McLaughlin v Cunningham

[2023] NSWSC 350

Supreme Court

New South Wales

Medium Neutral Citation:

McLaughlin v Cunningham [2023] NSWSC 350

Hearing dates:

20 – 21 March 2023

Decision date:

06 April 2023

Jurisdiction:

Equity - Real Property List

Before:

Peden J

Decision:

Orders appointing trustees for sale made under s 66G Conveyancing Act 1919 (NSW): see [150]

Catchwords:

LAND LAW — Co-ownership — Statutory trust for sale — Appointment of trustees — Where business partners conducted a business out of a commercial property — Where relationship between the business partners broke down — Where business partners on title as joint tenants rather than the company — Whether sale should not be ordered — Where otherwise no dispute as to formal requirements concerning trustee appointment

CIVIL PROCEDURE — Jurisdiction — Inherent jurisdiction — Abuse of process — Whether proceedings seeking trustee sale of property were abuse of process — Where current proceedings in the Corporations List concerning breaches of directors’ duties — Where one co-owner’s proceeds of sale of the property would be paid into court pursuant to an undertaking

CONTRACT — Formation — Whether contract should be inferred between the parties and the company — Where the terms of such a contract to be inferred were that the parties would continue to lease the property to the company and company would pay rent — Where no contract could be inferred

ESTOPPEL — Estoppel by convention — Mutual assumption — Where limited evidence of the parties adopting a mutual assumption — Where limited evidence as to detriment — Where promissory estoppel relied on in the alternative and rejected for similar reasons

EQUITY — Unconscionable conduct — Special disability or disadvantage — Where the weaker party was said to be a corporation — Where the corporation was not otherwise party to the proceedings — Where no special disadvantage was demonstrated

Legislation Cited:

Conveyancing Act 1919 (NSW) ss 54A, 66F, 66G

Corporations Act 2001 (Cth) ss 181-184

Cases Cited:

Air Great Lakes v KS Easter (Holdings) (1985) 2 NSWLR 309

Antov v Bokan (No 2) [2019] NSWCA 250

Antov v Bokan [2018] NSWSC 1474

Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd (2015) 18 BPR 35

Ashton v Pratt (2015) 88 NSWLR 281

Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582

Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14; 253 CLR 560

Bautistos v Roads v Traffic Authority (NSW) (2006) 226 CLR 256

Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665

Branir Pty Ltd v Owston Nominees [No 2] Pty Ltd (2001) 117 FCR 424

Caboche v Ramsay [1993] FCA 920

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37

Commonwealth v Verwayen (1990) 170 CLR 394

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1

Delaforce v Simpson-Cook (2010) 78 NSWLR 483

Foundas v Arambatzis [2020] NSWCA 47

GC NSW Pty Ltd v Galati [2020] NSWCA 326

Hall v Busst (1960) 104 CLR 206

HECEC Australia Pty Ltd v Hydro-Electric Corp [1999] FCA 822

Joelco Pty Ltd v Balanced Securities Limited [2009] QSC 236

Maddison v Alderson (1883) 8 App Cas 467

Maxwell-Smith v S & E Hall Pty Ltd (2014) 86 NSWLR 481

McBride v Sandiland (1918) 25 CLR 69

Moratic Pty Ltd v Gordon [2007] NSWSC 5

Muschinski v Dodds (1985) 160 CLR 583

National Australia Bank Limited v Pasupati [2011] NSWSC 540

Nitopi v Nitopi [2022] NSWCA 162

Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635

Pacific Carriers v BNP Paribas (2004) 218 CLR 451

Pascoe v Dyason [2011] NSWSC 1217

Pipikos v Trayans (2018) 265 CLR 522

Re Day (2017) 91 ALJR 262

Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603

Stibbard-Leaver v Leaver [2021] NSWSC 65

Stubbings v Jams 2 Pty Ltd [2022] HCA 6

Suncorp-Metway Ltd v Nam Property Holdings Pty Ltd [2010] NSWSC 1078

Tory v Tory [2007] NSWSC 1078

Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 381

Wang v Zhao [2012] NSWSC 706

Weston v Publishing and Broadcasting Ltd [2011] NSWSC 433

Williams v Spautz (1992) 174 CLR 509

Williams v Williams [1979] 1 NSWLR 376

Wilson v Arwon Finance Pty Ltd [2020] WASCA 137

Woodson (Sales) v Woodson (Aust) (1996) 7 BPR 14,685

Texts Cited:

Ford, Austin and Ramsay’s Principles of Corporations Law (LexisNexis, Service 88)

Greg Tolhurst, Assignment of Contractual Rights (2nd ed, 2016, Bloomsbury)

Category:

Principal judgment

Parties:

Gregory John McLaughlin (Plaintiff)
Myke Francis Cunningham (Defendant)

Representation:

Counsel:
B Koch (Plaintiff)
T Rollo (Defendant)

Solicitors:
Assured Legal Solutions (Plaintiff)
Carroll & O’Dea Lawyers (Defendant)

File Number(s):

2022/119662

Publication restriction:

Nil

JUDGMENT

1. The Plaintiff, Mr Gregory McLaughlin, seeks orders for a trustee sale of a commercial property in Botany (the Property) pursuant to s 66G of the Conveyancing Act 1919 (NSW). The Property is owned equally by the Plaintiff and Defendant, Myke Cunningham, as tenants in common. When purchased, the Property became the principal place of business of a corporate entity, Mory Pty Ltd (Mory), through which the parties operated their business. Mory is not a party to these proceedings.

2. Such orders are resisted by the Defendant as detailed below. However, some factual matters are not in dispute.

3. In about 2000, the parties commenced working together in the construction industry. From 2005, the parties organised their business through Mory. The parties and a Mr Ambrose were the only directors of Mory. Originally, two trustee companies, Dyesse Pty Ltd and MFC Corporation Pty Ltd, controlled by Mr McLaughlin and Mr Cunningham respectively, owned 50 shares each. Mr Ambrose owned 10 shares. By 2010, Mr Ambrose was no longer a director or shareholder, and since then, Dyesse and MFC have each held 50% of the issued share capital in Mory.

4. In 2007, the parties purchased the Property in their personal names. In July 2007, the parties caused Mory to pay the deposit for the purchase of the Property. Settlement occurred in October 2007, with money sourced from the parties’ personal funds, a loan in the parties’ names and some proceeds of the sale of another property, from which Mory had carried on business. Mory provided a guarantee of the parties’ repayment obligations and a charge over its undefined assets.

5. In November 2007, Mory moved into the Property pursuant to an informal, undocumented arrangement with the parties. In November 2008, Mory paid for modifications to the Property needed for the operation of the business. From 2007 to 2014, Mory paid rent to the parties. Mory also paid outgoings, which were recorded in its financial accounts as directors’ loans.

6. In August 2013, the parties, who were by then the only directors of Mory, created two wholly owned subsidiary companies of Mory: a consultancy and construction business known as Premier Construction and Interiors Pty Ltd (PCI) and a cabinetry and joinery business known as PCI Architectural Joinery Pty Ltd (Joinery). Together, Mory, PCI and Joinery were described as “the Mory Group”.

7. From about June 2014, PCI and Joinery paid the rent and outgoings the same way Mory had done previously and also carried out other modifications to the Property for business purposes.

8. The relationship between the parties has irretrievably broken down. In 2017, the Plaintiff caused PCI to subcontract works on two construction projects to his own corporate entity, XMI Pty Ltd, without disclosure to the Defendant or the Mory Group.

9. The Plaintiff subsequently pleaded guilty to 5 counts of dishonestly obtaining property by deception in relation to that subcontract work and was sentenced in October 2021. The Plaintiff has since paid to PCI the amount obtained by XMI for the subcontract work.

10. While on bail, the Plaintiff was prohibited from going near to, or contacting, PCI. He therefore did not carry out work as a director. Since his sentence on 13 October 2021, the Plaintiff could no longer hold a directorship and therefore ceased his role as director of Mory, PCI and Joinery. On 2 November 2021 a new director, Mr Newbold, was appointed to Mory.

11. The parties’ interests in the Property and indirect interests in the businesses through their trustee companies remain connected. However, they have not agreed on how to separate those interests.

12. In March 2022, the Plaintiff’s solicitors wrote to the Defendant’s solicitors inviting the Defendant to buy out the Plaintiff’s share in the Property or “otherwise put forward a proposal, allowing our clients to realise their respective interests in the Property”.

13. On 27 April 2022, the Plaintiff filed the Summons seeking the s 66G orders.

14. On 20 May 2022, PCI commenced proceedings against the Plaintiff, alleging he has breached his directors’ duties (Corporations List Proceedings).

15. On 28 September 2022, in the Corporations List Proceedings, Hammerschlag CJ in Eq noted:

The Court notes and accepts the undertaking of [Gregory McLaughlin/the Plaintiff] to the Court:

…

(b) … that [Mr McLaughlin’s] share in the proceeds of any sale of [the Property] will be retained in a controlled monies account … whilst ever this undertaking remains on foot.

16. The undertaking has not been withdrawn, and therefore, if s 66G orders are made, in the first instance, the Plaintiff’s portion of the proceeds would be held in a controlled monies account.

17. The Mory Group currently remains in possession of the Property.

18. Counsel for the Defendant, Mr Rollo, submitted that the Court ought not make s 66G orders because of any or all of the following bases:

1. The Plaintiff’s claim is an abuse of process, because the Property is an “integrated part of the business carried on by the parties through a company, where no proceedings have been brought to separate the parties’ interests in the company”;

2. The Plaintiff is subject to a contractual obligation not to sell the Property, because the parties agreed to provide the Property by way of lease to Mory to carry on the business;

3. If no contract is found, the Plaintiff is bound by an estoppel or has engaged in unconscionable dealing that prevents the Plaintiff attempting to sell the Property.

19. Those matters are the only issues requiring resolution.

20. The core complaint of the Defendant is demonstrated in Mr Rollo’s following submission:

… the present circumstances do not rise to circumstances that should enable Mr McLaughlin to depart from the overall arrangements which is that this property was purchased for the purpose of the company. The company relied upon it, it has been the parties' consistent approach to this property, that it was used or that it was a property that was to be used in that way.

21. In effect, while at the time of purchase of the Property the parties did not arrange their affairs so as to grant Mory and/or its subsidiaries a long-term lease, the Defendant says refusal to make s 66G orders will have a similar effect and therefore is the appropriate result.

Mory Group’s position

22. The Defendant submitted that the Summons ought to be dismissed, or alternatively, the Court ought to “alter the statutory trust in such a way as to give Mory and its subsidiaries” or the Defendant an opportunity to acquire an interest in the Property. It was said that any sale should be deferred until a “reasonable time after the [Corporations List Proceedings] are determined”.

23. This was not developed in any meaningful way. Mory and its subsidiaries are not parties to the proceedings and no declaration is sought that any of them are entitled to a proprietary interest in the Property by reason of contract or otherwise. Mr Rollo has not suggested that the Defendant’s evidence or his submissions were given on behalf of the Mory Group. In the circumstances, I do not consider it is appropriate to make any finding in relation to the Mory Group’s alleged interests.

24. Neither Mory nor its subsidiaries have lodged a caveat on the title of the Property asserting a proprietary interest, nor, prior to the breakdown of the parties’ relationship, was there any evidence that Mory or its subsidiaries had asserted a proprietary interest in the Property. Despite Mr Rollo’s submission in reply, there is no evidence that the Mory Group has ever claimed any proprietary interest in the Property in the form of a lease.

25. As recently as 8 March 2023, the Defendant’s solicitor made an open offer to resolve the proceedings and asserted:

[The Defendant’s] case includes that the subject property was purchased with assistance from the Mory Group, and with the common understanding being that it was for the purposes of the Mory Group including use by the Group companies known in brief as PCI and Joinery.

In the circumstances [the Defendant] says it is inconsistent with those arrangements, and contrary to the basis of the relationship between the parties and Mory, so far as it concerns the property, and otherwise unconscionable, that the property could be required to be sold so as to deprive the Mory Group of the use of the property, and a fortiori if that was required to be done without, at the very least, providing an ability for the Mory Group, [the Defendant] or their nominee, to purchase your client’s interest in the property at market price, so that the property might remain available for such use.

26. These assertions do not clearly allege that the Mory Group has a proprietary interest in the Property.

27. From the bar table, Mr Rollo submitted Mory could not join these proceedings to assert a proprietary interest in the Property because it was necessary for two directors of Mory to make such a decision. It was said that without a second director and with no means of appointing a new director because of the parties’ deadlock, Mory could not take any action concerning the Property. There was no evidence to support these submissions. Instead, Mory’s constitution and other records were not in evidence and the most recent ASIC Current Organisation Extract of Mory in evidence was dated 4 November 2021 and demonstrated that there are two directors, Mr Cunningham and a Mr Newbold. There is no evidence that that situation has changed. Mr Cunningham did not give any evidence about his desire that Mory agitate any claim, or about problems in Mory doing so. I am not persuaded that it has been established that Mory could not have made a claim in relation to the Property.

28. I do not consider that there is any arrangement which provides Mory or its subsidiaries with an entitlement to a proprietary interest in the Property. To the extent that the Defendant has made submissions to this effect, I consider such submissions misconceived as detailed further below.

29. Mory remains entitled, just as any other non-owner, to purchase the Property from trustees at a public auction or sale.

Principles concerning s 66G

30. Section 66G(1) empowers the Court to appoint trustees for sale of real property where:

1. the property is “held in co-ownership”; and

2. one of the co-owners applies for the order.

31. “Co-ownership”, as defined in s 66F, includes ownership in equity in possession by two or more persons as joint tenants. “Co-owner” is defined to have a corresponding meaning. It is clear that the parties are “co-owners” and, therefore, the s 66G orders ought to be made unless there is a reason against the Court exercising its discretion to do so.

32. The starting position is s 66G orders are available “almost as of right”: Foundas v Arambatzis [2020] NSWCA 47, [63] (White JA with whom Bell P and Basten JA agreed).

33. The purpose of orders for sale by statutory trust is “to provide a statutory mechanism for terminating the co-ownership of land when the co-owners fail themselves to agree on the manner in which the co-ownership shall be terminated”: Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635 at 650 (Brennan J).

34. The principles concerning the operation of s 66G are not in dispute. I respectfully adopt the summary and authorities set out by Black J in Pascoe v Dyason [2011] NSWSC 1217, at [5]-[8]. At [6] and [8] his Honour stated:

[6] Although the Court has a discretion whether or not to make an order under this section, the grounds on which the Court will ordinarily refuse to make it are limited. For example, if it is inconsistent with a proprietary right or a contractual or fiduciary obligation, and there is no general jurisdiction to refuse to grant such an order on the basis of hardship or unfairness…In Hogan v Baseden (1997) 8 BPR 15,723 at 15,723, Mason P observed that it “would not be a proper exercise of discretion of the power to decline relief under s 66G ... to refuse an application on grounds of hardship or general unfairness.” His Honour also noted that:

“[I]n the unhappy event that the parties are unable to settle their differences then the making of an order appointing trustees for sale seems inevitable unless the respondent could establish a legally binding agreement not to put her out of occupation of her home, or circumstances that would ground some estoppel to similar effect.” (at [59]).

…

[8] In Cain v Cain [2007] NSWSC 623 at [9]-[10], Young CJ in Eq noted that the Court will usually consider it appropriate to make an order under s 66G of the Conveyancing Act unless persuaded by cogent arguments from those who oppose. His Honour then noted Counsel’s summary of the categories of cases in which the Court has declined to grant such an order as including: where the legal title is held by trustees and the trust instrument contains its own procedure for sale; where the plaintiff’s conduct rates as an estoppel against the sale; and where an order would be incompatible with a contractual or equitable duty binding the applicant. In Tory v Tory [2007] NSWSC 1078 at [42], White J noted that an order under s 66G of the Conveyancing Act “is almost as of right unless on settled principles it would be inequitable to allow the application”, and observed that an application would be refused if making the order would be inconsistent with a proprietary right or contractual or fiduciary obligation or on the basis of conventional estoppel or equitable estoppel. In Spathis v Nanos [2008] NSWSC 418 at [19]-[20], Jagot AJ observed that the discretion was not at large and is not to be exercised by reference to personal views about hardship or unfairness. The Court of Appeal also noted that the discretion to refuse relief under s 66G of the Conveyancing Act was a “limited one” in Ross v Ross [2010] NSWCA 301 at [36]; see also National Australia Bank Ltd v Pasupati [2011] NSWSC 540 at [20].

Abuse of process

35. The totality of Mr Rollo’s written submissions on this ground were:

It is an abuse of process to bring a s 66G application, on the happenstance that one part of the operation was in McLaughlin’s hands, to collaterally attack Mory, and obtain by a sidewind relief which he could not get (or even relief that he could get) in an appropriately constituted application.

…

There is one additional basis, not found in the established categories, but nevertheless available, on which the Court can, and should, refuse to make the orders sought by McLaughlin – there is an abuse of process.

36. Orally, and without reference to any authority, Mr Rollo submitted that the Plaintiff ought to be bringing proceedings to dissolve the corporate structures at the same time as these proceedings:

But it is only in conjunction with [winding up] proceedings in circumstances where the property in the group are part of the same thing, not technically in a legal sense, but in terms the way the parties treated them, it is in conjunction with those [winding up] proceedings that an application like this is appropriate, not hiving off one part effectively by side wings, continue an attack on PCI on Mory Group. It is that respect in which we say these proceedings are an abuse of process. They are a collateral attack rather than an attempt to resolve the overall issues.

…we say it is still an abuse of process to commence an application of this kind in circumstances where it is intermittently bound up in the property. I would add that it is not an unusual thing for the same matters that give rise to an estoppel also to be relied upon for an abuse of process. I’m not breaking new ground there.

37. Those submissions are rejected for the following reasons.

38. The types of abuse of process are not susceptible to categorisation, but there are differing lines of authority: Bautistos v Roads v Traffic Authority (NSW) (2006) 226 CLR 256 at 265 (Gleeson CJ, Gummow, Hayne and Crennan JJ).

39. Mr Rollo concedes that abuse of process is “not found in the established categories” for which a Court can refuse to make orders for a trustee sale.

40. The types of cases in which an abuse of process has been raised in s 66G cases have generally arisen where there are proceedings on foot or soon to be commenced in the Family Court, or overseas family courts, and those proceedings also involve the ownership of the relevant property. A Court will grant a stay of the trustee sale process if appropriate.

41. For example, in National Australia Bank Limited v Pasupati [2011] NSWSC 540, Buddin J made orders for trustee sale despite an argument of abuse of process. There, the plaintiff was the ex-wife of the defendant. The defendant contended that the s 66G application was an abuse of process and the proceedings should be stayed because the effect of the orders would be to take the relevant property “out of the hands of the Family Court” where proceedings were on foot. His Honour considered in the particular circumstances that there would be no serious injustice if a stay was not granted.

42. In Williams v Williams [1979] 1 NSWLR 376, Rath J also made orders for trustee sale, but stayed the orders for 28 days to allow the defendant wife to commence proceedings under the Family Law Act 1975 (Cth) in respect of the subject property. His Honour found that, as the wife’s proceedings for divorce were instituted in good faith and there was a genuine case for altering the party’s property rights, it would be unjust not to permit her to pursue remedies in the Family Court.

43. In Wang v Zhao [2012] NSWSC 706, Ward J (as the President then was) also considered s 66G orders sought by a plaintiff, where proceedings were on foot in the People’s Republic of China regarding the disposition of matrimonial property. Her Honour granted a stay pending the determination of the proceedings in China.

44. Mr Rollo did not identify any authority supporting the proposition that an abuse of process, if established, would be necessarily inconsistent with s 66G orders here. However, the authorities noted above are clear that s 66G orders can be made even if an abuse of process is considered likely together with a temporary stay, as in Williams and Wang. Mr Rollo did not agitate for a stay of the s 66G orders here.

45. Mr Rollo’s submissions appeared to be directed to the fact that the Plaintiff’s commencement and maintenance of these Proceedings would be an abuse of process in another forum. However, he did not make this clear.

46. Mr Rollo did not submit that these proceedings amounted to an abuse of process in relation to the Corporations List Proceedings. Rather, he submitted that the proper medium for resolving the parties’ interests in the Property was in conjunction with proceedings for winding up of Mory. There are no winding up proceedings on foot.

47. However, Mr Rollo also submitted that if the Plaintiff brought winding up proceedings he would fail, and he accepted that even if proceedings were commenced to separate the ownership and operation of Mory and its subsidiaries, those proceedings could not deal with this Property, because it is not owned by Mory. Further, I note that Mory is not owned by the parties, but rather trustee companies, in relation to which the parties have interests. Therefore, it would be those trustee companies that would need to bring winding up proceedings, not the parties. I do not accept that these proceedings can be an abuse of process, because winding up proceedings have not been commenced.

48. Although Mr Rollo does not say in the alternative that the Plaintiff has committed the tort of collateral abuse of process, he used the language of that tort. For instance, he submitted “[These proceedings] are a collateral attack rather than an attempt to resolve the overall issues”.

49. Dealing with that possibility, the Court has power to prevent an abuse of process where proceedings are brought, not to prosecute them to conclusion, but to use them as a means of obtaining some advantage for which they are not designed or some collateral purpose: see eg Williams v Spautz (1992) 174 CLR 509 at 526-7 (Mason CJ, Dawson, Toohey and McHugh JJ). Their Honours also noted (at 523):

Central to the tort of abuse of process is the requirement that the party who instituted proceedings has done so for a purpose or to effect an object beyond that which the legal process offers.

50. In Maxwell-Smith v S & E Hall Pty Ltd (2014) 86 NSWLR 481 at 490, Barrett JA (with whom Beazley P and McColl JA agreed) stated:

[T]here is no abuse if the process of the court is employed with a view to producing the result that that process exists to produce, even though the motive for seeking that result is to use it as a platform from which to launch some lawful action that becomes available through the obtaining of it.

51. To the extent that the Defendant’s submission is that the Plaintiff has committed the tort of collateral abuse of process, that submission is misconceived. The Plaintiff is within the lawful scope of the s 66G process to seek the sale of a Property, of which he is a co-owner. To the extent that the Defendant might suffer any detriment or hardship because of the s 66G process including sale, there is nothing to indicate such a detriment was the Plaintiff’s subjective purpose, nor is hardship relevant to the limited discretion to refuse section 66G orders. A sale of the Property would naturally flow from a legitimate and successful application of s 66G: Williams v Spautz (1992) 174 CLR 509 at 526 (Mason CJ, Dawson, Toohey and McHugh JJ).

52. I am not satisfied there is any abuse of process here. For whatever reasons, the parties set up their business relationship in the way that they did, such that the Property is not owned by any corporate entity in the Mory Group. Even if there was an abuse of process, there is no authority to suggest demonstrating an abuse of process itself precludes orders for sale.

Contract

Alleged terms

53. Mr Rollo submitted there was a “three-way agreement between McLaughlin, Cunningham and Mory” that could be inferred from conduct, and that the arrangement arose in a commercial context and therefore an intention to be legally bound could be inferred.

54. In Mr Rollo’s submission, only the “relevant terms” he identified needed to be considered, and further, that there only needed to be certainty as to those terms and:

… we're not seeking an elucidation of further terms here. … nobody is seeking a declaration as to what the terms of the agreement are. What all of the terms of the agreement are.

…

… we don't have a difficulty in proving the existence of some agreement. There is no difficulty with that. There may be a contest as to the terms of it. So there is a distinction here between proving there is an agreement and proving what the precise terms of it are.

…

The terms that we're able to identify are those that are set out in [the written submissions].

55. The terms relied on were:

1. The parties would continue to supply the Property to the Mory Group for its use;

2. The Mory Group would pay rent and outgoings;

3. Mory, by giving away the security of owning the Property itself which would have otherwise ensured its continued occupation of it, put itself in a position of vulnerability, such that the contract could not be terminated without the consent of Mory, or alternatively on reasonable and lengthy notice to Mory.

56. In order to refuse the application for a trustee sale, I would need to be persuaded that the Defendant has demonstrated a contractual restriction on the Plaintiff to sell the Property.

57. I would therefore need to be persuaded as to the whole of the contract, not just “some terms” of the contract. It is necessary to determine first whether the parties reached an agreement on terms capable of forming a binding contract, but also that they did so with the intention, viewed objectively, that such agreement ought to form a binding contract: Air Great Lakes v KS Easter (Holdings) (1985) 2 NSWLR 309 at 331-2 (Mahoney JA).

58. The whole of a contract must be known before it can be construed, including whether or not the terms, in the context of the contract as a whole, are certain and enforceable, and whether there was an intention by the parties to be bound by all the terms.

59. Mr Rollo’s submission that he was only able to identify some terms of the contract is fatal to the Defendant’s argument. If the Defendant does not know all the terms of the contract, then he ought not ask the Court to determine that “some terms” of an unidentified set of terms are binding.

60. On the proviso that I am wrong, below I deal with the alleged terms of the contract formed at the time of the purchase of the Property, which are said to be inferred from the parties’ conduct.

Principles concerning formation by conduct

61. Whether a contract has been formed and what the terms of that contract are must be determined objectively, including through relevant inferences drawn from the parties’ conduct: see eg Pacific Carriers v BNP Paribas (2004) 218 CLR 451 at 461-2 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). The legal position of the parties depends on what the parties’ words and conduct would reasonably be understood to convey: see eg Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 483 (Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ).

62. In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, an authority relied upon by both parties, Allsop J (as his Honour then was, and with whom Drummond and Mansfield JJ agreed) stated at [369] (citations omitted):

… a number of authorities discuss the need not to constrict one's thinking in the formation of contract to mechanical notions of offer and acceptance. Contracts often, and perhaps generally do, arise in that way. They can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting "i"s and crossing "t"s or where they think they have done so. ... Sometimes this failure occurs because, having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation. In such circumstances, even in the absence of clear offer and acceptance, and even without being able (as one can here) to identify precisely when a contract arose, if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract. Sometimes this is said to be a process of inference or implication. For my part, I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: 'and we hereby agree to be bound' in this or that respect. The essential question in such cases is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract. 

63. In Re Day (2017) 91 ALJR 262 at 268, Gordon J explained that in order to find a fact proved, including by inference (citations omitted):

[18]   The tribunal must feel an actual persuasion of the occurrence or existence of a fact before it can be found. Where direct proof is not available and satisfaction of the civil standard depends on inference, ‘there must be something more than mere conjecture, guesswork or surmise – there must be more than ‘conflicting inferences of equal degrees of probability so that the choice between them is [a] mere matter of conjecture’. An inference will be no more than conjecture unless some fact is found which positively suggests, or provides a reason in the circumstances particular to the case, that a specific event happened or a specific state of affairs existed.

64. In GC NSW Pty Ltd v Galati [2020] NSWCA 326 at [89]-[90], Gleeson JA (with whom White JA and Emmett AJA agreed) stated:

[89] … caution needs to be exercised in drawing an inference from circumstances after the alleged contract. As Bingham LJ said in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 at 1202, “[C]ontracts are not to be lightly implied”. Similarly, in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117, McHugh JA said:

… it is an error “to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed”, citing Howard W, “Contract, Reliance and Business Transactions”, [1987] Journal of Business Law, p 127.

and continued at 11,117:

Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances.

[90] Heydon on Contract (LawBook Co, 2019) puts the matter at [2.110]:

It is necessary to avoid the fallacy of inferring from conduct which is not inconsistent with a contract the conclusion that the conduct actually took place because of the contract.

Application

65. Here, I do not consider that the conduct of the parties demonstrated that they agreed to the terms alleged by the Defendant for the following reasons.

Specific conduct relied on

66. Below I deal with each of the elements of conduct, relied on by the Defendant, for the inference of a contract to be drawn.

67. First, it was said that Mory “financed” the purchase of the Property. That is not a correct characterisation of the evidence. Instead, the parties purchased the Property for $1,475,000 from various sources of funds including a joint loan of $1,000,000 and $245,000 each from their own money. Mr Rollo attempted to submit that the latter $490,000 came from the sale of another property that had been owned by the parties and used by Mory’s business. While the Plaintiff conceded in cross-examination that there had been previous properties from which Mory operated its business, his evidence was that those properties were not always exclusively provided to Mory for its businesses. His recollection was that those properties were sold around the time the Property was purchased. However, there was no clear evidence that all of the proceeds of those sales were used to purchase the Property. Even if there had been clear evidence to support the submission, Mr Rollo correctly conceded that that the parties were legally entitled to those proceeds of sale, not Mory. Therefore, as it is not based on the evidence, that submission does not assist the Defendant.

68. Related to the allegation that Mory financed the purchase, it was submitted that “Mory is doing things such as guaranteeing the loan, a tenant doesn't do that, a tenant doesn't guarantee the landlord's loan.” Further, Mory granted to the lender a charge over its (unidentified) assets. I consider this evidence equivocal. Merely because the directors of a company, which is effectively controlled by them, cause the company to give a lender security in relation to a property personally owned by the directors, does not amount to conduct that demonstrates an agreement to indefinitely provide the company with use of that property. It could equally demonstrate the directors treated the company as an asset, over which they were prepared to give security, in order to purchase a property in their own names.

69. Secondly, it was said that Mory could have purchased the Property but forewent such an entitlement on the basis that it would derive security of tenure by an arrangement with the parties. However, there was no evidence that Mory could have purchased the Property in its own name, nor that it gave up such an opportunity. The Defendant’s affidavit evidence was that the Property was purchased in the parties’ names and not in Mory’s name because of unidentified “tax advice”. However, that evidence does not demonstrate that Mory could have in fact purchased the Property. For example, none of Mory’s financial records or board minutes from the time of purchase were in evidence, from which an inference of Mory’s capacity to purchase can be drawn. Further, there is no evidence that any lender would have lent money to Mory for the purchase.

70. Thirdly, it was said that Mory, and later PCI, paid for improvements to the Property in the sum of around $110,000. There is no dispute that Mory and PCI carried out work on the Property. For example, the Plaintiff’s affidavit evidence included that in November 2008 work was done to remove concrete hobs from the floor level of the Property and in 2016, the office level was also “renovated and expanded”. Mory’s financial records describe the expenditure on the works as “PCI Office Fitout”. I do not accept that Mory carried out “improvements”, rather than spent money fitting out the Property for its use. Often a tenant will fit out commercial premises. I cannot be satisfied that the work “improved” the Property in the sense of increasing its value, such that it demonstrates Mory had a proprietary interest in the Property. This evidence therefore does not demonstrate the terms alleged.

Terms not agreed

71. Further, I consider the Defendant has not been able to demonstrate that the specific alleged terms were agreed for the reasons below.

72. The first alleged term is that the parties “would continue to supply the Property to the Mory Group for its use”. While it was never articulated, it may be that the Defendant relies on the fact that the parties have, to date, allowed Mory and its subsidiaries to occupy the Property and those companies have (mostly) paid rent. The mere fact of the parties’ behaviour does not demonstrate their conduct was motivated by agreement to the alleged contract terms.

73. I also note that there is no evidence that the parties ever discussed the terms alleged to have been agreed, which is significant in my view. Instead, the Defendant’s affidavit evidence rose no higher than a discussion in which the parties agreed to purchase a property “50/50” because “it would be good for our businesses” and an assertion that the Property was purchased “for the use of the businesses of the Mory Group… in our own names rather than within the Mory Group” because of tax advice. Despite the contract being asserted as one to which Mory was a party, there is no evidence of any meeting where the company agreed to such contract. Further, as noted below, the lender at the time of purchase required a copy of a lease with Mory, yet none was ever prepared, which tells against the parties wanting a long-term arrangement with Mory.

74. The second term is alleged to be “the Mory Group would pay rent and outgoings”. While the alleged term does not specify the quantum of rent, it might be accepted that rent could be determined as “reasonable rent” or “by agreement from time to time”, particularly as there is no dispute before me concerning payment of rent.

71. However, the Plaintiff submitted that the term could not be found because the evidence demonstrated that outgoings were paid by the companies, but then allocated in the financial records as “directors loans”, which suggested that in substance the parties paid the outgoings. Mr Rollo submitted that this fact was of no consequence and it simply demonstrated that the parties waived the contractual obligation to pay outgoings or agreed to vary that term. However, the other way of viewing this evidence is that the parties did not agree to the term alleged by the Defendant, which I consider more likely. At best, this is equivocal for the Defendant.

72. The third alleged term is complex:

Mory having given away the security of owning the Property itself, which would have ensured its continued occupation of it, and therefore put itself in a position of vulnerability, the contract could not be terminated without the consent of Mory, or alternatively on reasonable and lengthy notice to Mory in the circumstances of the termination and Mory’s investment in the Property and its improvements

77. I have already considered some of the factual problems with this term above. However, the substance of the term concerns the length of the alleged promise to provide the use of the Property to the Mory Group. The two possibilities provided are that the contract could be terminated either:

1. With the consent of Mory; or alternatively

2. On “reasonable and lengthy notice”.

78. The first possibility requiring the consent of Mory was resisted by the Plaintiff for reasons already identified and on the basis that a court would not lightly infer that a proprietor would agree to an indefinite restraint on alienation of the type alleged by the Defendant, allowing the Mory Group to control the length of occupation, particularly in circumstances where there were other available constructions. The clause has the effect that Mory could withhold its consent to termination for any reason.

79. The Plaintiff relied on the so-called rule in Hall v Busst (1960) 104 CLR 206 at 218 for the submission that the clause would be an invalid restraint on alienation. In that case, Dixon CJ considered a reason for denying the validity of a contractual restriction upon alienation of land was a public policy in favour of private property being fully alienable.

80. Whether a particular contractual restriction is contrary to public policy and invalid is a “question of degree”: Caboche v Ramsay [1993] FCA 920 at [60] (Gummow J, with whom Ryan J agreed); Greg Tolhurst, Assignment of Contractual Rights (2^nd ed, 2016, Bloomsbury) at [6.83]; see also detailed discussion in Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665.

81. I note that the Defendant did not respond to the Plaintiff’s submissions concerning Hall v Busst. I consider the restraint that would be imposed by the term proposed by the Defendant would be unlimited in terms of duration, because it required the consent of a corporation. Here, the Defendant did not submit that there is any collateral object protected by the clause to support its validity.

82. While it is not necessary to finally decide whether the clause is invalid as contrary to public policy, I do not accept that it can be inferred from the conduct relied upon, that the parties agreed to the alleged term requiring Mory’s consent to termination and relinquished their statutory rights.

83. As to the second possible term requiring reasonable notice for termination, no submission was made by the Defendant as to what period of time would satisfy “reasonable notice”. Mr Koch, counsel for the Plaintiff, submitted that from the breakdown of the relationship between the parties, or at least from February 2020, the Plaintiff has been agitating for the sale of his interest in the Property in correspondence by his solicitors, which amounted to notice. Mr Rollo submitted that the correspondence ought not be read that way because the Plaintiff’s proposal outlined in correspondence concerned the Property and also the business interests, and must be read as a single proposal. However, the language of the correspondence proposed separate valuers for the Property and the businesses. I do not accept that a reasonable person would read the correspondence as only proposing to deal with all matters together, or not at all. I consider the correspondence makes it clear that the Plaintiff wanted to sell his interest in the Property.

84. I accept Mr Koch’s submission that even if there was such a term as alleged by the Defendant, in circumstances where the only evidence of negative impact on the Mory Group is that it would be required to vacate the Property and there would be associated costs of moving and fit out and some undefined “interruption of business”, a reasonable time has elapsed since the Defendant and Mory were notified of the Plaintiff’s termination of any contract concerning the Property.

Conclusion

85. Merely because the parties’ conduct is not inconsistent with the alleged agreed terms does not demonstrate that the parties agreed to those terms at the time of formation. I consider the parties’ conduct is equally consistent with the parties agreeing that Mory would rent the Property from time to time. I do not accept that the parties agreed to forgo their rights as proprietors, including their statutory rights found in the Conveyancing Act.

86. For those reasons I do not accept the parties intended to be bound by the terms alleged by the Defendant.

Writing requirements and part performance

87. Even if my conclusion is wrong and the contract terms alleged are binding, the Plaintiff relies upon the terms of s 54A of the Conveyancing Act1919 (NSW) and says that the contract is unenforceable for want of writing. The Defendant submitted that there was sufficient evidence of part performance to overcome such a challenge and to allow the enforcement of equities arising from that part performance: Pipikos v Trayans (2018) 265 CLR 522 at 536-537 (Kiefel CJ, Bell, Gageler and Keane JJ).

88. Mr Rollo made the following submission:

The same matters that would, if there is a requirement for writing of otherwise satisfied the contractual arrangements would satisfy. The only other element is that the equities have to make it unconscionable to depart from the agreement alleged. That would normally be found where the property is there's been an entry into occupation of the property and payment of rent.

89. I note that the Defendant did not raise any other legal argument to resist the challenge to a want of writing.

90. There is a strict requirement that acts of part performance are “unequivocally, and in their own nature, referable to some such agreement that is alleged”: Maddison v Alderson (1883) 8 App Cas 467 at 476-9 (Lord Selborne); Pipikos v Trayans (2018) 265 CLR 522 at 528 and 535 (Kiefel CJ, Bell, Gageler and Keane JJ).

91. To be unequivocally referable, it must be that the acts could be done with no other view than to perform such an agreement: McBride v Sandiland (1918) 25 CLR 69 at 78-79 (Isaacs and Rich JJ).

92. Mr Rollo’s submission was that the alleged acts of part performance were the same as those acts relied upon to demonstrate the inferred contract which were set out at [66]–[68] above. Although it was not made explicit by Mr Rollo, I also assume reliance is placed upon Mory’s possession of the Property first itself, and later, by PCI and Joinery.

93. Taking the alleged agreement at its highest and viewing it with enough generality, the agreement here is an alleged agreement akin to a long-term lease for Mory to take exclusive possession for an indefinite duration, unless it otherwise consents to termination.

94. Even if Mory’s possession of the Property through PCI and Joinery indicates that kind of exclusive possession, which is one indicium of a lease, such an act is not unequivocally referable to an agreement that Mory would have exclusive possession indefinitely until Mory alone consented to the termination of that arrangement.

95. Instead, those acts can also be explained by reference to to other forms of agreement to grant Mory or its subsidiaries a right to occupy the Property in return for rent from time to time.

Estoppel

96. It is accepted that where an operative estoppel can be demonstrated by a co-owner, then s 66G orders may not be made.

97. Here, the Defendant submits that two types of estoppel operate:

1. Common law estoppel by convention; and/or

2. “equitable estoppel” citing Brennan J in Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 381 at 428-429. The Defendant expressly accepted that he only relied on promissory and not proprietary estoppel.

98. I deal with each below.

Conventional estoppel

99. Mr Rollo’s submissions can be summarised as follows:

1. Mr Cunningham (and Mory) adopted an assumption that Mr McLaughlin and Mr Cunningham were bound to provide the Property to Mory;

2. The circumstances demonstrate that Mr McLaughlin adopted the same assumption;

3. The parties have since that time conducted their relationship on the basis of that mutual assumption;

4. The circumstances demonstrate that each party knew or intended that the other act on that basis; and

5. Departure from that assumption will occasion detriment to the Mory Group and through his shareholding in that group, to Mr Cunningham.

100. These submissions mirror the principles of conventional estoppel stated by Brereton J (as his Honour then was) in Moratic Pty Ltd v Gordon [2007] NSWSC 5 at [32]; see also Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 645 (Tobias JA, with whom Mason P and Campbell JA agreed).

101. I reject a conventional estoppel has been made out. Below I consider each of Mr Rollo’s submissions addressing the various elements for such an estoppel.

102. First, it was said that the Defendant and Mory adopted an assumption that the parties “were bound to provide the property to Mory”. I note that the Defendant gave no evidence of any assumption which he held at the time of purchase of the Property in either of his two affidavits. Such evidence might have been expected, even if it would not have been conclusive. Instead, the Defendant’s evidence was that set out at [73].

103. Mr Rollo submitted that it was “all the circumstances” that gave rise to an inference of the alleged assumption adopted by the parties. I do not consider on the available evidence that it can be concluded that such an assumption was adopted, or certainly not one to the effect sought, which was a perpetual entitlement for Mory to use the Property.

104. Secondly, it was submitted that the Plaintiff adopted the same assumption. That is contrary to the unchallenged evidence of the Plaintiff that he always intended his interest in the Property would be held personally, and that there was only an “undocumented, verbal arrangement for Mory to pay market rent for its occupation”.

105. Further, for the reasons explained in relation to the contract claim, I do not consider that the evidence of the conduct of the parties equates with the “assumption” alleged.

106. Thirdly, it was submitted that the parties conducted their relationship on the basis of that alleged mutual assumption. The same reasoning as above applies, but in addition, as already noted, Mory did not continue to pay the rent and outgoings. In fact, for a period in 2020 and 2021, no rent was paid by PCI and Joinery, which is inconsistent with the alleged assumption.

107. Fourthly, it was submitted that the evidence demonstrated that each party “knew or intended that the other act” on the basis of the assumption. Neither party gave that evidence. Further, the Plaintiff was not cross-examined on that proposition. I am not persuaded that it can therefore be inferred that the parties had such knowledge or intention.

108. Finally, it was submitted that a departure from the assumption “will occasion detriment to the Mory Group” and to the Defendant “through his shareholding in that group”. The Defendant did not resist the submission that the requirement is for a party asserting estoppel to show he “placed himself in a position of significant disadvantage if departure from the assumption is to be permitted”: Commonwealth v Verwayen (1990) 170 CLR 394 at 444 (Deane J).

109. I do not accept that the Defendant is entitled to rely on detriment suffered by Mory to establish estoppel. In any event, the only alleged detriment to Mory if its occupancy of the Property is terminated would be the cost of moving premises and undefined “business interruption”. There was no persuasive evidence of the likely cost of alternative premises and the real effect of a move on Mory or its subsidiaries. Further, it has not been demonstrated that the subsidiaries would be required to move premises; there is no evidence that a formal lease has been suggested and refused, and further a purchaser may prefer to allow the companies to stay. Therefore, at most there is a risk of some impact and the consequent uncertainty. I do not consider this is a “significant disadvantage” sufficient to ground an estoppel.

110. I also do not accept that the Defendant has demonstrated that he personally would suffer any real detriment because of his or Mory’s alleged reliance on any assumption. There is no evidence as to any negative impact on the Defendant’s “shareholding”. For example, there is no evidence of how a change of premises would negatively impact his drawings or salary from the companies, nor diminish the value of his interest in the trustee company holding the shares in Mory.

111. While it was not agitated expressly in the context of estoppel, as opposed to contract, and it does not matter in light of my conclusions, it would appear that the estoppel was reversed by the expiry of reasonable notice to the Defendant from February 2020 to date, in the same way reasonable notice of termination of any contract terms was given.

Promissory estoppel?

112. A summary of the applicable principles of promissory estoppel has been set out by Ward CJ in Eq (as the President then was) in Antov v Bokan [2018] NSWSC 1474 at [485] and not questioned on appeal: Antov v Bokan (No 2) [2019] NSWCA 250:

What emerges from Waltons Stores is that a promissory estoppel may be established where the plaintiff proves that the defendant induced or created an expectation or assumption that a particular legal relationship existed or would come into existence or that a promise would be performed (see Waltons Stores at 406; 428-429); that the plaintiff, to the knowledge of the defendant, has relied on that assumption and would suffer detriment if the defendant was to depart from the assumption; and that the circumstances are such that the estoppel is binding in conscience on the defendant (Waltons Stores at 416; 419-420); that is, such that it would be unconscionable for the defendant to depart from the assumption (Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 at 472; Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12 at [125]).

113. These elements are not applied rigidly and are sensitive to the particular circumstances of the case and subject to refinement: see, eg, Wilson v Arwon Finance Pty Ltd [2020] WASCA 137 at [91] (Quinlan CJ and Vaughan JA); Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 612 (Priestley JA).

114. Many of the matters raised by the Defendant for the purposes of conventional estoppel, such as the relevant assumption, were identical to those raised for promissory estoppel and need not be repeated.

115. For the same reasons, and also the reasons below, I do not consider that there was any unequivocal representation by the Plaintiff that was relied upon by the Defendant to his detriment, such that it would be unconscionable for the Plaintiff to seek a trustee sale of the Property.

116. As regards the representation of a future fact by the Plaintiff, that Mory’s use of the Property would not be terminable at the will of either of the parties, it is settled principle that the representation must be clear, precise and unambiguous: Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1, 15 (French CJ, Kiefel and Bell JJ), 47 (Keane J). At its highest, the evidence for such a representation, being the parties’ decision at the time of purchase to use the Property for business, was circumstantial and indirect. There was no evidence of any communication between the parties in support of such a representation and had it been suggested I would not have accepted that the use of the Property for the business was a clear and unambiguous representation.

117. As regards detriment, the Defendant must demonstrate a detriment he would suffer as a result of his change of position if the assumption which induced him was repudiated by the Plaintiff: Delaforce v Simpson-Cook (2010) 78 NSWLR 483 at 491 (Handley AJA, with whom Allsop P and Giles JA agreed).

118. The relevant detriment in a promissory estoppel need not be financial; it suffices as long as it is a material disadvantage which is substantial, even if it is not quantifiable: Ashton v Pratt (2015) 88 NSWLR 281 at 307 (Bathurst CJ, with whom McColl JA and Meagher JA agreed), citing Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14; 253 CLR 560 at [550] (Gageler J).

119. The detriment alleged here was submitted to be as follows:

That detriment comes in terms of the discussion to the operations of the Mory Group, the potential need to relocate, the potential need to find other premises at what may or may not be a similar price, the potential requirement to take a longer lease which might raise the price of the lease or raise the market value that they need to pay, so departure from the assumption will occasion detriment, firstly, to the Mory Group, and secondly, to Mr Cunningham who has his interest in the Mory Group.

120. The Defendant’s affidavit evidence was without detail and to the effect that during a relocation:

1. PCI’s operations would be affected in terms of reduced access to the computer network and paying employees leave.

2. Joinery could “possibly” go insolvent.

3. He would be “distracted”, which would adversely impact his ability to source new projects.

121. In my view, such evidence does not clearly establish the extent of any detriment to the Defendant. There was no evidence that the Defendant would have reduced salary or drawings from Mory, should there be a relocation.

122. Even if I am wrong and there was the risk of substantial detriment to the Defendant, I consider there has been reasonable notice for the Defendant to take steps to avoid such detriment: Commonwealth v Verwayen (1990) 170 CLR 394 at 442 (Deane J).

Unconscionable conduct

123. Mr Rollo very vaguely submitted that an alternative reason why the Court would not make s 66G orders was that the Plaintiff had engaged in unconscionable dealing.

124. The totality of his written submissions were:

Unconscionability without estoppel can suffice to justify refusal of the order (Woodson (Sales) v Woodson (Aust) 1996 7 BPR 14,685.

…

Unconscionable dealing involves (Stubbing v Jams 2 (2022) 399 ALR 409 at [39]):

(a) a relationship that places on party at a “special disadvantage” vis-à-vis the other – such that the special disadvantage seriously affects the ability of the innocent party to protect their own best interests (at [40]);

(b) knowledge of that special disadvantage by the stronger party; and

(c) unconscientious exploitation by the stronger party of the weaker party’s disadvantage,

With these considerations not to be addressed separately as if the elements are a tort.

As the considerations are not to be addressed separately, the entire circumstances need to be considered and it is not isolated to consideration of the ultimate exploitation.

…

The elements of unconscionable dealing against Mory are also met.

(a) At the time of the acquisition of the Property, McLaughlin and Cunningham, as directors, had total power over Mory. Mory had no ability to protect its own interests, as against them, in deciding whether to fund their purchase of the Property.

(b) Both McLaughlin and Cunningham knew of their position of control over Mory.

(c) Had McLaughlin and Cunningham not exercised that power in the way they did, title to the Property, which would otherwise have gone to Mory without otherwise altering Mory’s financial position, and it would be in a position of secure tenure in the Property.

A consequence of that is that McLaughlin has obtained, if not otherwise prevented from exercising it, the power to bring the section 66G application, and exacerbated Mory’s position of special vulnerability in that the Property could now be taken away from it by McLaughlin’s unilateral decision, when that could not possibly have been within the contemplation of Mory at the time of purchasing the Property.

In exercising the power to bring a section 66G application, McLaughlin is exploiting a position of special vulnerability on the part of Mory, firstly, in its original position as a possible purchaser, which cannot, on the principles applicable to unconscionable dealing, be separated from his conduct now that was enabled by the decision then, and secondly, the further position in which he put Mory, to act unilaterally to the detriment of Mory.

The detriment from unconscionable dealing also affects Cunningham through his interest in Mory. It could not have been within his contemplation at the time of purchasing the property, that McLaughlin would seek to act as he now does. The Court should not assist McLaughlin in so acting.

125. Those written submissions were not advanced in further detail in oral submissions. In my view the Defendant’s submissions must be rejected for the following reasons.

126. The principles of unconscionable conduct were not in dispute. As Kiefel CJ, Keane and Gleeson JJ observed in Stubbings v Jams 2 Pty Ltd [2022] HCA 6 at [39] (citations omitted):

In Commercial Bank of Australia Ltd v Amadio, this Court held that unconscionability involves: a relationship that places one party at a "special disadvantage" vis‑à‑vis the other; knowledge of that special disadvantage by the stronger party; and unconscientious exploitation by the stronger party of the weaker party's disadvantage. But these considerations should not be understood as if they were to be addressed separately as if they were separate elements of a cause of action in tort.

127. However, the Defendant relied upon Santow J’s decision in Woodson (Sales) v Woodson (Aust) (1996) 7 BPR 14,685 for a general proposition that “unconscionable dealing” alone will give rise to a basis for refusing to make orders for a trustee sale.

128. In Woodson, Santow J did not expressly consider the formulation of the unconscionable conduct doctrine in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, but did refer to one co-owner of property (there, trade marks) being “vulnerable” to the other if a trustee sale was ordered. The focus of the reasoning was on unconscionable conduct in the sense of that giving rise to a remedial joint endeavour constructive trust in Muschinski v Dodds (1985) 160 CLR 583 and unconscionability more generally. The vulnerability of the co-owner that concerned his Honour appears to have been that the co-owner would have to “over-pay” to acquire the defendant co-owner’s interest, rather than being able to use the trade marks co-extensively with the co-owner as had previously been done: see 14,716-14,719.

129. Whether or not the application of principles of unconscionability was appropriate in Woodson (see discussion in, eg, Tory v Tory [2007] NSWSC 1078 at [61] per White J, as his Honour then was), there is no factual similarity here. The Defendant does not suggest he will have to “over-pay” to buy the Plaintiff’s interest, nor that the Plaintiff will obtain more than the proceeds for only his interest.

130. There are other problems with the Defendant’s submissions. While it is possible for a “weaker party” to be a corporation, the Defendant did not refer the Court to any authorities which concern alleged unconscionable conduct by a director towards a corporation. However, I set out some authorities below.

131. As regards special disadvantage, some of the special disadvantages which can apply to natural persons might also apply to corporations, such as financial need: see eg Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37 (Wheeler J); HECEC Australia Pty Ltd v Hydro-Electric Corp [1999] FCA 822 at [43] (Einfeld J).

132. I am not aware of any clear authority to the effect that a director’s special disadvantage can be imputed to a corporation. In Ridout, Wheeler J did not consider it appropriate to impute a director’s special disadvantage to a corporation: [2000] WASC 37 at [56]-[57]. However, in Suncorp-Metway Ltd v Nam Property Holdings Pty Ltd [2010] NSWSC 1078 at [62] Garling J considered it an acceptable pleading in the context of statutory unconscionability that the stronger party knew that the directors of the weaker party did not understand the documentation they caused their corporation to execute. However, it is not necessary to express a view on that question, because here the Defendant did not suggest that he suffered a special disadvantage.

133. Mr Rollo submitted that the Plaintiff and Defendant had “total power” over Mory and, accordingly, Mory had “no ability to protect its own interests as against them, in deciding whether to fund their purchase of the Property”. There are several problems with that submission.

134. First, Mory is not a party to the proceedings, and has not claimed any proprietary interest in the Property, nor that it suffered a special disadvantage, of which the Plaintiff took advantage.

135. Secondly, Mr Rollo did not identify any authority in support of the proposition that a corporation could suffer a special disadvantage by reason of its directors allowing the corporation to use their privately owned property without a long term lease in place. Usually where unconscionable conduct has been pleaded in respect of a corporation there have been dealings with a person other than a director of the corporation, such as where directors of a corporation in financial distress have entered into improvident transactions with a stronger corporation, or where unequal bargaining power has been alleged: see, eg, Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37; Joelco Pty Ltd v Balanced Securities Limited [2009] QSC 236 at [20]-[22] (Holmes CJ). In contrast, here, it is said one director of a corporation was a stronger party vis-à-vis the corporation itself.

136. I do not accept that the Plaintiff’s decision to now seek a sale of the Property can be considered unconscionable. Such a submission is tantamount to suggesting that the directors jointly caused Mory’s situation, which was contrary to the best interests of Mory. There is nothing in the evidence to suggest that the Plaintiff alone was responsible for putting Mory in such a position.

137. In my view, a finding of the kind advanced by the Defendant ought not be made lightly, particularly absent any company minutes in evidence, and the fact that the parties were subject to directors’ duties under the Corporations Act 2001 (Cth) ss 181-184. I further note that it has been suggested that it may be contrary to public policy for a corporation to rely on facts showing a director’s dereliction of duty in asserting it suffered a special disadvantage: see Weston v Publishing and Broadcasting Ltd [2011] NSWSC 433 at [705], citing Ford, Austin and Ramsay’s Principles of Corporations Law (LexisNexis, Service 88) at [14.170].

138. Thirdly, factually it is not correct that the parties had “total power” over Mory at the time of purchase. In fact, there was a third director, who is not a party to the proceedings and has not given evidence. I also do not accept that it can be concluded that it was in Mory’s “interests” only to have a formal lease, particularly where there is no evidence concerning the financial circumstances and governance of Mory at the time of purchase.

139. Fourthly, I do not accept that the Plaintiff could be said to have known or ought to know Mory’s alleged special disadvantage: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462 (Mason J); see also Nitopi v Nitopi [2022] NSWCA 162 at [9]-[11] (Bell CJ), [121] (Ward P).

140. While Mr Rollo submitted that both the Plaintiff and Defendant “knew of their position of control over Mory”, that is not the same as the Plaintiff knowing that such alleged “control” amounted to a special disadvantage. There is no evidence that the Plaintiff actually knew that the arrangement would prevent Mory from protecting its “own interests”, nor turned a blind eye to such a consequence.

141. Fifthly, there is no evidence that Mory was in a position to purchase the Property instead of the parties, such that the Plaintiff took advantage of Mory’s special disadvantage. Mr Rollo submitted that it can be inferred that was the case because Mory subsequently paid rent to the parties, which they appear to have used to discharge their liability for their loan. However, the position is that the parties had agreed that they would purchase the Property in their own names using their own funds, including through director loans from Mory and a bank loan, for which they were primarily liable. While Mory did provide a guarantee and grant a charge over its (unidentified) property to the lender, nothing of significance turns on that. Mory was always going to need premises, from which to operate its business; rent was always going to be payable to a landlord if Mory did not own a property.

Ought s 66G order be made?

142. The Defendant has failed to demonstrate any ground as to why the Court would not exercise its discretion to order a trustee sale.

143. The Plaintiff proposes liquidators Jeffrey Phillip Marsden and Duncan Edward Clubb as trustees to sell the Property, who have consented to so act.

144. The Defendant does not provide alternative trustees, nor suggest that the trustees put forward are unsuitable on the basis of conflicts of interest, or skill and experience: see, eg, Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd (2015) 18 BPR 35,209.

145. I am satisfied that the proposed trustees are fit and proper persons to act as trustees for sale and that they have the necessary skill and experience to do so. Further, the trustees ought to be paid for their role at their disclosed hourly rates, which are commercially reasonable and which I will cap in the first instance at $10,000 each plus GST. I impose this cap despite the Plaintiff indicating he did not have instructions at the time of the hearing to consent to or oppose a cap, because, should the trustees require further funding, then they may approach the Court.

146. The Plaintiff submitted that it was an appropriate case for the Defendant to be given a period of no more than 8-12 weeks to come to an agreement with the trustees to purchase the Plaintiff’s interest in the Property. The Defendant’s counsel faintly submitted, when I questioned him, that a longer period was appropriate without giving any reasons supported by evidence. I consider that the Defendant ought to be given 12 weeks from the date of this judgment to form any agreement with the trustees concerning the purchase of the Plaintiff’s interest in the Property. During that time the trustees are at liberty to prepare the Property for sale, but must not incur any selling agent’s commission for a sale to the Defendant or Mory or its subsidiaries.

147. The Plaintiff seeks his costs in the Summons. The principles concerning costs in these types of cases was explained by Darke J explained in Stibbard-Leaver v Leaver [2021] NSWSC 65 at [5]:

… in litigation of this type under s 66G of the Conveyancing Act, it is usual to order that the costs of the proceedings be paid out of the proceeds of sale. The rationale for this approach is that the costs of such an application are an incident of joint ownership (see Kardos v Sarbutt (No 2) [2006] NSWCA 206 at [28]). It remains the case of course that unreasonable conduct by a party may be a basis to conclude that some other order is appropriate in a s 66G case. Lewin v Lewin [2019] NSWSC 380 is an example. In that case, it was held that certain unreasonable conduct led to an unnecessary incurring of costs. However, as I noted in that case (at [41]), a co-owner is ordinarily under no obligation to seek to avoid a need to bring a s 66G application (see also Chow v Chow (No 2) [2015] NSWSC 1348 at [12] where it was stated by Young AJA that co-owners have no obligation to negotiate their dissolution).

148. However, the Defendant indicated that he wishes to be heard on the question of costs and I will grant him that leave.

Orders

149. For the above reasons, I consider it appropriate to make the orders set out below.

150. The orders are:

1. Pursuant to s 66G of the Conveyancing Act 1919 (NSW), appoint Duncan Edward Clubb and Jeffrey Phillip Marsden of BDO (Level 11, 1 Margaret Street Sydney NSW 2000) (Trustees) as trustees for the sale of the property identified in the Summons (the Property).

2. The Property is to be vested in the Trustees subject to any incumbrances affecting the entirety of the Property, but free from incumbrances, if any, affecting any undivided share or shares in the Property, to be held by the Trustees upon the statutory trust for sale under Division 6 of Part 4 of the Conveyancing Act 1919 (NSW).

3. The Defendant is entitled to purchase the Property whether at auction or otherwise by negotiation with the Trustees without paying a deposit and by setting off his entitlement to the proceeds against the money bid or offered.

4. The Trustees are not to commence marketing and selling the Property for 12 weeks from the date of these orders to allow the Defendant an opportunity to negotiate with the Trustees to purchase the Property.

5. The Trustees are authorised to charge, at their hourly rate, a total sum not exceeding $10,000 each without leave of the Court.

6. The Trustees are to pay the proceeds of sale in the following order:

1. Council rates, water rates, any statutory duties and charges;

2. Real estate agent’s commission and charges;

3. Trustees’ fees and expenses, including solicitors’ costs;

4. Plaintiff’s costs of the proceedings to the Plaintiff;

5. 50% of the balance to the Defendant;

6. 50% of the balance to the controlled monies account of the Plaintiff’s solicitors in accordance with the undertaking given to the Court by the Plaintiff on 28 September 2022.

7. Any party seeking a special costs order is to file submissions of no more than 2 pages and any evidence with the Associate to Peden J by 13 April 2023 and any submissions and evidence in reply is to be filed by 16 April 2023, with such a matter to be determined on the papers if appropriate.

8. Liberty to the parties and Trustees to apply on 3 days’ notice to the Associate to Peden J setting out the relief sought and the reasons for that relief.

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Decision last updated: 06 April 2023