Towle v Baker

Esma Fay Towle PARTIES : v John Graeme Baker

COUNSEL : Plaintiff: G Rich Defendant: In person

SOLICITORS : Plaintiff: Flintoff Lawyers Defendant: Donovan Oates Hannaford

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

2250/05 Esma Fay Towle v John Graeme Baker JUDGMENT 1 HIS HONOUR: The question on this application is how orders made by the Court of Appeal on 24 April 2008, (Baker v Towle [2008] NSWCA 73) should be implemented. That depends upon how the orders should be construed. 2 The plaintiff brought proceedings pursuant to the Property (Relationships) Act 1984 (NSW) for orders adjusting the interests of the parties in property pursuant to s 20 of that Act. It is recorded in the Court of Appeal's reasons (at [69]) that at the cessation of their relationship, the only joint property held by the parties was a house and land at Yippen Creek, together with the contents of the house and plant and equipment on the land. Basten JA, with whom, on these matters, Beazley JA and Mathews AJA agreed, said: "[69] ... Yippen Creek was valued at $575,000, subject to a mortgage of $115,634, giving a net value of $459,366. The property was registered in the names of the parties, as to 75% in the name of Mr Baker and as to 25% in the name of Ms Towle. ...

[70] Nor was it in dispute that [Mr Baker] was entitled to remove the plant and equipment at Yippen Creek, whilst she was to keep the furniture and contents of the house. There was evidence that the appellant paid his former partner, Mr Thompson, $12,500 for a half-interest in the shed at Yippen Creek. The value of the plant and equipment may have been over $25,000. The furniture and contents probably had a value between $20,000 and $45,000. However, on the unsatisfactory state of the evidence, it seems likely that his Honour did not consider it worthwhile to make a precise assessment of the respective values of the cars and the value of the furniture as against the plant and equipment. It was appropriate to treat each party as having property of equivalent value in these respects. ... [75] Mr Baker's business assets were to be assessed as follows:

1. Proceeds of sale of butcher shop $57,500 2. Cattle $31,000 3. Loan repayable by Baker Pastoral Co $45,000 4. Proceeds of sale of transport business $105,000 5. Superannuation $170,000 Total $408,500

[76] The business resources of the appellant therefore totalled $408,500. From that must be deducted the overdraft account which was agreed at $49,403, giving a net business figure of $359,097. The respondent was a guarantor of the overdraft facility: a liability from which she should be released on settlement of her claim against the appellant.

[77] Treating the divisible assets as the net value of Yippen Creek and the net amount of the appellant's business resources, one achieves a total of divisible assets of $818,463. The next question is the proportion in which his Honour intended that these assets be divided. As he did not reach a figure for the total pool, he did not state a proportionate division. However, he took into account the fact that at the commencement of the relationship the respondent 'had little in the way of assets' whilst the appellant's assets 'were quite significant': at [65]. He took into account the plaintiff's contribution of $26,000 to the purchase of Yippen Creek for $200,000 and the appellant's contribution in excess of $4,000 by way of the balance after the mortgage and associated costs. His Honour further accepted that throughout most of the relationship the respondent was not in receipt of income whilst the appellant was the principal breadwinner of the household and that the mortgage payments and other household expenses were met from his income: at [66]. He also held that the respondent made 'significant and substantial contributions of a non-financial nature towards the acquisition, conservation and improvement of Yippen Creek, and gave assistance to the [appellant] in his business activities': at [67].

[78] Given that the relationship subsisted for 22 years and that in the course of that relationship the respondent, as parent and home-keeper, provided substantial services to the family as well as to the appellant, it seems likely that his Honour intended that the division of the resources at the cessation of the relationship should be roughly equal. If Yippen Creek were to be transferred to the respondent, as his Honour ordered, that would provide the respondent with a benefit valued at $459,366, rather than half of the total assets, which would have been $409,231. The transfer should therefore be conditional upon the payment by the respondent to the appellant of an amount, in round figures, of $50,000.

[79] Given the respondent's limited cash resources, and the fact that she is apparently in receipt of a pension, there may be some doubt about her ability to service the mortgage on Yippen Creek, and find a further capital payment of $50,000. The appellant gave evidence in his affidavit of 21 April 2006 to the effect that neither party could afford to buy the other out and that accordingly Yippen Creek must be sold. The appellant does not appear to have contradicted that proposition. Accordingly, orders should be made allowing for the possibility that Yippen Creek will have to be sold, and the net proceeds divided. The payment due to the appellant is 11% of the net value of Yippen Creek, and his share of the proceeds should be expressed as a proportion to avoid unfairness resulting from changes in actual amounts, both of receipts and expenses. " 3 The orders of the Court of Appeal were: "(1) Appeal allowed in part and Os 1, 2 and 5 made in the Equity Division on 19 June 2007 be set aside. (2) In lieu thereof make the following orders: (a) upon tender by the respondent of the amount of $50,000, together with a discharge of the mortgage granted by the appellant and the respondent to the National Australia Bank with respect to the property at Yippen Creek, the appellant shall transfer to the respondent all his right, title and interest in the property at Yippen Creek; (b) in the event that the respondent does not tender the amount specified and the discharge of mortgage within 90 days of the date of this judgment, the parties are to sign all documents and take all steps necessary expeditiously and in good faith to sell the property at a fair market price; (c) the proceeds of sale, after payment of all necessary expenses, will be divided between the parties so that the appellant will receive 11% and the respondent the balance; (d) the appellant shall in any event take all necessary steps to ensure that the respondent obtains a release of the respondent's guarantee of the overdraft facility with the National Australia Bank. "

4 The plaintiff did not tender the sum of $50,000 together with the discharge of the mortgage to the National Australia Bank over the Yippen Creek property. Accordingly, pursuant to order 2(b) the parties were required to sign all documents and take all steps necessary, expeditiously and in good faith, to sell the property at fair market price. The property was put on the market for sale and an offer to purchase the property was made at a price acceptable to both the plaintiff and the defendant. However, contracts for sale of the property were not exchanged because the parties could not agree on how the proceeds of sale should be disbursed in accordance with the Court of Appeal's orders. 5 The dispute concerns the overdraft referred to in the reasons of Basten JA (at [76]) which was then agreed to be $49,403. In September last year, when the parties were contemplating selling the property, the overdraft stood at $50,457.10. It appears from the Court of Appeal's reasons, and was not disputed before me, that the defendant, Mr Baker, was primarily liable for the overdraft debt. The plaintiff is secondarily liable as guarantor. The debt is secured by the mortgage to National Australia Bank, together with the debt described in the Court of Appeal's reasons as being in the sum of $115,634. The defendant (the appellant on appeal) was not able to procure the release of the plaintiff's guarantee on the overdraft facility. It is common ground that the National Australia Bank would not be expected to provide a discharge of its mortgage unless the overdraft along with the other debt (now about $107,000) is repaid. The only means by which the overdraft is to be repaid is from the proceeds of sale of the Yippen Creek property. The defendant says that the net proceeds of sale of the property should be divided into portions of 89 percent and 11 percent in accordance with order 2(c) after the liabilities to the National Australia Bank have been discharged, that is, after both the debt of approximately $107,000 and the overdraft debt are discharged from the proceeds of sale. 6 The plaintiff disputes this. She seeks an order that: " ... the plaintiff take all steps necessary to: (a) exchange contracts for the sale of the property; (b) complete the sale of the property and upon the settlement of the sale apply the sale proceeds as follows: i. discharge mortgage secured over the property; ii. the amount required to pay out the National Australia Bank overdraft secured over the property; iii. pay rates and water rates arrears and adjustments; iv. pay the real estate agent's costs of sale; v. pay the legal costs of sale; vi. the balance to be applied as follows and in the following priority: 1. an amount equivalent to the payment to the National Australia Bank overdraft secured over the property referred to in paragraph 3(b)(ii) to the plaintiff. 2. 89% of the balance to the Plaintiff; 3. the balance to the Defendant. " 7 The dispute is as to order 3(b)vi.1. Apparently, the intended effect of that order is to require the burden of the overdraft debt to be borne from the defendant's share of the net proceeds of sale. I think there is no doubt that the Court of Appeal intended that the defendant would be responsible for the discharge of the overdraft. 8 Mr Baker submitted that in paras [67] and [70] of the Court of Appeal's reasons was in effect a double counting against him of amounts of $12,500 which he paid to Mr Thompson to purchase Mr Thompson's interest in the shed and equipment on the Yippen Creek property. He says that that sum was taken into account twice in assessing the value of his assets and also the Court of Appeal overlooked the fact that whilst the plaintiff will be entitled and able to remove the furniture and contents of the house, he will not be able to move the shed and fixtures. Those matters are not relevant to the present issue. The question for me is not whether there were any errors or arguable errors in the reasoning of the Court of Appeal, but what, properly construed, the orders of the Court of Appeal require. 9 It is legitimate in construing the orders to have regard to the Court of Appeal's reasons to resolve questions of ambiguity, but there is no question of entertaining the submission that in effect the orders should be corrected for alleged error. 10 The plaintiff submits that the liability on the overdraft account is not a "necessary expense" in order 2(c) to be discharged before the quantum of the proceeds of sale are calculated for division between the parties in the proportions of 11 percent and 89 percent. The plaintiff submits that the phrase "of all necessary expenses" refers to all necessary expenses of the sale and is comparable to the expression "all usual outgoings". 11 The difficulty with this submission is that it does not cater for the mortgage debt of $107,000. Both the mortgage debt and the overdraft will have to be paid for the mortgage to be discharged. As is made clear in Basten JA's reasons (at [79]), it is the net proceeds of sale that are to be divided. 12 However, it is clear from order 2(d) and from para [76] of Basten JA's reasons that the defendant is responsible for discharging the overdraft facility. He has not obtained the release of the plaintiff's guarantee and he accepts in argument before me that he is not in a position to do so except by having the overdraft debt repaid. He also accepts that the only source of funds for the payment of the overdraft debt is from the proceeds of sale of the property. 13 In those circumstances the obligation imposed on the defendant under order 2(d) to take all necessary steps to ensure that the plaintiff's guarantee is released requires that the burden of the overdraft be borne by the defendant. That should be reflected in the division of the proceeds of sale. The orders as framed in the plaintiff's notice of motion do not properly reflect that position. By way of illustration and using the figures in paras [69], [76] and [79], the parties were to divide the net proceeds of sale assumed to be $459,366 in the proportions of 89 percent and 11 percent and the defendant was to be responsible for the overdraft debt of $49,403. On those figures the plaintiff should receive $408,836 out of the net proceeds of sale of $459,366. However, on the orders proposed by the plaintiff, the plaintiff would receive $49,403 in proposed orders 3(b)(vi.)(1.) and 89 percent of the difference between $459,366 and $49,403 ($409,963), namely $364,867; a total of $414,470. The matter is further complicated by what I am told is the likelihood that by the time the property is sold the overdraft debt is likely to exceed 11 percent of the value of the property after the mortgage debt of $107,000. 14 Accordingly I think the proper course is to declare that on the proper construction of the orders of the Court of Appeal of 24 April 2008, the defendant is primarily liable to bear the burden of the overdraft debt owed by him to the National Australia Bank and that such burden is to be borne out of his share of the net proceeds of sale of the property at Yippen Creek to the extent that his share of such proceeds extend.

[PARTIES ADDRESSED ON COSTS] 15 The plaintiff seeks costs of this application on the indemnity basis. Prima facie, costs follow the event. The plaintiff has not obtained the precise orders sought in her notice of motion but I accept that she had some success on the application. 16 The application was necessary because the defendant objected to the proposal of the conveyancer retained by the parties, as to how the net proceeds of sale should be distributed. The conveyancer proposed that the net proceeds of sale, estimated at $482,591.54, be divided as to 11 percent to the defendant and 89 percent to the plaintiff, and that the overdraft payable to the National Australia Bank of $50,457.10 be paid out of the defendant's share. 17 I have found that that is the effect of the Court of Appeal's orders. Had the defendant not objected to that course this application would have been unnecessary. However, I do not think that I ought to order costs on an indemnity basis. The defendant's argument that "all necessary expenses" in order 2(c) included the overdraft debt was perfectly reasonable as the orders were structured and indeed I have found that it is by order 2(d) that his share of the proceeds of sale are to be applied to the discharge of the overdraft debt. I do not think that there has been a sufficient delinquency on the defendant's part in his capacity as litigant to warrant the making of an order for indemnity costs. 18 I order that the defendant pay the plaintiff's costs of and incidental to the plaintiff's notice of motion of 3 December 2008.

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