Stenberg v Lechowics

Ms E Elbourne for plaintiff COUNSEL : Defendant in person Miss Richards for the second cross-defendant

SOLICITORS : Ian Foulsham & Geddes for plainiff

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2009/288199 LYNETTE MARY STENBERG v STANISLAW RYSZARD LECHOWICS JUDGMENT 1 HIS HONOUR: This is an application under the Property (Relationships) Act 1984 (NSW) (Relationships) ('the Act') in which the plaintiff seeks an adjustment of property interests pursuant to s 20 of the Act.

2 The parties lived in a de facto relationship from July 1993 until the end of 1995 when they separated and ceased cohabitation. In May 2000, they recommenced cohabitation when they again lived in a de facto relationship (apart from a short break of 9 months) until April 2008. The de facto relationship is not in dispute. 3 There are no children from the relationship or children who were cared for during the period of the relationship. The plaintiff has an adult daughter, Alessia Richards. Chronology 4 The plaintiff was born in October 1945 and the defendant in January 1953. In 1979, the plaintiff purchased a property at Paddington for $59,500. 5 The parties commenced their relationship in July 1993 when they lived at plaintiff's Paddington property. That relationship ended when they ceased cohabitation at the end of 1995. 6 Between 1997 and 2000, the plaintiff was engaged and then married to Nicholas Hough and they lived at the plaintiff's Paddington property. 7 In 2000, at the end of the plaintiff's marriage to Mr Hough, the plaintiff purchased a property at Goulburn Street, Surry Hills for $320,000 that was financed by a mortgage to Westpac Bank. 8 In May 2000, the parties commenced cohabitation at the Surry Hills property. 9 In September 2000, the parties purchased a property at Flood Street Leichhardt as joint tenants for $425,000. They borrowed $505,000 from Westpac with a loan secured on the plaintiff's Paddington property and on the Leichhardt property. 10 In November 2000, the parties moved to the Leichhardt property. 11 In October 2001, the plaintiff sold the Paddington property and from the proceeds of sale, she paid out half of mortgage on the Leichhardt property, namely, $252,500. The arrangement between them was that thereafter the defendant would meet the mortgage payments on the balance owing. 12 Between October 2000 and May 2002, the plaintiff loaned $130,000 to defendant. The defendant suggests that the amount was $139,000 which has been repaid. The parties are at issue as to whether there is a debt still owing. 13 From 2002, a law firm Thomson Cooper has employed the plaintiff. Between 2002 and May 2008 the plaintiff's employment was organised under an arrangement in which the defendant's accountancy practice, Attitude, employed the plaintiff, and sub-contracted her services to Thomson Cooper. 14 In March 2003, the parties and the plaintiff's daughter, Alessia Richards, the second cross defendant in the proceedings, purchased a property at George Downes Drive, Bucketty for $395,000 as joint tenants. Alessia Richards paid $53,000 for the deposit, stamp duty and legal fees. The balance of the purchase price was secured by a mortgage to Community First Credit Union over the properties at Bucketty, Leichhardt and Surry Hills. 15 In April 2006, the mortgage arrangement over the Leichhardt property changed and the defendant arranged a registered first mortgage to the ANZ Bank in the sum of $245,000. 16 In April 2006, the defendant arranged a second registered mortgage over the Leichhardt property for $250,000, which was paid to the defendant for the sole benefit of his company, Attitude Management Pty Ltd or an associated company Esoteric Corporation Pty Ltd. 17 At around this time the mortgage to the Community First Credit Union over the Surry Hills property was increased by $52,000. 18 In December 2006, the parties went on a seven week holiday to South America and on a cruise to Antarctica at a cost of $40,000 for which the plaintiff says she paid. 19 In July 2008, the plaintiff sold the Surry Hills property for $380,000 from which there were no net proceeds of sale after the sale expenses and the mortgage was paid. The sale took place after the parties had finally separated in April 2008. 20 The plaintiff commenced these proceedings in October 2008. On 12 October 2009, the defendant granted an equitable charge to Alleasing over all his property as security for a leasing agreement in the sum of approximately $13,000. 21 In February 2010, the defendant was charged with fraud and other Federal offences in connection with his purchase of the property at Bucketty. He has pleaded guilty to the fraud offences and was waiting to be sentenced at the time of the hearing on 11 August 2010. 22 On 21 July 2010, the defendant granted an equitable charge over his share of the Leichhardt and Bucketty properties to Esoteric Corporation Pty Ltd and Mark Chiswell. This charge was to secure certain liabilities of the defendant in respect of some allegedly fraudulent dealings concerning the accountancy practice carried on by him and the other partners. Pleadings 23 Apart from the amended statement of claim and the amended defence, there is also a cross claim brought by the defendant against the plaintiff and the second cross defendant, Alessia Richards. That cross claim seeks an order that trustees be appointed for the sale of the Bucketty property. The second cross defendant does not oppose that course. 24 It is necessary for the Court to identify the divisible property of the parties and its value; to evaluate and balance the parties' respective contributions; and to determine what order is required sufficiently to recognise and compensate the parties' for their respective contributions to the relationship. 25 In this case the defendant initially had legal representation, but for most of the case including the time of preparation of his affidavits, he was unrepresented at the hearing before me. His evidence does not address matters such as his assets at the relevant times and his evidence is deficient in many areas. 26 It is necessary to consider the assets of the parties at the commencement, during and at the conclusion of the relationship. Property of the parties at the commencement of the relationship in 1993

27 At the commencement of the relationship in 1993, the plaintiff owned her property at Paddington, which was purchased in 1979 for $59,900. The property was not valued at 1993 when the relationship commenced. There is no evidence as to whether there was a mortgage on the property at the commencement of the relationship. However, when the property was sold in October 2001, the proceeds of sale were less than the sale price and, accordingly, there was likely to have been a mortgage at that time. 28 There is no evidence of the defendant's assets at the commencement of the relationship other than he says he had his interest in his partnership practice carried on through a company called Attitude Management Pty Ltd. He does not put a value on that asset. 29 There is no evidence to show whether there was any change in the defendant's assets at the end of 1995, when at this stage the plaintiff's main asset continued to be the Paddington property. Property of the parties at the recommencement of the relationship in May 2000 30 The plaintiff's property included the Paddington property and there was no evidence of its value at this time. However, the Paddington property was sold in September 2001 and the plaintiff received the net proceeds of sale of about $446,000. 31 At the time of recommencement of the relationship in May 2000, the plaintiff had purchased the property at Surry Hills for $320,000. She borrowed the whole of the purchase price from the Westpac Banking Corporation Limited. 32 There is no evidence from the defendant as to his assets other than his accountancy company Attitude Pty Limited which was not valued at this time. Property of the parties at the conclusion of the relationship in April 2008 33 At the conclusion of the relationship the plaintiff still held the property at Surry Hills. However in July 2008, it was sold for $380,000 and the proceeds of sale used to repay the mortgage. There was no surplus. 34 The plaintiff held her interest in the Leichhardt property as joint tenant with the defendant. She also held a one third interest in the property at Bucketty as joint tenant with her daughter Alessia Richards and the defendant. 35 At the conclusion of the relationship the defendant held his half share interest in the Leichhardt property and a one third share in the Bucketty property. He also held his interest in his accountancy practice. 36 By agreement between the parties there is evidence of the value of the properties at the date of the hearing. The Leichhardt property is valued at $800,000 and is subject to mortgages totalling $491,000 leaving a net value of $309,000. The Bucketty property is valued at $500,000 and is subject to a mortgage of $343,000 leaving a net value of $157,000. A one third interest is therefore $52,333.33. 37 At the date of the hearing the plaintiff has credit card debts of $66,000 and a taxation debt of $20,000. Financial contributions of the parties 38 During the period from 1993 to 1995, the plaintiff already owned the Paddington property and she says she paid all the outgoings in respect of the property. The defendant concedes this matter and suggests that he paid cash funds between $400 and $1,100 per week to assist the plaintiff. However, the defendant produced no supporting documentation to establish this proposition. He said that his wages were $400 to $600 per week as a house cleaner and $1,100 to $1,600 per week as an accountant. No documentary evidence of such earnings was produced. In these circumstances I do not accept that he did make the contributions as alleged. In the nature of the relationship he may have made some minor contributions which cannot be quantified. 39 In May 2000, when the relationship recommenced, the plaintiff had already purchased the Surry Hills property and she was meeting the financial obligations in respect of it. The defendant again concedes that the plaintiff paid the upkeep of the property including utilities, maintenance and mortgage payments but says that he made financial contributions of $500 per week to assist the plaintiff. No details of wages were given nor was any documentary evidence advanced. I reach the same conclusion as I did in respect of the earlier period

40 I have dealt with the Leichhardt property and it is plain that the parties used borrowed funds for the purchase and subsequent repairs to the roof, which was in part funded by a special strata levy. The strata levies for the Leichhardt property are in arrears of $8,000. 41 It is clear that on the sale of her Paddington property in 2001, the plaintiff used $252,500 to pay out her half share of the Leichhardt property mortgage to Westpac. 42 Paragraph 9 of the plaintiff's amended statement of claim pleads that her mother provided the stamp duty for the Leichhardt property. The defendant disputes this. Neither party has provided further evidence in this regard. 43 After that time the defendant paid all payments on the balance of the mortgage over the Leichhardt property until April 2008. From that time the defendant has made no payments in respect of the properties at Leichhardt or Bucketty. 44 In March 2003, the property at Bucketty was purchased for $395,000. Miss Richards paid the deposit together with the stamp duty and legal fees totalling $53,042. The balance of the purchase price was provided by mortgage funds from Community First Credit Union on security of the Bucketty property, the Leichhardt property and the Surry Hills property. 45 In April 2006, there was a rearrangement of the mortgages and the defendant took $250,000 secured by a second mortgage over Leichhardt. 46 After the purchase of the Bucketty property the evidence shows that the plaintiff made payments of $68,787 for renovations and improvements to the Bucketty property. She also says she paid the council rates on the property. The defendant claimed that he contributed to the property by way of improvements but his evidence in this regard was rejected. The plaintiff claims his contributions were minimal and even deleterious to the value of the property. However, there was no evidence on this aspect. 47 Another contribution by the plaintiff in December 2006, January and February 2007, was the payment of $40,000 for a trip to South America that included a cruise to Antarctica. I am satisfied that the plaintiff paid travel expenses shown in her documentary evidence of $39,477. She also produced evidence that she acquired traveller's cheques for $8,037 and withdrew $10,000 cash at the time, no doubt to meet expenses on the trip. The defendant claims to have made some payments but there is no documentary evidence to substantiate that claim. 48 Other contributions to be adjusted are the loans made between the parties in July 2001 and 2007. The parties are at odds as to whether the defendant owes the plaintiff $48,000. 49 From October 2000 to May 2002, the plaintiff loaned $138,882.61 to the defendant's company Attitude Management Pty Ltd. It is agreed that defendant's father Mr Stanislaw WK Lechowicz, signed a cheque over to the plaintiff for $100,000. The plaintiff asserts at [19] of her affidavit in reply filed 8 July 2010 that a balance of approximately $48,000 remains outstanding. No further evidence has been provided in support. I find that $38,882.61 is still owing. Non-financial contributions 50 In this relationship there were no children to be cared for and both parties undertook the majority of the domestic tasks. 51 Both parties undertook gardening and yard maintenance and repairs to the Paddington property. It seems clear that the defendant concedes that the plaintiff did most of the washing up, laundry, ironing and cooking while he did the vacuuming and sweeping of floors. They shared the shopping and cleaning of the bathroom and kitchen.

52 The defendant says that from 2000 to 2008 he undertook repainting, replacement of a dryer and restored the Goulburn Street property after it was damaged by the plaintiff's ward. The value or a detailed description of this work does not appear in the evidence. 53 In the circumstances no adjustment is needed in respect of non-financial contributions. Discussion 54 The plaintiff seeks orders to achieve the following:

Sale of the Leichhardt property and the balance of half the proceeds, before any discharge of the mortgage, to each of the plaintiff and the defendant, after an allowance for legal and agency fees. The plaintiff seeks that the defendant pay the ANZ Banking Group amounts owing to it and secured on the title to the Leichhardt property.

That the defendant transfer his interest in the Bucketty property to the plaintiff and following the transfer, she will indemnify the defendant against the mortgage liability on the title.

The plaintiff agrees to release the defendant and Attitude Management Pty Limited in relation to all monies they owe to the plaintiff, which is the a figure of $38,882.61.

The plaintiff does not seek a contribution from the defendant for mortgage payments from November 2000 to August 2010, an amount of $61,456.42.

That the defendant be restrained from creating any further encumbrances on the Leichhardt or Bucketty properties.

That cross claim is dismissed and each party pay its own costs in relation to those proceedings

That the defendant pays the plaintiff's costs of these proceedings.

That any money owed by the plaintiff to the defendant be set off against any monies owed by the defendant to the plaintiff, including with respect to costs. 55 The plaintiff also proposed some orders to have the matter relisted to further pursue the question of the charges granted by the defendant with a view to obtaining orders under s 42 of the Property Relationships Act 1984. No application was made to amend the statement of claim to include any such claims by the conclusion of the hearing. 56 At the hearing I gave the defendant an opportunity to address me on what orders he sought to obtain. He refused to do so but after the conclusion of the hearing he lodged a document in which he included his proposed orders in these terms: "DEFENDANTS PROPOSED ORDERS

1. That the Plaintiff and Defendant forthwith do all acts and things necessary including the signing of all documents necessary to place the Leichhardt property on the market.

2. That the Plaintiff and Defendant and Second Cross Defendant forthwith do all acts and things necessary including the signing of all documents necessary to place the Bucketty property on the market. 3. That upon sale of above mentioned properties the proceeds be paid to the proper authorities to complete said sales and the balance be held in trust until other parties not excluding the NSW Police Department and the Australian Taxation Office have completed any perceived actions.

4. That the Defendant be able to remove all "Goods & Chattels" from both properties prior to sale commencing and that this either be done on the premise that if the Plaintiff and or Second Cross Defendant believe any items to be their possessions, be able to show a receipt to the accompanying Police or relinquish said items to the Defendant.

5. Since the NSW Police have continuing actions concerning all parties that they be allowed to finalise their investigations. They have governance over all of the Defendant's documents and therefore it would be nearly impossible within any reasonable day for receipts to be located under their guidance. Also some items are or could be considered to still be under encumbrance by other parties." 57 One of the fundamental problems with the matter is that the mortgages given by both the parties to the ANZ Bank secures $491,000 over a property worth $800,000. Even though this was for the benefit of the defendant on a sale of the property, the bank would require payment of the full amount before discharging the mortgage. The evidence shows that the borrowings were for his benefit. In these circumstances the plaintiff would be entitled to a charge over the defendant's interest for such borrowings and as a result the defendant's interest would be resorted to first for the payment of the debt (see Dinsdale bht Protective Commissioner v Arthur (2006) 12 BPR 23,509). As indicated by the defendant in his evidence, he might have to pay up to $250,000 or perhaps $500,000 pursuant to the charges he has given to his accountancy partners to secure his fraud. 58 The proper adjustment of the parties' interests clearly indicate that the plaintiff should have her half share of Leichhardt. All the additional borrowings by the defendant over Leichhardt were for his own benefit and I have no evidence to show how he has dissipated these funds other than that they went into his accountancy practice. The refusal by the defendant to pay mortgage repayments after separation has led to the plaintiff having to pay an additional $61,456.42. In her final orders the plaintiff offers to forgo this and any other monies owing by the defendant or his accountancy practice company in exchange for a transfer to her of his interest in Bucketty. If anything, this is overly generous on her part. Having regard to the plaintiff's request it is an appropriate way of approaching the matter and adjusting the parties property interests. 59 Accordingly, an appropriate order would be for the sale of the Leichhardt property and the proceeds to be paid to discharge the mortgage over the property and the balance to be applied as follows:

(a) One half of the sale proceeds less legal and sale costs and before the payout of the mortgage to plaintiff and balance to defendant.

(b) In the event that there are not sufficient funds after payment of mortgage to allow for plaintiff to receive amount referred to in (a) above, there be judgment in favour of the plaintiff against the defendant for the difference.

(c) The defendant is to transfer to the plaintiff his interest in the Bucketty property.

(d) There is to be no further adjustment between the plaintiff and the defendant and his accounting company in respect of past dealings.

(e) The plaintiff is to indemnify the defendant against any liability to bank under the mortgages over the Bucketty property.

(f) That the cross claim by the defendant be dismissed. 60 In respect of the amounts owned by the defendant to Alleasing Pty Ltd and his accounting partners, Hedley v Roberts [1977] VR 282 at 288 to 289 provides authority for the principle that co-owners, as either joint tenants or tenants in common must submit to an encumbrance or interest created over the commonly held land by another co-owner unless it improperly interferes with their own rights to the land. This was recently approved by Slattery J at [34] in Allen Taylor and Company Pty Ltd t/as Boral Timber v Norman Leslie Harrison [2010] NSWSC 1021. 61 The logic extends to mortgages, as Butt in Land Law, 6th Edition, Law Book Co at [1448] points out: while one co-owner may also grant a mortgage over his or her share, he or she cannot bind the interest of any other co-owner: Andrews v Wilcox [2008] NSWSC 280. Therefore, a mortgage purporting to be over the entire property is construed as a mortgage over the mortgagor's share only: Lyons v Lyons [1967] VR 169; Katsaitis v Commonwealth Bank of Australia (1987) 5 BPR 12,049; Westpac Banking Corp v Sansom (1995) NSW ConvR 55-733, Andrews v Wilcox [2008] NSWSC 280; So v Li [2009] NSWSC 32. 62 However, the charge to Allease is only over the defendant's interest in "land which the customer now owns or becomes the owner [of]." There is a caveat lodged on the title to Leichhardt to protect this charge over his interest in the property. The charge given to Esoteric Pty Ltd and Chiswell is over his interest in both the Leichhardt and Bucketty properties. Prior to my orders for adjustment between the parties, it is plain on the evidence before me that they each have a one half interest at law and equity in the Leichhardt property. 63 As the charges are limited to the defendant's interest in both properties and are only given by the defendant, problems will not arise in respect of the construction of the charges. They can only be over the defendant's interest in the property. 64 No doubt the plaintiff will have difficulties in obtaining a transfer of the Bucketty property share to herself as the various chargees may wish to seek payment to themselves. I propose to allow liberty to apply to seek joinder of the parties and orders under 42 of the Property (Relationships) Act 1984 (NSW) provided that liberty is exercised within one month of giving judgment. 65 I direct the parities to bring in short minutes. **********

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