S v K[2007] QDC 164

DISTRICT COURT OF QUEENSLAND

1. [1]
   This is an application for the resolution of property matters between a man and a woman who lived together in a de facto relationship, as that term is defined in Part 19 of the Property Law Act 1974 (PLA), between 2 October 2004 and 19 June 2005 – ie, a period of about 8 months.  The short duration of the relationship and, in particular, the fact that it did not subsist for at least two years means the Court’s power to make what Part 19 calls property adjustment orders is not available unless the male applicant can show two things: that he directly or indirectly made substantial contributions to the acquisition, conservation or improvement of the parties’ joint or individual property, and their welfare; and, that failure to make an adjustment order would result in serious injustice to him: PLA, s 287(c).

2. [2]
   The male applicant S is 47 and K, the female respondent, is 43. Their dispute centres on a house property in a small Queensland town. The male applicant and his former wife had owned it but, pursuant the terms of a settlement of their matrimonial property affairs reached in early September 2004, the wife agreed to transfer her interest to him. In what were effectively simultaneous transactions the house was transferred to the applicant alone and, then, to the applicant and the respondent as joint tenants. This was achieved by the applicant and the respondent jointly borrowing funds from a Building Society to pay out the existing mortgage, and for other purposes. The female respondent has lived in the house since cohabitation ceased in June 2005. The parties agree it should be sold.

3. [3]
   The male applicant’s case is that the Court should make orders notwithstanding the short duration of the relationship because his contributions to the parties’ property far exceeded that of the respondent, and to deny him relief here would be unjust. As I understood the female respondent’s case she says that, by agreement with the applicant, she purchased his former wife’s one-half interest in the property. That arrangement, it is then submitted, means the applicant’s attempt to rely upon s 287(c) must fail because no serious injustice will arise against him if his attempt to use Part 19 is refused. It is, instead, said to be just that he be held to that bargain – resulting in an equal division. In the alternative, the respondent says the parties’ contributions were about equal, and the division should reflect that.

4. [4]
   Section 287 relevantly provides:

287Type of de facto relationship

A court may make a property adjustment order only if it is satisfied –

1. (a)
   the de facto partners have lived together in a de facto relationship for at least 2 years; or

2. (b)
   there is a child of the de facto partners who is under 18 years; or

3. (c)
   the de facto partner who applied for the order has made substantial contributions of the kind mentioned in section 291 or 292 (sic) and failure to make an order would result in serious injustice to the de facto partner. (emphasis added)

5. [5]
   Sections 291 and 292 focus upon contributions, by the applicant de facto partner, to the property of the partners and their welfare. They provide:

291Contributions to property or financial resources

2. (1)
   The court must consider the financial and non-financial contributions made directly or indirectly by or for the de facto partners or a child of the de facto partners to—

2. (a)
   the acquisition, conservation or improvement of any of the property of either or both of the de facto partners; and

2. (b)
   the financial resources of either or both of the de facto partners.

2. (2)
   However, the non-financial contributions of a child of the de facto partners must be considered only if the child’s contributions are substantial.

2. (3)
   It does not matter whether the property or financial resources mentioned in subsection (1) still belong to either or both of the de facto partners when the court is considering the contributions made.

292Contributions to family welfare

2. (1)
   The court must consider the contributions, including any homemaking or parenting contributions, made by either of the de facto partners or a child of the de facto partners to the welfare of—

2. (a)
   the de facto partners; or

2. (b)
   the family constituted by the de facto partners and 1 or more of the following—

2. (i)
   a child of the de facto partners;

2. (ii)
   a person who is—

2. (A)
   accepted by either of the de facto partners into the household of the de facto partners; and

2. (B)
   dependent on either of the de facto partners.

2. (2)
   However, the contributions of a child of the de facto partners must be considered only if the child’s contributions are substantial

    …

The female respondent concedes that for the purposes of s 287(c) the applicant made substantial contributions of the kind set out in these provisions^[1].

6. [6]
   The parties agree upon a number of other things. The house has a present value of $330,000, and should be sold. The mortgage debt upon it, for which the parties are jointly and severally liable, is $232,500. It is the remaining equity in the home which is the only subject of dispute and they agree that, after sale costs, the net proceeds should approximate $90,000.

7. [7]
   At the time the relationship commenced the house, then owned by the applicant and his wife, had a mortgage debt of about $118,000. The applicant also had other debts including an obligation to pay his wife $65,000 by way of property settlement. The mortgage and other debts (including the property settlement) amounted, the applicant agreed, to $219,272^[2].  He also agreed he was unable, himself, to borrow that sum and if he wished to retain the home (as, again, he agreed he did) then he had to ‘…find someone else who had an income who would enable (him) to borrow more and pay out (his) wife’^[3].

8. [8]
   The applicant and his wife had agreed, for the purposes of negotiations at the time of their property settlement, that the home had a value of $220,000^[4].  The parties here also agree, however, that the true value at the time the relationship between them commenced was $275,000^[5]. 

9. [9]
   The respondent further alleges, however, that the applicant proposed to her, and she agreed, that she would purchase his wife’s one-half interest in the home, the consideration for which would be her (the respondent) accepting liability for one-half of the re-financed mortgage; and, that the new mortgage borrowing would be used to pay out the existing mortgage, the applicant’s debt to his former wife, outstanding rates on the property, and debts each party had for motor vehicles and the like^[6].

10. [10]
    The applicant denies a transaction of that kind and alleges his discussions with the respondent involved only a reference to the transfer to her of a ‘joint’ interest with him if she accepted responsibility, with him, for the mortgage debt. He said he had ‘…no recollection of saying anything about a 50 per cent share to her’^[7]. 

11. [11]
    The application the parties jointly made to the Building Society^[8] shows the ‘Purpose of Loan’ as ‘half interest transfer of property at (address of home) QLD’.   It also contains the following:

At settlement the Society is to be provided with the original stamped Transfer document from (applicant’s former wife) to (the applicant) as well as the original stamped Transfer document from (the applicant) to (the applicant) and (the respondent).  These documents are to be in registrable Titles Office form and be accompanied by any other documents required to be lodged by with them.

12. [12]
    The application the respondent made for a stamp duty concession also showed she would hold a one-half interest after the transaction^[9].  While this document was not signed by the applicant, the respondent’s oral evidence was entirely consistent with it.   Her oral testimony was clearer than that of the applicant whose evidence, as the passage set out above indicates, was less than positive or precise. 

13. [13]
    Where the parties are at odds about the nature of the transaction, the clarity of the respondent’s oral evidence and the fact there are documents consistent with it, one of them signed by the applicant, are persuasive that her evidence should be preferred. That is not to say the applicant was being untruthful; rather, it seems, he did not clearly recall what had been discussed. In circumstances of pressure like a property settlement following a marital breakdown and his subsequent anxiety to keep his home, that is unsurprising.  

14. [14]
    The evidence does not establish that the applicant’s wife actually held legal title or a moiety equal to a ‘one half’ interest in the home with the applicant, which they owned as joint tenants. That is not to deny, however, that the transaction between the applicant and the respondent was predicated on an intention, shared by the parties, that he would transfer to her an interest in that proportion.

15. [15]
    The last transaction was, however, to the applicant and the respondent as joint tenants and not as tenants in common in equal shares. Their apparent legal interests differ, then, from their positions vis a vis each other in equity.  When two persons have contributed the purchase price of a property in unequal shares but it is purchased in their joint names there is, ordinarily, an equitable presumption that the property is held by them on trust as tenants in common in the proportions in which they contributed to the purchase price^[10]. 

16. [16]
    The presumption can, however, be displaced by evidence of intention. The finding that the respondent was, by her acceptance of joint responsibility for the mortgage debt, acquiring a half interest, has that effect. The likely result, in equity, would therefore be the imposition of a constructive trust reflecting that intention in the respondent’s favour – in the face of the applicant’s assertion of a beneficial interest in the property which is inconsistent with it^[11]. 

17. [17]
    Although not articulated in this way, this reflects what I understood to be the respondent’s position here. She accepts that the applicant did make ‘substantial contributions’ of the kind mentioned in s 287(c), 291 and 292 but contends no serious injustice arises if no order is made^[12].  In other words it would not be unjust, the respondent says, if the applicant is held to the bargain which she alleges they made. 

18. [18]
    The dispute under s 287 is a threshold point. The question is whether injustice would result if no order was made. At first blush, the notion that the applicant may be able to circumvent the effect of his transaction with the respondent which, I have found, would result in something like an equal sharing has a surprising aspect. However, for reasons explained below, it is plain the Legislature was concerned to ensure a just division of the assets of couples entering into de facto relationships notwithstanding the prevailing legal or equitable elements of their dealings.  As the cases show the question posed by s 287(c) is approached by determining whether in the prevailing circumstances there is so significant a disparity between the existing legal and/or equitable rights of the parties to the property, and an appropriate property adjustment order under the legislation, that such a disparity would constitute ‘serious injustice’ in terms of the section.

19. [19]
    This was the course followed by Rackemann DCJ in L v A [2005] QDC 176 in which his Honour made an initial finding that it was the common intention of the parties to the de facto relationship there (which also had a duration of less than two years) that they be equal owners notwithstanding their disproportionate contributions.  But, as his Honour went on to find, because the respondent had in fact made substantial contributions which were not fully or adequately reflected in his legal or beneficial interest he should be given leave (as occurred in the course of the proceedings) to seek an order under Part 19.

20. [20]
    The meaning of the phrase ‘serious injustice’ in s 287 has not been widely explored. In E v S [2003] QSC 378 Mullins J was faced with a de facto relationship of only 15 months duration in which the applicant had made a substantial capital contribution to the purchase of the jointly owned property, but the respondent had made greater home-making and parenting contributions.  As her Honour ultimately concluded, a just and equitable division of the net proceeds of sale of the jointly owned property required repayment of the applicant’s initial capital contribution, and a division of the balance then remaining as to 60 per cent to the applicant, and 40 per cent to the respondent.  At p 15, her Honour said:

[75] There were no authorities to which I was referred which had interpreted the phrase ‘serious injustice’ in the context of section 287 of the PLA. The respondent relied on authorities from other contexts which were of no real assistance. The phrase must be interpreted in the light of the reform intended to be achieved by Part 19 of the PLA.

[76] In the circumstances of a short term de facto relationship as this one, the fact that the applicant made a substantial capital contribution to the purchase of the property in which both parties were registered as equal owners is sufficient to support the conclusion that there would be a serious injustice to the applicant, if a property adjustment order were not made. (emphasis added)

21. [21]
    The purposes of Part 19 are set out in s 255. They include, relevantly, the facilitation of a ‘just and equitable property distribution at the end of a de facto relationship in relation to the de facto partners’^[13].

22. [22]
    Elsewhere, in LF v RA [2005] QSC 375 White J was required to consider the meaning of the term in the context of an application to vary property ownership in a way which differed from the terms of a ‘cohabitation agreement’ signed by the parties^[14].  Under s 276 the court may make orders varying a recognised agreement if enforcement of it “… would result in serious injustice for a party”^[15].  Her Honour said at pp 13-14:

[56]It is not, of course, a serious imbalance of itself which will give rise to a conclusion of serious injustice.  The detail of the relationship and the parties’ financial and other contributions to the acquisition of the assets in the course of the relationship will be determinative of that question.

23. [23]
    In L v A (supra) Rackemann DCJ said, under the heading ‘Serious Injustice’ at p 8:

[23] Given my conclusions with respect to the legal and beneficial interests of the parties, there is no occasion for making a property adjustment order in favour of the plaintiff.  On the other hand, I am satisfied that a property adjustment order in favour of the defendant is called for.  He made substantial contributions which are not fully or adequately reflected in his legal or beneficial interests in the residence. Even with the benefit of an equitable accounting in relation to expenditure, there would be a serious injustice were an order not to be made in his favour. … (emphasis added)

24. [24]
    Sections 291-309 set out the matters to be considered in deciding what is just and equitable in the context of property relations between de facto partners.  The respondent, as she must, concedes that the applicant contributed his interest in the property at the time the relationship commenced.  At the agreed value of $275,000 and after deduction of the mortgage liability at the time and outstanding, unpaid rates of $7,150, that equity had a value of about $150,000.  At the same time, of course, the male applicant received a benefit from the funds borrowed under the new mortgage with the respondent in ways which were not directly relative to that property: he used some of those funds to pay the settlement sum of $65,000 to his former wife and to pay out a car loan and other debts, all totalling about $84,000.

25. [25]
    Before the relationship commenced the respondent was living in rented premises and had, I accept, furniture worth about $15,000 and a motor vehicle. Part of the mortgage borrowing was also used, I am satisfied, to discharge the respondent’s indebtedness in respect of her motor vehicle in the amount of about $6,300. She has retained furniture and household items purchased for the home. She has also had the benefit of living in it, albeit that she has continued to pay $205 per week against the mortgage debt.

26. [26]
    There was some dispute about the parties’ contributions to household expenses and non-financial contributions. Their evidence, both in affidavits and orally, was not expansive about financial and non-financial contributions during the relationship. The applicant made payments against the mortgage until May 2006, but not thereafter. In the course of the relationship he paid for the rates and power bills, a telephone service and for some groceries. Some of his income was directed towards child support obligations in respect of the children of his former marriage.

27. [27]
    He alleges that the respondent spent “excessive” amounts on alcohol and personal needs but she explained, and I accept, that apparent cash withdrawals at a hotel were EFTPOS withdrawals (sometimes in concert, as she fairly admitted, with the purchase of meals or alcohol) in circumstances where the Building Society with which she and the applicant dealt had no branch or ATM in the town where they lived.

28. [28]
    The foregoing analysis suggests, and I think it is fair to conclude, that contributions during the relationship were about equal. (It is to be noted that mortgage payments by both parties do not constitute a contribution to the purchase price^[16].)  Both are now in employment but, save for their respective interests in the balance equity in the house property, neither has significant assets.  Both have an ongoing obligation to contribute to the maintenance of their children from other relationships.

29. [29]
    There are some other factors to be considered, too, in determining how the legislation would address their circumstances. Arguably, the ‘windfall’ increase in value between the figures of $220,000 attached at the time of the applicant’s negotiations with his former wife, $275,000 (the agreed value at the time this relationship commenced) and $330,000 (the agreed value now) is a factor which tells in the applicant’s favour. As Brereton J said in Cardos v Sarbutt [2006] NSWCA 11:

[61] The approach which was adopted in Burgess v King is one which gives due weight to the time value of money, and recognises that capital gains are the product of the initial contribution of the property, rather than ongoing contributions … If one party has a house worth $250,000 at the outset, and it appreciates during the relationship to be worth $750,000 the contribution is of a house which at separation is worth $750,000 – not of money worth $250,000.

30. [30]
    Otherwise, this analysis shows that the respondent obtained benefit from the arrangements in that the debt on her motor vehicle was discharged and she will receive, by agreement, the benefit of chattels purchased with the moneys the parties borrowed. While she has made payments against the mortgage, she has had the advantage of the use of the residence for more than two years since the relationship ceased. Her financial circumstances are not quite so good of those of the applicant, but nor were they at the time the relationship started.

31. [31]
    The relationship was, materially here, a very short one. It is immediately striking, however, that the applicant brought into it the property which forms its major asset; at least, he contributed his interest. The respondent’s contribution – some cash (and the recognised contribution involved in the joint borrowing^[17]) – is material, but the disparity is marked. 

32. [32]
    The applicant – denying, of course, any agreement of the kind propounded by the respondent – contends that all of these facts and circumstances dictate that by far the greater part of any proceeds of the sale of the house should be returned to him; indeed, his Counsel argued for 95 per cent. Conversely, the respondent argues for a 50/50 apportionment, consonant with her reliance upon the agreement she reached with the applicant – or, in the alternative, as one fairly reflecting their respective contributions.

33. [33]
    It is compelling that, on any view, the applicant’s contribution was more substantial than that of the respondent. Albeit that the conveyancing transaction was fleeting, it cannot be ignored that the applicant entered the relationship with an interest in the home, which is the only material asset; the respondent acquired an interest in it, but in a way which did not require payment of full value; had a debt discharged; acquired an interest in chattels; and, of course, was provided with a dwelling.

34. [34]
    Any apportionment must, then, recognise the applicant’s greater contribution while not ignoring the fact the respondent understood the transaction in terms which differ from what would be imposed under Part 19. The cases show that in the exercise performed under Part 19 an agreement of that kind will be material, but not determinative^[18].  It can I think be factored into an assessment under the legislation, in a way which reflects justice and equity to the respondent.     

35. [35]
    Doing the best I can with a fair assessment of these various factors which influence a conclusion about what is ‘just and equitable’ under the legislation, an apportionment pursuant to Part 19 of 70 per cent of the net proceeds of sale of the house property to the applicant, and 30 per cent to the respondent would properly reflect the weight to be given to the influencing elements. The larger proportion accords with the male applicant’s greater material contributions but is slightly less than he might have achieved on a strict financial accounting of those contributions, while the smaller proportion is greater than the respondent’s comparative actual financial outlay, to a degree sufficient to reflect her reliance upon her agreement with the applicant about the nature of the transaction.

36. [36]
    Once that conclusion is reached it is but a short step to a determination that a serious injustice would be wrought upon the applicant if he was left to his remedies at law or in equity, and without a resolution under Part 19. There is a significant disparity between the existing legal or equitable position of the parties, and the division of their assets which the legislation here dictates. The applicant has made substantial contributions which would not be fully or adequately acknowledged if the determination of his legal or beneficial interest was left to be resolved outside the legislation^[19]. 

37. [37]
    The matter is, then, one where it is appropriate to declare that the applicant has established the elements necessary to attract the operation of s 287(c) in his favour. It follows that relief should be couched in terms which reflect a division of balance of the proceeds from the sale of the house property in these proportions: 70% to the applicant; and, 30% to the respondent.

38. [38]
    Senior counsel for the applicant included, in his written submissions, a draft order setting out a mechanism for the sale of the house property and the disbursement of the proceeds which, subject to variation to reflect the proportions set out above appears appropriate. I did not however receive any submissions from counsel for the respondent about it. Subject to further submissions, the matter can be resolved instanter, or adjourned to enable the parties to consider the form of the final order.  Submissions about costs may also be necessary.