Messy lives and a tangled web

Under the Property (Relationships) Act 1984 (NSW), people who have been in a de facto relationship which has come to an end can apply for an adjustment of their respective property interests. The usual principle is that their affairs should be disentangled in accordance with their respective contributions to property they have each acquired during their relationship. The exact wording is:

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…

and this is to be done “having to regard to”

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 (this is the feminist clause, at least in its genesis):

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 …[paraphrase: a child of the parties (this means both of them) or accepted into their household].

For relationships coming to an end on or after 1 March 2009, this act no longer applies, and different principles will apply under the (Commonwealth) Family Law Act, but there are still plenty of cases in the pipeline where the 1984 act will apply.

As a judge rightly pointed out in a matter where I recently appeared, people can have messy lives. It can often be difficult to work out exactly what the legal basis of their proprietary interests are, not least where they have had their own reasons for muddying the waters. The recent judgment in Whiting v Whiting provides a good example of this. The particular question it poses as I see it is what is the position when, after the relationship comes to an end, one of the parties receives an inheritance which is greater in amount as a result of contributions by the other or even by both of them together during the period of their relationship?

Mr Whiting and Mrs Whiting lived in a de facto relationship from 1968 to 2001. Mrs Whiting had a son from a previous relationship who grew up with them.

Mr Whiting was a builder and, it seems, also a developer. His businesses ran into financial difficulties. That is pretty much par for the course for builders and also for developers. In 1993, the Whitings moved from near Grafton (on the NSW north coast) to Bankstown (a suburb of Sydney) to live with and near Mrs Whiting’s mother, Mrs Holley. Mr Whiting built a second house on Mrs Holley’s block of land there.

In 1998, Mr Whiting went bankrupt as a result of a guarantee he had given for a loan to one of the companies through which he conducted his businesses. He was examined on the application of his trustee in bankruptcy, apparently in an attempt to identify whether his half share (the other half was owned by Mrs Whiting) in WTH, the company through which he had conducted his operations as a builder, was worth anything as a result of the house which had been built on Mrs Holley’s block of land. Mr Whiting said at that time that his [quasi] mother in law had given them somewhere to live so that they wouldn’t have to pay rent. When asked what Mrs Holley had given him in return for building a house on her land, he said “Nothing. Not a thing.” He said that there was no agreement between the company and Mrs Holley in relation to the construction of the house.

That is understandable – it wasn’t in his interests to assert any entitlement which would pass to his trustee in bankruptcy to be divvied up amongst his creditors. Nor was it in Mrs Whiting’s interest that any part of the property then owned by Mrs Holley and likely to pass to her would be subject to such a claim. But it would come back to bite Mr Whiting.

Mr Whiting continued to work as a builder, using WTH (at this stage half owned by his wife and half owned by the trustee in bankruptcy) as a vehicle for this. Mrs Whiting was involved as she was also a shareholder and (it seems) a director, perhaps the only director, and funds received by the company and paid out were banked or dealt with in an account of hers, as well (it would seem) as in account in the name of company. Not all the funds were banked. Mrs Whiting’s signature thus appeared on cheques, but her evidence was to the effect that she had no real knowledge of affairs and acted under the control of Mr Whiting.

In October 1999 Mrs Whiting bought the shares formerly owned by Mr Whiting from the bankruptcy trustee for $75,000. Her cousin (subsequently executrix of Mrs Holley’s estate) Mrs Houghton said that she had lent her this money out of her own (Mrs Houghton’s) own funds, and a written loan agreement had been drawn up by solicitors to record this. Mr Whiting said that this was a sham and the money really came from cash which was kept in a safe in their house, presumably being in part the unbanked funds received by the company which, in effect, Mr Whiting was operating, and otherwise from Mrs Whiting.

If so, this was a sham which Mr Whiting had some part in. In this way he had worked for the company and accumulated funds (when normally as a bankrupt you are required to make contributions over a fairly minimal wage towards paying off your debts) with which he probably got the trustee off his back and Mrs Whiting (but in reality Mr Whiting, so long as the relationship lasted) regained control of his business. In addition, the cash came from takings which were presumably never disclosed in the accounts of WTH or otherwise disclosed to the Taxation Office.

The relationship came to an end. On 25 March 2001 Mrs Holley asked Mr Whiting to leave and he was escorted from the property by the police.

After that, the business of WTH came to an end. Mrs Whiting collected amounts due to the company and presumably paid off the debts; she sold a truck and some other equipment. Any money left over, she kept. She said this was about $23,000.

In 2001 Mr Whiting commenced proceedings against Mrs Whiting for an adjustment of property following the end of their de facto relationship, and against Mrs Holley claiming that she held the property on constructive trust for him in respect of his contribution in relation to building the house and on the basis of various promises he said she had made to him. Mrs Holley was suffering from cancer and obtained an order for an expedited hearing (that is, an order for the matter to be determined more quickly). Justice Bryson dismissed the proceedings on 14 June 2002 because Mr Whiting had not complied with procedural directions. The effect of such a dismissal was simply to bring the proceedings to an end: it did not amount to a judgment in Mrs Whiting’s or Mrs Holley’s favour, though before Mr Whiting could commence fresh proceedings he would need to pay their costs of the dismissed proceedings.

Mrs Whiting died on 1 October 2002. Mrs Whiting inherited the bulk of her mother’s estate. In effect, this was the house, which was sold. Mrs Whiting bought another house with the proceeds and a relatively small mortgage.

You can understand that Mr Whiting may well have felt aggrieved. Whatever arrangement he and his wife had entered into to protect or retrieve his business and the accumulated and ongoing profits of his labours from his bankruptcy led, in the end, to all of those assets, such as they were, belonging to his wife (except, possibly, for some cash – see further below). He had built a house on his quasi-mother-in-law’s land, but his case had been thrown out of court because he wasn’t able to get it ready in time before she died. And now it was Mrs Whiting who ended up receiving whatever increase in the value of the property resulted from that house being built.

In April 2006, Mr Whiting commenced fresh proceedings against Mrs Whiting under the Property Relationships Act. He needed to obtain an extension of time to do this, but that was granted to him. His heart must have sunk when he found out that his case was to be heard by the same judge who had previously thrown his case out, since retired and now serving as an acting judge.

NSW judges are obliged to retire at 72. I am not a fan of the increasing practice to re-appoint them after that on acting commissions. The attraction for the state is that these appointments are cheap because they do not lead to fresh judicial pensions arising and they are for a fixed term so that, if judicial business declines, the state is not left with a judge who potentially must be kept in office until retirement age. There are other questions also about whether such judges have the necessary independence, since clearly the Attorney General need not re-appoint any acting judge whose decisions the government isn’t happy with.

And there is another factor which it is difficult to avoid being blunt about. Justice Bryson is a well-respected judge (he became a judge of appeal before he retired) but even before he went to the Court of Appeal he had a bit of a reputation for grumpiness on the bench. He’s always been prepared to be forthright and to make robust findings of fact. That’s good if he’s going your way but not so good if he’s going against you. These are characteristics which do not tend to diminish with age.

Obviously Mr Whiting’s case had its difficulties. He was caught up in a tangled web, but he was not the only one. After their separation, Mrs Whiting had entered into a number of transactions with her mother, including the sale of her jewellery collection (“the accumulation of many gifts which Mr Whiting had made to her over many years”) to her for $5,000 and subsequent purchase back, which appear highly colourable as attempts to disguise and minimise Mrs Whiting’s assets in order to foil any claim by him. Mr Whiting said the jewellery was worth between $50,000 to $100,000, but Justice Bryson rejected this evidence as Mr Whiting was not an expert valuer of jewellery. All Mr Whiting could have said was how much he paid for it, though obviously that might be less or more than it would now be worth. It’s not clear why he did not attempt to do this, other than the obvious difficulty one might have in giving evidence of such matters, particularly on the hop once the evidence was objected to at trial.

It would have been hard for Mr Whiting to get expert evidence as to the jewellery’s value because at a time when Mrs Whiting knew that Mr Whiting claimed the jewellery was worth, Mrs Whiting said that she had flushed it all down the toilet after “what she seems to have regarded as a disheartening experience at a mediation session.” Justice Bryson didn’t believe this, and found that she had either sold it or still had it.

So there was every reason why Mr Whiting might feel and behave rather combatively. Acting Justice Bryson took a set against him for this very reason. He said:

“Mr Whiting gave me a very poor impression while giving evidence. He gave evidence in a highly combative way, with some expressions of hostility. I do not regard his evidence as reliable.”

The remaining big ticket item in the dispute was whether any part of the enhancement of the value of the the property by reason of the building work undertaken by Mr Whiting or his company, now in Mrs Whiting’s hands, should be considered to be property of the relationship now available to be divided up. If it was property of the relationship, then it would generally then fall to be divided according to what the respective contributions of the parties were to that property, though in the case of such a long standing relationship this would usually be divided fifty-fifty.

Of course, Mrs Whiting received this from her mother after the relationship came to an end, so that usually it would not be considered to be property accumulated during the relationship. Gifts from family members during a relationship are normally credited to the person whose relative made the contribution.

Bryson AJ seems to have considered this question to be determined by whether or not Mr Whiting was entitled as against Mrs Holley to a constructive trust in his favour, so that whatever the extent of that trust, it was really his property before it came to Mrs Whiting. I am not sure if this is really the right approach. The statute requires consideration of “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 ” What about the extent to which Mr Whiting’s efforts increased the value of what Mrs Whiting ultimately inherited?

I also think his Honour overlooked the extent to which the improvement in the value of the house and also the company’s assets arose from the manner in which, as is common, Mr Whiting worked through his company but did not necessarily take payment in full from the company from his work, being content to leave the value of his labour in the company which at first he and his wife, and later he and his wife, owned.

This seems to me to be tied up with the source of the $75,000 with which the trustee was bought out. Here the clincher was the involvement of the cousin, Mrs Houghton, since his Honour wasn’t necessarily going to believe either Mr or Mrs Whiting.

At this stage, the best I can do is to quote from His Honour’s judgment:

21 In October 1999 Mrs Whiting bought the shares formerly owned by Mr Whiting from the bankruptcy trustee Mr Donnelly, in whom the shares had vested upon the bankruptcy. The price paid was $75,000.00. According to the evidence of Mrs Whiting and of Mrs Pam Houghton, her cousin, who was then a bank officer, the $75,000.00 was paid to Mr Donnelly by bank cheque which Mrs Houghton obtained, from her own resources, in an arrangement to lend that amount to Mrs Whiting. The arrangement is evidenced by a written loan agreement, prepared by solicitors.
22 According to Mr Whiting’s case this was not the true source of the $75,000.00 which was paid for the shares. He alleges that Mrs Whiting put money into Mrs Houghton’s control, and into Mrs Houghton’s bank account, by misdirecting funds in several ways and in several different instalments; one of these was by taking money in cash out of a safe in the house at Daphne Avenue which Mr Whiting and Mrs Whiting then occupied. It is not clear whose money this is said to have been: it is hardly likely to have belonged to Mr Whiting himself, in his circumstances as a bankrupt, and if it belonged to WTH it is not Mr Whiting’s business to complain if it was misappropriated, because he did not have any interest in the company at that time. The most probable origin of the funds in the safe were that they arose from work for which WTH was entitled to payment. If one real source of funds to pay for the shares was money out of the safe as Mr Whiting alleges, that would not be a contribution by Mr Whiting to Mrs Whiting’s acquisition of half the shares and consequent control of WTH.
23 I do not accept the account, given by Mr Whiting in paragraph 18.6 of his principal affidavit, according to which Mrs Whiting told him, not that she was to buy shares in WTH but that she had to pay the official trustee’s firm $75,000.000 “because they say they are going to take my mother’s home. I will pay them from the money in the safe and will take the rest out of the business bank account”. In Mr Whiting’s evidence he took $45,000.00 in money from the safe in the house at 19A Daphne Avenue and gave it to Mrs Whiting, and she told him that she and her mother would put the money in Mrs Houghton’s account, “or similar”. He mentioned other sources from which he conjectured money was obtained to pay to Mrs Houghton. I do not believe what he says about these things. I do not believe that he gave approximately $45,000.00 of the money in the safe to Mrs Whiting, and I do not believe that Mrs Whiting received any such sum, or that she put it and other sums into Mrs Houghton’s control, so as to give colour to the $75,000.00 being advanced by Mrs Houghton. Mr Whiting’s narration, which has elements of fantasy, is far outweighed by Mrs Houghton’s evidence: she appeared to me to be a sober and careful witness, a person very unlikely to be constructing a sham transaction, and I find that she was truthful about the origin of the money advanced. An aspect of what Mr Whiting says which I regard as strikingly improbable is Mr Whiting’s claim that he did not know at the time that Mrs Whiting was acquiring the shares in WTH. However this is significant only as to his credibility.
24 I am satisfied and I find that Mrs Whiting bought the shares using money lent to her by Mrs Houghton. I do not doubt the evidence of Mrs Houghton and I regard it as clear that she was the true owner of the money which she advanced.
25 In my finding Mr Whiting’s claim or theory about the true source of the $75,000.00 is luridly improbable. Evidence of Mrs Whiting, and also the evidence of Mrs Houghton, showed that the loan transaction was genuine, and they adhered to their evidence firmly. My confidence that their evidence on these subjects was accurate is not disturbed by what were said to be anomalies in their explanations of some banking transactions from about that time: or by any difficulties in their explaining banking transactions from later times. It is not surprising, and in no way suggests that their evidence on the main subject was fabricated, that they were unable to explain in detail other transactions recorded in their bank accounts about that time: or at later times. It would be unremarkable that cousins with a good relationship had other transactions or that there were other aspects of this transaction which they are unable to explain after 10 years.

I am never happy when a judge purports to determine such matters on demeanour or even on the basis that a witness is otherwise respectable. In my experience, such people are capable of all sorts of things, especially in family disputes. Bank officers are perfectly capable of lying with composure.

Whilst the relationship was subsisting, the obtaining of the shares in WTH by Mrs Whiting was not adverse to Mr Whiting’s interests: as a bankrupt he could hardly have purchased the shares himself and it was likely that it was necessary to give the impression to the trustee that Mrs Houghton was the source of the funds to buy the shares. It is true that it is mystifying that Mr Whiting claims not to have known that Mrs Whiting had purchased the shares, but in the light of the previous hypothesis explored by the trustee that WTH had some interest in Mrs Holley’s property or entitlement to be paid by her, the account that the payment was necessary to prevent the trustee taking Mrs Holley’s house seems quite plausible and I don’t find it particularly improbable that Mr Whiting didn’t understand the exact form of the transaction as opposed to what he said he had been told of its effect or its motivation. He doesn’t seem really to have turned his mind to who owned the other half of WTH at this time, even though he was still conducting his business through it and so allowing it to obtain any profit from that work (subject, that is, to how he dealt with the money in the safe).

As a cousin with good relations with Mrs Whiting and, it seems, Mrs Holley, there is every reason why Mrs Houghton might have got involved with this and now adhere to a version which advantaged Mrs Whiting. There is a strange coincidence between the $45,000 claimed to have been in the safe and the $30,000 said to have been lent by Mrs Houghton to Mrs Holley and the total of $75,000 paid to the trustee. It is not clear how, if ever, Mrs Whiting repaid the $75,000 to Mrs Houghton, though it is clear that they could not explain all the transactions between them. I don’t think Mr Whiting’s claims can be dismissed as “luridly improbable.”

In the end, his Honour disregarded the jewellery, which he held Mrs Whiting had (or its proceeds) and the cash from the safe, which he held (for reasons which he doesn’t really make clear) Mr Whiting had taken. He was left with the following assets of the relationship:

35 The assets at separation which had sufficient value and of which is sufficient is known for notice to be taken of them are these:

All the shares in WTH. These yielded $23,996.53, which Mrs Whiting received.

Furniture — Mrs Whiting has the furniture and I treat it as worth $10,000.

Optus Shares — these yielded $3000 which Mrs Whiting received.

Billiard table — this was sold and Mrs Whiting received $1000.

Kawai Grand Piano — Mrs Whiting has the Piano and I treat it as worth $1000.

1988 Honda Car — Mrs Whiting kept the car and it was worth $5,000.

36 I attribute the total $43,996.53 to the assets which went to Mrs Whiting on separation. This is a very imprecise evaluation.

His Honour is clearly not a musician or even a pianist. The piano was bought in 1989 and Mr Whiting said it was worth $10,000. That seems about right to me. Unless it is in truly terrible condition, it certainly can’t be worth less than seven or eight grand.

To return to the judgment:

38 This is meagre value indeed for a relationship which lasted over 30 years, and very little to fight a three-day lawsuit over, but it is all there is. A great deal was done about property work and earnings during the relationship. Mr Whiting was busy with building and development projects. Mrs Whiting was the main contributor at home and she worked for much of the time. At times there was considerable prosperity, with overseas holidays. Her son was about five years of age when the relationship began and left when he was seventeen. Mr Whiting took the place of a father towards him in many ways, although looking backwards the son is not happy with all his treatment and things ended badly between them. Still Mr Whiting did make a significant contribution at the time. Decades of effort and contribution by both parties produced very little result in terms of property acquired. Each party made large contributions of the kinds mentioned in s 20(1)(a) over the decades, of work and effort and also contributions of the kinds in s 20(1)(b), and there is no way of attributing the small proceeds to one or the other which can improve on equal attribution. The only assets at separation now available are the Grand Piano and some of the furniture. Money proceeds of assets can no longer be traced, but contributed in a general way to Mrs Whiting’s present asset position.
39 The power to order adjustment extends to all property now owned by the parties. Considerations of justice and equity relate primarily to assets at separation. Considerations of justice and equity could lead to a discretionary order for adjustment if they related to property acquired after separation, but only by reference to considerations which relate the acquisition to contributions made during the relationship. In concept contributions made during the relationship could bring about an acquisition after separation, but that has not happened in this case. In concept there can be contributions to welfare after separation, but that has not happened in this case.
40 Unlike what usually happens when proceedings are brought soon after separation, the parties re-established themselves in the five years and more until these proceedings were commenced. The parties’ present assets are available to be the subject of an order for adjustment. In the almost 8 years since separation Mr Whiting has re-established himself in business, has a home and an investment property in which he has minority co-ownership interests in his later relationship with a new partner, and has significant mortgage debts which he has earning capacity to enable him to deal with. Mrs Whiting has had employment most of the time. Mrs Whiting has a home which is mortgaged for an amount which it will be difficult for her to deal with having regard to her relatively modest earning capacity. Mr Whiting is relatively better off than she is. Mrs Whiting’s present asset position is almost wholly attributable to Mrs Holley’s testamentary gift. It is probable and I find that Mr Whiting obtained a large amount of cash at separation, used it to help re-establish himself and has not revealed its existence or value. This strongly disposes me against awarding him any sum: I do not know whether such an adjustment would be just. In a similar way I do not know what value passed to Mrs Whiting in the jewellery; but she is not asking me to award anything to her.
41 In my judgment the Court’s order should require delivery to the plaintiff of the Grand Piano, which is the only significant asset from the relationship now traceable; Mr Whiting values it at $10,000, but this is more than it is worth. No other adjustment should be ordered.
42 This is not a case where either party should have an order for costs.

That does not strike me as entirely fair.

Mrs Whiting gets away with the jewellery because she has it or its proceeds and therefore is not asking to be awarded anything in relation to it, but Mr Whiting has the unknown amount of cash held against him on what to me seems to be pretty flimsy (and certainly totally unarticulated) reasoning. No account has been taken of the extent to which his work contributed to the balance of the proceeds from the company or the value of Mrs Holley’s property when sold which then passed to Mrs Whiting, even if that work should be counted as part of their joint efforts (and maybe this is where the case went off the rails). In other words, I don’t agree with his honour or at least I have considerable doubts on the basis of the reasoning as he sets it out that:

In concept contributions made during the relationship could bring about an acquisition after separation, but that has not happened in this case.

I can’t see how it is at all relevant that other money received by Mrs Whiting can no longer be traced: she is better off by its receipt, even if she has spent it.

To take into consideration their relative financial positions now would be relevant under the Family Law Act now but it is really stretching it to bring it in under the rubric of what is just and equitable under the Property (Relationships) Act.

The problem for Mr Whiting is that the vigour (aka forthrightness) with which Acting Justice Bryson has made adverse conclusions about his credit is likely to be an obstacle to any appeal.

At least he got the grand piano.

One Response to “Messy lives and a tangled web”

  1. skepticlawyer » Law of unintended consequences… Says:

    […] First, there’s the recent case of Whiting v Whiting, which is very messy indeed. […]

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