Neilson v Letch [2004] NSWSC 1246

The Plaintiff and the Defendant were a former defacto couple and co-owners of a unit at the Kirribilli.

The Plaintiff had requested the Defendant to join with him in the sale of that property, and the Defendant neglected or refused to join in that sale. The Plaintiff then claimed relief in respect to the sale of the Kirribilli property, and the disposition of the proceeds of sale, the Plaintiff seeking that the net proceeds, after payment of legal fees, agents fees and other proper selling charges, and after the discharge of the mortgage on the property, be divided equally between the Plaintiff and the Defendant.

The Plaintiff also claimed that the parties bear equally the cost of any advertising expenses in respect to the auction of the property. The Plaintiff also claims mesne profits in respect to the Kirribilli property, and costs.

The defendant filed a defence and a cross claim asserting that he was entitled to be reimbursed from the gross proceeds of sale of the subject property in respect to certain contributions alleged to have been made by him for the acquisition, maintenance and upkeep of the property.

The Defendant also, by way of defence of equitable set off, said that by reason of the foregoing alleged payments the Court should order that the totality of those payments be paid to the Defendant before division of the net proceeds of sale. The Defendant also denied that he was liable to the Plaintiff for mesne profits.

By the cross-claim the Defendant plead facts concerning the purchase of the property, and the payment of expenses in relation to the acquisition, maintenance and upkeep of it. The Defendant claimed that the Plaintiff failed to provide any moneys towards the acquisition, maintenance or upkeep of the property. The Defendant also asserted that he had sought the consent of the Plaintiff to sell the property and to pay from the net proceeds such sums to himself and the Plaintiff as the Court shall direct, but that, despite such requests, the Plaintiff had refused to agree to the sale of the property.

By the cross-claim the Defendant sought relief pursuant to section 66G of the Conveyancing Act 1919 by way of the appointment of statutory trustees for sale of the subject property. The Defendant then sought an order as to the disposition of the net proceeds of sale, being for the payment to the Defendant of the sum of $126,712, and for the balance then remaining to be paid between the Defendant and the Plaintiff in such sums as the Court directed.

On 27 October 2003 the Plaintiff filed a reply, in which she referred to the agreement between the parties in respect to the proposed sale of the subject property. She denied that the Defendant provided any of the claimed funds in the defence, and said that the sums allegedly expended by the Defendant have been met substantially from funds provided by the Plaintiff to the Defendant. The Plaintiff denied the entitlement of the Defendant to any set off.

 By her defence to cross-claim the Plaintiff plead that the Defendant had been in possession of the subject property since July 1996, that such possession by the Defendant has been to the exclusion of the Plaintiff from that date until 9 October 2003, when the parties agreed that the property be sold; that from July 1996 until 9 October 2003 the Defendant did not account to the Plaintiff in respect of the rental income derived from the property and did not pay any moneys to the Plaintiff in respect of his own occupation of the property.

By that defence the Plaintiff also plead certain facts (the acquisition of the property at a time when the parties were in a bona fide domestic relationship; the capital gains tax presently payable being greater than that which would have been payable had the property been sold at the time when the parties separated in 1996; the provision by the Plaintiff to the Defendant of the sums necessary to acquire the property), and states that it would be unconscionable for the Defendant to receive more than 50 percent of the net proceeds of sale of the property.

The Court referred the parties to the following legal principles:

Mesne profits are damages for a trespass (see Dunlop v Macedo (1891) 8 TLR 43), and since in the circumstances of the instant case, the Defendant, as co-owner in possession – irrespective of whether or not there had been ouster of the Plaintiff, could not be regarded as being a trespasser, the Plaintiff would not be able to sustain a claim for mesne profits.

Since the parties were registered as proprietors as tenants in common in equal shares, prima facie they would each be entitled to share equally in the net proceeds of sale of the property. The Plaintiff by sought an order to that effect. However, the defendant claimed a greater part than one half of the net proceeds of sale.

There is a presumption that the recipient of property holds that property on trust for the person who provided the purchase money. Where two or more parties contribute to the purchase price and the legal title to the property does not reflect those contributions, there is a presumption of a resulting trust for the contributors in proportion to their respective contributions. (See Calverley v Green (1984) 155 CLR 242; Cowcher v Cowcher (1972) 1 WLR 245 at 431.)
It was submitted on behalf of the Plaintiff, however, that the presumption of a resulting trust in the proportion of the respective contributions of the parties was rebutted, the Plaintiff relying on the following facts:

  • The property was acquired in the names of both parties.
  • The Defendant was well aware that it was open to him not to acquire the property in the conjoint names of himself and the Plaintiff, or to acquire it in some proportion other than equal shares. However he did not do so.
  • The parties were joint borrowers.
  • After the purchase the Plaintiff did not demand repayment of the loan allegedly made by her to the Defendant , neither did the Defendant seek to repay the loan.
  • Both parties conducted themselves as purchasers, locating the property together.

The Defendant asserted that, as his co-owner, the Plaintiff was entitled to return to the property, have a key and be otherwise entitled to all the usual rights and entitlements as an owner of the property.
The property was not acquired as a home for the Defendant (or, for the Plaintiff and the Defendant conjointly). It was acquired by the parties as an investment property. It was only after separation that the Defendant unilaterally decided to occupy the property.

The Plaintiff relied upon the unreported decision of the Court of Appeal of New South Wales in Hogan v Baseden (24 November 1997, Butterworths Unreported Cases BC9706190). In that case the Court of Appeal referred to the

“well established principle that where it is found to be unconscionable for a person to take the whole beneficial ownership without recognising a contribution of some other party, equity orders the minimal relief necessary to relieve the conscience of the legal owner … The relief which will be granted is flexible, the court in each case looking at the circumstances in deciding in what way the equity can be satisfied”.

After referring to such well known authorities as Muschinski v Dodds (1985) 160 CLR 583 and Baumgartner v Baumgartner (1987) 164 CLR 137, the Court of Appeal continued,

The principle which emerges from these cases is that the court’s approach to relief is flexible, concordantly with the principle that the court will give the minimal equity necessary to relieve the conscience of the legal owner.

The Plaintiff, as the legal owner as to a one-half share in the property, and seeking no more, relied on her legal entitlement as against the Defendant. She submited that the Defendant in bringing the cross-claim must do equity, seeking, as he does, that the whole of the deposit be regarded as a contribution by him
The Plaintiff submits that the rents which the Defendant received in respect to the property as well as notional occupation fee payable by the Defendant during the period whilst he has resided therein should be brought into the account.

However, in Forgeard v Shanahan (1994) 35 NSWLR 206 Meagher JA (with whom Mahoney JA agreed) held, that apart from statute there existed no liability in a co-owner to account for rents received, much less to account for an occupation fee.

In consequence, therefore, the Plaintiff can bring into the equation the rents actually received by the Defendant and a notional occupational fee payable by the Defendant only if there has been ouster, which is not the case in the circumstances of the present claim; or if the Defendant claims a component in respect to improvements.

It should however, be recognised that in the later case of Ryan v Dries [2002] NSWCA 3 (6 February 2002) a differently constituted Court of appeal was not in entire agreement with the reasons expressed by Meagher JA in Forgeard v Shanahan, whilst agreeing with his conclusions concerning the liability of a co-owner in occupation claiming for improvements to pay, or to have brought into an account, a notional occupation fee. Sheller JA cited with approval the decision of Vinelott J in In re Pavlou [1993] 1 WLR 1046, saying,

In my opinion the court in In re Pavlou correctly recognised that it may be appropriate, in order to do equity between two former co-habitees of a property, to set off against the claim by the one, who has remained in occupation but claims to recover for mortgage instalment payments made, an amount by way of an occupation rent. As Vinelott J said in the passage quoted [at 1050-1051] that is not by application of a rule of law but simply by application of a principle of equity. Equity may require as a condition of the relief sought, namely that the respondent contribute to the payment of mortgage instalments and reimburse the appellant to the extent of the appropriate contribution, that the appellant be charged with an amount for his occupation.

Similarly, Giles JA said,

The rule has long been established. One co-owner A in occupation of a property is not liable to pay an occupation fee to the other co-owner B unless A has excluded B from occupation or A is claiming from B an allowance for his expenditure on repairs or improvements to the property (Luke v Luke (1936) 36 SR (NSW) 310). A different rule could have been devised in an attempt to adjust matters equitably between A and B. But, as Mahoney JA said of claims between co-owners in Forgeard v Shanahan, at 220, “[t]he decisions which have been laid down represent … a practical attempt to accommodate the justice of competing claims of this kind”.

 In Cardinaels-Hooper v Tierney (20 December 1995, unreported) Cohen J helpfully gathered together the various authorities dealing with the bases upon which an occupation fee can be charged against an occupying co-owner.

In delivering the leading judgment in Ryan v Dries Hodgson JA observed that some of the statements of principle made by Meagher JA in Forgeard v Shanahan were obiter only and that in some respects he was not in complete agreement with them. His Honour referred to the point made by Meagher JA that the claim for contribution in respect of the discharge of a joint debt, such as a mortgage, can be made independently of a partition action or its equivalent, and continued,
However, if the co-owner does rely on equitable principles in making such a claim, in my opinion the co-owner is seeking equity and is required to do equity, no less than if allowance for improvements was being sought.
Thus I agree with Rolfe J [the Judge at first instance in Forgeard v Shanahan] that, once an occupier is required to do equity because he or she is seeking equity, there is no reason to distinguish between improvements or repairs effected to the property on the one hand, and the reduction of a charge on the property through mortgage repayments on the other. I think this accords with what Long Innes CJ in Eq said in Luke at 317, in commenting on the case of McMahon v Burchell (1846) 5 Hare 322; 67 ER 936.

There have been other criticisms of the reasons of Meagher JA in Forgeard v Shanahan (especially in the light of the decision of the Full Court of the Federal Court of Australia in Squire v Rodgers (1979) 39 FLR 106). (See Heather Conway, “Partition Actions and Accounting Adjustments Between Co-owners” (1999) 7 Australian Property Law Journal, 107 at 231, who said, concerning a claim against a co-owner for an account in respect of rents and profits which exceeded his share in the property, that “the law in this particular area remains unsettled”. See, also, Peter Brereton, “The Rights Between Co-owners of Land” (1995) 69 ALJ 316.)

The application to the facts and circumstances of the instant case of the foregoing judicial principles derived from the authorities above, in particular, Forgeard v Shanahan and Ryan v Dries, has the following consequence.

In Ryan v Dries the Court of Appeal applied the foregoing principles by adopting the following procedure:

  • Establishing the actual contribution of each party to the purchase price;
  • Adding incidental expenses;
  • Applying the mortgage equally;
  • Ascertaining the percentage of the capital contribution of each party in relation to the total of (i), (ii) and (iii).

After applying these principles, the Court made the following orders:

Since the present proceedings were conducted as adversarial proceedings, and raised questions of a resulting trust and of claims for contribution, it is not appropriate that the normal costs order in respect to relief under section 66G of the Conveyancing Act (that is, that the costs of both parties be paid out of the proceeds of sale) should apply.

The parties are entitled to the proceeds of sale of the property together with interest thereon, in the following amounts:

• Plaintiff – $88,96
• Defendant – $191,245

No order as to costs

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