Byrnes v Byrnes
[2012] NSWSC 1600
•20 December 2012
Supreme Court
New South Wales
Medium Neutral Citation: Byrnes v Byrnes [2012] NSWSC 1600 Hearing dates: 27, 28 September 2012 Decision date: 20 December 2012 Jurisdiction: Equity Division Before: Lindsay J Decision: Judgment for the plaintiff, with detailed orders.
Catchwords: ESTOPPEL - estoppel in pais - equitable estoppel - proprietary estoppel -- plaintiff encouraged to devote his life to work on family farm upon an expectation that he would acquire legal title on his parents death and that he would enjoy its fruits with secure accommodation in the meantime - plaintiff encouraged to leave the property for the common good of the family upon the assurance that he would be paid compensation - equitable compensation granted secured by a charge.
TRUSTS - constructive trust - plaintiff's contribution to family's joint enterprise was removed without attributable blame - defendants will continue to enjoy, to plaintiff's exclusion, the benefit of his contribution to the common weal - equitable compensation granted secured by a charge.Legislation Cited: Civil Procedure Act 2005 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Muschinski v Dodds (1985) 160 CLR 583
Baumgartner v Baumgartner (1987) 164 CLR 137
Dare v Pulham (1982) 148 CLR 658
Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In liq) (1916) 22 CLR 490
Harvey v Harvey (1970) 120 CLR 529
Giumelli v Giumelli (1999) 196 CLR 101
Delaforce v Simpsons-Cook (2010) 78 NSWLR 483Category: Principal judgment Parties: David Christopher Byrnes (Plaintiff)
Gerald Sylvester Byrnes (First Defendant)
Patrick Gerald Byrnes (Second Defendant)
Valma Joyce Byrnes (Third Defendant)
Stacey Louise Byrnes (Fourth Defendant)Representation: Counsel:
M Hall (Plaintiff)
P. Crennan (Defendants)
Solicitors:
JR Watson Legal Services (Plaintiff)
Maloney Anderson Solicitors (Defendants)
File Number(s): 2011/316269
Judgment
INTRODUCTION
These proceedings concern the beneficial ownership of a large family farming property in the far south western region of New South Wales upon which, until 1 January 2010 or thereabouts, the plaintiff (David Byrnes), his father the first defendant (Gerald), his mother the third defendant (Valma) and his brother the second defendant (Patrick) conducted business as pastoralists in partnership with one another. They raised cattle.
Legal title to the property - all the land and water entitlements associated with the land - is held by Gerald as patriarch of the Byrnes family.
The partnership between Gerald, Valma, David and Patrick (formally known as "G. S. Byrnes & Sons") came to an end, by agreement, on or as at 1 January 2010.
The business of the partnership, reconstituted without David, continued unabated after that date.
Since that time, Gerald and Valma have "retired" from the partnership and the business has been taken over by a new partnership constituted by Patrick and his wife, Stacey. That happened about a year or so ago, apparently without notice to David. Stacy was joined as the fourth defendant during the course of the hearing because, with Gerald's acquiescence, she and Patrick have held themselves out as entitled to the farm as property of their partnership. That new partnership is known as the "P. & S. L. Byrnes Partnership".
The agreement pursuant to which the partnership of G. S. Byrnes & Sons came to an end was, literally, one in which David walked away from the farm. He surrendered his interest in the partnership, and he and his wife (Elaena) surrendered possession of the home they had formerly occupied on the property, on a common understanding that David would be compensated for their years of service to the joint enterprise of operating, maintaining and improving, the farm for the benefit of the Byrnes family.
Until that time, the common understanding of all members of the family partnership was that David and Patrick would inherit the property on their father's death. In late 2009 a new understanding emerged, borne of commercial necessity.
The common perception of all members of the partnership of G. S. Byrnes & Sons was that, ravished by drought over too many years, the property could no longer sustain three families. They needed a government subsidy. It was likely to be available only if the partnership was reconstituted. There was no practicable alternative but that David would have to go.
Gerald had acquired the property from an aunt, on terms, between 1950 and 1960 or thereabouts. There he had married and, with Valma, raised a family of six children. Their four girls had all moved away as they approached their majority. Their two boys had each worked on the farm and, in turn (first David, then Patrick), joined their parents in partnership and committed themselves, and their respective wives, to a farming life under the benign, patriarchal direction of Gerald. For everybody, that was always a frugal life and one in which family members both lived in close proximity and shared their pooled resources.
By the turn of the century, or thereabouts, there were three dwellings on the property. Gerald and Valma occupied the homestead. In or about 1989 an old cottage on the property was rebuilt. David, Elaena, and their family (two sons) lived there. In or about 2001 a transportable home was moved onto the property. It has since housed Patrick and his family.
There was an element of self-selection in the process leading to the determination that David and Elaena should leave the property. David had worked on the farm on a full-time vasis for about 35 years, but he had obtained a few qualifications along the way: a bulldozer's licence, a HC truck license, an OH&S certificate and a welding certificate. From time to time he had worked on other properties to supplement his income, not neglecting his duties on the family property. He had acquired a disability (a partial loss of hearing and his sense of smell and the acquisition of a speech impediment) as a result of head injuries in a car accident in 1980. In 1997 Elaena was diagnosed with degenerative multiple sclerosis. With a small inheritance from Elaena's mother's deceased estate, in 2008 they had bought a rental property in Mildura (sold at a loss after their move from the farm due to an inability on the part of David and Elaena to service their mortgage). In 2009 David had taken up service as Elaena's full time carer.
David had earlier wanted to leave the farm, but he had stayed, largely, out of respect for his father's wishes. Rightly or wrongly, he had a growing sense throughout and beyond the 1990s that his father favoured Patrick over him in the making of management decisions. Had he been financially able to do so, he might have jumped but, as events unfolded, he was by circumstances beyond his control pushed from hearth and home.
Nevertheless, his agreement to walk away from the farm was expressly conditioned upon an understanding that he would be compensated. He, and his wife, had given their prime years in service to the property. It owed them. That was, I find, the common understanding of the members of G. S. Byrnes & Sons partnership, as partners and in their personal capacities, in late 2009 and early 2010 including, importantly, Gerald as the holder of legal ownership of the farm.
In December 2009, negotiations for an assessment of the compensation due to David took as their starting point the value of the property (including water entitlements and on allowance for stock), less bank debt secured against the property, and moved towards a figure based upon division of that net amount between the respective interests of the parents and the two boys. David's recollection is that the notional pool was to be divided three ways: one portion for each of the three families living on the property. Gerald's recollection is that the pool was to be divided four ways: a portion for each of the four members of the family partnership. I prefer the evidence of David on this point. The object of discussion within the extended family was to reduce from three to two the number of the families engaged, and living, on the farm. Membership of the partnership by Valma was largely driven by a desire to split income for tax purposes. She did not have a substantive interest, vis-à-vis her sons, independent of that of Gerald.
In any event, negotiations broke down because David and Elaena calculated that the property owed them $700,000 and Gerald figured that the property could afford to pay no more than $300,000 by ten annual instalments of $15,000 and a lump sum of $150,000 after ten years. David would have compromised his claim at $600,000 and, perhaps, have allowed time for payment; but half that amount, spread over a decade or more, was not on. When lawyers become involved, Gerald's side added a requirement that David covenant to make no claims against the deceased estates of his parents.
There were other impediments to finalisation of the family settlement, but the major ones were quantum and the scheduling of instalment payments.
These proceedings were commenced by a statement of claim filed on 4 October 2011, amended on 6 June 2012.
The Amended Statement of Claim asserts entitlements to relief on four alternative bases. First, David seeks orders for a formal winding up of the partnership of G. S. Byrnes & Sons, predicated upon a central contention that the farming property (including water entitlements) was a partnership asset. Secondly, he seeks a declaration that the property is held by Gerald on constructive trusts, more or less for the benefit of himself and Patrick, but reserving a life interest for their parents. Thirdly, he asserts a claim to a quantum meruit for work done and services supplied. Fourthly, he claims "equitable damages".
In presentation at the final hearing, David's claims for relief were more focussed. He sought the aid of equity, essentially, on two alternative bases. First, he sought a formal winding up of the partnership. Secondly, he sought a declaration of a constructive trust, or (preferably) an order for compensation charged against the property, on the basis that the family's joint enterprise had failed: Muschinski v Dodds (1985) 160 CLR 583 at 620; Baumgartner v Baumgartner (1987) 164 CLR 137 at 148.
The essential case advanced on the latter basis was that: (a) David was encouraged by his parents to devote his life to work on the farm, for the common good, on assurances of his parents that he would, with Patrick, inherit it; (b) that was the common intention of all four parties until 2009; and (c) when circumstances changed in 2009 so that David was required, for the common good, to walk away from the farm it was not, and it is not, open to Gerald (or other family members claiming through him), in equity, to retain title to the farm without compensation for David.
The case presented on behalf of David at the final hearing departed, at least in emphasis, from that pleaded in the Amended Statement of Claim. The pleading attributed greater emphasis to the operation of an estoppel, by encouragement or representation, precluding the defendants (in effect) from denying that the farm was partnership property or that it would pass to David and Patrick upon the death of their parents. At the hearing, greater emphasis was attributed to the failure of the family's joint enterprise and the unconscionability of retention of title to the property by Gerald without securing an entitlement of David to compensation.
Although David may have departed from his pleading, the defendants chose to meet him on the case presented at the hearing rather than to seek to hold him to it: Dare v Pulham (1982) 148 CLR 658 at 664, citing Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In liq) (1916) 22 CLR 490 at 517 and 518. To the extent that David may have departed from his pleaded case, nothing turns on the departure. The case presented at the hearing was fairly fought.
THE PROPERTY
The property lying at the centre of these proceedings, "Cavan Station", is located in the local government area of Wentworth.
It comprises 33,720.94 hectares (approximately 83,000 acres) of land on four titles.
Most of the land takes the form of perpetual leases. A small part of it is freehold title.
A "perpetual lease" is a statutory from of land tenure governed, in this case, by the Western Lands Act 1901 (NSW).
The whole of the land is charged in favour of a bank. The parties are agreed that, for the purpose of the proceedings, the amount of that charge can be taken to be $670,000.
The property is used for the grazing of cattle, though it once, many years ago, carried sheep.
It has been in the ownership of the Byrnes Family for at least three generations.
With water entitlements, it had a market value as at 13 September 2012 of $2,545,000 exclusive of GST.
THE FAMILY
Gerald was born on 6 December 1927. He is currently aged 85 years.
Valma was born on 11 July 1931. She is currently 81 years of age.
Gerald and Valma have six adult children: two boys and four girls.
These proceedings focus attention on the competing entitlements of the two boys, actual or prospective, to the family property.
The plaintiff's evidence was that he has had little contact with his sisters since they left the farm. They range in age from about 56 to 43 years.
David was born on 16 September 1959. He is currently aged 53 years. Elaena was born on 27 November 1957, and is now aged 55 years. She and David were married on 10 January 1987.
Patrick was born, with a twin sister, on 8 April 1969. The twins are currently aged 43 years. They are the youngest of the Byrnes' children.
Stacey and Patrick now conduct a farming partnership on the property.
FAMILY PARTNERSHIPS
Between the time of his acquisition of Cavan Station in the 1950s and his retirement after the commencement of these proceedings, Gerald conducted a farming business on the property in one guise or another.
He initially conducted business as a sole trader.
Between a date now lost to memory and 31 December 1978, he conducted the business in partnership with Valma, as "G. S. & V. J. Byrnes".
David joined his parents, as a partner, on or about 1 January 1979. Gerald thereafter superintended conduct of the on-going partnership business, then known as "G. S. Byrne & Son".
Patrick joined the others, in a four way partnership styled "G. S. Byrne & Sons", in the financial year ending 30 June 1989.
That partnership continued until 1 January 2010.
Neither of the partnerships of which David was a member was constituted by a written partnership agreement.
The terms of the family partnerships appear, generally, to have been left to inferences to be drawn from the partners' conduct and annual accounts prepared in aid of tax returns: Cf Harvey v Harvey (1970) 120 CLR 529 at 549-551, 553-555 and 563.
Although Gerald appears clearly enough to have led his family by example and to have dominated the making of operational decisions, the members of "G. S. Byrnes & Sons" were nominally equal partners. David was not, as he may have felt, excluded from all decision-making. He may have been overly deferential towards his parents.
There is little to be gained from a minute analysis of the details of cheques drawn on the partnership bank account. Each member of the partnership appears to have taken drawings according to day-to-day needs, of a frugal lifestyle, on a rural property.
David's recollection is that he never received a wage or similar remuneration for his work on the farm. In substance at least, that is probably correct. Many of his needs, and those of his immediate family, were generally met from "the farm" or the farm account. If he wanted to earn cash money, he turned his hand to shooting, trapping and selling rabbits and foxes; and, with Gerald's acquiescence, he worked on neighbours' properties during quiet times on Cavan Station.
Cavan Station was the focal point for the three households of the Byrnes family resident there.
There was a symbiotic relationship between Gerald's ownership of title to the property and his conduct of farming operations there in partnership with, particularly, his sons. The business could not operate without the land and water entitlements held in Gerald's name. The property could not enure to the benefit of Gerald, or anybody else, without the labour of family members, in conduct of the business. In a real sense, the farm, in all its manifestations, was communal property. In formal terms, it was not, however, property of the partnership.
It was not treated as an asset of the partnership in the partnership accounts.
An apparent contradiction to that is an entry referable to "freehold land & buildings" as a "fixed asset" in the partnership Balance Sheet as at 30 June 1990 and in subsequent years. That entry started at $36,695. In the Balance Sheet as at 30 June 1994 it was recorded as $44,914.00. In the Balance Sheet as at 30 June 1999 it became $46,426.00. In the Balance Sheet as at 30 June 2003 it became $48,911.38. It remained at that figure in a Balance Sheet prepared as at 31 December 2009.
Gerald explains the entry as a reference to the cottage rebuilt on the property for David and Elaena in or about 1989. He notes, without contradiction, that neither he nor the partnership purchased any freehold land at that time.
This explanation draws support from the appearance in the partnership's Balance Sheet as at 30 June 2002 (and in subsequent years) of another entry for a fixed or, as the accounting terminology had become, a "non current" asset (valued at $34,576.49) referable to "House - 1/11/01". This appears to be, as Gerald explains, a reference to the cost of purchasing and relocating Patrick's house on the property.
Neither side of the record has adduced evidence from Neil Matthews, the family's accountant, to explain these entries.
In the absence of any such explanation, and given the circumstances in which David and Patrick were housed on the property, I accept Gerald's explanation.
The partnership was a trading operation, not a partnership intended to hold the capital asset represented by the land registered in Gerald's name.
The property was, I find, made available to the partnership by Gerald by way of licence and as security for the partnership's indebtedness to the bank. That does not mean that Gerald was, or is, free to dispose of it as he will. Not at all. The partnership business was predicated on the availability of the property and the acquiescence of the Byrnes family, as members of a family engaged in a joint enterprise, to deployment of the property in the business.
Any entitlement David has in relation to the property arises from its centrality to the Byrnes family's succession plans, more broadly based than the trading partnership which operated the farming business.
THE FARM AS A JOINT ENTERPRISE
Much of the work undertaken by David on the property would have been directed towards its maintenance and improvement as well as the performance of day-to-day farming operations. I accept that David probably did no more than others of the family in all of this but, equally, I find, he did no less. All were engaged in a joint enterprise with the common understanding that the respective households of Gerald, David and Patrick all would benefit.
Before and after his admission to the partnership, David acted under the supervision of his father and at his father's direction. Both men are by nature taciturn. No other witnesses were cross examined at the final hearing, but one can readily imagine the frugality exhibited by the whole family over many years may have routinely extended to words as well as other resources. Nothing appears ever to have been wasted.
The terms in which David was in 1978 invited to join his parents in partnership illustrate this. "You're going to be a partner from now on", Gerald said; "It's better for tax if you are a partner". Valma also said something indicative of the importance of a tax effective business arrangement. She handed David a piece of paper to sign. By family fiat, he was a member of a partnership. It was a partnership in the service of the larger, joint enterprise of operating, preserving and developing Cavan Station for the next generation of the Byrnes family.
In the years leading to David's departure from Cavan Station in 2010 he was encouraged by both his parents, but particularly Gerald, to believe (and he did both believe and act in reliance upon his belief) that: (a) he had a tangible economic interest in the Byrnes family's ownership of the property, as well as in the success of the farming business conducted in partnership on the property; (b) he would, with Patrick, inherit legal title to the property upon the death of their parents; (c) until the arrival of that day, he and his household would have a home and gainful employment on the property; and (d) he would not be deprived of these benefits without recompense.
Both David and Elaena recall a conversation between David and Gerald shortly after the birth of their first child in 1987. "What's going to happen to Cavan after you're gone?", David asked. "Don't worry", Gerald said, "you'll be taken care of."
Gerald does not recall this conversation but readily agrees that, in 1987, it was his intention that, upon the death of both himself and Valma, Patrick and David would inherit Cavan Station. He does not deny the conversation. I accept that it occurred in the terms recalled by both David and Elaena. It was of vital interest to them, standing on the threshold of their early married life. It was a natural thing for Gerald to have said.
A few years later, as both David and Elaena recall, Valma confirmed to them that "Patrick and David are going to inherit Cavan". Valma does not recall this conversation. She doubts that she would have made such a statement in the presence of Elaena, but she confirms that it accords with her intention at the time. In light of that admitted intention, and the specific recollections of both David and Elanea, I find, notwithstanding Valma's doubt, that she did make the statement attributed to her.
David also recalls that, in about 1993, he was getting restless on Cavan Station and considering a move away. He had under consideration purchase of a dairy farm. In that connection he suggested to Gerald that Gerald "buy him out" so that he and his family could go elsewhere and start their own farming business. His recollection is that Gerald told him, "I would rather than you stay and work on Cavan", adding "I could buy you a fruit block around here". He recalls, further, that Gerald mentioned that he might buy a block to the value of about $300,000.
Nothing come of this proposal, though Gerald confirmed in his evidence that during their discussions at this time he informed David that he was happy to assist David to move off Cavan.
Gerald did not take issue with David's evidence that David had asked that he be "bought out" so that he and his family could strike out on their own.
Nor did he take issue with David's reference to the sum of $300,000 in the context of their discussions about a "buy out". He did, however, identify $300,000 as the approximate amount David had wanted to borrow from the bank to find the purchase of a dairy farm. I am unable to determine whose idea it first was to mention the figure of $300,000; but that that figure was the subject of discussion between father and son is an available inference from a distillation of their evidence. Subsequent discussions between them, in late 2009 and early 2010, suggest that $300,000 is a figure that has fixed itself in Gerald's mind as a measure of David's entitlements vis-à-vis Cavan Station.
David stayed at Cavan as long as he did because, encouraged in his expectations of inheritance of a half share of the property, with security of tenure in the meantime, he perceived it to be in his interest to do so and, without assistance, he could not readily do otherwise. To move off the farm he would have needed to realise his interest - an expectation though it may, in formal terms, have been - in the family property.
The circumstances, and terms, in which David and Elaena were invited in December 2009 to move off Cavan Station confirmed in David's mind - not unreasonably - that he had an accrued entitlement vis-à-vis the property. He did not accept Gerald's quantification of that entitlement at $300,000, payable over a decade to come, but he could not, reasonably, have been expected by any family member to have agreed to take his leave from Cavan Station for less.
In 2009 Cavan Station had been affected by drought for nearly two decades. David's evidence is that the property entered drought in 1990; it was "drought declared" on 15 September 1998; and, although that declaration was cancelled on 15 September 2000, a further declaration was made on 7 January 2003.
For some years before September 2009 the partnership "G. S. Byrnes & Sons" had received a government subsidy, by way of drought relief, under the "Exceptional Circumstances Interest Rate Subsidy" scheme. It was worth about $60,000 a year. It kept the bank at bay. In recent years it had been used to buy groceries. Times were tough.
By a letter dated 16 September 2009 addressed to the partners, the NSW Rural Assistance Authority - responsible for administration of the scheme - declined to continue the subsidy. Gerald had expected such a letter since the middle of the year.
The Authority's reasons were based upon assessments that "[the] farm enterprise has the ability to meet all commitments, operating expenses and meet the living expenses of the family members" and that "[the] enterprise has reasonable equity".
Any assessment that "the farm enterprise" had "reasonable equity" must have been predicated upon an assumption that the land and water entitlements held in Gerald's legal ownership were at all material times, and would remain indefinitely, available for deployment in the business of the partnership. Gerald was content for that assumption to the made. It was an assumption he himself had always made. It was an assumption upon which, to his knowledge, all members of the partnership, and the partnership's bank, as well as the Authority, all conducted their affairs. In practical terms, neither the farm nor the family could have proceeded otherwise. That much is not in dispute. It is common ground.
When the partnership of Patrick and Stacey applied for an Exceptional Circumstances Interest Rate Subsidy in 2011, they, with Gerald's acquiescence, included Cavan Station as an asset of their partnership. Without the farm property, there could be no farming business. Subject to David's entitlement to be "paid out", the expectation of Gerald (and, I infer, Valma) since December 2009 or thereabouts has been that Patrick alone will inherit Cavan Station.That is the tenor of the Wills made by both Gerald and Valma in 2010.
The NSW Rural Assistance Authority's letter dated 16 September 2009 held against the partners three particular facts: first, that David and Elaena had purchased their Mildura investment unit; secondly, that Patrick and Stacey had invested $100,000 in a superannuation scheme; and thirdly, that these investments "off the farm" had been made in a time of drought. Neither investment, in fact, reflected the financial health of Cavan Station. The Mildura unit was funded by Elaena's inheritance from her mother, and a mortgage. The superannuation investment was funded by Stacey's inheritance from the deceased estate of her father. In each case, a silver lining returned to black cloud.
The Authority's refusal to continue the partnership's interest rate subsidy fed concerns of the bank about its perception that the very frugal Byrnes family needed to be more frugal still.
At about the time of receipt of the Authority's letter, Gerald, Patrick, Valma and Stacey met with their bank manager (Paul Langdon) and the Rural Financial Controller (Brian Dodson) who had been assisting the family to navigate the financial consequences of severe draught.
Mr Dodson's services were provided through the "Rural Financial Counselling Service NSW Control West", a service supported by the Australian and NSW Governments. The widespread necessity for, and availability of, counselling services of this character was a sign of the times throughout rural Australia.
At the time of the meeting with the bank, David and Elaena were away from the farm on a holiday long planned.
On or about 10 November 2009, by a letter bearing that date, Mr Dodson lodged (on behalf of all the members of "G. S. Byrnes & Sons" partnership) an appeal against the Rural Assistance Authority's refusal of an interest rate subsidy. It was unsuccessful.
The fact that it was unsuccessful bears upon the perceptions, and the common understanding, of the members of the "G. S. Byrnes & Sons" when they discussed the future of the partnership, and Cavan Station, in late 2009 and early 2010.
The fact that Mr Dodson's letter was written in the terms of it was, with Gerald's knowledge and approval, has independent significance. That is because it included the following statement: "The [farm] enterprise has reasonable equity due solely to the value of the land..."
The lines between characterisation of "Cavan Station" as an asset of the partnership and characterisation of it as an asset of the family were, here, blurred. What is clear, however, is that in 2009 Gerald encouraged, and allowed, all members of his farming partnership (including David) to believe, and to order their affairs on the basis, that David had a present entitlement to a share of the land.
It was with that state of mind that an important meeting took place on 22 December 2009 in the office of the Byrnes family accountant, Neil Matthews. Brian Dodson was present. So too were Gerald, Valma, Patrick, Stacey, David and Elaena. All the defendants were privy to what occurred at the meeting. All had actual knowledge of David's entitlement. Any entitlements they may have to Cavan Station are subject to those of David. They all agreed to his departure from the property on terms agreed at this meeting.
David and Elaena travelled to the meeting under their own steam. The other family members travelled together in the one car.
It is not necessary for me to find, and I do not find, that the others present at the meeting acted in concert against David and Elaena. Nevertheless, the business transacted at the meeting appears to have moved steadily towards a consensus that the future viability of Cavan Station required that the partnership of "G. S. Byrnes & Sons" be wound up; that David and Elaena "move out"; and that, as an integral part of those processes, David be paid compensation in amount calculated by reference to the value of the land, water entitlements and stock, net of bank debt.
In coming to this consensus the family were guided by a realisation, brought home to them by advice from Brian Dodson, that "by the end of the 2009 year something needs to change with the partnership in order to secure the [interest rate] subsidy." The combined finances of all members of the family living on Cavan Station showed resources too large to receive the subsidy and, yet, all members of the family, and their advisers, felt the critical importance to the viability of the property of the subsidy being received.
With the benefit of input from Gerald, Neil Matthews proffered some calculations based upon rough estimates of values. Taking Cavan Station at a value of $20 an acre, the land was roughly valued at about $1.6 million; $20 an acre for 83,000 acres, mathematically, produces $1.66 million. The property's water entitlements were valued at $200,000. An allowance of $200,000 - $300,000 was made for stock. Those figures added up to somewhere between $2 million and $2.1 million, from which bank debt of $670,000 was deducted. The resultant net figure was in the range between $1.33 million and $1.43 million.
Neil Matthews proposed that that net figure be divided by three (referrable to the respective households of Gerald, David and Patrick). Mathematically, that would have produced a payout figure of between $443,333.33 and $476,666.66.
David's recollection is that, by some means, Mr Matthews came up instead with a figure of approximately $300,000 per couple. His reported calculations get closer to that mark if the estimated value of the land at $20 an acre ($1.66 million) is, alone, the subject of reduction for the amount of the bank debt ($670,000). On that basis, the net figure to be divided three ways would have been $990,000. One third of that figure would have been $330,000.
I do not exclude the probability that $300,000 was the subject of discussion, in part, because it was a figure already fixed in Gerald's mind. He was canny enough to have made his own calculations, and he was predisposed to a ten year term for payment out of David.
At all events, Neil Matthew's discussion of a ten year payout of $300,000 invited conversation of a further payout to David at the end of the term: to compensate David for one third of any capital gain in the value of Cavan Station over the ten year period.
The meeting concluded without any final decision as to quantification of the compensation to be paid to David.
What had been agreed, however, was that the partnership of G. S. Byrnes & Sons would be dissolved on 31 December 2009 and that, subject to David's entitlement to compensation, he would be excluded from the partnership thereafter reconstituted to run Cavan Station.
That is what, indeed, did happen.
On 1 January 2010 Valma sought, and obtained, delivery up to her of the cheque book David and Elaena had used to draw on the bank account of G. S. Byrnes & Sons. Thereafter, they had no means to support themselves except for their personal resources.
Gerald would have allowed them, at least for a time, to remain in residence on Cavan Station, but he was adamant that David would be paid no more than $15,000 per annum for 10 years, with a final lump sum of $150,000, or something pitched at that level. He was fixated on a maximum of $300,000 payable over 10 or 11 years.
Exclusion of David and Elaena from the benefits of membership of the Byrnes family partnership has caused them acute hardship since 1 January 2010. They live in a caravan, which they own. Their Mildura investment property had to be sold, at an undervalue, because they could not service their mortgage. They have the residue of Elaena's family inheritance (superannuation entitlements totalling about $70,000 and savings no greater than $30,000 or thereabouts), but not much else. They live on government pensions. Elaena receives a disability pension. David receives a pension as her carer. Their total fornightly income is about $1000.
In recounting these events, I accept the substance of the evidence adduced by David in the form of affidavits sworn by himself and Elaena. No evidence was adduced from any of Brian Dodson, Neil Matthews, Patrick or Stacey. Valma swore an affidavit which joined issue with David on a few topics, but remained silent on the events recounted here. Gerald's affidavit did not take issue with the detailed accounts of David and Elaena. It was only in supplementary oral evidence in chief that he asserted that Neil Matthews had used a divisor of four, not three. There was no cross examination of Elaena or Valma.
Gerald's approach to negotiations with David in and about December 2009 was driven not by considerations of value, but by his perception at that time that $300,000 payable by instalments of "$15,000 per annum for up to ten years with a lump sum of $150,000 after ten years" was "all that the Partnership could bear" without a sale of Cavan Station, which he opposed.
That was the explanation he says that he gave to David and Elaena at a meeting in early January 2010.
Any amount of compensation payable to David for his preparedness to accept a reconstitution of the family partnership without him was necessarily grounded upon the parties' common assumption that David had a present entitlement vis-à-vis Cavan Station. The final accounts for G. S. Byrnes & Sons prepared by Neil Matthews to speak as at 31 December 2009 recorded the partnership as having a negative net worth of $643,021.78. A debit balance of $203,677.39 was recorded in David's capital account.
In the conduct of these proceedings the defendants have implicitly accepted that this amount should not be held against David's account. Their final written submissions included the following passage:
"In relation to the negotiations [conducted in December 2009] it was undisputed [in the evidence adduced at the final hearing] that David and [Elaena] wanted some compensation for leaving, and it was not suggested (nor could it have been) that they should not have it. If their compensation was calculated on the basis of the partnership assets, they would receive nothing... The Station had to be taken into account for any positive figure to be reached... [Emphasis added]"
In my finding, the defendants agreed in December 2009 that the partnership of G. S. Byrnes & Sons be dissolved on 31 December 2009 on a basis that required, and permitted, David to walk away from the partnership without any ongoing liability for partnership debts and with an assurance that he would be paid compensation referable to the value of the farming property net of bank debt.
On that basis, Gerald re-ordered his family's affairs. That much is evident in Valma's demand for delivery up of David's cheque book on 1 January 2010 and in the complementary Wills that Gerald and Valma made in 2010.
It is sufficient to refer to Gerald's Wills.
In a Will dated 7 April 1999 he had appointed David and Patrick as his executors and made the following gift in their favour:
I GIVE DEVISE AND BEQUEATH my interest in land known as "Cavan" and my interest in any partnership of which I shall be a member at the date of my death carried on on "Cavan" or elsewhere to my sons DAVID CHRISTOPHER BYRNES and PATRICK GERALD BYRNES or the survivor of them at my death on condition that the sum of $2000 is paid to each of my daughters alive at my death.
On 9 June 2010 he made a Will predicated upon an assumption that Cavan Station was, at or about that time, to be transferred to Patrick.
When it became apparent that David would not accept the only payout that Gerald was prepared to allow him for walking away from the property, Gerald put a stop to the transfer of the property to Patrick and, instead, made a fresh Will.
That Will, dated 7 October 2010, included the following provision referrable to Cavan Station:
I GIVE DEVISE AND BEQUEATH MY PROPERTY known as "Cavan" Station via Wentworth being the land contained in Perpetual Leases Folio 121/760678, 5642/768541, 6456/760676 and Auto Consol 6489-53 together with my interest in Water Licenses WAL2439 AND WAL2440 to my son PATRICK GERALD BYRNES subject to him paying to my son DAVID CHRISTOPHER BYRNES the sum of THREE HUNDRED THOUSAND DOLLARS ($300,000.00) by eleven (11) instalments, the first of which is payable within six (6) months from the date of my death and thereafter annually. The first ten (10) instalments are in the sum of FIFTEEN THOUSAND DOLLARS ($15,000.00) and the eleventh instalment is in the sum of ONE HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000.00).
In both 2010 Wills Gerald appointed Patrick and one of his daughters as his executors.
In making these Wills, and in his dealings with Cavan Station (on the one hand) and David (on the other), Gerald has proceeded on the basis that he is entitled to act in disregard of any present entitlement David may have vis-à-vis Cavan Station. He has proceeded on the basis that David has no present entitlement, at law or in equity, referrable to the property and that David has no more than the prospect of testamentary provision which lies within his personal, unfettered discretion.
That Gerald has proceeded on this basis appears not only from the terms and timing of the Wills. It appears, also, from Gerald's delivery of Cavan Station into the possession of Patrick and Stacey; his acquiescence in their claiming the property as an asset of their own partnership; and his leadership of the defendants' opposition to David's claims for relief in these proceedings.
With the exclusion of David and Elaena from the benefits of Cavan Station, the business conducted on the property has prospered. In 2011 the farming operations returned a profit for the first time in some years. The defendants have enjoyed the benefit of three years' grace in making payments to or on the account of David. They have prospered at David's expense, in denial of any entitlement he may have to a share of the property and its fruits.
Those facts highlight the sense of injustice that David attaches to Gerald's treatment of him and his family. Having encouraged him to devote his working life to Cavan Station on the basis that he had an interest in it and would in due course acquire legal title to one half of it, and having encouraged him to walk away from the property on an assurance that he would still be looked after, Gerald has left him without any other regular provision than a government pension and he has dealt with Cavan Station unconstrained by earlier given assurances or the family's common understanding of David's entitlements. He has thought it sufficient to address any entitlement David may have referable to Cavan Station by a testamentary provision of $300,000, payable over a decade or so by Patrick, as a condition attaching to a gift of the property to Patrick.
In acting this way Gerald has, to David's detriment, appropriated to himself, for the benefit of himself and family members within his favour, the fruits of David's working life.
The fact that the commercial imperatives of conducting farming operations on Cavan Station compelled a reconstitution of the family partnership brings these proceedings within the principle enunciated in Muschinski v Dodds (1985) 160 CLR 583 at 620 and Baumgartner v Baumgartner (1987) 164 CLR 137 and 148. The substratum of the family's joint enterprise was removed, without attributable blame, in circumstances in which, unless the Court intervenes, the defendants will continue to enjoy, to his exclusion, the benefit of David's contribution to the common weal. In those circumstances, equity can intervene to the extent that it would be unconscionable for the defendants to assert or retain the benefit of "the common weal", Cavan Station.
The same conclusion follows from an analysis of the facts of the case in terms of equitable estoppel, governed by the principles discussed in Giumelli v Giumelli (1999) 196 CLR 101 and Delaforce v Simpsons-Cook (2010) 78 NSWLR 483. Over the course of David's working life Gerald encouraged David to devote his life to working Cavan Station upon an expectation that he would acquire legal title to the property on his parents' death, and that he would enjoy its fruits, with secure accommodation, in the mean time. Then, in December 2009, Gerald encouraged him to walk away from the property, for the common good of the Byrnes family, upon an expectation that he would be paid compensation calculated by reference to the value of Cavan Station. David acted in reliance upon Gerald's assurances. Gerald's conduct since 1 January 2010 demonstrates, to David's detriment, his determination to pick and chose what benefits he allows to David (and when) and what he retains for himself. That conduct is unconscionable. It warrants intervention of the Court in exercise of its equitable jurisdiction.
What measure of relief should be granted David? Sufficient to address the injustice to David of Gerald's unconscionable behaviour. Not more than that. That can best be done by an order for equitable compensation, charged against the title of Cavan Station.
These proceedings do not provide an occasion for consideration of what, if any, entitlements David or members of his immediate family might, in due course, have to family provision relief (under chapter 3 of the Succession Act 2009 (NSW)) in relation to the estates, or any notional estate, of Gerald or Valma. The parties' implicit invitation that I make orders anticipating statutory entitlements David may have cannot be taken up in these proceedings. It would be otherwise had the parties agreed upon terms of a family settlement underpinned by an application for approval (under s 95 of the Succession Act) of a release of family provision rights. That, however, is not what has transpired.
In the formulation of the relief to be granted to David the Court should, prima facie, enforce reasonable expectations that Gerald has encouraged in David: Delaforce v Simpson-Cook (2010) 78 NSWLR 483 at 494 [63]. Those expectations reflect complementary expectations of all the parties to these proceedings in the pooling of their resources for their common good, recognising a practical equivalence in the contributions of David, Patrick and Gerald to the operation, maintenance and development of Cavan Station, and making a broadly equal provision for their respective households, as they themselves endeavoured routinely to do: Baumgartner v Baumgartner (1987) 164 CLR 137 at 147-150.
That might best be done in substantially the same way that the family went about assessing David's entitlements at their meeting with the family accountant on 22 December 2009, allowing for the latest valuation of Cavan Station (including water entitlements, but not stock) at $2,545,000, and deducting from that figure the family's agreed allowance for indebtedness to the bank ($670,000), leaving a raw, net sum of $1,875,000.
That raw, net sum needs to be divided by three and the subject of adjustment.
Subject to adjustment, David's share of Cavan Station should be attributed a notional value of $625,000.
An adjustment should be made for factors not so readily quantifiable. Those factors do not operate in only one direction. First, had the lives of the Brynes family run the course which, before December 2009, they had anticipated, David would have received one half (not one third) of the value of Cavan Station on the deaths of his parents, not ealier. Secondly, had their lives run that course David would have continued to live on, and to work, Cavan Station. Thirdly, had the quantum of David's entitlements been agreed in December 2009 he would probably have allowed Gerald, and Gerald's continuing partners, an opportunity to pay compensation over time (not, of course anything quite so indulgent as a decade) subject to an allowance for interest and the provision of security. Fourthly, with the passage of time since December 2009 the defendants have had breathing space to conduct business on Cavan Station without making payments to David, but without his labour.
Allowing for these factors, I quantify David's entitlement to equitable compensation at $575,000, to be secured by a charge over Cavan Station.
In making that determination I note that the defendants have the advantage of no allowance having been made in David's favour for the value of stock on the property. His entitlement has been measured only against the value of the land and water entitlements comprising Cavan Station. This is a departure from the methodology developed at the parties' meeting on 22 December 2009, but not, I think, a major one. It may be seen as an allowance for the fact that the defendants (or, at least, Patrick and Stacey) have operated the business on Cavan Station, and taken the risk of doing so, since 1 January 2010.
I propose to allow for the amount of $575,000 (the principal sum) to be paid by instalments, subject to accrual of interest (at the rate prescribed by rule 36.7 of the Uniform Civil Procedure Rules 2005 (NSW) for the purpose of s101 of the Civil Procedure Act 2005 (NSW)) after allowing an initial interest free period of slightly more than 3 months for the payment of the principal sum.
Subject to any further order of the Court, I propose to allow for payment of the principal sum ($575,000) by the following instalments:
(a) A first instalment of $200,000 is to be paid on or before 31 March 2013.
(b) A second instalment of $200,000, with accrued interest, is to be paid on or before 30 June 2013, with interest to accrue on that amount (and any unpaid balance of the first instalment) from 31 March 2013.
(c) A final instalment of $175,000 (together with interest accrued since 31 March 2013 on so much of the principal sum as may have remained unpaid from time to time) is to be paid on or before 30 September 2013.
In aid of the charge to be granted over Cavan Station to secure payment of the principal sum, I propose to grant an injunction restraining the defendants from creating, allowing or maintaining, without the prior written consent of David, any prior charge or charges (including the mortgage currently on the title of Cavan Station) securing a sum greater than $1 million in total.
Subject to any further orders of the Court, I propose that liberty be reserved: (a) to the defendants to make an application in these proceedings for an extension of time to pay the principal sum or any part thereof; (b) to David to make an application in these proceedings (under s 103 of the Conveyancing Act 1919 (NSW) or otherwise) for a sale of Cavan Station, to enforce the charge in his favour, in the event of any default in payment of instalments of the sum ordered to be paid to him; and (c) to the parties generally, to argue the question of costs.
Prima facie, upon an application of the general rule that "costs follow the event", the defendants should pay David's costs of the proceedings. Even if that rule be applied, Stacey should be spared the burden of any costs order. The necessity for her joinder became apparent during the course of the final hearing. David had been content to proceed without her joinder prior to that time. She facilitated the conduct of the hearing by submitting to an order for her joinder. David should be left to pursue the other defendants for any costs entitlement he may have.
At the conclusion of the hearing the parties invited the Court to reserve the question of costs. I propose to act on that invitation by reserving to all parties an opportunity (limited in time) to apply for discharge or variation of the costs order which, prima facie, should be made.
If such an application is made, I will consider the question of costs afresh, unconstrained by the fact that an order for costs has been provisionally made. If the parties agree upon the form of a costs order, I will entertain a joint application that such an order be made. If no party seeks, within the time limited for that purpose, to disturb the order for costs provisionally made, it will stand without any need for further consideration by the Court.
I propose to direct that, unless the court otherwise orders, any application by the defendants, jointly or severally, for an extension of time within which to pay the principal sum, or any part thereof, is to be supported by affidavit evidence setting forth the full financial circumstances of the defendants, including evidence as to the availability of external finance to pay out David's entitlements.
The purpose of allowing time for payment of David's entitlement to compensation by instalments, and leaving open an opportunity for variation of the instalment timetable, is to facilitate the making of arrangements for payment of the full mount of the compensation as soon as may be practicable. It is not an invitation to delay. Nor does it attribute greater value to preservation of Cavan Station in ownership of the Byrnes family than payment of compensation to David within a reasonable time. If David cannot be paid the whole of his entitlement within the timetable contemplated by the court's orders, or some modest readjustment of them, an order for sale of the property must, even now, be within the parties' contemplation.
I propose, finally and for the sake of completeness, to grant declaratory relief to confirm that the partnership of G. S. Byrnes & Co was, by agreement, dissolved on 31 December 2009 on the basis that: (a) the continuing partners released David from any liability he might otherwise have had to them jointly or severally or, in so far as they were able, for any partnership debts; and (b) the continuing partners would indemnity him against any liability he might have for debts of the partnership, including indebtedness to be bank.
I make the following orders:
(1) DECLARE that the partnership between the plaintiff David Christopher Byrnes, the first defendant Gerald Sylvester Byrnes, the second defendant Patrick Gerald Byrnes and the third defendant Valma Joyce Byrnes (known as "G. S. Byrnes & Sons") was, by agreement, dissolved on 31 December 2009 on the basis that:
(a) those defendants released the plaintiff from any liability he might otherwise have had to them jointly or severally and, so far as they were able, for any partnership debts; and
(b) the same defendants would indemnify the plaintiff against any liability he might have for debts of the partnership, including any indebtedness to Rural Bank Ltd.
(2) DECLARE that the plaintiff is entitled to equitable compensation, assessed in the sum of $575,000 (with interest payable in accordance with these orders) and charged against the property known as "Cavan Station" in the local government area of Wentworth in the State of New South Wales (being the land contained in Perpetual Leases 121/760678, 5642/768541 and 6456/760676 and Auto Consol 6489-53 together with Water Licences WAL 2439 and WAL 2440), referable to his surrender in favour of the first, second and third defendants of any right, title or interest he might otherwise have had in or in respect of Cavan Station.
(3) ORDER that the first defendant pay to the plaintiff that sum of $575,000 ("the principal sum").
(4) ORDER that no interest is to be payable on the principal sum if the principal sum is paid on or before 31 March 2013.
(5) ORDER that interest is to accrue on the principal sum, or so much of the principal sum as shall from time to time remain unpaid, after 31 March 2013, calculated at the rate prescribed by rule 36.7 of the Uniform Civil Procedure Rules 2005 (NSW) for the purpose of section 101 of the Civil Procedure Act 2005 (NSW).
(6) ORDER, subject to any further order of the Court, that the principal sum may be paid by the following instalments:
(a) A first instalment of $200,000 payable on or before 31 March 2013.
(b) A second instalment of $200,000 payable on or before 30 June 2013, together with any interest accrued on the principal sum to the date of payment of the second instalment.
(c) A final instalment of $175,000 payable on or before 30 September 2013, together with any unpaid interest accrued on the principal sum
(7) ORDER, until the time of payment in full of the principal sum and any interest payable on that sum or until further order of the Court, that the defendants (including the fourth defendant Stacey Louise Byrnes) by themselves, their servants and agents be restrained from creating, allowing or maintaining, without the prior written consent of the plaintiff, any charge or charges against the title of Cavan Station (including the mortgage numbered AA94392 currently registered on the title of Cavan Station in favour of Rural Bank Ltd) securing a sum greater than $1 million in total.
(8) ORDER, subject to any further order of the Court, that liberty be reserved:
(a) to the defendants, to make an application in these proceedings for an extension of time for payment of the principal sum or any part thereof.
(b) to the plaintiff, to make an application in these proceedings (under section 103 of the Conveyancing Act 1919 (NSW) or otherwise) for a sale of Cavan Station, to enforce the charge in his favour, in the event of any default in payment of instalments of the principal sum.
(c) to the parties, generally, to make (by a notice of motion filed no later than 31 January 2013) an application for discharge or variation of the order for costs made in these orders.
(9) DIRECT that, unless the Court otherwise orders, any application by the defendants jointly or severally for an extension of time for payment of the principal sum, or any part thereof, to the plaintiff is to be supported by affidavit evidence setting forth the full financial circumstances of the defendants, including evidence of the availability to the defendants of external finance to pay out the plaintiff's entitlement to compensation.
(10) ORDER, subject to order 8(c) of these orders, that the first, second and third defendants pay the plaintiff's costs of the proceedings, on the ordinary basis, as agreed or assessed.
(11) ORDER that exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.
**********
Decision last updated: 22 January 2013
8
2