Kevin John Lewis v Peter William Stewart by his tutor Peggy Lillian Mayhew (No 2)

[2019] NSWSC 841

Supreme Court

New South Wales

Medium Neutral Citation:	Kevin John Lewis v Peter William Stewart by his tutor Peggy Lillian Mayhew (No 2) [2019] NSWSC 841
Hearing dates:	On the papers
Decision date:	05 July 2019
Jurisdiction:	Equity
Before:	Robb J
Decision:	See pars [31]-[34]
Catchwords:	EQUITY — Equitable remedies — Equitable compensation — Assessment of appropriate amount of equitable compensation payable in lieu of beneficial interest in property — In circumstances where the available valuation evidence does not permit the Court to determine the value of the subject property with an adequate level of confidence
Cases Cited:	Kevin John Lewis v Peter William Stewart by his tutor Peggy Lillian Mayhew [2018] NSWSC 1186
Category:	Consequential orders (other than Costs)
Parties:	Kevin John Lewis (plaintiff) Peter William Stewart by his tutor Peggy Lillian Mayhew (defendant)
Representation:	Counsel: IR Coleman SC/LM Clarke (plaintiff) MM Pringle (defendant)   Solicitors: JP Capsanis & Co (plaintiff) Turner Freeman (defendant)
File Number(s):	2016/2731

Judgment

1. The principal judgment in this matter was delivered on 2 August 2018: see Kevin John Lewis v Peter William Stewart by his tutor Peggy Lillian Mayhew [2018] NSWSC 1186.

2. As I noted in the principal judgment, the hearing was conducted on the basis that, if Mr Lewis succeeded in obtaining a remedy that required any assessment, the Court would receive further evidence and submissions from the parties.

3. I found that, in principle, Mr Lewis was entitled to a proprietary interest in the property called Lot 1, based upon an estoppel by encouragement. As the nature of the encouragement was that Mr Stewart told Mr Lewis that he would leave Lot 1 to Mr Lewis in his will, if Mr Lewis carried out certain works on Lot 1 and part of the adjoining Lot 2, Mr Lewis' entitlement to receive Lot 1 upon the death of Mr Stewart, or equitable compensation equal to the whole or some part of the value of Lot 1, may have been subject to some contingencies of the nature discussed in the principal judgment.

4. I found, at [249], that Mr Lewis had not to that point established that the remedy required in equity to avoid unconscionable conduct on Mr Stewart's part extended to full and absolute beneficial ownership of Lot 1, subject to the contingencies that I had discussed.

5. Mr Lewis' own case was that he had agreed to pay the rates attributable to Lot 1 in 2003, when he ceased paying rent, and that he did not pay those rates. Mr Lewis had the benefit of rent-free occupancy of Lot 1 and part of Lot 2 from 2003 to the time in 2015 when he was obliged by Ms Mayhew to leave the property.

6. In his evidence, Mr Lewis changed direction and claimed that he had in fact paid the rates by carrying out work in lieu of payment. However, as I found in the primary judgment, the work that Mr Lewis carried out was in return for Mr Stewart's promise to leave Lot 1 to Mr Lewis in his will, and was the basis of the estoppel that I found in the judgment.

7. Before I consider the additional material that has been placed before the Court, I should record that it is my clear opinion that proportionality between the amount at issue in the proceedings and the possible legal costs of completing them justifies the Court in formulating the appropriate remedy on the best basis possible, having regard to the material now before the Court. This approach appears to be reflected in the further submissions that have been provided to the Court by both parties.

8. As I understand the position adopted by both parties, they share the view that the proper and best course is for the Court to assess now on a final basis an appropriate amount of equitable compensation to be paid by Mr Stewart to Mr Lewis to reflect the value of the rights flowing to Mr Lewis by reason of the existence of the estoppel. That will bring the proceedings to an end and resolve any doubts about the legal position of both parties.

9. I should begin by saying something about the contingencies that I considered in the primary judgment. Those contingencies arise out of various doubts about the enforceability of a promise by one party to leave particular property to another in the first party's will, which logically also affect the position where the making of the promise is not contractual but gives rise to an estoppel. I will not repeat what I said in the primary judgment, but the contingencies can arise out of the rights of creditors in the deceased promisor's estate, the possibility that the estate will be affected by family provision orders made by a court, and possibly even events that occur over the balance of the promisor's life.

10. In the present case, it is known that Mr Stewart made a will that left all of his estate equally to his two sisters, one of whom is Ms Mayhew. As Mr Stewart is apparently now legally incapable, as a practical matter he will not henceforth be able to make a will in accordance with the promise he made to Mr Lewis. There is no evidence either at trial or in the material that has subsequently been provided that Mr Stewart has creditors who could only be paid after his death out of Lot 1. The fact that Mr Stewart left his estate to his two sisters suggests that there will not be eligible beneficiaries who might obtain family provision orders out of Lot 1. No evidence has been tendered to establish that in fact there are eligible beneficiaries. The evidence establishes that Ms Mayhew, who is Mr Stewart's attorney, proposes to sell Lots 1 and 2 together in order to fund Mr Stewart's needs. The evidence now before the Court establishes that Lot 2 should have a sale price in the order of at least 10 times the value of Lot 1. The evidence does not show that Mr Stewart will need to rely on the proceeds of sale of Lot 1 for his personal care and support.

11. The point of these observations is that, given the issue and the nature of the material before the Court, it is reasonable in my view for the Court to ignore the contingencies that may exist in assessing an appropriate amount of the equitable compensation to be received by Mr Lewis.

12. Another consideration is that the fact that Mr Lewis' case was a claim for an entitlement to receive Lot 1, or equitable compensation assessed by reference to the value of that property, means that the actual market value of Lot 1 places an upper monetary limit on Mr Lewis' entitlement. During the proceedings, Mr Lewis abandoned an alternative claim for quantum meruit based upon the value of the work that he carried out in respect of Lot 1. Consequently, in a practical sense, Mr Lewis took the risk that the value of his work may exceed his reward in the form of equitable compensation measured by reference to the whole or part of the value of Lot 1.

13. In his primary submissions on remedy, Mr Lewis submitted that the appropriate relief, given the difficulties of assessment referred to in his submissions, was to award him compensation of 50% of the probable value of Lot 1, together with a substantial adjustment for the work which he did on the property. As I understand it, that submission was made on the basis of an appraisal of Lot 1 carried out by a real estate agent called Shane Elbourn dated 21 November 2018, to the effect that Lot 1 had a value in the vicinity of $640,000-$700,000. However, that appraisal was of the property's value with development approval from the Council for a single level four-bedroom home. There is no evidence that the Council would give that approval, and, by reason of Lot 1 being in a floodplain and having building material deposited upon it, there is real doubt that such approval would be given.

14. Mr Lewis also obtained an alternative appraisal from Ray White, Windsor, dated 30 October 2018, that assigned a value of $300,000 to Lot 1 on the basis that the agent was unaware if Council would allow building on the land due to the low level and flooding.

15. Against the possibility that the Court would accept that Lot 1 had a value towards the bottom of the possible range, as contended for by Mr Stewart, Mr Lewis submitted that, in that eventuality, the Court should order that Lot 1 be transferred to Mr Lewis in specie.

16. Ultimately, Mr Lewis submitted that the Court should order that he be paid equitable compensation in the sum of $350,000, charged over Lots 1 and 2.

17. Mr Stewart put before the Court an appraisal by Starr Partners North Richmond, dated 11 September 2018, of $120,000 to $140,000, and an appraisal by Aussie Choice Realty, dated 14 September 2018, that appraised the property at $60,000.

18. Mr Stewart also relied upon a formal valuation report by Lunney Watt & Associates Pty Ltd, as at 21 February 2019, that valued the two lots together, plus water rights, at $2,450,000. The valuer assigned a valuation of $2,221,800 to Lot 2 and $129,500 to Lot 1.

19. That represented a value of $210,000 per hectare for Lot 2 and $160,000 per hectare for Lot 1. Lot 2 was described as "Alluvial river plain land (10.58 ha)", and Lot 1 was described as "Building rubble land (0.8094 ha)".

20. Mr Stewart's final position in his written submissions on relief was that, as Mr Lewis had submitted that it would be appropriate to award him equitable compensation at half the value of Lot 1, then the compensation should be half of $129,500, being $64,750.

21. Mr Lewis delivered written submissions on the issue of relief in reply.

22. Among other things, Mr Lewis pointed out that the valuation report relied upon by Mr Stewart had been obtained after the date of Mr Lewis' primary submissions, it had not been tendered at the hearing, and Mr Lewis had no practical means of challenging it. Mr Lewis also made the point that ordinarily a smaller parcel of land adjoining a larger parcel and in basically the same condition has a higher value per square metre as a matter of valuation experience, and also that some benefit should be assigned to Lot 1 because it adjoins the river reserve. Furthermore, Mr Lewis relied upon the fact that he has not been in occupation of either Lot since 2015, and it has not been established that he was responsible for the dumping of any building rubbish that caused Mr Stewart's valuer to describe Lot 1 as "building rubble land" rather than "alluvial river plain land".

23. Mr Lewis also relied upon the fact that the email from Mr Stewart's solicitors to the valuer giving instructions to prepare the valuation requested him to update a valuation report dated 17 November 2016, which predated the hearing in this matter, and the earlier valuation was not tendered at the hearing. That, according to Mr Lewis, exacerbated the forensic difficulty imposed upon Mr Lewis by his inability to challenge the basis upon which the valuation had been prepared.

24. While, ordinarily, substantially more weight would be required to be given to a formal valuation than appraisals made by real estate agents, in my view, in the present case, the weight that should be accorded to the valuation is diminished somewhat by what I consider to be a significant doubt about the cause of what the valuer relied upon to describe Lot 1 as "building rubble land". The photographs that were tendered at the hearing did not appear to me to depict land that could simply be described as building rubble land.

25. I have also been influenced by the fact that there was a considerable unexplained range in the value of the appraisals that were provided to the Court, even if the appraisal at $640,000 to $700,000 can be discounted because of the doubt that Council approval would be given for the construction of a home on Lot 1. Even the appraisals obtained by Mr Stewart ranged between $140,000 and $60,000.

26. As mentioned above, the Court was told that Ms Mayhew wishes to sell both lots in one line to raise money to assist in the care of Mr Stewart. As I understand the valuation evidence that is before the Court, the general view is that the sale of both properties in one line will represent the highest and best use for both properties. It seems to me that it would be advantageous for the sale of Lot 2 for any purchaser to acquire Lot 1 at the same time to give direct access to the river bank. It would be valuable to the owner of Lot 2 to control ownership of Lot 1, to ensure that Lot 1 is not used in a manner detrimental to the enjoyment of Lot 2. Consequently, I agree that the best course is for both lots to be sold in one line for the best price that is achievable.

27. I am not satisfied that it would be appropriate for the Court to assess the amount of equitable compensation payable by Mr Stewart to Mr Lewis by first determining a separate value for Lot 1. Given the circumstances in which this issue must be addressed, I am not sufficiently confident that I would determine the correct value to justify that course being taken.

28. Rather, in my view, the best and fairest course is for the value of Lot 1 to be determined by the market, on the basis that its value will be the proportion of the net sale price that represents the area of Lot 1 compared to Lot 2. That would treat both Lots as having equivalent value per square metre, and I think that approach is justifiable and appropriate given the magnitude of the doubt about the relative value of the two Lots.

29. The question then is as to what proportion of the value of Lot 1 determined in that manner should be awarded to Mr Lewis as equitable compensation. Although, in the primary judgment, I suggested that Mr Lewis should give credit for his non-payment of rates, as I understand the position, Mr Stewart has not proved the amount of the rates charged on Lot 1 between 2003 and the time when Mr Lewis was required to leave the properties.

30. I also raised the possibility in the primary judgment, at [251], that Mr Lewis may have carried out work on Lot 1 without the consent of Mr Stewart. Mr Stewart’s written submissions acknowledged this issue, but I infer that, because of Mr Stewart’s incapacity, it has not been possible for further evidence on this issue to be put before the Court.

31. In all of the circumstances, doing the best I can, I have concluded that Mr Stewart should be ordered to pay compensation to Mr Lewis equal to 90% of the value of Lot 1 determined by its sale with Lot 2 in one line, and on the basis that the value of each Lot per square metre will be assumed to be equal.

32. The parties should discuss appropriate short minutes of order to implement this judgment in the most cost-efficient and expeditious manner that is possible. It would be preferable if the Court were not required to appoint trustees for sale of the Lots. I am inclined to the view that Ms Mayhew should be given carriage of the sale for an appropriate period that is realistic about the difficulties that may be involved in selling property of this nature. One benefit of the Lots being sold together is that it will obviate any theoretical risk that, if the properties were sold under separate contracts, the prices could be weighted in favour of Lot 2.

33. There should be some mechanism for Mr Lewis to be advised of the progress of the sale campaign, and of Ms Mayhew's intention to sell the two Lots at a particular price, before she enters into the contract. Mr Lewis should have leave to approach the Court if he has any proper issue with the terms of the contract or the price. Mr Lewis should receive sufficient notice to enable him to make an application if necessary. If the properties are not sold within the specified period, it may be necessary for an application to be made to the Court to put in place a mechanism for their sale. The short minutes of order should also provide for the timing and manner of the payment of Mr Lewis' share of the net proceeds of sale to Mr Lewis.

34. Mr Lewis has asked the Court to hear submissions on the costs of the proceedings. Although, by reason of something said by Mr Lewis in cross-examination in answer to a question put to him, I came to understand that his counsel were acting pro bono, I will hear submissions on costs because I accept that the Court may not know what the real position is.

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Decision last updated: 05 July 2019