Ivan v Rusec - [2016] WASC 70

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: IVAN -v- RUSEC [2016] WASC 70

CORAM: MASTER SANDERSON

HEARD: 10 & 11 FEBRUARY 2016

DELIVERED : 8 MARCH 2016

FILE NO/S: CIV 2655 of 2015

BETWEEN: ANDRAS IVAN
Plaintiff
AND
DENNIS ROBERT RUSEC
MARIJELA RUSEC
Defendants

Catchwords:

Equity - Family arrangement where plaintiff paid greater share in joint enterprise - Whether plaintiff entitled to equitable damages from defendants - Whether release in equity - Turns on own facts

Legislation:

Nil

Result:

Claim dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr S J Blyth
Defendants: In person

Solicitors:

Plaintiff: Lewis Blyth & Hooper
Defendants: In person

Case(s) referred to in judgment(s):

Baumgartner v Baumgartner (1987) 164 CLR 137
Muschinski v Dodds (1985) 160 CLR 583
Wright v Vanderplank (1856) 8 De GM & G 133

MASTER SANDERSON: This is the story of a well intentioned investment gone wrong. Worse still it involves related parties. The defendants are husband and wife. The plaintiff is the father of the second‑named defendant. This case will have done nothing to encourage harmonious intra‑family relations.
This action was originally commenced in the District Court. On the plaintiff's best case his claim is for $87,555.18. Presumably action was not taken in the Magistrates Court because it was initially thought the claim would exceed the jurisdiction of that court. In any event the matter progressed in the District Court and actually proceeded to trial on 21 July 2015. During the opening exchanges between counsel and Judge Goetze the question of whether or not the relief claimed by the plaintiff was purely equitable was raised. His Honour was of the view that was the case and counsel did not disagree. Accordingly the matter was transferred to this court on the basis the District Court did not have jurisdiction to grant purely equitable relief.

The plaintiff's pleaded case

The plaintiff's statement of claim has been through a number of iterations. At the commencement of the hearing counsel moved to amend the statement of claim in terms of the minute of proposed substituted statement of claim dated 7 July 2015. Leave was granted. The plaintiff pleads in or about March or April 2006 the plaintiff and the defendants entered into 'a wholly oral agreement'. Pursuant to this agreement the plaintiff and the defendants were to purchase a property situated at 23 Labyrinth Way, South Lake. The plaintiff was to contribute $100,000 to the purchase price. The rest of the money was to be borrowed from the Commonwealth Bank and secured against the property. When acquired the Labyrinth Way property would be divided into two strata titled lots. There were two residences on the property at the time of purchase and it was intended after subdivision one property would be held by the plaintiff and the other would be held by the defendants. The plaintiff further pleads that in consideration of the plaintiff contributing $100,000 to the purchase price of the property he would be liable to pay one‑third of any mortgage payments with the defendants paying two‑thirds of the payments.
The Labyrinth Way property was purchased on 16 May 2006 for $518,250. The plaintiff wound up contributing $106,357.17 by way of deposit and the property was mortgaged to the Commonwealth Bank in an amount of $417,207.
The plaintiff pleads that in or about July or September 2006 the defendants requested his assistance to borrow further monies from the Commonwealth Bank. The plaintiff agreed subject to the defendant paying the additional mortgage principal and interest and collateral costs in relation to this extra borrowing. The amount of the borrowing which is described in the pleading as 'the Viridian Line of Credit' was $105,000.
Not long after the purchase of the property the plaintiff became an employee of the defendants' business which was known as 'New Life Repair Services'. It is pleaded from the settlement of the purchase of Labyrinth Way until late December 2009 the plaintiff paid his share of the mortgage payments from the earnings he received from New Life Repair Services. It is further pleaded after the parties fell out the plaintiff made a series of eight payments on account of the mortgage. These payments were made between 20 January 2010 and 21 January 2011.
It is pleaded that the Labyrinth Way property was subdivided and the two residences became known as 23A and 23B Labyrinth Way. The plaintiff's property at 23B Labyrinth Way was sold in March 2011. At settlement the sum of $301,049.75 was paid to the Commonwealth Bank to reduce the mortgage. The defendants' property at 23A Labyrinth Way was sold for $308,000 and settlement of that transaction was effected on 22 November 2011. Of the funds paid at settlement $112,000 was used to discharge the mortgage and $110,656.80 was used to discharge the Viridian Line of Credit. The plaintiff received an amount $74,727.24.
The plaintiff also says that certain 'improvements, repairs and renovations' were carried out to the two properties. Although the pleading does not follow through with this aspect of the claim it seems implicit the plaintiff was claiming from the defendants some amount for the improvements undertaken in relation to the properties.
In his written submissions counsel for the plaintiff calculated what he said was his client's entitlement. The net proceeds of sale of the two properties was $599,049.75. The mortgage on the property totalled $417,207 leaving a balance of $181,842.75. The plaintiff then says he is entitled to return of the money he put into the transaction - that is to say, $106,357.17. That leaves a balance of $75,485.58. Counsel then submitted as follows:
If the parties equally contributed to repayments of the mortgage and equally contributed to the renovation costs, and equally contributed to rates and taxes, the Plaintiff would have received in addition to $106,357.17, half of $75,485.58 ..., thus in aggregate the Plaintiff would have received $144,099.96.
As the plaintiff has already received the $74,727.24 he is said to be entitled to $69,372.72. In addition to that the plaintiff claims interest which brings the final figure up to $87,555.18.
The defence has also been through a number of iterations. For a time the defendants were legally represented and the pleaded defence was in what might be called a conventional form. As the defendants represented themselves at trial the document they sought to have stand as their defence has certain limitations. In the original defence, which was filed 11 October 2013, there appeared as par 12 the following:
12.As to paragraph 12 of the statement of claim the defendants:
(a)admit that the plaintiff received a payment of $74,727.24 ('the Payment');
(b)say that, on or about the date of sale of Unit 23A, the plaintiff and defendants agreed that the plaintiffs [sic] would receive the net proceeds of sale of unit 23A in full and final settlement of any and all rights and claims which the plaintiff and the defendants have or may have had against one another in connection with the purchase, ownership and development or sale of the Property or Units ('the Settlement Agreement')
PARTICULARS
The Settlement Agreement was made by telephone between the plaintiff and, on behalf of the defendants, the first‑named defendant.
(c)say that the Payment represents the entire net proceeds of the sale of Unit 23A after discharge of the Mortgage, the Loan and the deduction of sale transaction costs.
(d)the Payment was made pursuant to the Settlement Agreement.
Two things may be said about the pleadings. First, the way the plaintiff pleads his case suggests it is a claim based in contract. The pleading cannot be read any other way. But in opening counsel for the plaintiff said the plaintiff's claim was not based in contract. Rather it was an equitable claim and the plaintiff was seeking equitable compensation. As an alternative he was seeking an account. Given the way the case was run the remedy of account can be put to one side. Counsel produced specific figures and did not suggest an account was necessary to ascertain what amount might be owing by the defendants to the plaintiff.
Second, the case proceeded on the basis the defendants maintained the parties had reached the Settlement Agreement. Counsel for the plaintiff did not take the point this agreement was not pleaded in the last defence. So although the state of the pleadings was unhappy it was with effort possible to work out the respective position of the parties.

The evidence

When the matter was in the District Court the parties were ordered to file witness statements. The plaintiff did that. A copy of the plaintiff's witness statement became exhibit 48. The plaintiff was born in Serbia and although he has some English he was not sufficiently confident to proceed without an interpreter. Accordingly his witness statements was interpreted to him and he acknowledged the truth of it. When he was called for cross‑examination he appeared with the aid of an interpreter.
When offered the opportunity to cross‑examine the plaintiff the defendants indicated they had no questions to ask him. I warned them of the consequences of not putting to the plaintiff matters about which they disagreed. After that exchange took place the first‑named defendant did ask the plaintiff one question. In his witness statement the plaintiff said the telephone call at the heart of the alleged Settlement Agreement never took place. The first‑named defendant challenged the plaintiff on his evidence. The plaintiff maintained the telephone call never took place.
Because the plaintiff was not cross‑examined I had no opportunity to form any opinion as to his veracity save for one point that was of no real consequence. In fact the parties were in large measure in agreement. There was no dispute the plaintiff had contributed the deposit to the acquisition of the Labyrinth Way property and the amount of that contribution was not in dispute. The plaintiff said when he discussed the amount he would pay towards the mortgage he indicated it would be no more than $200 per week. Although there was some dispute between the parties on the pleadings on this issue when the second‑named defendant gave evidence she agreed that was the amount which the plaintiff said he would pay and that he did in fact pay. In other words that was the full extent of his obligation.
There was no dispute between the parties as to the Viridian Line of Credit. The defendants accepted they had agreed to meet all repayments in relation to the loan. There was some minor disagreement about whether the loan was used to renovate the properties at Labyrinth Way or whether it was used in part to maintain the defendants' business. The plaintiff appeared to concede at least part of the funds from the Viridian Line of Credit was used to renovate his property.
There was no disagreement between the parties as to the sale price of the units or as to the disposition of the proceeds. But there was a dispute between the parties as to whether or not the telephone call which was said to give rise to the Settlement Agreement ever took place.
The defendants both made brief statements which stood as their evidence‑in‑chief. They were then cross‑examined. Neither was a particularly satisfactory witness. Both were intent upon arguing with counsel rather than concentrating on and answering questions put to them. It was also clear they had not provided full discovery. By way of example the plaintiff's solicitors sought to have the defendants produce the plaintiff's employment records while he was employed by New Life Repair Services. Despite a number of requests the defendants did not produce those records. It was their position the plaintiff was never an employee but was an independent contractor. Be that as it may some records must have existed and they were clearly discoverable. But the plaintiff's solicitors reasonable requests were refused.
There was one important aspect of their evidence. Both defendants maintained the telephone discussion which led to the Settlement Agreement had taken place. It was, they both said, a discussion between the plaintiff and the first‑named defendant. The telephone call was initiated by the plaintiff. The second‑named defendant overheard the discussion and was only able to give evidence as to what she heard her husband say. But the two were as one as to the contents of the discussion. They said the plaintiff wanted the proceeds of the sale of the unit. The first‑named defendant said words to the effect 'you can have the proceeds but that is the end of the matter'. Both defendants said they were convinced that was the end of the arrangements between them and the plaintiff.

Findings of fact

There is only one contentious finding of fact it is necessary for me to make. But to settle the factual matrix I need to indicate the basis upon which I have dealt with this matter. I make the following findings of fact:
1.The plaintiff did advance an amount of $106,357.17 to facilitate the purchase of Labyrinth Way.
2.The parties agreed the plaintiff's contribution to the mortgage would be $200 per week. That was so whether the repayments went up or down as the interest rate varied.
3.The parties agreed the property would be subdivided and each of them would receive one unit.
4.When the defendants obtained the plaintiff's agreement to the Viridian Line of Credit they did so on the basis they would be responsible for repayment of the loan and they would meet the interest charges levied from time to time.
5.When the two units were sold the plaintiff received an amount of $74,727.24 being the balance left after paying off the mortgage and the Viridian Line of Credit.
The contentious issue between the parties is whether or not the discussion which led to the Settlement Agreement took place. I am satisfied that it did. While I had reservations about the defendants' evidence generally I accept what they say on this point. The sale of 23A Labyrinth Way which was the second of the two sales was a sale of the defendants' property. By then the property was in the name of the defendants. At settlement the proceeds left over after the secured creditor was paid out would normally be paid to the defendants. In fact it went to the plaintiff. That must have happened at the defendants' direction. Unless a discussion took place as alleged by the defendants it is very difficult to see why the defendants would have directed the payment be made to the plaintiff. It is clear that from 2011 the plaintiff and the defendants were at war. It is simply not feasible the defendants would have directed the settlement agent to pay the funds available to them upon settlement to the plaintiff unless there had been an agreement in the form the defendants' allege.

The law

Given that there is no suggestion of a contractual arrangement between the plaintiff and the defendants it is somewhat difficult to work out what legal framework covers their relationship. Properly considered I think the plaintiff's argument can be best be characterised by saying that for the defendants not to pay what the plaintiff's claim would be unconscionable. There is a line of cases which deals with this unconscionable conduct and which really grew up in relation to de facto relationships. In Muschinski v Dodds (1985) 160 CLR 583 a man and a woman who had lived together for three years decided to buy a property on which to erect a prefabricated house and to restore a cottage on the land. The woman was to provide $20,000 from the sale of her house and the man was to pay the cost of construction and improvement from $9,000 he would receive on the finalisation of his divorce and from loans. The property was conveyed to them as tenants in common. Although some improvements were made by the man, the erection of the house did not proceed and the parties separated. The woman contributed $25,259.45 and the man $2,549.77 to the purchase and improvement of the property. The High Court declared that the parties held their respective legal interests upon trust to repay to each his or her respective contribution and as to the residue for both of them in equal shares.
Deane J, with whom Mason J agreed, reached this result by applying a general equitable principle which restores a party to contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them. His Honour said:
[T]he principle operates in a case 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 that other party should so enjoy it. The content of the principle is that, 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 (620).
In Baumgartner v Baumgartner (1987) 164 CLR 137, the parties to a de facto relationship had pooled their incomes for living expenses and fixed commitments. They lived at first in a unit owned by the man which they had sold when they acquired a house in his name. The house was purchased with the aide of a mortgage in the name of the man who also contributed the net proceeds of the sale of the unit. The parties aggregate earnings were pooled in proportions of roughly 55% by the man and 45% by the woman. They later separated and the man asserted that the land was his sole property.
The High Court rejected that argument. The majority, Mason CJ, Wilson and Deane JJ, put the position as follows:
In this situation it is proper to regard the arrangement for the pooling of earnings as one which was designed to ensure that their earnings would be expended for the purposes of their joint relationship and for their mutual security and benefit. To the extent which the pooled funds were the source of payment of mortgage instalments by the appellant, the pooled funds contributed not only to present accommodation expenses but also to the security of the parties' accommodation in the future. In this context it would be unreal and artificial to say that the respondent intended to make a gift to the appellant of so much of her earnings as were applied in payment or mortgage instalments. There is no evidence which would sustain a finding that the respondent intended to make a gift to the appellant in this way (149).
It can be seen in both these cases the relationship was all together different to the relationship here. But nonetheless it seems to me unconscionable to say the plaintiff intended to make a gift to the defendants of the amount he paid by way of deposit. There was some argument between the parties as to whether or not the first‑named defendant, or perhaps both defendants, advised the plaintiff that if the relationship 'went pear‑shaped' he would have the deposit repaid to him. The second‑named defendant maintained that was never really discussed - the parties anticipated living next to one another in the units into the foreseeable future. On her evidence they never really considered a doomsday scenario. Be that as it may I am satisfied the plaintiff never intended to gift to the defendants the amount of the deposit and it would be unconscionable for the defendants not to make repayment to the plaintiff.
The Viridian Line of Credit is somewhat more difficult. As I have indicated I accept the plaintiff indicated when that loan was arranged they would be responsible for its repayment and all associated charges. But some of that loan was undoubtedly used to renovate and improve both properties. Precisely how much went to each property and who made contributions in what amount is difficult to ascertain. However, it seems to me the plaintiff in agreeing to that loan knew it would be used in part to improve the units and that he stood to benefit from those improvements. He also must have known he was taking on the obligations of, effectively, a guarantor. In those circumstances I am not satisfied it would be unconscionable for the defendants to refuse to reimburse him for the loan.

That then leaves the Settlement Agreement. What the defendants are really saying is that in making payment of the $74,727.24 to the plaintiff and by his agreeing to accept that and not pursue any further action there has been a release of equitable rights. This release of equitable rights is a rather opaque area of equity. It is discussed with customary clarity in Heydon JD, Leeming MJ & Turner PG, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed, 2014) [35‑030] ‑ [35‑040]. The learned authors adopt as a statement of principle what was said by Turner LJ in Wright v Vanderplank (1856) 8 De GM & G 133:
I am of the opinion that a positive act is necessary to render the transaction unimpeachable. All that is required is proof of a fixed, deliberate and unbiased termination that the transaction should not be impeached. This may be proved either by the lapse of time during which the transaction has been allowed to stand, or by other circumstances (146 ‑ 147).
Prima facie then the evidence of the defendants coupled with the payment of the $74,727.24 to the plaintiff is sufficient to act as a release. But as the learned authors point out there are two pre‑conditions to the operation of the equitable defence of release. First, the plaintiff must fully and clearly appreciate the nature and the circumstances of the transaction out of which his right arises. Second, the plaintiff must know that he has an equitable remedy against the defendants even if he does not know how such a remedy might be lost in equity. In this regard constructive knowledge is equated with actual knowledge.
I am satisfied that both of these requirements are satisfied. The plaintiff clearly knew all of the circumstances which gave rise to any right he may have had to call for payment by the defendants. He was involved in the day to day operation of the enterprise. Doubtless he would not have characterised his right as a right in equity arising from unconscionable conduct. He might well have said that it was only 'fair' that he be repaid what he had guaranteed and which was of no benefit to him. But what is not needed is an accurate legal description of what the rights might be. What is required is an understanding that the right exists.
The plaintiff also knew that he had a right against the defendants. That must have been the motivation for his telephone call. The call was productive. He was offered the $74,727.24 and he took it. If as the defendants say he agreed to take the money offered and not pursue the defendants any further he must have realised he was compromising his position. That is all that is required. There was a release in equity.
Really there are no winners in this case. But in my view the plaintiff's claim fails for the reasons I have set out above. As the defendants were not represented it is difficult to see how they can claim any costs but I will allow submissions to be made on this point.
Finally, I should make mention of the efforts of counsel for the plaintiff. It is not easy to deal with litigants in person who understandably have little knowledge of practice and procedure and do not understand the processes of the court. On the one hand counsel has to act to protect the interests of his client; on the other he has a duty to the court to assist as far as possible. Counsel in this case discharged his duties admirably. He treated the defendants with courtesy and respect, he did not take pedantic legal points and he made concessions as and when necessary. Of course all of that may be cold comfort - the case was lost. Such first rate advocacy does not generally result in such little reward.