Passey and Passey & Anor
[2009] FamCA 616
•15 July 2009
FAMILY COURT OF AUSTRALIA
| PASSEY & PASSEY AND ANOR | [2009] FamCA 616 |
| FAMILY LAW - PROPERTY - Review of Judicial Registrar’s decision which required the applicant to pay equitable compensation for breach of trustee obligations - Applicant did not participate in the hearing before the Judicial Registrar and at the review hearing sought to rely on the defences of equitable estoppel, waiver and election or alternatively the doctrine of unconscionability but did not dispute the breach of trust - Applicant failed to establish his entitlement to relief as a consequence of any of the equitable defences upon which he relied - Equitable compensation ordered for breach of trust |
| Family Law Act 1975 (Cth) ss 44(3), 79, 106a Family Law Rules 2004 r 17.03 Real Property Act 1900 (NSW) S 74I |
| Allen v Snyder (1977) 2 NSWLR 685 Bloch v Bloch (1981) 180 CLR 390 Calverley v Green (1984) 155 CLR 242 Commonwealth v Vermayen (1990) 170 CLR 394 Dann v Spurrier [1802] EngR 233; (1802) 7 Ves. Jun. 231; 32 E.R. 94 Gissing v Gissing [1971] AC 886 Re Dawson (deceased) [1966] 2 NSWR 211 Re Mulligan (deceased) [1998] 1 NZLR 481 Re Permanent Trustee Australia Ltd (1997) 137 FLR 190 Svenson vPayne (1945) 71 CLR 531 Target Holdings Ltd v Redferns (a firm) [1996] AC 421 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 |
| APPLICANT: | Ms Passey |
| FIRST RESPONDENT: | Mr Passey |
| SECOND RESPONDENT: | Mr Fyve |
| FILE NUMBER: | (P)NCC | 3672 | of | 2007 |
| DATE DELIVERED: | 15 July 2009 |
| PLACE DELIVERED: | Newcastle |
| PLACE HEARD: | Newcastle |
| JUDGMENT OF: | The Hon. Justice Ryan |
| HEARING DATE: | 17 February 2009 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr S Austin |
| SOLICITOR FOR THE APPLICANT: | H Firm |
| FIRST RESPONDENT: | No appearance |
| COUNSEL FOR THE SECOND RESPONDENT: | Mr T Bates |
| SOLICITOR FOR THE SECOND RESPONDENT: | Attwaters |
Orders
That order 2 dated 6 May 2008 is set aside.
That judgment and verdict is entered in favour of Ms Passey against Mr Fyve in the sum of $133,257.00.
Until Mr Fyve satisfies judgment interest on the amount outstanding is payable at the applicable rate set out in the Family Law Rules 2004.
Subject to any application for costs all outstanding applications are dismissed.
Any application for costs by the applicant shall be made in writing and filed and served with supporting material and submissions no later than 24 July 2009.
That the second respondent shall file and serve material and submissions in reply by 7 August 2009.
That the applicant shall file and serve any further material and submissions in reply by 14 August 2009.
THE COURT NOTES the parties invite the Court to determine any costs application without further hearing.
The Principal Registrar of the Court is directed to provide a copy of my Reasons and note that at my request the Legal Services Commission of New South Wales and the President of the Law Society of New South Wales are asked to investigate the conduct of Mr G.
IT IS NOTED that publication of this judgment under the pseudonym Passey & Passey and Anor is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT NEWCASTLE |
FILE NUMBER: (P)NCC3672 of 2007
| MS PASSEY |
Applicant
And
| MR PASSEY |
First Respondent
And
| MR FYVE |
Second Respondent
REASONS FOR JUDGMENT
This is an application by the second respondent Mr Fyve for a review of the decision of Loughnan JR which was delivered on 6 May 2008. Loughnan JR ordered Mr Fyve to pay his daughter, Ms Passey, who is the applicant in the substantive proceedings, $130,800. In the context of Ms Passey’s application for property settlement pursuant to s 79 of the Family Law Act Mr Fyve was joined as a party and in the exercise of the Court’s accrued jurisdiction, equitable compensation were sought against him. Ms Passey alleged that in breach of his trustee obligations Mr Fyve transferred title in a property at S, to Mr Passey as a consequence of which her beneficial interest in the property was eventually lost. Appropriately no challenge was made to the court’s exercise of its accrued jurisdiction.
Ms Passey’s s 79 application and application for equitable compensation were heard by the Judicial Registrar on 6 May 2008. In relation to the s 79 application, the Judicial Registrar made orders between Mr and Ms Passey by consent. Although served with Ms Passey’s application and informed about the process of the litigation, Mr Fyve did not enter an appearance or participate in the hearing before the Judicial Registrar.
A review of a Judicial Registrar’s decision is a hearing de novo. Consequently Ms Passey’s application for equitable compensation is determined on its merits on the basis of the evidence available to the Court at the review hearing.
Although served with Mr Fyve’s review application and notice of this hearing, Mr Passey did not enter an appearance or participate in it.
Background facts
Throughout these reasons statements of fact are findings of fact.
Mr and Ms Passey married in 1989.
Mr and Ms Passey have three children: B born in March 1991, C born in August 1992 and J born in September 1996.
During 1991 and 1992, the Passeys lived in a caravan located on a property Mr Fyve owned outside S. Due to their parlous financial circumstances they were unable to raise a loan and the prospect of home ownership appeared elusive. Following discussions with Mr Fyve, the parties agreed that Mr Fyve would purchase a property in his name to be held on trust for Mr and Ms Passey. The terms of the trust were agreed orally. The parties agreed Mr Fyve would purchase the property at S (“the S property”) and that in order to fund the purchase, he would obtain finance in his sole name with the amount borrowed to be secured by way of a mortgage over the S property. The Passeys were to be responsible for payment of all expenses associated with the loan, maintenance and upkeep of the property, rates and utilities. When the Passeys were able to raise the funds required to discharge Mr Fyve’s mortgage secured against the S property, as well as reimburse him for any funds he expended acquiring and maintaining the property, it was agreed he would transfer the title in the S property into the Passeys’ joint names. Thus Mr Fyve’s equitable interest in the S property would equate to the extent of funds he expended on the property.
In accordance with their agreement, in March 1992 Mr Fyve exchanged contracts to purchase the S property for $73,500. From his savings Mr Fyve paid the deposit and stamp duty. He borrowed the balance of the purchase price from the National Australia Bank. The Passeys made no financial contribution towards the acquisition of the S property.
The S property was acquired subject to an existing tenancy. During the period between settlement and when the Passeys moved in five months later, the Passeys paid the shortfall between the mortgage instalments and rental income.
When the tenant vacated the S property the house required significant renovation and repair. The house was virtually demolished and rebuilt. Between them, in different proportions, the parties met the expenses incurred in the renovations.
In late 1994 Mr Fyve refinanced the loan with the National Australia Bank. The epitome of mortgage[1] shows that the amount borrowed on the refinance was $77,000. On the refinance the Passeys received a few thousand dollars which they used to clear outstanding debts. Mr Fyve did not receive any of the additional funds advanced.
[1] Annexure ‘C’ to Ms Passey’s affidavit sworn 10 December 2007
At Ms Passey’s request, on 15 October 1997 Mr Fyve swore a Statutory Declaration[2] in which he acknowledged purchasing the S property for the Passeys “with the intention of transferring the [title] deed over to [Mr Passey] and [Ms Passey] at a later date.” The purpose of this document was to support the first of the Passeys’ failed attempts to raise funds so as to purchase Mr Fyve’s interest in the property and pay out the National Australia Bank.
[2] Exhibit ‘D’
In February 1999 Mr Fyve refinanced the National Australia Bank mortgage, borrowing the sum of $83,605 from the Newcastle Permanent Building Society Ltd. From the Newcastle Permanent Building Society loan, Mr Fyve discharged the National Australia Bank mortgage and gave the balance to the Passeys. They used the surplus to discharge a car loan and for their day to day living expenses. On behalf of Newcastle Permanent Building Society Ltd Property Valuers valued the property. Their valuation[3] revealed that as at 11 February 1999 S property was worth $100,000.
[3] Exhibit ‘H’
During 1999 Mr and Ms Passey separated for the first time following which Ms Passey and the children remained in occupation of the S property. From this time and until Mr Fyve transferred title in S property to Mr Passey, notwithstanding subsequent brief reconciliations, Ms Passey was solely responsible for payment of loan instalments and all other expenses in relation to the property.
In early 2001 Mr and Ms Passey separated for the final time.
Following the Passeys’ final separation, Mr and Ms Passey began property settlement negotiations. With few other assets of value this principally involved discussions concerning the disposition of the S property. Three way negotiations, that is including Mr Fyve, commenced with one issue being Mr Fyve’s insistence that he would transfer title in S property provided he was reimbursed for his acquisition and other expenses incurred in relation to it. Rounded out, he was due $11,000. Mr Fyve’s point being that it had always been agreed that when he transferred title it was to be on the basis he would not be left out of pocket.
On 9 May 2003 a decree nisi dissolving Mr and Ms Passey’s marriage was ordered which decree became absolute one month later.
On 18 November 2004, H Solicitors, on behalf of Ms Passey, wrote to Mr Fyve’s solicitors, G Firm. Ms Passey sought an undertaking from Mr Fyve that he would not deal with the S property whilst the parties were in negotiation. Unless Mr Fyve provided the undertaking, H Firm advised that Ms Passey would lodge a caveat protecting her interest in the property. When the undertaking was not received, on 3 March 2005 H Firm wrote again to G Firm inquiring about it.
On 18 March 2005, under the hand of Mr G, G Firm responded[4] and relevantly said: “We refer to your letter of 3 March 2005. Our client is prepared to give the undertaking not to deal with the property until this matter is resolved and therefore the lodging of a caveat is unnecessary.” Ms Passey relied upon Mr Fyve’s undertaking and did not lodge a caveat.
[4] Exhibit ‘I’
In April 2005 Ms Passey and Mr Fyve discussed his demand for reimbursement of $11,000. Apparently unable to agree, their relationship fractured and they have not spoken to each other since. Thereafter all negotiations were conducted through their respective solicitors.
On 17 June 2005, G Firm on Mr Fyve’s behalf wrote to H Firm. In this correspondence they relevantly said:
We are instructed that our client is happy for the transfer of the subject property to your client rather than sale subject to conditions contained herein. Further our client agrees that the property has been held on trust for your client [Ms Passey] and supports the position of your client as a beneficiary.[5]
[5] Exhibit ‘E’
By letter dated 13 January 2006[6] H Firm advised G Firm, in their capacity as the solicitors for both Mr Fyve and Mr Passey, that Ms Passey was not agreeable to “a transfer of the property to [Mr Passey] and on that basis she wishes to continue to explore a resolution whereby she retains the property.” One of the significant matters which arose from this correspondence is that it was clear to Messrs G, Fyve and Passey that Ms Passey did not agree that title in the property would be transferred solely to Mr Passey. Indeed, throughout the negotiations Ms Passey and her solicitors tried to negotiate a settlement whereby title in S property would be transferred into her sole name.
[6] Exhibit ‘R’
On 13 April 2006, without prior notice to Ms Passey or resiling from his 18 March 2005 undertaking, Mr Fyve sold S property to Mr Passey. Exchange of contracts[7] and settlement occurred on the same day. It is disturbing to record that Mr G of G Firm acted for both Mr Fyve and Mr Passey on the conveyance.[8] He also acted on Mr Passey’s behalf in relation to his mortgage with the incoming mortgagee Bluestone Mortgages and in relation to the property negotiations with Ms Passey. That there existed a conflict of interest is self evident, not to mention that Mr G acted in apparent breach Mr Fyve’s undertaking upon which he was aware Ms Passey relied. At a minimum, it seems to me that for so long as the undertaking continued Mr G’s professional standards required that he refuse to accept instructions to act contrary to it. This is a matter to which I will return.
[7] Exhibit ‘Q’
[8] Exhibit ‘Q’
The Contract for Sale and Memorandum of Transfer[9] shows that the consideration for the transfer was $200,000. Mr Fyve received $11,000, with the balance of funds paid to Newcastle Permanent Building Society and otherwise in accordance with Mr Passey’s direction. As the figures below demonstrate, excluding the amount required to discharge the mortgage, Mr Passey received control of equity of about $117,082.
[9] Annexure ‘E’ to Ms Passey’s affidavit sworn 10 December 2007
Mr Passey borrowed $165,196.85[10] from Bluestone Mortgages in order to fund the purchase. The settlement statement shows the Bluestone Mortgages proceeds were paid at settlement as follows:
[10] Annexure ‘A’ to Ms Passey’s affidavit sworn 10 December 2007
(a) Office of State Revenue $ 597.00
(b) Land and property information $ 309.00
(c) AAPT $1,296.00
(d) Westpac Banking Corporation $2,348.00
(e) AGC $2,100.00
(f) Langy’s Collection $3,000.00
(g) Newcastle Permanent Building Society Ltd $71,918.04
(h) St Andrew’s Insurance $1,660.85
(i) Office of State Revenue $5,492.00
(j) Mr Fyve $11,000.00
(k) Mr Passey $61,940.06
(l) Fees and charges $3,535.90
The incoming mortgagee’s settlement statement is consistent with a handwritten calculation of the settlement figures produced from G Firm[11]. There is no evidence that Mr Passey paid Mr Fyve the difference between the contract price, discharge of mortgage and the amount advanced by the incoming mortgagee. I am satisfied he did not. This is another curious and unsatisfactory aspect of this conveyance which, without either Mr Passey or Mr G’s evidence I have been unable to unravel. Nonetheless I am satisfied that the documents which evidence the contract selling price are the best evidence of the value of the property at that time.
[11] Exhibit ‘O’
Neither Mr Fyve nor Mr Passey accounted to Ms Passey for her interest in the property. Nor was Ms Passey advised that the property had been transferred to Mr Passey.
It is beyond dispute that Mr Fyve breached his trustee obligations without Ms Passey’s consent.
In the event Ms Passey suffered damages as a consequence of Mr Fyve’s alleged breach of his fiduciary obligations, her cause of action crystallised and the limitation period within which she could bring action against him commenced on 13 April 2006.
On 1 May 2006, Mr G of G Firm, on behalf of Mr Fyve, wrote to Ms Passey’s solicitors. Because of the significance of this letter, it is set out in full. G Firm wrote:
RE: [Mr Fyve] & [Ms Passey]
We refer to previous correspondence and your letter of 27 April 2006.
We also refer to our last letter to you of 17 March 2006.
We are instructed that further to the content of our previous letter and the ongoing changes to your client’s position, our client has chosen not to negotiate with your client any further. Accordingly we are no longer instructed in this matter.
The effect of this letter was that having breached his trustee obligations and undertaking Mr Fyve made it clear he had no interest in the consequences of his actions. No adequate explanation was received from Mr Fyve as to why he so disregarded his fiduciary duties and undertaking. Or why he failed to, for example, seek relief in equity to resolve the impasse with Ms Passey.
Thereafter G Firm was instructed by Mr Passey but not Mr Fyve.
The 1 May 2006 letter was silent about the transfer of title in S property by Mr Fyve to Mr Passey. Again it is disturbing to record that, whether as Mr Fyve’s agent or on behalf of Mr Passey, Mr G failed to disclose to H Firm he had been directly involved in transactions which he knew were contrary to the 18 March 2005 undertaking.
Unaware that the Newcastle Permanent Building Society Ltd mortgage had been discharged, in early May 2006 Ms Passey attended its office to make her usual monthly mortgage payment. She was there advised that the mortgage had been discharged. Ms Passey did not subsequently make any payments to the incoming mortgagee.
On 5 May 2006 Ms Passey lodged a caveat on S property in which she claimed an interest in the property on the basis that its registered proprietor held the property on trust for her. There was no dispute about the legitimacy of her asserted interest. That same day H Firm wrote to G Firm and sought to establish the nature of any transactions and copies of any documents concerning dealings with S property. The requests for documents were repeated on 15 May 2006, 23 May 2006, 7 June 2006 and 14 June 2006. At some stage during this period G Firm provided H Firm with a selection of the details relating to the conveyance but did not provide copies of documents, details of the consideration or disclose the amount borrowed from Newcastle Permanent Building Society Ltd.
In H Firm’s correspondence of 23 May 2006 intended for Mr Fyve, they advised G Firm: “In the event that your client has purported to deal with the property contrary to our client’s claimed interest, then it seems inevitable that Mr [Fyve], contrary to the wishes he may have expressed to you, will be involved in litigious proceedings.”
In early June 2006 Ms Passey was served with a caveat lapsing notice issued at the request of Bluestone Mortgages, the purpose being to enable it to register the Memorandum of Transfer and its mortgage. Ms Passey had 21 days from the time she was served with the lapsing notice to obtain an order from the Supreme Court extending the operation of the caveat: s 74I Real Property Act 1900 (NSW).
It is clear from H Firm’s letter of 14 June 2006 to G Firm they had previously informed G Firm, who then represented only Mr Passey, that Ms Passey had received a caveat lapsing notice. As an alternative to an application to extend her caveat, in this correspondence Ms Passey suggested Mr Passey consent to her mooted s 44 (3) FLA application for leave to apply out of time for a s 79 FLA property settlement and in the interim that Mr Passey transfer title to S property into Mr and Ms Passey’s joint names. Absent agreement by 5.00 pm on 15 June 2006, H Firm advised Ms Passey would have no choice but to incur the costs involved in an application to extend the caveat. Although H Firm intended that this correspondence put Mr Fyve and Mr Passey on notice of Ms Passey’s intentions vis a vis an application to extend the caveat, G Firm were no longer instructed by Mr Fyve and notice was effective against Mr Passey alone. The evidence does not reveal that G Firm informed Mr Fyve of Ms Passey’s possible extension of caveat application. Or indeed that until these proceedings, by which time it was history, he was aware of it.
I am satisfied that Mr Fyve did not act or fail to act in reliance on Ms Passey’s representations that she would bring an application to extend the caveat.
Submissions were made by both counsel about the parties named on correspondence passing between the solicitors. From G Firm correspondence predominately referred to “re: [Mr Passey] and [Ms Passey]” and occasionally “re: [Mr Fyve] and [Ms Passey]”. From H Firm correspondence was routinely written “re: [Ms Passey] & [Mr Fyve] and [Mr Passey]”. After G Firm advised H Firm they were no longer instructed by Mr Fyve they did not ever suggest to H Firm they were again instructed. Why H Firm continued to write to G Firm as if they were is a curiosity.
Counsel for Mr Fyve attempted to rely upon a letter from G Firm dated 27 June 2006[12] to H Firm which was headed “re: [Mr Fyve] and [Ms Passey]” as evidence that Mr Fyve was again involved in the negotiations and if not actually proven, then by inference through his solicitor agents was aware of all that was occurring between the Passeys. Relevantly the Passeys’ agreement to mediate and probably also Ms Passey’s representations about extending the caveat. Apart from G Firm failing to state they were again instructed by Mr Fyve the text of the letter revealed that it related to the Passeys’ negotiations and had nothing to do with Mr Fyve. For example G Firm refer to “both sides”, that is identified two not three participants or “sides”. And twice to “our client” and not its plural “our clients”. The only reasonable inference is that where G Firm identifies “our client” they meant Mr Passey, in contrast to Mr Fyve who is identified separately by name and not as having client status. The effect of this is that I do not accept the construction on the letter contended for by Mr Fyve.
[12] Exhibit “U”
So that it is clear and notwithstanding the headings under which the correspondence between the solicitors passed, after 1 May 2006 G Firm were not in any sense Mr Fyve’s representatives or agents. Demands, notice and representations from H Firm on behalf of Ms Passey to them intended for Mr Fyve were ineffective. That G Firm had notice was insufficient to impute it to their former client. In a similar vein, after this time, correspondence from G Firm did not enable Mr Fyve to establish inferentially that he was aware of the Passeys’ negotiations, in principle agreement or Ms Passey’s representations.
By 19 June 2006 Mr and Ms Passey had agreed to attend mediation and to orders pursuant to s 44(3) FLA that she should have leave to commence property settlement proceedings out of time.
On 21 June 2006 Mr and Ms Passey attended private mediation. Mr Fyve was not involved in this mediation. At this stage Ms Passey’s caveat had not lapsed. At mediation Mr and Ms Passey reached an in principle agreement. Although the precise terms of the agreement are unclear it is beyond dispute that this was an agreement reached between the Passeys and did not, in any way, involve Mr Fyve. Ms Passey did not inform Mr Fyve about the agreement or make any representations to him about the ramifications, qua her rights against him, as a consequence of it.
Having regards to the agreement to participate in mediation and the subsequent in principle agreement, on advice from H Firm, Ms Passey decided against taking action to extend her caveat. Simply put, Ms Passey was hopeful that she could rectify the potential harm caused by Mr Fyve’s actions through agreement with her former husband. She did not at any time represent to Mr Fyve that in seeking to retrieve the situation she waived her rights to take action against him.
A few days later the mediator provided H Firm and G Firm with draft terms of settlement.
On 3 July 2006 the Lands Title Office registered the Memorandum of Transfer from Mr Fyve to Mr Passey and the Bluestone Mortgages mortgage.
On 14 July 2006 H Firm wrote to G Firm pressing them to return the terms prepared by the mediator.
On 16 October 2006 G Firm wrote to H Firm advising that the settlement “is now undoable”. Mr Passey proposed Ms Passey vacate S property and that he complete necessary repairs upon completion of which the property would be sold. From the net sale proceeds Mr Passey proposed that Ms Passey receive $60,000 with the balance remaining to him.
In early December 2006 Bluestone Mortgages contacted Ms Passey and advised that the mortgage was in default. H Firm wrote to G Firm on 4 December 2006[13] seeking urgent advice concerning Mr Passey’s payment of the mortgage.
[13] Exhibit ‘W’
On 13 December 2006 G Firm wrote to H Firm[14] in which they advised the mortgage was four weeks in arrears. It was pointed out that Mr Passey had been paying the mortgage instalments and child support and said “that the position as far as mortgage repayments is not going to get any better.” Negotiations continued between the Passeys’ solicitors without resolution.
[14] Exhibit ‘X’
In July 2007 Mr Passey instructed a real estate agent to act on his behalf on the sale of S property. Ms Passey refused to co-operate and instructed her solicitors to clarify the situation with her former husband. G Firm informed H Firm they had not received instructions from Mr Passey for some time. Consequently on 12 July 2007 H Firm wrote directly to Mr Passey.[15] Following this letter Mr Passey re-established contact with G Firm and, through their solicitors, the Passeys resumed negotiations.
[15] Exhibit ‘AA’
On 11 July 2007 Gadens Lawyers, on behalf of the mortgagee, advised H Firm that within approximately six weeks Ms Passey would be served with an eviction notice. This caused Ms Passey to reconsider her earlier opposition to a sale of the property, and on 30 July 2007 H Firm wrote to G Firm[16] and advised that Ms Passey would now cooperate with its sale. With no reply from G Firm, on 2 August 2007 and 24 August 2007[17] H Firm repeated Ms Passey’s acceptance of her former husband’s offer to cooperate with a sale. In the 24 August 2007 letter H Firm advised G Firm that Ms Passey had received an eviction notice with which she duly complied. Denied Department of Housing assistance, she and the children moved into private rental accommodation. She was, and had been throughout, in a parlous financial situation.
[16] Exhibit ‘BB’
[17] Exhibit ‘CC’
On 14 November 2007 the mortgagee in possession exchanged contracts for the sale of S property.[18] Gadens Lawyers informed H Firm that settlement would take place on 19 December 2007. S property sold for $225,000 with the amount due by Mr Passey to the mortgagee as at 28 November 2007 in excess of $196,000.
[18] Exhibit ‘DD’
On 10 December 2007 Ms Passey commenced these proceedings. Because of the urgency of the situation, time for service was abridged and the matter came before a Judicial Registrar four days later. In her initiating application, Ms Passey named Mr Fyve as the second respondent and Permanent Custodians Limited, who had taken over the Bluestones Mortgages mortgage, as the third respondent. Mr Fyve was served on 10 December 2007. For reasons not revealed in the evidence, Mr Fyve elected not to participate in the proceedings.
On 14 December 2007 Mr and Mrs Passey reached an interim agreement and by consent orders were made as follows:
1. Leave is granted for short service of this application.
2. Leave is granted for the applicant to bring proceedings against the first respondent for orders under s 79 of the Family Law Act out of time.
3. That the net proceeds of the sale of the property known as [S] being the land more properly described as lot […] in deposited plan […], held by the third respondent [Permanent Custodians Limited] are to be forthwith paid by the third respondent to the applicant’s solicitors to be held in escrow pending the final orders of the Court.
On 19 December 2007 title in S property passed to a bona fide purchaser for value without notice of Ms Passey’s interest in the property.
On 19 February 2008 Ms Passey received $14,943.17[19] being the net sale proceeds for the S property.
[19] Exhibit ‘G’
On 6 May 2008 the matter came before Loughnan JR. For unexplained reasons, Mr Fyve was not present. The Court made the following orders:
IT IS NOTED
1.There is no appearance by or on behalf of [Mr Fyve] at midday today.
IT IS ORDERED
2.The Court gave verdict and judgment in favour of the Wife against the Second Respondent in the sum of $130,800.
3.Orders are made in terms of paragraphs 1, 2 and 3 of the document titled “Terms of Settlement” marked Exhibit A.2.
4.That the Second Respondent pay the costs of the Wife of and incidental to these proceedings as and from 14 December 2007, such costs to be as agreed between the Wife and the Second Respondent or as assessed by a taxing officer.
The consent orders referred to comprise property settlement orders entered into between Mr and Ms Passey. These orders are set out below.
1. That within seven days of the date of these orders the Applicant and First Respondent do all such acts and things and sign all documents which may be necessary to instruct Messrs [H], Solicitors, to release to the Applicant all monies held in their Trust Account on behalf of the Applicant and First Respondent.
2.Subject to Order 2 [sic] hereof:
(a)Each party be solely entitled to the exclusion of the other to all other property in the possession of such party as at the date of these orders; and
(b)Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders.
3.In the event of either party failing to execute any documents necessary to effect the orders contained herein (within fourteen days of a written request to do so) the Registrar of the Newcastle Registry of the Family Court of Australia is hereby appointed pursuant to the provisions of the Section 106A of the Family Law Act to execute such documents on behalf of any such party.
On 26 May 2008 Mr Fyve filed an Application in a Case seeking a review of the Judicial Registrar’s decision insofar as it concerned orders 2 and 4.
The nature and extent of Ms Passey’s beneficial interest.
The parties agree that when Mr Fyve purchased the S property he acquired it on trust for Mr and Ms Passey. Although subsequently acknowledged in writing, the trust was an implied trust. Calverley v Green (1984) 155 CLR 242. An implied trust arises where a legal owner of property has provided only part of the purchase price of that property. A trust is presumed in favour of the party providing the other part of the purchase monies, and the beneficial interest is proportionate to the financial contribution: Allen v Snyder (1977) 2 NSWLR 685. The trust is implied from financial contributions made towards the acquisition of the property as well as from later contributions, for example, in these circumstances, mortgage repayments on Mr Fyve’s mortgage: Gissing v Gissing [1971] AC 886; Bloch v Bloch (1981) 180 CLR 390; Allen v Synder [at 691].
The facts give rise to an inference that the three parties intended their respective beneficial interests to equate to Mr Fyve’s contributions made to acquire and develop the property and to free it of encumbrance with the Passeys to be proportionate to their respective contributions of like nature. Mr Fyve’s receipt of $11,000 on his transfer of title is supportive of this inference.
Neither Mr Passey nor Mr Fyve challenged Ms Passey’s evidence that from acquisition until the Passeys’ first separation the Passeys’ contributions to the property were made equally. I accept they were.
Neither Mr Passey nor Mr Fyve challenged Ms Passey’s evidence that as between the Passeys she alone made mortgage payments and paid all other outgoings from when the Passeys first separated until transfer of title to Mr Passey.
The effect of these findings is that at the time Mr Fyve transferred title to Mr Passey, the proportion of the contributions made by the parties and thus of their respective beneficial interests in S property comprised Mr Fyve as to $11,000, with the remaining equity calculated as at 1999 held in equal shares by Mr and Ms Passey and the equity which subsequently accrued extending Ms Passey’s beneficial interest alone.
As I have earlier found it is at the point of transfer of title to Mr Passey that Mr Fyve breached his obligations as trustee to Ms Passey. Such financial contributions as Mr Passey subsequently made to his mortgage with Bluestone Mortgages are matters beyond the scope of the trust and fall for assessment under the Family Law Act. When, by consent, s 79 property orders were entered between Mr and Ms Passey all contributions made by Mr Passey throughout the Passeys’ marriage were considered. Necessarily this included financial contributions by way of mortgage payments on his mortgage post transfer of title to him.
The effect of these findings is that the best evidence of Mr Passey’s entitlements to the Passeys’ matrimonial assets, including S property, is reflected in the terms of the s 79 orders. As these resulted in Ms Passey receiving the net sale proceeds of S property and the parties otherwise retaining assets of no real value, I infer that Mr Passey conceded that whether by application of equitable or Family Law Act principles post the transfer of title to him he did not increase his beneficial interest in S property. Even had he not done inferentially conceded the point so on the application of equitable principles during this period Mr Passey did not increase his beneficial interest in the property.
Can Mr Fyve avoid the consequences of breaching his fiduciary duty?
It is not in dispute that when Mr Fyve transferred title in S property to Mr Passey he breached his obligations as trustee to Ms Passey. The relationship between trustee and beneficiary is fiduciary, described as ‘a fiduciary capacity of the highest order’: Re Permanent Trustee Australia Ltd (1997) 137 FLR 190 at 199. In situations where a breach of trust has occurred, the trustee is liable to restore the trust estate to the same position as it would have been in had no breach been committed: Target Holdings Ltd v Redferns (a firm) [1996] AC 421; Re Mulligan (deceased) [1998] 1 NZLR 481. Where the trust asset has been lost the beneficiaries may seek redress from the trustee personally. Target Holdings Ltd v Redferns (a firm) (supra).
On the facts of this case the remedy available to Ms Passey is equitable compensation payable by Mr Fyve for her loss caused by his breach of trust.
Notwithstanding his breach of trust Mr Fyve submitted that Ms Passey’s claim for compensation should be denied. Essentially Mr Fyve’s argument is that by reason of the application of the doctrines of election, equitable estoppel or waiver, or in the alternative the doctrine of unconscionability, Ms Passey’s claim for compensation should fail. Mr Fyve argued that by her conduct - that is in failing to apply to extend the caveat - upon the expiry of the lapsing notice she waived her rights in S property and/or elected not to claim compensation for his breach of fiduciary duties.
Estoppel is a broader doctrine than waiver and provides the basis for Mr Fyve’s alternative argument that Ms Passey is estopped from resiling from representations, actual or implied, to the effect she would protect her equitable interest by seeking to extend the caveat and/or by resolving the situation with her former husband. In these circumstances it was submitted it would be unconscionable for Ms Passey to be awarded compensation. In oral argument counsel for Mr Fyve expanded on his written submissions so that, as I understand it, these include a contention that by failing to seek to extend the caveat Ms Passey induced Mr Fyve to act to his detriment. I infer primarily through inducing in him a belief that he need take no steps to protect her equitable interest and/or that she would not hold him to account for his breach of trustee obligations. It was not clear to me exactly what steps post transfer Mr Fyve may have decided against taking so as to protect Ms Passey’s beneficial interests.
Concerning election counsel agreed the current law to be as stated in Commonwealth v Vermayen (1990) 170 CLR 394 at 407 per Mason J citing Stephen J in Sergeant v ASL Developments Limited (1974) 131 CLR 634 at 641:
The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine: because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence.
Counsel adopted Brennan J’s statement in Vermayen where his Honour said:
These distinct doctrines serve different purposes: election (in either species) ensures that there is no inconsistency in the enforcement of a person’s right; estoppel or equitable estoppel ensures that a party who acts in reliance on what another has represented or promised suffers no unjust detriment thereby; waiver recognises the unilateral divesture of certain rights. True it is that the divisions in nature and purpose between one of these doctrines and another have not always been expressed in the way in which I have stated them and there have been occasions when the sterilisation of a right has been dubiously attributed to one doctrine rather than another …. the sterilising of a right might, in some circumstances, be attributable to either a waiver or an election but the doctrines are distinct, for one maybe waived though there is no alternative right inconsistent with it.
Reference was also made to Brennan J in Vermayen who held:
As a right is waived only when the time comes for its exercise and the party for whose sole benefit it has been introduced knowingly abstains from exercising it a mere intention not to exercise a right is not immediately effective to divest or sterilise it.
Concerning unconscionable conduct counsel relied upon Dean J in Vermayen where, concerning unconscionable conduct his Honour held:
As Lord Scarman pointed out in National Westminster Bank PLC v Morgan, definition ‘is a poor instrument when used to determine whether a transaction is or is not unconscionable: this is a question which depends on the particular facts of the case’. The most that can be said is that ‘unconscionable’ should not be understood in the sense of referring to what one party ‘ought not, in conscience, as between (the parties) to be allowed to do’ … In this as in other areas of equity related doctrine, conduct which is unconscionable will commonly involve the use of or insistence upon the legal entitlement to take advantage of another’s special vulnerability or misadventure in a way that is unreasonable and aggressive to an extent that affronts ordinary minimum standards of fair dealing. That being so, the question of whether conduct is or is not unconscionable in the circumstances of a particular case involves a ‘real process of consideration and judgment’ in which the ordinary processes of legal reasoning by induction and deduction from settled rules and decided cases are applicable but are likely to be inadequate to exclude an element of value judgment in a borderline case such as the present.
Counsel for Ms Passey submitted each of Mr Fyve’s arguments were fallacious. Firstly Ms Passey’s cause of action for her father’s breach of trust had crystallised. In order to find in favour of Mr Fyve’s contention about election I would need to be satisfied that Ms Passey was required to choose between two mutually exclusive courses of action. These were either to seek an extension of the caveat and a declaration of trust or alternatively abandon the litigious route and attempt to resolve the dispute through negotiation. I agree with counsel for Ms Passey’s submission that there was no dispute about the existence of the trust and thus a declaration was unnecessary. Also that in failing to take steps to extend the caveat Ms Passey did not elect to take one of two mutually exclusive courses. In my view she adopted complimentary not mutually exclusive approaches. In failing to seek to extend the caveat she did no more than fail to take a prudent step which may have gone a little way towards reducing the harm caused by Mr Fyve’s breach of undertaking and fiduciary duty. However it is beyond dispute that even without the caveat being extended her, albeit diminished, equitable interest continued. None of these actions are consistent with a finding of a loss of her rights against Mr Fyve by election or waiver.
The current formulation of equitable estoppel in found in the judgment of Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, at 428-429 where his Honour said:
In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.
Silence will support an equitable estoppel only if it would be inequitable thereafter to assert a legal relationship different from the one which, to the knowledge of the silent party, the other party assumed or expected: Svenson v Payne (1945) 71 CLR 531. I refer to silence because H Firm’s purported notice to Mr Fyve was ineffective. The evidence does not support a finding that Mr Fyve relied on Ms Passey’s effective silence. Or that at any stage Ms Passey believed that he did. Although neither party submitted that the evidence supported equitable estoppel through silence, it is appropriate to make it clear it did not.
A party seeking to establish an estoppel is required to prove the case by strong and cogent evidence. Dann v Spurrier [1802] EngR 233; (1802) 7 Ves. Jun. 231 [32 E.R. 94].
I am strongly satisfied that Mr Ftve failed to establish that Ms Passey induced in him an assumption or expectation that following his breach of trust she would protect her diminished equitable interest in S property by seeking an extension of the caveat. To an extent Mr Fyve sought to rely on information he obtained from Mr Passey concerning Ms Passey’s response to his breach of trust. No weight can be afforded to information sourced this way. If Mr Fyve was interested in Ms Passey’s stance following his breach of trust he ought to have approached her or her agents. It would be an affront to fail to acknowledge the duplicitous nature of the manner in which Mr Fyve and Mr Passey dealt with Ms Passey’s beneficial interest in the property to allow Mr Fyve to rely on representations attributed to Mr Passey. In coming to this view I am bolstered by Mr Fyve’s failure to adduce corroborating evidence from Mr Passey. As discussed earlier the evidence does not persuade me that Mr Fyve was even aware she contemplated doing so until well after Bluestone Mortgages had registered the Memorandum of Transfer and its mortgage. I am strongly satisfied that Mr Fyve failed to establish that Ms Passey induced in him a belief that she was content to address the consequences of his breach of trust solely through negotiation with her former husband. Or that in any way she actually or impliedly excused him from liability for her losses which arose from his breach of trust.
The evidence does not establish that Mr Fyve acted or failed to act, to his detriment, in reliance of any action (actual or inferred), including silence, from Ms Passey.
Mr Fyve has failed to establish his entitlement to relief as a consequence of any of the equitable defences upon which he relied.
In short I am not persuaded that it would be unconscionable to allow Ms Passey to claim compensation from Mr Fyve as a consequence of his breach of trust.
Equitable compensation
The approach to the calculation of equitable compensation is as described by Street J (as he then was) in Re Dawson (deceased) [1966] 2 NSWR 211 at 214 216:
The obligation of a defaulting trustee… is of a personal character and its extent is not to be limited by common law principles governing remoteness of damage… if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter…
[T]he obligation… is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract … Moreover the distinction between common law damages and relief against a defaulting trustee is strikingly demonstrated by reference to the actual form of relief granted in equity in respect of breaches of trust. The form of relief is couched in terms appropriate to require the defaulting trustee to restore to the estate the assets of which he deprived it. Increases in market values between the date of breach and the date of recoupment are for the trustee’s account; the effect of such increases would, at common law, be excluded from the computation of damages; but in equity a defaulting trustee must make good the loss by restoring to the estate the assets of which he deprived it notwithstanding that market values may have increased in the meantime. The obligation to restore to the estate the assets of which he deprived it necessarily connotes that, where a monetary compensation is to be paid in lieu of restoring assets, that compensation is to be assessed by reference to the value of the assets at the date of restoration and not the date of deprivation. In this sense the obligation is a continuing one and ordinarily, if the assets are for some reason not restored in specie, it will fall for quantification at the date when recoupment is to be effected, and not before.
The property was purchased for $73,500 in June 1992. Neither Mr Passey nor Ms Passey made any financial contribution towards its acquisition. Although he cannot now recall with specificity the amounts, Mr Fyve paid acquisition costs, including stamp duty, legal fees and the like. Although Mr and Ms Passey were overwhelmingly responsible for the repayment of the mortgage, there were four or five occasions when they defaulted which resulted in the mortgagee making good the default from Mr Fyve. Such payments as Mr Fyve made were paid prior to the Passeys’ first separation.
When the mortgage was refinanced in February 1999, the property was worth $100,000. At that time, the capital component of the mortgage that related to the property was $65,878. As a consequence, Ms Passey submits that when she and her husband separated in 1999 they had an equal interest in the remaining equity, that is half each of $34,122. However, this calculation ignores Mr Fyve’s evidence concerning his beneficial interest in the property. Although it is inconsistent with his 1997 Statutory Declaration, I accept he purchased materials for the renovations to the property and paid trades people. Consequently, Mr and Ms Passey shared equity of $23,122 or $11,561 each after Mr Fyve’s interest in the property of $11,000 is taken into account.
Thereafter, and until 13 April 2006 Ms Passey was solely responsible for all costs and expenses associated with S property. During that period she is solely entitled to the surplus equity created in the property. Neither Mr Fyve nor Mr Passey challenged her contention.
When Mr Fyve sold S property to Mr Passey in April 2006 the amount due on the mortgage was $71,918. The net equity increased by $93,960, being the increase in capital value less the increase in capital due to the mortgagee. Thus, at the point of transfer the total net equity in the property was $117,082.
Ms Passey calculated her interest in S property as follows:
·Half interest in equity increase (1992 – 1999) $17,061
·Sole interest in equity increase (1999 – 2006) $92,102
Total loss $109,163
As I have earlier found, the flaw in these calculations is that they overlook the $11,000 payable to Mr Fyve for his interest. When this amount is taken into account Ms Passey’s loss is $105,521.
Ms Passey claims interest, calculated in accordance with the Family Law Rules 2004 from 3 July 2006. If he is held liable for breach of trust Mr Fyve does not dispute that interest at the rate set out in the Family Law Rules 2004 should run from this date. The rate of interest is discretionary. I see no reason to disagree with the parties approach. Rule 17.03 sets out how the rate of interest is to be calculated:
Rule 17.03 Rate of interest
For paragraphs 87 (11) (b) and 90KA (b) and subsection 117B (1) of the Act, the rate of interest prescribed, for each 12 months commencing on 1 July each year, is the sum of:
(a) the Reserve Bank of Australia target cash rate on 1 July of the year or, if there is more than 1 rate, the highest of them; and
(b) 5%.
Note For the date from which interest is payable, see section 117B of the Act.
At 10.75 % for 673 days on $109,163, Ms Passey claimed $21,637 interest as at 6 May 2008. I do not agree with this calculation of interest. As I found above, Ms Passey’s loss is $105,521. The Rules require that the interest be calculated for each 12 months commencing 1 July of each year. On 1 July 2006 the interest rate under the Rules was 10.75%. On 1 July 2007 it was 11.25%. On 1 July 2008 the interest rate was 12.25%. On 1 July 2009 the interest rate was 8%. Therefore the interest payable is as follows:
·3 July 2006 to 30 June 2007 = 363 days
$105,521 x 10.75% = $11,082.71 divided by 365 is $31.08 per day
363 x $31.08 = $11,282.04 interest
·1 July 2007 to 30 June 2008 = 366 days
$116,803 x 11.25% = $13,140.34 interest
·1 July 2008 to 30 June 2009 = 365 days
$129,943.34 x 12.25% = $15,918.06 interest
·1 July 2009 to 15 July 2009 = 15 days
$145,861.40 x 8% = $11,668.912 divided by 365 is $31.97
15 x $31.97 is $479.55 interest
Rounded out the interest due as at the date of judgment is thus $40,820.00.
Following judgment interest will continue to accrue until the judgment debt is satisfied.
Before orders are entered in accordance with my calculations, as they differ slightly from the agreed calculations I will afford the parties an opportunity to address me on the calculations and form of order.
Having regard to my findings concerning Mr G’s conduct and apparent breach of professional standards he will be directed to appear and, should he wish to do so, address me as to my intention to provide this judgment and refer him to the Legal Services Commissioner of NSW and the President of the Law Society of NSW.
Subject to any further submissions it is my intention to make the following orders:
·That order 2 dated 6 May 2008 is set aside.
·That judgment is entered in favour of Ms Passey against Mr Fyve in the sum of $146,341.
·Until Mr Fyve satisfies judgment interest on the amount outstanding is payable at the applicable rate set out in the Family Law Rules.
·Subject to any application for costs all outstanding applications are dismissed.
Upon hearing from the parties no submissions were made contra my calculations concerning the effect of my findings concerning Ms Passey’s capital loss. However concerning interest it was agreed that Mr Fyve was not liable for interest between 15 September 2008 and today. This concession arose as a consequence of Ms Passey being unable to proceed with the hearing scheduled to commence 15 September 2008. Consequently interest for the period 1 July 2008 to 14 September 2008 is 76 days. This is calculated by the number of days, namely 76, multiplied by the applicable daily rate which is $43.61. For the period under discussion the amount payable is thus $3,314.36.
Having regards to these revised interest calculations the amount payable as interest as at the date of judgment is reduced to $27,736.74. When the capital loss is added to this figure and rounded out judgment will be entered against Mr Fyve in the amount of $133,257.
Mr G did not appear before me. I infer he had nothing he wished to place before me to dissuade me from referring this judgment and refer him to the Legal Services Commissioner of NSW and the President of the Law Society of NSW. Accordingly I will refer him which referrals the Principal Registrar is directed to implement.
Ms Passey seeks that Mr Fyve pays her costs. He resists her application. The parties agree costs will be dealt with by way of written submissions.
For these reasons orders are made as identified at the start of this judgment.
I certify that the preceding one hundred and three (104) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Ryan
Associate:
Date: 15 July 2009
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