DISTRICT COURT OF QUEENSLAND

1. [1]
   Ms Lynch and Mr Burgess bought a house and land package at Tanah Merah with funds obtained by a loan in their joint names, secured by mortgage over the property. The house was finished in August 1995 and they started living together in a de facto relationship. A little over two years later, some nine years ago, they separated. There was no equity in the property and Ms Lynch told Mr Burgess she did not want anything further to do with it. He met all mortgage and associated expenses until September 2005 when the property was sold by court order. The net proceeds of sale ($122,681.80) are held in trust until disbursed by agreement between the parties or by court order. The parties do not agree. Ms Lynch claims half and Mr Burgess seeks all or substantially all the net proceeds.

2. [2]
   Ms Lynch relies on her registered interest as joint tenant of the property. Mr Burgess argues the net proceeds should not be distributed in the proportion of their registered interests. He claims equitable relief by way of, alternatively, findings of a resulting trust, a constructive trust or an equitable estoppel. If none of those equitable claims are sustained, he says that he has a quasi-contractual claim that Ms Lynch should account to him for any contributions to the property that he has made that are in excess of his legal interest. Alternatively he relies on what he says is a binding agreement reached through their solicitors in July 2003 that she would pay him $75,000. Ms Lynch denies a binding agreement was reached.

3. [3]
   The requirements for finding a resulting trust are not met in this case (Calverley v Green). Even if I was satisfied that Mr Burgess was the sole contributor to the purchase, which Ms Lynch disputes, I am persuaded that he intended to confer at least some beneficial interest in favour of Ms Lynch. It is not necessary to further consider that claim for relief.

4. [4]
   At the heart of the remaining equitable claims (constructive trust and equitable estoppel) is Mr Burgess’ assertion that it would be unconscionable for Ms Lynch to rely on her registered interest in the circumstances of this case. It is only if I find against Mr Burgess on those matters that it is necessary to consider his quasi-contractual and contractual claims.

5. [5]
   The issues in this case are:

• Is it unconscionable for Ms Lynch to rely on her registered interest and, if so, what order should be made as to the distribution of the net proceeds of sale?

• If not, is Mr Burgess entitled to any more than half of the net proceeds pursuant to either his claim for an account or the alleged agreement?

It will only be necessary to address the second issue if I find against Mr Burgess on the first.

Is it unconscionable for Ms Lynch to rely on her registered interest and, if so, what order should be made as to the distribution of the net proceeds of sale?

6. [6]
   As Mr Burgess’ resort to equity rests on his allegation of unconscionability, the history of dealings between the parties must be considered. What relief is appropriate, if any, will depend on findings on the evidence and, if unconscionability is established, upon what is necessary to do equity between the parties.

The history of dealings between the parties relating to the property

7. [7]
   There is no significant factual dispute about the history of their dealings. The facts were agreed between the parties before the hearing, are derived from consistencies in their evidence, or are established by evidence led by Mr Burgess which Ms Lynch did not contradict. The dispute is about what flows from the facts.

8. [8]
   Mr Burgess and Ms Lynch paid the deposit for the property with Mr Burgess’ savings and a loan from Ms Lynch’s parents. The parents’ loan was repaid when the parties received an incentive rebate on settlement of the house and land package. When they moved into the property, the balance outstanding under the mortgage was $127,000. While they lived together, they operated a joint account from which mortgage repayments and other living expenses were met. Mr Burgess paid his wage directly into the joint account. This constituted 71% of the funds deposited to the account during their relationship. Ms Lynch deposited 29% of the funds to the joint account.

9. [9]
   At separation, property values in the area were then on a downward trend. The payout figure on the mortgage exceeded the value of the property. The balance outstanding under the mortgage was $120,500, the early payout figure was $124,500 and the value of the property was approximately $120,000.

10. [10]
    Ms Lynch voluntarily left the property. Shortly after separation, without consulting Mr Burgess, she withdrew $4,000 from the joint account. This was nearly all the money then in the account. She also took a number of items of furniture and household goods from the home. Mr Burgess was left with a few hundred dollars, some items of furniture, the car, also subject to a loan, and possession of the property.

11. [11]
    During a conversation shortly after separation, Ms Lynch told Mr Burgess she did not want to have anything further to do with the property, and that he could have it if he took sole responsibility for it and for the loan. From separation until the sale of the property, Mr Burgess paid all the expenses associated with it and Ms Lynch neither contributed nor offered to contribute to those expenses.

12. [12]
    There were a number of unsuccessful attempts to finalise matters between them on a legal basis. Mr Burgess asked the mortgagee to refinance the property so Ms Lynch could transfer her interest to him and her liability under the loan could be extinguished. The mortgagee refused to refinance until the amount outstanding under the loan was less than 90% of the value of the property. When Mr Burgess had sufficiently paid down the loan he sent a transfer form to Ms Lynch. She did not sign or return it.

13. [13]
    Sometime in early 2003 Ms Lynch consulted a different firm of solicitors and there was a further attempt to settle their affairs. Mr Burgess says an exchange of correspondence in July 2003 constitutes the agreement he relies upon in the alternative to his claims for equitable relief. If an agreement was reached, it was not given effect. In November 2004, Ms Lynch commenced the proceedings which led to the sale of the property.

14. [14]
    By the time the property was sold, Mr Burgess had contributed approximately $141,370 towards the loan. $117,530.25 of this was paid post separation. That figure includes $34,210 in net rental income earned from the property. Ms Lynch had contributed $9,738. The calculation of the contributions during their cohabitation assumes contributions to loan repayments during that period in the same proportion as their contributions to the joint account.

15. [15]
    Equity will not permit a party to assert or retain the benefit of property to the extent that it would be unconscionable to do so (Muschinski v Dodds). In the context of the facts set out above, Mr Burgess argues that it is unconscionable for Ms Lynch to assert her legal interest in the property to justify an equal division of the net proceeds.

16. [16]
    In response, Ms Lynch says that Mr Burgess had exclusive use of the property, rented it out without consulting her and had the benefit of the rental income. Each of those matters is consistent with Mr Burgess’ reliance upon Ms Lynch’s representation that she wanted nothing further to do with the property. Further, Mr Burgess informed Ms Lynch he was going to rent out the property and she raised no objection. The net rental income was applied to the mortgage and has, therefore, contributed to the net proceeds of sale. Whilst the matters raised by Ms Lynch may be relevant to what relief should be granted, they do not go to the issue of the unconscionability of Ms Lynch now asserting her full legal interest.

17. [17]
    The issue is whether Ms Lynch made a representation about her intentions with respect to the property which Mr Burgess acted upon and which it would now be unconscionable for her to resile from in the context of their subsequent dealings. The nature and effect of that representation are central to both the claim for a constructive trust and for an equitable estoppel.

18. [18]
    In her answer to Mr Burgess’ counterclaim, Ms Lynch pleaded two issues with respect to the representation: first that it was made in the context of without prejudice negotiations and second that it was conditional on the property being refinanced and her interest in the land being transferred and that condition was not fulfilled. Neither of those propositions was established by the evidence. The representation was made shortly after separation and was not made in the context of settlement negotiations. It was clear from her evidence that when she spoke to Mr Burgess, Ms Lynch had resolved her position with respect to the property and, importantly, the associated responsibilities. She was not putting forward a proposal for negotiation. She had already put into effect what she considered to be a fair distribution of property by withdrawing funds and taking various items from the home.

19. [19]
    As to whether the representation was conditional, the only condition she put forward was that he should take full responsibility for the property, which he did. Her representation, on her own evidence, was clear and unequivocal: she wanted nothing further to do with the property and she wanted him to assume full responsibility for it.

20. [20]
    In the context of their subsequent dealings, the conclusion that it would be unconscionable for Ms Lynch to now resile from that representation is, in my view, unavoidable.

21. [21]
    There was no equity in the property at separation. Ms Lynch represented she had no further interest in the property. She took $4,000 in cash and some furniture and walked away from all joint debt. She gave evidence that she took what she thought was her entitlement from the relationship. She did this without discussing it first with Mr Burgess. She abdicated any responsibility for the property and for the loan. She made no payments towards the loan or any other expenses associated with the property from the date of separation to the date of sale. She made no offer to contribute, not even after applying for a court order to sell the property and divide the net proceeds equally between them. Mr Burgess relied on Ms Lynch’s representation and, from separation until sale, assumed sole responsibility for the property until it was sold.

What is necessary to do equity between the parties?

22. [22]
    Having decided that it would be inequitable for Ms Lynch to assert her full legal interest, it is necessary then to consider what is necessary to do equity between the parties. A constructive trust may be imposed to prevent unconscionable reliance on the legal title to a property by a co-owner after the failure of a de facto relationship (Muschinksi v Dodds). However, in framing relief two further questions arise: the point in time the constructive trust should be declared to arise and the proportionate interests of the parties necessary to do equity between the parties.

23. [23]
    Mr Burgess asks the trust be declared from separation. Ms Lynch asks that it be declared as at the date of this judgment although her counsel conceded it may be appropriate for there to be some accounting for Mr Burgess’ post separation contributions. I am not persuaded the latter is appropriate. In Baumgartner v Baumgartner, the High Court declared a trust in proportions which reflected the parties’ financial and other contributions during the relationship. In that case the value of the property did not increase significantly between separation and trial and the post separation contributions were dealt with by account. The issues of equity between the parties were different to this case.  There has been a significant increase in both the equity in this property and its value.

24. [24]
    The point of separation is the critical event. At that point the parties had no equity in the property. It marks the time when Ms Lynch voluntarily left the property but, more importantly, when she ceased making contributions. It is also the point at which she eschewed any further responsibility for it. From that date Mr Burgess bore full responsibility and was left to manage the property as if it were his own.

25. [25]
    There was no relevant change in Ms Lynch’s conduct in relation to the property that could justify another point in time as more appropriate. There was an exchange of correspondence between the solicitors in July 2003 but the implications and effect of that correspondence is disputed. Significantly, Ms Lynch does not argue that exchange demonstrates it would not be unconscionable for her to assert her full legal interest. In any event Ms Lynch’s conduct was consistent before and after that exchange. The entire responsibility for managing the property and meeting its expenses was left with Mr Burgess from separation and until sale, even after she had commenced proceedings for the sale of the property and equal division of its proceeds. I am not persuaded that any time other than separation is appropriate in the circumstances of this case. Recent cases in Queensland involving similar circumstances have, likewise, resulted in declarations of trust fixed at the point of separation (Rainford v Whitworth, Muller v Zielonkowsky).

26. [26]
    The proportion in which the trust is held is the other issue between the parties. There was no equity in the property at that stage. Whether Ms Lynch is entitled to a proportion of the interest they had in the property on an assumption of an equal share or according to her contributions to the joint account, either are a proportion of nothing. All the equity subsequently accrued to the parties in the property was derived post separation through the sole efforts and contributions of Mr Burgess.

27. [27]
    The equitable relief afforded to Mr Burgess should be no more than is required to do equity between the parties. Mr Burgess is entitled to a declaration that Ms Lynch held her legal interest in the property in trust for him, unless to do so would itself be inequitable.

28. [28]
    To test whether it would be inequitable I have calculated what Mr Burgess would be entitled to if he received a distribution of the net proceeds and an account by Ms Lynch for expenses he has paid on her behalf. In his submissions, Ms Lynch’s counsel conceded that some account would have to be made. I have applied two scenarios. The first assumes a distribution and account on the basis of a 50% interest, the legal interest Ms Lynch asserts. The second assumes a distribution and account of 71% to Mr Burgess and 29% to Ms Lynch. This reflects their contributions during the relationship and is consistent with the approach adopted in Baumgartner’s case.

29. [29]
    I have included Mr Burgess’ post separation payments towards the mortgage, insurance, rates, maintenance and improvements. The figures used for Mr Burgess’ mortgage payments do not include any payments made from rental income as such payments are not Mr Burgess’ out of pocket expenses that Ms Lynch would have to account for. Because the rental income has been applied to the mortgage, in these calculations both receive the benefit of the rental income in their proportionate share of the net proceeds.

30. [30]
    As to the cohabitation contributions, I have also considered the deposit paid by Mr Burgess and the $4,000 taken by Ms Lynch from the joint account as both are in excess of Mr Burgess’ legal interest whether on a 50% or 71% calculation.

31. [31]
    Assuming a distribution and account of 50% to each party, Mr Burgess would be entitled to receive the sum of $107,947.30 calculated as follows:

Division of Net Proceeds

• Net proceeds $122,681.80 x 50%$61,340.90

Account by Ms Lynch to Mr Burgess

• 50% post separation property expenses:

• Mortgage repayments ($33,403 + $15,707) $49,110 x 50%$24,555.00

• Rates & insurance ($8,618.62 + $3,838.50) $12,457.12 x 50%$6,228.56

• Maintenance $6,753.68 x 50%$3,376.84

• Improvements $3,190 x 50%$1,595.00

• Refund of excess mortgage payments during cohabitation

(71% contributed) Excess is 21% x $33,578.00 $7,051.00

• Deposit $2,000 x 50%$1,000.00

• Funds withdrawn from joint account $4,000 x 71% $2,800.00

Total $107,947.30

32. [32]
    Assuming a distribution and account in accordance with their contributions during the relationship, 71% to Mr Burgess and 29% to Ms Lynch, Mr Burgess would be entitled to a payment of $111,222.19, calculated as follows:

Division of Net Proceeds

• Net proceeds $122,681.80 x 71%$87,104.07

Account by Ms Lynch to Mr Burgess

• 29% post separation property expenses:

• Mortgage repayments ($33,403 + $15,707) $49,110 x 29%$14,241.90

• Rates & insurance ($8,618.62 + $3,838.50) $12,457.12 x 29%$3,612.56

• Maintenance $6,753.68 x 29%$1,958.56

• Improvements $3,190 x 29%$925.10

• Deposit $2,000 x 29%$580.00

• Funds withdrawn from joint account $4,000 x 71% $2,800.00

Total$111,222.19

33. [33]
    Neither of those calculations takes into account that Mr Burgess was unable to apply the funds which he applied to the property to other uses. There is no allowance for income he might have otherwise been able to earn. There are other matters, of course, that could also be brought to bear if there was to be a strict account, such as any benefit he might have received from sole occupation of the home and any tax burden or benefit he would have suffered or enjoyed during the period the property was rented. There is insufficient evidence before me to enable me to embark upon that exercise. I do not consider it appropriate to attempt to adjust the parties’ interests according to the post separation transactions. I have not undertaken the calculations for that purpose. Rather I have examined the material before me in order to test whether it would be inequitable to declare that Ms Lynch holds her interest in the property in trust for Mr Burgess.

34. [34]
    It is evident from the above analysis that the order sought would restore Mr Burgess to the position he would have been in had Ms Lynch assisted him to service the loan and maintain and improve the property. The advantage of the constructive trust is that he receives the full benefit of the capital growth in the property. That is modest and, in the circumstances of this case I do not consider it is inequitable for Mr Burgess to receive all of it and for Ms Lynch to be denied any share in it.

35. [35]
    Separation is the critical point in the dealings between these parties in relation to the property. Under difficult personal circumstances, arising from significant injuries Mr Burgess sustained in a motorcycle accident before their separation, Mr Burgess took sole responsibility for the property. Ms Lynch created an expectation in Mr Burgess that he would have the benefit of the property if he did so. It was reasonable for him to act on that expectation. He diligently serviced the loan and improved and maintained the property. He is entitled to the capital growth since separation. It would be unconscionable for Ms Lynch to now claim a half interest in the proceeds from sale of an asset that was worthless when she abdicated responsibility for it and to which she has contributed nothing.

36. [36]
    Given the conclusion reached in relation to the equitable claims, it is not necessary to further consider the alternative quasi-contractual and contractual claims.

Orders

37. [37]
    My orders are:

1. I declare that since their separation in November 1997, Ms Lynch has held her interest in the subject property on trust for Mr Burgess.

2. I order that the net proceeds of sale of the property be paid to Mr Burgess.

38. [38]
    I will hear from counsel on the appropriate order as to costs in these proceedings.