Trust Claims Rejected in Family Property Dispute

The court dismissed a claimant's claims for an express trust, constructive trust, and proprietary estoppel regarding a family property, finding insufficient evidence of financial detriment or contribution to the property.

Supreme Court New South Wales

Medium Neutral Citation: [NAME] v [NAME] [2020] NSWSC 844 Hearing dates: 29 and 30 June 2020 Date of orders: 30 June 2020 Decision date: 30 June 2020 Jurisdiction: Equity Before: Parker J Decision: See [59] Catchwords: EQUITY – trusts and trustees – express trust – interest in property – family arrangement with plaintiff's in-laws to live with them in property to be purchased by them – no intention to create immediate legally enforceable commitment or interest EQUITY – trusts and trustees – constructive trusts – common intention – no contribution to acquisition of property ESTOPPEL – proprietary estoppel – encouragement – detrimental reliance – no contribution to property – no evidence of financial detriment – plaintiff and her family lived on property at subsidised rate and received a reasonable income from working in the family business Legislation Cited: Conveyancing Act 1919 (NSW), s 23C Cases Cited: Baumgartner v Baumgartner (1987) 164 CLR 137 Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 Muschinski v Dodds (1985)160 CLR 583 [NAME] v Federal Commissioner of Taxation (1963) 109 CLR 9 Peldan v Anderson (2006) 227 CLR 471 Category: Principal judgment Parties: [NAME] (Plaintiff) [NAME] (First Defendant) [COMPANY] (Second Defendant) Representation: Counsel: [redacted] F Maghami (First and Second Defendant)

Solicitors: [redacted] [NAME] (First and Second Defendant) File Number(s): 2017/140780 Publication restriction: Nil

Judgment – EX TEMPORE Revised from transcript; issued 2 July 2020 1. This is a family dispute concerning a property at [NAME] in outer western Sydney. For convenience, and without disrespect, I will refer to the members of the family by their given names.

2. The property is a 40 hectare (100 acre) semi-rural property. It was bought in September 1988 by [NAME] and [NAME], his wife. I will refer to [NAME] as "[NAME]" [NAME], to distinguish him from his son, [NAME]. 3. [NAME] died in December 2017 and ownership of the entire property has now passed by survivorship to [NAME]. [NAME] had two sons, [NAME], to whom I will refer as "[NAME]", and Raymond Gregory ("[NAME]") [NAME]. Both married and had children of their own. [NAME]'s wife was [NAME]. [NAME]'s wife was (and is) [NAME].

4. The family members conducted a business providing chicken [NAME] and immunisation services to poultry farmers. At all relevant times this business was conducted through a company called [COMPANY] ("[NAME]"). After the [NAME] property was purchased, the business was operated from that location.

5. Following the purchase of the [NAME] land, two houses were built on it. Eventually all three couples ([NAME]; [NAME]; and [NAME]) came to live in the two houses. Except for a short period at the beginning, [NAME] lived in one house and [NAME] lived in the other.

6. The three couples appear to have lived happily on the property in this way for more than 25 years. As I have mentioned, both [NAME], and [NAME], had children of their own, and when they arrived they too lived in the houses that their parents were occupying. But in March 2015 [NAME] died suddenly. This left [NAME] as a widow with two children. Unfortunately conflict arose between [NAME] and her late husband's parents and she, together with her children, moved out of the [NAME] property.

Issues for determination 1. In these proceedings [NAME] is the plaintiff. [NAME] is the first defendant and [NAME] is the second defendant. 2. [NAME] claims a declaration that [NAME] holds the [NAME] property (subject to a mortgage on the property in favour of an external lender) as to 50 per cent for herself and 50 per cent for [NAME] (in her own right and as administratrix of her late husband's estate). [NAME] seeks consequential orders for the sale of the property, the payment of external creditors, and the division of the proceeds equally between [NAME] and herself. 3. [NAME] seeks equitable compensation representing half of the net value of the property. According to the evidence before me the property is currently worth about $5.2 million. 4. [NAME] puts her claimed interest on three different doctrinal bases. First, she relies on an express trust. Second, she relies on a common intention constructive trust of the type recognised in Muschinski v Dodds (1985) 160 CLR 583 and Baumgartner v Baumgartner (1987) 164 CLR 137. Third, she claims the interest by way of proprietary estoppel. The claim against [NAME] has not been pursued. 5. [NAME]'s defence to [NAME]'s claim concerning the [NAME] property is essentially factual. Her contention is that the elements of the various doctrines upon which [NAME] relies are not made out. Somewhat surprisingly, no defence based on the statute of frauds (Conveyancing Act 1919 (NSW), s 23C) is advanced to the express trust claim.

Summary and analysis of evidence 1. [NAME] and their sons were a very close family. [NAME], when they were married, chose to be married on 27 December, the date on which their parents married. It was clear from [NAME]'s evidence that she deeply loved both of her sons.

2. The chicken [NAME] business was begun by [NAME] in 1975 and [NAME] became involved in it in 1977. [NAME] was incorporated in July 1982. The company belonged to [NAME] and they were the directors of it.

3. At the time of the events with which I am concerned [NAME] were conducting the business from their home at Greystanes. [NAME] were also employed in the business. 4. [NAME] married in December 1986. At some point after their marriage they bought a house at [NAME] in Western Sydney. Apparently the purchase was funded, in part, with a loan from a bank. The evidence does not identify precisely when [NAME] bought the [NAME] property, and there was no documentary evidence of what it cost and how much was borrowed from the bank.

5. By the second half of 1988, [NAME] were looking to buy a new property with sufficient room for them and for members of their family to live and where they would continue to operate the chicken [NAME] business. They identified the [NAME] property as suitable. The purchase of the property was completed on 30 September 1988. The consideration for the purchase was $265,000. This was financed in part with a mortgage from Westpac Banking Corporation.

6. The Westpac mortgage is in evidence and is dated 26 September 1988. It appears to have been stamped for loan security duty purposes in the amount of $141,000. The balance was paid by [NAME] from their own resources. In order to raise some of the money they sold an investment property which they owned elsewhere in western Sydney.

7. At the time of the purchase the [NAME] property was vacant land. As I have already mentioned, two houses were later built on it. The houses were standard form ones which were selected from a builder's display village. It seems that [NAME] as well as [NAME] were involved in choosing some of the finishings and other building options for the houses.

8. The two houses took about six months to complete. Construction began in mid‑1989 and was completed just before Christmas in that year. At that point [NAME] moved out of the [NAME] property, which they were attempting to sell, and moved into one of the houses. [NAME] married on 27 December in that year. They moved into the other house after their return from their honeymoon in mid‑January 1990. 9. [NAME] completed the sale of the [NAME] property on 4 May 1990. The sale price was $133,500. This was sufficient to discharge the mortgage to the bank but the settlement sheet is not in evidence and, again, there is no documentary evidence of how much was paid, nor was there of how much was owing under the mortgage at that point.

10. It is, however, common ground that [NAME] gave [NAME] a cheque for $40,000 from the proceeds. The nature of that payment is in dispute and I will address it in due course.

11. In December 1990, [NAME] sold their house at Greystanes. At around that time, they moved into the house on the [NAME] property that was occupied by [NAME]. Presumably the location for the chicken [NAME] business was shifted at about the same time.

12. In evidence are further Real Property Act documents identified from a historical search of the [NAME] property. The documents show that in October 1994, the loan from Westpac which had been used to acquire the property was refinanced with a company called [COMPANY]. The mortgage in favour of Limlaw Nominees secured a debt of $420,000. [NAME] guaranteed their parents' liabilities under the loan.

13. Then in November 1996, the property was again refinanced, on this occasion with the Commonwealth Bank of Australia. The loan amount remained $420,000, but there was no guarantee by [NAME]. 14. [NAME] gave evidence in support of her case by affidavit and was cross-examined. Two witnesses were called in the defence case, [NAME] and [NAME]. [NAME] was not cross-examined.

15. The critical factual issue between the parties concerned a conversation which [NAME] said that she and her husband, [NAME], had with his parents in August/September 1988, prior to the purchase of the [NAME] property. 16. [NAME] said that this conversation began by [NAME] asking her and [NAME] whether they would like not to have a mortgage. She said that the conversation continued in the following way: [NAME]: What if we all, all four of us together, bought a block of land of 100 acres and all lived on it together, and which will be yours when [NAME] and I die. … [NAME]: We can all live, and run [NAME] from [the new property]. We can look at display homes to build on the property, one house for us, one for mum and dad [sic]. [NAME] will pay for electricity, water, petrol, and will fund the mortgage. You won't have to worry about a mortgage. The new property will be all of ours and our share will pass to you when we die. Me: But what about our house at [NAME]? [NAME]: Well you would have to sell that house, you won't need it anymore, and the proceeds will be put into the new property. 1. [NAME]'s evidence was that she discussed this proposal with [NAME] and they decided to go ahead with it. She said that if the proposal had not been put forward in this way, she and [NAME] would have stayed at the [NAME] property. 2. [NAME]'s account was quite different. She said that she and [NAME] invited [NAME] to move in with them so that they ([NAME]) could save money on their mortgage. She said that they were experiencing difficulty in making their repayments, but in any event, she was very happy with them coming to live at the [NAME] property because she loved her sons and wanted them close to her. 3. [NAME] denied that [NAME] (or [NAME]) would be under any obligation to work in the family business. She said her attitude had always been that her sons could work in the business if they wished, but were free to work elsewhere. She said they worked in the business because they wanted to. 4. [NAME] also said that the $40,000 that she received was a repayment of money previously advanced by her (or, perhaps, her and [NAME] jointly) to allow [NAME] to buy the [NAME] property. She said it had nothing to do with the acquisition of the [NAME] property, which had taken place more than 18 months previously, and had been entirely funded by her and [NAME].

Express trust 1. Counsel for [NAME] acknowledged that her case stands or falls on accepting her version of the conversation in August/September 1988. Counsel submitted that I should accept [NAME]'s account. He argued that her demeanour was straightforward and she adhered to her account in cross-examination.

2. In the course of final submissions, I pointed out to counsel for [NAME] that at the time of the alleged conversation, [NAME] had not yet purchased the [NAME] property. I suggested that [NAME]'s case really had to be one in the nature of specific performance of an agreement for valuable consideration under which [NAME] were to sell the [NAME] property, and, perhaps, work in the business, in exchange for a half interest in the [NAME] property when acquired by [NAME].

3. But in response, counsel made it clear that his client's case was one which alleged an immediate declaration of trust. Counsel submitted that I should infer that at the time of the conversation, contracts had already been exchanged and accordingly, that [NAME] had rights over the [NAME] property, which could be the subject of such a declaration of trust. Alternatively, he characterised the situation as one of a declaration of trust of future property.

4. The latter analysis has its problems. Future property is not assignable at law. It is assignable in equity but only if consideration is given for the assignment. Strictly speaking the phrase "assignable in equity for consideration" is a type of shorthand. In such cases if consideration is given equity will construe the arrangement as an agreement to assign the property when it is acquired: see [NAME] v Federal Commissioner of Taxation (1963) 109 CLR 9 at 24‑25, approved in Peldan v Anderson (2006) 227 CLR 471 at 482 [27].

5. It is difficult to see how the requirement of consideration could be sidestepped by categorising the transaction as a declaration of trust over future property. But in the view I take of this case it is not necessary to pursue this question any further. 6. [NAME]'s account of the conversation in August/September 1988 has no contemporaneous documentary support. I do not think that trying to make a judgment as to its accuracy based on how [NAME] presented in the witness box more than 30 years after the event is a safe way of proceeding. In any event, I was left with the impression that [NAME] has little or no actual recollection of what took place at the time, and that the conversation as presented in the affidavit is essentially a reconstruction.

7. In my view, the probabilities derived from the objective circumstances, as established by the evidence, are a better guide to the findings which the Court must make. In this regard I think that there are three major difficulties with [NAME]'s account.

8. First, it is inconsistent with [NAME]'s approach to inter-family financial dealings. [NAME] said that she (and by inference, [NAME]) always treated their sons equally. I found this evidence compelling and credible and it was not challenged. It would have been inconsistent with such an approach for [NAME] to have granted an immediate interest to [NAME] in the [NAME] property without making any comparable provision for [NAME].

9. Secondly, at the time of the alleged conversation the parties did not know that the purchase would even proceed or, if it did, what financial arrangements it would entail. Still less were they in a position to predict the course of events over the ensuing decades. They may well have contemplated that [NAME] would continue to work in the business. They may have hoped that he would do so until [NAME] and [NAME] retired, but I accept [NAME]'s evidence that there was never any understanding and certainly no obligation on [NAME] that he would do so.

10. Third, on [NAME]'s own evidence, if any commitment was made it was not an immediate one. On the account of the conversation presented in [NAME]'s affidavit [NAME] would not, in fact, receive half of the property until his parents died. On [NAME]'s own account, therefore, there was no immediately effective declaration of trust.

11. In the circumstances it seems unlikely that the parties would have been contemplating some legally enforceable commitment from each other. In my view it is far more likely that any discussion about the purchase and the future living arrangements at the [NAME] property would have taken place in terms of expectations rather than immediately binding commitments. The parties may have, in a sense, "agreed" that [NAME] would purchase the property, [NAME] would sell the [NAME] property and then they would all live together at [NAME], but it was an agreement only in the sense that the parties had a common plan. It was not an agreement which created any legally enforceable commitments or interests. The express trust claim fails.

Common intention constructive trust 1. I have already concluded that the probabilities favour [NAME]'s account of the 1988 conversation. I have the same view about the $40,000. Indeed, [NAME] conceded in cross‑examination that she was not party to the dealings between [NAME] and his mother in that regard. She was, therefore, not in a position to deny [NAME]'s account.

2. These findings make the recognition of a common intention constructive trust impossible. Such a trust is imposed by equity where property is acquired in the name of one party with contributions in money or in kind from another and in circumstances where it was not intended that the acquiring party would get all of the benefit of the parties' joint contributions. If the venture fails equity intervenes because it is unconscionable for the party holding the legal title to rely on it so as to take all the benefit of the contributions for his or her own.

3. In the present case, on the evidence, the only contributions which were made to the [NAME] property came from [NAME]. On my findings, the payment of $40,000 following the sale of the [NAME] property was probably the repayment of a loan, but, whether that is right or not, on no view was it a contribution to the [NAME] property. By the time the $40,000 was paid in May 1990 the property had been acquired by [NAME] entirely from their own resources and they had also funded the construction of the two houses on it.

4. In my view there is simply no room for the application of the equitable principle which I have described. The common intention constructive trust claim fails.

Proprietary estoppel 1. An essential requirement for the recognition of an equitable interest in property by means of proprietary estoppel is a promise by one party, giving rise to an expectation on the part of the other, that he or she will receive an interest in land. On my findings, no such promise was made in this case.

2. Furthermore, a proprietary estoppel is not enforceable unless the promisee has acted on the promise to his or her detriment. Whether the detriment has been suffered must be judged at the time the promisor seeks to escape from the promise.

3. In this case, as I have already pointed out, the evidence establishes that the whole of the purchase price was paid by [NAME]. There was no detriment from the $40,000 payment, because that amount was not paid on the basis of any expectation that it would give rise to an interest in the property.

4. The evidence established that [NAME] were never required to make any payments by way of rent for their occupation of the house on the [NAME] property, nor were they required to make any payments for electricity, water and other services. Their only contribution was that they paid a share of the costs of the food and other household expenditure for the house which they shared with [NAME]. It was suggested by [NAME] that in fact the costs of services and of other household expenses, together with the mortgage repayments, were met out of income derived from the [NAME]. There is no direct evidence of that, but it seems to me to be immaterial in any event. The fact is that there was no detriment by way of expenditure on the part of [NAME].

5. At an earlier stage of the litigation, it appears to have been suggested that both [NAME] were underpaid by [NAME] for the work which they did. As I have indicated, a claim against [NAME] was not pursued. In any event, the evidence before me established that [NAME] was always paid by [NAME], and paid generously. In 2015, he was earning $120,000 per annum, and it appears that his salary was always around that value, taking the impact of inflation into account. 6. [NAME] conceded that between 1993 and 2009 she only worked intermittently in the business and was paid for the work that she did. From 2009 onwards, she too received a weekly wage or salary payment. Although there was some dispute about whether she was paid for work done prior to 1993, I do not think that the resolution of that dispute is of any significance in resolving the claims in this case.

7. Counsel for [NAME] argued that [NAME] had given up their interest in the [NAME] property, and that this of itself represented a detriment. In a sense this is correct. But for the purposes of proprietary estoppel, detriment must be assessed on the overall balance as at 2015. There is no evidence that [NAME] sold the [NAME] property for less than it was worth. Nor is there any evidence that their occupation of the [NAME] property had cost them anything in terms of foregone financial opportunities. Indeed, as I have pointed out, they appear to have lived at [NAME] on a subsidised basis.

8. When [NAME] died, the couple had no savings of any substance. The evidence suggested that this was because [NAME] had a gambling problem, and any surplus which was generated from his wage was gambled away. I am not sure that at the end of the evidence there was any real dispute about this. But in any event, it does not matter. The point is that neither [NAME] nor [NAME] has any complaint against [NAME] for their financial circumstances, which could be recognised as some sort of detriment for the purpose of proprietary estoppel. The proprietary estoppel claim also fails.

Conclusions and orders 1. For the reasons I have given, [NAME]'s claim fails and must be dismissed. As I have mentioned, the claim against [NAME] was not pursued and it too must be dismissed.

Accordingly, there will be judgment for both defendants in the proceedings. I will hear the parties on costs. [Parties addressed on costs]

1. It is agreed between the parties that as between [NAME] and [NAME] should be ordered to pay costs on the ordinary basis. Counsel for [NAME] sought an order that [NAME] pay the costs of the claim against [NAME] on an indemnity basis. Counsel contended that the claim has always been a hopeless one, as was shown by its abandonment at the hearing. Counsel argued that the claim was so devoid of substance that it should attract an award of indemnity costs under the principles discussed in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233-234.

2. In my view, this is not such a case. I think it would be unfortunate if the Court's powers to award costs on an indemnity basis were to be exercised in such a way as to dissuade parties, once they reach trial, from making sensible alterations to their case or even abandonments of parts of it.

3. I have not been asked to go back to the beginning of the claim for the purpose of determining whether the claim against [NAME] was always hopeless. On an application like this, it would be undesirable to do so. Furthermore, making a separate indemnity costs order in favour of [NAME] would be likely only to lead to increasing the complexity of the assessment process, and probably would be unlikely to make a great deal of difference given that most of the costs are likely to have been incurred, even if [NAME] had not been joined.

4.

In all the circumstances, I am not prepared to make an indemnity costs order concerning the claim against [NAME] as sought. The orders of the Court are:

1. Judgment for the first and second defendants.

2. Order that the plaintiff pay the first and second defendants' costs.

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