McBain v Parsons
[2003] TASSC 144
•17 December 2003
[2003] TASSC 144
CITATION: McBain v Parsons [2003] TASSC 144
PARTIES: McBAIN, Roger
v
PARSONS, Cathryn Maree
PARSONS, Bronwyn Alice
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: 23/2002
DELIVERED ON: 17 December 2003
DELIVERED AT: Launceston
HEARING DATE/S: 27 March 2003
JUDGMENT OF: Crawford J
CATCHWORDS:
REPRESENTATION:
Counsel:
Plaintiff: S B McElwaine
Defendants: G Bigmore QC
Solicitors:
Plaintiff: S B McElwaine
Defendants: McLean Phillips & Bartlett
Judgment ID Number: [2003] TASSC 144
Number of paragraphs: 32
Serial No 144/2003
File No 23/2002
ROGER McBAIN v CATHRYN MAREE PARSONS and
BRONWYN ALICE PARSONS
REASONS FOR JUDGMENT CRAWFORD J
(Forwarded to the parties on 8 August 2003)
17 December 2003
The plaintiff sued as trustee of the bankrupt estates of Geoffrey James Parsons ("Geoffrey Parsons") and Peter Frederick Parsons ("Peter Parsons"), of whom the defendants are their respective wives. The sequestration order for each bankruptcy was dated 21 October 1997.
The mortgages to CWS Mortgage Management Pty Ltd
At all material times prior to 28 May 1993, Geoffrey Parsons was the sole registered proprietor of the land in Certificate of Title Vol 213233 Fol 1, which is known as Leesville Road, Smithton ("the Leesville property"), and Peter Parsons was the sole registered proprietor of the land in Certificate of Title Vol 22152 Fol 9, which is known as 80 King Street, Smithton ("the King Street property"). Each of the properties was subject to a registered mortgage ("the CWS mortgages") to Clerk Walker & Stops for advances made by that firm for the purpose of the Smithton transport contracting business then conducted by the husbands in partnership and known as "F J Parsons & Sons". The mortgages have since been transferred to CWS Mortgage Management Pty Ltd. The CWS mortgage of the Leesville property was expressed to secure a loan of $58,000 and the CWS mortgage of the King Street property was expressed to secure a loan of $36,000.
By transfers registered at the office of the Recorder of Titles on 28 May 1993, for no consideration expressed other than "entitled in equity", Geoffrey Parsons transferred his right, title and interest in the Leesville property to his wife, the first defendant, and Peter Parsons transferred his right, title and interest in the King Street property to his wife, the second defendant.
Subsequent to the bankruptcies of the husbands, the plaintiff applied to the Federal Court of Australia for orders (inter alia) declaring that each transfer was void against him under the Bankruptcy Act 1996 (Cth), ss120 or 121. By a combination of orders made by Heerey J on 11 July 2000 and the Full Court of the Federal Court on 5 April 2001, it was declared that the transfers were void. However, because of their respective financial contributions to the properties, each of the defendants was held to be entitled, under a common intention constructive trust, to an equitable interest as to a one half moiety in the respective property. The first defendant was therefore ordered to transfer to the plaintiff a one half interest only in the Leesville property, so that she and the plaintiff each held a one half interest as tenant in common. Similarly, the second defendant was ordered to transfer to the plaintiff a one half interest in the King Street property, so that she and the plaintiff each held a one half interest as tenant in common. The ordered transfers were duly effected and were registered on 17 January 2002, so that the plaintiff and a defendant are registered as tenants in common in equal shares in regard to the respective properties.
Subsequent to the 1993 transfers to the defendants, but prior to the bankruptcies of their husbands, each of the defendants executed a mortgage over her respective interest in favour of the Commonwealth Bank of Australia. It was further ordered by the Federal Court that each of the defendants was to indemnify the plaintiff in respect of all liability pursuant to the respective Commonwealth Bank mortgage.
Because the purpose of the CWS mortgages was to secure advances to the business of the defendants' husbands, the Full Court of the Federal Court held that each of the defendants was entitled in equity to be exonerated by the plaintiff with respect to liability under the respective mortgage. The effect of that is that the plaintiff holds his one half interest in each of the properties subject to an equitable charge in favour of the respective defendant by way of indemnity with respect to liability under that mortgage.
On 8 March 1997, seven months before the making of the sequestration orders, a written agreement for the sale of the business of F J Parsons & Sons by their husbands to the defendants, was entered into. It stated that for a purchase price of $140,000, of which a $5,000 deposit was to be paid to a stakeholder on the signing of the agreement (cl 2.1), the husbands agreed to sell and the defendants agreed to purchase the business comprising the following property:
1 the unexpired term of a lease of the business premises;
2 the goodwill of the business;
3 the business name;
4 the chattels, plant, equipment, fixtures and fittings itemised in Sch1 to the agreement;
5 the public vehicle licences particularised in Sch6 to the agreement; and
6 any other assets or benefits agreed to be sold or vested in the purchasers under the agreement.
The agreement allocated from the purchase price $1 for the unexpired term of the lease, $20,000 for the goodwill and licences and $120,000 for the plant and equipment (cl 2.2). The so-called chattels, plant, equipment, fixtures and fittings in Sch1 were trucks, prime movers, trailers and a water cart, and all were stated to be subject to bills of sale to lenders (cl 4.1), specified as being Caltas Pty Ltd, Mr D Gillies, AGC (Advances) Ltd and North West Truck Centre. The husbands agreed "to discharge the liability to each lender secured over the encumbered plant and equipment in order to acquire absolute title on or before completion" (cl 4.2). However, there was a provision for reducing the purchase price if a lender refused to discharge a bill of sale (cl 4.3). If Caltas Pty Ltd refused to discharge its bill of sale, the reduction in the sale price was to be $53,000 or the amount owing on completion of the agreement, whichever was the lesser amount. Similar provisions related to the other lenders. For Mr D Gillies the stated amount was $5,000, for AGC (Advances) Ltd it was $81,000 and for North West Truck Centre it was $3,000. Therefore, if all of the lenders so refused, the total of the reduction may have been $142,000, a sum slightly in excess of the purchase price.
The husbands agreed to pay all debts and liabilities of the business at the time of completion (cl 7). They agreed to a clause restraining them from engaging in any occupation that competed with the business within a radius of 250 kilometres for 36 months (cl 8).
The defendants maintain that all the terms of their agreement with their husbands to purchase the business were embodied in the written agreement dated 8 March 1997. However, the plaintiff has pleaded that there were also oral and implied terms of the agreement for the sale of the business to the defendants.
The plaintiff claims that the oral terms of the agreement were reached in discussions between the defendants and their husbands in or about February and March 1997, and that their substance was:
1Geoffrey Parsons and Peter Parsons would each transfer their interest in the business to the defendants without requiring the defendants to pay any purchase price therefor;
2The consideration for the acquisition of the business by the defendants would consist of:
(a)acceptance by the defendants of the obligation to discharge the following liabilities of the business as at the date of completion;
·a mortgage debt to the Commonwealth Bank of Australia for $3,363.46;
·an asset purchase obligation to AGC (Advances) Ltd for $81,000;
·the CWS mortgages debt for $83,237.29;
·a debt to Caltas Pty Ltd for $53,000;
·a debt to Mr D Gillies for $5,000; and
·a debt to North West Truck Centre for $3,000.
(b)the entry into by the defendants of an equal partnership, in the name "B A & C M Parsons", by which they would conduct the same cartage contracting business at the same business premises;
(c)the transfer by the husbands of their respective interests in the assets of the business; and
(d)the indemnification of the husbands in respect of each of the liabilities in subpar(a) above; and
3After completion, the defendants would employ the husbands to operate the business on their behalf.
In the statement of claim, par13, the plaintiff pleaded that to the extent that the agreement is implied, it is implied from the following facts, circumstances and actions, each with effect from February or March 1997:
1 the husbands ceased to trade in partnership under the name of "F J Parsons & Sons";
2the defendants commenced a partnership business of cartage contracting, in equal shares, under the name of "C M & B A Parsons", which was in substance and in fact the same business that was carried on in partnership by the husbands before February 1997;
3the defendants succeeded to the lease of the business premises and commenced paying the rental payable pursuant to that lease;
4the defendants employed their husbands to conduct the business on their behalf; and
5the defendants accepted liability to pay and to ultimately discharge the liabilities of the business which were owing on the date for completion of the agreement and which are listed in par2(a) above.
A deficiency in the statement of claim is that it does not plead what the implied terms are said to have been. It merely pleads "facts, circumstances and actions" from which implied terms can be drawn. I regard the reference to implied terms as erroneous and that what the plaintiff seeks to establish from those facts, circumstances and actions is that an inference should be drawn that the parties entered into an agreement that extended beyond the written agreement and included what the plaintiff pleaded to have been oral terms. In particular, the plaintiff seeks to have the Court infer from those facts, circumstances and actions that the defendants agreed to indemnify their husbands against liability under the CWS mortgages.
Technically speaking, courts will only imply a term in fact when it is necessary to give business efficacy to the agreement. BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 605 - 606; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347; Australian National Hotels Pty Ltd v Jager (2000) 9 Tas R 153 at 160 - 161. The plaintiff does not seek the implication of a term for the purpose of giving business efficacy to the agreement between the parties. A term implied in fact purports to give effect to the presumed intention of the parties, in respect of a matter that they did not mention but on which presumably they would have agreed should be part of the agreement. Breen v Williams (1996) 186 CLR 71 at 102. When considering whether a term is to be implied, a court is not concerned with the subjective intent of the parties, which is what is raised by the plaintiff in this case. The implication of a term merely reflects the presumed intention of the parties, not their actual intention. It involves implication by the court based on the court's view of the actual intention of the parties. Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 255 - 256.
It is the plaintiff's case that the effect of the terms of the agreement that are not to be found in the written agreement, and the terms of the written agreement to the extent that they are not inconsistent with the other terms, was that the defendants agreed to become legally liable, and accepted legal liability, for the payment and discharge of the CWS mortgages loans, and that as a consequence, the plaintiff is entitled to be indemnified by the defendants in respect of any liability to repay the mortgages that is secured in respect of his interest in the Leesville property and the King Street property. The plaintiff also claims to be entitled to set off the equity of exoneration in favour of the first defendant over the Leesville property and the equity of exoneration in favour of the second defendant over the King Street property, against that indemnity.
I emphasise that it is not the plaintiff's case that the agreement entered into by the defendants with their husbands should be set aside because it was a sham, a fraud against the creditors of the husbands or for any other reason. It is the plaintiff's case that they entered into a contract that is enforceable and in his capacity as the trustee of the bankrupt estates of the husbands, he seeks to enforce it.
I find that the plaintiff has not discharged the onus of proving, on the balance of probabilities, that the defendants contracted with their husbands that they would indemnify them against liability under the mortgage. The fact that the indemnity was not inserted in the written agreement suggests that it was not a term of their contract. There are of course, internal inconsistencies between some of the clauses of the written agreement, as pointed out by the plaintiff's counsel, but there is nothing in them that supports the drawing of the inference advanced by him.
The defendants have in fact made payments of interest and some payments of capital due under the mortgages since they acquired the business. Their reason for doing so was explained by the first defendant, when giving evidence in the Federal Court on 30 May 2000, as being that their houses were security for the loans. "It was a continued debt against our houses", she explained. I infer that if they had not made the payments out of what the business earned, the mortgagee would have called in the mortgages and may well have forced their homes to be sold.
Prior to the acquisition of the business by the defendants, the profit and loss account of the husbands' partnership showed the mortgage interest payments as an expense. For taxation purposes that was proper, for the CWS mortgages loans were obtained for the purposes of the business. Following the purchase of the business by the defendants, the payment of interest continued to be shown by them as an expense of the business in the profit and loss account. However, for taxation purposes it could not properly have been so treated if they were not in fact liable to pay the mortgage interest. Counsel for the plaintiff submitted that the fact that the payments were recorded by the defendants as an expense of their business is evidence that they had in fact assumed liability for the CWS mortgages.
There is merit in the submission, but nevertheless I am not persuaded that it should be inferred that the defendants entered into a legally binding contract with their husbands to make the mortgage payments. No doubt the defendants acquired the business, which was plainly insolvent, because the bankruptcy of the husbands appeared likely, and the business was the only real prospect the two families had available to them that might earn them an income. The recording of the payments of mortgage interest as an expense of the business continued what had gone on before. It may well have amounted to a taxation fraud, but it does not establish that the defendants had in fact contracted to indemnify the husbands against liability under the mortgages.
The written agreement provided for the defendants to purchase the trucks, prime movers, trailers and other associated equipment specific in Sch1. According to the written agreement, the amount that the defendants agreed to pay for the business was approximately equivalent to what was owing with respect to that equipment. It remained owing after the completion of the sale and for that reason, the defendants made no direct payment of the purchase price to their husbands. They merely assumed liability for the outgoings with respect to the items in Sch1.
Counsel for the plaintiff pointed to differences between the husbands' balance sheet for 30 June 1996, the defendants' balance sheet for 30 June 1997 and the figures in the written agreement concerning what was owing with respect to those items. Without evidence establishing what the true position was at any particular time, I cannot make any findings of fact from those apparent differences that support an inference that the defendants contracted to indemnify their husbands with respect to the CWS mortgages.
The husbands' balance sheet for 30 June 1996, showed that the business was substantially in debt. Liabilities exceeded assets by $399,246.97. If the liability under the CWS mortgages in the amount then stated, $90,003.88, had been excluded from the liabilities, the deficit still amounted to a considerable sum, $309,213.09. The net profit of the business for the year to 30 June 1996, was minimal, $1,209.41 only. It is not surprising that the wives and their accountant, would not have contemplated that they would acquire all of the liabilities of the business, including the CWS mortgages liability, to gain the advantage of the capacity of the business to generate income. According to the balance sheet at 30 June 1996, the business had trade creditors totalling $311,987.81 and trade debtors totalling only $15,430. The written agreement did not provide for the defendants to become liable to pay the trade creditors either. There was good reason for them not to agree to legally assume those liabilities too.
It was the evidence of the first defendant on her public examination on 15 December 2000, that she and the second defendant had to take over the liabilities with respect to the plant and equipment, because they needed the plant and equipment to keep the business going. That logic could of course, be extended to the CWS mortgages liability, in the sense that they needed to satisfy the mortgagee if they wished to keep a roof over their heads. But they could achieve that end, without becoming legally liable for the mortgage. I suspect that the persons or institutions to whom monies were owing with respect to the plant and equipment, whether by way of bill of sale, lease, asset purchase or otherwise, might not have been content for the defendants to acquire the business and to take possession of the plant and equipment without assuming liability for the payments that were due to them. But at the time of entering into the written agreement, it may well have appeared to the parties that it was unnecessary for the defendants to assume legal liability with respect to the CWS mortgages.
In the course of being cross-examined by the plaintiff's counsel in the Federal Court on 29 May 2000, Peter Parsons was asked whether it "was part of the deal" that the wives "had to pay" the principal and interest due on the CWS mortgages. He responded affirmatively. However, later in the course of that cross-examination he also agreed that the copy of the written agreement that was in evidence was "a true copy of the agreement for the sale of the business to your respective wives?" The failure to investigate further with Mr Parsons what he was indicating was part of "the deal", leaves me unpersuaded that he meant that the defendants contracted to indemnify the husbands for the mortgage payments.
If the defendants and their husbands intended that the defendants would legally bind themselves to the husbands to indemnify them against liability under the CWS mortgages, but by some mistake a clause to that effect was not inserted in the written agreement, the appropriate remedy is rectification of the agreement. The plaintiff does not seek that. Further, even if the defendants did agree with their husbands, at some point in time, that they would make the payments due under the CWS mortgage, there is no evidence that any consideration passed from the husbands in exchange for their promise to do so.
Therefore, I conclude that although the defendants undoubtedly made payments that were due from their husbands under the CWS mortgages, the evidence does not establish that they bound themselves contractually to do so. I hold that the plaintiff is not entitled to a declaration that each of the defendants must indemnify him for all liability pursuant to the CWS mortgages loans.
AMP shares
The plaintiff also claimed that the first defendant must account to him for the proceeds of sale of some shares. At the date of the sequestration order on 21 October 1997, Geoffrey Parsons owned a life insurance policy with the Australian Mutual Provident Society (AMP) and upon demutualisation of the Society, Mr Parsons was issued with 1,169 shares in AMP Ltd, which formed part of the property of his bankrupt estate. By force of the Bankrutpcy Act 1996 (Cth), s58, the plaintiff claims that they became vested in him, but they were not transferred to him. The plaintiff claims that subsequently, the shares were sold and the first defendant received and applied the proceeds of sale for her own use and benefit.
I was informed by counsel that the first defendant agrees that she is indebted to the plaintiff, arising out of the shares, in the sum of $19,407.92 together with simple interest calculated at the rate of 10 per centum per annum from 30 April 1999 until judgment. All that is necessary is for the interest calculation to be made to that date and the appropriate order can be made.
Set off against Federal Court costs
In the Full Court of the Federal Court the plaintiff was ordered to pay the defendants' costs of an appeal to the Full Court. The costs were taxed at $3,704.35 for the first defendant and $8,658.15 for the second defendant. The plaintiff claims to be entitled to set off their indebtedness against his respective claims against them. In that regard the first defendant admits that he may set off his liability to her for costs against her liability to him in respect of the AMP shares.
Partition
The plaintiff seeks orders under the Partition Act 1869, for the sale, in lieu of partition, of both the Leesville property and the King Street property and distribution of the net proceeds of each sale in accordance with directions by the Court. The defendants do not oppose orders to that effect.
Orders
I will invite submissions from counsel concerning the orders that should be made in accordance with these reasons for judgment.