that the cost was far less, the furniture having a value of no more than $6,000. I will accept the plaintiff's estimate in her affidavit of $13,000 as the defendant's evidence when compared with the cost of these items seems excessive. 31The defendant's assets and liabilities are: Assets Estimated Value a. Property at 23 Wirreanda Place, Long Beach $180,000.00 b. Superannuation with MLC Nominees Pty Limited $2,013.47 c. St George Bank - money held in cheque account $200.00 d. Net value of 66 2/3% shareholding in Seiei Pty Ltd (value calculated based on value of narooma property as at date of separation of $250,000 less mortgage debt of $239,378.78 attributable to Narooma leaving an equity of $10,621.22) $7,081.00 (The Narooma property was sold on 18 December 2006 for $290,000) $189,294.47 TOTAL 378,588.94 Liabilities Estimated Value a. Mortgage loan no. 162453 (Wirreanda) $135,354.33 b. Mortgage loan no. 162454 (Narooma) $35,204.43 c. Mortgage loan no. 231167 (Mazda NEo) $23,493.01 d. Mortgage loan no. 296174 (Narooma) $95,017.99 e. Mortgage loan no. 296171 (Narooma) $95,874.98 f. IMB Card Services - Citibank credit card $3,787.40 g. ANZ Bank Everyday Visa Card $4,711.00 h. St. Bernards school fee $3,755.80 i. Seiei Pty Ltd Capital Gains Tax $to be advised j. Council rates Long Beach $1,730.00 k. Council Rates Narooma $1,200.00 Total: $400,128.00

[11]

35The defendant gave his assets and liabilities as follows: Assets Estimated value a. Property at Wirreanda Place, Long Beach $325,000 b. Mitsubishi Magna motor vehicle (1996) $3,000 c. Television $3,000 d. Dining room table and chairs $300 e. Double bed $400 f. Washing Machine $300 g. Tools $2,000 h. Police Credit Union - personal bank account $1,000 i. Superannuation with Australian Reward Investment Alliance (ARIA) $28,791.12 Total: $363,791.12 Liabilities Estimated Value a. Mortgage secured over property at Long Beach to perpetual Trustees Victoria Limited $245,000 b. Citibank - credit card $4,711 c. ANZ Bank - credit card $3,500 d. Share Capital Capital Gains Tax - Seiei Pty Ltd To be advised e. Moray & Agnew - legal costs of and incidental to an application to the Family Court in Canberra against the plaintiff concerning an application for living with and spending time with our daughter Madison $28,177.38 f. Boyd House & Partners - estimated legal costs $20,000 Total: $301,388.38

[13]

Financial contributions by the parties 38Throughout the period of the relationship, the parties pooled their earnings and paid expenses out of each other's bank accounts. There is no evidence of either party having applied any of their funds to their own separate purposes - the family needed all the available income in order to support the family. 39The plaintiff' submitted a summary of the actual financial contributions that each made in these terms: "The plaintiff made the following contributions to the property or financial resources of the parties: (a) Approx. $34,000 (after tax) from employment at Midstate Security Services from January 1997 to June 1998 (Approx. 68 weeks at $500 per week). (b) Approx. $30,000 to $45,000 (after tax) from employment at Newham's Security of Liverpool and St George Bank from June 1998 to January 2001 (Approx. 78 weeks at $420-$600 per week). (c) $2,740 (before tax) from employment at IMB Limited from December 2003 to February 2004. (d) $37,917 (before tax) from employment at St George between July 2004 to June 2005. (e) Approx. $30,000 (before tax) from employment at St George between July 2005 to April 2006. The plaintiff therefore made a total financial contribution of approximately $134,000 to $149,000. In addition, the plaintiff contributed to the maintenance and upkeep of the Wirreanda Property. The defendant made the following contributions to the property or financial resources of the parties: (a) Defendant had assets of $20,903 at time of commencement of relationship. (b) Approx. $110,000 - $120,000 (before tax) from employment by NSW Police Service between January 1997 to February 2000. (c) Superannuation payout of $46,547.16 (note that there is an element of double counting here, because superannuation assets of $16,903 were counted in the defendant's initial assets). (d) Long service leave entitlements of $8,000. (e) Approx. $13,000 (before tax) for employment as RSPCA Inspector between February 2000 and June 2000 (calculated based on salary in 2002). (f) Approx. $42,380 (before tax) for employment as RSPCA Inspector between July 2000 and June 2001 (calculated based on salary in 2002). (g) Approx. $42,380 (before tax) for employment as RSPCA Inspector between July 2001 and June 2002 (calculated based on salary in 2002). (h) Approx. $42,380 (before tax) for employment as RSPCA Inspector between July 2002 and June 2003 (calculated based on salary in 2002). (i) Approx. $43,706 (before tax) for employment as RSPCA Inspector between July 2003 and June 2004 (calculated based on salary in 2004). (j) Approx. $48,606 (before tax) for employment as RSPCA Inspector between July 2004 and June 2005 (calculated based on salary in 2005). (k) Approx. $35,000 to $40,000 (before tax) for employment as RSPCA Inspector between July 2005 and April 2006 (calculated based on salary in 2006). (l) The defendant therefore made a total financial contribution of approximately $335,000 to $351,000. On this basis, taking the approximate contributions of both the plaintiff and the defendant at their highest (and ignoring the difficulty's associated with the calculation of tax), the plaintiff contributed in the order of 25% - 30% of the total finances of the parties during the period of their relationship." 40These submissions accurately reflect the evidence in the case and accordingly I adopt them as the financial contributions of the respective parties during the period of the relationship.

[15]

The pool of property 44The assets available to the parties from their relationship appear to be the following: (a) Proceeds of the sale of the Narooma property represented by the amount of $47,483.78. (b) The car taken by the plaintiff at the conclusion of the relationship, which had its finance paid out on the sale of the Narooma property. It was valued at separation at $21,000 and at present at $6,000. (c) The furniture taken by the plaintiff on separation: $13,000 (d) Furniture and tools kept by the defendant at $6000. (e) The equity in Wirreanda Place of $95,000. 45Each party had superannuation. The plaintiff' had $13,000 and the defendant had $28,791.12. There is a question of whether there should be any adjustment in respect of this superannuation. For many years the only case which gave guidance on the matter was Green v Robinson (1995) 36 NSWLR 96. Although there is some dispute about what the majority said, one view seems to be that comments of Powell JA and Cole JA were that there had to be demonstrated some factual matter that would enable one to form a view that there had been a contribution to a spouse's superannuation entitlement. The Court of Appeal in Chanter v Catts [2005] NSWCA 411 dealt with the matter. Hunt AJA adopted Bryson JA views at paragraphs 82 to 90 and Hodgson JA substantially agreed with them. The views of the Powell JA and Cole JA were rejected and the approach of Kirby P, who had dissented, was adopted. Accordingly, superannuation entitlements are not to be viewed as belonging to the parties separately but as financial resources of the parties which need to be adjusted having regard to contributions "made directly or indirectly" by them. Normally the court will take a global view of the matter. I note that the plaintiff's superannuation is 32 per cent of the total of the parties' superannuation. 46It is not appropriate to take into account the other liabilities of each party as they represent matters occurring after the conclusion of the relationship. See Omacini v Omacini (2005) 33 Fam LR 134. The one exception is the capital gains tax liability. As no income-tax returns of the company have been filed for the two years prior to its being struck off, it is difficult to see what would be the capital gains tax. The increase in value over the period of ownership was $23,000 so the potential liability is at least in the order of $11,500. Given that the Taxation Department is aware of the liability it may be that the parties will receive some form of assessment in respect of that liability. The ownership of the property was effectively 50 shares to the plaintiff and 100 shares to the defendant. In these circumstances, it is probably appropriate to make orders reflecting that the parties should share any future capital gains tax liability in that proportion. 47There has been the extraordinary situation that the former matrimonial home has not been occupied since separation. According to the plaintiff, there were problems with the electrical wiring and problems with the drive, with which she found it difficult to cope when they were residing in the premises. The evidence before me did not address whether or not the property was capable of occupation. Clearly the plaintiff had nothing to do with the property after separation. After the defendant's employment in the area terminated at the end of 2006 the property has been vacant. The defendant visits it regularly to check the upkeep and security. 48In these circumstances there is probably not a situation where a party has acted recklessly in respect of the asset. The loss of value was the result of market forces and the parties should share it. It is appropriate to make an adjustment of their respective interests. 49Another question that arises is whether there should be some credit for the defendant as a result of him preserving the asset to the present time by making mortgage payments. It was his decision to retain it and this has resulted in a loss to both parties. In these circumstances I do not think it appropriate to give him credit for the mortgage payments.

[16]

Conclusion 50The plaintiff in submissions sought an order giving her 40 per cent of the pool of assets and an order that she be liable for one third of the GST liability. For his part the defendant had sought an order that there be no adjustment and that the parties share of the GST liability equally. 51The defendant's financial contributions were between 70 to 75 per cent of the total financial contributions. However, the plaintiff's non-financial contributions were greater than that of the defendant as a result of her full-time care of their child for nearly three years. 52There has been a partial distribution of property at separation with the plaintiff retaining 39 per cent of that property and the defendant retaining 61 per cent. The total superannuation held by the plaintiff is 32 per cent and the defendant holds 68 per cent. 53Having regard to the contributions and on the basis that all the property taken at separation is not distributed, I think it appropriate that the plaintiff receives by way of adjustment 40 per cent of the Wirreanda Place property. 54Having regard to the conclusions which I have reached above it is necessary to return to the question of whether the parties should be given leave to commence the proceedings out time. 55Even before costs, the pool of assets is small. The defendant represented himself in proceedings and it appears that the plaintiff initially received some pro-bono assistance from Gooden & Associates Solicitors, However, during proceedings the plaintiff appointed a new solicitor, Ian Foulsham of Foulsham & Geddes to act. In these proceedings, counsel, Mr Chapple, represented the plaintiff. She has been charged a small amount for costs by the solicitors. 56In relation to any detriment the defendant would suffer if an order is made grating an extension of time to bring proceedings, during proceedings the defendant made submissions to the effect that: (a) He has secured a reasonably good job and is currently on a six month probation (T 83 line 43) (b) He and Madison live fairly humbly in a rented apartment in Ballina and Madison goes to a private school (T 85 line 29) (c) He has debts of about $76,000 (T 87 line 34) 57Neither the plaintiff nor the defendant are relatively well-off and the costs (if any), or disbursements, or both, incurred in these proceedings will have a significant detrimental effect on both sides. However, on balance the plaintiff has no other assets outside the parties' shared property and therefore if leave is not granted she will suffer hardship outweighing any detriment the defendant will suffer if leave is granted. 58I will make an order under section 18 of the Act to extend time to bring proceedings up until the commencement of proceedings. 59Short minutes can be brought in reflecting this result. Any question of costs can be argued at that time.