Re Estates of Mario Dugac and Mijo Dugac and Mario Dugac and Ankica Dugac v the Official Trustee In Bankruptcy [1987] FCA 24 (6 February 1987)

FEDERAL COURT OF AUSTRALIA

Re: THE ESTATES OF MARIO DUGAC AND MIJO DUGAC and MARIO DUGAC AND ANKICA
DUGAC
And: THE OFFICIAL TRUSTEE IN BANKRUPTCY
No. W508 of 1975

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DIVISION OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Evatt J.

CATCHWORDS

Bankruptcy - property owned by four equal tenants-in-common - Two tenants-in-common made bankrupt - Bankrupts' shares vested in Official Trustee - Partition and sale of property - Improvements of property through capital expenditure of one co-owner - Mortgage repayments, water rates and council rates paid by same co-owner - Trustee liable to contribute to such payments - Whether interest appropriate on such contributions.

Bankruptcy Act 1966, s.31(1)(f)

Re Mijo Dugac and Mario Dugac (Lockhart J, Unreported, Federal Court of Australia, 9 November 1984)

Squire v Rogers (1979) 27 ALR 330

Muschinski v Dodds [1985] HCA 77; (1986) 60 ALJR 52

HEARING

SYDNEY
6:2:1987

Counsel for the Applicants: Mr Campbell

Solicitors for the Applicant: Baker, Love and Geddes, Newcastle

Counsel for the Respondent: Mr Walker

Solicitors for the Respondent: Lobban, McNally & Harney, Sydney

ORDER

That on any partition or sale of the property at 28 Brantwood Street, Sans Souci, the Official Trustee contribute to the applicant, Ankica Dugac:

(i) the sum of $17,442.96 plus interest being one half of

moneys paid by her in respect of council rates and
water rates for the said property from 1977 until 18
September 1986 and mortgage payments in respect of
the mortgage registered on the title of the said
property from 1977 to 31 January 1986;

(ii) the sum of $6,000.00 in respect of improvements made
to the said property by the applicant, Ankica Dugac,
in 1977-78.

That in addition to the amounts in (i) and (ii) above, the
Official Trustee contribute to the applicant, Ankica Dugac,
the said interest calculated at 7.5% p.a. on the moneys
referred to in (i) above on annual rests dated 31 December.

Note: Settlement and entry of orders is dealt with in Order 36

of the Federal Court Rules.

DECISION

On 9 December 1975 Mr Mijo Dugac and his son, Mario, (the bankrupts), then partners carrying on the business of formwork contractors under the name of M & M Formwork, were declared bankrupt, the date of the act of bankruptcy being 22 July 1975. The Official Trustee (the Trustee) was appointed Trustee of their joint and separate estates. Seven creditors lodged proofs of debt in the joint estate of the bankrupts and they were admitted to rank for dividend for a total of $46,522.00. No proofs were lodged in the separate estates of the bankrupts. The bankrupts were discharged from bankruptcy on 9 November 1984, no dividend having been paid to creditors (see unreported judgment, Lockhart J, 9 November 1984).

2. On 9 January 1985 the Trustee wrote to the then discharged bankrupts enquiring whether they wished to purchase from him his equity in a property at 28 Brantwood Street, Sans Souci, which asset had vested in him on the making of the sequestration orders. This led to a dispute between the Trustee and the Dugac family as to whether the Trustee's interest is subject to some charge in favour of Mrs Dugac which dispute has culminated in the present application before the Court.

3. The said property at Sans Souci was purchased as the family home by Mijo Dugac and his wife, Ankica, and their two children, Mario and Maria, in 1972 some two years after the family's arrival from Yugoslavia in July 1970. Each of the four members of the family had an equal quarter share as tenants-in-common. The purchase of the property was subject to a mortgage to Mercantile Credits Limited. This was still the position in December 1975 when Mr Dugac and his son, Mario, were declared bankrupt, so that an asset in each of the bankrupts estate was a one quarter interest in the said property. That is, the Trustee then had a one-half equity in the property.

4. The Trustee's letter of 9 January 1985 indicated that any such offer to purchase the Trustee's equity should be in writing and supported by a valuation by a licensed valuer. The bankrupts through their solicitors replied indicating that before any decision in this regard could be made by them, it would be necessary that the Trustee, on the one hand, and the Dugacs, including Mrs Dugac and the daughter, on the other, agree as to the value of that equity. It was claimed by the Dugacs that the equity vested in the Trustee should be subject to a charge of an amount of money representing the payment by Mrs Dugac of mortgage instalments, water and council rates and insurance in respect of the said property from 1977 (ie after the sequestration orders) up until the date when those discussions were taking place. In addition, it was claimed that Mrs Dugac had expended moneys for improvements to the property in 1976, 1977-78 and 1983, part of which she was entitled to recover from the Trustee's equity in the property.

5. Apparently the family had moved to Newcastle in the latter part of 1977 in circumstances referred to later herein. Thereafter the subject property was let to various tenants up until July 1983.

6. No agreement could be reached between the Trustee and the Dugac family as to what sum (if any) should be credited to Mrs Dugac in respect of all or some of the payments made by her in the event of any sale of the property.

7. The subject property and other properties in the immediate area had for some years been subject to a Department of Main Roads notice of resumption for the proposed southern expressway running up to and over the Captain Cook Bridge spanning the Georges River at Sans Souci. This fact has undoubtedly led to difficulties in finding purchasers for the property. On at least two occasions since 1985, contracts of sale have been entered into in respect of the subject property but neither contracts were exchanged. The Dugacs believe this was the result of the Trustee (who of course had been named as one of the vendors) insisting that such contracts include a term that he be paid half of the deposit lodged with agents by the prospective purchasers. This, so it was claimed, had led to delays which caused the prospective purchasers to withdraw from each of the respective contracts.

8. The Court accepts that in about February 1977 Mijo Dugac believed that a letter from the Trustee to the bankrupts had informed them that he, the Trustee, was considering putting "tenants in half of the house" whilst the Dugac family were to reside in the other half of the premises. Mrs Dugac, who gave her evidence through an interpreter, stated that she believed there was a letter to this effect. Counsel for the applicants called for such a letter which was not produced. The Court accepts that neither Mr or Mrs Dugac were then able to read English to any degree but apparently the daughter who by then had received some education in Australia could do so. The Court accepts that a letter was sent by the Trustee about that time to the bankrupts at their then address at Sans Souci. That letter could well have made reference to the possibility of renting the property and if so what would happen to rents received. This could have led to the mistaken belief of the family especially Mr Dugac that strangers were to become tenants of half their home.

9. On receipt of that letter Mr Mijo Dugac immediately decided that from that moment onwards he would have nothing to do with the house - he would not pay any money towards the repayments of the mortgage or any money towards the rates. Further, it was this letter that triggered Mr Dugac's decision to leave Sans Souci and move the family to Newcastle and to seek work in that area. Shortly after moving to Newcastle, Mrs Dugac decided to rent the subject property and placed it in the hands of L J Hooker Ltd, Agents at its Rockdale office for that purpose.

10. Apparently the Trustee then became aware of Mrs Dugac's proposal to rent the property but at no stage did he claim any portion of the rents nor take any action to prevent the letting of the property.

11. Following the failure of the parties to agree on any amount by which the Trustee's interest in the subject property should be reduced the bankrupts on 19 February 1986 filed an application in their names in No. W508/1975 seeking the following orders:

1. Orders as to the extent of the interest, if any, of the
Official Receiver in the property of the former
Bankrupts at 28 Brantwood Street, Sans Souci.

2. Further or other Orders.

12. The affidavit filed in support of that application was that of Mr Foggo, the bankrupts' then Solicitor of the firm of Baker, Love and Geddes, Newcastle, sworn 14 February 1986.

13. That application was set down for hearing before a Deputy Registrar in Bankruptcy on 18 March 1986 at 9.30 am when Mr A Gruzman of counsel appeared for the bankrupts and Mr Wilson of counsel instructed by Lobban, McNally & Harney appeared for the Trustee. By consent, certain directions were made including an order that the Trustee in Bankruptcy be joined as a respondent to the application and a timetable being set for the filing of affidavits. The matter was then stood over until 13 May 1986.

14. On 13 May 1986 the matter was again mentioned before a Deputy Registrar in Bankruptcy when short minutes of order were filed giving leave to the applicants to file an amended application. A further timetable was set for the filing of affidavits for all parties, the application being stood over till 24 June 1986.

15. On 19 June 1986, an amended application dated 4 June 1986 in the names of Mario and Mijo Dugac was filed. That application, which was made returnable for directions on 24 June 1986, omitting formal parts, reads:

APPLICATION is made to the Court on behalf of MARIO DUGAC and
MIJO DUGAC of 6 Lolita Close, Adamstown Heights for the
following Orders, Declarations and Directions:

1. A declaration that in apportioning rents received by
Ankica Dugac in respect of the property 28 Brantwood
Street, Sans Souci the Official Trustee is liable to
account for half of the moneys expended by Ankica Dugac
in improvements and repairs to the premises prior to and
in the course of their occupation by tenants and a
declaration that Ankica Dugac be entitled to set off
such moneys against the Official Trustee's entitlement
to such rent.

2. A declaration as to the amount of moneys to be set off
by the said Ankica Dugac in accordance with the
declaration sought in paragraph 1 hereof.

3. A declaration that the Official Trustee is liable to
contribute to Ankica Dugac for half of the moneys paid
by her after 9 September, 1975 in respect of council
rates, water rates, insurance payments and payments in
respect of the mortgage registered on the title of the
property 28 Brantwood Street, Sans Souci by Mercantile
Credits Limited together with interest thereon in such
percentage and for such time as the Court deems fit.

4. A declaration as to the amount of moneys referred to in
the declaration sought in paragraph 3 hereof.

5. A declaration that of the moneys quantified in the
declaration sought in paragraph 4 hereof Ankica Dugac is
entitled to set half of those moneys off against any
entitlement of the Official Trustee to any accounting
for rents received in respect of the premises and that
such moneys represent a charge of any share of the
proceeds of any sale of the property to which the
Official Trustee may be entitled.

6. A declaration that of the proceeds of any sale of the
property 28 Brantwood Street, Sans Souci the Official
Trustee is liable to account to Ankica Dugac for half of
the costs of improvements carried out by her to the
extent that the sale value of the property has thereby
been improved and that such moneys represent a charge on
any share of the proceeds of any sale of the property to
which the Official Trustee may be entitled.

7. A declaration as to the amount of the moneys referred to
in paragraph 6 hereof.

8. In the alternative to declarations sought in paragraphs
2, 4 and 7 hereof, an order that the proceedings be
referred to the Registrar for the taking of accounts as
to those moneys and the determination thereof.

9. A declaration that in calculating the moneys in
accordance with the declarations sought in paragraphs 2,
4 and 7 hereof interest is to be added thereto at such
rate and for such time as the Court thinks appropriate.

10. Such further or other orders as the Court thinks
appropriate.

16. On 24 June 1986 the matter was listed before a Deputy Registrar when, after discussions, it was agreed that the application should be amended to include the name of Mrs Dugac as an applicant.

17. Thereafter, after further directions hearings, the matter came on for hearing before the Court as presently constituted on 18 September 1986 when Mr Campbell of Counsel appeared for Mario Dugac and Mrs Ankica Dugac and Mr Walker of Counsel appeared for the Trustee. Mr Campbell informed the Court that Mijo Dugac had died on 16 November 1985. He sought leave (which was granted) to file in Court a further amended application showing the applicants as Mario Dugac and Ankica Dugac. That application is identical with the application filed on 19 June 1986 except that Mrs Ankica Dugac has been substituted for Mijo Dugac as an applicant and a further paragraph, numbered 11, is added, which reads, "(t)his Application is filed by Robert Gordon Foggo on behalf of Mario Dugac and Ankica Dugac".

18. The Court then raised with the parties whether the daughter, Maria, was aware of the application before the Court and whether she in fact should be named either as a joint applicant, or if unwilling to be an applicant, as a second respondent. The Court was informed that the daughter, now Mrs Maria Turkovic, had sworn an affidavit on 4 April 1986 which had been filed herein. In that affidavit she states that,

I had no involvement at all in the property at 28 Brantwood
Street, Sans Souci. The only involvement I did have was
being a part owner.

19. The Court accepts this as meaning that the daughter, Maria Turkovic, the fourth tenant-in-common of the subject property, submits to any orders that the Court may make.

20. Further, Mr Walker pointed out to the Court that strictly Mario Dugac should not be named as an applicant as he then had no interest in the property. His original interest as a tenant-in-common had vested in the Trustee pursuant to the sequestration orders, and remained with the Trustee. But, as the orders sought were stated to be for the benefit of Mrs Dugac only, he raised no objection to the fact that the son was named as an applicant.

21. In addition, Mr Campbell filed in Court an affidavit of Jeffrey Ian McDermid, a Chartered Accountant, sworn 12 May 1986 in which Mr McDermid set out certain calculations of interest made at stated rates on certain payments said to have been made by Mrs Dugac. Mrs Dugac also gave oral evidence and was cross-examined. In addition, Mario Dugac and a Colin Tseris, a registered Valuer, Auctioneer and Licensed Estate Agent, gave oral evidence in the applicants' case. At the conclusion of the applicants' case, Mr Walker indicated that the respondent called no evidence. It is noted that the solicitor for the respondent, Mr Peter John McNally, had in fact filed two affidavits sworn by him on 5 May 1986 and 10 September 1986, together with an affidavit of Kathryn Frances Malouf, an officer of the Attorney-General's Department, Bankruptcy Administration, who had at relevant times been entrusted with the care and management of the bankrupts' estates of Mario Dugac and Mijo Dugac. The contents of these affidavits did not become part of the evidence in the present proceedings.

22. During the course of the hearing, the original of the mortgage over the subject property in favour of Mercantile Credits Limited together with a receipt dated 31 January 1986 for $4758.90 from Mercantile Credits Limited showing the payer as "Dugac" were tendered. This receipt was stated by Mrs Dugac in her evidence to be the receipt for the final payment in respect of the mortgage which had then been paid by her from her own moneys. In addition, a letter dated 17 September 1986 from Arthur Young, Chartered Accountants to the solicitors for the applicants setting out calculations of interest on payments made by Mrs Dugac was tendered.

23. The Court is satisfied that at relevant times Mrs Dugac had substantial moneys of her own. She had a wealthy aunt in Yugoslavia who was very close and had treated her as a daughter. The aunt had remitted various sums of money to her from time to time, including sums as high as $10,000.

24. In the immediate years after her husband and son became bankrupt, Mrs Dugac became an active Director in two building companies, the first being Marijan Constructions Pty Limited and later Helena Constructions Pty Limited. I note that in the reasons for judgment of Lockhart J referred to above in Re Mijo Dugac and Mario Dugac, reference is made to the suggestion then made to the Court of possible interests of the bankrupts in Marijan Constructions Pty Limited and His Honour's statement that he did not think the evidence (there) established that the (bankrupts) had behaved in relation to that company in an untoward or questionable manner. He went on to say: "Nor on the other hand am I satisfied that they have not. I simply do not know".

25. When Mr Campbell opened the applicants' case, he submitted that there were three distinct areas requiring consideration by the Court in determining what, if any, charge in favour of Mrs Dugac should be declared over the Trustee's interest in the subject property in the event of its sale. First, in respect of certain moneys which Mrs Dugac has expended which enhanced the present sale price of the property; secondly, whether she is entitled to set off against any claim which the Trustee might be entitled to make in respect of the rents received by her an amount for the moneys which she had expended to obtain the rental value and thirdly, in respect of the payments of mortgage instalments, council rates, water rates and insurance premiums covering the property. In addition, interest was claimed on the moneys last mentioned.

26. At this stage Mr Walker pointed out to the Court that the Trustee had never been involved in the letting of the subject property and that he had never taken any benefit from such letting. Therefore Mrs Dugac, whom it was clear was the person involved in that enterprise, should in his submission, bear entirely the costs of that enterprise. He went on to state,

For that reason we would hope that evidence about that
enterprise, in so far as income and expenses are concerned,
can be entirely dispensed with in this Court and need not
concern Your Honour - not a matter in other words involving
the bankruptcy. It is only the proprietary interest in the
house which the Official Trustee sees as a crucial matter in
dispute.

27. Mr Campbell then stated, "Well, I think we will accept that poisoned prawn".

28. In his final submissions, Mr Campbell submitted that the case for the applicants showed that between 1976 and 1983 Mrs Dugac had paid for extensive work on the property and that there were but two questions only in issue; first in relation to improvements to the property, what was the amount by which the market price of the property was enhanced by such improvements, and secondly, in relation to mortgage payments, rates and insurance, what was the total plus interest of those payments. Half of both these amounts could then be assessed and declarations made as asked. Dealing first with the payments in respect of rates, mortgage payments and interest, Mr Walker in his final submission, repeated his concessions made at the commencement of the hearing that the Trustee accepted that there was a duty on the Trustee to contribute towards the council and water rates. In respect of the mortgage payments made by Mrs Dugac since the beginning of 1977, he further condeded that, as the Trustee had elected to hold onto the subject property notwithstanding that it was mortgaged, the Trustee must accept that there is, as between the several contributors, a general rate contribution against the Trustee, that rate being 50% of those payments. This, so it was submitted, was not the result of the principles of law applicable to co-owners of real estate referred to in Squire v Rogers (1979) 27 ALR 330 but was the consequence of the fact that Mrs Dugac and the bankrupts were co-contractors in respect of that mortgage.

29. Mr Walker however submitted that no benefit should be extended to Mrs Dugac in respect of payments made by her for insurance premiums as there was no evidence either direct or from which the Court could infer that those sums or any part thereof were paid to cover the bankrupts' interest in the property which interest had vested in the Trustee on sequestration orders being made. The Court determines that the evidence in this respect is such that the applicants have not discharged the onus in respect of such insurance payments and no allowance should be made therefor.

30. The Court accepts that such payments of rates and mortgage repayments were made by Mrs Dugac out of her own moneys or from moneys received by her as rent for the subject property commencing in January 1977. At the conclusion of the case it was conceded by the Trustee that such payments were, in respect of council rates, $3164,18; water and sewerage rates, $1821.75; and mortgage repayments up to the final payment in January 1986, $29,900. Those three amounts total $34,885.93. Mrs Dugac is entitled to half that amount (ie $17,442.96) as a charge against the Trustee's interest in the property. It should be noted that, assuming such rates have been paid by Mrs Dugac since the hearing of the application, such proportion of council and water rates since 18 September 1986 have been and will continue to be until the sale a continuing charge.

31. It is noted that the total claim made by the applicants for two years insurance premiums was $1160. Half that amount (ie $580) would have been the charge if the Court had allowed Mrs Dugac's claim in this regard.

32. Reverting then to the applicants' first submission that Mrs Dugac is entitled to an equity in respect of the moneys for the improvements which are claimed to have enhanced the present sale price of the property. In this respect Mr Campbell relied upon the decision of the Federal Court in Squire v Rogers (supra), particularly that part of the reasons for judgment of Deane J (with whom Forster and Brennan JJ agreed) at p 346 which reads:

As a general rule, capital expenditure upon permanent
improvements to land by one joint owner without the authority
of his co-owner creates a passive equity which attaches to
the land. The joint owner making the improvements is not
entitled to bring proceedings for contribution against his
co-owner. In circumstances where his co-owner (or a
successor in title of his co-owner other than a purchaser for
value without notice) would otherwise unfairly benefit under
an order in equity (including partition or sale of the
property), he is entitled to an allowance for his expenditure
on such improvements to the extent to which they result in
the present enhancement of the value (or the price on sale)
of the land: see, generally, Leigh v Dickeson LR (1884) 15
QBD 60.

His Honour then made reference to other authorities before continuing:

The operation of these principles, on a sale under the
Partition Act, was succinctly stated by A H Simpson CJ in Eq
in Boulter v Boulter (1898) 19 LR (NSW) Eq 135 at 137 in the
following passage: 'Where an owner of an undivided interest
in land spends money in improving the property so that on a
sale under the Partition Act it fetches an enhanced price, a
Court of Equity in dividing the proceeds of sale will not
allow the other co-owners to take their shares of the
increased price without making an allowance for what has been
expended to obtain that increased value: Leigh v Dickinson
(sic). This course of action cannot inflict any injustice on
the other co-owners, for it takes nothing out of their
pockets, it only prevents them putting into their pockets
moneys obtained by the expenditure of another person, unless
they recoup him such expenditure. In no case can the
co-owner who has improved the property obtain more than his
outlay, though such outlay may have trebled the value of the
property. And, on the other hand, the increase in the price
obtained is the limit of what he can receive, though his
actual outlay may be far larger'.

Under this part of the applicants' claim, Mr Campbell submitted there were three periods to be considered, first 1976, when on the evidence a sum of $5000 was said to have been expended, secondly in 1977-78 when it was claimed that a figure of $17,000 was expended making substantial alterations and extensions to the home and again in 1983 when a further sum claimed initially to be $20,000 was expended repairing and reinstating the property after the damage caused by the last tenant of the property.

33. The Court rejects any claim in respect of the moneys paid out in 1976 for the building of a garage and driveway as the evidence in this regard was that all four members of the family contributed to those payments. Some little time before the family moved to Newcastle in the circumstances set out earlier herein, major alterations and extensions to the house had begun. These extensions involved the addition of four rooms having an area of approximately 42 square metres. The rooms were a sun-room, a family utility room, a bedroom and a toilet/laundry facility room. Work on these extensions continued well into 1978, work not being done continually but from time to time, no doubt when Mrs Dugac could afford it.

34. I accept that Mrs Dugac alone spent approximately $17,000 of her moneys on these extensions. Mr Tseris, a registered valuer, was called by the applicants. He estimated that at the time when he gave evidence in September 1986 the replacement value of those particular rooms would be approximately $22,000 with a current market value of $12,000. Mr Walker, in respect of this part of the applicants' claim submitted first that as Mrs Dugac was more readily able to let the property at a higher rent by reasons of these improvements and was thus sufficiently compensated for her outlay she was not entitled to any benefit therefor, and secondly, that it would be unsafe to accept the current market value of $12,000 placed on those improvements by Mr Tseris as it was clear from the cross-examination that he was really making a "guestimate". The Court rejects these submissions of Mr Walker. In my view the extensions carried out were completely independent of any subsequent tenancy. The extensions were and are of a permanent nature which must increase the value of the property and on any sale would bring into consideration the passive equity referred to by Deane J in the passage cited from Squire v Rogers (supra). Again, it should be remembered that if the Trustee had pursued his proportion of the rents received between the years 1979 and 1983, an allowance would more than likely have had to be made to cover his contribution of half of the actual expenses incurred not only in 1977-78 but also in 1983 for the reinstatement of the property after the damage caused by the last tenant which is discussed later herein. See Squire v Rogers (supra) at p 348 where Deane J stated:

She (Miss Rogers the plaintiff in the action, the respondent
on appeal) voluntarily left it in the occupation of the
defendant in the expectation that the defendant would spend
money on improvements and, by so spending it, preserve their
joint leasehold interest in the land by complying with the
covenant requiring the making of improvements. She was aware
of the defendant's activities on the land and the fact that
he was effecting improvements and made no complaint in that
respect. In the circumstances, the plaintiff is not entitled
to a one half share of the rents and profits which the
defendant received in respect of the subject land as a result
of the use of the improvements which he had effected while
denying the defendant's entitlement to an allowance in
respect of their cost. In my view, she is, in the
circumstances, only entitled voluntarily to adopt the benefit
of the improvements by claiming and receiving one-half of any
profit resulting from their use at the price of being liable
to contribute to, or make an allowance in respect of, their
cost over and above the amount included in the restricted
allowance to which the defendant was independently entitled
on partition or sale. If she accepts the benefit of the
profit earned, she must bear her share of the burden of
earning it. The case is of the type referred to by Sir
William Brett MR in Leigh v Dickeson, supra, when he said at
pp 64-5: 'Sometimes money has been expended for the benefit
of another person under such circumstances that an option is
allowed to him to adopt or decline the benefit: in this case,
if he exercises his option to adopt the benefit, he will be
liable to repay the money expended; but if he declines the
benefit he will not be liable'.

35. The Court accepts Mr Tseris' evidence that the current market value of the 1977-78 additions as at September 1986 was $12,000. Accordingly Mrs Dugac is entitled to an equity of $6000 in respect of the moneys expended during that period and that that amount should be a charge against the Trustee's interest on the sale of the property.

36. Turning then to the moneys expended by Mrs Dugac for the repairs and renovations to the home in 1983 after the last tenant had left the property. Evidence shows that this tenant, who left in about July 1983 owing several hundred dollars for rent, had caused extensive damage, not only to the contents but also to the walls, doors and windows of the house. The damage was such that it became impossible to let. Accordingly, extensive repairs and renovations were necessary. These were carried out in the latter part of 1983, the cost thereof (according to Mrs Dugac's affidavit) being $20,000, which she had paid from her own private and separate moneys. The applicants again rely upon the principles referred to in the passage cited from Squire v Rogers (supra) and have asked the Court to allow half the current value of any enhancement of the selling price of the property resulting from those repairs and renovations.

37. The evidence as to the cost of those renovations is very scant. Mrs Dugac had no invoices or receipts for such work. In her affidavit she had estimated such costs to be $20,000. On the face of it, this looks like a round figure given without clear recollection. When tested, it was demonstrated that she had included the cost of buying some new furniture, including a lounge suite to replace her daughter's furniture which had been left in the property when the family moved to Newcastle and which by 1983, after use by the various tenants, was worn and destroyed to such an extent that it was useless. When asked the cost of the furniture bought to replace the damaged furniture, she mentioned figures for various pieces of furniture which totalled $2,300.

38. Mr Tseris who had not seen the property until shortly before giving his evidence in September 1986, was asked to put a current value on the repairs both internal and external claimed by Mrs Dugac to have been carried out in 1983. He indicated that the only way he could do that was to compare the value of another home in an adjacent street which was also subject to the Department of Main Roads resumption and which was in or about September 1986 in a "derelict state" with the subject property as he saw it shortly before September 1986. The description, "derelict state," was the description given by Mrs Dugac in her evidence of the subject property immediately after the last tenant left. In Mr Tseris' opinion, that comparison involved comparing his valuation of $55,000 for the so-called derelict house in the adjacent street with his valuation of $95,000 for the subject property in September 1986. This difference, namely $40,000, could, so it was submitted by Mr Campbell, be of assistance to the Court in enabling it to assess the current market value of the alterations done by Mrs Dugac in 1983.

39. Naturally enough, this comparison was objected to by Mr Walker. But Mr Campbell submitted that the comparison would permit the Court to be more readily satisfied that the amount claimed by Mrs Dugac as having been expended by her on those repairs, namely $17,700 (ie the $20,000 less $2,300 for the value of the furniture) was a proper figure and that accordingly Mrs Dugac was entitled to an equity on partition or sale amounting to half that sum, namely $8,850.

40. Mr Walker on the other hand, submitted that as a matter of law, Mrs Dugac was not entitled to contribution flowing from the 1983 repairs. He argued that the cost of those repairs was directly the result of the letting of the property. Those repairs did nothing more than restore the property to its condition immediately before the property was let. The letting of the property was the enterprise of Mrs Dugac alone, the Trustee having no part of that enterprise. Accordingly the Trustee should not be called upon to meet some alleged passive equity for those repairs. In this regard I reject the applicants' claim, upholding the submissions of Mr Walker. This is not to say that there was a duty on Mrs Dugac to have the property repaired after the last tenant left. That is not the issue. The question here is, having repaired the property, is Mrs Dugac entitled to contribution from the Trustee for half the cost of those repairs. In my view, in the circumstances of this case, she is not.

41. This then leaves for consideration the question of interest on the moneys paid by Mrs Dugac in respect of the council and water rates and the mortgage instalments. The applicants' claim in paragraph 9 of the amended application herein sought interest on the other amounts therein referred to, but in the circumstances of this case a claim for interest is only possible on past expenditure and not on amounts allowed as a present value.

42. It is clear that the Court has a discretion in this regard. Here the applicant relies upon the decision of the High Court in Muschinski v Dodds [1985] HCA 77; (1986) 60 ALJR 52, particularly the judgment of Deane J at p 69 where he states:

In the particular circumstances of the present case where Mrs
Muschinski has claimed the whole beneficial ownership of the
property and no doubt contributed thereby to any delays in
realisation of the property and distribution of the proceeds
of sale, I would make no order allowing interest upon her or
his respective contributions in favour of either party.

43. It is clear from that passage that the Court had the power to order a rate of interest to be paid on contributions owing from one party to another in those circumstances but refused to do so because of delays by the applicant.

44. There are sound reasons that the power to order contribution should also include the power to order interest payments upon that contribution. Money values quickly lose their value through inflation. The benefit given by a Court when ordering one party to pay contributions to another would be greatly diminished if the Court did not in fact maintain the true value of the actual contribution. It is clear that the mortgage on the property was, like all loans, repaid with interest attached. By paying off the loan, Mrs Dugac saved herself and the Trustee from having to pay the mortgagor further interest.

45. Determining an actual interest rate appears to be somewhat arbitrary. Mr Walker submitted that if a rate was to be imposed it should be a low rate because the Trustee has not exercised his rights under the Statute of Limitations to thwart any claim for contribution whatsoever. Further, the Court, when assessing such rate, should include, when weighing the evidence in this regard, the evidence showing that it was not Mrs Dugac's practice to invest her moneys in interest bearing accounts. It is clear, however, that the proportion of such money as expended by Mrs Dugac representing the interest of the other tenant-in-common including that of the bankrupts, which should have been paid by the Trustee, could have earned her throughout a period of up to 10 years, a market rate of interest in any bank account.

46. With some hesitation I have reached the conclusion that the Court should allow Mrs Dugac interest on the sums paid for the council and water rates and the mortgage repayments. Doing the best I can, I consider that a rate of 7.5% p.a. in respect of the 10 years commencing 1977 would be fair and equitable to all parties in the circumstances of this case.

47. Accordingly, declarations should be made that Mrs Dugac is entitled to the following amounts as being her equity on any partition or sale of the subject property, which said amounts should be charged against the Trustee's interest in that property.

In respect of council rates $ 1582.09
In respect of water rates $ 910.87
In respect of mortgage repayments $14950.00
TOTAL $17442.96

together with interest to be calculated at the rate of 7.5% p.a.

48. The Court leaves it to the parties to agree if possible, on such interest which is to be calculated at the stated rate on the council and water rates and mortgage repayments on the basis that such calculations are to be made on yearly rests dated 31 December.

49. In addition to those amounts, there is to be added the sum of $6000 being the value of Mrs Dugac's equity in respect of those additions to the property in 1977-78.

50. The parties have asked the Court to reserve the question of costs until after they have had an opportunity of reading the reasons for judgment herein.