McEvoy v McEvoy (No 2)

[2013] NSWSC 1162

Supreme Court

New South Wales

Medium Neutral Citation:	McEvoy v McEvoy (No 2) [2013] NSWSC 1162
Hearing dates:	20/08/2013
Decision date:	30 August 2013
Before:	Pembroke J
Decision:	See paragraph [23]
Catchwords:	EQUITY & TRUSTS - equitable personal obligation - nature and quantification - approach to assessment
Legislation Cited:	Civil Procedure Act 2005 (NSW)
Cases Cited:	Gill v Gill (1921) 21 SR (NSW) 400 Hons v Hons [2010] NSWSC 247 Ide v Ide [2004] NSWSC 751 Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 O'Sullivan Partners (Advisory) Pty Ltd v Foggo [2012] NSWCA 40 The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 10) [2009] WASC 107; (2009) 39 WAR 1 Williams v Williams [1897] 2 Ch 12
Category:	Consequential orders
Parties:	Aidan McEvoy - first plaintiff Natahl Cara Liane McEvoy - second plaintiff Mary McEvoy - defendant
Representation:	J J T Loofs - for the plaintiffs G Waugh - for the defendant Smallwoods Lawyers - for the first and second plaintiffs Henry Packham - for the defendant
File Number(s):	2012/174694

Judgment

Introduction

1. In my principal judgment [2012] NSWSC 1494, I held that the defendant holds certain land at Jamberoo on trust for her son and daughter-in-law (the plaintiffs) as to a one half share. I also held that the plaintiffs were subject to an equitable personal obligation to pay to the defendant an amount to be agreed or determined in accordance with the reasoning set out in paragraphs [38] - [40] of that judgment.

1. The parties have not agreed on the quantification of the plaintiffs' personal obligation and it has been necessary to conduct a further hearing. It may assist if I say something at the outset about the nature of an equitable personal obligation and explain the principles which govern the assessment of an appropriate amount.

Nature of Equitable Personal Obligation

1. The acquisition of an interest in property may, depending on the particular circumstances, be subject to a condition. In some cases, the characterisation of the events, or the construction of the language, giving rise to the creation of the interest in property, may indicate that the very existence of the interest is conditional - with the result that if the condition is not performed, the property interest will fail or be forfeited. In other cases, the condition will be treated as merely creating a personal equitable obligation to fulfil it. In such a case, the obligation may be enforced in equity by an order for compensation, or where appropriate, by a decree of specific performance.

1. This difference has been frequently explained. See for example, Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 at 605-6 (Brennan J) and 624-5 (Dawson J); Williams v Williams [1897] 2 Ch 12 at 19 (Lindley LJ) and O'Sullivan Partners (Advisory) Pty Ltd v Foggo [2012] NSWCA 40 at [96] - [99]. In Gill v Gill (1921) 21 SR (NSW) 400 at 407, Harvey J addressed the difference in the context of a conditional gift pursuant to a will:

In some cases the court may see that what the testator intended was to attach a charge or trust upon the property, in other cases it may conclude that a personal liability alone is intended. The view taken would depend on the language used to describe the obligation, the nature of the property given to the obligee, and the nature of the obligation. In cases where the obligation is merely personal in its nature, calling for the personal activity of the obligee it may be the court could not effectively secure its specific performance; there is no reason why, in such cases, the Court should not mould the remedy so as to give a remedy by way of damages for the breach of the [equitable obligation].

1. In this case, the plaintiffs' equitable personal obligation does not give rise to a trust or charge over the property in favour of the defendant. And a failure to comply with the obligation does not result in the trust terminating or the plaintiffs' half interest in the property reverting to the defendant. There is no question in this case of the plaintiffs losing their half interest in the property, which subsists whether or not their obligation is performed. The only issue is how much should I order them to pay in performance of their equitable obligation?

Approach to Assessment

1. I said in my principal judgment that fixing a money sum that represents the amount of the plaintiffs' equitable personal obligation was 'not a matter requiring mathematical or actuarial precision'. The exercise is not one of taking accounts. Rather, the object is to mould an appropriate equitable remedy to meet the circumstances of the case and satisfy the demands of justice. Where an equity has arisen in favour of one party, the court may define the interest (or the amount) that satisfies the equity. The discretion is broad and flexible. However it must be exercised judicially. One aspect of that principle is that there must be a reasonable evidentiary basis for the relief ordered: The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 10) [2009] WASC 107 at [3]; (2009) 39 WA 1.

1. On the other hand, even on the taking of accounts, the court need not adhere to standard procedures and formal court processes, or insist on strict proof, where the benefits of doing so are outweighed by the time and expense involved. This is especially so where the parties are not wealthy, the amounts not great and judicial fastidiousness may cause hardship and delay. In such a case, in order to achieve a just outcome, it may be necessary to balance the relativities and to adopt a sensible and pragmatic approach: Ide v Ide [2004] NSWSC 751 at [24] - [26] per Young CJ in Eq; Hons v Hons [2010] NSWSC 247 at [127] - [128].

Primary Facts

1. The primary facts were as follows. In 1999 Bill McEvoy, the former husband of the defendant, acquired the property in circumstances where he created a trust over a half interest in it in favour of his son and daughter-in-law. He imposed a condition that the plaintiffs pay the rates, taxes and outgoings and an agreed amount toward his monthly commitment on the mortgage loan which he obtained to fund the purchase. The agreed monthly contributions to the mortgage loan were to be $1,200 by the plaintiffs and $600 by Bill McEvoy - a ratio of 2:1.

1. The purchase price was $420,000 to which should be added approximately $15,000 for stamp duty and legal fees, totalling $435,000. The principal amount of the mortgage loan was $337,000. The difference of $98,000 was funded in part by using $72,000 belonging to the first plaintiff. That sum had been held by Bill McEvoy and his wife (the defendant) since 1995. The balance of $26,000 came from Bill McEvoy's own funds. The respective capital contributions to the property by the plaintiffs and Bill McEvoy were therefore $72,000 and $26,000 - a ratio of almost 3:1.

1. Bill McEvoy's loan was interest only for five years after which it converted to a principal and interest basis. In 2002, with notice of the plaintiffs' claim, the defendant acquired the property and a corresponding liability for the loan. In 2003 she was compelled to pay out the loan. The amount paid by her was $332,000. The plaintiffs continued to live in the property with their children. Up to that point, they had contributed the greater amount of capital to the purchase of the property, the greater amount of monthly mortgage payments and all of the rates, taxes and outgoings. They also maintained and improved the property.

1. After 2003 the defendant descended into bitterness and irrationality. The payment out of the bank loan, which was forced on her as a result of her separation from Bill McEvoy, undoubtedly caused her hardship. The arrangements that had existed before 2003 unravelled. As I said in the principal judgment at [24]:

The plaintiffs continued to make payments to the defendant - either directly to her or at her request - but without a bank loan, the arrangement was loose and the payments less disciplined. Interminable disputes took place as to whether the plaintiffs' payments should be characterised as repayments of interest or principal - on a loan that no longer existed. And the defendant started to describe the payments as "rent". From 2009 the defendant became more embittered when Bill McEvoy commenced divorce proceedings against her.

1. The second plaintiff gave evidence of the moneys paid to or at the direction of the defendant after 2003. I accept her evidence of the amount of these payments without hesitation. She was intelligent and impressive; careful and considered. She was also, in my view, scrupulously honest. She had every reason to be cautious and accurate. She was the driving force in the acquisition of the property and the one most concerned about the absence of security and the looseness of the arrangements, especially after the mortgage loan had been paid out.

1. A spreadsheet prepared by the second plaintiff shows, among other things, total payments by the plaintiffs of $172,000. The amount paid after July 2003 is $115,000. I am prepared to proceed on the basis of those primary figures. There is no reason to suspect any significant inaccuracy. The spreadsheet showing, among other things, the payments by the plaintiffs was tendered at the first hearing; relied on again at this hearing; and not contradicted by the defendant despite having ample opportunity to do so. She gave no evidence that the plaintiffs paid any lesser amount.

Moulding the Remedy

1. As I have been at pains to point out, this is not an exercise in arithmetical accuracy. And it is certainly not an accounting exercise. The question is what amount should I conclude, in the exercise of my discretion, is a sufficient and appropriate amount to satisfy the plaintiffs' equitable personal obligation to the defendant - in the events which have occurred.

1. Prima facie, as the plaintiffs were half-owners, they should be treated as having been responsible for half of the sum of $332,000 that was paid in discharge of the loan in 2003. On this analysis, the defendant has been out of pocket in the sum of $166,000 for approximately ten years. However I propose to allow only a modest amount for accrued interest on this sum over the period. This will reflect the fact that, in the circumstances, the interest is notional and the relationship is not commercial. It will also reflect the fact that there is no criticism of the plaintiffs for not having paid half the amount required to discharge the loan. They were not asked to do so. And until this year, their beneficial interest was denied by the defendant and had not been established.

1. I have therefore decided to allow $83,000 for interest. This reflects an annual deposit rate of 5% which I have allowed for ten years, without compounding. This is reasonable within the context of a family. It makes a total of $249,000. From the sum of $249,000 there should be deducted $115,000, being the amount which, I am quite satisfied, was paid by the plaintiffs after July 2003 to or at the direction of the defendant. This leaves $134,000.

1. Although the defendant made no effort at this hearing to prove that she had paid any amounts for the rates, taxes and outgoings on the property by allowing her credit card to be used by the plaintiffs, there was recognition by the first plaintiff at the earlier hearing that this had in fact occurred from time to time. I do not think that I should adopt a strict approach to the defendant's failure to satisfy her evidentiary onus on this issue. And I will certainly not accede to her request for an order that the parties 'confer' on the quantum of any such payments. I will allow her the sum of $9,500 on this issue. This is generous and represents the full amount claimed by her in paragraph 4 of the cross claim. This makes a total of $143,500.

1. The figure of $143,500 should be further reduced and rounded down to $120,000. This reflects a reasonable credit to the plaintiffs of $23,500 for the fact that they made the major initial capital contribution to the purchase of the property; did not receive any interest on the sum of $72,000 between 1995 and 1999; maintained and cared for the property as if they owned it; and made improvements to the property, which the evidence showed were not insubstantial and must have added to its value.

Costs

1. One further step remains. The plaintiffs seek an order that the defendant pay their costs of the proceedings. This involves setting aside the order that I made in my principal judgment that each party pay its own costs. I made that order primarily because this is a family dispute and I wished to avoid the further acrimony which sometimes results from making costs orders. I also wished to facilitate and encourage the parties to reach agreement on the amount of the plaintiffs' equitable personal obligation.

1. My hopes for reconciliation and an end to the litigation have been disappointed. I should therefore substitute an appropriate costs order that reflects the merits of the outcome. As the plaintiffs were forced to commence these proceedings and conduct two hearings in order to establish their rights, they should recover their costs. I will order the defendant to pay the plaintiffs' costs.

1. That is not all. This is an appropriate case for a gross fixed sum costs order pursuant to Section 98(4)(c) of the Civil Procedure Act. It is undesirable in the circumstances of this case that the parties be subjected to the further delay and expense of an assessment. I am satisfied, having regard to my observation of the conduct of both hearings, the nature of the issues, the extent of the documents and my judicial notice of the prevailing rates charged by solicitors and barristers, that an appropriate fixed sum amount to reflect an award of costs in favour of the plaintiffs is $20,000.

Conclusion

1. I will set off the amount of the costs order in the plaintiffs' favour against the amount that I would otherwise have been prepared to order them to pay to the defendant. The sum of $120,000 should therefore be further reduced to $100,000. The practical result will be that, when the property is sold - as I am informed the parties intend - the defendant will be entitled to receive $100,000 in addition to 50% of the net proceeds of sale. The litigation between the parties should then cease.

1. In the exercise of my discretion, I make the following orders to give effect to these reasons:

(a)   I order the plaintiffs to pay $120,000 to the defendant in satisfaction of their equitable personal obligation to her;

(b)   I order the defendant to pay the plaintiffs' costs of the proceedings, which I assess in the sum of $20,000;

(c)   I order that the amount in (b) be set off against the amount in (a), so that the net amount payable by the plaintiffs to the defendant is $100,000.

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Decision last updated: 30 August 2013