Hill v Love
[2018] VSC 29
•9 February 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2014 02749
| BETWEEN: | |
| ANTONY CHRISTOPHER HILL | Plaintiff |
| -and- | |
| PAUL ANDREW BURNESS AND MATTHEW JAMES JESS (IN THEIR CAPACITY AS TRUSTEES OF THE BANKRUPT ESTATE OF THOMAS JAMES LOVE) & ANOR | Defendants |
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JUDGE: | Sifris J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 5 – 7 September 2017, 11 – 12 September 2017 |
DATE OF JUDGMENT: | 9 February 2018 |
CASE MAY BE CITED AS: | Hill v Love |
MEDIUM NEUTRAL CITATION: | [2018] VSC 29 |
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EQUITY – Marshalling – Whether holder of second-ranking mortgage over 275 O’Hearns Road subrogated to CBA’s rights in respect of 460 Cooper Street – Whether debt in favour of plaintiff arose after sale of 275 O’Hearns Road – Whether any agreement or binding arrangement as to order of sale.
CONTRACT – Release – Construction – Whether the right to marshal a claim ‘arising out of the Retainer’ – Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112.
EQUITY – Whether equity should assist – Whether plaintiff precluded from recovering more than he bargained for – Whether mortgagor gave fully informed consent – Whether grant of second-ranking mortgage in breach of terms of first-ranking mortgage – Effect of alleged non-compliance by plaintiff with obligations under Legal Practice Act 1996 (Vic) – Whether plaintiff otherwise engaged in disentitling conduct.
EQUITY – Whether unreasonable for plaintiff not to have advanced marshalling claim in previous County Court proceeding – Port of Melbourne Authority v Anshun (1981) 147 CLR 589.
MORTGAGES – Construction of mortgage and variation – Whether variation effects rescission or release of original mortgage.
EQUITY – Trusts – Declaration of Trust – Requirement of declaration evidenced in writing – s53(1)(c) Property Law Act 1958 (Vic) – Not capable of declaring trust on account of bankruptcy – s 58 Bankruptcy Act 1966 (Cth).
EQUITY – Trusts – Constructive Trust – Muschinski v Dodds (1985) HCA 78 – Baumgartner v Baumgartner (1987) HCA 59 – Failure of substratum on account of bankruptcy – Non-financial contributions – Where contributions enable partner to acquire, maintain or improve property – lack of evidence to support pleaded assertions.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D G Robertson QC with Mr D C Morgan | Earl & Associates |
| For the First Defendants | Mr J Delany QC with Ms C Van Proctor | Cornwall Stoddart |
| For the Third Defendant | Appeared in person |
HIS HONOUR:
A Introduction
In this proceeding, two claims are made in relation to the net proceeds of sale of a property at 460 Cooper Street, Epping (460 Cooper Street or the Property), one of four properties owned by the late Thomas James Love (Love) and mortgaged to the Commonwealth Bank of Australia (CBA).[1]
[1]See Commonwealth Bank of Australia v Love & Anor [2015] VCC 1653 at [7]-[19] (CB657); Love Affidavit [4]-[11] (CB84-85). For convenience I have retained all relevant references to the Court Book.
On 29 December 2009, the CBA discharged its mortgage over one property (410 Cooper Street).[2] In February 2012, the CBA sold another property (275 O’Herns Road). A third property (315 O’Herns Road) was sold in 2013.[3] 460 Cooper Street was sold in 2016. The net proceeds of the sale of 460 Cooper Street, being the sum of $5,899,737.70, was paid into court by the CBA. This case is about who is entitled to the proceeds.
[2]Commonwealth Bank of Australia v Love & Anor [2015] VCC 1653 at [18] (CB660); Discharge dated 22 December 2009 (CB307.118).
[3](CB526-527).
The plaintiff (Hill) was Love’s solicitor and acted for him in dealings with the CBA, including the refinancing of 410 Cooper Street. Hill also acted for Love in substantial litigation against the Roads Corporation and others. Hill’s claim is founded on the doctrine of marshalling. He relies on a mortgage dated 10 September 2009 which he registered over 275 O’Herns Road on 2 December 2010,[4] to contend that as the entire proceeds of sale of this property were paid to CBA he has a right to stand as a secured creditor of the proceeds of sale of 460 Cooper Street, relying on a $2.2 million[5] judgment debt obtained in April 2013.
[4]Hill previously held a mortgage over 275 O’Herns Road: see Third Hill Affidavit, [15] (CB94).
[5]Plus interest and indemnity costs, Statement of claim [F] (CB30).
The third defendant (Mrs Love) claims an equitable interest in all of Love’s property, including 460 Cooper Street, relying on an oral declaration of trust said to have been made in September 2000.[6] Mrs Love also relies on a written declaration of trust dated 1 March 2016. Mrs Love previously claimed an equitable interest in all of Love’s properties. This claim (based on similar grounds) was considered and rejected in respect of 275 O’Herns Road[7] and in respect of 315 O’Herns Road, her caveat claiming a similar interest was removed.[8] Mrs Love separately claims an interest in 460 Cooper Street from contributions made after 12 December 2012 to an asserted ‘joint marital endeavour’ which, if established, ended on the date of Love’s bankruptcy[9] on 6 May 2014.[10]
[6]Counterclaim [4] (CB44).
[7]Commonwealth Bank of Australia v Love & Anor [2015] VCC 1653 at [133]-[172] (CB677-687) (Kennedy J).
[8]Commonwealth Bank of Australia v Love & Anor [2014] VCC 887 (CB568) (Anderson J).
[9]Australian Building & Technical Solutions Pty Limited v Boumelhem [2009] NSWSC 460 at [94].
[10]Order of Pagone J in VID 258 of 2014 (CB732.9), Roads Corporation v Love [2016] FCA 38 at [3], [9] (CB7324, 7.32.8).
The Trustees of the Bankrupt Estate of Love contend that neither Hill nor Mrs Love are entitled to any of the proceeds of the sale of 460 Cooper Street.
B Relevant background facts – Hill’s claim
As noted, Hill is a solicitor whose firm, McCluskys Lawyers acted for the late Love in well-known, lengthy, costly and complex litigation against the State of Victoria, its Planning Minister, the Roads Corporation and others.
In order to fund that litigation, Love took out loans with the CBA, which were secured by first-ranking mortgages over three properties, being 275 O’Herns Road, 315 O’Herns Road and 460 Cooper Street. As time went by, legal costs increased and Love was unable to obtain further funds. By the middle of 2009, Love owed Hill millions of dollars in unpaid bills. As noted, in September 2009, Hill took a second mortgage over 275 O’Herns Road (Second Mortgage). On 24 November 2009, Hill and Love executed a variation to the Second Mortgage (the Variation). On 2 December 2010 the Second Mortgage was registered.
Hill’s legal bills remained unpaid and on 30 March 2012 he commenced a proceeding in the County Court seeking more than $3.575 million in legal fees plus interest and costs. Love defended the proceeding and made a counterclaim. The County Court proceeding was compromised and terms of settlement entered into on 17 January 2013 (Terms of Settlement). The Terms of Settlement and the County Court Judgment consequent thereon (Judgment) required Love to pay Hill the sum of $2,200,000. No part of that amount has been paid.
From 2011 to 2016, CBA sold the properties mortgaged by Love. The first property, sold in February 2012, was 275 O’Herns Road, the only property that was mortgaged to Hill. The sale price—$10,370,000—was considerably lower than the value it was thought to have in 2009. The proceeds were insufficient to repay all amounts owed to CBA. The Second Mortgage was removed by the Registrar of Titles as required upon the registration of a first mortgagee’s transfer. Needless to say, Hill received nothing.
CBA sold 315 O’Herns Road in 2013 and again the proceeds were insufficient to repay all that was owed to CBA. Finally, in November 2016, CBA sold 460 Cooper Street. The proceeds of this sale were sufficient to repay all the debt owed to CBA. As noted, the balance of around $5.9 million (the Fund) was paid into court.
I interpolate here to note that had CBA chosen to sell the three properties in reverse order, there would have been a surplus on the sale of 275 O’Herns Road (rather than upon the sale of 460 Cooper Street) and Hill as second mortgagee would have been paid in full.
Hill commenced this proceeding in June 2014 to protect his rights arising out of the Second Mortgage. The three defendants are Love, the CBA and Mrs Love, who had lodged a caveat over 460 Cooper Street. After the proceeding was commenced, Love was made bankrupt by order of the Federal Court of Australia. He subsequently passed away. The first defendants are the trustees in bankruptcy of Love’s estate (Trustees). Hill continues this proceeding against them with leave of the Federal Court.
CBA, which was the Second Defendant, indicated that as it had been repaid by Love all amounts owed to it, it would take no part in the proceeding and accordingly, on 9 March 2017 the Court ordered that the proceeding be discontinued against CBA.
Hill’s claim is to marshal his interest as second mortgagee of 275 O’Herns Road into the first mortgage held by CBA over 460 Cooper Street. He seeks a declaration of his right to marshal and claims the Fund to the extent of his debt plus interest and costs. Mrs Love has counterclaimed for half the Fund on the basis of her asserted interest in one half of the Property. As noted, both Hill and the Trustees oppose her counterclaim.
Further relevant facts will be referred to as and where necessary.
C Contentions – Hill’s claim
Hill’s contentions
A right to marshal arises, it was submitted, where there are two or more funds to which a creditor has a claim, at least one but not all of which are subject to the claim of another, subordinated creditor. Where the first creditor takes payment from a fund that the second creditor has a claim to, and thereby prevents the second creditor from having recourse to it, equity permits the second creditor to have recourse to the other funds in which the first creditor has an interest.
Had the CBA sold the three properties in this case in the reverse order, it was submitted that the surplus would have arisen upon the sale of 275 O’Herns Road and Hill as second registered mortgagee would have been entitled to be paid in priority to the other creditors. The situation that has arisen in the events which actually happened is, it was submitted, purely fortuitous. The doctrine of marshalling seeks to avoid results which depend upon the self-interest or caprice of the first mortgagee. Absent marshalling, Hill would, it was submitted, have no security over the surplus funds from the sale of 460 Cooper Street and would have to prove in Love’s bankruptcy along with the unsecured creditors who never took security.
It was submitted that there are two pre-requisites to the availability of marshalling. The first is that there is a common debtor, meaning that the two creditors in question are both creditors of the same debtor. The second is each creditor has a proprietary interest in the fund or funds. These pre-requisites are, it was submitted, both met in this case because (a) CBA and Hill were both creditors of Love and (b) each had a proprietary interest—a mortgage—in the double-secured property.
Trustees’ contentions
The Trustees submitted that there were four main reasons why Hill was not entitled to the relief claimed.
First, it was submitted that the doctrine of marshalling did not operate for various reasons. These included an arrangement between Love and CBA to the effect that 275 O’Herns Road would always be sold first. This was, it was submitted, Love’s wishes. In accordance with authority, it was submitted that this arrangement and desire on the part of Love precluded the operation of the doctrine of marshalling, which was concerned to avoid capricious, fortuitous or arbitrary sales.
It was submitted further that the doctrine did not operate because Hill could not recover more than he bargained for. The bargain at the time of execution of the Second Mortgage was that Hill would not receive any other security and that 275 O’Herns Road would be sold first. In such circumstances marshalling was, it was contended, not available because it would give Hill a recovery greater than he bargained for.
It was next submitted that marshalling was not available or did not operate because the Second Mortgage was rescinded and replaced by the Variation which does not form the basis of Hill’s claim. Alternatively, it was submitted that if the Variation operated to vary the Second Mortgage, Hill does not seek to marshal under that varied mortgage, and indeed simply registered the Second Mortgage without any reference to the Variation. Finally, on this point it was submitted that there was no advance of $3m under the Second Mortgage or $4m under the Variation.
Finally, it was submitted that the doctrine did not operate because the debt on which the claim was founded arose after the sale of 275 O’Herns Road.
The right to marshal does not exist, it was submitted, if there was no secured debt when the first secured property was sold.[11] The February 2013 judgment debt on which Hill relies and the right to enforce that debt only arose after the sale of 275 O’Herns Road in February 2012. The rights and obligations ‘created by the Judgment’ (that is, in 2013) did not exist at the time of the sale of 275 O’Herns Road.[12] The submission by Hill that the Judgment ‘doesn’t create a new obligation’[13] is, it was submitted, not correct. The judgment, it was submitted, creates a ‘new charter’ of rights and any rights previously held cease to independently exist.[14]
[11]Szepietowski v The National Crime Agency [2014] 1 AC 338 at [52].
[12]The County Court proceeding was commenced by Hill on 2 April 2012: after 275 O’Herns Road had been sold and settlement had taken place, and after Hill alleges that his right to marshal securities arose, SOC [30] (CB27); First Hill affidavit [17] (CB73).
[13]T35.1-6.
[14]Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507 at [20] per French CJ and Bell, Gageler and Keane JJ and see also Knowles v Victorian Mortgage Investments Ltd & Anor [2011] VSC 611 at [53] per Croft] J.
Even if it was open to Hill to rely upon the ‘unpaid bills’ in the face of the settlement and a ‘debt’ owing as at February 2012, there was, it was submitted, no debt due to Hill as at February 2012 in any case. Absent disclosure in the form of updated fee estimates, any costs billed by Hill were, it was submitted, not recoverable unless and until reviewed by the Costs Court.[15]
[15]Able Demolitions and Excavations Pty Ltd v Barry Kenna & Co [2016] VSCA 312 at [89(a)] and [97] (see also [88], [90], [103]-[104]).
Secondly, it was submitted that any right to marshal has effectively been released by the Terms of Settlement.
Clause 3 of the Terms of Settlement provides:
In consideration of the parties entering into these terms of settlement, the parties hereby release each other from all claims, suits, demands and actions the parties now have, or but for these terms could in the future have, arising out of this proceeding and the allegations, acts, facts or matters the subject of this proceeding and the Retainer.[16]
[16](CB513).
The text, it was submitted, is clear, as is the context – settlement of all claims, past and future, between the parties. The factual matrix included asserted past claims by Hill to security (including over 460 Cooper Street) for the unpaid bills, opposed and refuted by Love.[17] The purpose[18] of the settlement was, it was submitted, to bring about a resolution of all disputes.
[17](CB363).
[18]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46]-[51].
Upon entry into the settlement agreement, by clause 3 the parties released all claims arising out of the proceeding and the Retainer, which claims, objectively, included all security rights and all past and future claims founded on a security right. Both parties had independent advice; and there was, it was submitted, no reason in fact or in law to read the release down.[19]
[19]It was submitted that the argument that Grant v John Grant (1954) 91 CLR 112 requires a settlement agreement to be read down (T56.10-16; T58.10-27) was rejected in MBF Investments Pty Ltd v Nolan (2011) 37 VR 116 (VSCA) at [195], [208], [226]. See also Doggett v Commonwealth Bank of Australia (2015) 47 VR 302 at [63]-[64] per McLeish JA (Whelan JA and Garde AJA agreeing).
Upon entry into the settlement agreement, Hill obtained the right to an enforceable judgment debt on a sum certain. That was ‘the bargain struck between the parties’.[20] The bargain, it was submitted, included no provision of security. The Judgment extinguished the cause of action and any rights or possible causes of action relating to the unpaid bills including any earlier rights securing payment of the unpaid bills.
[20]Re Twenty-First Larena Pty Ltd [2010] VSC 84 at [22].
It is common ground, it was submitted, that the subject matter of the County Court proceeding was Hill’s claimed entitlement to the amounts of unpaid bills allegedly secured by the Second Mortgage.[21] If the release, properly construed, did not release the claimed right to marshal securities, it was, it was submitted, unreasonable for Hill not to advance that claim in the County Court proceeding. He is, it was submitted, estopped from doing so now.[22]
[21]Hill’s Reply [10] (CB57).
[22]Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 598, 602, 604.
Thirdly, the Trustees contended that for various reasons equity should not, in any event, assist Hill.
It was submitted that Hill had failed to establish that equity should assist him. By taking the Second Mortgage and the Variation, Hill converted himself from an unsecured to a secured creditor for $3m, and then $4m. In each case, it was security for past work. Hill did not perform a ‘huge amount’ of work of any substance thereafter[23] and the work he did perform was on ‘a cash basis, upfront’.[24] It is plain, it was submitted, that Love only ever intended to confer an interest on Hill in respect of 275 O’Herns Road, and that Hill knew that to be so. Hill seeks to rely on the Terms of Settlement and County Court Judgment, knowing that, if asked, Love would not have agreed to provide security 460 Cooper Street when settling the County Court proceeding.[25]
[23]T143.14-21.
[24]T151.9-10.
[25]T156.1-13.
Next it was submitted that the Second Mortgage was never intended to give rise to any right in relation to Love’s land other than 275 O’Herns Road. In 2005,[26] and again in 2009, Love gave Hill security over one property only, 275 O’Herns Road. Hill said:
Mr Love and I agreed that I would take security over one of his properties. He and I agreed on a second mortgage over 275 O’Herns Road.[27]
[26](CB 163.1 to 163.2).
[27]Third Hill Affidavit [30]-[31] (CB98). In the County Court fee dispute between Hill and Mr Southall, on 1 February 2010, five months after the mortgage and four months after the Variation, Hill swore that, around 25 August 2009, he told Mr Southall that, ‘Tom may be prepared to provide a second mortgage over the eastern block’ (CB 307.124 at [12] and [13]).
The common assumption[28] that Hill had no entitlement to assert any right in respect of 460 Cooper Street was, it was submitted, plainly adopted by both parties. Love acted in reliance on the common assumption when he entered into the Second Mortgage and the Variation and, in 2011 and 2012, when he refused to provide security over 460 Cooper Street to Hill.[29] The result was that Hill sued him for legal fees. Love relied on the common assumption when he entered into Terms of Settlement and consented to judgment. It is apparent, it was submitted, from Love’s refusal to provide second mortgages to Hill and from the evidence of Hill in cross-examination, that Love would have acted differently but for the common assumption: he would never have entered into an arrangement that would have conferred an interest in 460 Cooper Street on Hill.[30]
[28]Reference was made to Bullhead Pty Ltd v Brickmakers Place & Ors [2017] VSC 206 at [183]-[194], Miller Heiman Pty Ltd v Sales Principles Pty Ltd [2017] NSWCA 106.
[29]21 February 2012 letter (CB363); 27 July 2011 email (CB354.1).
[30]T156.10-13.
Hill’s letter of 21 February 2012, sent after he lodged caveats and after the sale of 275 O’Herns Road had settled,[31] makes it plain, it was submitted, that Love would not agree to provide second mortgage security in Hill’s favour over any part of his land, including 460 Cooper Street. Hill’s evidence at trial was to the same effect: he knew Love would never agree to give security to him over 460 Cooper Street, including at the time of entry into the 2013 settlement.[32]
[31]See CB390.
[32]T156.1-13. But I take it you’d accept that if, at the time you’d asked Mr Love for security in support of the $2.2m, just as he’d said to you in February 2012, you’ve got no doubt he would’ve said no?---Um, well, that would be right.
Love’s email to Hill’s solicitor on 28 March 2014 was, it was submitted, entirely consistent with his position that he would never have agreed to give Hill a right to any security interest in respect of 460 Cooper Street.[33]
[33]Exhibit l: Email from Tom Love to Caroline Dew, 28 March 2014 at 11.08 am.
Next it was submitted that there was no fully informed consent, by Love, to the Second Mortgage and that he received no independent legal advice in relation to the Variation.
It was submitted that Hill owed fiduciary duties to Love including in respect of his retainer, fees charged and security obtained.[34] Hill, it was submitted, plainly acted in his own interests by taking a mortgage in respect of past legal fees from his client. That necessarily involved a conflict of interest and duty. If otherwise enforceable, the Second Mortgage is liable to be set aside in the absence of fully informed consent. The onus, it was submitted, rests on Hill to establish fully informed consent. It was submitted that notwithstanding an independent solicitor’s certificate (referred to in more detail below), he has not done so.
[34]Equity Doctrines and Remedies (5th ed) (2015), JD Heydon, MJ Leeming, PG Turner, LexisNexis Butterworths at at [5-130]; cf T52.20-53.5.
Next it was submitted that the Second Mortgage did not constitute reasonable security and there was no substantial consideration for the Second Mortgage.
Finally, on this third matter it was submitted that Hill had engaged in inconsistent disentitling conduct. This point is referred to in more detail below.
Fourthly, it was submitted that the marshalling claim must fail for two further reasons. First, it was submitted that Hill could not seek the assistance of equity in circumstances where he had not complied with his obligations under the Legal Practice Act 1996 (Vic) (Legal Practice Act). Second, it was submitted that he could not seek the assistance of equity in circumstances where he had caused or facilitated a breach of the CBA mortgage. This point is referred to in more detail below.
D Analysis – Hill’s claim – First reason – Marshalling does not operate
Legal principles – Marshalling
Marshalling is an equitable doctrine that rests upon the principle that a senior creditor, having two funds to satisfy a debt, may not defeat a subordinated creditor who may resort to only one of the funds.[35]
[35]Equity Doctrines and Remedies (5th ed) (2015), JD Heydon, MJ Leeming, PG Turner, LexisNexis Butterworths at [11-030].
The effect of a successful marshalling claim is that the subordinated creditor is subrogated to the rights of the senior creditor. In the circumstances of this case, the doctrine would result in Hill being treated as holding a second-ranking mortgage over 460 Cooper Street on the same terms as his mortgage over 275 O’Herns Road.[36]
[36]Outline of Final Submissions of the Plaintiff, [17].
The doctrine was recently considered by the Supreme Court of the United Kingdom in National Crime Agency v Szepietowski[37] (Szepietowski). Lord Neuberger, with whom a majority agreed, explained that marshalling of securities has been allowed in the following circumstances:
… in a case where (i) his debt is secured by a second mortgage over property (“the common property”), (ii) the first mortgagee of the common property is also a creditor of the debtor, (iii) the first mortgagee also has security for his debt in the form of another property (“the other property”) (iv) the first mortgagee has been repaid from the proceeds of sale of the common property, (v) the second mortgagee’s debt remains unpaid, and (vi) the proceeds of sale of the other property are not needed (at least in full) to repay the first mortgagee’s debt. In such a case, the second mortgagee can look to the other property to satisfy the debt owed to him. [38]
[37][2013] UKSC 65.
[38][2013] UKSC 65 at [31].
Lord Neuberger considered that the principle underlying the doctrine was correctly identified by Story in his Commentaries on Equity Jurisprudence:
The reason is obvious… [By] compelling [the first creditor with the two securities] to take satisfaction out of one of the funds no injustice is done to him… But it is the only way by which [the second creditor with one security] can receive payment. And natural justice requires, that one man should not be permitted from wantonness, caprice, or rashness, to do injury to another. [39]
[39]2nd ed (1892) at pp 416-417, cited at [35].
Lord Neuberger went on to observe that the doctrine of marshalling may prevent the “unattractive and adventitious benefit” that would otherwise be accorded to a first mortgagee:
If marshalling was not available to the second mortgagee, the first mortgagee’s free right to choose the property against which he enforced could have substantial value. In effect, he could auction that right as between the second mortgagee (who would be prepared to pay him to enforce against the other property) and the unsecured creditors of the mortgagor (who, especially where the mortgagor was actually or potentially insolvent, would be prepared to pay him to enforce against the common property). [40]
[40][2013] UKSC 65 at [36].
Arrangement as to the order of sale
As noted, the Trustees submit that the doctrine of marshalling does not operate because of the existence of an arrangement between Love and CBA as to the order in which the properties were to be sold.
The Trustees rely on the following statement of principle from the author of Marshalling of Securities:
The junior creditor will be unable to marshall the senior security if the senior creditor is bound, under the terms of an agreement or arrangement with the debtor, to look to asset A or asset B in preference to the other.[41]
[41]Ali “Marshalling of securities” (1999, Oxford University Press) at [7.27].
Further support is derived, it was submitted, from Lord Neuberger’s observation in Szepietowski that marshalling is not available “to a second mortgagee where the first mortgagee is contractually bound to look first to the other property to satisfy the debt due to him”.[42] This proposition accords with the principle underlying the marshalling doctrine, being the arbitrariness of allowing the first mortgagee’s decision as to which asset to enforce to affect the second mortgagee’s rights.[43]
[42][2013] UKSC 65 at [38].
[43]Ibid.
In my opinion the evidence does not establish any agreement or binding arrangement between CBA and Love as to the order of sale of the various properties mortgaged to the CBA.
The evidence rises no higher than an accommodation by the CBA (well after execution of the mortgage) as to the desire by Love to sell 275 O’Herns Road first. Importantly, none of the mortgages executed by Love in favour of the CBA contained any provision regarding the order of sale. There is no other document containing any binding promise to such effect. In fact (and law) the contrary appears to be the position. CBA was entitled to sell any of the properties, in any order, upon the mortgages becoming enforceable.
Hill cannot recover more than he bargained for
The Trustees submit that the doctrine of marshalling will not operate to provide a claimant with greater rights than he bargained for.[44]Emphasis is placed on the fact that Love only ever agreed to give Hill security over 275 O’Herns Road, despite the fact that further security was sought.[45]
[44]The Trustees rely on a general statement to the effect that the doctrine of marshalling “…is not intended to provide the second ranking security holder with greater rights than he bargained for” in Wappett and Flannery “Securities and mortgages: Pitfalls in applying the marshalling doctrine” (2014) 25 JBFLP 129 at 130.
[45]Eg. see CB 363.
The contention that Hill is or would be recovering more than he bargained for is, in my view, a misunderstanding of the fundamental nature and effect of the doctrine of marshalling. Through the doctrine of marshalling, Hill is recovering precisely what he bargained for. Although it is correct that he never had, nor was likely to have, security over 460 Cooper Street, it does not follow that by such recovery—by operation of law (or equity)—he is getting more than he bargained for. Rather, the bargain, on a proper application of the law, includes marshalling, if otherwise available. If the position was otherwise it may not be possible to invoke the doctrine. The whole object of the doctrine is that it does indeed give a mortgagee a right or interest in a property that he or she did not bargain for and had or has no interest in but for the doctrine.
Security was released by the Variation and does not secure any advance
As noted, the Trustees submit that the Plaintiff’s marshalling claim must fail because the security relied on as the basis of the marshalling claim was rescinded or released by the Variation.
The Trustees rely on the judgment of Young J in Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd[46] (Scarel):
the legal effect of a variation of mortgage, where at least there is an alteration in the principal sum, is that a new contract has come into force compounding the terms of the previous mortgage, plus the variations.[47]
[46](1986) 4 BPR 9226. Followed in Torre v Jonamill [2002] NSWSC 152 at [24] and Bay Bon Investments Pty Ltd v Sultana [2015] NSWSC 1797 at [39] - [42].
[47](1986) 4 BPR 9226, 9227.
Hill contends that Scarel is based on a very narrow doctrine that has no application in circumstances where the variation does not alter the principal sum secured. It was submitted that any increase in the amount of the Advance occasioned by the Variation did not change the operative effect of the Second Mortgage. At all times it remained a security for all moneys present or future or actual or contingent.
In my opinion there is no basis in the submission that the Variation had the effect of rescinding or releasing the security. This was clearly not the intention of the parties. The Variation, to the extent that it was necessary, simply increased the amount of the Advance from $3m to $4m. This increase does not have the consequence contended for. The fact that there was no advance and consequently no increased advance does not alter or affect the fact or position that Love was indebted to Hill for various sums of money and it was these sums of money that the Second Mortgage was directed to and security for.
The further question is whether the security secured any advance. Although no specific advances were made, the amount recorded as an advance (and the increase) was about the amount contended to be owing for legal fees and disbursements. Although not a proper characterisation, I consider that the security does in any event, on a proper construction, cover amounts owing from time to time, or more precisely ‘each and all sums of money in which [Love] may now or hereafter be indebted’. It follows that I reject the construction submitted by the Trustees.[48]
[48]See footnote 17 of the Trustees outline of closing submissions which focuses only on one part of the definition of ‘moneys hereby secured’, namely ‘principal money secured’.
Debt arose after the sale of the first property
The final issue under this section concerns the submission that the debt only arose after the sale of the first property, that is 275 O’Herns Road, and as a consequence there was nothing to marshal.[49] I do not accept this submission. In my opinion the debt, comprising legal fees and disbursements, and fluctuating, from time to time, existed at the time of the Second Mortgage and continued and indeed continues. There was always and still is an amount owing to Hill. The debt and liability remained unaffected by any non-compliance with solicitors’ obligations of disclosure and the like, or by the later Judgment. The later Judgment does not mean there was nothing owing or no indebtedness prior to the Judgment and relevantly at the time of execution of the Second Mortgage or the sale of 275 O’Herns Road.
[49]The Trustees rely on the judgment of Lord Neuberger in Szepietowski at [52].
The authorities establish that judgment on a cause of action does not eliminate an initial obligation and replace it with another.[50] Pursuant to the doctrine of res judicata, an initial obligation or cause of action (i.e. the debt) merges in the judgment and thereafter ceases to have an independent existence. As explained by French CJ, Bell, Gageler and Keane JJ in Chamberlain v Deputy Federal Commissioner of Taxation:[51]
The rendering of a final judgment in that way “quells” the controversy between those persons. The rights and obligations in controversy, as between those persons, cease to have an independent existence: they “merge” in that final judgment. That merger has long been treated in Australia as equating to “res judicata” in the strict sense.[52]
[50]E.g. see Chamberlain v Deputy Federal Commissioner of Taxation (1954) 91 CLR 112 at 132.
[51](1988) 164 CLR 502.
[52](1988) 164 CLR 502, 516
As submitted by Hill, the fact that the initial obligation or cause of action ceases to have an independent existence does not mean that it did not exist at the relevant time so as to preclude the operation of marshalling.
EAnalysis – Hill’s claim – Second reason – The right to marshal has been released
It is necessary to consider whether by the Terms of Settlement the parties released not only all claims arising out of the proceeding and retainer but also the marshalling claim now brought by Hill.
Hill submitted that the words of the release are not wide enough to cover Hill’s right to marshal. Specifically, it was submitted that the right to marshal is not naturally described as “a claim arising out of the Retainer”. Hill submitted that the Second Mortgage did not ‘arise out of’ the Retainer but was a mechanism for enforcing the pecuniary obligations or Love to Hill.
The principles applicable to the construction of the terms of a release are well known. The starting point remains the judgment of the High Court in Grant v John Grant[53] (Grant). Grant has been cited in innumerable cases and the principles articulated in the majority judgment have not been altered by subsequent authority.[54] In Grant, the majority explained:
[A] releasee must not use the general words of a release as a means of escaping the fulfillment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor.[55]
[53](1954) 91 CLR 112, 132.
[54]Doggett v Commonwealth Bank of Australia (2015) 47 VR 302 at [62].
[55](1954) 91 CLR 112, 129-130.
However, as explained by the Court of Appeal in Doggett v Commonwealth Bank of Australia (Doggett),[56] the principle for which Grant stands is sometimes described more broadly than is justified:
It is not authority for the proposition that a release can only ever apply to matters then known to the parties. It is possible to enter into an arrangement which does settle ‘all conceivable further disputes’. The equitable principles articulated in Grant v John Grant restrain a party from unconscientious reliance on legal rights. Particular circumstances may reveal that it would be unconscientious to allow the general words of a release to be relied upon. Grant v John Grant was such a case. But there will be no room for the application of those equitable principles if it is clear that the parties intended the general words of a release to encompass all conceivable further disputes.[57]
[56](2015) 47 VR 302.
[57](2015) 47 VR 302 at [63].
I do not accept that the right to marshal has been released. I accept that claims and rights are capable of being released even in circumstances where the releasor is unaware of the claim or right. It is of course the wording of the release that is most important. Not surprisingly each party emphasised different aspects of the release. In my opinion an examination of the text and context suggests a narrower release than that contended by the Trustees or more precisely a release that does not go so far as to release any claim or right to marshal. The release is fairly wide but not wide enough. It deals with all the issues between the parties arising out of the litigation and the work performed and fees and disbursements charged under the retainer. However given the nature, extent and ambit of the dispute as set out in the pleadings, there is no warrant or basis to extend the release to include further and remoter issues such as the Second Mortgage, which had in fact been discharged in any event. It is unlikely that this would have been in contemplation notwithstanding that 460 Cooper Street had not yet been sold.
The true purpose of the release was to compromise the subject matter of the dispute as pleaded. The critical issues were legal fees and disbursements owing by Love to Hill[58] and in addition to attacking disclosure and other technical matters associated with the recovery of costs and disbursements, any negligence on the part of Hill.[59] These aspects were compromised. Clearly the state of knowledge and intention of Hill could not have been to release the right to marshal that he was in any event unaware of. In my opinion it would be unconscionable to allow the Trustees to rely on the general words in these peculiar circumstances. The Second Mortgage did not arise in the proceeding and was not relevant to any issue.
[58]The statement of claim pleads various retainers and disclosures and seeks payment of $3,575,111.77. It is in the nature of a debt collection matter.
[59]The defence essentially put Hill to the proof of his claim and raised various disclosure and notification matters. The counterclaim for negligence raises 17 particular matters relating to his skills and diligence in acting for Love. They all relate to the conduct of the various proceedings.
The Trustees further submit that, even if the release did not release the claimed right to marshal, it was unreasonable for Hill not to have advanced that claim in the County Court proceeding and he should now be estopped from advancing it in accordance with the principles in Port of Melbourne Authority v Anshun Pty Ltd[60] (Anshun). As explained by Gibbs CJ, Mason and Aickin JJ in Anshun:
… there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff’s claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding.[61]
[60](1981) 147 CLR 589.
[61](1981) 147 CLR 589 at [37].
In my opinion it was not unreasonable for Hill not to have brought his marshalling claim in the County Court proceeding. Indeed at this time he was unaware of such right and the proceeding involved other more direct issues, the right to marshal being tangential and not directly relevant particularly in circumstances where the property the subject of the Second Mortgage had been sold.
FAnalysis – Hill’s claim – Third reason – If the doctrine of marshalling applies equity should not assist
The Trustees submitted that there is no proprietary right to marshal securities unless and until the Court finds that equity should assist. Young J in Sarge Pty Ltd v Cazihaven Homes Pty Ltd[62] said –
…the probabilities are the doctrine rests on a principle of conscience and if this is so, then there is usually no proprietary right involved until the court makes a decree. There is, in my view, no proprietary right with respect to the land over which the claim for marshalling is held until the court makes an order…[63]
[62](1994) 34 NSWLR 658.
[63](1994) 34 NSWLR 658, 665.
Similarly, Neasey J explained in Commonwealth Trading Bank v Colonial Mutual Life Assurance Society Ltd[64] that marshalling does not depend upon the creation or assertion of an equitable proprietary right but upon “…the grant by the court of an equitable remedy in certain circumstances”.[65]
[64][1970] 26 FLR 338.
[65][1970] 26 FLR 338, 346.
The Trustees submitted, having regard to the matters considered below, that equity should not assist Hill by vindicating his marshalling claim.
From unsecured to secured
It is clear that Love only intended to confer on Hill an interest in 275 O’Herns Road and further, that if asked, Love would not have agreed to provide security over 460 Cooper Street in the context of the settlement of the County Court proceeding. In these circumstances, the Trustees submitted that the doctrine of marshalling should not operate so as to convert Hill from an unsecured creditor to a secured creditor with respect to 460 Cooper Street.
Although it is undoubtedly true that Hill moved from a position of being unsecured to a secured position, I do not consider that in the circumstances he has acted in any way improperly, unconscionably or without clean hands. It is entirely understandable that he wished to secure his rapidly deteriorating position and consequent exposure to increasing and perhaps extravagant counsel fees. Finally, as discussed earlier, his secured position derives precisely by the operation of the doctrine of marshalling.
Common assumption that Hill had no right or entitlement over 460 Cooper Street – The only right or entitlement was over 275 O’Herns Road
The Trustees submitted that it was commonly assumed that Hill had no entitlement to assert any right in respect of 460 Cooper Street. The Trustees submitted that Hill should now be precluded from obtaining relief inconsistent with the common assumption.
I do not accept the submission. The operation of the doctrine of marshalling is, as discussed earlier, entirely consistent with the common assumption referred to. This same point has been raised in different guises many times and it has not improved by repetition.
No fully informed consent to the security
The Trustees submitted that equity should not assist Hill in circumstances where Hill is alleged to have breached his fiduciary duty by failing to obtain Love’s fully informed consent to the Second Mortgage.
Hill submitted that the Trustees’ complaint is based on the incorrect premise that a solicitor owes fiduciary obligations in relation to the negotiation of his or her commercial and contractual relationship with a client.
I do not accept the Trustees’ submission. The evidence establishes that Love gave informed consent and was fully aware of the nature and extent of his liability under the Second Mortgage. There was and is no claim of undue influence or duress or that he was under any special disadvantage. On the contrary, Love was a highly intelligent and experienced businessman well able to comprehend the transaction. There is no evidence that he did not enter into the transaction voluntarily and fully understood the nature and extent of his liability. Indeed there was an independent solicitor’s certificate to such effect.[66] The point has no merit whatsoever.
[66]CB 288.
No consideration and not reasonable security
The Trustees next submitted that Hill’s mortgage merely secured fees for past work but did not effect a discharge of past debt and, in those circumstances, did not constitute “reasonable security” as required by s 94 of the Legal Practice Act.[67]
[67]Or s 3.4.20 of the Legal Profession Act 2004 (Vic).
It was submitted that equity should not assist Hill to enforce a security obtained in contravention of an applicable legislative provision.
I do not accept the submission. The security was in my view entirely reasonable. It and it alone was offered and accepted by Hill. Further, the consideration was not only past consideration (so far as this may be relevant) but to a sufficient extent (about $1m) further or future consideration and of course there was the usual forbearance to sue.
Inconsistent disentitling conduct
The Trustees make further wide-ranging criticism of Hill’s conduct in relation to Love and the mortgage over 460 Cooper Street. The Trustees point to the fact that Hill lodged caveats, including over 460 Cooper Street, in reliance on a different purported basis to be secured. This was submitted to be inconsistent with Hill’s present marshalling claim in respect of 460 Cooper Street.
I do not accept the submission. The evidence does not establish any inconsistent dissenting conduct in so far as this may be relevant. It was not suggested that Hill had abandoned or waived his right to assert a marshalling claim.
GAnalysis – Hill’s claim – Fourth reason – Additional basis on which marshalling fails
Obligations under Legal Practice Act
The Trustees submitted that equity should not assist Hill in circumstances where he is alleged to have contravened the Legal Practice Act by:
(a)providing estimates of total legal costs of less than $5 million but recovering in excess of $12 million; and
(b)failing or refusing to provide Love with copies of cost estimates that had been provided to CBA in support of litigation funding.
Hill submitted that the Trustees’ submissions fundamentally misconceived the consequences of non-compliance with the relevant legislation. Hill submitted that the consequences of non-compliance with the Legal Practice Act are limited to sanctions that may be imposed either on a taxation of costs or by the Legal Profession Tribunal in the context of a costs dispute. The consequence of non-compliance with the Legal Profession Act 2004 (Vic) is that the relevant costs need not be paid and could not be sued for until there was a taxation under Division 7 of Part 3.4 of the Act.[68]
[68]See s 3.4.17 of the Legal Profession Act 2004 (Vic).
I do not consider that the suggested breaches of the Legal Practice Act (the applicable legislation), if established, are sufficient, whether alone or in combination with other factors, to defeat the marshalling claim. Any breach may of course have other consequences but that is of course another matter. In any event, I am not satisfied that the asserted breaches have been established. In fact it is more probable than not that the opposite is the case. The evidence establishes, to the requisite degree, that bills were generally signed by Hill and the necessary disclosure made as required. In any event the consequence would not necessarily preclude debt recovery proceedings and enforcement of the Second Mortgage.
Breach of CBA mortgage
The Trustees submitted that the terms of the CBA mortgage precluded Love from creating an interest over any of the mortgaged properties without CBA’s prior written consent.[69] Love did not obtain the CBA’s prior written consent to Hill’s mortgage or to the conferral of any marshalling right.
[69]Common provisions A10-A13 (CB174).
The Trustees submitted that equity should not assist Hill in respect of a marshalling right which, if it exists, was facilitated by Hill in breach of Love’s obligations to the CBA and in circumstances where the terms of the CBA mortgage precluded the conferral of a marshalling right without consent.
Hill submitted that the relevant clauses of the mortgage do not have the effect contended for by the Trustees and, in fact, are not concerned with marshalling at all. Further, Hill submitted that the clauses in question could not possibly affect the rights of Hill under the Second Mortgage. In any event, Hill contended that CBA actually consented to the Second Mortgage – such consent being evidenced by the presence of the bank’s stamp on the cover sheet of the Second Mortgage.[70]
[70]CB 286.
I do not accept the Trustees’ submission. Aside from CBA being aware of the Second Mortgage, no specific breach by Hill has been pointed to. Any breach by Love, if indeed this be the case, is, absent more, of no relevance and has never been challenged or asserted by the only affected party, the CBA.
H Relevant background facts – Mrs Love’s claim
At the time of their marriage, in September 2000, Love was the sole registered proprietor of 460 Cooper Street. It was unencumbered.
Mrs Love deposes that shortly prior to their wedding in September 2000, Love promised her that on their marriage she would have an equal share in all of his properties.[71]
[71]Mrs Love’s affidavit [4] (CB105).
Mrs Love asserts that ‘on 1 March 2016, Thomas [Love] made a written declaration of my interest in all of his property’.[72]
[72]HL-26 (CB741).
Mrs Love also claims a ‘joint endeavour trust’ by virtue of contributions which she says she made from 7 December 2012 to the ‘clean fill business’; droving cattle; weed management; and dust control.[73]
[73]Mrs Love’s affidavit [48] (CB112-113).
As noted earlier, similar claims were made by Mrs Love in the County Court against CBA in relation to 275 O’Herns Road (County Court proceeding).[74] The claims were dismissed.
[74]Commonwealth Bank of Australia v Love & Anor [2015] VCC 1653 (CB657).
Further relevant facts will be referred to as and where necessary.
Mrs Love’s contentions
As noted, Mrs Love relies on an oral declaration of trust made in 2000 prior to her marriage to Love. She also relies on a written declaration of trust signed by Love on 1 March 2016 shortly before his death and at a time when he was gravely ill. Mrs Love submits that either of these declarations are sufficient to give her a one-half interest in the Property.
Finally, as noted, Mrs Love claims a ‘joint endeavour trust’ based on contributions made from 7 December 2012 to the:
(a) ‘clean fill business’ on 460 Cooper Street; and
(b) the lease to Prepared Organic Compost Pty Ltd.[75]
[75](CB535).
According to Mrs Love, the contributions made by her comprise both direct financial contributions and indirect contributions.
Trustees’ contentions
The Trustees submitted that the court should not be satisfied that the oral declaration was made. It is not supported by any contemporaneous evidence, by the claim or evidence of Mrs Love in previous proceedings or by the evidence of Love in this or previous proceedings. It is inconsistent both with the written declaration made in 2016[76] and Mrs Love’s caveat.[77]
[76]Written declaration (CB741).
[77]Caveat (CB394).
The Court should, it was submitted, accept and act upon Mrs Love’s evidence that:
… when we married, I didn’t think I had an entitlement to anything. And over a period of time when I was married, the clock ticked over and I thought, you know, I’ve been married long enough. I should be entitled to have my name on something to say that I have an asset there’.[78]
[78]T248.15-20.
In the County Court proceeding and in order to substantiate a caveatable interest, Mrs Love, although legally represented, did not raise or rely on the declaration.[79] If she is not estopped from doing so now, the fact that it was never previously asserted is telling.
[79]Commonwealth Bank of Australia v Love & Anor [2014] VCC 887.
Love did not refer to the declaration in his affidavit.[80] He did not refer to it in the County Court proceeding. In earlier compensation proceedings he denied that Mrs Love was (in 2003) the equitable owner of his properties (including 460 Cooper Street) and gave evidence that it was his land.[81]
[80]Affidavit of Love filed 16 March 2016 (CB83).
[81]Supreme Court proceeding 10146 of 2005, on 26 July 2012: T240.26-30 (CB472).
The ‘written declaration’ signed by Love, dated 1 March 2016 (when he was gravely ill), says that he ‘decided that all of my assets … were held by me as trustee for [Mrs Love] during my lifetime and that they be left to her upon my death’. That is not, it was submitted, a promise of an equal share of property. The document also says that ‘Helen Love’s claim in Caveat AJ649538H dated 2nd May 2012 is consistent with this declaration’. That statement is accurate as to the extent of the interest claimed (over the whole of the property), but not, it was submitted, as to the nature of the interest (Mrs Love’s evidence was that she understood the interest claimed in her caveat was, as it states, based on an implied trust).[82]
[82]T263.28-31; T264.1. Caveat (CB394).
The declaration could not, it was submitted, confer an interest in land.[83] Section 53(1)(b) of the Property Law Act 1958 requires ‘a declaration of trust respecting any land … must be manifested and proved by some writing signed by some person who is able to declare such trust’. The writing may be created after the declaration of trust, but only by a person who is able to declare the trust. Section 53(1)(c) requires any disposition of land to be in writing at the time of the disposition. (emphasis added)
[83]Section 126 of the Instruments Act 1958 (Vic).
In her counterclaim, prepared when she had legal representation, Mrs Love did not seek to rely on any matters concerning the period 30 September 2000 to 7 December 2012. If Love promised Mrs Love an equal interest in his property in September 2000, it was a gift, and ‘there is no equity in this Court to perfect an imperfect gift’.[84]
[84]Milroy v Lord (1862) 4 De GF & J 264 at 274; 45 ER 1185 at 1189 and Pascoe v Turner [1979] 1 WLR 431 at 435.
If Mrs Love were otherwise entitled to rely upon the declaration, she is, it was submitted, estopped from doing so as she did not assert that claim in previous proceedings in which she claimed (against Love) an interest in his properties.[85]
[85]Port of Melbourne Authority v Anshun Pty Ltd (No 2) (1981) 147 CLR 589 at 602-604.
The substratum of any joint endeavour ends upon the bankruptcy of one of the participants.[86] Accordingly, it was submitted that this claim is limited to contributions made by Mrs Love within the 18 month period from 7 December 2012 to 6 May 2014 (the Relevant Period). Insofar as Mrs Love’s evidence relates to contributions made outside the Relevant Period (including attendances at meetings from 2000,[87] and work relating to quarrying or the ‘Epping Land Litigation’,[88] or after Love became ill),[89] it is not relevant to the claim by Mrs Love.
[86]Australian Building & Technical Solutions Pty Limited v Boumelhem [2009] NSWSC 460 at [94].
[87]See T246.5-247.31.
[88]Mrs Love says in her affidavit at [20] that this was ongoing between around 2003 and 2010 (CB 107).
[89]Mrs Love says in her affidavit at [18] that Love was diagnosed with gastric cancer in June 2014 (CB107), and she attended to the majority of the works in relation to 460 Cooper Street and the Clean Fill Business for the duration of his illness: [54] (CB114).
To found a constructive trust as discussed in Muschinski v Dodds[90] and Baumgartner v Baumgartner,[91] the contribution made by the relevant party must, it was submitted, go further than enhancing the material wellbeing of parties to the relationship; it must contribute to the acquisition, maintenance or improvement of the property.[92]
[90](1985) 160 CLR 583.
[91](1987) 164 CLR 137.
[92]Cressy v Johnson (No 3) [2009] VSC 52 at [195]. Mrs Love did not contribute to the acquisition of 460 Cooper Street: T251.21-T252.3.
Mrs Love relies in the particulars to [9] of her counterclaim on the matters addressed above, and to her ‘contributions to the clean fill business’.[93] In her affidavit, she says that her role in respect of the business comprised reviewing documents and ensuring work was undertaken in accordance with the ESG Agreement and the Work Authority, droving cattle, weed management and dust control.[94] None of these are, it was submitted, obligations arising under the terms of the ESG agreement.[95] There is no evidence as to the source of the asserted obligations or, if the work was done, that it added to the value of the land. The clean fill business was operated by ESG. There is no evidence that the business required droving cattle, weed management or dust control. Mrs Love’s work in relation to cattle was addressed by Kennedy J[96] and in this proceeding her evidence concerned events ‘prior to 2012’.[97] Mrs Love also relied on spraying weeds in her claim before Kennedy J[98] and her evidence in this case also concerned an earlier period.[99] No evidence at all has been adduced in respect of ‘dust control’.
[93]Counterclaim [9] (CB46-47).
[94]Mrs Love’s affidavit [48] (CB112-113).
[95]ESG Agreement (CB501).
[96]Commonwealth Bank of Australia v Love & Anor [2015] VCC 1653 [135], [139], [143] (CB678-680). It was conceded that this work was done across multiple properties by her and Love and that Love had made a claim in respect of his work in the compensation proceeding.
[97]T272.19-26.
[98]Commonwealth Bank of Australia v Love & Anor [2015] VCC 1653 at [135] (CB678).
[99]T243.12-22.
Insofar as Mrs Love seeks to raise issues the subject of determination by the Court in the County Court proceeding, the Trustees submitted that she is estopped from doing so.
Mrs Love gave evidence that she attended many meetings,[100] but there was no evidence that they or any other activities led to an improvement in the value of the land. The evidence does not, it was submitted, establish that the value to be attributed to any consideration given by Mrs Love was equal to or exceeded the value of the property she claims. Accordingly, any transfer or disposition by Love was, it was submitted, void pursuant to s 120 of the Bankruptcy Act.
[100]T270.27- T271.2.
Even if Mrs Love undertook work within the Relevant Period that in some way could have added value to the property, it was not of itself sufficient to found an expectation of an interest in the land, and it would not be unconscionable to permit the estate to retain any benefit from that work. Even if the necessary unconscionability could be established, it is impossible, it was submitted, to value any interest on the evidence adduced.[101]
[101]See in this regard, relevantly, Commonwealth Bank of Australia v Love & Anor [2015] VCC 1653 at [170]-[171].
Analysis – Mrs Love’s claim – Oral declaration of trust
For the reasons given by the Trustees, with which I entirely agree (see paragraphs [102]-[105]), I do not consider that the oral declaration of trust is effective to convey the alleged interest. Nothing further need be said about this claim.
J Analysis – Mrs Love’s claim – Written declaration of trust
For the reasons given by the Trustees, with which I entirely agree (see paragraphs [106]-[109]), I do not consider that the written declaration of trust is effective to convey the alleged interest.
The ‘written declaration’ signed by Love and dated 1 March 2016 was made after all of Love’s interest in his estate had vested in the Trustees by s 58 Bankruptcy Act 1966 (Cth). Consequently, Love was not a person who was capable of declaring a trust for the purposes of s 53(1)(b) Property Law Act 1958 (Vic).
Further, any disposition of land by Love to Mrs Love was required to be in writing at the time of the disposition, pursuant to s 53(1)(c) Property Law Act 1958 (Vic). The only written records of disposition were made in 2016, during which no disposition could be made by Love.
K Analysis – Mrs Love’s claim – Joint marital endeavour
In my opinion the evidence does not establish that Mrs Love contributed to the acquisition, maintenance or improvement of 460 Cooper Street so as to entitle her to the interest claimed.
Legal Principles
The principles governing the imposition, by equity, of a constructive trust in circumstances involving the failure of a joint relationship can be traced to the judgment of Deane J in Muschinski v Dodds.[102] His Honour’s reasoning was later adopted by a majority of the High Court in Baumgartner v Baumgartner.[103]
[102]Muschinski v Dodds (1985) 160 CLR 583. See also Sivritas v Sivritas & Anor [2008] VSC 374.
[103]Baumgartner v Baumgartner (1987) 164 CLR 137. See recently Saba v Plumb [2017] NSWSC 622; Nolan v Nolan [2015] QCA 218; Cressy v Johnson [2009] VSC 52.
Deane J described the constructive trust as:
…a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle[104]
[104]Muschinski v Dodds (1985) 160 CLR 583, 614. See also Baumgartner v Baumgartner (1987) 164 CLR 137, 149-150.
His Honour described the circumstances in which equity would intervene as:
…where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that the other party should so enjoy it….in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do[105]
[105]Muschinski v Dodds (1985) 160 CLR 583, 620.
The removal of substratum of a joint relationship or endeavour without attributable blame has been held to include the bankruptcy[106] of one of the parties.
[106]Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460 at [94].
Despite the focus on “unconscionable conduct”, it is well established that the principles established in Muschinski and Baumgartner do not permit the importation of idiosyncratic notions of fairness and justice. The availability of the constructive trust is governed by the application of strict equitable principle, or “the legitimate processes of reasoning, by analogy, induction and deduction from the starting point of a proper understanding of the conceptual foundation of such principles”.[107]
[107]Muschinski v Dodds (1985) 160 CLR 583, 615.
In assessing whether the assertion or retention of the benefit of property would be unconscionable, it is necessary to determine the respective contributions made by the parties to the property in question. In so doing, the court may take into account contributions extending beyond purely financial contributions to the property. The substantiality of the proven contributions is an important factor the court considers in determining whether there has been unconscionable conduct.[108]Inter alia, these may include contributions to family welfare by way of domestic assistance such as homemaking and parenting. Such contributions should not be regarded as inferior,[109] nor should such contributions be valued in reference to the commercial value of those services.[110]
[108]Anson v Anson [2004] NSWSC 766, [43]; Robinson v Rouse [2005] TASSC 48 at [29].
[109]Bryson v Bryant (1992) 29 NSWLR 188, 203-4; Mallett v Mallett (1984) 156 CLR 605. See also Grech v Deak-Fabrikant (No 3) [2015] VSC 581.
[110] Giller v Procopets [2008] VSCA 236 at [330].
A blanket claim by a plaintiff over all of the defendant’s property based solely on promises by the defendant to the plaintiff is not sufficient to raise in the plaintiff an equitable interest under a constructive trust.[111] Regard must instead be had to the contributions made to specific assets over which an equitable interest is claimed. The contributions need not necessarily have been made directly to the acquisition or improvement of the property in issue, but must be linked (albeit indirectly) to the acquisition, maintenance and improvement of the property. It is not sufficient that one person has merely benefited from the contributions of another, or that the contribution has enhanced the material wellbeing of parties to the relationship.[112]
[111]Stowe v Stowe (1995) 127 FLR 25, 35.
[112]Cressy v Johnson [2009] VSC 52 at [195].
In Cressy v Johnson, the Court stated:
“…in order to be entitled to an interest under a constructive trust, the plaintiff must establish that the contribution, on which she relies, was not simply directed to advancing the welfare of the defendant, and of the family unit of which he was then a part. Rather, the contribution of the plaintiff, on which the constructive trust is to be based, must have been directed to the acquisition and maintenance of the assets in respect of which the plaintiff claims an interest under the constructive trust….As the decisions in Green, Stowe and Lloyd v Tedesco make clear, the contribution must not be solely directed to maintaining the personal relationship between the parties.”
The contributions of a spouse through homemaking and parenting are viewed as ‘enabling’ their partner to earn income that may then be used to acquire, maintain or improve property, thus indirectly contributing to such property in a manner that may ground an equitable interest. In this way, a wife’s contribution as a homemaker should be recognised in a substantial, and not merely token, way, recognising that by her attention to the home and the children, the wife frees her husband to earn income and acquire assets.[113]
[113]Mallet v Mallet (1984) 156 CLR 605, 623 (Brennan J).
In Black v Black, Clarke JA relevantly observed:
In order to evaluate the particular contribution the court is, in my opinion, required carefully to examine the role played by the person who claims to have contributed as a homemaker and parent. Obviously, where a woman has, over a long period, assumed virtually all the responsibility of maintaining the home and bringing up the children, has done so in a responsible and energetic manner, and has devoted most of her time to doing that and thus freed her partner to earn income to be used for the general betterment of the family, her contribution would have to be regarded as substantial and significant. Whether her contribution should be regarded as less than, equal to, or greater than the financial contribution by the wage-earning partner must depend upon the circumstances of the case, which will undoubtedly include the length of the relationship, the nature of the wage-earner’s contributions and the care, devotion and services of the homemaker.[114]
[114]Black v Black (1991) 15 Fam LR 109, 117.
In Cressy v Johnson,[115] Kaye J determined the defendant held certain properties on trust for the defendant, having been acquired during a nine year domestic relationship and to which the defendant had made indirect financial and non-financial contributions, though the plaintiff did not directly contribute to the acquisition or maintenance of the properties themselves. The plaintiff’s role in enabling the defendant to acquire, finance and maintain the properties was central to His Honour’s reasoning, as can be seen at [199]:
“By directing her part-time earnings to the maintenance of the defendant and the family, the plaintiff enabled the defendant to devote his income largely to the acquisition and maintenance of the properties. Equally, by undertaking the burden of prime carer for the three children, the plaintiff enabled the defendant to focus his efforts on acquiring, financing and maintaining the properties in his ever expanding portfolio. The contributions made by the plaintiff, were, clearly, postulated on the continuation of her relationship with the defendant…
In my view, in that way the contributions made by the plaintiff were relevantly directed to the acquisition and maintenance of the properties in the sense described by the Full Court of Western Australia in Lloyd v Tedesco, and in the manner contemplated by the High Court in Baumgartner.
[115]Cressy v Johnson [2009] VSC 52.
In Read v Nicholls,[116] the plaintiff, Ethel Read, claimed an equitable interest by means of constructive trust in certain properties held by the defendant, Kyran Nicholls, with whom she had maintained a de-facto relationship for over 30 years. They did not raise children. The plaintiff and defendant cohabited, and although the plaintiff did not financially contribute to the acquisition of the properties, Nettle J determined the plaintiff made a partial financial contribution to household expenses and shouldered the bulk of the housework. Whilst His Honour found equity would intervene to impose a constructive trust over the property, Nettle J sought to isolate the sources of income to which the plaintiff’s homemaking could not be said to contribute, thus reducing the plaintiff’s equitable interest. His Honour stated at [63]:
…I take the view that the relationship between Ethel Read and Kyran Nicholls endured so long and that the support and comfort that she is likely to have given to him for the period of its duration were so significant that Ethel Read’s contribution should be regarded as equal to the financial contributions made by Kyran Nicholls out of his income. But I am also of the view, consistent with the sort of approach that was adopted in Baumgartner and Muschinski, that the financial contributions made by Kyran Nicholls from sources other than income should be subtracted from the purchase price of the properties before the calculation of the equal shares and the shares should be computed on the basis of the balance.[117]
[116]Read v Nicholls [2004] VSC 66.
[117]Ibid at [63].
This lead to an assessment that the defendant held property on constructive trust as to 5.1% in respect of one property, and 14.6% as to another property.
Similarly, in Parij v Parij,[118] the plaintiff appealed a finding of the District Court of South Australia that as the plaintiff had made no financial contribution to certain property held by the defendant, she was not entitled to an interest in them. The Full Court of the Supreme Court of South Australia upheld the appeal, finding the plaintiff’s indirect contributions to the properties by way of homemaking would make it “unconscionable now to deny her such an interest in those assets as represents the worth of her substantial if indirect contributions to them”.[119] Debelle J (with whom Cox and Millhouse JJ agreed) found the plaintiff had “made a substantial contribution to the business by acting as the primary carer for the family and by freeing her husband to pursue his professional activities”.[120] In so doing, the plaintiff’s homemaking contributions had enabled the defendant husband to “prosper in his business” and “accumulate a number of substantial assets”, entitling the plaintiff to a partial share in the joint business as well as two properties which were purchased with the proceeds of the business.
[118]Parij v Parij (1997) 72 SASR 153.
[119]Parij v Parij (1997) 72 SASR 153, [1].
[120]Ibid.
In Engwirda v Engwirda,[121] the Queensland Court of Appeal upheld a finding at first instance rejecting the imposition of a constructive trust, given there was “no sufficient nexus between the domestic and other work done by the appellant and the gaining, improvement or retention of those assets”.[122] The appellant and first respondent had cohabited in a de-facto relationship over 15 years. The respondent carried on business in building and development of home units on the Gold Coast with his brother, having commenced the business 15 years prior to commencing a relationship with the appellant. During their cohabitation, the appellant made largely domestic contributions to the household, but also held nominal positions with the respondent’s businesses. The Court noted:
…it is plain that the appellant made no significant direct contribution to the first respondent’s businesses. It is true that she was a director of a number of Engwirda companies at various times. But the evidence is against her having had any expertise to contribute to their businesses and any such directorships are more likely to be explicable by convenience or by the first respondent’s need to have a director who would do what he wanted in respect of company matters than by any contribution which she would have made.
[121]Engwirda v Engwirda [2000] QCA 61.
[122]Ibid at [30].
Upon the end of their relationship, the appellant claimed an equitable interest in the property held by the respondent by way of constructive trust, alleging she had made a contribution to the gaining, improvement or retention of that property, on the basis and for the purposes of their joint relationship.[123] However, the Court noted the absence of a connection between the appellant’s domestic contributions and the gaining, improvement, or maintenance of the property, observing that given the respondent’s success prior to the commencement of the relationship “the likelihood is that those assets were acquired, and their value increased, entirely by the business acumen and the entrepreneurial skills of the first respondent and his brother”.[124]
[123]Ibid at [23].
[124]Ibid at [29].
As noted at [26]:
Where assets acquired in the name of one of the parties are of a domestic kind or comprise a small business in which the parties contemplate working together, domestic work done or domestic payments made by one of the parties can readily be seen as contributing to the acquisition of those assets even where there has been no pooling of funds. But it is much more difficult to see any such nexus between domestic expenditure or work and the acquisition of assets the acquisition of which requires the successful management of a large business enterprise of the kind and size which the first respondent conducted with his brother.[125]
[125]Ibid at [26].
Consideration
In my opinion the evidence in support of this claim is general, vague and entirely unsupported. As in the County Court proceeding, Mrs Love has failed to meet the burden of establishing by admissible and sufficient evidence, the claim that she makes.
Her claim in relation to direct financial contributions (if indeed this was the claim) must fail. The claim has not been pleaded and is not referred to in Mrs Love’s affidavit. However she gave evidence that she contributed $200,000 of her pre-marriage funds for the purchase of items used on the properties. There is no evidence of this and it is self-evidently simply not possible to act on or make any findings based on her evidence. Other than a bald statement there is no evidence of such expenditure at all and in particular in relation to 460 Cooper Street.
Her claim in relation to indirect financial contributions must also fail for similar reasons. In short, there is simply no evidence beyond assertion. The claim was not pleaded and is not deposed to in Mrs Love’s affidavit. In evidence she said that her salary was used not only to make direct financial contributions to the business and the properties but that she contributed to the household expenditure. At one point she gave evidence that $400,000 was used for legal expenses.
The claim must fail at every level leaving aside the fact that it was not pleaded. First, there is simply no evidence of any such contributions. There is no evidence of her salary from time to time or her financial resources generally. There is no evidence of household expenditure or the extent of her contribution thereto. Second, there is no evidence that any such contribution (if indeed it was established) enabled or contributed in any way to the maintenance or improvement of the Property. This essential and critical link is missing. In sum the evidence is vague, general and entirely unconvincing.
The remaining claim, which has been pleaded and deposed to is the work done by Mrs Love on the Property. Again the evidence is so vague and general that it is simply not possible to act on it or make any findings.
The contributions made by Mrs Love to 460 Cooper Street are pleaded in paragraph 5 of her counterclaim. Paragraph 5 is in the following terms –
5.From 7 December 2012, Helen Love made contributions to a joint marital endeavour with Thomas Love to improve and carry on a business on 460 Cooper Street.
Particulars
Clean Fill Business
On 12 December 2012, the Third Defendant and Thomas Love executed a Fill Supply Agreement (Fill Supply Agreement) with ESG Epping Pty Ltd (ESG) collectively as “the Client”, being the parties authorised to grant ESG the exclusive right to import fill onto 460 Cooper Street (effective from 7 December 2012).
Helen Love and Thomas Love were partners in a business whereby 460 Cooper Street was utilised as a clean fill site (Clean Fill Business), including in respect of the Fill Supply Agreement. Helen held a day-to-day role in the Clean Fill Business that included:
(a)Reviewing documentation produced by ESG, including fill intake logs, daily site diaries, file site assessments and site instructions, and approving the sources of the fill allowed to enter 460 Cooper Street;
(b)Directing ESG where to place fill in accordance with the quarry plan;
(c)Policing 460 Cooper Street to ensure that all works were being undertaken in accordance with the Fill Supply Agreement, the relevant Work Authority pertaining to 460 Cooper Street and other statutory obligations and Helen Love and Thomas Love’s instructions to ESG;
(d)Droving cattle in and out of different parts of 460 Cooper Street;
(e)Weed management, i.e. removing weeds from deposited fill; and
(f)Dust control.
Lease
On 16 March 2014, the Third Defendant and Thomas Love executed a lease (Lease) with Prepared Organic Compost Pty Ltd (POC) to let part of 460 Cooper Street to POC.
In her affidavit Mrs Love deposes as follows –
44.Thomas and I conducted a business that utilized 460 as a clean fill site (Clean Fill Business). I always had a large role in the day-to-day management of the Clean Fill Business and particularly in the period around when Thomas became ill.
45.Prior to 2012, the quarry site located at 460 was licensed to Conundrum Holdings Pty Ltd to conduct a quarry. When the license expired in 2012, Work Authority WA149 (under the Mineral Resources (Sustainable Development) Act 1990), permitting extractive works at 460, was transferred from Conundrum Holdings Pty Ltd to Thomas so that we could conduct the Clean Fill Business. Thomas subsequently transferred WA149 to me in 2016. That transfer was granted with the Minister’s consent on 19 April 2016. Exhibited hereto and produced to me and marked ‘HL-20’ is a copy of the Minister’s Consent to Transfer an Extractive Industry Work Authority dated 19 April 2016.
46.Thomas and I had many meetings together, and also Thomas on his own when I was at work, which he would update me on. We endeavoured to have meetings outside of my working hours if possible, to ensure that I could attend. Some of the businesses and persons I recall that we met with were: Delta Demolitions, Metro Waste Management Group, Earth Lift, Paul Annesley, Barro Group, Martin Bartlett, Orica (concerning relocating their explosives container from a property on the south side of Cooper Street to 460 Cooper Street, and others.
47.On around 12 December 2012, Thomas and I entered into an agreement (ESG Agreement) with ESG Epping Pty Ltd (ESG) for the use of 460 as a clean fill. Thomas and I drafted the ESG Agreement with ESG’s staff. Exhibited hereto and produced to me and marked ‘HL-21’ is a copy of the ESG Agreement.
48.My role in the Clean Fill Business in respect of the ESG Agreement included:
(a)Reviewing documentation produced by ESG, including fill intake logs, daily site diaries, preparation of invoices, file site assessments and site instructions, and approving the sources of the fill allowed to enter 460 Cooper Street;
(b)Directing ESG where to place fill in accordance with the quarry plan;
(c)Policing 460 Cooper Street to ensure that all works were being undertaken in accordance with the Fill Supply Agreement, the relevant Work Authority pertaining to 460 Cooper Street and other statutory obligations and Helen Love and Thomas Love’s instructions to ESG;
(d)Droving cattle in and out of different parts of 460 Cooper Street;
(e)Weed management, i.e. removing weeds from deposited fill; and
(f)Dust control.
49.On 23 September 2013, the ESG Agreement was extended by agreement of the parties. Exhibited hereto and produced to me and marked ‘HL-22’ is a copy of the document with subject “Re: Clonard 3 landfill site at 460 Cooper Street Epping”.
50.I believe that for the year ended 31 December 2015, royalties totalling approximately $1.5m were due under the ESG Agreement. This figure is referred to at paragraph A.3 of the Report to Creditors of Thomas’ bankrupt estate dated 6 May 2016. Exhibited hereto and produced to me and marked ‘HL-23’ is a copy of the Report to Creditors of the Bankrupt Estate of Thomas James Love, dated 6 May 2016.
51.In around August 2016, ESG produced to my solicitors an account of royalties due in the period February to July 2016. Further royalties will have accrued after that period. I understand that ESG now asserts that I have no entitlement to any royalties incurred from February 2016 onwards and has requested that I consent to ESG’s retention of these royalties. Exhibited hereto and produced to me and marked ‘HL-24’ is a copy of ESG Epping Pty Ltd – Transaction Detail by Account dated 30 August 2016.
52.On 16 March 2014, Thomas and I entered into an agreement (Prepared Organic Compost Agreement) with Prepared Organic Compost Pty Ltd for the use of part of 460 for the processing of spent mushroom compost and top soil. Exhibited hereto and produced to me and marked ‘HL-25’ is a copy of the Prepared Organic Compost Agreement, dated 16 March 2014.
53.In relation to the Prepared Organic Compost Agreement, the Clean Fill Business is required to provide access to 460 and to monitor and approve the fill being deposited pursuant to the agreement.
54.For the duration of Thomas’ illness, I attended to the majority of the works in relation to 460 and the Clean Fill Business.
The first point to note is that Mrs Love pleads that the contributions, by way of work done, were ‘from 7 December 2012’ (paragraph 5). The nature of the work relating to the joint marital endeavour was said to ‘improve and carry on a business on 460 Cooper Street’. It is not entirely clear why contributions to a business had the effect or consequence of maintaining or improving the Property. There was simply no evidence in this regard. Aside from these matters there are, as indicated, more fundamental difficulties with the claim.
The basis of the claim is the alleged day-to-day role of Mrs Love in the clean fill business. The nature of such involvement is set out in paragraphs (a)-(f) of the particulars to paragraph 5. Assuming such involvement, there is no evidence of the extent necessity and relevance thereof so as to enable even some basic quantification to be made.
Further, to the extent that the involvement related to the business, it is, as pointed out, unclear as to how this amounts to maintaining or improving the Property. In relation to the droving of cattle, weed management and dust control, and apart from sufficient evidence as to the nature and extent thereof, there was no evidence that these activities were required or necessary.
Finally, there is no evidence that the work was done on the basis of some form of expectation of an interest in the Property. Rather, it appears to be ad hoc work done from time to time and as part of assisting in the business.
Similar arguments were made to Kennedy J in the County Court proceeding[126] in relation to an asserted interest in 275 O’Herns Road. Her Honour said –
[126]Commonwealth Bank of Australia v Love & Anor [2015] VCC 1653.
166.This is to be distinguished from the present case where the work done by Mrs Love was intermittent throughout her marriage to date, frequently involved “assistance” rather than her own independent work, and was not her primary occupation. The work is in the nature of ad hoc assistance to a spouse, common in any marriage. It simply does not give rise to the level of a joint endeavour for the purposes of the Baumgartner principles.
…
169.Even if the principles operate, Mrs Loves’ ad hoc assistance was relatively insignificant and undefined. As such, I am not persuaded that it would be unconscionable for Mr Love to retain the benefits resulting from Mrs Love’s contributions in any event.
170.Moreover, if the above analysis is incorrect and there is the unconscionability required for the imposition of a constructive trust under the Baumgartner principle, there would be considerable difficulties in valuing any interest in circumstances where much of the evidence was constituted by conclusory assertion. Thus:
a.the extent of Mrs Love’s involvement in the repair of water troughs, tanks, fencing, electric fencing and cattle yards is unknown;
b.the number and the locations of the trees planted by Mrs Love is unknown; and
c.the precise extent of Mrs Love’s litigation “assistance” is unknown.
The comments are equally applicable in this case. I do not consider that there is any unconscionability in denying Mrs Love an interest in the Property. The claim must fail.
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