Owen v Costigan

[2005] NSWSC 820

CITATION:	Owen v Costigan [2005] NSWSC 820
HEARING DATE(S):	8, 9, 10 & 11 August 2005
JUDGMENT DATE :	17 August 2005
JURISDICTION:	Common Law Division
JUDGMENT OF:	Associate Justice Malpass at 1
DECISION:	Reasons published.

CATCHWORDS:	Oral arrangement to pay money and acquire equity in land - written option agreement - option not exercised - rectification, estoppel and equitable charge.
CASES CITED:	Masters v Cameron (1954) 91 CLR 353 Plunkett v Bell (1915) 19 CLR 544
PARTIES:	Bronwyn Patricia Owen (Plaintiff) Anthony Costigan (Defendant)
FILE NUMBER(S):	SC 11783/04
COUNSEL:	Mr S A Benson (Plaintiff) Mr N Manousaridis (Defendant)
SOLICITORS:	Michael Croke & Co (Plaintiff) Muggletons (Defendant)

LOWER COURT JURISDICTION:

- 18 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
POSSESSION LIST

Associate Justice Malpass

17 August 2005

11783 of 2004 Bronwyn Patricia Owen v Anthony Costigan

JUDGMENT

1 His Honour: The plaintiff was married to the late Michael David Hughes (the deceased). They separated after a short marriage (in about August 2000) and reached property arrangements by consent. The deceased became the sole registered proprietor of land known as 79 Lowanna Avenue, Forresters Beach (the land). He came to that position under the property arrangements.

2 The deceased committed suicide on or about 18 October 2001. Since 2 April 2004, the plaintiff has been the registered proprietor of the land (following the obtaining of letters of administration and a transmission application).

3 The defendant remains in occupation of the land (he has been in possession since about May or June 2001). He has refused to give up vacant possession.

4 The plaintiff has commenced these proceedings to obtain possession. The defendant has filed both a defence and a cross-claim.

5 At the commencement of the hearing, the case for the defendant was put on a number of bases. I shall briefly refer to how it is presented in the pleadings (see amended defence and cross-claim filed pursuant to leave granted on 19 April 2005). He relies on an oral agreement said to have been made with the deceased in about May 2001 (the oral agreement). He relies also on a subsequent written option agreement (the written agreement). It was prepared by a solicitor (Mr Hodges). It was executed on 28 May 2001. In the alternative, the defendant seeks rectification of the written agreement (whereby alleged erroneous terms are deleted and it is otherwise reformed so that it reflects what was said to be contemplated by the oral agreement) and alleges estoppel. There is a further alternative claim for an equitable charge over the land.

6 The defendant paid the sum of $30,000 to the deceased (it was paid upon execution of the written agreement). He has made payments in respect of a mortgage (held by Perpetual Trustees Australia Limited) over the land. It was taken out by the deceased.

7 The plaintiff does not dispute that the defendant is entitled to an equitable charge over the land (there may well be dispute, inter alia, as to quantum). The wider area of dispute is whether or not he is entitled to any of the other relief sought in the pleadings.

8 What is before the court does engender some aura of mystery. It is apparent that it is merely a part of a much bigger picture. I shall now turn to matters that were revealed in evidence.

9 The defendant had known the deceased for in excess of 20 years. The deceased was the son of family friends. He had, for a time, worked for the defendant when the latter was carrying on business as a building sub-contractor.

10 I shall now refer to the defendant’s version as to what he says happened (as it appears, inter alia, in an affidavit sworn on 1 February 2005).

11 He says that conversation concerning the land commenced in about March 2001. The deceased had told him that he was having financial difficulties and was concerned that he might lose the land. The defendant offered to provide financial assistance.

12 Thereafter, on a number of occasions, the defendant gave the deceased amounts (totalling about $2,500) to assist in the meeting of mortgage repayments.

13 The defendant has deposed that in or about early May 2001, there was a conversation that brought about the oral agreement for the purchase of the land for the sum of $30,000 clear. In oral evidence he has conceded that he did not regard this agreement as being legally binding.

14 At the time, there was a perceived problem which brought the deceased to the position where he did not want to transfer title immediately. The deceased had entered into a sole agency agreement with a real estate agent for the sale of the land. He did not want to have to pay commission. The defendant contends that it was proposed that the property be transferred when the agreement expired.

15 The deceased said that he would get the agreement drawn up by a solicitor. This was acceptable to the defendant. The deceased then gave instructions to Mr Hodges.

16 A letter dated 25 May 2001 was sent by Mr Hodges to the deceased. It enclosed a draft of the proposed written agreement that had been prepared by him (it was described in the letter as an option agreement). The letter contained, inter alia, the following:-

We refer to previous correspondence and note that we were instructed to advise as to the transfer of the property to a friend on the basis that he would pay you the sum of $30,000 and take over the mortgage payments.
It would not normally be possible for the friend to become registered as the owner of the property without paying out the mortgage to Perpetual Trustee.
If the property is sold now, you have the expense of paying commission to the estate agent pursuant to an exclusive agency agreement you signed with Steele’s First National.
Normally, estate agents become aware of the sale of property by reading the records of land transfers. So, if a change of title was to be effected in the next few months, suspicion would be aroused. We note that we have not seen all of the provisions of your exclusive agency agreement, but in most of them, the commission is due to the agent if the property is sold to a person introduced to the property during the agency period.
We have drafted an option agreement and it is enclosed. We cannot guarantee that it will protect you from claims by the agent for commission. However, the risk will be reduced because the transfer of the title is not due for about 12 months. By that time, it would be difficult for the agent to prove his case if the property is then transferred to a person with whom he has had no contact.

17 An arrangement was made to see Mr Hodges. Both the deceased and the defendant attended his offices at 225 Macquarie Street, Sydney, on 28 May 2001. They met a clerk (Les Connolly) and came to attend upon Mr Hodges. The defendant has deposed that Mr Hodges said, “This is the option agreement. I’ve made it for 12 months”. Both of them signed the written agreement and their respective signatures were witnessed. After the signing of the agreement, the defendant handed over his cheque for $30,000.

18 The written agreement is headed “Option agreement”. It commences with certain recitals. The recitals include the following:-

2. The owner has attempted to sell the property. The attempt has not been successful and the owner now wishes to make arrangements for the property which will be definite for the next 12 months;
3. The purchaser wishes to occupy the property and perhaps purchase it at a later stage
… … …

19 The operative words include the following:-

5. Upon the signing of this agreement the purchaser shall pay to the owners the sum of $30,000 (the “option fee”). The payment of the option fee is an essential term of this agreement and in the event that it is not paid within 24 hours of the date of this agreement, or if any cheque in purported payment of it is not paid on presentation, this agreement shall be void and of no effect.
6. The owner grants to the purchaser an option to purchase the property.
7. The option shall be exercised as follows:
a. At any time after the expiration of three months and prior to the expiration of the period of 12 months from the date of this agreement, the purchaser may forward to Stephen Hodges, solicitor, of 2/225 Macquarie Street, Sydney, the solicitor for the owner, the attached Contract for the Sale of the property duly signed and executed together with a Certificate pursuant to Section 66W of the Conveyancing Act signed by a solicitor, whereupon the owner’s said solicitor shall deliver to the purchaser or his agent the original contract duly signed by the owner so as to complete the exchange of contracts.
b. The purchase price of the property shall be $30,000, plus whatever amount is due by the owner to Perpetual Trustees Australia Limited in respect of the mortgage.

The contract for the sale of the property referred to therein was an attachment to the written agreement.

20 The defendant in his affidavit says that he was given a copy of the written agreement under cover of a letter dated 6 June 2001. He further says that Mr Hodges did not explain the agreement to him and that he understood that a reference made to a period of 12 months was a reference to the time within which the deceased would transfer the title to him. He deposed to a belief that the document signed by him set out the terms of the oral agreement that had been reached with the deceased.

21 Following the execution of the written agreement, he entered into possession of the land and made payments to the deceased for repayment of the mortgage.

22 The defendant deposes that in about July 2001, there was a further conversation which led to a change in the payment arrangements. The defendant organised for a direct debiting of amounts from his account with the Commonwealth Bank to the deceased’s bank account.

23 The arrangement continued after the death of the deceased. In or about January 2002, arrangements were made for the amounts to be directly debited and paid to Members Equity (the manager of the mortgage for the mortgagee).

24 During the period contemplated by clause 7 of the written agreement, the defendant did not purport to exercise the option. No attempt to refinance was made during the twelve months. It is conceded by the defendant that he could not have raised the finance to pay out the mortgage. Despite the uncertainties as to his financial position, it seems to be a position that has persisted thereafter.

25 After 22 October 2002, the defendant became aware that there had been default under the mortgage. He made contact with Members Equity. He met with an officer thereof and its solicitor. He gave them a copy of the written agreement. Members Equity gave him an opportunity to refinance. There is material that may suggest that during his dealings with Members Equity he presented himself as either the father or the uncle of the deceased.

26 He also contacted the office of Mr Hodges. He subsequently received a letter dated 17 February 2003 from Mr Hodges. It told him of problems facing him (including that the time for the exercise of the option had long since elapsed). He did not respond to that letter by contact with Mr Hodges. In May 2003, he saw his present solicitor (Mr Muggleton).

27 Members Equity commenced proceedings. It was unable to obtain default judgment because neither probate nor letters of administration had been granted in respect of the deceased’s estate.

28 The defendant then took steps to refinance. He approached Wizard. He received a conditional approval (upon the grant of letters of administration and subsequent transfer approval to the defendant).

29 He encountered frustration because he was unable to get a loan until the title to the land was transferred into his name. Before this could be done, letters of administration of the estate of the deceased would have to be granted. Another problem was that he did not have any tax returns to demonstrate a capacity to repay.

30 Through his solicitor, an approach was made to the sister of the deceased to take out letters of administration. It is put by the plaintiff that this was an attempt to have a “friendly” administrator appointed. The approach was unsuccessful. She made an application of her own which was rejected. An unsuccessful approach was then made to the plaintiff. It was made by a friend of the defendant (Mr Gardiner). The plaintiff later successfully made her own application and this enabled her to become the registered proprietor.

31 The defendant made further payments to Members Equity (including payments of $50,000 on 19 March 2004 and payments of $8,500 and $40,000 on 20 April 2004).

32 By letter dated 13 April 2004, the solicitors for the plaintiff advised that she had been granted letters of administration and sought advice as to when the defendant would be vacating the land. The defendant contended that he was entitled to remain in possession and proceedings were commenced on 11 June 2004.

33 Prior to the commencement of proceedings, the defendant refrained from providing requested particulars of the basis upon which he claimed to be entitled to remain in possession. The plaintiff submits that this was an instance of evasive conduct.

34 As part of the case management process, directions were given for the filing of affidavits. As a consequence, the hearing (which commenced on 8 August 2005) proceeded largely on affidavit evidence. I shall now briefly refer to certain of the material that was placed in evidence.

35 An affidavit has been sworn by the plaintiff. She was briefly cross-examined. The defendant has sworn two affidavits (the second of them was sworn on 4 August 2005, shortly before the hearing and well outside the time allowed by the directions). It was directed to further advancing the claims made in respect of rectification and estoppel. The defendant has undergone a lengthy cross-examination. Mr Hodges did not swear an affidavit. However, a statement had been prepared for him. It needed minor amendment. He was also cross-examined. The defendant had filed an affidavit sworn by Mrs Carol Stewart on 10 March 2005. She was a relative of the deceased (an aunt). She had known the defendant for about 38 years. Objection was taken to a substantial part of the affidavit. Largely, the material that excited the objection fell within the hearsay category. After considerable argument, this material was rejected. This material appeared to have little or no probative value. If a different view had been taken as to admissibility, it would have been appropriate to exclude it on discretionary grounds.

36 A bundle of documents came to be admitted (ultimately by consent). It became Exhibit A.

37 Questions of credibility and reliability have been treated as being of importance in this case. I have closely observed the demeanour of witnesses during the giving of evidence. In assessing the questions of credibility and reliability, I have had regard both to demeanour and evidence.

38 I shall briefly refer to certain of the evidence given by Mr Hodges. He was the draftsman of the written agreement. He had acted for the deceased in respect of other matters (including a potential criminal matter). He described that matter as being “imminent” rather than “active”. The deceased thought that there was a need to quickly obtain funds to finance what has been described as extensive and aggressive committal proceedings. He thought that he would get the funds more quickly by sale to a friend, rather than selling through an agent.

39 Mr Hodges was instructed that the proposed transaction was one to be made between friends. There was a need to get the funds quickly. He saw the essence of the transaction as being the obtaining of the sum of $30,000 for the deceased and the defendant obtaining the equity had by the deceased in the land.

40 In his letter dated 25 May 2001, Mr Hodges identified a further problem (that the property could not be transferred until the mortgage had been discharged). This was an additional problem to that of the potential claim for commission (which he thought might be a problem for one or both of them). He gave this evidence:-

The transaction was fluid starting from before this letter. The original concept, as I understood it, was that Mr Costigan would pay $30,000 and take over the house because that was the extent of Mr Hughes’ equity in it. I raised the problem of the mortgage which would have to be refinanced or something would have to be done about it, because I didn’t think that anybody had considered that problem prior to me raising it. Perhaps they did, I don’t know, but I was not aware, so that is why I raised it. [Tr 11.08.05 p160]

41 Mr Hodges saw the mortgage as complicating what might be regarded as the original concept (which was said to have three elements (Tr 11.08.05 p159)). He gave this further evidence:-

Q. Do you have a recollection why an option agreement was drafted?
A. Not precisely but the overriding consideration in the whole proposal by the time it got to this point was to get something quickly into effect so that Mr Hughes could get the money. To refinance would have involved Mr Costigan applying for finance as I saw it and that would take weeks, whatever. A sale to a third party would take an unlimited amount of time, unknown amount of time. This proposal and the strategy came into place when it did just so that the $30,000 could be paid over quicker rather than slower. [Tr 11.08.05 p161]

… … …

Q. According to the answer you have given a little while ago you decided to draft an option agreement because you formed the view that was the quickest way of Mr Hughes getting his $30,000. Is that a fair summary of what your evidence is?
A. I don’t think it was because I decided it was the quickest way. As that file note we looked at before, the word “option” was put to me, it may very well be I actually was the one who raised the idea of an option but I can’t recall having done that. The word “option” that first appears in any documents here is not in my writing. It is not my suggestion. Now I may have created an environment where an option was chosen from one of a number of possible strategies, I don’t know, I can’t recall. [Tr 11.08.05 p162]
… … …
Q. Did you consult with Mr Hughes about the option agreement thereafter?
A. I attended on Mr Hughes when he signed the agreement and Mr Connelly as I understand it was in regular contact with him about the whole proposal and he was passing messages backwards and forwards. Unfortunately not every attendance is covered by the file notes, because Mr Hughes’ relationship with my office was on a casual, informal basis such that he was occasionally just calling in without an appointment and we would chat. [Tr 11.08.05 p164]
… … …
Q. And Mr Hughes transferring the house to Mr Costigan?
A. In a nutshell the whole deal was that Costigan would give Hughes $30,000 for his interest in the house. And this agreement was designed to allow that to be implemented without any practical hurdles. So that the money could be paid almost immediately.
Q. You yourself didn’t discuss the contents of this option agreement with Mr Hughes?
A. I did, he attended on me when he signed it.
Q. And what did you discuss with Mr Hughes?
A. The terms of the agreement.
Q. How long did that take you?
A. I have no record of it. I recall them being in my office. I don’t have any recollection of the length of time. It was more than a few minutes. It was more than coming in, signing and going out. It was a proper conference for the purpose of going through a document and explaining it. [Tr 11.08.05 p165]

42 In the first of his two affidavits, the defendant has given evidence of his version of conversations that he alleges took place with the deceased. This evidence is crucial to, inter alia, his contention that an oral agreement was made with the deceased and his claim for rectification.

43 As the deceased cannot give his version as to what may have taken place, the court is left to assess the defendant’s evidence, having regard to its impression of him as a witness and in the context of such other evidence (including documentation) as may be available. There is the evidence of Mr Hodges. There is some documentation. It is also provided by Mr Hodges. It comprises correspondence written by him to the deceased and diary notes (including those dated 25 May 2001).

44 There is authority to support the view that claims brought against the estate of a deceased person should be very carefully scrutinised (see, inter alia, Plunkett v Bell (1915) 19 CLR 544 at 548-9). It is common ground that such an approach should be taken.

45 During the hearing the matters in issue became reduced with certain of the claims falling away.

46 By the time that submissions came to be made, there seemed to be no real dispute that what was pleaded as giving rise to a binding oral agreement could not achieve that result. If there was such an oral agreement, it was indisputably revoked by the subsequent written agreement. Leaving that problem aside, it was clearly an arrangement that fell within the principles of Masters v Cameron (1954) 91 CLR 353. Whatever consensus may have emerged from what was said was subject to the documentation to be prepared by Mr Hodges. As earlier mentioned, there were concessions from the defendant that he did not regard himself as being legally bound by it.

47 The case founded on the written agreement was also no longer pursued. It was doomed to failure. The defendant had failed to exercise the option in accordance with the terms of the agreement. This was indisputable and also conceded by both the defendant (during his cross-examination) and his counsel.

48 The defendant’s version of the conversations which are relied on to establish, inter alia, the rectification claim, conveys the impression of being a summary of what he says passed between him and the deceased. The defendant concedes that it does not set forth the entirety of what was said. It was not “word for word”. He described his version as being the “nucleus” of their conversations.

49 There was a consensus that the matter be placed in the hands of a solicitor to provide the documentation which would put the arrangement into effect. This task was assigned by the deceased to Mr Hodges (who perceived the proposed transaction as being fluid). At that time, the parties knew only of the commission problem. It seems that thereafter, Mr Hodges may have raised the mortgage problem.

50 The rectification claim was put on two bases. Firstly, it was said that the written agreement did not reflect the common intention of the parties. Secondly, it was said that the written agreement did not reflect the intention of the defendant and that the mistake was known to the deceased. In my view, both aspects of the rectification claim fail by reason of lack of evidence.

51 The case founded on estoppel was put as follows:-

Mr Costigan assumed he would become the owner of the house
95. The evidence is clear that he believed that upon his paying to the deceased the sum of $30,000, and his taking over the mortgage, he would become the owner of the house subject to the deceased transferring the house to him. Mr Costigan gives direct evidence of that.
Mr Costigan’s assumptions and beliefs induced by deceased
96. Mr Costigan’s assumptions and beliefs were induced by the deceased. First, the deceased expressly agreed with Mr Costigan as much. Secondly, as is submitted above, there is no evidence that the deceased, or any other person, informed Mr Costigan otherwise.
Mr Costigan will suffer detriment if plaintiff permitted to depart from assumption
97. Mr Costigan would suffer detriment if the plaintiff were permitted to depart from the assumption. Had Mr Costigan been aware of the true state of affairs before the option period expired, he would have taken action to protect himself, such as exercising any option and rectifying the obvious error as to the payment of a further $30,000.
98. Thus, the detriment which Mr Costigan will suffer if the plaintiff is permitted to depart from the assumptions and beliefs which Mr Costigan held is the loss of the house. [Defendant’s written submissions]

52 In my view, this claim also fails because of lack of evidence. I consider that none of the elements of the alleged estoppel were made out.

53 Mr Hodges had been asked by the deceased to advise. The written agreement was the product of that advice. It was intended to be a legal mechanism that overcame the problems confronting the parties (the problems thrown up by the potential commission claim and the existence of the mortgage) and still achieve the objectives that both of them had in mind. It was designed so that the sum of $30,000 could be paid to the deceased almost immediately and that the defendant could later acquire the equity that the deceased had in the land.

54 The defendant was not a man of limited intelligence. He was not a stranger to real property transactions. He had conducted his own business. He had an understanding, inter alia, of the concepts of an option and exchange of contracts.

55 The defendant did give oral evidence under difficulty (apparently as a consequence of a past injury). At times, he appeared to be unwell. The court did its best to alleviate the difficulty (inter alia, by the granting of adjournment). Largely, despite any difficulty, he preferred to proceed with the giving of his evidence.

56 The plaintiff has mounted a strong attack on the defendant. It is alleged that he was deliberately evasive in answering questions put during cross-examination. There was also criticism of his pre-litigation conduct.

57 There is significant conflict between what the defendant has deposed to in his affidavits and what emerged (by way of concession or otherwise) during his cross-examination.

58 The disputed part of his case was founded on his affidavit evidence. Unfortunately for the defendant, that evidence fell by the wayside. He was effectively challenged in cross-examination and he came to make various concessions. As a result, that part of the case was left without the support of necessary evidence.

59 At times, the concessions were not easily made and there appeared to be a reluctance to provide information in answering questions. As a consequence, there was conflict also in his oral evidence and an impression of evasiveness and concealment was given.

60 Such evidence as there was concerning, inter alia, his financial circumstances, could give them a somewhat mysterious and obscure perception.

61 I gained the impression that his affidavits had been drafted by legal advisers and sworn by the defendant because he thought that the contents thereof would better advance his prospects of success. He appeared to be a witness who resiled to the position of one who conceded that he had given untrue evidence but still endeavoured to present it as not being really false.

62 Although the passage of time has affected his memory in some respects, the truth or accuracy of the evidence given by Mr Hodges was not challenged. It seems to me that he did his best to give honest and reliable evidence. It is not said by the defendant that the court should not accept his evidence. In the circumstances, I accept his evidence. Where there is any conflict between his evidence and that of the defendant, I prefer the material from Mr Hodges.

63 The deceased had a copy of the written agreement prior to attending on Mr Hodges to sign it. He had it explained by Mr Hodges and then signed it. The defendant was also present when this took place. The occasion was described by Mr Hodges as being a proper conference for the purpose of going through a document and explaining it.

64 I do not accept that the deceased was under any mistake as to the contents of the written agreement. I do not accept that he had any awareness of any mistake on the part of the defendant. Indeed, I do not accept that the defendant was under any mistake as to its content.

65 I am of the view that the defendant had both read and understood the written agreement prior to his execution of it (inter alia, he knew that he was being given an option and he knew what had to be done to execute it).

66 Despite having that knowledge he did not exercise the option within the prescribed period. It would seem that his failure to do so may have been related to his incapacity to raise the necessary finance to pay out the mortgage.

67 He gave, inter alia, the following evidence:-

Q. Mr Costigan, could I ask you please to turn to tab 17? Do you recall I was asking you some questions about that letter?
A. Yes.
Q. I think where we left things yesterday, if it assists you - and I am going from the second last paragraph on that first page - I asked you whether Mr Hodges’ advice in that letter where he says, “Secondly, the time for the exercise for the option has long since expired” came as a surprise to you and you said it did not?
A. No, I knew the option had expired and so did Michael.
Q. You’re purporting to give evidence now, are you, on behalf of the deceased?
A. No.
Q. Can you please confine yourself--
A. But I knew that the option had expired.
Q. And you knew that because you knew that the option agreement you had signed contained a time frame within which you could exercise that option?
A. Oh, I knew that.
Q. And you knew that that was more than three months but less than 12 months after you had signed the agreement?
A. Oh yes, I knew about that.
Q. And you knew that at the time you signed it?
A. Oh, of course.
Q. You were under no doubt about that at all at the time you signed that?
A. No, when I signed it it was a 12 months option. Yes, I know that. [Tr 9.08.05 p45-46]

68 Both in the defendant’s pleadings and in submissions, it was put that the written agreement contained error as to what was to be paid as the consideration for the deceased’s equity in the land. It was said that its terms required the payment of two sums, each in the amount of $30,000.

69 Clause 5 of the written agreement requires the payment of “the sum of $30,000” (the “option fee”). Clause 7(b) thereof states that the purchase price of the property shall be $30,000 plus whatever amount is due by the owner to Perpetual Trustees Australia Limited in respect of the mortgage. No price has been inserted in the attached contract.

70 It is clear that the intention of the parties was that only one sum in the amount of $30,000 was payable. In drafting the written agreement, it was the aim of Mr Hodges to give effect to that intention. It is not contended by the plaintiff that a further sum of $30,000 was payable. She accepts that the total consideration was the one payment of $30,000 and the liability under the mortgage.

71 Whilst the provisions dealing with these matters may have been better expressed and perhaps what is said on behalf of the defendant could be put forward as a possible construction, it seems to me that the written agreement does not need to be rectified to deal with that matter.

72 In my view, what must be demonstrated to establish an entitlement to rectification was not present in the circumstances of the case.

73 There remains the question of the defendant’s entitlement to an equitable charge. It was common ground that this matter should be put to one side pending the determination of the other aspects of the cross-claim. It is a matter on which there could be expected to be some commonality.

74 The parties may advise the court as to what is required to be done to deal with this remaining matter. Upon it being resolved, hopefully the proceedings can be disposed of by the preparation of short minutes of order.

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