McLean v McLean
[2016] QSC 295
•13 December 2016
SUPREME COURT OF QUEENSLAND
CITATION:
McLean v McLean [2016] QSC 295
PARTIES:
PHILLIP EDWARD MCLEAN
(First Plaintiff)
SUSAN MARGRET MCLEAN
(Second Plaintiff)
v
CLYDE IAN MCLEAN
(First Defendant)
LORNA MAY MCLEAN
(Second Defendant)
FILE NO:
S208/16; S819/16
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court of Queensland
DELIVERED ON:
13 December 2016
DELIVERED AT:
Rockhampton
HEARING DATE:
9 December 2016
JUDGE:
McMeekin J
ORDER:
1. Upon the usual undertaking as to damages by each of the first plaintiff and the defendants, the first plaintiff and the defendants are restrained and an injunction hereby issues restraining each of them, their servants or agents, from dealing with the proceeds of sale of the property save as set out in the following orders:
Upon settlement of the sale of the property known as Kinsale, described as Lot 14 on Crown Plan CLM259 Grazing Homestead Freeholding Lease 12/2185, Title Reference 17622176, all proper expenses and liabilities are to be discharged; (a)
One-third of the net proceeds of sale is to be paid into the trust account of O’Shea & Dyer Solicitors Pty Ltd and then invested on behalf of the first plaintiff and the defendants in a fixed interest-bearing deposit account (the first plaintiff’s fund) until the court orders otherwise;(b)
Two-thirds of the net proceeds of sale is to be paid into the trust account of SB Wright & Wright & Condie solicitors and then invested on behalf of the first plaintiff and the defendants in a fixed interest-bearing deposit account (the defendants’ fund) until the court orders otherwise;(c)
From the first plaintiff’s fund the first plaintiff is entitled to be paid:(d)
if he so desires the sum up to but no greater than $1,000 per week;(i)
upon seven days written notice to the solicitors acting for the defendants an amount towards his reasonable legal costs and outgoings related to the present proceedings but not exceeding in total the sum of $200,000; (ii)
From the defendants’ fund the defendants are entitled to be paid:(e)
if they so desire the sum up to but no greater than $1,000 per week;(i)
upon seven days written notice to the solicitors acting for the plaintiffs an amount towards their reasonable legal costs and outgoings related to the present proceedings but not exceeding in total the sum of $200,000; (ii)
Subject to the payments out mentioned in paragraphs (d) and (e) no transaction is to be performed in respect of the accounts without the joint signatures of the solicitors acting for each party in the proceedings.(f)
2. The parties have liberty to apply on the giving of seven days’ notice;
3. Costs are reserved.
CATCHWORDS:
EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – GENERALLY – where both sides apply for injunctions restraining the other side from accessing the net proceeds of sale of a property – where the plaintiffs claim they are entitled to the whole of the proceeds – where the defendants claim the plaintiffs have taken monies from a trust that they are not entitled to – whether an injunction should be granted
COUNSEL:
Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, cited
C & L Cameron Pty Ltd – GB Gazzana v Nadalan Enterprises Pty Ltd [2012] NSWSC 676, cited
Delaforce v Simpson-Cook [2010] NSWCA 84, cited
Donis v Donis (2007) 19 VR 577, cited
GlaxosmithKline Australia Pty Ltd v Reckitt Benckiser, cited Healthcare (UK) Ltd [2013] FCAFC 102, cited
Riches v Hogben [1985] 2 Qd R 292, citedThorner v Major [2009] 1 WLR 776, cited
P Mylne for the plaintiff
J Meredith for the defendant
SOLICITORS:
O’Shea & Dyer Solicitors for the plaintiff
SB Wright & Wright & Condie for the defendant
McMeekin J: I am asked to determine whether injunctions should issue restraining each side from accessing the net proceeds of sale of a property they call Kinsale, those net proceeds being estimated to be at least $3M, which sale is to settle on 16 December 2016 – in 3 days’ time.
Background
The plaintiffs in the principal proceedings are Phillip McLean and his wife Susan. The defendants are Phillip’s parents Clyde and Lorna McLean. To avoid confusion and without meaning any disrespect I will refer to the parties by their Christian names.
Clyde and Lorna are now aged 84 and 88 years old respectively.
In 1979 Clyde and Lorna purchased Kinsale, a grain and cattle property situated near Clermont. They invited Phillip, who was then only 19 years old, to join them as an owner, he to have a one-third interest. Phillip agreed. Phillip made no financial contribution. Clyde and Lorna sold a farm to fund the purchase and borrowed the balance. In 1990 they sold a cane farm and again contributed the proceeds towards the then existing debt.
From 1980 until recently the family conducted a farming and grazing enterprise on Kinsale. There is a dispute as to the extent of the work done over the years by each of the parties.
Commencing in about 2005-06 Clyde has had great difficulties with his health and his capacity to carry out physical work has been severely affected.
The family business was conducted initially (for 24 years) in a partnership and then under a trust structure. Since about 1995 Susan has managed the books of account. Under the trust Clyde was the appointer. He and Phillip were the trustees. Each of the parties was a beneficiary of the trust.
At some point the relationship between Clyde and Phillip broke down. They have not spoken since August 2015. On 1 December 2016 Clyde removed Phillip as a trustee. Because Clyde would not agree on refinancing the mortgagee foreclosed on a loan of just over $1M forcing the sale of Kinsale.
The Issues
The issues between the parties, in very broad terms, are these:
(a) Phillip and Susan claim to be entitled to Clyde and Lorna’s two-thirds interest in Kinsale. They claim an equity of expectation of the type described by McPherson J in Riches v Hogben.[1] In the alternative they say they were at a special disadvantage when certain life altering decisions were made.
(b) Phillip and Susan claim that Clyde and Lorna are understating the numbers of partnership cattle held on another property owned by Clyde and Lorna (“Kaylynn”) by some hundreds of head;
(c) Clyde and Lorna claim that Phillip and Susan have taken monies from the trust that they are not entitled to. An accountant has identified discrepancies amounting to $1.95M.
[1] [1985] 2 Qd R 292.
I have left to one side the claims made that Clyde has acted unconscionably in failing to execute documents that would have enabled the loan to be refinanced. Clyde’s explanation principally is that he was not asked simply to refinance but rather was asked to agree to an increase in the amount of the indebtedness. He says in effect that given his age and that the relationship between the parties had completely broken down his actions were not unconscionable but reasonable. Whether that action was unconscionable will depend on a thorough examination of the actions of the parties. Whether the failure to re-finance can be all put at Clyde’s door remains to be seen. While these matters are relevant to the claim made for compensation I do not understand them to be presently relevant.
The principles that apply to the grant of an interlocutory injunction are not in issue - the party seeking the injunction must show a serious question to be tried or a prima facie case; the balance of convenience must favour the grant of the injunction; damages will not be an adequate remedy: Australian Broadcasting Corporation v O’Neill[2]
[2] (2006) 227 CLR 57.
The injunction sought by Clyde and Lorna is not to preserve an interest in an asset that they claim to have a right to but rather to freeze the asset until all the issues have been determined. They assert that there is good reason to think that Philip and Susan will dissipate the fund so that they will not be able to claw back any monies improperly taken.
Counsel for Phillip and Susan submits that their claim is on a different juridicial basis – they do not seek to freeze an asset to ensure that any judgment will be met. Rather they claim to have a right to the fund that will come into being on 16 December next.
While I accept that such a distinction exists (eg see C & L Cameron Pty Ltd – GB Gazzana v Nadalan Enterprises Pty Ltd[3]] per Ward J) I am very doubtful that it applies here or that it would be just to apply any different principle to the two applications. In response to Phillip and Susan’s claim Clyde and Lorna allege that Phillip and Susan have received benefits from the trust that far exceed their contributions and that a substantial amount of those benefits were taken in breach of trust. Apart from the fact that the matters in dispute are closely interlinked Phillip and Susan claim they had an expectation to Kinsale not a right to the proceeds of sale of Kinsale. Kinsale is now gone. What they really seek to do is to preserve the fund.
[3] [2012] NSWSC 676 at [191]-[193].
Undertakings
Clyde and Lorna have offered an undertaking that upon the settlement of Kinsale the net proceeds be paid one-third to Phillip, the balance into Clyde’s and Lorna’s solicitors’ trust account and invested on behalf of Phillip, Clyde and Lorna on a fixed term interest bearing deposit account, that the interest be paid to the defendants upon the expiration of the term deposit, and that no transaction be performed in respect of the account without the joint signatures of the solicitors. The undertaking obviously was not accepted.
Alternatively they have suggested that each party take $250,000 from the sale proceeds and that the remaining fund be preserved in solicitors’ trust accounts until the issues are determined. Again this offer was not accepted.
Phillip and Susan have offered no undertakings. They are content for Clyde and Lorna’s two-thirds share of the proceeds to be invested by their solicitors and willing to permit Clyde and Lorna to have the interest on any interest bearing deposit.
Clyde and Lorna’s case
There is no question that Clyde and Lorna have shown that there is a serious question to be tried in relation to the dealings with the trust. I appreciate that Phillip and Susan have had only a very limited time to respond to the affidavit of the accountant, Frank Sheppard, but Mr Sheppard’s analysis raises significant issues that will require an explanation which to date has not been forthcoming. For example on 1 December 2016, that is the day that Clyde removed Phillip as a trustee:
(a) $85,000 was paid to one Peter Zarb, an employee allegedly for the repayment of a loan. No loan documents are produced nor any demand for a repayment that would have justified a payment on that date;
(b) $11,540 was paid to Mr Zarb allegedly for wages owing from 1 July to 30 September. No explanation is offered as to why so large a sum was due for “wages” and why it should have been paid on that date;
(c) $46,000 was paid to Mr Lee McLean, Phillip and Susan’s son, again in repayment of a loan. Again no loan documents are produced nor any demand for a repayment that would have justified a payment on that date.
Counsel’s submission that these are all normal transactions and are explained away by entries in a ledger is hardly a convincing one.
I note that a very significant part of the $1.95M in discrepancies that Mr Sheppard has identified – about $1m - relates to the value of cattle that appear on the books to have been transferred for a gross undervalue of $59 per head and not their real value of perhaps $1,000 per head. Counsel for Phillip and Susan submits (and there is some evidence to this effect) that this was not a sale but an internal transfer at book value to gain some stamp duty concessions. But putting that to one side there remain very significant issues. In addition to the matters that Mr Sheppard speaks of Clyde and Lorna claim that in 2004 a sum of $200,000 was taken from trust funds without their knowledge to purchase a property, “Blemont”, for Phillip and Susan.
I make no comment on the validity of the allegations at this stage, as indeed I cannot, but it is clear that there are very significant questions to be tried.
Phillip and Susan’s Case
Phillip and Susan’s claim is much more complex. In submissions counsel for Clyde and Lorna said that the claim “might just get over the line with a prima facie case”. Given that grudging concession, given the limited evidence that I have before me and time in which to consider it, and given that I might well be the trial judge it is better that I not say too much about the strength of the case. But some comment is necessary.
The pleadings show that there are many disputes. What follows largely assumes the accuracy of Phillip and Susan’s pleaded case.
In a broad sense Phillip and Susan must show three things – an assurance by Clyde and Lorna, a reasonable reliance on that assurance, and detriment. The detriment in question is that which they would suffer if Clyde and Lorna resiled from any assurances made and it “is no narrow or technical concept. It need not consist of expenditure of money or other quantifiable disadvantage so long as it is something substantial. The requirement must be approached as part of a broad enquiry as to whether departure from a promise would be unconscionable in all the circumstances”: Donis v Donis.[4]
[4] (2007) 19 VR 577 at 583 [20].
I doubt that there will be much contest that Phillip and Susan have, over 36 years, spent much of their lives and their energies in working on Kinsale. Philip and Susan plead that at various times Clyde said words to the effect that Kinsale would be transferred to Phillip and that Phillip had an expectation or belief that would be so. They based their lives on that expectation. Clyde accepts that he has said over the years that Kinsale would be Phillip’s when he and Lorna had passed away. So what will be in issue are the true nature of any alleged promises, whether in truth there was any significant detriment to Phillip and Susan particularly given the level of benefits derived over the years, and whether they can show that equity ought to intervene to deprive their aged parents of their significant asset at this stage of their lives.
There are at least three significant issues that Phillip and Susan will need to confront. The first is the question of the timing of the fulfilment of the promises they say were made. There is no allegation in their pleading that a promise was made that Kinsale was to be transferred to them at any particular point in time. What their case amounts to is a claim that whatever was said meant that the proceeds of the sale of Kinsale are to go to them now. The implication is that irrespective of Clyde and Lorna’s circumstances an expectation was created that if the property was to be sold before Clyde and Lorna passed away Clyde and Lorna were to receive no benefit from the sale, despite their undoubted and substantial financial contributions to it. No express promise along those lines is pleaded. No authority is cited for the proposition.
The second point is that it is arguable that in pursuing their principal claim Phillip and Susan contradict an aspect of their own pleaded case.
Phillip and Susan allege that in 2013 an offer was made to Phillip by Clyde that Clyde and Lorna would transfer their interest in Kinsale to Phillip on certain terms, which included a payment to Clyde and Lorna of $50,000 per annum for the balance of their lives. It is pleaded that Phillip and Susan then made payments in 2014-15. It is said that the payments exceeded $50,000. It is later pleaded that Clyde and Lorna refused to execute “documentation reflecting the agreement alleged”. The inference seems plain that the payments were made pursuant to the agreement alleged.
The point is that assuming all this to be so Phillip and Susan have themselves acted contrary to the present allegation that the property was to be transferred to Phillip in Clyde’s and Lorna’s lifetime without any recompense to the latter.
The third matter is that there is a line of authority that supports the proposition that even if expectations were reasonably created or promises made sufficient to otherwise justify taking Clyde and Lorna’s legal entitlement from them equity may allow Clyde and Lorna to change their minds and renege on their promise if there are changed circumstances since the making of the promise: Delaforce v Simpson-Cook[5] and Thorner v Major[6]. In the latter case Lord Scott said:
“... inherent in every case in which a representation about inheritance prospects is the basis of a proprietary estoppel claim is that ... the circumstances of the representor ... may change ... If, for example, [the promisor] had become, before his death, in need of full time nursing care, so that he could not continue to live at [the farm] or continue as a farmer and needed to sell [the farm] or some part of it in order to fund the costs of necessary medical treatment and care, it seems to me questionable whether [the claimant’s] equity ... would have been held ... to bar the realisation of [the farm], or some sufficient part of it, for those purposes ... for my part, I doubt it.”
[5] [2010] NSWCA 84.
[6] [2009] 1 WLR 776 at 783-4.
Lord Neuberger in the same case allowed for the possibility of a change of mind (at 802) “if this ... could be justified by a change of circumstances.”
In Delaforce v Simpson-Cook Handley AJA considered the hypothetical possibility of adverse vicissitudes impacting on the deceased promisor’s life as only relevant, in the circumstances of that case, to “the reasonableness of the plaintiff’s reliance, and the significance of her changes of position”. There the adverse vicissitudes had not in fact come to pass in the lifetime of the deceased. Where those vicissitudes have come to pass then it is difficult to conceive of equity ignoring them. As Handley AJA pointed out, in considering what is just contract law does not ignore such things:
“If and when the enforceability of such a promise does arise in the lifetime of a promisor faced, in compelling circumstances, with the need to resort to the capital value of the property, the doctrine of frustration of contracts may be thought relevant. In Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 729 Lord Radcliffe said:
‘... frustration occurs whenever the law recognizes that without fault of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.’”[7]
[7] [2010] NSWCA 84 at [89].
Whether these statements represent the law may be an open question. They were plainly obiter dicta. But they are statements made by eminent judges and, with respect, reflect what seems to be obvious – that all circumstances need be brought into account when equity’s assistance is sought to correct a claimed injustice.
Clyde swears that he and Lorna are aged and he is infirm and without earning capacity, and that because they have received no benefit for some time from the family trust business he and Lorna are living off the charity of one of their daughters. All this is uncontested. Their circumstances are very different to those that existed in 1980 or 1990 when relevant statements are said to have been made.
The strength of the case – that is that Clyde and Lorna have no right to any of the proceeds of the sale – at this early stage is not compelling.
Balance of Convenience
Consideration of the strength of the competing cases is relevant here: GlaxoSmithKline Australia Pty Ltd v Reckitt Benckiser Healthcare (UK) Ltd.[8]
[8] [2013] FCAFC 102 at [83].
Phillip and Susan have had only a very limited chance to respond to the allegations made. I cannot judge the strength of the case against them save to say that the expenditure of over $142,000 in one day and that the day that Phillip was dismissed as a trustee, whether rightly or wrongly, raises very serious concerns. As well an experienced accountant raises queries over $1M worth of transactions. All this might be explained eventually but there is a legitimate basis for present concern. The case they bring against Clyde and Lorna has its weaknesses.
There is no disadvantage to Phillip and Susan if either of the undertakings offered by Clyde and Lorna were accepted or if injunctions to that effect were now put in place, save of course that they cannot use the $1M proceeds as they might like. I am not told that there is a compelling need for the funds.
Putting to one side their legal entitlements Clyde and Lorna need access to the funds from the sale for two reasons. The first is to live. The second is to defend the claim brought against them by Phillip and Susan. Both are reasonable considerations. Counsel for Phillip and Susan submitted that Clyde’s and Lorna’s personal circumstances are irrelevant here - it matters not that they are unable to support themselves. I do not accept that is a correct statement of the law. It would be a peculiar result if personal circumstances were relevant to the question of final relief as Delaforce v Simpson-Cook[9] and Thorner v Major[10] suggest, but not to interlocutory relief. They certainly should be in funds to defend these proceedings.
[9] [2010] NSWCA 84.
[10] [2009] 1 WLR 776.
Thus very great hardship would be caused to Clyde and Lorna if the injunctions sought were granted save on terms that permit them access to the fund. Their living expenses are relatively modest – they seek effectively $50,000 per annum. While the interest on a term deposit presently is roughly that figure, the offer that they can access the interest on a term deposit at the expiry of each term means that they have no income for yet another six months, assuming that to be the term intended. Nor could they fund what will be very expensive proceedings. Counsel for Clyde and Lorna suggested that a costs figure of $200,000 would not be an unreasonable estimate. If he meant on each side I would agree.
Clyde swears that he and Lorna have no intention to dissipate the funds. They have offered suitable undertakings not to do so. I do not think that there is evidence that they are likely to do so. However if they did dispose of the monies then Phillip’s and Susan’s claims against them, if successful, will prove nugatory.
While Phillip and Susan have Blemont against which a judgment could be executed they could, if they wished, mortgage that property and so put it beyond reach. If they dissipate the fund Clyde and Lorna could be left with no redress. Counsel for Clyde and Lorna contends that their actions on 1 December display a readiness to dissipate trust monies without regard to Clyde and Lorna’s interests. There is a concern about their expenditure of trust monies on 1 December.
The highest each side can put their respective cases is that each has acted in a way that raises some concern about their willingness to protect commonly owned assets. That the parties could not find a way to avoid a mortgagee sale is surprising, even given what might be legitimate concerns about increasing debt. And the expenditures on 1 December are disturbing. I do not make a finding of any dishonesty but there is plainly some irregularity in the respective dealings and an apparent readiness to wound the other side.
If each party were allowed only restricted access to the proceeds of sale then the status quo to a large extent would be preserved. The interests of each will be unaffected to any significant extent. Whoever succeeds to an order against the other will have a fund to execute against.
The considerations are finely balanced – by that I mean against interfering at all - but in my view each should be put on the same footing in relation to the fund. That way I will do the least harm should I have misjudged the respective cases.
The parties have given the usual undertakings as to damages. In my view it is best that the fund be preserved on the following terms:
(a) Upon settlement of the sale of Kinsale all proper expenses and liabilities are to be discharged;
(b) One-third of the net proceeds of sale is to be paid into the trust account of O’Shea & Dyer Solicitors Pty Ltd and then invested on behalf of the first plaintiff and the defendants in a fixed interest-bearing deposit account (the first plaintiff’s fund) until the court orders otherwise;
(c) Two-thirds of the net proceeds of sale is to be paid into the trust account of SB Wright & Wright & Condie solicitors and then invested on behalf of the first plaintiff and the defendants in a fixed interest-bearing deposit account (the defendants’ fund) until the court orders otherwise;
(d) From the first plaintiff’s fund the first plaintiff is entitled to be paid:
(i) if he so desires the sum up to but no greater than $1,000 per week;
(ii) upon seven days written notice to the solicitors acting for the defendants an amount towards his reasonable legal costs and outgoings related to the present proceedings but not exceeding in total the sum of $200,000;
(e) From the defendants’ fund the defendants are entitled to be paid:
(i) if they so desire the sum up to but no greater than $1,000 per week;
(ii) upon seven days written notice to the solicitors acting for the plaintiffs an amount towards their reasonable legal costs and outgoings related to the present proceedings but not exceeding in total the sum of $200,000;
(f) Subject to the payments out mentioned in paragraphs (d) and (e) no transaction is to be performed in respect of the accounts without the joint signatures of the solicitors acting for each party in the proceedings.
Hopefully, if any unexpected demands on the parties’ resources arise, the solicitors can sort out any necessary payment under the provision in paragraph (f).
The parties have liberty to apply. They may be able to agree on a different arrangement to the one I have put in place. The solicitors may not be able to sort out things if the need arises.
Costs are reserved to the trial judge. I am conscious that Clyde and Lorna made an offer along the lines of my orders. However I think it best that the overall picture be well understood before making orders for costs.
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