Trosse v Howard

LEGISLATION CITED: Family Provision Act 1982 (NSW) Property (Relationships) Act 1984 s 20

Antoinette Howard v Gregory Trosse [2008] NSWDC 328 Baker v Towle [2008] NSWCA 73; 39 Fam LR 323 Chanter v Catts [2005] NSWCA 411; 64 NSWLR 360 CASES CITED: Golosky v Golosky [1993] NSWCA 111 House v The King [1936] HCA 40; 55 CLR 499 Howlett v Neilson [2005] NSWCA 149; 33 Fam LR 402 Singer v Berghouse [1994] HCA 40; 181 CLR 201 Singer v Berghouse [1992] NSWCA 230

PARTIES: Gregory TROSSE (appellant) Antoinette HOWARD (respondent)

COUNSEL: P MAIDEN SC (appellant) T HODGSON (respondent)

SOLICITORS: Ashton Stedman Solicitors (appellant) Sorenson & Brown Solicitors (respondent)

LOWER COURT JURISDICTION: District Court

LOWER COURT DATE OF DECISION: 5 December 2008

LOWER COURT MEDIUM NEUTRAL CITATION: Antoinette Howard v Gregory Trosse [2008] NSWDC 328

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40052/09 DC 5119/07

HODGSON JA BASTEN JA MACFARLAN JA

22 OCTOBER 2009 Gregory TROSSE v Antoinette HOWARD Judgment 1 HODGSON JA: On 5 December 2008, Rolfe DCJ gave his decision in proceedings (Antoinette Howard v Gregory Trosse [2008] NSWDC 328) in which the respondent (Ms Howard) had sought orders pursuant to the Property (Relationships) Act 1984 (the Act), and in which the appellant (Mr Trosse) had by a cross-claim also sought orders pursuant to the Act; and on 10 December 2008, the primary judge made orders giving effect to that decision. 2 By those orders, the primary judge ordered Mr Trosse to pay Ms Howard $75,000; ordered Mr Trosse to discharge certain liabilities of the parties which were then $72,500; ordered Mr Trosse to pay Ms Howard costs of her claim; dismissed Mr Trosse's cross-claim; and ordered Mr Trosse to pay Ms Howard's costs of the cross-claim. 3 Mr Trosse appeals from those orders.

Circumstances 4 I will begin by outlining facts giving rise to the proceedings which are either common ground or found by the primary judge and not subject to challenge on appeal. 5 Ms Howard was 41 years old at the time of the hearing and had a BSc in Biomedical Science. Mr Trosse was then 44 years old, and was a carpenter. They commenced living in a de facto relationship in 1997. They separated in September 2003 and have remained apart since then. 6 At the commencement of the relationship, Ms Howard owned a motor vehicle worth about $8,000 and owed National Australia Bank about $11,000. In the financial year ended June 1997 her taxable income was $63,407. 7 At that time Mr Trosse owned land at Whale Beach worth at least $200,000, subject to a mortgage securing about $75,000; and owned a property at Fairy Meadow, sold in January 1999 for $160,000. His taxable income in the year ended June 1997 was $24,384. 8 In July 1997, the parties purchased an apartment at North Sydney in their joint names for $182,500, with the whole purchase price borrowed, using the Fairy Meadow property as collateral security. The parties lived their throughout their relationship, apart from a six month period in 2000. 9 In January 1999, Mr Trosse sold the Fairy Meadow property for $160,000. Of this, $71,000 was used to discharge the mortgage over the Whale Beach property, $10,000 was used to pay Ms Howard's loan for her car and money owing to her sister, $54,000 was deposited into an account operated by Mr Trosse, and the balance of $28,000 was used by Mr Trosse. 10 In August 1999 the parties purchased a unit at Potts Point for $132,000, as an investment, borrowing the whole purchase price. Rent from this property went towards mortgage interest. The property was sold in 2003 for $184,000, all of which went to reduce the parties' debt to St George Bank. 11 In 1999, Ms Howard decided there was an opportunity to establish a medical training recruitment and support consultancy for the medical profession, and the company Mediskill Pty Limited was incorporated, with Ms Howard and Mr Trosse as directors and equal shareholders. This business was an initiative of Ms Howard, and from its commencement Ms Howard devoted the whole of her working time to it. The venture was unsuccessful. During the years that Mediskill operated, Ms Howard suffered a substantial reduction in her earnings; from a taxable income of about $63,000 in each of the years ending June 1997 and 1998, and $59,000 in the year ended June 1999, to a taxable income of $24,000 in the year ended June 2000, $21,000 in the year ended June 2001, $24,000 in the year ended June 2002 and $40,000 in the year ended June 2003. In addition, the business lost substantial amounts of money that had been put into it. A liquidator was appointed in 2006, and the liquidator's report showed that, after taking into account assets, there was an amount owing to creditors of nearly $400,000. 12 The primary judge found that, if Ms Howard had continued to earn at her pre-Mediskill rate (adjusted for CPI increases), she would have earned $150,000 more than she did. He found that Mr Trosse had contributed about $52,000 from his own funds to Mediskill, some of this presumably coming from the proceeds of sale of the Fairy Meadow property. 13 The primary judge set out particulars of other financial transactions of the parties, but in my opinion they are of negligible significance. 14 The primary judge found that there was not a lot of difference between wages earned by the parties during the time of cohabitation, when workers' compensation received by Mr Trosse was taken into account; that Ms Howard had given some assistance to Mr Trosse with his studies and gaining employment; and that Ms Howard's contributions as a home-maker amounted, on balance, to her doing a little more cooking. He found that Ms Howard contributed virtually nothing to the maintenance of the Whale Beach property. 15 At the time of the hearing, Mr Trosse still owned the Whale Beach property, then valued at $700,000. His other assets were funds in the Bank of $22,000, a motor vehicle worth $20,000, tools worth $2,000 and superannuation of $45,000. Ms Howard's assets were funds in the Bank of $200, a motor vehicle worth $2,000 and superannuation of $63,200. They had joint debts totalling $72,500, a substantial part of which was secured on the Whale Beach property.

Decision of primary judge 16 Having dealt with the facts and having made findings as set out above, and also a finding that the Mediskill business was in the nature of a joint enterprise between the parties, the primary judge went on to say this: 43 The Court is satisfied that, as between the plaintiff and the defendant, both made contributions to the relationship, but the defendant's contributions were by far and away the greater of the two as he came into the relationship with valuable real estate assets and contributed more funds along the way. The plaintiff contributed virtually nothing to the maintenance of Whale Beach and got the indirect benefit of the funds which were realised when Fairy Meadow was sold.

44 As far as the plaintiff is concerned, I am satisfied that an allowance should be made for the foregone salary whilst she was running Mediskill Pty Limited and for the fact that her share of rent from Potts Point and the net proceeds of sale of Potts Point and North Sydney went towards the parties' joint debt. I have also taken into account the non-financial contributions which I have found that the plaintiff made.

45 As the plaintiff's counsel would have it, the plaintiff should be allocated $250,000 (after allowing for the joint debts to be extinguished). That is an over-optimistic submission. Such a figure represents about one-third of the defendant's current assets.

46 Counsel for the defendant submitted that an order should be made in favour of his client in the amount of $250,000. This ignores the plaintiff's contributions, is complete unrealistic and would be unjust and inequitable.

47 In the circumstances, having regard to the matters I have referred to, this is a case where it would be just and equitable for orders to be made requiring the defendant to discharge the parties' joint indebtedness, currently $72,500 and otherwise pay the plaintiff the amount of $75,000. The result of this order, in effect, is an adjustment of property in favour of the plaintiff in the amount of $111,250, a bit less than 15% of the value of the defendant's assets.

Issues on appeal 17 Mr Trosse relies on the following grounds of appeal: 1 That His Honour erred in failing to follow a three step process to identify the contributions of both the Appellant and the Respondent.

2 That His Honour failed to identify in percentage terms, what was the contributions made by the Respondent to the assets of the parties.

3 His Honour erred in finding that the Court ought take into account the Respondent's loss of earnings during the time that she worked for Mediskill Pty Ltd.

4 That His Honour erred in finding that the Company's operations in the nature of a joint enterprise between the parties and thus erred in finding that the Respondent has foregone salary during the relationship.

5 That His Honour erred in failing to use an asset by asset approach or failing to take into account that at the commencement of the relationship that the Appellant owned the North Avalon property.

6 That His Honour failed to identify the contributions of the Appellant in determining that the Respondent was entitled to 15% of the North Avalon property after subtracting $72,500.00 for payment of debt.

7 That His Honour erred in ordering costs in circumstances where His Honour was advised by the Respondent's Counsel that costs follow the event.

8 That His Honour failed to consider the parties' respective superannuation and in doing so failed to consider what benefit the Respondent had received during the relationship. 18 I will consider in turn the following issues: (1) Was there error by the primary judge such that this Court should reach its own view? (2) If so, what order should be made? (3) Costs.

Statutory provisions 19 The relevant statutory provision is s 20 of the Act, which is as follows: 20 Application for adjustment

(1) On an application by a party to a domestic relationship for an order under this Part to adjust interests with respect to the property of the parties to the relationship or either of them, a court may make such order adjusting the interests of the parties in the property as to it seems just and equitable having regard to: (a) the financial and non-financial contributions made directly or indirectly by or on behalf of the parties to the relationship to the acquisition, conservation or improvement of any of the property of the parties or either of them or to the financial resources of the parties or either of them, and

(b) the contributions, including any contributions made in the capacity of homemaker or parent, made by either of the parties to the relationship to the welfare of the other party to the relationship or to the welfare of the family constituted by the parties and one or more of the following, namely: (i) a child of the parties,

(ii) a child accepted by the parties or either of them into the household of the parties, whether or not the child is a child of either of the parties.

(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. 20 There is a definition of "property" in s 3(1) of the Act, as follows: property , in relation to parties to a domestic relationship or either of them, includes real and personal property and any estate or interest (whether a present, future or contingent estate or interest) in real or personal property, and money, and any debt, and any cause of action for damages (including damages for personal injury), and any other chose in action, and any right with respect to property.

Should this Court reach its own view? 21 The most substantial challenge to the primary judge's decision was that based on grounds 1, 2, 5 and 6, to the effect that the primary judge did not articulate how it was that contributions which he found were such as to make it just and equitable that there be the adjustment to interests in property that he ordered. 22 What s 20 requires is that the Court reach a view as to what, if any, order, adjusting the interests of the parties in their property, is just and equitable having regard to their contributions to the acquisition, conservation or improvement of their property, or to their financial resources, or to their welfare (there being no children in this case); and in my opinion this requires some articulation of how it is that the contributions make the adjustment just and equitable, at least unless this is reasonably obvious. 23 This is not to say that there needs to be some clear and precise link shown between the contributions and the justice and equity of the adjustment made: by reason of the nature of the test, in many cases the link will be vague, loose and indefinite. But in my opinion, there does need to be some articulation of a link. 24 This was particularly so in this case where, but for the increase in the value of the Whale Beach property, there was actually a small reduction in the overall value of the property of the parties; and having regard to the primary judge's finding that Ms Howard contributed virtually nothing to the maintenance of Whale Beach, it is difficult to regard the mere retention of Whale Beach as something of a joint enterprise of the parties such that Ms Howard should share in its increase in value. The primary judge made no finding that contributions of Ms Howard enabled Mr Trosse to retain the Whale Beach property, and the evidence does not support such a finding. Accordingly, it is difficult to see a basis on which Ms Howard's contributions made it just and equitable for her to share in the increase in value of the Whale Beach property. 25 In those circumstances, in my opinion, the absence of articulation of how it was that Ms Howard's contribution made it just and equitable for her to share in the increase in value of the Whale Beach property is an error that justifies this Court reaching its own view. 26 As regards grounds 3 and 4 of the appeal, in my opinion no basis has been advanced for considering that the primary judge was in error in finding that the operations of Mediskill were in the nature of a joint enterprise; and in my opinion there was no error in the primary judge taking into account Ms Howard's loss of earnings during the time she worked for Mediskill. I will elaborate on this when giving reasons for the order which in my opinion should be made.

What order should be made? 27 Since, on the primary judge's findings, Mediskill was a joint enterprise, the benefit of which both parties would have shared if it had been successful, it is reasonable that both parties should share in the losses. 28 The failure of Mediskill has resulted in loss of substantial sums of money which could reasonably be regarded as money contributed by both parties, as well as around $52,000 contributed by Mr Trosse alone, and around $150,000 loss of earnings contributed by Ms Howard (or, to put this another way, work for which she received $150,000 less than she otherwise would have). It could be said that, if Ms Howard had earned a $150,000 more, this would just have gone to the joint funds of the parties; but in that event, that would have constituted a contribution by Ms Howard in excess of that of Mr Trosse, displacing the primary judge's finding of approximately equal earnings and thus providing a basis for an adjustment in Ms Howard's favour. 29 Although tax would have been payable on the $150,000, it still appears that the individual loss to Ms Howard is greater than the individual loss to Mr Trosse; and a fair distribution of the losses in my opinion justifies a small adjustment in her favour. This would be achieved by making Mr Trosse responsible for the whole of the debt of the parties disclosed by the evidence. In this regard, I note that "property" in the Act is defined to include "any debt". 30 In my opinion, the respective contributions give no basis for a further adjustment. Apart from Mr Trosse's initial contributions of property (the Whale Beach property and the Fairy Meadow property), and the contributions to Mediskill, the contributions of the parties of all kinds were approximately equal; and as noted above, there do not appear to be contributions from Ms Howard that would make it just and equitable that she participate in the increased value of Whale Beach. 31 For those reasons, I would allow the appeal, and substitute, for the order made by the primary judge, an order that Mr Trosse discharge the liabilities of the parties.

Costs 32 The appeal has had sufficient success to carry the costs of the appeal. I am inclined to the view that the issues and the amount involved were not such as to justify counsel's fees at senior counsel rates; but that is a matter that can be dealt with by the costs assessor. 33 As regards the costs below, Ms Howard is entitled to the costs of Mr Trosse's cross-claim. As regards Ms Howard's claim, UCPR 42.30 applies, and in my opinion there is no basis for making a different order. However, to avoid dispute as to what part of the costs was referable to Ms Howard's claim and what part was referable to Mr Trosse's cross-claim, I would order that Mr Trosse pay one-half of Ms Howard's costs of the proceedings.

Orders 34 For those reasons, I propose the following orders: (1) Appeal allowed. (2) Set aside orders made below. (3) In lieu thereof: (a) order that within twenty-eight days Mr Trosse discharge the liabilities of the parties to St George Bank and Visa, and that he indemnify and keep indemnified Ms Howard in relation to these liabilities; (b) dismiss the cross-claim; (c) order that Mr Trosse pay one-half of Ms Howard's costs of the proceedings; (4) Ms Howard to pay Mr Trosse's costs of the appeal, and to have a certificate under the Suitors' Fund Act 1951 if otherwise eligible. 35 BASTEN JA: Where a domestic relationship between two parties who have lived together for two years or more breaks down, it may be just and equitable to adjust their respective interests in property. Not infrequently property will have been acquired, improved or simply conserved through joint activities and enterprises without attempting to identify the proportions in which the property should fairly be owned. The Court has power to make an order adjusting the interests of the parties in the property: Property (Relationships) Act 1984 (NSW), s 20(1), set out at [19] above. 36 In Howlett v Neilson [2005] NSWCA 149; 33 Fam LR 402 at [25] Hodgson JA (with whom Ipp and McColl JJA agreed) set out three steps to be followed in the application of s 20. The failure to follow those steps appears to have been the basis for the first ground of challenge to the decision of the primary judge in the present case. However, as the Court has since explained, those three steps are not necessarily the only questions which will arise, nor need they necessarily be followed in all cases: see, eg, Baker v Towle [2008] NSWCA 73; 39 Fam LR 323 at [42]-[49]. None of the guides for determining such applications, usually apt in the particular circumstances in which they arose, should distract attention from the specific matters to which the statute refers. Thus, the adjustments permitted by s 20(1) are dependent on identification of contributions made by one of the parties to the "acquisition, conservation or improvement" of any property or financial resources of either or both of the parties, and include contributions made in the capacity of homemaker or parent: s 20(1)(a) and (b) respectively. 37 In the present case the primary asset available at the end of the relationship was the Whale Beach property, which was in the name of Mr Trosse. At the commencement of the relationship, the property was owned by Mr Trosse subject to a mortgage securing a debt of some $75,000. By early 1999, the mortgage had reduced to $71,000, but the evidence did not demonstrate that Ms Howard made any contribution to the mortgage payments. In early 1999, the mortgage was discharged from the proceeds of sale of another property which had been owned by Mr Trosse at the commencement of the relationship, namely the property at Fairy Meadow. There was no evidence that Ms Howard contributed significantly to the acquisition, conservation or improvement of that property either. Nor was there any significant inequality in the contributions of each as "homemaker". 38 The trial judge found that Ms Howard had "contributed virtually nothing to the maintenance of Whale Beach and got the indirect benefit of the funds which were realised when Fairy Meadow was sold": at [43]. It appears to be consistent with the other findings made by his Honour that Ms Howard had not contributed to the acquisition, conservation or improvement of the Whale Beach property. So understood, and bearing in mind the lack of non-financial inequality of contribution to the relationship, there was no call to adjust the interests of Mr Trosse in the Whale Beach property. 39 Once that conclusion is reached, the respective assets at the date of trial (including superannuation entitlements, but excluding liabilities) were $90,000 in favour of Mr Trosse and $65,000 in favour of Ms Howard. The joint liabilities were $72,500. The order that Mr Trosse bear sole liability for the debts involved an adjustment by way of contribution from Mr Trosse to Ms Howard in an amount of $36,250. 40 The justification for that contribution was, at least in part, that Ms Howard had sacrificed a significant part of her earning capacity by working fulltime for the unsuccessful business venture. His Honour estimated the salary loss at $150,000, although that figure appears to have been based upon taxable income rather than income net of tax. His Honour also accepted that Mr Trosse contributed a little under $52,000 in cash to the business and that there were further capital inputs from a joint overdraft account. Further, a significant increase in Ms Howard's superannuation entitlements had occurred during the course of the relationship which, it may be inferred, was in part funded from the failed business. 41 In Singer v Berghouse [1994] HCA 40; 181 CLR 201 at 212 Mason CJ, Deane and McHugh JJ expressed agreement with the view that appellate courts should show restraint in disturbing evaluative determinations of the kind arising under the Family Provision Act 1982 (NSW) in relation to testamentary dispositions. They agreed with the views of Kirby P in this Court in an earlier case of Golosky v Golosky [1993] NSWCA 111 at 8 and 9 and the approach of Sheller JA in Singer v Berghouse [1992] NSWCA 230 at 18 that it was necessary for an appellant in that jurisdiction to demonstrate that the trial judge had made "an entirely erroneous estimate" of what was required by way of adjustment of financial interests. The same approach was adopted in this Court by Bryson JA in Chanter v Catts [2005] NSWCA 411; 64 NSWLR 360 at [63]-[64], though dissenting as to the outcome. 42 I do not understand these statements to depart from the standard expressions in House v The King [1936] HCA 40; 55 CLR 499 at 505 with respect to errors of principle identified in discretionary judgments. Rather, they refer to the evaluative assessment of the appropriate outcome, where principles have been properly identified and purportedly applied. 43 In this case, the effect of the approach adopted by the primary judge was to confer on Ms Howard a proportion (albeit a relatively small proportion) of the increase in value of the Whale Beach property during the period of the relationship. However, once it was established that she made no significant contribution to the acquisition, conservation or improvement of that asset, there was no clear basis on which it could be held to be just and equitable to confer on her a financial benefit arising from its increase in value: cf Baker v Towle at [52]. This was not a case in which the mere ownership of an asset at the commencement of the relationship should properly have been treated as a "contribution" of a financial kind made by Mr Trosse to the relationship. 44 So far as the contributions to the business were concerned, it was open to the trial judge to find that the contribution made by Ms Howard was greater than that made by Mr Trosse. Apart from funds sourced to a joint overdraft account, the difference was to be assessed by reference to the loss of income Ms Howard accepted whilst working for the business (after adjustment for taxation and taking into account contributions to her superannuation entitlements), as compared with the capital contribution of Mr Trosse. His Honour's order that Mr Trosse bear the liability for her share of the joint debts would appear to provide a just and equitable solution to that inequality. 45 Mr Trosse argued in this Court that it was erroneous to take into account in this way Ms Howard's sacrifice in salary to work for the business, because the business did not constitute a financial resource, but rather a drain on their financial resources. That argument should be rejected. The reference to "financial resources of the parties" in s 20(1)(a) should not be given a narrow construction. A contribution may increase the net value of an asset, or it may reduce the extent of a liability. In this case Ms Howard's contribution fell in the latter category, but was nevertheless a relevant contribution.

Conclusions 46 The orders made in the District Court on 10 December 2008 were as follows: A On the Plaintiff's claim 1 Order that within 28 days, the Defendant pay to the Plaintiff by way of adjustment of property pursuant to the provisions of Section 20 of the Property (Relationships) Act 1984) , the amount of $75,000. 2 Order that within 28 days, the Defendant to do all acts and things to discharge the liabilities of the parties to the St George Bank Limited and Visa, being an amount of currently $72,500.00 and that he forthwith indemnify and keep indemnified the Plaintiff in relation to these liabilities. 3 Order that the Defendant pay the Plaintiff's costs upon the ordinary basis, such costs to be assessed if not agreed. 4 Liberty to apply to the parties in relation to the implementation and facilitation of these orders on 48 hours notice. B On the Defendant's First Cross Claim 5 Order that the Cross Claim be dismissed. 6 Order that the Cross Claimant pay the Cross Defendant's costs, such costs to be agreed or assessed on the ordinary basis. 47 The Court was informed that order 2 had been complied with. On the views expressed by this Court, there is no reason to interfere with that order. Nor is order 5 the subject of challenge on appeal. Accordingly, those two orders should be allowed to stand. (Although the notice of appeal sought that order 4 be set aside, there is no reason to do that.) 48 There remains the substantive order 1 and the orders with respect to costs. Order 1 should be set aside and in lieu of the costs orders, Mr Trosse should be ordered to pay one-half of Ms Howard's costs of the proceedings in the District Court. 49 I would accordingly propose the following orders:

(1) Allow the appeal in part and set aside orders 1, 3 and 6 made in the District Court on 10 December 2008.

(2) In lieu of the costs orders in the District Court, order that Mr Trosse pay one-half of Ms Howard's costs of the proceedings in that Court.

(3) Order that Ms Howard pay Mr Trosse's costs of the appeal.

(4) Grant Ms Howard a certificate under the Suitors' Fund Act 1951 (NSW). 50 MACFARLAN JA: I agree with Hodgson JA. **********

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