Kintominas, I. v Secretary, Department of Social Security
[1991] FCA 437
•02 AUGUST 1991
Re: IRENE KINTOMINAS
And: SECRETARY, DEPARTMENT OF SOCIAL SECURITY
No. N G535 of 1990
FED No. 437
Equity - Social Security
103 ALR 82
30 FCR 475/14 AAR 81
(1991) 23 ALD 572
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Einfeld J.(1)
CATCHWORDS
Equity - aged pensioner orally declares property to be son's and promises to leave property to son in will in return for substantial expenditure on property by son - whether son acquires beneficial ownership of whole or part of property - equitable charge - express or constructive trust - creation of equity by conduct of donee after incomplete gift - limits on equitable relief - whether limited to amount of expenditure or proportion of expenditure to total value at time expenditure incurred
Social Security - aged pensions - assets test - property other than principal residence or exempt property - rent-free occupation of formerly investment property given to son and family in return for payment of rates, outgoings, maintenance, and other necessary expenditure as well as extensive renovation - substantial extension financed by loan to son and his wife secured by mortgage on property from pensioner - loan repaid entirely by son - value of pensioner's interest nil or negligible
Social Security Act 1947 sections 3(6), 4, 7, 8 (formerly sections 6(4), 6AA, 6AD, 6AE)
Milroy v Lord (1862) 4 De GF and J 246 (45 ER 1185)
Dillwyn v Llewelyn (1862) 4 De GF and J 517 (45 ER 1285)
Richards v Delbridge (1874) LR 18 Eq 11
Plimmer v Wellington (1884) 9 AC 699
In re Whitehead (1948) NZLR 1066
Chalmers v Pardoe (1963) 3 All ER 552
Inwards v Baker (1965) 2 QB 29
Olsson v Dyson (1969) 120 CLR 365
Morris v Morris (1982) 1 NSWLR 61
Legione v Hateley (1983) 152 CLR 406
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Commonwealth v Verwayen (1990) 170 CLR 394
HEARING
SYDNEY
#DATE 2:8:1991
Counsel and solicitor D.H. Murr instructed by Miles Clinton
for the applicant
Counsel and solicitor A.H. Slater instructed by the
for the respondent Australian Government Solicitor
JUDGE1
This appeal from the decision of a Deputy President of the Administrative Appeals Tribunal on 17 August 1990 raises a difficult question of equity which has created considerable differences of opinion as it has wended its way through the bureaucratic and litigious maze. It affects significantly the extent of the applicant's entitlement to the aged pension.
Mrs Kintominas was born in Greece on 1 September 1913. For a number of years she lived with her husband at 25 The Broadway, Punchbowl. In 1971 they purchased the adjoining residence at 27 The Broadway (number 27) as an investment. When Mr Kintominas died in 1973 his widow, as sole surviving joint tenant, became the sole registered proprietor of this property. On 20 September 1978, just after turning 65 years, Mrs Kintominas lodged a claim for the aged pension which was granted from and after 28 September 1978 at the maximum single rate of pension.
From the time it was purchased, number 27 was tenanted until, as time proceeded, the house became in need of renovation. As a pensioner with little income, although with the two houses as significant assets, she was in no position to carry out the renovations herself. She therefore asked her son Terry Kintominas to do so. He agreed. In addition, Mrs Kintominas developed a wish, no doubt in the interests of company and protection, and family comity, that Terry and his wife and children live next door to her. They moved in in 1976.
The renovations, involving a major extension of the house, were done in 1983. Evidence was given, corroborated by the builder, that the extension cost $35,000. This was largely financed by a personal loan from the Arncliffe branch of Westpac Bank of $30,000 taken out by Terry and his wife on 23 February 1983. The loan was secured by a registered 3rd party mortgage of the applicant who also guaranteed the loan. Terry made all the repayments of this loan from his own, and perhaps his wife's, earnings. The balance of $5,000 came from Terry's personal funds.
To protect this investment, Terry and his mother entered into a verbal agreement by which he and his family occupied the house rent-free with Terry responsible for maintenance, outgoings and necessary improvements. The evidence did not make clear, but I assume it to be the fact, that the provision for rent-free occupation on terms applied from the outset of his occupation.
What has become known as the "assets test" for aged pensioners was introduced on 1 June 1984. Mrs Kintominas received the departmental form for supplying her statement of assets on about 13 March 1985 and submitted it on 15 April 1985. She continued to receive the full rate of pension until she was advised on 12 June 1985 that her pension would be reduced from 27 June 1985 due primarily to her interest in number 27. In her statement of assets she had estimated the value of her interest as $58,000. This amount was arrived at by deducting from the full value of the house, said to be $93,000, the $35,000 expenditure which was claimed as Terry's interest.
The respondent's department agreed to the valuation of $93,000 but the claim that Terry had an interest in the property was disallowed, the pension reduced and the applicant asked to return her various benefit cards. After a subsequent reconsideration by the department, the balance of Terry's loan secured by the applicant's mortgage at the time of assessment ($23,721) was deducted from the $93,000 and arrears of pension were paid.
On 15 July 1985, the applicant appealed to the Social Security Appeals Tribunal (SSAT) against the disallowance of Terry's interest. To support the appeal, Terry supplied the SSAT with a list of expenditures of a little over $12,000, excluding the cost of the extension, which he claimed had permanently improved the value of the premises. This included such items as re-plumbing, re-wiring, and a solar water heater.
The decision of the SSAT was given on 18 October 1985. All three members of the SSAT agreed to recommend that the appeal be upheld but they differed on the extent of allowance that should be made for Terry's interest. Two members recommended that Terry's total expenditure of $47,000 ($35,000 for the extension, $12,000 for the other renovations) should be deducted from the $93,000 agreed valuation and that Mrs Kintominas' asset be therefore valued at $46,000. One member was of the view that only the $35,000 should be deducted. This had actually been the claim submitted by the applicant in her letter of appeal to the SSAT.
The Director of the respondent's department recommended that neither of the SSAT opinions should be accepted and that the complete disallowance of Terry's interest should be maintained. However, the Director, Appeals, as delegate of the respondent, decided on 4 February 1986 (the decision) to accept the minority opinion that Terry's expenditure of $35,000 created an equitable interest in the property which diminished the value of the applicant's holding. Hence Mrs Kintominas' interest in the property was assessed as 62.4% of $93,000 or $58,000 as she had originally stated. The $12,000 was rejected as being essentially for wear and tear, maintenance and renovations of existing facilities of the house. The delegate did not allow the mortgage debt as a deduction because he was of the opinion that "it is subsumed into the increased value of the house due to the extensions".
The decision was notified to Mrs Kintominas on 6 February 1986 and was confirmed and explained by a letter from the delegate that may be dated 6 March 1986 (the photocopy supplied is unclear) as follows:
Director
Department of Social Security
SYDNEY
MRS IRENE KINTOMINAS
APPEAL AGAINST REDUCTION IN RATE OF AGE PENSION I attach a copy of a letter I have received from Mr T Kintominas in relation to my decision on the above case. I hereby confirm that my decision was to allow a 37.6% reduction in the value of Mrs Kintominas' property of 27 the Broadway for revised property test purposes. Would you please advise Mr T Kintominas on behalf of Mrs I Kintominas of this decision. I have spoken to the relevant Policy section of Benefits Delivery Division on this matter. L.M. BLACKLOW
Shortly after the decision was made known, Terry Kintominas received a letter from the Assistant Director, Appeals and Representations, of the department. Part of this letter is as follows:
... I must point out however that this is an unusual decision, as it is made pursuant to a proposed change in Department Policy which has not been entirely finalised as yet. Consequently, although the decision regarding your mother's rate of pension is quite definite for the moment, I must point out that when the Departmental Policy in relation to equitable interest is more fully defined then a different method of calculation may be appropriate. Unfortunately, at this stage I am not in a position to be able to advise you of either the date, or the exact details relating to any future policy change on this matter. However, I would like to take this opportunity to assure you that if as a result of any future policy change the method of calculation of your mother's pension is to be altered, then she would be fully advised of the new procedures. In the meantime your mother's pension rate will continue to be calculated in accordance with (the) decision of 4 February
(1986).
Precisely what Mrs Kintominas was expected to make of this rather classic piece of "bureaucratese" is not clear, but she responded, as all true victims of "the system" would, by lodging an appeal to the Administrative Appeals Tribunal (the AAT) on 4 March 1986. The letter of appeal, signed by the applicant's two sons on their mother's behalf, sought the restoration of the majority opinion of the SSAT.
However, the departmental foundations had apparently been so rocked by this act of gross independence that the somewhat frighteningly titled Assistant Secretary, External Review wrote to her on 1 July 1986 in the following benevolent terms:
You recently applied to the Administrative Appeals Tribunal for review of a decision by a delegate of the Secretary of Social Security to reduce the value of your property at 17 The Broadway, Punchbowl ("the property") by an amount of $35,000 being the amount expended by your son on extensions to the property, rather than by the percentage to which the costs of the extensions plus repairs incurred by him related to the property's total value.
Following a further review of your case a delegate of the Secretary of Social Security has now determined, pursuant to section 14 of the Social Security Act 1947, to accept, for the moment, the interest in the property claimed by your son. This determination, however, is subject to further legal advice being sought. Once this advice has been received you will be advised of what action, if any, will be taken in relation to the value of your property for pension purposes.
I am advised that you presently received an age pension at the maximum rate. Accordingly, there will be no adjustment to your rate of pension as a result of the delegate's decision.
This seems to have been an acceptance "for the moment" of the whole of the $47,000 interest recommended by the SSAT. The "moment" became more than two and a half years because the whole matter was then in abeyance until 31 January 1989 when the Acting Assistant Secretary, External Review wrote to Mrs Kintominas as follows:
I am writing to you about your entitlement to an age pension. Consideration has been given to whether your property at 27 The Broadway, which it is understood is occupied by your son, should be taken into account in assessing the value of your assets.
It is understood that your son has spent $35,000 on an extension to the property and has carried out certain repairs and improvements. It is also understood that he pays no rent but does pay the rates. In assessing whether part of the property should be regarded as belonging to him it is considered reasonable to disregard all the payments made by him except the $35,000 cost of the extention (sic). It is also considered relevant to disregard the fact that he occupies the premises rent-free. It has therefore been concluded that the house should be taken into account as your asset at its value less $35,000.
The latest valuation we have of the property is $145,000. It is proposed that $110,000 be taken into account for the purposes of the assets test. However, it is understood that your son, Peter, is a member of the legal profession and may wish to put a submission on your behalf before a final decision is made. It has been decided not to reassess your pension entitlement before 1 March 1989, to enable you to put any arguments you may wish before a final decision is made. I would point out that in assessing the value of your asset in the property, the decision to disregard the value of your son's repairs etc but also to disregard the fact that he does not pay rent, would result in a more beneficial decision for you.
As you may wish to have a submission on the applicable law to be put on your behalf, I have attached a list of law cases and their reference numbers which were considered in coming to a decision in your case.
It is not clear from where the new valuation came but it does not seem to be disputed. Its effect, and the departmental delay, however, cost Mrs Kintominas dearly. Her pension entitlement had become far less than it would have been if she had not appealed to the AAT.
In the event, neither the cases nor the legal skills of Peter Kintominas seem to have carried much weight with the department because the Assistant Director External Appeals, as the position was newly and a little more gently titled, thereafter wrote to the Regional Manager at the department's Bankstown Office on 19 July 1989 as follows:
1. The abovenamed had applied to the Administrative Appeals Tribunal for a review of a decision made by a Delegate of the Secretary.
2. Following a review of the case by a Delegate of the Secretary, it has been decided that Mrs Kintominas' property at 27 The Broadway Punchbowl would be regarded as an asset at its value less the sum of $35,000.
3. Would you review Mrs Kintominas' entitlement as soon as possible. In accordance with the Delegate's decision hereunder, it should be noted that there is to be no retrospective adjustment of her pension.
4. Please advise the Assistant Director, External Appeals when the above decision has been implemented.
This letter contains a handwritten notation dated 24 July 1989 stating "Assess $110,000".
The appeal to the AAT from the decision of the respondent's delegate of 4 February 1986 was eventually heard on 6 August 1990. In view of the substantial increase in the value of the house, it is not completely clear what was actually being appealed against. Certainly the financial realities had markedly changed since the appeal was lodged. By consent, the facts as I have generally related them, supplemented by other matters, were given from the bar table by Peter Kintominas and elements of the departmental file were placed in evidence. The additional facts included:
(a) that the extensions to number 27 were done for the purposes of
Terry and his family to enable them to continue to occupy the property
(b) that the other renovations and maintenance were done to preserve
the house in good and comfortable order for them
(c) that even before Terry and his family entered into occupation, "it
was well settled between Terry and his mother that the property would be left to him in her will"; that he would reside there permanently; and that he should regard the house as his own "because he will inherit it"
(d) that nothing Terry did to the house and none of the money that he
spent on it were intended by either party to be a gift to his mother
(e) that the presence of Terry and his family next door to the
applicant was something she "desired and welcomed and found beneficial and fruitful for her life"
(f) that in 1988, Terry's wife died unexpectedly of an asthma attack
as a result of which Terry was left to continue to raise the children alone. His mother, with whom he gets on well, was immediately able to assume responsibility for a number of the day to day household tasks. In turn "the presence of their grandmother next door was extremely beneficial" to the children
(g) that by the time of the hearing before the AAT, the $30,000 loan
had been fully repaid and Mrs Kintominas' mortgage discharged
Although no part of the agreement or understanding between Mrs Kintominas and Terry was ever reduced to writing, none of the facts as so stated were disputed by the respondent.
In a carefully reasoned if robustly expressed decision, the Deputy President of the Tribunal said that if the facts had not been agreed to in this way, he would have disallowed altogether the applicant's claim for a deduction on the basis that social security legislation is inappropriate to admit equitable interests. He said that the Tribunal:
would incline to the view that it is no part of the function of the respondent to determine the nature of an equitable interest in these circumstances or to predict the type of equitable relief that would be ordered by a court, where considering the value of assets of an applicant for pension.
The Deputy President explained:
If outstanding equities are alleged, then it is a matter for the parties to have them determined independently.
If by this statement he meant that Terry should engage his mother in litigation, it would be a most unfortunate, costly and ultimately impractical way of dealing with their relationship, and her pension entitlements, and the correct application and interpretation of the Social Security Act. What would bind the respondent to a decision of a court in personal litigation to which he was not a party? Why would Terry and his mother fight out a court case when there was no dispute between them?
The Deputy President concluded:
In an area of developing equitable theories and competing approaches, it is not practical to expect an administrator to conduct an extensive inquiry between parties (who would rarely, in any event, be at arm's length) so as to value the beneficial interest of the applicant in her property by anticipating what relief would be granted in equity. In the absence of any written agreement, or any formalisation of claims and entitlements, he must adopt a robust commonsense approach, not subordinated to subtleties and competing theories of equity.
However, in the light of the respondent's agreement to the facts both before the SSAT and himself, the Deputy President felt constrained to accept and give effect to the respondent's concession that Terry Kintominas held an equitable charge over the property in the amount of the $35,000 expended on the extensions. Despite the significant increase in the value of the property, no doubt contributed to at least partly by inflation or the reduction in the value of money and partly by the renovations, as well as perhaps by other supply and demand factors, the Deputy President felt that:
If any interest were to be added to the value of his charge ... it would be offset by the amount of rent which ought to be debited against him.
The Deputy President regarded the $12,000 for what he described as "running repairs" as an expenditure in lieu of payment of rent.
Accordingly, the AAT affirmed the decision of the respondent's delegate and the applicant now appeals that decision. The amended notice of appeal challenges the characterisation of Terry's interest as an equitable charge and seeks first a finding of law that Mrs Kintominas holds number 27 on an express or constructive trust for Terry. The terms of the trust suggested by the amended notice of appeal are to the effect that Terry should, subject to fulfilling certain agreed conditions, be entitled to the use and occupation of the house for life, and that he should be entitled to the whole beneficial interest in the property on her death. This trust is said to diminish the applicant's interest in the property and this diminution should be taken into account in assessing the value of her asset.
Alternatively, if the equitable charge characterisation is correct, the amended notice of appeal says that it should be quantified by the percentage of the total value of the house which the $35,000 represented when it was spent (37.6%) or by adding interest to the $35,000.
However, at the hearing the applicant did not specifically argue for a trust. Even the suggested proportionalisation of Terry's interest was very much a secondary or fallback position. In fact she concentrated on seeking to establish an equitable entitlement of Terry Kintominas to the whole property across a range of equitable principles. Thus the applicant primarily sought an order that the value of her interest be assessed at nil. Very much as an alternative, the value was suggested to be 62.4% of the current market value of the property, or $35,000 plus interest from the time of its spending.
The applicant no longer expressly pressed the inclusion of the additional $12,000 worth of expenditure in the quantification of Terry's interest in the property. This may well be a correct approach and I will not deal with it specifically in consequence, although I have difficulty with the concept that its rejection is justified by the absence of rent payments. In accordance with the parties' advice at the hearing, I record, for completeness of the facts, that while all this litigation is continuing, Mrs Kintominas is receiving the full rate of pension.
A useful starting point in addressing these assertions is, as always, the statute. The Social Security Act 1947 was amended by the Social Security Amendment Act 1987 (Act No. 77 of 1987) which resulted in a renumbering of the sections. The sections of the Social Security Act 1947, reprinted as at 1 January 1989, are therefore quoted in addition to those which applied when the matter commenced. The whole Act has since been replaced by Act No. 46 of 1991 which came into effect on 1 July 1991, at least in part. A transitional Act was also passed at the same time but a copy of its terms could not be made available to me at the time of writing this judgment. It seems that the 1991 legislation wrings extensive changes to the previously existing scheme. What effect it may have on this case I do not know.
The philosophy of the various provisions in the 1947 legislation as amended to expose and define what is known as the "assets test" is that persons otherwise qualified for a relevant pension should have their pension reduced in accordance with a formula apparently designed in general to reflect national equity in the light of their capacity to finance themselves.
In relation to the question of property for the purposes of the assets test, section 3(6), previously section 6(4), provides:
A reference in this Act to the value of particular property of a person or to the value of a charge or encumbrance on property of a person shall, if the property is owned by the person jointly or in common with another person or persons, be read as a reference to the value of the person's interest in the property or the value of that charge or encumbrance in so far as it relates to the person's interest in that property, as the case may be.
Section 4 (formerly section 6AA) provides that several items of property, for example the pensioner's principal residence, are to be disregarded in assessing the value of property for the purpose of determining whether a pension entitlement should be reduced. Section 7 (previously section 6AD) provides inter alia that in a case of severe financial hardship, the value of property that cannot be sold or used as security for borrowing shall also be disregarded, but that the pension is otherwise to be reduced by $26 per annum for every $250 in value of assessable property. This amount may have changed since the latest print of the Act available to me.
Looked at as an issue of principle, the applicant would only be vulnerable to a pension reduction to the extent that she obtains or is capable of obtaining a relevant financial benefit from number 27. However, this is not the way the assets test is actually intended to operate.
Apparently unphased by the Deputy President's strictures on the matter, the respondent maintained in this Court, as he had done before the SSAT and the AAT, that the value of the applicant's interest in number 27 has in fact been diminished by rights established in Terry Kintominas as a result of his expenditure of funds on the property, and of the promises and representations to him by his mother of an irrevocable life tenancy and eventual ownership. The issue between the parties is whether the applicant has any subsisting interest capable of valuation or monetary assessment, and if so, what it is.
An unspecified category of estoppel, said to be based on the decision of the High Court in Olsson v Dyson (1969) 120 CLR 365, was argued before and rejected by the AAT. However, in that case Kitto J, with whom Barwick CJ, Menzies and Owen JJ agreed, disavowed estoppel in favour of the lines of reasoning exposed in or derived from Dillwyn v Llewelyn (1862) 4 De G.F. and J. 517 (45 E.R. 1285). In that case, a father made a gift of land to his son so that the son could build a house, and later approved the son's expenditure of 14,000 pounds to construct the building. The gift was incomplete in the sense at least that the land was not legally transferred. There was no or inadequate writing and certainly no consideration, and therefore no contract that could be specifically enforced. The conduct of the father after the gift, in inter alia approving the son's expenditure, together with the expenditure itself, was held to entitle the son to require the father's executors "to complete the gift".
Kitto J said at 378 that Dillwyn provides a basis for upholding the son's equity on one or both of two theses. One was that the case is analogous to a situation of an unwritten and therefore unenforceable verbal agreement which becomes binding because of later part performance - i.e. that the conduct of the father subsequent to the gift in approving the son's expenditure on the building bound him in life, and after his death his legal personal representatives,
in conscience to make the legal situation correspond with the implication in the encouragement that he gave to his son to lay out the money.
The second basis for the decision was described by Kitto J as:
that the father's conduct amounted to a promise that if the son should build the house the land should be the son's, and that the son, by building the house, accepted the offer and so concluded a binding contract.
Because whatever was in writing was insufficient for specific performance, Kitto J said (at 379) that:
... the ultimate basis of the decision must...have been that the father's subsequent conduct in encouraging the son to build the house on the footing that the land would be his, when acted upon by the son, created an equity which bound the father to make good the son's expectation.
He concluded:
... what gives rise to an equity which the attempted making of the gift did not by itself create is the conduct of the intending donor after the act of incomplete gift ...
This means that if in the absence of binding agreement, one person's conduct is such as to give rise to expectations in another, on the basis of which the second person expends or loses money, equity will act to protect the actions of the second person from even accidental frustration by the first. In this case, Mrs Kintominas' agreement to her son's undertaking of the loan for the extensions, to his rent-free occupation of the house in return for its outgoings and maintenance, and to devise the property to him on her death, together with his actual expenditure incurred on these bases, entitle him to seek and obtain the protection by equity of the expenditures incurred. Cf Morris v Morris (1982) 1 NSWLR 61 which the Tribunal felt was similar to this case, but which I think is wholly distinguishable on the facts.
Promissory estoppel now exists in Australia: Legione v Hateley (1983) 152 CLR 406 at 432. The classic modern definition of the doctrine was stated by Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 423:
The unconscionable conduct which it is the object of equity to prevent is the failure of a party, who has induced the adoption of the assumption or expectation and who knew or intended that it would be relied on, to fulfil the assumption or expectation or otherwise to avoid the detriment which that failure would occasion. The object of the equity is not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who has been induced to act or to abstain from acting thereon.
In a review of recent developments in English case law, Mason C.J. and Wilson J discerned a common link (at 404):
... that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has 'played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it'.
In other words, equity will be available to enforce a voluntary promise because to depart from the "basic assumption" of the transaction would be unconscionable.
Mason C.J. and Wilson J pointed out that the failure to carry out a promise is not itself unconscionable; it must be supplemented by the existence of an assumption that the promise will be performed, and a reliance on the assumption by the promisee to his detriment and with the knowledge of the promisor.
The representations and promises to Terry Kintominas by the applicant, the fact that he clearly incurred and repaid the debt to carry out the extensions, and the circumstance that his expenditure amounted to a significant proportion of the then value of the house, all seem to me to establish that he obtained a true beneficial interest in the property. Moreover, the effect of inflation on the capital improvements achieved by his expenditure is likely to have wrought an even greater accretion to the value of the property than would have been achieved by inflation on the unrenovated property.
The role of equity in this regard is limited. In Waltons Stores, Brennan J warned at 419:
However, in moulding its decree, the court, as a court of conscience, goes no further than is necessary to prevent unconscionable conduct.
This view was agreed to in Commonwealth v Verwayen (1990) 170 CLR 394 by Mason C.J. at 412:
... as a matter of principle and authority, equitable estoppel will permit a court to do what is required in order to avoid detriment to the party who has relied on the assumption induced by the party estopped, but no more.
and at 416:
When a court approaches the task of ascertaining the minimum relief necessary to "do justice" between the parties, it is not correct to make an assessment of the moral rectitude of the actions of the parties in a manner divorced from a consideration of the legal consequences and attributes of those actions. Thus it must be borne in mind that a voluntary promise is generally not enforceable and that pleadings are susceptible of amendment. The breaking of a promise, without more, is morally reprehensible, but not unconscionable in the sense that equity will necessarily prevent its occurrence or remedy the consequent loss. In the same way, with estoppel, something more than a broken promise is required.
Brennan J at 429 stated that:
The remedy is not designed to enforce the promise although, in some situations (of which Waltons Stores v Maher affords an example), the minimum equity will not be satisfied by anything short of enforcing the promise.
Similar limitations were adopted by Deane J at 439, by Dawson J at 454, and by McHugh J at 501.
Of course this is not a case where a promisee is seeking to assert an equity as against a promisor or promisor's successors. But the applicant argued that applying these principles to this case would lead to Terry Kintominas being declared to have the whole beneficial interest in number 27. Alternatively, it was said, he gained an entitlement to live in the house for life or until his mother's death, when he could enforce, against her estate if necessary, her obligation to have left it to him in her will. In either case, the applicant says that her remaining interest in the house is merely as the bare titleholder in law with no disposable capacity or assessable interest. As a consequence the value of her interest is nil.
The respondent says that the relevant representation is that the house would be left to Terry in the applicant's will. The consequence is that the applicant's legal personal representative would be obligated to convey the property to Terry on her death. Despite the fact that Terry spent his own money on improving the property because he was given the right to live there and treat it as his own, all the other representations are merely consequential on the promise to devise the property to him. None of them had any effect on the value of the applicant's current interest in the property.
I am mindful of Justice Brennan's warning in Waltons Stores, and the remarks of members of the Court in Verwayen, on the limit of the equity involved here. As was stated by the Privy Council in Plimmer v Wellington (1884) 9 AC 699 at 714:
... the Court must look at the circumstances in each case to decide in what way the equity can be satisfied.
See also In re Whitehead (1948) NZLR 1066; Chalmers v Pardoe (1963) 3 All ER 552 at 555 (Privy Council); Inwards v Baker (1965) 2 QB 29.
However, as I read the cases, injecting equity in a minimalist way without doing effective justice in the matter is not the corollary of the limitations so defined. If equity would enforce the promise to leave the property in the applicant's will, it would surely do no less in relation to Terry's rights during her life, as, for example, if Mrs Kintominas tried to sell the property and dispose of the proceeds. Merely to give Terry a charge, to the extent of his expenditure on the extensions, enforceable on his mother's death would not reflect the totality of his enforceable rights. Hence as I see it, the respondent's is not a realistic appraisal of the circumstances as revealed by the agreed facts. Indeed, acceptance of the respondent's argument means that Mrs Kintominas is quite free to sell the house now despite the major anomaly, as the respondent conceded in argument, that an injunction would almost certainly go to prevent the sale. At the very least it would quarantine the whole proceeds of sale.
Mrs Kintominas was only 70 years old when the debt was incurred and the money spent. The evidence does not suggest that she was in ill health or in danger of an early demise. Indeed she is still alive now at the age of 78 and was at the age of 75 able to help fill the breach with her grandchildren caused by the untimely death of her daughter-in-law. All this suggests that when Terry entered into the understandings with his mother in 1976 and undertook expenditure in 1983 amounting to about half the then value of the house, his mind was less on his inheritance than on his and his family's living quarters.
I find that despite the applicant's legal ownership, this home is, on the concepts discussed in Dillwyn v Llewelyn and Olsson v Dyson, and later in Waltons Stores and Verwayen, beneficially the property of Terry Kintominas. It is not necessary to characterise whether the applicant created an express or constructive trust in his favour. Such old cases as Milroy v Lord (1862) 4 De G.F. and J. 246 (45 E.R. 1185) and Richards v Delbridge (1874) L.R. 18 Eq 11 established the rule that words of intention to make a gift of property cannot properly be construed as a declaration of trust. Whether this case goes further so as to avoid the rule does not need to be decided. The intention was to make the house Terry's, immediately and in every sense. The applicant sought to retain no rights in and no capacity to dispose of or encumber the property without Terry's consent. A trust seems unlikely and in terms of the concepts provided for in the Social Security Act, estoppel is inappropriate. However categorised, my conclusion is that it is not property with a value in the applicant's hands capable of being converted into an assessable basis for reducing her pension. In that sense the AAT erred in law.
That disposes of the case; but for completeness I shall deal briefly with the applicant's second proposition.
The clarification or confirmation of the decision given by the respondent's delegate that the applicant's interest in the house was the remaining 62.4% of its value after deducting 37.6% for Terry's interest should be accepted as the delegate's true decision. To that extent, the AAT has therefore not affirmed the delegate's decision but changed it. If necessary, I would respectfully disagree with the view that interest should not be allowable on the $35,000 or should, together with the additional $12,000 in expenditure on the house, be offset against unpaid rent. Rent-free occupation was part of the express agreement between the two people. Perhaps such fixed outgoings as rates, insurance, etc. would not be cumulative on the rent. But if Terry had not maintained, renovated and cared for the house, and paid the rates, he would have been in breach of his agreement and may have become liable for the rent and for something in the nature of the expenditure that he was bound to incur to maintain the capital investment.
This was a loving mother and son relationship which had some financially incalculable features not akin or appropriate to an ordinary landlord and tenant situation. There is no basis for a view that Terry's carrying out of agreed expenditure can now be construed as an interest-free unrewarded capital improvement to the property for the benefit of his mother. If necessary, I would find that Terry's interest in the property should be assessed either as the percentage of present value represented by the expenditure on the value at the time it was made, or by adding interest to the amount expended.
Assuming a present value of the property of $145,000 as evidenced to the Tribunal, an interest to the applicant of 62.4% would mean a monetary value of $90,480. It has not been explained how, if it were appropriate, interest would be calculated, nor how it would compare in money terms with the deduction method. There were no submissions as to whether there was a difference in principle between these two methods of assessing the applicant's remaining interest in the property if I came to conclusions which brought such concepts into play. In fact, they were put to the Court, as to the AAT, as true alternatives indistinguishable in principle. I have therefore not considered if a difference exists and it may not be necessary that I do so.
However, in order to limit future litigation for an elderly woman, I will publish these answers to the issues posed for determination and give the parties the opportunity of submitting agreed orders to give effect to the conclusions I have reached. Alternatively, the parties may make further submissions as to the need for additional findings so that the matter may be fully disposed of.
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