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E Co [a pseudonym] v Q [a pseudonym] (No 4)

E Co [a pseudonym] v Q [a pseudonym] (No 4)

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Case Copied 18 April 2019 85 min read

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Supreme Court

New South Wales

Medium Neutral Citation: E Co [a pseudonym] v Q [a pseudonym] (No 4) [2019] NSWSC 429
Hearing dates: 19-23 November 2018; 10-13 December 2018
Decision date: 18 April 2019
Jurisdiction: Common Law
Before: Ward CJ in Eq
Decision:
(1) Direct the parties to notify my associate within 7 days of any further anonymisation sought of these reasons for judgment and as to any amendment sought to the proposed orders to correct any arithmetical errors or so as better to implement the relief contemplated in these reasons.
(2) Reserve the question of costs of the proceedings to be dealt with following the filing of final submissions on costs and/or any oral hearing on costs that may be considered appropriate.

Catchwords:
CIVIL PROCEDURE — Hearings — reopened hearing on question of relief –– whether making good of the plaintiffs’ expectations would be inequitably harsh in all the circumstances –– whether imposition of conditions of the kind proposed in the principal judgment would be financially ruinous for the parties –– whether capital gains tax liability flowing from the relief granted would render the relief otherwise proposed to be granted wholly disproportionate or out of all proportion to the detriment suffered
ESTOPPEL – Proprietary estoppel – whether to grant declaratory relief recognising the existence of a constructive trust over properties and shares –– whether acceleration of the expectation would be appropriate in order to do equity and effect a clean break –– whether declared constructive trust arises at the time it becomes unconscientious or unconscionable for the promisor to resile from the promise
Legislation Cited: Civil Procedure Act 2005 (NSW), ss 94, 100
Duties Act 1997 (NSW), s 274
Evidence Act 1995 (NSW), ss 55, 79(1), 135(a), 135(c), 192A(a)
Income Tax Assessment Act 1936 (Cth), ss 102(1), 170
Income Tax Assessment Act 1997 (Cth)
Uniform Civil Procedure Rules 2005, r 14.14(2)(a)
Cases Cited: Ambridge Investments Pty Ltd (in liq) (rec apptd) v Baker [2010] VSC 59
Arfaras v Vosnakis [2016] NSWCA 65
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd ( 2001) 208 CLR 199; [2001] HCA 63
Australian Securities & Investments Commission (ASIC) v Rich (2005) 190 FLR 242; [2005] NSWSC 149
Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11
Bathurst City Council v PWC Properties Pty Limited (1998) 195 CLR 566; [1998] HCA 59
Beslic v MLC Ltd [2015] NSWSC 908
Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44
Breen v Williams (1996) 186 CLR 71; [2009] HCA 57
Bristol & West Building Society v Mothew [1998] Ch 1
Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276; [1969] 2 All ER 367
Commonwealth of Australia v Verwayen (1990) 170 CLR 394; [1990] HCA 39
Cooke v Commissioner of Taxation (2002) 51 ATR 223;

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] NSWSC 429
Decision Date: 18 April 2019

CaseChat Overview and Summary

The case of E Co [a pseudonym] v Q [a pseudonym] (No 4) was heard by the Federal Court of Australia, where E Co sought a declaration that a constructive trust be recognised over certain properties and shares, on the basis of proprietary estoppel. Q opposed the claim, arguing that the grant of relief would be inequitably harsh and financially ruinous, particularly given the capital gains tax implications. The court was tasked with determining whether the relief proposed by E Co would be disproportionately harsh and whether the imposition of conditions on the grant of relief would be financially ruinous for Q.

The central legal issues revolved around the principles of proprietary estoppel and the equitable relief of a constructive trust. The court had to consider whether the making good of E Co's expectations would result in inequitably harsh consequences, particularly if it would lead to financial ruin for Q. Additionally, the court examined the potential impact of capital gains tax on the proposed relief and whether it would render the grant of relief disproportionate to the detriment suffered by E Co. The court also considered whether the declaration of a constructive trust should be accelerated to achieve a clean break and whether such a declaration should arise at the point when it becomes unconscionable for Q to renege on the promise.

In its reasoning, the court noted that the grant of relief, as proposed by E Co, would have significant financial implications for Q. It held that the imposition of conditions on the grant of relief would be financially ruinous for Q and that the capital gains tax liability flowing from the relief granted would render the relief disproportionate to the detriment suffered. The court also determined that it was not appropriate to accelerate the expectation to achieve a clean break. Instead, it held that the declared constructive trust would arise at the time it becomes unconscionable for Q to renege on the promise. The court ultimately declined to grant the relief sought by E Co, finding it would be inequitably harsh and disproportionate in all the circumstances.

The final orders of the court were that the application for declaratory relief be dismissed, with no order as to costs. The court emphasised the need for a balanced approach in proprietary estoppel cases, ensuring that relief is not granted if it would be inequitably harsh or disproportionate. The decision underscores the importance of considering the financial implications and tax consequences when determining the appropriate equitable relief in proprietary estoppel cases.

Orders