Forrest v Nix
[2012] NSWSC 493
•16 May 2012
Supreme Court
New South Wales
Medium Neutral Citation: Robin Scott Forrest v William Lawrence Nix [2012] NSWSC 493 Hearing dates: 16 and 17 April 2012 Decision date: 16 May 2012 Before: Ball J Decision: See paragraph 50 of this judgment.
Catchwords: REAL PROPERTY - sale or partition - Co-owner seeking appointment of trustees for sale under s 66G of the Conveyancing Act 1919 - whether plaintiff has interest in property to which s 66G applies - plaintiff claiming one-third equitable interest pursuant to deed entered into with defendants - whether court ought to make order for appointment for trustees for sale - relevance of provisions of deed - whether provisions are impermissible restriction on alienation of property - whether restrictions in deed should be interpreted to be limited to life of parties where deed has no express term - whether order under s 66G should be made "almost as of right" - where deed still on foot and both parties are in breach - held that order should be refused. Legislation Cited: Conveyancing Act 1919 (NSW)
Property Law Act 1969 (WA)Cases Cited: Bondi Beach Astra Retirement Village Pty Ltd v Gora [2011] NSWCA 396
Callahan v O'Neill [2002] NSWSC 877
Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33
Chalhoub v Chalhoub [2005] NSWSC 572
Ngotoa v Ford (1990) 19 NSWLR 72
Nullagine Investments Pty Ltd v Western Australian Club Incorporated [1993] HCA 45; (1993) 177 CLR 635
Reuthlinger v MacDonald [1976] 2 NSWLR 88
Reuthlinger v MacDonald, 20 October 1976, NSWCA, unreported
Tory v Tory [2007] NSWSC 1078Category: Principal judgment Parties: Robin Scott Forrest (Plaintiff)
William Lawrence Nix (First Defendant)
Carole Anne Nix (Second Defendant)Representation: EA White (Plaintiff)
RA Parsons (Defendants)
Coleman Greig Lawyers (Plaintiff)
Stanford Lawyers (Defendants)
File Number(s): 2011/148829
Judgment
In these proceedings, the plaintiff, who I will refer to as "Scott", makes an application under s 66G of the Conveyancing Act 1919 (NSW) for the appointment of trustees for the sale of a property at Ingleside. The registered proprietors of the property are the first defendant, who I will refer to as "Bill", as to 99/100th and the second defendant, who I will refer to as "Carole", as to the remaining share. By cl 3.1.3 of a deed dated 11 October 2006 between the parties (the Deed), Bill and Carole agreed to hold a one-third share "of an estate in fee simple" of the property on trust for Scott on certain terms and conditions. Scott is the son of Carole and the stepson of Bill, Carole's second husband.
In the alternative, Scott seeks a declaration that Bill and Carole hold a one-third interest in the property on trust for him.
Events leading up to the Deed
The property, which is approximately 2.54 hectares, was originally owned by Bill's stepfather, Edward. Bill and Carole moved into a cottage located on the property in about 1987. In January 1997, Bill suffered a major cerebral haemorrhage; and from that time his financial affairs have been managed by Carole using a power of attorney that he had granted her.
Following Bill's cerebral haemorrhage, Scott and his family, who were living in Brisbane at the time, decided to move to Sydney. They lived in rented accommodation for a time. However, in mid 1998, Carole suggested that Scott build a house on the property with a granny flat that could be occupied by her and Bill. That proposal was changed over time to one involving the construction of two connected houses, one to be occupied by Scott and his family and the other to be occupied by Carole, Bill and Edward. Edward had since late 1998 been living in a nursing home and prior to that time had been living with a friend.
Scott borrowed money to assist with the costs of the building work. In late 2000, that loan was refinanced with Perpetual Trustees Victoria Limited and increased to $500,000. The loan from Perpetual was secured by a mortgage over the property and, in order to facilitate that mortgage, Edward transferred a 1/100th share of the property to Scott.
The building works were completed in about December 1999 and Scott and his family moved into one house and Bill, Carole and Edward moved into the other.
In August 2002, Edward died and Bill inherited his share of the property.
In about 2005, the loan from Perpetual was refinanced with a loan from Liberty Funding Pty Limited in the sum of $1,225,000. After payment of Liberty's fees and charges, prepayment of interest in advance for 12 months, the discharge of the Perpetual loan and the payment of other amounts, there was a balance of $278,686.20. That amount was paid into a solicitor's trust account to the credit of Scott and Bill.
The Deed
In October 2006, the Liberty loan was refinanced with a loan from Macquarie Bank. At the same time, the parties entered into the Deed to govern the arrangements between them in relation to the property. The Macquarie Bank loan was taken out by Bill and Carole and again was secured over the property. The total amount of the loan (although Scott did not know it at the time) was for $1,650,000. Recital H of the Deed records that the property was "presently valued at $2,800,000.00".
Recital F of the Deed records:
From the Perpetual Loan and the Liberty Loan, Scot used monies totalling the sum of $675,000, which he acknowledges as being his portion of loan monies advanced ("Scott's Proportion of the Loan Monies") and his responsibility.
Bill and Carole established two accounts with Macquarie Bank in respect of the loan, one for $650,000 and the other for the balance of the loan. Why the account was for $650,000 and not $675,000 is unclear. The parties agree that the account showing an initial debit of $650,000 is the account referrable to Scott's agreed liability in respect of the loan.
Clause 2.1 of the Deed relevantly provides:
Scott agrees to:
2.1.1 immediately transfer his one, one hundredth (1/100th) share in the Property to Carole for the sum of one dollar ($1.00) ...
2.1.2 the release of the monies, namely $278,686.20, credited in the trust account of Messrs Mathews [sic] Dooley & Gibson, solicitors, to the credit of Scott and William Nix, to William Nix [that is, Bill];
2.1.3 ...
2.1.4 maintain and repair in an orderly and workmanlike fashion the part of the residence he and his family are occupying, for so long as they shall occupy that part of the residence;
2.1.5 be responsible for and pay as and when they fall due, all service and other charges, such as gas, electricity, water, excess water, telephone and repairs not of a structural nature, provided such repairs are not due to any act or lack of repair on the part of Scott, associated with his and his family's occupancy of the part of the residence upon Property;
2.1.6 allow William Nix and Carole to borrow money to be secured by a registered mortgage over the Property provided the amount of such borrowings does not exceed 60% of the then current valuation of the Property;
2.1.7 acknowledge William Nix and Carole's right to sell, transfer, mortgage, lease or otherwise deal with the Property, subject to the terms of this Deed;
2.1.8 acknowledge Scott's Proportion of the Loan Monies as a debt payable by him to William Nix in accordance with the provisions of this Deed.
"Property" is defined in recital A to be the whole 2.54 hectares on which the two houses and cottage are situated.
Clauses 2.1.9 to 2.1.11 set out Scott's repayment obligations in respect of that part of the Macquarie Bank loan attributable to him. Relevantly, cl 2.1.9 provides, in part, that Scott agrees for the period of five years from the date of the Deed to pay the monthly interest charge on that part of the loan attributable to him.
Clause 2.2 of the Deed provides:
Subject to the prior approval of William Nix and Carole, which shall not be unreasonably withheld, and on such terms as they may, in their absolute discretion, determine, Scott may lease that part of the residence on the Property in which he and his family reside, by entering into a written lease, the terms and conditions of which shall be of the then current edition Residential Tenancy Agreement and he shall apply the whole rental income received from such rental to the repayment of Scott's Proportion of the Loan Monies and any interest charged on Scott's Proportion of the Loan Monies.
Clause 3.1 of the Deed relevantly provides:
3.1William Nix and Carole jointly and severally agree to:
3.1.1 ...
3.1.2 ...
3.1.3Subject to this Deed, hold one third (1/3rd) of an estate in fee simple of the Property upon trust for Scott absolutely;
3.1.4 maintain and repair in an orderly and workmanlike fashion the part of the residence they are occupying; and
3.1.5 make available to Scott, for his use for the repayment of Scott's Proportion of the Loan Monies and interest, as provided for in this Deed, one third (1/3rd) of the rental income received from the rental of the Cottage and the Property. ...
3.1.6 be responsible for and pay as and when they fall due, the expenses of the Property for the maintenance, proper upkeep, Government rates, local council and water rates, state and Federal Government taxes and charges, service and other charges associated with the Property and their occupancy of part of the residence subject to reimbursement by Scott of any such amount as a result of Scott's residing in part of the residence.
Clause 3.2 provides:
William Nix and Carole retain the management and control of the Property and subject to the provisions of this Deed, may encumber, sell, transfer or dispose of the Property or any part thereof without the consent of Scott.
Clause 4 provides:
In the event Scott fails to repay Scott's Proportion of the Loan Monies and/or any accrued interest, as provided for in this Deed, then the one third (1/3rd) interest of an estate in fee simple of the Property held upon trust for him shall decrease in value in proportion to the outstanding balance of Scott's Proportion of the Loan Monies and/or any accrued interest, and that outstanding proportion will be deducted from Scott's interest in the Property upon any sale or transfer of the Property and in the event that either William Nix or Carole pays Scott's Proportion of the Loan Monies prior to any sale or transfer of the Property, in order to discharge the Macquarie Loan, and/or sell or transfer the Property, then the person paying that outstanding amount will be entitled to claim reimbursement of that amount plus interest at the rate of ten percent (10%) per annum from Scott, as a liquidated debt.
Clause 6.1 provides that Bill and Carole "may in their absolute discretion sell or agree to sell or transfer the Property or any part thereof" provided they first give Scott a first right of refusal to buy the interest they propose to sell on no less favourable terms. However, that right is not available where "Scott is in default of any obligations under this Deed": cl 6.2.
Clause 6.3 provides:
In the event William Nix and Carole sell the Property for an amount in excess of three million dollars ($3,000,000.00) then Scott shall be entitled to a half share of the amount of the balance of the proceeds of sale in excess of two million dollars ($2,000,000.00), after deduction of all costs and expenses associated with the sale of the Property.
Clause 7 provides:
William Nix and Carole may in their absolute discretion lease or otherwise deal with the Property or the Cottage or any part thereof.
"Cottage" is defined in recital K to mean the cottage situated on the Property.
Clause 27 deals with dispute resolution. Clause 27.1 requires the parties to explore whether any dispute in respect of the property or Deed "can be resolved by agreement between them using informal dispute resolution techniques such as negotiation, mediation, independent expert appraisal or any other alternative dispute resolution technique". Clause 27.2 provides that either party may refer the dispute to arbitration if the dispute has not been resolved in accordance with cl 27.1 within 14 days after one party gives the other written notice of the dispute (or such longer period as the parties agree).
Although cl 2.1.2 of the Deed records that Scott agreed to the release of the $278,686.20 to Bill, that money in fact was used to make interest payments on the Macquarie Bank loan, including that part of the loan for which Scott had agreed he was responsible and arrangements were put in place by which Scott's share of the interest payments were paid by direct debit from the account into which the $278,686.20 had been paid. That arrangement continued until October 2008.
Events after the Deed
By about March 2008, the relationship between Scott and Carole was becoming strained. Carole was reluctant to provide Scott with Macquarie Bank statements in respect of the loan attributable to him and unwilling to give him any information concerning the loan attributable to her and Bill. Scott suspected (correctly) that Carole and Bill had borrowed more from Macquarie Bank than was necessary to repay the Liberty loan and that that additional borrowing was also secured against the property. He also suspected that Carole had used the additional borrowings to invest in a sports centre that Scott's brother was operating at Narrabeen.
In Mach 2008, Scott asked Carole to appoint an agent to sell the property. Carole agreed that she would. However, she delayed in doing so. According to her, the property was unfinished and a lot of work had to be done to it before it could be put on to the market. It appears that that delay contributed to an increase in the tension between her and Scott.
In October 2008, Scott had a conversation with Carole in which he told her that he was not prepared to make any more interest payments until he was given additional security over the property. Although it is not clear from the evidence, it can be inferred that by that time the $278,686.20 from which interest payments had been made had been exhausted.
Shortly after that conversation, Carole appointed Mr Hybner of McGrath Partners as an agent to sell the property. Also, at about that time, Bill was admitted to a nursing home for fulltime care. In view of that fact, Macquarie Bank granted a six month moratorium on interest payments on hardship grounds. As a result of that moratorium, repayments were due to resume on 1 May 2009.
The relationship between Scott and Carole deteriorated further between October 2008 and May 2009 to the point where they were only prepared to communicate in writing. Precisely what happened over that period of time is not clear from the evidence. It appears that Scott disagreed with the way in which McGrath Partners went about locating a prospective purchaser for the property. He took down a for sale sign which had been erected on the property and objected to potential purchasers being shown over the house in which he and his family resided. During this period, Scott maintained the position that he was not prepared to make any interest payments until he was provided with the information he had requested and additional security. On the other hand, Carole continued to resist giving Scott information concerning the loan from Macquarie Bank. Indeed, in a letter dated 12 May 2009 that she wrote to Scott, she said that the outstanding debt that was owing was $1,225,000. However, in the same letter she finally indicated that the bank statements that Scott had been requesting were available for collection. In response to that letter, Scott said that he was prepared to resume paying his share of the mortgage payments, although that did not happen.
On 3 August 2009, Carole wrote to Scott informing him that the property had been sold for $3,700,000 and informing him that, as a condition of sale, the purchaser required vacant possession before 28 September 2009. In accordance with that letter, Scott and his family vacated the house in which they had been living. However, as at 3 August 2009, no contract had been entered into for the sale of the property. On 9 December 2009, Bill and Carole did enter into a joint venture agreement with Copuss Pty Limited effective from 1 October 2009. The joint venture agreement was not in evidence. However, Carole gave evidence that, pursuant to that agreement, Copuss was to manage the property and commenced contributing to the monthly interest payments to Macquarie Bank. It appears that Carole had been in discussions with Copuss since at least August 2009 and, according to Carole, Copuss had requested that the property be vacated by 28 September. In cross-examination, Carole also gave the following evidence concerning the joint venture agreement:
There was an implied contract for Copuss to purchase 50 per cent of the property and part of that was to make sure that my son would be looked after and an amount of $650,000 was to be placed in an account with the solicitor. Once he signed the deed of release, that money was there for him to have.
Evidence given later by Carole makes it clear that the sale of a half share of the property to Copuss was for the sum of $1.7 million and that the $650,000 was to be paid to discharge the Macquarie Bank loan referable to Scott and was to be paid in exchange for a release signed by Scott in favour of Copuss.
In April 2011, Carole and Bill served a notice on Copuss claiming that it was in breach of the joint venture agreement. Following service of that notice, the joint venture agreement was terminated and Copuss, in separate proceedings, claims damages against Bill and Carole.
In the meantime, Scott and his family continue to live in rented accommodation.
The issues
Section 66G(1) provides:
Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.
"Co-ownership" is defined in s 66F(1) in the following terms:
"Co-ownership" means ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common; and "co-owner" has a corresponding meaning and includes an incumbrancer of the interest of a joint tenant or tenant in common.
Scott's application for an order under s 66G raises two questions. The first is whether Scott has an interest in the property to which s 66G applies. The second is whether, assuming he does, the court ought to make an order appointing trustees for the sale of the property. The second question itself raises three issues. The first is whether the Deed on its correct construction contains an agreement by Scott that the property will not be sold except in accordance with the Deed. The second is whether, if it does, that agreement is unenforceable as an impermissible restraint on alienation. The third is whether, assuming the agreement is enforceable, the court should give effect to it and refuse to make an order under s 66G.
Does s 66G apply?
Mr Parsons, who appeared for Scott, submitted that, on the correct construction of the Deed, the parties are not "co-owners" of the property within the meaning of s 66F(1). Two arguments were advanced in support of that proposition. First, Mr Parsons submitted that the trust created by cl 3.1.3 is void for uncertainty. Second, he submitted that Scott's interest is limited to a right to share in the proceeds of sale, which does not create an interest in property to which s 66G applies.
I do not accept either of those submissions.
According to the defendants' written outline of submissions, the uncertainty is introduced by the expression "subject to this Deed" appearing at the beginning of cl 3.1.3. However, why that expression introduces uncertainty is not explained either in the written or the oral submissions of the defendants. The Deed creates a trust over a one third interest in the property. The extent of that interest may vary under cl 4 in proportion to any outstanding interest owing by Scott. However, it was not suggested that cl 4 was worded in a way which makes it impossible to ascertain the amount of the variation. And the mere fact that the interest may change does not make the trust uncertain. Other provisions of the Deed impose additional rights and obligations on the parties. Whether those rights and obligations qualify the terms on which the property is held on trust or simply impose additional obligations on the parties may be open to debate. But there is no suggestion that the operation of any of those terms is uncertain. Consequently, it is difficult to see how the trust created by cl 3.1.3 could be said to be uncertain.
Nor do I accept the submission that, on its correct construction, the Deed simply creates a right to a share in the proceeds of sale if and when the property is sold. Clause 3.1.3 clearly creates a trust in respect of the property. The fact that cl 3.1.3 is expressed to be "subject to this Deed" does not alter that fact. The phrase "subject to this Deed" simply means that the terms on which a one third interest in the property is held on trust for Scott are set out in the Deed. One important term respecting the trust is that Scott's interest may change if he does not pay the amounts payable by him under the Deed. But that does not mean that the trust does not exist.
Does the Deed contain an agreement that the property will not be sold?
Clause 3.2 of the Deed contains an agreement that Bill and Carole "retain the management and control of the Property". Mr White, who appeared for Scott, submitted that the phrase "management and control" is not sufficiently wide to exclude the right of a co-owner to make an application under s 66G; and that if the parties had intended to exclude the rights under s 66G, they would have said so. I do not accept that submission. The ordinary meaning of the word "control" includes the power to determine if and when the property would be sold. Or, to put the point another way, I think that it would normally be said that Bill and Carole had lost control of the property if trustees were appointed for its sale, since on the ordinary meaning of the word "control" it would then be said that the property was in the control of the trustees.
In my opinion, this interpretation of "control" is supported by the context in which cl 3.2 was agreed. Bill and Carole had been living on the property since 1987. It is clear that they wanted to remain there and it was for that reason that Carole put the proposal that she did to Scott. Scott borrowed money to build a house on the property. However, when the parties came to document their interests in the property, they agreed that Bill and Carole would retain legal title to the property and be responsible for the mortgage repayments. Scott agreed to reimburse Bill and Carole for an agreed proportion of those mortgage repayments and, in return, Bill and Carole agreed to hold a proportion of the property on trust for him. If Scott did not pay his share of the mortgage payments, then his interest in the property reduces. In my opinion, it can be inferred from the terms of the Deed that Scott had a right to occupy one of the houses on the property and, if he did not exercise that right, he was entitled to lease that house out and to obtain the benefit of the rent received on the terms set out in cl 2.2 of the Deed. But the parties agreed that the property would essentially remain Bill's and that Scott would transfer his 1/100th share to Carole. In my opinion, what happened suggests that the parties intended that Bill and Carole would be entitled to continue to live on the property for so long as they wanted and their right to "control" the property must be interpreted in that light.
Is the agreement restricting Scott's right to make an application under s 66G void?
The general principle is that a contractual restriction on the alienation of property is void as being contrary to public policy. However, the principle is qualified in two ways. First, the restriction must be total or at least sufficiently extensive so as to undermine the public policy in favour of the alienability of private property. Second, the restriction is not invalid if it is imposed for the protection of a valid collateral object. Both qualifications, are discussed extensively by Campbell JA (with whom Giles and Whealy JJA agreed) in Bondi Beach Astra Retirement Village Pty Ltd v Gora [2011] NSWCA 396 at [141]ff.
A relevant case in which the first qualification was applied is Reuthlinger v MacDonald [1976] 2 NSWLR 88, which was affirmed on appeal: see Reuthlinger v MacDonald (Court of Appeal, 20 October 1976, unreported). In that case, Mr Reuthlinger and his wife owned 11,000 shares in a company. A further 11,000 shares were owned by 3 shareholders who voted as a block. In addition, Mr McDonald owned 3,000 non-voting preference shares, which carried with them a right to convert the shares to ordinary shares. Mr Reuthlinger and Mr McDonald entered into an agreement by which Mr McDonald agreed to exercise his right of conversion, irrevocably appointed Mr Reuthlinger as attorney to vote the shares at a general meeting and agreed not the transfer the shares until Mr Reuthlinger's and his wife's shareholding was greater than that of all shareholders other than Mr McDonald. The question was whether the restriction on transfer was valid. Needham J held that it was. One reason his Honour gave for that conclusion was, to use the words of Campbell JA in Bondi Beach Astra Retirement Village Pty Ltd v Gora [2011] NSWCA 396 at [214], that "[t]he agreement did not extend the definition of the parties to include their executors, administrators and assigns, and thus the restriction was limited to the joint lives of the parties": see [1976] 2 NSWLR 88 at 101.
In applying the principle in favour of alienability, it is necessary to identify the proprietary interest which is the subject of restriction. For example, in Nullagine Investments Pty Ltd v Western Australian Club Incorporated [1993] HCA 45; (1993) 177 CLR 635, Nullagine and the Club entered into an agreement by which the Club sold to Nullagine an undivided half share in a building the Club owned. At the same time, the parties (together with companies associated with Nullagine) entered into a deed governing the terms on which each was to use the building. Clause 4(b) of the deed contained a restriction on each party transferring its interest in the property for the first three years and a further restriction preventing transfer without first offering that interest to the other party on terms set out in the deed. It also contained a restriction on transfer unless the transferor obtained a covenant from the transferee agreeing to comply with the terms of the deed. The question was whether cl 4(b) prevented Nullagine from exercising rights under s 126 of the Property Law Act 1969 (WA), the Western Australian equivalent of s 66G, and, if it did so, whether it was enforceable. There was a question whether the restriction only operated for a period of 10 years. Deane, Dawson and Gaudron JJ, who formed the majority, were prepared to assume that it did not. Nonetheless, they held that cl 4(b) did not impose a restriction on the rights conferred by s 126. In reaching that conclusion, their Honours said (at 656):
As a matter of both law and language, there is a clear distinction between the individual "interest or share" owned by one of two or more tenants in common of a freehold estate in land and the freehold estate itself.
Having drawn that distinction, they said (at 658):
Once one takes account of the clear distinction between a sale or other disposition "by'' an individual tenant in common of "its share or interest in the land'' and the sale (or partition) of the land (ie a freehold estate), it becomes reasonably plain that cl 4(b) is simply not directed to the sale or disposition of the land itself. What cl 4(b) is directed to is a separate sale by one of the two tenants in common of its distinct share or interest. Indeed, that is all that the procedure required by cl 4(b) allows in a case which falls within its terms. That means that, if the reference in cl 4(b) to a sale or other disposition "by'' one tenant in common of "its share or interest in the land'' were construed as extending to a sale or partition of the freehold, cl 4(b) would purport to preclude completely, for so long as the tenancy in common persists, any sale or partition of the land itself. On that construction, the clause would, unless waived or rescinded, preclude even a sale of the unrestricted freehold by joint action of the club and Nullagine.
It followed that cl 4(b) did not prevent Nullagine from exercising its rights under s 126.
Brennan and Toohey JJ reached different conclusions. Both thought that cl 4(b) applied to a disposition of the land under s 126. Brennan J thought that restriction in the clause requiring a transferee to agree to the terms of the clause was an impermissible restriction on the alienation of property and was void for that reason. Toohey J, on the other hand, considered that the restraint imposed by the clause was not an impermissible restraint on alienation.
In the present case, there is no express restriction on Scott disposing of his equitable interest in the property. It may be arguable that such a restriction should be implied from the terms of the Deed, although neither party raised that possibility in submissions. Even if such a restriction is implied, that restriction would only last for the term of the Deed. The Deed has no express term. However, consistently with the approach taken by Needham J in Reuthlinger, in my opinion the Deed only continues during the joint lives of the parties. The Deed is not expressed to be binding on the parties' successors; and its terms suggest that it is intended to create rights that are personal to the parties. It follows that the restriction on assignment is of limited duration and for that reason alone is enforceable.
Should the court refuse to make an order under s 66G?
The general principle is that a co-owner is entitled to an order under s 66G "almost as of right": Callahan v O'Neill [2002] NSWSC 877 at [8] per Young CJ in Eq; Chalhoub v Chalhoub [2005] NSWSC 572 at [17] per McLaughlin AsJ; Tory v Tory [2007] NSWSC 1078 at [42] per White J. However, that statement of general principle is normally restricted to cases where the applicant for an order has at least a 50 percent interest in the property. Moreover, although it is doubtful that the parties can by agreement exclude the operation of s 66G, a court may decline to make an order where the parties have entered into an agreement that binds them to deal with the property in a certain way: Ngotoa v Ford (1990) 19 NSWLR 72; Chalhoub v Chalhoub [2005] NSWSC 572; Tory v Tory [2007] NSWSC 1078.
The application of these principles is complicated in this case because, although neither party has sought to terminate the Deed, neither party has complied with its terms. It may be an implied term of the Deed that Carole and Bill were required to give Scott the bank statements for the account for which he was responsible; and it is arguable that it was also an implied term of the Deed that Carole and Bill would give him copies of the bank statements relating to the other borrowings against the property so that he could satisfy himself that the amount of borrowings did not exceed 60 percent of the then current valuation of the property: cf Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33. But even if those terms could be implied and Carole and Bill were in breach of them, that did not provide a justification for Scott refusing to pay interest on his proportion of the loan. Nor does the fact that cl 4 provides that his interest in the property reduces in proportion to the amount unpaid. Clauses 2.1.8 and 2.1.9 clearly impose an obligation on Scott to pay interest on his proportion of the loan.
Scott's failure to pay interest no doubt caused Carole and Bill considerable financial hardship. They were entitled to sue for that interest. They were also entitled under cl 3.2 of the Deed to sell all or any part of the property without Scott's consent. However, that right is expressed to be "subject to the provisions of this Deed". Consequently, in my opinion, they were not entitled to sell an interest in the property unless the interest sold was subject to the one-third interest held by Scott. It seems, however, that that is precisely what they did when they sold a half interest to Copuss. Scott also complains that he was misled by Carole when he was asked to vacate the property since he was told that the purchaser wanted possession, whereas, in fact, there was no purchaser at that time and all that was proposed was that Copuss acquire a half interest in the property. Scott submits that that is a reason why the court should exercise its discretion in favour of making an order under s 66G. However, the force of that submission is undermined by Scott's own breaches of the Deed - in particular, his refusal to pay interest and his interference in the sale process despite the fact that cl 3.2 of the Deed provides that Carole and Bill should retain management and control of the property.
Taking account of these matters, in my opinion, the court should not make an order under s 66G. The Deed remains on foot. As I have said, it contains an agreement that the property will not be sold while Carole and Bill are alive except by them. Although Carole and Bill breached the terms of the Deed by selling an interest in the property on the terms that they did, that breach has now been rectified by the termination of the agreement with Copuss. It is true that Scott was induced to move out of the property by misrepresentations by Carol. But Scott is not blameless in what happened. There is no evidence to suggest that he could not return to the property if he wished and, in my opinion, he is entitled to receive credit for the rent that Carole and Bill receive in respect of the house that he would otherwise be entitled to occupy. There is a difficulty in the drafting of the Deed because cl 2.2 states that if that house is leased out in accordance with that clause, the whole of the rent is to be credited to him whereas cl 3.1.5 suggests that one-third of the rental income is to be credited to him. However, in my opinion, cl 3.1.5 only applies where the whole of the property including the cottage is rented out. It does not apply if Carole or Bill remains on the property.
Should a declaration be made?
Scott is not entitled to a declaration in the terms that he seeks. That is because his interest in the property is to be adjusted in accordance with cl 4. There was no evidence before me on the extent to which Scott is in arrears in making interest payments after credit is given to him for rent which has been received in respect of the house that was occupied by him. However, it is appropriate to make a declaration that Carole and Bill hold a one-third interest in the property on trust for Scott subject to any adjustment that is required to be made under cl 4. In these proceedings, Carole and Bill disputed that they held any interest on trust for Scott and by reaching an agreement with Copuss they have acted in a way which is inconsistent with that trust. Consequently, there is utility in making the declaration.
Orders and costs
My initial view is that each party has enjoyed some success and that for that reason each party should bear his or her own costs. However, if the parties cannot reach agreement on costs, I will hear further argument before making a final decision on that question.
The orders of the court are:
(1) Declare that the plaintiffs hold a one-third interest of the property at Ingleside on trust for the defendant subject to any adjustment to be made in accordance with cl 4 of the Deed dated 11 October 2006 made between the plaintiffs and the defendant.
(2) Stand the matter over to a date to be fixed with my Associate for submissions in relation to costs.
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Decision last updated: 16 May 2012
5
7
2