Second Plaintiff Awarded Equitable Compensation for Breach of Trust

The court declared that the defendants held 50% of the proceeds of a property sale on trust for the second plaintiff and were in breach of that trust. As a result, the defendants were ordered to pay equitable compensation to the second plaintiff.

Supreme Court New South Wales

Medium Neutral Citation: [NAME] bht [NAME] v [NAME] [2022] NSWSC 753 Hearing dates: 6 – 7 June 2022 Date of orders: 8 June 2022 Decision date: 08 June 2022 Jurisdiction: Common Law Before: Schmidt AJ Decision:

1. Declare that the Second and Third Defendants held 50% of the proceeds of sale of xxxxx, being $1,041,122.24, on trust for the Second Plaintiff.

2. Declare that the Second and Third Defendants are in breach of the trust declared in order 1.

3. Order that the Second and Third Defendants pay $1,041,122.24 as equitable compensation to the Second Plaintiff within 14 days.

4. Give liberty to apply by email to my Associate on 3 days' notice.

5. Stand the proceedings stood over to 6 September 2022 at 9.30 am for directions.

6. Direct the parties to confer and file proposed costs orders within 14 days, together with short written submissions, in the event of any disagreement. Catchwords: EQUITY — Trusts and trustees — whether daughter and son-in-law held proceeds of property sale on trust for father/[NAME] — whether daughter and son-in-law were in breach of trustee obligations and duties — breaches of trust established — equitable compensation ordered CIVIL PROCEDURE — where settlement of proceedings is commenced on behalf of a person under legal incapacity — s 76 Civil Procedure Act 2005 (NSW) — where agreement requires the approval of the court — approval granted CIVIL PROCEDURE — Appearance — where leave to withdraw a submitting appearance is belatedly sought — Uniform Civil Procedure Rules 2005 (NSW) — trial by ambush or surprise may result — leave refused Legislation Cited: Civil Procedure Act 2005 (NSW) ss 56, 58, 76 Real Property Act 1900 (NSW) Uniform Civil Procedure Rules 2005 (NSW) rr 6.11, 12.5, 42.1 Cases Cited: [COMPANY] v [NAME] [PHONE] [COMPANY] (in liq) (2000) 202 CLR 588; [2000] HCA 25 Evergreen Tours Pty Ltd v McLaren [2010] NSWSC 1362 [NAME] v His Majesty The Sultan of Brunei [2007] NSWSC 882 Somportex Limited v Philadelphia Chewing Gum Corporation [1968] 3 All ER 26 Category: Principal judgment Parties: [NAME] bht [NAME] (First Plaintiff) [NAME] (Second Plaintiff) [NAME] (First Defendant) [NAME] (Second Defendant) [NAME] (Third Defendant) [COMPANY] (Fourth Defendant) Representation: Counsel: [redacted] A Lim (Plaintiffs)

[NAME] (First Defendant) [NAME] (First Defendant)

[NAME] (Second Defendant)

Solicitors: [redacted] [NAME] (First Defendant) File Number(s): 2021/296987

Judgment 1. [NAME], who are both now aged in their 90's, brought these proceedings, in [NAME]'s case by her tutor, her son [NAME]. They sought orders against their other children, [NAME] and [NAME], and their son-in-law [NAME]. [NAME] had filed a submitting appearance, except as to costs, but the orders sought were opposed by [NAME], who also brought a cross claim against [NAME] and [NAME]. The cross claim was defended by [NAME], but not by [NAME]. 2. [NAME] sought possession of a property at Wahroonga purchased in 2016 with a loan from [COMPANY], the registered mortgagee, which has not been active in the proceedings. An order for rectification of the Real Property Act 1900 (NSW) Register was also sought. She and [NAME] were the registered proprietors of the property, but [NAME] lived there, claiming that she had a 100% beneficial interest in the property. 3. [NAME] held a 2/3 share of the property as tenant in common with [NAME], who held their 1/3 share as joint tenants with each other. [NAME] had also been her mother's attorney under a power of attorney which had been revoked in April 2021. 4. [NAME] also pursued equitable compensation and damages against [NAME] in respect of the [NAME] and another property at St Ives, where [NAME] had lived for a time with [NAME]. He and [NAME] had by then been separated, but not divorced, for many years. At that time [NAME] also held a power of attorney for [NAME]. 5. [NAME] claimed a 50% beneficial interest in the St Ives property which [NAME] had purchased in 2011 and which became the subject of a deed executed by he and [NAME] in October 2013, after he had paid them $600,000 for a share of the property. The property was later sold, but none of the resulting funds were paid to [NAME].

6. On the morning of the hearing a settlement was arrived at with [NAME]. When the hearing commenced [NAME] was present, but she did not seek to be heard. [NAME] suffers from dementia the settlement had to be approved under s 76 of the Civil Procedure Act 2005 (NSW). The hearing was adjourned so that the approval could be sought. After it was granted by Garling J, the hearing resumed, with agreed orders made by consent: "1 Subject to order (2) below, an order pursuant to s.138 of the Real Property Act 1900 (NSW) that the Registrar-General amend the folio of the register maintained for 33/SP82287 so as to record in the First Schedule that [NAME] is the sole registered proprietor of the land. 2 Grant liberty to the Registrar-General to apply to the Court to be heard on order (1), such liberty to be exercised within 3 days of service of these orders on the Registrar-General. 3 The proceedings insofar as they relate to the First Defendant are otherwise dismissed with no order as to costs, to the effect that each party bears its own costs; 4 The First Defendant's Cross Claim is otherwise dismissed with no order as to costs, to the effect that each party bears its own costs; and, 5 The balance of the proceedings stood over to the Trial Judge." 1. [NAME] then pursued the orders which they sought to have made against [NAME]: "1 Declare that the Second and Third Defendants are liable to pay equitable compensation to the First Plaintiff for any sums payable to the Fourth Defendant to discharge any mortgages on 33/SP82287. 2 Declare that the Second and Third Defendants held 50% of the proceeds of sale of xxxxx, being $1,041,122.24, on trust for the Second Plaintiff. 3 Declare that the Second and Third Defendants are in breach of the trust declared in order 2. 4 Order that the Second and Third Defendants pay $1,041,122.24 as equitable compensation to the Second Plaintiff within 14 days. 5 Liberty to apply by email to the Associate to the Trial Judge on 3 days' notice. 6 Proceedings stood over to the Trial Judge after 5 September 2022 for directions."

1. It was at that point that [NAME], who was then unrepresented, sought to be heard. That was opposed.

2. It emerged that while the hearing was adjourned so that Garling J could deal with the application for approval of the settlement, without first seeking leave, [NAME] had filed a handwritten notice of appearance, purportedly for both her and [NAME]. She had given [NAME]'s representatives notice of what she had filed, but had not served the document.

3. Leave to withdraw their submitting appearances was opposed and [NAME]'s authority to file the document on behalf of [NAME] challenged. [NAME] was then given the opportunity, overnight, to file and serve a motion seeking the required leave, together with a supporting affidavit.

4. Overnight the position changed. The application to withdraw [NAME]'s submitting appearance was not pressed. On [NAME]'s account he is not in the jurisdiction. [NAME] did not file a motion, but her affidavit indicated that what she sought to do was seek "the Court's leave to actively participate in these proceedings with a view to concluding them in such a way as to provide funds to [NAME] as previously discussed and negotiated with him."

5. Having invited [NAME] to explain the course she wished to pursue and having adjourned to permit her to show [NAME]'s legal representatives the documents on which she wished to rely, the application to withdraw her submitting appearance was pressed, but still opposed and finally refused, because I was satisfied that justice could not permit it to be granted. The reasons for that conclusion follow.

[NAME]'s application for leave to withdraw the submitting appearance was refused 1. Withdrawal of a submitting appearance requires the Court's leave: rr 6.11 and 12.5 of the Uniform Civil Procedure Rules 2005 (NSW) discussed in Evergreen Tours Pty Ltd v McLaren [2010] NSWSC 1362 at [17]-[19].

2. Such an application must be dealt with in accordance with the requirements of the Civil Procedure Act 2005 (NSW), which specifies in s 56 the overriding purpose of the legislative scheme to be the just quick and cheap resolution of the real issues in the proceedings and in s 58, the requirement that the Court must seek to act in accordance with the dictates of justice.

3. The matters specified in s 58(2)(b) to be taken into account include the degree to which the parties had been timely in their interlocutory activities; any lack of expedition in approaching the proceedings which has arisen from circumstances beyond their control; whether the respective parties have fulfilled their duties; the use that any party has made, or could have made, of any opportunity that has been available in the course of the proceedings; and the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction.

4. These considerations did not favour the grant of the leave [NAME] so belatedly pursued, during the course of the final hearing. The intent of the Rules and the Court's practices is to ensure that parties are given a fair opportunity to advance their cases, while ensuring that litigation is not conducted by ambush or surprise.

5. It was relevant that [NAME]'s submitting appearance was filed when she was legally represented. She said that was at a time when she understood that no action or relief was being sought against her and [NAME]. That was not reflected by the part of the letter received from [NAME]'s solicitors attached to her affidavit, or her decision not to resist the transfer of their interest in the [NAME] to [NAME], which the consent orders achieved. 6. [NAME]'s affidavit also established that she was aware from February 2022 that money orders were being sought against her and still she did not seek to defend [NAME]'s claims. Even at the final hearing she did not dispute that money orders would be made against her. She then wanted to participate, she said, so that "a mutually beneficial settlement" could be arrived at. But that was not what the hearing was concerned with.

7. The proceedings had been commenced in October 2021 and the cross claim filed in December. [NAME]'s submitting appearance, except as to costs, was filed in November 2021, while they were legally represented. The hearing was proceeding on the amended statement of claim filed in February 2022, which had responded to claims advanced by [NAME] in her cross claim and pursued money orders against [NAME]. An amended cross claim had been filed in March 2021, which [NAME] defended. 8. [NAME] and [NAME] had sworn their affidavits in April 2022. They and documents on which [NAME] relied, some produced by [NAME], were contained in 11 volumes of court books. 9. [NAME] had not filed a defence to either claim or any affidavit evidence. But in the week before the hearing [NAME] had appeared before Davies J to explain why she had not produced other documents in answer to a notice to produce which had been served upon her.

10. The possibility of [NAME] being in contempt had then been raised. She then spoke about paying funds into her solicitor's account or into court and producing further documents which she had in her possession. His Honour urged her to obtain advice, on Monday 30 May ordering: "5. By 12pm on Wednesday 1 June 2022, the Second Defendant shall: a. produce to the Court all documents in her possession, custody and power as specified in the Notice to Produce filed 3 May 2022; and b. file and serve an affidavit identifying all attempts to comply with the Notice to Produce and the reasons why any documents or categories of documents within her possession, custody or power are not produced.

6. Leave granted to all parties to inspect documents produced pursuant to [5(a)]." 1. [NAME] clearly did not comply with these orders, even though her affidavit gave an account of steps she had taken to produce some documents.

2. The affidavit also referred to agreements [NAME] claimed that she had reached in the past with [NAME], mediations in which the parties had participated and her ability to transfer funds, if [NAME] had signed mediation agreements.

3. Even accepting that these matters were relevant to what arose to be determined, they were matters which [NAME] could and ought to have advanced earlier, by a timely application to withdraw her submitting appearance, filing a defence and compliance with the Court's orders, including as to the filing and service of evidence and submissions and compliance with notices to produce documents. 4. [NAME]'s position was that she did not wish to pursue an adjournment, file a defence to the amended summons, or put on any affidavit evidence. Instead, she wanted to tender documents and make submissions of which she had given [NAME] no prior notice. While some of the documents on which [NAME] wished to rely had been produced, others had not and one was a document which appeared to include both evidence and submissions, which was unsworn.

5. As it emerged, even at that time [NAME] had still not fully answered the notice to produce. One document was a red ledger which she had maintained. She then had it with her in court, but still had only produced photocopied pages which she considered to be relevant. 6. [NAME]'s affidavit well established that she had long known that money orders would be pursued against her by her elderly unwell parents, but she took no steps to defend their claims. On her own account she knew that she would have to pay [NAME] and had funds available for that purpose. Even when the matters were before Davies J in the week before the hearing [NAME] did not indicate any opposition to orders being made against her or [NAME]. To the contrary, she then raised paying money into her solicitor's account or into court, but she took neither step.

7. That [NAME] had made a deliberate choice to file a submitting appearance at a time when she had legal advice was apparent. She did not depart from that course until during the final hearing, after the consent orders had been made, claiming that she had only then realised that she did not have the right to be heard in opposition to the orders sought. That was not plausible.

8. The course which [NAME] had so pursued thus made difficult the task of persuading the Court to exercise its discretion to grant the leave she had so belatedly sought: [NAME] v His Majesty The Sultan of Brunei [2007] NSWSC 882 at [49] following Somportex Limited v Philadelphia Chewing Gum Corporation [1968] 3 All ER 26.

9. What was advanced established that justice could not permit [NAME] to be relieved of the consequences of the forensic decisions which she had made, before her application to withdraw her submitting appearances only during the midst of the final hearing. I was satisfied that this application, made so that [NAME] could advance a case of which she had given no prior notice, as she ought to have, could not justly be permitted. That conclusion was reinforced by her approach to the notice to produce and the orders made by Davies J.

10. When all of that was considered together with [NAME]'s difficult positions, both of them very elderly and unwell, which also had to be taken into account in determining what the dictates of justice required in all of the circumstances, I was satisfied that the leave [NAME] pressed could not be granted.

Why the orders pressed must be made 1. Even at the time of the hearing investigations into documents recently produced by [NAME] were continuing. In the result it was finally orders 2 to 6 that were pressed and which I am satisfied must be made.

2. At the relevant time [NAME] held powers of attorney for both [NAME]. The evidence established that she and [NAME] purchased the St Ives property in 2011 and in 2013 they entered a deed with [NAME] by which he acquired a 50% beneficial interest in the property. 3. [NAME] had purchased the property for $1,065,000, with borrowings of $822,000. In 2013 [NAME] paid $600,000 for his interest, but [NAME] did not use those funds to repay their borrowings. [NAME] also paid for other improvements to the property. Bank records accord with payments which the deed acknowledges. The Recitals provided: "A. On 23 September 2011, [NAME] purchased the residential property of xxxxx ("the Property") for the sum of $1,065,000. B. On or about September 2013 [NAME] agreed to sell a 50% interest in the property to [NAME] for the sum of $600,000. C. If stamp duty was going to apply to this transaction an independent valuation for stamp duty purposes was obtained from [NAME] who valued the property at $1,075,000. D. In addition to the purchase price, [NAME] agreed to pay 50% of the costs for repairs, renovations and additions (including landscaping) which he requested to make the property suitable for his living needs. E. At the date of this deed the full purchase price has been paid together with some of the additional costs in relation to "D" above. F. The parties have agreed to enter into this Deed with a view to establishing their respective rights, titles and interests in the said property. G. [NAME] acknowledge that the mortgage on the said property is their responsibility."

1. The deed provided that: "1. [NAME] acknowledge that they hold the said property in trust for themselves and [NAME] in equal shares as tenants in common.

2. Each party covenants with the other party that upon the death of one party ("[NAME]") the other party ("[NAME]") may continue to occupy the said property free of any rent or occupation fee so long as the same remains the principal residence of such [NAME] and subject to such [NAME] paying and indemnifying the estate of [NAME] against all outgoings in respect thereof and keeping the said residence and all other improvements thereon in good and tenantable condition and repair.

3. Covenants by either party in this Deed bind that party and that party's executors, administrators and assigns.

4. It is intended that the operation of this Deed should confer (inter alia) benefits on one party which take effect after the death of the other party and consequently this Deed has been executed by each party in testamentary form that is to say in the presence of two (2) witnesses present at the same time." 1. [NAME] sold the property in 2016. But they made no payment to [NAME] for his 50% share of the sale price, $2,150,000, which they retained. I am satisfied that in the result, they held $1,041,22.84 on trust for him, after account was taken of the cost of the sale of some $67,755.52.

2. Equity imposed various obligations and duties on [NAME] as the trustees of those funds. They included getting in the trust property and keeping it distinct from their property, as well as from other property which they held on other trusts, including property held on trust for [NAME]. The deed did not purport to vary or abrogate such obligations and there is no evidence of any other agreement which could have had such a result: [COMPANY] v [NAME] [PHONE] [COMPANY] (in liq) (2000) 202 CLR 588; [2000] HCA 25 at [34]. 3. [NAME]'s evidence also established the claimed breaches of trust. It was in mid-2020 that he unsuccessfully began asking [NAME] for his money, as his bank balances had dwindled. This and the disagreement over the [NAME] led to disputation, family discussions, mediations, other unsuccessful attempts at reaching agreement, the breakdown of his relationship with [NAME] and the revocation of [NAME]'s power of attorney. 4. [NAME] has still not been paid any of his funds; they do not appear to have been kept separate; nor do proper accounts appear to have been kept; nor has he been given a proper response to requests he has made about his funds. [NAME]'s claimed preparedness to pay [NAME] an unspecified sum if he signed mediation agreements, could not have satisfied the obligations which she and [NAME] owed him as trustees.

5. In any event, the evidence also establishes that two payments [NAME] actually made by cheque to [NAME] after the sale in May and June 2021, one for $382,000 and the other for $497,000 were dishonoured. That also establishes the claimed breaches of trust.

6. In the result I am satisfied that the orders pressed must be made.

Costs 1. The usual costs order under r 42.1 of the Uniform Civil Procedure Rules is that costs follow the event. In this case that is a costs order in favour of [NAME]. 2. [NAME] are entitled to be heard on costs, as is [NAME] and [NAME].

Orders 1. For the reasons given I:

6. Direct the parties to confer and file proposed costs orders within 14 days, together with short written submissions, in the event of any disagreement.

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