Ashton v Pratt

[2013] NSWCA 400

This decision has been amended. Please see the end of the decision for a list of the amendments.

Court of Appeal

New South Wales

Case Title:

Ashton v Pratt

Medium Neutral Citation:

[2013] NSWCA 400

Hearing Date(s):

18 November 2013

Decision Date:

18 November 2013

Before:

Bathurst CJ, McColl JA, Barrett JA

Decision:

1 Order that Indra Heslop-Blochowiak and Xavier Connor Heslop-Kelly by their Tutor Liam Kelly be joined as second and third respondents to the proceedings.
2 Grant leave to the second and third respondents to file a Notice of Cross Appeal in the terms of the Draft Notice of Cross Appeal annexed to the submissions of the second and third respondents dated 13 November 2013.
3 Grant leave to the appellant to amend her notice of appeal to raise the matters referred to in paragraphs 4 and 7 of the Draft Notice of Cross Appeal of the second and third respondents.
4 Direct that on or before 25 November 2013 the second and third respondents:-
(a) file a Statement of Facts and Contentions in support of the matters raised in the Draft Notice of Cross Appeal; and
(b) file any evidence on which it seeks to rely in support of such statement.
5 Direct that on or before 9 December each of the appellant and the first respondent file:-
(a) a reply to the Statement of Facts and Contentions referred to in paragraph 4(a); and
(b) file any evidence in support of such reply.
6 Standover proceedings for directions on 12 December 2013 before McColl JA.
7 Reserve all questions of costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

PRACTICE - parties - joinder - where appellant sought to enforce promise by deceased to create trusts to benefit her children - children not parties at trial - where primary judge found appellant settled that claim among others during deceased's lifetime - where appellant sought to challenge that finding - whether children should be joined on appeal - whether children directly affected by relief sought - whether appellant could properly represent children as potential beneficiaries of trust - where children sought to argue that appellant to deceased's knowledge may have breached fiduciary duties as trustee of chose in action held in trust for children if settlement effective by releasing children's claims - Uniform Civil Procedure Rules 6.24, 51.4

Legislation Cited:

Civil Procedure Act 2005
Conveyancing Act 1919
Supreme Court Act 1970
Uniform Civil Procedure Rules

Cases Cited:

Alexander v Perpetual Trustees WA Ltd [2004] HCA 7; (2004) 216 CLR 109
Coulls v Bagot's Executor & Trustee Co Ltd [1967] HCA 3; (1967) 119 CLR 460
Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101
Hammond v JP Morgan Trust Australia Ltd [2012] NSWCA 295
John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1
News Ltd v Australian Rugby Football League Ltd [1996] FCA 870; (1996) 64 FCR 410
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107
White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd (No 2) [2009] NSWCA 194; (2009) 261 ALR 112
Young v Murphy (1996) 1 VR 279

Category:

Interlocutory applications

Parties:

Indra Heslop-Blochowiak and Xavier Conor Heslop-Kelly by their tutor Liam Kelly - Applicants
Madison Ashton - Appellant
Jeanne Pratt - Respondent

Representation

- Counsel:

Counsel:
J C Hewitt - Applicants
G O'L Reynolds SC, R K Newton and D W Robertson - Appellant
M S Henry SC and J L Roy - Respondent

- Solicitors:

Solicitors:
Beazley Singleton Lawyers - Applicants
David Legal - Appellant
Arnold Bloch Leibler - Respondent

File Number(s):

2012/42742

Decision Under Appeal

- Court / Tribunal:

Supreme Court

- Before:

Brereton J

- Date of Decision: 

16 January 2012

- Citation:

Ashton v Pratt (No 2) [2012] NSWSC 3

- Court File Number(s):

SC 2010/56518

JUDGMENT

1. THE COURT: Madison Ashton, the appellant, appeals from a decision of Brereton J dismissing proceedings she brought against Jeanne Pratt, the respondent, in which the appellant sought, in short, to enforce promises she contended the late Richard Pratt made to her during a conversation in November 2003 (the "November 2003 promises") to confer various pecuniary benefits upon her and, in particular, to settle $2.5 million upon trust for each of her two children (the "trust promise"): Ashton v Pratt (No 2) [2012] NSWSC 3.

2. The primary judge found (at [87]) that the appellant and Mr Pratt had the conversation for which she contended. However his Honour found that the appellant's case failed, relevantly for present purposes, because her claims had been the subject of an accord and satisfaction in February 2005 when she had accepted $100,000 and the transfer of a motor vehicle into her name in full and final satisfaction of all of her claims against Mr Pratt (the "February 2005 release") and, further, that her claims had again been released in November 2005 (the "November 2005 release"): primary judgment (at [90]).

3. In the event the appeal is successful, the appellant seeks a declaration that the November 2003 promises constituted a legally binding contract, a declaration that the respondent is estopped from denying their enforceability, a declaration that no accord and satisfaction occurred with respect to the November 2003 promises, a declaration that an instrument she signed in November 2005 which the primary judge found, in substance, constituted a release of the November 2003 promises was void and of no effect and, in the alternative, an order setting aside that instrument. Finally, the appellant seeks an order that the respondent pay her damages as assessed for breach of contract or, in lieu, assessed as equitable damages.

4. The appeal was listed for hearing on 18 and 19 November 2013. By notice of motion filed on 23 October 2013 the appellant's children, Indra Heslop-Blochowiak and Xavier Conor Heslop-Kelly (the "children"), by their tutor Liam Kelly, sought to be joined as second and third respondents to the appeal. The children sought leave, if joined, to file a notice of cross-appeal. The respondent opposed the joinder application. The appellant did not.

5. On 18 November 2013 after hearing from counsel, the Court made the following orders:

   1 Order that Indra Heslop-Blochowiak and Xavier Connor Heslop-Kelly by their Tutor Liam Kelly be joined as second and third respondents to the proceedings.
   2 Grant leave to the second and third respondents to file a Notice of Cross Appeal in the terms of the Draft Notice of Cross Appeal annexed to the submissions of the second and third respondents dated 13 November 2013.
   3 Grant leave to the appellant to amend her notice of appeal to raise the matters referred to in paragraphs 4 and 7 of the Draft Notice of Cross Appeal of the second and third respondents.
   4 Direct that on or before 25 November 2013 the second and third respondents:-

   (a) file a Statement of Facts and Contentions in support of the matters raised in the Draft Notice of Cross Appeal; and
   (b) file any evidence on which it seeks to rely in support of such statement.

   5 Direct that on or before 9 December each of the appellant and the first respondent file:-

   (a) a reply to the Statement of Facts and Contentions referred to in paragraph 4(a); and
   (b) file any evidence in support of such reply.

   6 Standover proceedings for directions on 12 December 2013 before McColl JA.
   7 Reserve all questions of costs.

6. The Court reserved its reasons for so ordering. These are those reasons.

Submissions on the joinder application

1. Mr J C Hewitt of Counsel, who appeared for the children, submitted that Uniform Civil Procedure Rules ("UCPR") 6.27 entitled them to make the joinder application. He argued that they should be joined as respondents to the appeal because they were directly affected by the relief sought (UCPR 51.4), and/or because their joinder was proper or necessary: UCPR 6.24. The latter rule applies in this Court by virtue of UCPR 51.1(3).

2. Mr Hewitt's primary contention was that the trust promise was a chose in action the appellant held on trust for her children consisting of the right to sue on the trust promise and was one of which Mr Pratt was at all relevant times aware. He submitted that the appellant may not properly represent the children's interests in their entirety on appeal in relation to the trust promise in at least two respects. First, insofar as the relief sought on appeal related to the efficacy of the two releases, because the tutor wished to submit that both releases, if otherwise efficacious, were liable to be rescinded because the appellant entered into them in breach of fiduciary duty to Mr Pratt's knowledge. Secondly, insofar as the primary judge found (at [52]) that if the arrangement between the appellant and Mr Pratt had constituted a contract, it was void as contrary to public policy, the children wished to argue that his Honour ought to have considered that the trust promise was severable from that Mr Pratt made to the appellant in her personal capacity. Thus, even if the latter was contrary to public policy, the trust promise was not.

3. Mr Hewitt also foreshadowed raising two new grounds concerning the efficacy of the asserted releases. The first was that the February 2005 release failed the requirement of writing under s 23C(1)(c) of the Conveyancing Act 1919 (the "Act") because it was not signed. Further, insofar as the primary judge found (at [81], [85] and [90]) that a November 2005 document the appellant signed constituted a release, as well as evidencing her receipt of $50,000 in consideration therefore, the children would argue that the document did not release the trust promise and also failed to meet the requirement of writing in s 23C(1)(c) of the Act because it was not signed by the persons entitled to the equitable interest, that is to say the children, or by their agent "lawfully authorised in writing".

4. Secondly, Mr Hewitt foreshadowed an argument by the children that the February 2005 release was not given for consideration having regard to the primary judge's finding that in February 2005 a Mr Tony Gray (described in the primary judgment (at [15]) as "Mr Pratt's associate") did not deny that Mr Pratt had made the promises: primary judgment at [15], [26], [27].

5. Mr Hewitt also foreshadowed an argument that the February and November 2005 releases were subject to discretionary defences applicable to a claim in respect of the release of equitable rights and, accordingly, were not effective as a matter of discretion having regard to the knowledge of the persons giving up the rights, the uncertainty as to whether the settlements related to the trust promise, the inadequacy of the consideration provided, the injustice that would result from the enforcement of the settlements and the unfairness of the circumstances in which the releases were obtained.

6. The draft notice of cross-appeal the children sought leave to file would formalise the issues outlined in Mr Hewitt's submissions. Mr Hewitt said the children's cross-appeal and submissions on the appeal would rely upon the facts as found by the primary judge as set out in his solicitor's affidavit and his written submissions. Those facts included that in January 2005 the appellant sent Mr Pratt by facsimile a letter in which she outlined the promises he had made "to me and my family" which included "a bequethment [sic, as in original] to my children ..." which the primary judge found (at [23]) was some, albeit not independent, corroboration of the November 2003 conversation. They also included his Honour's acceptance (primary judgment at [15], [26] - [27]) that in February 2005 Mr Gray did not "deny that Richard has promised what he has said to you ...".

7. Mr Hewitt's submissions also addressed arguments in support of the appellant's grounds of appeal to which it is unnecessary to refer for present purposes.

8. Mr M S Henry of Senior Counsel who appeared for the respondent, with Ms J L Roy, opposed the joinder application on the basis that the children were not directly affected by the relief sought in the appeal and, accordingly, were not necessary parties to the proceedings. He also contended that the interests of the administration of justice were not served by joining the children such that the Court should not exercise any discretion to accede to their application. Finally, Mr Henry opposed any extension of time for the children to cross-appeal and submitted that, in any event, they lacked standing to commence proceedings.

9. Mr Henry accepted that if the children's interests were directly affected within the meaning of UCPR 51.4, they must be joined as respondents, although he contended such joinder left room for debate about the ambit of the arguments they could advance. However, he argued that their interest as alleged beneficiaries of the trust promise was indirect. He relied upon the fact that they were strangers to Mr Pratt's promises and were, at best, the alleged beneficial owners of a chose in action of which the appellant was the alleged legal owner and trustee. He submitted that as such, it was not necessary to join the children (UCPR 6.24) because their rights in respect of the chose in action were against the appellant as trustee, not the respondent and that their right, assuming the trust existed, was to compel the appellant to sue the respondent which, in fact, had occurred. Thus, he contended, any dissatisfaction the children may have with the manner in which the appellant had administered the alleged trust might give rise to a claim against the appellant, but did not mean the relief sought in the appeal directly affected them.

10. Secondly, Mr Henry submitted (again, on the assumption the children were not directly affected) that the Court should not exercise its discretion to join the children because to do so would be prejudicial to the respondent and contrary to the overriding purpose prescribed by s 56(1) of the Civil Procedure Act 2005 (the "CP Act"). He outlined the history of the proceedings which were commenced at first instance on 4 March 2010, while the appeal commenced when the appellant filed a notice of intention to appeal on 9 February 2012 followed by a notice of appeal filed on 16 April 2012. He also pointed out that the appeal had been listed for hearing on 17 May 2013, a date vacated by the Court. He contended that the children, whose tutor he submitted, without contradiction, is the appellant's partner, should be taken as having had knowledge of the proceedings since they were commenced at first instance, but had only filed and served the joinder motion three and a half weeks before the appeal hearing and the evidence in support in the middle of the week before the appeal was to be heard on 18 November 2013. He relied on a letter the appellant's solicitors had written to the respondent's solicitors on 21 December 2009 in which they had, inter alia, referred to the trust promise and called for the establishment of a trust fund in the amount of $2.5 million for each child to be managed by the appellant. He complained about the fact that there had been no explanation for the children's delay.

11. Thirdly, Mr Henry argued that there was no reason to permit joinder insofar as the children sought to agitate the same issues as the appellant. Insofar as the children sought to raise issues not raised at trial, he complained that the respondent was prejudiced as she would not be a position to respond to those issues at the hearing of the appeal. He also argued that if the issue of breach of trust on the appellant's part had been raised at trial, the respondent could have explored on an evidentiary basis her state of mind concerning whether the receipt of monies Mr Pratt was proffering in February and November 2005 was in the best interests of the children. He contended that the respondent's decision at the end of the appellant's evidence at trial not to call Mr Gray may have been different if the issues had been different. He also submitted that insofar as rescission of the releases was concerned there was a question as to whether the appellant could have effected restitution at the time of trial.

12. Fourthly, Mr Henry submitted that the Court's appellate jurisdiction did not extend to dealing with issues concerning the existence or non-existence of equitable interests between parties such as the children and the appellant where those issues had not already been the subject of proceedings at first instance: Hammond v JP Morgan Trust Australia Ltd [2012] NSWCA 295 (at [73]) per Meagher JA. He also complained that the exceptional lateness of the application had worked significant prejudice in disrupting the respondent's preparation for the appeal. He referred to UCPR 6.22(b) which enables the Court, if it considers that the joinder of parties might inconvenience or delay the conduct of the proceedings, to make such other order as it thinks fit and submitted that the proper application of that rule meant that the dictates of justice (s 58, CP Act) would be met by dismissing the joinder application with costs.

13. Mr G O'L Reynolds of Senior Counsel, who appeared for the appellant with Mr R K Newton and Mr D W Robertson, flagged that the appellant would wish to adopt the children's submissions concerning s 23C(1)(c) of the Act and the consideration point.

Consideration

1. In our view, there is force in Mr Hewitt's submissions concerning the trust promise being a chose in action the appellant held in trust for the children: Coulls v Bagot's Executor & Trustee Co Ltd [1967] HCA 3; (1967) 119 CLR 460 (at 500 - 501) per Windeyer J; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 (at 118 - 119, 120) per Mason CJ and Wilson J; (at 135) per Brennan J; (at 146 - 148) per Deane J; (at 156) per Dawson J. There is force, too, in his submission that the appellant may not properly represent the children's interests on appeal in that respect, particularly insofar as they wish to argue that any release of that promise constituted a breach of fiduciary duty on her part of which Mr Pratt was aware.

2. Where a court is invited to make, or proposes to make, orders directly affecting the rights or liabilities of a non-party, the non-party is a necessary party and ought to be joined: John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 ("John Alexander") (at [131]). That situation will arise, relevantly, where the orders sought establish or recognise a proprietary interest in a monetary fund, in which circumstances all persons who have or claim an interest in the subject matter are necessary parties because an order in favour of the claimant will, to a corresponding extent, be detrimental to all others who have or claim an interest: John Alexander (at [132]) approving News Ltd v Australian Rugby Football League Ltd [1996] FCA 870; (1996) 64 FCR 410 (at 524 - 525) ("News Ltd").

3. In such circumstances the non-party "is entitled to have the order set aside, and is not limited merely to seeking the favourable exercise of a discretion, whether or not the person in question becomes a party": John Alexander (at [137]).

4. However, prima facie, where proceedings have been commenced by a trustee, it is not necessary to join as a party any of the persons having a beneficial interest under the trust: UCPR 7.9(1) and (2). UCPR 7.9 does not limit the power of the court to order that a party be joined under UCPR 6.24: UCPR 7.9(5). Application of the prima facie rule requires, relevantly, an examination of whether the trustee sufficiently represents the beneficiaries', or potential beneficiaries', interests for the purposes of the proceedings: Alexander v Perpetual Trustees WA Ltd [2004] HCA 7; (2004) 216 CLR 109 (at [52] - [53]) ("Alexander") per Gleeson CJ, Gummow and Hayne JJ.

1. The general position in this respect was explained by Brooking J (JD Phillips and Batt JJ agreeing) in Young v Murphy (1996) 1 VR 279 (at 283) as follows:

   " ...[W]hile the trustee in general sufficiently represents the beneficiaries' interests for the purposes of proceedings to redress a breach of trust, they should be made parties if their interests may not be properly represented by the trustee. If it can be said that for any reason the trustee should not be regarded as a party who will properly represent the interests of all beneficiaries, then he should not be regarded as able to sue without joining any beneficiary. ... The proceedings which the trustee brings may be such as to raise, or be capable of raising, questions between one beneficiary and another or questions between the beneficiaries and himself. In such a case the trustee does not sufficiently represent the interests of the beneficiaries for the purposes of the proceedings. Accordingly, if in the proceedings the trustee seeks the execution or administration of the trust in addition to seeking to have the breach of trust redressed, the beneficiaries will or may be necessary parties, since their interests inter se or their rights against the trustee may have to be determined." (Emphasis added).

2. In our view the children are directly affected by the relief sought on appeal. Orders dismissing the appeal would clearly be detrimental to them. Further, there are respects in which the appellant cannot properly represent their interests, in particular, insofar as their arguments foreshadow complaints about the appellant's discharge of her fiduciary duty to them.

3. Moreover, the respondent seeks to argue that even if the appeal is allowed, any relief should be limited by the Court considering "the circumstances in [the] case to decide in what way the equity can be satisfied": Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 (at [10], [49] - [50]) per Gleeson CJ, McHugh, Gummow and Callinan JJ. The children are, in our view, entitled to be heard on that issue too.

4. It is no answer to the joinder application to contend that the children's cause of action, if any, lies against the appellant. Rather having regard to s 63 of the Supreme Court Act 1970, the children should have been joined as parties to the proceedings at first instance (John Alexander (at [135])) and, absent such joinder, should be joined on appeal. It is also open to the children to raise, as they seek to do, further arguments concerning the strength of the appellant's case: John Alexander (at [134]).

5. In our view Mr Henry's reliance upon Hammond is misplaced. In John Alexander (at [138]) the High Court criticised this court's rejection of Walker Corporation's joinder application, which rejection turned, in part, on the fact that "[i]t was not a party at first instance, and its claim should not be entertained for the first time on appeal": White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd (No 2) [2009] NSWCA 194; (2009) 261 ALR 112 (at [40]). That reasoning, in the High Court's view (John Alexander (at [138])) was erroneous in "treating it as a matter of discretion at all and in treating the question of joinder, rather than the question of setting aside the orders, as decisive." In other words, if the children should have been joined at first instance, the question of the issues they wish to advance is not germane. They are entitled to be joined and have the orders made in their absence set aside. The children do not contend for that outcome, but seek to advance the arguments they would have made, if joined at first instance, on the basis of the facts found by the primary judge.

6. We are also of the view that Hammond is distinguishable. Meagher JA's observation in Hammond was that:

   " ... The appellate jurisdiction of this Court does not extend to dealing with issues concerning the existence or non-existence of equitable interests as between parties where those issues have not already been the subject of proceedings at first instance."

7. We do not understand Meagher JA's observation to establish an axiomatic rule of the nature of that for which the respondent contends. If his Honour's observation were to be so read, it would appear to be contrary to John Alexander to which he had earlier referred (Hammond (at [70])). This is both because, as we have said (at [28]) the High Court held that this Court had erred in dismissing Walker Corporation's joinder application and also because, had it not allowed the principal appeal, the Walker Corporation appeal would have succeeded, and orders for a new trial would have been made: John Alexander (at [162]).

8. Meagher JA's observation was confined to the facts of that case where the claim Mr Hammond sought to agitate concerned his rights against his wife which were not in issue in the first instance proceedings which concerned possession proceedings brought by the respondent to enforce a mortgage the appellant (Mr Hammond's wife) had given. Further, Meagher JA held (at [72]) that the effect of any judgment for possession on the applicant was "only indirect and consequential on the fact that it is given against the appellant as registered proprietor".

9. The children do not seek to pursue rights against the appellant. Rather they seek to argue that the primary judge should have found the trust promise was enforceable against the respondent.

10. Finally, assuming there was room to consider discretionary matters, we would not dismiss the joinder application. There is no doubt that Mr Pratt, and hence his estate, was on notice of the trust promise and the beneficiaries' interest in its performance both by reason of the November 2003 promises and the appellant's January 2005 facsimile as well as the December 2009 solicitor's letter. Accordingly the respondent must bear some responsibility in terms of ensuring the proper constitution of the proceedings below: cf John Alexander (at [116], [140]).

11. In any event, there are clearly cases where the circumstances of delay do not call for an explanation: see John Alexander (at [140]). Such is the case, in our view, where the potential beneficiaries are not sui juris and depend upon others, in particular it might be inferred, the appellant, to enforce their rights. It could not be said that they "knowing of the suit, did not intervene but stood by": cf John Alexander (at [142]). On the children's case, any reliance on the appellant was arguably unlikely to be fulfilled insofar as they seek to contend she may have acted in breach of her fiduciary duty to them. The fact that Mr Kelly consented on 11 November 2013 to act as the children's tutor does not demonstrate any reliance by the children on any knowledge he may have had of the first instance proceedings.

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Amendments

30 Oct 2014 removed code imported for cross references Paragraphs: 28 and 30