Kavan & Mallery & Anor
[2013] FCCA 210
•10 May 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| KAVAN & MALLERY & ANOR | [2013] FCCA 210 |
| Catchwords: Objection to production of documents on subpoena – relevance, privacy and privilege – no confidential communication – will or codicil is not a confidential communication. Adjournment application under s.90SM(5) until death of the second respondent – whether likely change in financial circumstances arises because second respondent might alter his will – whether first respondent has a chose in action constituting property arising out of potential claim under the Succession Act 2006 (NSW) – whether such a claim is a bare right and not a chose in action. Summary dismissal – whether claim against second respondent based on equitable estoppel has merits – even a weak claim, which is not frivolous or vexatious, is entitled to be heard. Severance of equitable from family law claim – accrued jurisdiction invoked and now unjust to put in contention the court’s jurisdiction – family law and equitable claims arise out of same substration of facts. Application for applicant to provide security for costs as it relates to claim against second respondent – to be determined at future date. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5 Evidence Act 1995 (Cth), ss.55, 117, 118 Family Law Act 1975 (Cth), ss.79(5), 81, 90SM(5) Succession Act (2006) (NSW), ss.4, 57, 59, 60 |
| Cases cited: Beck v Beck (2007) FLC 83-181 Best & Best [1993] FamCA 107 Bigg v Suzi (1998) FLC 92-799 De Angelis & De Angelis [1999] FamCA 1609 Grace & Grace (1998) FLC 92-792 Lindon v The Commonwealth (No. 2) (1996) 70 ALJR 541 Mullane & Mullane (1983) FLC 91-303 Official Receiver in Bankruptcy v Schultz (1990) 96 ALR 327 Peleman v Peleman (2000) FLC 93-037 Spellson & Spellson, George & Janango Pty Ltd (1989) FLC 92-046 Spry v Kennon [2008] HCA 56 Unicomb v Official Trustee in Bankruptcy (2000) 99 FCR 1 Warby & Warby (2002) FLC 93-091 White & Tulloch & White [1995] FamCA 127 Zorbas & Zorbas (1990) FLC 92-160 |
| ALRC 26, Vol. 1, para.641. |
| Applicant: | MS KAVAN |
| First Respondent: | MR L MALLERY |
| Second Respondent: | MR J MALLERY |
| File Number: | SYC 1102 of 2012 |
| Judgment of: | Judge Altobelli |
| Hearing date: | 9 April 2013 |
| Date of Last Submission: | 9 April 2013 |
| Delivered at: | Sydney |
| Delivered on: | 10 May 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr Schonell SC |
| Solicitors for the Applicant: | Reid Family Lawyers |
| Counsel for the First Respondent: | Mr Johnston |
| Solicitors for the First Respondent: | Marks Griffiths & Bova Solicitors |
| Counsel for the Second Respondent: | Mr Murr SC and Mr Watkins |
| Solicitors for the Second Respondent: | Shipton & Associates Solicitors |
ORDERS
The Applicant’s Application in a Case filed 21 February 2013 be dismissed.
The Second Respondent’s Application in a Case filed 21 March 2013 be dismissed as to order 1, and as to order 2 be listed for hearing by way of submissions on Friday 5 July 2013 at 9.00am.
The Second Respondent file and serve any further evidence in support of his application for security for costs within 14 days.
The applicant file and serve any material in opposition of such claim within 35 days.
Written submissions be filed and served no later than seven (7) days before the date listed for determination of the application.
Notices of Objection to subpoena filed 19 November 2012 be dismissed.
Except as regards the applicant’s costs arising out of the Notice of Objection (in respect of which leave to relist for argument on seven (7) days’ notice is granted) all costs arising out of the matters covered these orders are reserved to the final hearing.
IT IS NOTED that publication of this judgment under the pseudonym Kavan & Mallery & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYC 1102 of 2012
| MS KAVAN |
Applicant
And
| MR L MALLERY |
First Respondent
| MR J MALLERY |
Second Respondent
REASONS FOR JUDGMENT
Introduction
The applicant in this case is 44 years old and was in a de facto relationship with the first respondent who is 40 years old. Their relationship commenced in 2005, and ended in 2011. They have two children aged 4 and 2 who live with their mother (the applicant). The proceedings between them relate to alteration of property interests and parenting orders.
The second respondent is 82 years old and is the respondent’s father. He owns the property at [M] that the applicant and respondent lived in during their relationship. The applicant joined the second respondent to the proceedings and alleges that the property owned by him in [M] is held on trust for the applicant and first respondent.
The proceedings between the parties are listed for hearing commencing on 30 September 2013 for three days.
Interlocutory Issues
A number of interlocutory issues require determination.
a)The applicant issued subpoenae to the second respondent and his solicitors requiring production of certain documents that are the subject of objection to production, primarily on the basis of privilege.
b)The applicant seeks an adjournment of the proceedings between herself and the first respondent only as it relates to alteration of property interests. The application is based on s.90SM(5) of the Family Law Act (“the Act”). The adjournment proposed is until the death of the second respondent.
c)The second respondent opposes this application but submits that if it is to be granted, a condition of the adjournment be that the applicant consents to the dismissal of all claims against the second respondent. Independently, the second respondent seeks an order that the application against him be summarily dismissed. Alternatively, an order is sought that the applicant provide security for costs of the second respondent. This alternative application was stood over for consideration at a later date.
d)The first respondent seeks dismissal of the adjournment application.
Documents relied on
The documents relied on were:
a)Amended Initiating Application, filed 1 June 2012.
b)Response to Initiating Application, filed by Mr L Mallery, 4 April 2012.
c)Amended Response to Initiating Application, filed 21 June 2012.
d)Application in a Case filed by Ms Kavan, 21 February 2013.
e)Response to Application in a Case, filed by Mr L Mallery 21 March 2013.
f)Affidavit of Ms Kavan, filed 28 February 2012.
g)Affidavit of Ms Kavan, filed 1 June 2012.
h)Affidavit of Ms Kavan, filed 21 February 2013.
i)Affidavit of Mr L, filed 5 April 2013.
j)Affidavit of Mr J Mallery, sworn 3 May 2012.
k)Affidavit of Mr J Mallery, filed 21 June 2012.
l)Affidavit of Mr J Mallery, filed 22 February 2013.
m)Affidavit of Mr J Mallery, filed 21 March 2013.
n)Affidavit of Mr L Mallery, filed 4 April 2012.
o)Affidavit of Michael Shipton, filed 21 March 2013.
p)Financial Statement by Ms Kavan, filed 28 February 2012.
q)Subpoena to Mr J Mallery, filed 15 November 2012.
r)Subpoena to Michael Shipton, of Shipton & Associates, filed 15 November 2012.
Subpoenae issues
The second respondent objected to the production of documents sought to be produced by him pursuant to a subpoena to produce documents filed 15 November 2012 requiring the production of the following documents:
1. A copy of this subpoena.
2. A copy of all and any Will or draft Will and/or Codicil and/or draft Codicil drafted, prepared and/or signed during the period 1 January 2005 to date.
3. All medical reports from any treating Doctor or Specialist during the period 1 January 2012 to date.
Paragraph 3 was not pressed by the applicant.
In relation to paragraph 2 the second respondent asserted that the documents were irrelevant, were private and confidential, and were in any event covered by privilege. Mr Watkins did not refer to a particular section of the Evidence Act 1995 (Cth) but the court assumes relevance is placed on s.118 of the said Act which states:
Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of:
(a) a confidential communication made between the client and a lawyer; or
(b) a confidential communication made between 2 or more lawyers acting for the client; or
(c) the contents of a confidential document (whether delivered or not) prepared by the client, lawyer or another person;
for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client.
The second respondent also objected to the production of documents by his solicitors, Shipton & Associates, of the following documents:
1. A copy of this subpoena.
2. A copy of all instructions received from Mr J Mallery, including file notes, memoranda, emails, and/or correspondence relating to instructions from Mr J Mallery for the drafting of any Will or codicil for Mr J Mallery; and
3. A copy of all and any Will or draft Will and/or Codicil and/or draft Codicil drafted, prepared and/or signed during the period 1 January 2005 to date.
Mr Watkins for the second respondent articulated this objection on the basis of relevance, and privilege.
The objection based on privacy and confidentiality may be dealt with in short order. This is no basis for objecting to production unless it is a confidential communication as defined in s.117 of the Evidence Act which defines the same as:
…a communication made in such circumstances that, when it was made:
(a) the person who made it; or
(b) the person to whom it was made;
was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law.
The protection of the confidential communication must arise in the context of s.118 pertaining to legal advice. Insofar as the objection relates to medical records there is no basis for it. Whether s.118 otherwise applies will be considered below.
The objection based on relevance also fails. Section 55 defines relevant evidence in the following terms:
(1) The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.
(2) In particular, evidence is not taken to be irrelevant only because it relates only to:
(a) the credibility of a witness; or
(b) the admissibility of other evidence; or
(c) a failure to adduce evidence.
The documents sought to be produced are relevant to the applicant’s claim against the second respondent, and to the adjournment application against the first respondent. Whether or not the adjournment application was an issue before the court at the time of the subpoena is not determinative in circumstances where it had been foreshadowed at previous mentions before the court. In any event, as the ALRC explained (ALRC 26, Vol. 1, para.641): “The definition requires a minimal logical connection between the evidence and the ‘fact in issue’”. There is no question about that logical connection on the evidence before the court. The documents sought to be produced are relevant. The only circumstances in which this might possibly change is if the applicant’s claim against the second respondent is summarily dismissed, and if the adjournment application is likewise dismissed.
The s.118 objection must be premised on the basis that there is a “confidential communication” as defined in s.117, or alternatively that there is a “confidential document” which in s.117 is defined as:
…a document prepared in such circumstances that, when it was prepared:
(a) the person who prepared it; or
(b) the person for whom it was prepared;
was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law.
It is hard to see how a will or codicil is a confidential document as defined. Different considerations might apply to a draft. The real issue, however, is whether the document was produced “for the dominant purpose of providing legal advice” for s.118 purposes. The will or codicil is a document evidencing what is, in effect, a transaction (an inter-generational transfer of assets in this case).
The request to produce “instructions…file notes, memoranda…” is potentially problematic, but only if s.118 is enlivened. That section is only enlivened if there is a “confidential communication”. The court would expect that those who object to the production of documents on this ground would, before so objecting, carefully consider whether the documents produced contain any “confidential communication”. The court is entitled to inspect the documents objected to in order to rule on the objection. On doing so it became readily apparent that there were no instructions, file notes or memoranda that could possible come within the definition of a confidential communication. Some parts of the documents are redacted, but the court accepts counsel’s statement that what is redacted does not relate to the matters before the court, though it might have been preferable not to redact but rather to identify the unrelated material and seek a direction for redaction once the court had ruled on production. In any event what is clear on inspection of these documents is that they contain no confidential communications and thus s.118 is not enlivened. This must have been plainly obvious to those objecting, and one wonders why the applicant and the court was put to the time, expense and inconvenience in having to so rule.
The Notice of Objection to subpoenae filed 19 November 2012 that came before the court on 7 February 2013 are dismissed. Inspection of these documents to take place in accordance with the relevant rules of this court. Any costs application arising will be considered in due course.
The adjournment application
This application is framed as one pursuant to s.90SM(5) which provides:
Without limiting the power of any court to grant an adjournment in proceedings under this Act, if, in property settlement proceedings in relation to the parties to a de facto relationship, a court is of the opinion:
(a) that there is likely to be a significant change in the financial circumstances of the parties to the de facto relationship or either of them and that, having regard to the time when that change is likely to take place, it is reasonable to adjourn the proceedings; and
(b) that an order that the court could make with respect to:
(i) the property of the parties to the de facto relationship or either of them; or
(ii) the vested bankruptcy property in relation to a bankrupt de facto party to the de facto relationship;
if that significant change in financial circumstances occurs is more likely to do justice as between the parties to the de facto relationship than an order that the court could make immediately with respect to:
(iii) the property of the parties to the de facto relationship or either of them; or
(iv) the vested bankruptcy property in relation to a bankrupt party to the de facto relationship;
the court may, if so requested by either party to the de facto relationship or the relevant bankruptcy trustee (if any), adjourn the proceedings until such time, before the expiration of a period specified by the court, as that party to the de facto relationship or the relevant bankruptcy trustee, as the case may be, applies for the proceedings to be determined, but nothing in this subsection requires the court to adjourn any proceedings in any particular circumstances.
This section is in similar terms to s.79(5). In Grace & Grace (1998) FLC 92-792 the Full Court articulated a number of preconditions which cumulatively must be found to exist in order to invoke the power to adjourn under s.79(5):
(a) that there is likely to be a change in the financial circumstances;
(b) that the likely change is a significant one;
(c) that having regard to the likely and significant change, it is reasonable to adjourn the proceedings; and
(d) that an order made if that significant change occurs is more likely to do justice and equity as between the parties than an immediate order.
Senior counsel for the applicant explained the case in the following terms. The assets available for distribution between the applicant and the respondent are relatively modest. The applicant contends that up until 7 June 2012 the first respondent was identified in the will of the father, the second respondent. She contends that coincidental with her claim against the second respondent, the latter made a new will in which the first respondent is the only one of four siblings who is not named as a beneficiary.
Pausing here, the evidence before the court establishes all of the above save for the contention that the first respondent was a beneficiary named in the will, which has now been resolved.
Senior counsel for the applicant contends that the likely change in the parties’ financial circumstances is that between now and the date of death of the second respondent he will change his will to include the first respondent as a beneficiary, and make adequate and proper provision for him. This is especially so in the context of the applicant’s contention that the property at [M] was intended to be a gift to the first respondent (a contention that will be explained below).
Senior counsel further contended that even if that were not so, and if the will were not so altered, the first respondent would have a chose in action under the Succession Act 2006 (NSW) which would constitute property for the purposes of the Family Law Act. He submitted that, not necessarily without some complexity, this chose in action would be varied, or that the court could appoint his client as trustee to prosecute such claim.
Senior counsel further submitted that, having regard to the evidence before the court of the second respondent’s age and state of health, and not wishing “to be unduly ghoulish about these things”, it would “be reasonably confident to contend that an adjournment would not be of 15 years duration”.
Counsel for the first respondent submitted that there is no evidence that there will be a significant change in the financial circumstances of the parties, and that in any event any claim the first respondent has under the Succession Act (NSW) is a bare right, not a chose in action, and thus not property for the purposes of the Family Law Act.
The first limb of the applicant’s case is that there is “likely to be a change” in the first respondent’s financial circumstances because his father will execute a new will in which he is included as a beneficiary. That is pure speculation. Even if the second respondent changed his will to include his son, there is nothing to prevent his changing it back. His son might predecease him. At the present time it is doubtful whether the first respondent has a financial resource in that regard: White & Tulloch & White [1995] FamCA 127. It is even questionable whether there is a relevant s.90SF(3)(c) factor: De Angelis & De Angelis [1999] FamCA 1609. A will is a mere expression of intention at the time it was made which may be freely revoked or altered and has no legal effect until the death of the testator: Vynior’s case (1609) 77 ER 597.
There is therefore no evidence of a “likely” change. On the evidence a change to the second respondent’s will is neither probable nor reasonably possible.
The second limb of the applicant’s case is that any right that the first respondent obtains under the Succession Act is a chose in action, which is property, and this is both a change in financial circumstances, and a significant one. This argument fails because any right to bring an application under the Succession Act is not a chose in action, it is a bare right.
Any right the respondent might have under the Succession Act (NSW) depends on him being an eligible person as defined in s.57 of the said Act. The respondent meets this requirement as he is a child of the second respondent (s.57(1)(c)) but the class of eligible persons is a wide one. Whether or not a family provision order would be made in favour of the respondent depends on him being able to establish that, at the time when the court is considering the application, adequate provision for his proper maintenance, education or advancement in life has not been made by the will of the second respondent, or by operation of the intestacy rules: s.59(1). Even so, s.59(2) gives to the court a very wide discretion to “make such order for provision…as the court thinks ought to be made…”. Thus, even if the first respondent were to have rights under this Act, the quantification of such right is quite a separate matter. The matters to be considered by the court are set out in s.60, but what is clear is that the first respondent’s financial resources at the time is a relevant consideration: s.60(2)(d). What becomes clear from this brief overview of the relevant provision of the Succession Act (NSW) is that such rights as the first respondent might have are dependent on an exercise of discretion in his favour at a future time, based on his personal circumstances at that time, and having regard to the claims of other eligible persons as well as the nature of the estate in question.
Senior counsel for the applicant submits that the right of the first respondent to apply under the Succession Act (NSW) is a chose in action and relied on a series of cases to establish that proposition starting with the Spellson litigation. The decisions of Nygh J in Spellson & Spellson (1989) FLC 92-044 and the Full Court in Spellson & Spellson, George & Janango Pty Ltd (1989) FLC 92-046, establish that an object of a trust has a chose in action against a trustee which is “a right of property” of that object which is, in family law, at the very least in view of subsequent case law, a financial resource.
The Full Court’s decision in Best & Best [1993] FamCA 107 confirms, for example at paragraph 53, that the definition of property in s.4(1) of the Act has always been treated as including a chose in action. The Full Court acknowledged at paragraph 65 the distinction to be drawn between a mere personal right, and a right of proprietary nature, having regard to the High Court in Mullane & Mullane (1983) FLC 91-303. The Full Court recognised that, sometimes, inalienability may be fatal to the argument that an interest is property, referring to Zorbas & Zorbas (1990) FLC 92-160. Significantly, at paragraphs 67 and 68 the Full Court states:
The right to sue is a chose in action which in turn is generally classified as personal property. Choses in action, however, may fall into different categories, those which are assignable and those which are not. A right of action to recover damages for negligence resulting in personal injury is not capable of assignment either in law or equity. … The question which then arises in this case is whether an unassignable chose in action is property for the purposes of sec.79 of the Act. …
In my view the weight of authority is that a bare right to sue is a right of a purely personal nature which cannot be assigned, and therefore cannot constitute property for the purposes of sec.79 of the Family Law Act. The right to sue is not a right of a proprietary nature but a mere personal right in the circumstances of this case. …
Inalienability does not deprive an interest of the characteristic of property except where it is an inherent characteristic of the right itself that is both personal and unassignable and hence not proprietary in character, the most common example of which is a personal right to sue for damages.
The right the first respondent has available to him under s.57 Succession Act (NSW) is a right to sue, thus a chose in action, and thus personal property. It is, however, unassignable because of its inherently personal nature. This is apparent when one considers the various factors the court considers in these claims as set out in ss.57, 59 and 60 of the Act. It is, therefore, not proprietary in nature.
In Best v Best the Full Court, referring to the High Court’s decision in Official Receiver in Bankruptcy v Schultz (1990) 96 ALR 327, noted that the right of a beneficiary to have the estate duly administered was a chose in action and thus “property” as defined in s.5(1) of the Bankruptcy Act 1966 (Cth), a definition in many respects similar to that in the Family Law Act. This was confirmed recently by the High Court in Spry v Kennon [2008] HCA 56. Of course the first respondent’s right under s.57 Succession Act is one step removed from the above – his right is, at its highest, the right to ask a court to exercise its discretion, having regard to his personal circumstances, and benefit him with a new obligation imposed upon the executors. Thus the order when and if made creates the chose in action. Support for this is evident from a passage at p.333 of the High Court’s judgment in Schultz:
The wide powers conferred by s41 and the manner in which sub-s(10) is expressed strongly suggest that the effect of an order under the section is not to change the benefits to be expected from the right to due administration arising pursuant to the will, but to superimpose upon the duty of due administration a judicial order made pursuant to statute. In other words, a new and independent obligation is created which has an impact upon the way in which the executor administers the estate pursuant to his or her existing duty, by compelling him or her to comply with the terms of the court’s order. Each beneficiary’s right to due administration is made subject to the terms of the order in the sense that the order governs the executor’s actions to the exclusion of any inconsistent direction contained in or derived from the will. But the respective rights to due administration are themselves unchanged, notwithstanding the impact upon their value. Such a result should not be surprising, bearing in mind that the right to due administration as discussed in Livingston is a continuing right of uncertain ultimate worth. It remains a right belonging to each of the named beneficiaries, in relation to the whole of the assets of the estate and the management of the estate, the concomitant of the duty of the executor to perform his or her functions in a proper manner. Viewed in this way, the making of an order under s41 gives rise to a new right in a person in whose favour the order is made, corresponding to the new obligation imposed upon the executor. That right is derived from statute and is independent of the right conferred by the will. Of course, an order under s41 may simultaneously render a beneficiary’s chose in action largely worthless by depriving the beneficiary of any right to expect property form the estate, while at the same time creating the new right we have described.
The right in question is derived from statute, and not from the will. It could be argued, in theory that, based on the evidence available to the court today, the first respondent has a reasonable expectation of success in the Succession Act application and that this somehow transmogrifies the bare right of action into some species of property. There are a number of fallacies with such a contention, as theoretical as it is. Even if it were true, this probably reflects more on the value of the expectancy, rather than its characterisation as property. In any event the nature of the expectancy can really only be characterised at the time of the claim under the Act and not now. Anything could happen to the respondents between now and then which could significantly impact on this so called expectancy. In any event, and by analogy with the situation of an expectancy of receiving shares or dividends in bankruptcy on the demutualisation of a mutual society, the property (ie. the chose in action) does not arise until the formalities in relation to the unissued shares (the contract to transfer future property) are entered into: Unicomb v Official Trustee in Bankruptcy (2000) 99 FCR 1 ie. at the time the claim is made under the Succession Act.
In any event the power under s.90SM(5) is discretionary. It would be unreasonable to postpone the alteration of property interests between the applicant and first respondent for an uncertain period that might be no more than 15 years. It is contrary to the statutory admonition contained in s.81 to end financial relations between the parties in circumstances where the likelihood of the change, and its nature and extent, is so hypothetical.
Summary dismissal
In order to understand the summary dismissal application it is necessary to understand the applicant’s claim against the second respondent. This is very conveniently summarised in Senior Counsel’s interim submissions at 7.1-7.8:
7.1 To succeed in a claim based on equitable estoppel, a plaintiff must show the following:
· The plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant, or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship;
· The defendant has induced the plaintiff to adopt that assumption or expectation;
· The plaintiff acts or abstains from acting in reliance on the assumption or expectation;
· The defendant knew or intended him to do so;
· The plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and
· The defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.
7.2 There is no reasonable prospect that a court will hold that an equity raised by spending approximately $40,000 entitles Kavan, directly or indirectly, to beneficial co-ownership of a property with a value of $650,000 to $680,000.
7.3 If a court were to hold that the evidence gave rise to a proprietary estoppel, it would probably grant an equitable charge over the shares, securing to Kavan repayment of her expenditure, plus interest. But to obtain that equitable relief, Kavan would have to “do equity” by bringing to account the benefits she received from three years of virtually rent-free accommodation. Those benefits exceed the amount Kavan claims to have spent on the renovations.
7.4 Because Kavan gained more out of the arrangement than any detriment she suffered by spending money on repairs and renovations, there is no reasonable prospect that a claim to an entitlement based upon equitable estoppel will succeed. But it fails at a more fundamental level, for three reasons:
(a) First, Kavan does not claim to rely on any representations that Mallery made to her. Whatever promises or representations Mallery may have made, he made them to Mr L Mallery. Kavan’s assumption that Mr L Mallery was the owner of the [Q] unit, or her expectation that he would become the owner, was induced by Mr L Mallery, not by Mallery.
(b) Secondly, only one of the representations that Mr L Mallery made to Kavan relays a promise or representation made by Mallery. This is the one referred to in par 3.9(a) above, that Mallery was giving Mr L Mallery the unit “as long as I [Mr L Mallery] use it to grow my business”. Kavan does not suggest that Mr L Mallery did use the unit to “grow his business” in the way contemplated. So the condition on which the gift was given, according to her, was not fulfilled. As well as that, she knew Mr L Mallery could not afford the stamp duty for a transfer, and she knew that the shares were never transferred to him. So she knew that he and she were not moving into the unit under the offer referred to in par 3.9(a). Mallery did nothing to induce her to believe that he had altered the terms of his offer, or that he was making an unconditional gift of the property to Mr L Mallery.
(c) Thirdly, the remaining representations that Kavan says she relied on were vague, ambiguous and inconsistent assertions of title— though not necessarily of ownership—by Mr L Mallery. They would not affect Mallery unless he authorised them, or at least knew about them and knew that Kavan would reasonably rely on them. They do not purport to convey anything that Mallery said, or to convey the details of any arrangement made with him. Most importantly, they do not convey the thing that would be necessary to form the basis of an equitable estoppel: that Mallery regarded himself as bound by—or not free to withdraw from34—a promise to make an unconditional gift of the property to Mr L Mallery.
7.5 Another principle that must be addressed—although Kavan does not plead it or appear to rely on it—is equitable estoppel by standing by. It would arise in the present case if Mallery knew that Kavan was spending money improving his property in the mistaken belief that he had given it to Mr L Mallery and stood by, allowing her to continue, without correcting the mistake.
7.6 It must be emphasised that this form of equitable estoppel would not be established simply by showing that Mallery knew that Kavan and Mr L Mallery were repairing and renovating the unit. He undoubtedly did. But what they were doing was consistent with other possibilities, including the expectation that they would live in the unit on favourable terms for a reasonable period of time. What must be shown is that Mallery knew that the renovations were carried out because of a mistaken belief that Mr L Mallery was the owner of property (or was entitled to become the owner).
7.7 There is only one event that could have conveyed to Mallery that Mr L Mallery believed he owned the unit. As noted in par 3.9(e) above, Kavan says that Mr L Mallery presented her with the keys to the [Q] unit at a family function, saying, “Happy birthday, honey”. Some of those present might have seen this as a representation by Mr L Mallery that he owned the unit.
7.8 For Mallery to have “stood by” in the relevant sense, he would have to have learned of Mr L Mallery’s mistaken belief before Kavan spent money on the reservations. But, as pointed out above, the presentation of the keys occurred after the renovations were finished, not before. And as there is no other evidence that Mallery knew of a mistaken belief on the part of either Kavan or Mr L Mallery, a case of equitable estoppel bystanding by cannot succeed.
The written submissions of Senior Counsel for the second respondent are equally helpful and are set out at paragraphs 4-7.9.
4. Summary Dismissal
4.1 The Court may order that a proceeding be stayed or dismissed if it is satisfied that the party prosecuting the proceeding has no reasonable prospect of doing so successfully.
4.2 None of the three bases on which Kavan claims an interest in the [Q] unit—legal ownership, perfectible gift or equitable estoppel—has any reasonable prospect of success. Mallery’s arguments in relation to each follow.
5. Mr L Mallery is not the legal owner of the shares.
5.1 Mr J Mallery remains the registered holder of the shares in [omitted] Units Pty. Ltd.
5.2 As the shares have not in fact been transferred to Mr L Mallery, there is no basis for saying that Mallery made a gift of them (or the [Q] unit) to Mr L Mallery, or that Mr L Mallery is the legal owner of the shares or the unit.
6. If Mallery intended to make a gift of the shares to Mr L Mallery
Mallery, the gift is incomplete and unenforceable.
6.1 A court with equitable jurisdiction may perfect an imperfect gift—by ordering that the steps necessary to transfer legal title be taken, and in the meantime, treating the donee as the beneficial owner—if:
(a) The donor has done everything that the donor must do to transfer
the legal title; or
(b) The donee is equipped to achieve a transfer of the legal title.
6.2 In order to transfer shares in a company, a share-holder must usually execute a transfer and deliver it, with any further documents that might be required, either to the company—satisfying condition 6.1(a) above—or to the intended transferee—satisfying condition 6.1(b).
6.3 Nothing of the kind has happened. So if there is an imperfect gift of the shares to Mr L Mallery, as Kavan claims, it is not one that a court with equitable jurisdiction will perfect.
7. A claim based on equitable estoppel cannot succeed.
7.1 To succeed in a claim based on equitable estoppel, a plaintiff must show the following:
· The plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant, or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship;
· The defendant has induced the plaintiff to adopt that assumption or expectation;
· The plaintiff acts or abstains from acting in reliance on the assumption or expectation;
· The defendant knew or intended him to do so;
· The plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and
· The defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.
7.2 There is no reasonable prospect that a court will hold that an equity raised by spending approximately $40,000 entitles Kavan, directly or indirectly, to beneficial co-ownership of a property with a value of $650,000 to $680,000.
7.3 If a court were to hold that the evidence gave rise to a proprietary estoppel, it would probably grant an equitable charge over the shares, securing to Kavan repayment of her expenditure, plus interest. But to obtain that equitable relief, Kavan would have to “do equity” by bringing to account the benefits she received from three years of virtually rent-free accommodation. Those benefits exceed the amount Kavan claims to have spent on the renovations.
7.4 Because Kavan gained more out of the arrangement than any detriment she suffered by spending money on repairs and renovations, there is no reasonable prospect that a claim to an entitlement based upon equitable estoppel will succeed. But it fails at a more fundamental level, for three reasons:
(a) First, Kavan does not claim to rely on any representations that Mallery made to her. Whatever promises or representations Mallery may have made, he made them to Mr L Mallery. Kavan’s assumption that Mr L Mallery was the owner of the [Q] unit, or her expectation that he would become the owner, was induced by Mr L Mallery, not by Mallery.
(b) Secondly, only one of the representations that Mr L Mallery made to Kavan relays a promise or representation made by Mallery. This is the one referred to in par 3.9(a) above, that Mallery was giving Mr L Mallery the unit “as long as I [Mr L Mallery] use it to grow my business”. Kavan does not suggest that Mr L Mallery did use the unit to “grow his business” in the way contemplated. So the condition on which the gift was given, according to her, was not fulfilled. As well as that, she knew Mr L Mallery could not afford the stamp duty for a transfer, and she knew that the shares were never transferred to him. So she knew that he and she were not moving into the unit under the offer referred to in par 3.9(a). Mallery did nothing to induce her to believe that he had altered the terms of his offer, or that he was making an unconditional gift of the property to Mr L Mallery.
(c) Thirdly, the remaining representations that Kavan says she relied on were vague, ambiguous and inconsistent assertions of title— though not necessarily of ownership—by Mr L Mallery. They would not affect Mallery unless he authorised them, or at least knew about them and knew that Kavan would reasonably rely on them. They do not purport to convey anything that Mallery said, or to convey the details of any arrangement made with him. Most importantly, they do not convey the thing that would be necessary to form the basis of an equitable estoppel: that Mallery regarded himself as bound by—or not free to withdraw from34—a promise to make an unconditional gift of the property to Mr L Mallery.
7.5 Another principle that must be addressed—although Kavan does not plead it or appear to rely on it—is equitable estoppel by standing by. It would arise in the present case if Mallery knew that Kavan was spending money improving his property in the mistaken belief that he had given it to Mr L Mallery and stood by, allowing her to continue, without correcting the mistake.
7.6 It must be emphasised that this form of equitable estoppel would not be established simply by showing that Mallery knew that Kavan and Mr L Mallery were repairing and renovating the unit. He undoubtedly did. But what they were doing was consistent with other possibilities, including the expectation that they would live in the unit on favourable terms for a reasonable period of time. What must be shown is that Mallery knew that the renovations were carried out because of a mistaken belief that Mr L Mallery was the owner of property (or was entitled to become the owner).
7.7 There is only one event that could have conveyed to Mallery that Mr L Mallery believed he owned the unit. As noted in par 3.9(e) above, Kavan says that Mr L Mallery presented her with the keys to the [Q] unit at a family function, saying, “Happy birthday, honey”. Some of those present might have seen this as a representation by Mr L Mallery that he owned the unit.
7.8 For Mallery to have “stood by” in the relevant sense, he would have to have learned of Mr L Mallery’s mistaken belief before Kavan spent money on the reservations. But, as pointed out above, the presentation of the keys occurred after the renovations were finished, not before. And as there is no other evidence that Mallery knew of a mistaken belief on the part of either Kavan or Mr L Mallery, a case of equitable estoppel by standing by cannot succeed.
7.9 These various considerations—the fact that Kavan gained more from the arrangement than her claimed detriment; her knowledge that the only offer of the property to Mr L Mallery of which she was aware had not eventuated; the nature and source of the representations she claimed to have relied on; the absence of the essential representation, that Mallery regarded himself as bound by promise to give the [Q] unit to Mr L Mallery—all indicate that Kavan does not have reasonable prospects of success in a claim based on equitable estoppel.
At one point Senior Counsel for the applicant conceded, quite properly the court recognises, that the claim “may well be categorised as weak” but urged that, on the authorities “that categorisation is not, of itself, determinant of the fact on this application”.
The authorities on summary dismissal include the Full Court decisions in Beck v Beck (2007) FLC 83-181, Bigg v Suzi (1998) FLC 92-799 and Peleman v Peleman (2000) FLC 93-037, and the High Court in Lindon v The Commonwealth (No. 2) (1996) 70 ALJR 541, particularly the judgment of Kirby J at 544-5. It cannot be said that the applicant’s claim is frivolous or vexatious. Even if the case is weak, summary dismissal is not warranted. The diverse and evolving nature of equitable remedies leaves open the possibility that the evidence presented at the final hearing will provide a remedy to the applicant. She should nonetheless seriously reconsider her claim.
Other issues
It was faintly and unconvincingly argued on behalf of the respondents that the equitable claim should, somehow, be separated from the claims under the Family Law Act, and be (somehow) remitted to the Supreme Court of NSW. The basis for this is by no means clear, even if the court were so minded. The applicant invoked this court’s accrued jurisdiction to hear the equitable claim. At no point before argument did either respondent put in contention this court’s jurisdiction and it is plainly inappropriate, and unfair to the applicant, to do so now. It seems to the court, on the evidence presently before it, that the applicant’s claim against the second respondent is not severable from her claim against the first respondent and arises out of a single substratum of facts: Warby & Warby (2002) FLC 93-091, and this constitutes parts of a single justifiable controversy.
By way of Amended Application in a Case filed 21 March 2013 the second respondent seeks an order that the applicant provide security for costs in the sum of $79,800. This part of the application remains to be determined. Directions will be made in that regard.
Having regard to the size of the asset pool, the potential complexity of the issues invoked and the uncertainty as regards their determination, the costs incurred and to be incurred, the court urges the parties to compromise their claims at the soonest opportunity.
I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of Judge Altobelli
Associate:
Date: 10 May 2013
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