Q (A Pseudonym) v E Co (A Pseudonym)

[2020] NSWCA 220

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Q (a pseudonym) v E Co (a pseudonym) [2020] NSWCA 220

Hearing dates:

25, 26 and 27 March 2020

Decision date:

21 September 2020

Before:

Meagher JA at [1];
Leeming JA at [207];
Payne JA at [208]

Decision:

1. Direct that the parties attempt to agree within 14 days short minutes of order giving effect to these reasons.

2. Direct that failing such agreement, the parties exchange written submissions supporting the orders contended for and remaining in issue. Those written submissions, not to exceed 5 pages, to be exchanged and filed with the Court within a further 14 days. In the absence of any further direction, the final orders to be made will then be determined on the papers.

Catchwords:

ESTOPPEL – Proprietary estoppel – Encouragement – Where claim of encouragement not based on specific words – Where primary judge emphasised defendant’s knowledge of plaintiffs’ expectation – Whether estoppel as found properly characterised as estoppel by encouragement or acquiescence

ESTOPPEL – Proprietary estoppel – Nature of promise – Where relief encompassed property acquired after encouragement and initial reliance – Where detrimental reliance by plaintiffs continuing – Whether necessary for all property the subject of relief to have been identified and owned by defendant at the time of encouragement and initial reliance

ESTOPPEL – Proprietary estoppel – Detrimental reliance – Where plaintiffs found to have made “life-changing” decisions – Whether error in giving significant weight to plaintiff’s “hypothetical” evidence of counterfactual behaviour in making finding of reliance – Whether “countervailing benefits” received by plaintiffs by reason of reliance relevant to assessment of detriment – Whether plaintiffs would suffer substantial detriment if expectation departed from

ESTOPPEL – Proprietary estoppel – Relief – Where relief involved “acceleration” of the encouraged expectation – Where constructive trust declared by primary judge – Whether to impose conditions on relief – Whether conditions necessary to “do equity” – Whether condition for payment of rent “conceptually inconsistent” with recognition of constructive trust   

Legislation Cited:

Court Suppression and Non-publication Orders Act 2010 (NSW)

Uniform Civil Procedure Rules 2005, rr 51.17(1), 51.40(1)

Cases Cited:

Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1984] QB 84

Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12

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

Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44

Browne v Browne [2019] WASCA 1

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25

Commonwealth of Australia v Verwayen (1990) 170 CLR 394; [1990] HCA 39

Crabb v Arun District Council [1976] Ch 179

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1; [2016] HCA 26

Dann v Spurrier (1802) 7 Ves Jun 231; 32 ER 94

Delaforce v Simpson-Cook (2010) 78 NSWLR 483; [2010] NSWCA 84

DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728; [2011] NSWCA 348

Donis v Donis (2007) 19 VR 577; [2007] VSCA 89

Doueihi v Construction Technologies Australia Pty Ltd (2016) 92 NSWLR 247; [2016] NSWCA 105

Earl of Egmont v Smith (1877) 6 Ch D 469

Evans v Evans [2011] NSWCA 92

Fifteenth Eestin Nominees Pty Ltd v Rosenberg (2009) 24 VR 115; [2009] VSCA 112

Flinn v Flinn [1999] 3 VR 712; [1999] VSCA 109

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Galaxidis v Galaxidis [2004] NSWCA 111

Gillett v Holt [2001] Ch 210

Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10

Gould v Vaggelas (1984) 157 CLR 215; [1985] HCA 75

Grundt v Great Boulder Pty Gold Mines Ltd (1939) 59 CLR 641; [1937] HCA 58

Hamilton v Geraghty (1901) 1 SR (NSW) Eq 81

House v The King (1936) 55 CLR 499; [1939] HCA 40

Langman v Handover (1929) 43 CLR 334; [1929] HCA 42

MCI [2004] 2 All ER (Comm) 833

NSW Trotting Club Ltd v Council of the Municipality of Glebe (1937) 37 SR (NSW) 288

Plimmer v Mayor, &c., of Wellington (1884) 9 App Cas 699

Priestley v Priestley [2017] NSWCA 155

Riches v Hogben [1985] 2 Qd R 292

Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19

Smith v Chadwick (1884) 9 App Cas 187

Steria Ltd v Hutchison [2006] EWCA Civ 1551

Sullivan v Sullivan [2006] NSWCA 312

Tanwar Enterprises Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57

Thorner v Major [2009] 1 WLR 776; [2009] UKHL 18

Waddell v Waddell [2012] NSWCA 214

Walsh v Walsh [2012] NSWCA 57

Walton v Walton (unreported, EWCA, Hoffman LJ, 14 April 1994)

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; [1988] HCA 7

Willmott v Barber (1880) 15 Ch D 96

Yeoman’s Row Management Ltd v Cobbe [2008] 1 WLR 1752; [2008] UKHL 55

Texts Cited:

Handley, Estoppel by Conduct and Election (2nd ed, Thomson Reuters, 2016)

Heydon and Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8th ed, 2016)

Heydon, Leeming and Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015)

Category:

Principal judgment

Parties:

Q (a pseudonym) (Appellant)
E Co (a pseudonym) (First Respondent)
EM Co (a pseudonym) (Second Respondent)
A (a pseudonym) (Third Respondent)
B (a pseudonym) (Fourth Respondent)
C (a pseudonym) (Fifth Respondent)

Representation:

Counsel:
N Hutley SC with B Lloyd and T Rogan (Appellant)
A McInerney SC with N Kabilafkas (Respondents)

Solicitors:
Armstrong Law Partners (Appellant)
MJF Legal Pty Ltd (Respondents)

File Number(s):

2019/165631

Publication restriction:

There are restrictions on the publication of anything that might identify the persons referred to in the judgments under appeal as X, Y and Z by reason of orders made by Ward CJ in Eq on 18 August 2017 and the provisions of Children (Criminal Proceedings) Act 1987, s 15A(1) and Crimes Act 1900 (NSW), s 578A.

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity

Citation:

[2018] NSWSC 442; [2018] NSWSC 646; [2019] NSWSC 429

Date of Decision:

18 April 2019

Before:

Ward CJ in Eq

File Number(s):

2014/198212

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant is a man of considerable inherited wealth. In 2002, following discussions with his three sons and advice from his accountants and solicitors, he and his sons established a family farming business, to be conducted on his farm properties. The business was to be operated by a company, the first respondent, which would own the assets of the business other than land, which was to be leased from the appellant. It was also to involve investments in non-farm businesses made through another company, the second respondent. Each of the sons, the third, fourth and fifth respondents, took a role in the family business which accorded with their particular capacities and inclinations, and worked in the business full or part-time until at least 2010.

Between 2009 and 2013, the relationship between the appellant and his sons broke down. The appellant ultimately expressed an intention to sell the farm properties, terminate the first respondent’s lease, and disinherit his sons. His sons and the two companies brought proceedings in which they claimed, relevantly, the benefit of a proprietary estoppel over the farm properties. It was their case that the appellant, by his participation in the creation and implementation of the family business, had encouraged them in the expectation that he would hold the farm properties for use in the family farming business until he died, and then pass them to his sons by will (the holding/inheritance expectation).

The primary judge upheld their claim, finding that the appellant had encouraged such an expectation, that the sons had each made “life-changing decisions” in reliance on it, and that they were entitled to have the expectation made good. Her Honour also concluded that the irreparable breakdown of the relationship between the appellant and his sons made necessary the “acceleration” of the sons’ inheritance expectation and the immediate transfer of the farm properties.

The primary judge initially proposed to impose three conditions on relief: the payment to the appellant of (1) the present value of the future market rents of the farm properties which the appellant would have received over the balance of his life expectancy and (2) the amount of $2.123 million recorded in the books of the first respondent as being owed to the appellant; and (3) the purchase at a fair value of the appellant’s shares in the two companies. After a further hearing, her Honour accepted the respondents’ submissions that these conditions could not be imposed, the first because it was “conceptually inconsistent” with the recognition that the appellant held his interest in the farm properties on constructive trust for his sons, and the second and third because they were not necessary to “do equity” between the parties.

Instead, her Honour declared that the appellant had held the farm properties on constructive trust for his sons from July 2003 and ordered that they be transferred immediately, requiring only that the appellant be paid by the respondents the present value of a “notional” rent of $80,000 per year over the balance of his life expectancy. Her Honour also declared that the appellant’s quarter shares in each of the two companies were held on constructive trust for his sons to inherit on his death.

The issues on appeal were:   

1. Whether, on the primary judge’s findings, the appellant had encouraged the sons’ expectation through the making of an express or implied representation or promise, or had merely acquiesced in the sons’ reliance on their assumption of inheritance (in which case the appellant contended that a proprietary estoppel by acquiescence could not be founded on an assumption concerning the future acquisition of an interest in land).

2. Whether the sons’ detrimental reliance on the holding/inheritance expectation could give rise to an equitable interest in properties acquired after 1 July 2003, by which time each of the sons had already joined the family business in reliance on the holding/inheritance expectation.

3. Whether the primary judge erred in finding that one of the sons, C, had relied on the holding/inheritance expectation in deciding to join the family business.

4. Whether the primary judge erred in finding that the reliance of two of the sons, B and C, had involved substantial detriment in circumstances where they were both said to have received significant benefits by reason of their decisions to join the family business.

5. Whether the primary judge erred in relation to relief, in determining that the expectation should be made good in relation to B and C and in declining to impose the three conditions initially proposed.

Save in so far as they bore on the resolution of the issues in the appeal, the respondents’ cross-appeal and notice of contention did not need to be addressed.

Held, allowing the appeal in part, in relation to relief (per Meagher JA, Leeming JA and Payne JA agreeing)

As to issue (i):

1.  The appellant’s involvement in the planning and implementation of the family business was not ambiguous, and did not involve his merely standing by. Save for his uncommunicated condition that the sons make a “success” of the farming business, the appellant and his sons shared the same understanding of the family business as the means by which he would pass on his wealth, including his farm properties, to his sons. The effect of the primary judge’s findings, properly understood, was that by his conduct in agreeing to and implementing the new family business structure the appellant had encouraged his sons to adopt the holding/inheritance expectation: at [66], [67].

Galaxidis v Galaxidis [2004] NSWCA 111; Sullivan v Sullivan [2006] NSWCA 312; Evans v Evans [2011] NSWCA 92; MCI [2004] 2 All ER (Comm) 833; Thorner v Major [2009] 1 WLR 776; [2009] UKHL 18, applied. Dann v Spurrier (1802) 7 Ves Jun 231; 32 ER 94; Doueihi v Construction Technologies Australia Pty Ltd (2016) 92 NSWLR 247; [2016] NSWCA 105, considered.

As to issue (ii):   

2. Read in context, the expectation found by the primary judge was a ‘floating’ or ‘ambulatory’ expectation, which came to ‘attach’ to and include farm properties acquired after 1 July 2003: at [71].

3. It was not necessary to decide whether to accept the appellant’s submission that a proprietary estoppel can only relate to identified property owned by the party estopped at the time of reliance. The logical consequence of the primary judge’s finding of continuing detrimental reliance by each of the sons was that the elements of a proprietary estoppel by encouragement were established on and from the acquisition of each of the after-acquired properties: at [86].

Yeoman’s Row Management Ltd v Cobbe [2008] 1 WLR 1752; [2008] UKHL 55; Thorner v Major [2009] 1 WLR 776; [2009] UKHL 18; Delaforce v Simpson-Cook (2010) 78 NSWLR 483; [2010] NSWCA 84; DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728; [2011] NSWCA 348, considered.

As to issue (iii):

4. The question of whether C relied on the holding/inheritance expectation in joining the family business was to be answered by reference to a counterfactual in which he was presented with the option of joining the family business with an expectation (in the colloquial sense only) of inheritance, but was warned by Q that neither his inheritance nor the continued use of the farm properties was guaranteed: at [89].

Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 9, considered and applied. Priestley v Priestley [2017] NSWCA 155; Walton v Walton (EWCA, unreported, Hoffman LJ, 14 April 1994), discussed.

5.  The appellant’s submission that the primary judge was not entitled to give significant weight to C’s evidence of his counterfactual behaviour, because it was “hypothetical”, was inconsistent with authority and neglected the fact that C’s evidence depended on matters that were not hypothetical: at [116], [117].

Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 9; Priestley v Priestley [2017] NSWCA 155, considered.

6. Having regard to the other evidence, primarily the material attractiveness of the counterfactual family business opportunity, C’s evidence was not “glaringly improbable” or “contrary to compelling inferences”. The primary judge did not err in accepting it: at [120].

As to issue (iv):   

7.  In the assessment of detriment, it is not inconsistent with principle to have regard to benefits received by the party claiming an estoppel by reason of their reliance. However, the countervailing benefits identified by the appellant were largely unrelated to B and C’s reliance on the holding/inheritance expectation: at [139]-[154]

Grundt v Great Boulder Pty Gold Mines Ltd (1939) 59 CLR 641; [1937] HCA 58, applied. Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12, considered.

8. It is neither necessary nor appropriate to attempt to quantify in financial terms all forms of advantage and disadvantage when making a comparison between the relying party’s position in fact and their position as it might have been in the absence of reliance on the encouraged expectation: at [157].

Donis v Donis (2007) 19 VR 577; [2007] VSCA 89; Walsh v Walsh [2012] NSWCA 57, applied.

9.  The opportunities forgone by B and C by reason of their reliance could not be rejected as carrying only a fanciful or unrealistic prospect that they would have been better off had they not relied on the holding/inheritance expectation (assuming the appellant were free to depart from it): at [158], [163].

Delaforce v Simpson-Cook (2010) 78 NSWLR 483; [2010] NSWCA 84, applied.

As to issue (v):

10. Any disproportion between the detriment to B and C and the value of the expectation was not so great as to make it wholly inequitable and unjust to require the appellant to make good the expectation: at [171].

Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10; Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 9, applied. Donis v Donis (2007) 19 VR 577; [2007] VSCA 89, considered.

11.  The primary judge erred in holding that conditions on relief could only be imposed to avoid disproportionality between detriment and relief or to ensure that “he who seeks equity must do equity”. Although it was uncontroversial that the making good of the encouraged expectation should be brought forward, good conscience did not entitle the respondents to an unqualified present gift of the farm properties. Conditions on the acceleration of relief would flow from the limits of the respondents’ equity: at [174]-[177].

Commonwealth of Australia v Verwayen (1990) 170 CLR 394; [1990] HCA 39; Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10, applied. Langman v Handover (1929) 43 CLR 334; [1929] HCA 42; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44, considered. Crabb v Arun District Council [1976] Ch 179; Flinn v Flinn [1999] 3 VR 712; [1999] VSCA 109, cited.

12.  The primary judge erred in concluding that the proposed market rent condition was conceptually inconsistent with a declaration of constructive trust. The incidents of a constructive trust recognised by way of relief for a proprietary estoppel are not necessarily those of an express trust, and must be consistent with the expectation underlying the plaintiffs’ equity: at [182]-[185].

Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10, explained and applied. Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1; [2016] HCA 26, considered. Plimmer v Mayor, &c., of Wellington (1884) 9 App Cas 699; Hamilton v Geraghty (1901) 1 SR (NSW) Eq 81, cited.

13. However, even if the sons’ inheritance expectation had not been accelerated, the appellant could never have received a market rent for the farm properties consistently with the sons’ expectation. The payment of a sum representing the present value of a notional rent of $80,000 per year over the balance of the appellant’s life expectancy was an appropriate condition on the acceleration of relief: at [193].

14. The primary judge found that the amounts totalling $2.123 million recorded as debts in the books of the first respondent were owing, but that it was an aspect of the encouraged expectation that repayment would not be required until the sons inherited the farm properties on the appellant’s death. Along with the sons’ inheritance of the farm properties, it was appropriate to accelerate the repayment of the $2.123 million: at [199].

15. The only value to the appellant of his shareholding in the first respondent was his entitlement to participate in dividends during his lifetime. There was no evidence suggesting that entitlement had any real value, nor any principled reason for a compulsory purchase order operative forthwith: at [203].

Judgment   

1. MEAGHER JA: The appellant (Q) is the father of the third, fourth and fifth respondent brothers (respectively A, B and C). The first and second respondents (E Co and EM Co) are companies in which Q and his three sons hold an equal shareholding interest, and the sons alone are the directors of each of those companies. This appeal is concerned with the sons’ claim against the father to a proprietary estoppel by encouragement, requiring by way of equitable relief that he make good an expectation, on which each relied to his detriment, that on Q’s death he would leave his farm properties to them.

2. The need for the use of pseudonyms in this judgment and the judgments of the primary judge (Ward CJ in Eq), which extends to the anonymisation of the names of non-parties and of properties, companies and business interests, is explained in her Honour’s first judgment (E Co v Q [2018] NSWSC 442 (J1) at [2], [3], [5]-[7]). The same pseudonyms were adopted in her Honour’s third and fourth judgments (E Co v Q (No 3) [2018] NSWSC 646 (J3); E Co v Q (No 4) [2019] NSWSC 429 (J4)). As they are adopted in this judgment, it is not necessary for this Court to make any order prohibiting the disclosure of the name of any person pursuant to the Court Suppression and Non-publication Orders Act 2010 (NSW).

Overview

3. During his lifetime, Q’s father amassed considerable wealth and established a family trust (the Sydney Family Trust) out of which that wealth was distributed to Q and his brothers and sisters. In early April 2002, a capital distribution of $14.4 million was made to Q from that trust. At the same time, one of Q’s brothers made a gift of $1 million to each of his nieces and nephews, including A, B and C. By April 2002 Q, then aged 59, was himself conducting a valuable cattle-farming business on 6 unencumbered properties. He had commenced that farming business in 1978 on a different property in the same area. Each of the sons spent part of his childhood on that property. As at July 2002, A, B and C were aged 33, 32 and 28 respectively. At that time, A had been working on one of the farms since 1989 and B, who had a business degree, had worked in various roles for companies in retail management. The youngest son, C, had first worked as a farmhand and then in retail, mainly in liquor retailing, where he continued to be employed until October 2002.

4. From at least July 2002, there were discussions between the sons, Q and his advisors concerning how Q would pass his wealth to them, and more specifically the transfer of the assets of Q’s farming business into a new structure to be owned by him and the sons. Those discussions were held in the context of the sons’ then expectation, as understood by their father, that he intended that they and their families inherit his wealth (J1 [774]). There were two significant meetings in September 2002. At the first, on 18 September, and in relation to a specific proposal for the new family business structure, there was discussion about the capital gains tax implications of Q transferring the existing farms to E Co (J1 [777]). At the second meeting on 25 September 2002 it was agreed that while Q would retain ownership of the farms, Q’s livestock and plant and equipment would be transferred to E Co, which would take over Q’s farming operations and employ people previously employed by Q. At the same time, it was agreed that each of the sons would have a role and shareholding interest in E Co and its business, and that the family business structure would involve off-farm investments (J1 [790]).

5. Thereafter the three sons, in varying degrees, joined in that family business, A as the manager of E Co’s farming operations. B was responsible for the accounting side of the business, and also assisted with the farms and “off-farm” investments. C looked after off-farm investments, which later included hotels and property development projects, and assisted from time to time on the farms. The sons’ case, which the primary judge accepted, was that they joined and worked in the new family business in these capacities from October 2002 until 2010, relying on the expectation induced by Q that he would make the farms available to the new family business, hold them for his sons during his lifetime, and leave them or the proceeds of their sale to the sons on his death. This is referred to as the “holding/inheritance expectation”.

6. In October 2009, the sons became aware of matters which lead to Q’s being charged and found guilty of charges of sexual abuse of two of B’s children, for which Q served a sentence of four years in jail commencing in July 2012 (J1 [49]). In the period after October 2009, the business of the farming operations continued “in much the same manner as it had been before” (J1 [288]).

7. On 27 June 2013, Q served a notice of termination of lease on E Co (J1 [352], [353]), and in mid-August 2013 Q made a new will, leaving the residue of his estate to a discretionary trust, the trustee company of which is to be controlled by Q’s sister (J1 [374], [375]). Although the sons are eligible beneficiaries under that trust, in cross-examination Q made plain that, as at 22 August 2013, his wish was that his sons should receive nothing out of the farms (J1 [34]).

8. The primary judge upheld the sons’ separate but jointly made claims to an equitable proprietary estoppel, finding (1) that Q created and encouraged in each an expectation the he would hold onto the farms and make them available to E Co during his lifetime, so that on his death they would inherit the farms and (2) that on the basis of that expectation each made a “life-changing” decision not to pursue other career options and joined the new family business, participating in different ways and to different extents from October 2002 until at least 2010 (J1 [808], [812]). The primary judge also held that separate equitable proprietary claims made by E Co and by A were made good. The claim of E Co and the sons to a “joint endeavour constructive trust” was also upheld, but no findings were made in relation to relief based on that claim. Her Honour rejected the sons’ claims in contract and to an express trust, as well as their claim that Q had acted oppressively in the conduct of the affairs of E Co. Lastly, the primary judge held that any relief to which E Co was separately entitled with respect to its estoppel claim was “subsumed” in that to be granted to the sons; and that A’s estoppel claim, which concerned the residence on Property No 4, also did not need to be the subject of separate relief in the light of that proposed for the sons’ claim.

9. With respect to that relief, in her first judgment the primary judge concluded that it would be unconscionable for Q now to be permitted to act otherwise than in accordance with the expectation that he would hold the properties during his lifetime so that the sons would inherit them on his death. In circumstances where the relationship between father and sons had “irreparably broken down” (J1 [75]), a “clean break” was necessary, making an order “accelerating the interest of the sons” appropriate, and not out of all proportion to the equity raised (J1 [1216]). To achieve that outcome, in addition to making an order for the transfer of the farm properties to the sons, her Honour proposed that orders to the following effect be made:

• that, as compensation to Q for the loss during his lifetime of income from the lease of the properties, the sons should pay Q the net present value of the market rent for the farm properties over the period of his remaining life expectancy (J1 [1217]), there to be set off against that amount the sum of $600,000, representing the sons’ interest in the sale proceeds of Property No 12 (J1 [1223]);

• that E Co should pay Q unpaid rent under the lease for the financial years ending 30 June 2014 to the date of judgment (J1 [1217]);

• that A, B and C should acquire Q’s shares in E Co and EM Co at a valuation made on the assumption that E Co is in a position to continue its farming operations but liable to repay monies owing to Q as per his loan account (J1 [1225]); and

• that E Co should repay the monies due on Q’s loan account with E Co, an amount of $2.123 million, representing the book value of the cattle herd initially transferred to E Co, and the sum of cash advances made by Q between 2003 and 2012 (J1 [1235]).

10. Following delivery of her Honour’s first judgment, the respondents sought leave to adduce further evidence and to make further submissions in relation to the relief her Honour proposed. That leave was granted (J3 [122]). Having received further evidence and argument, the primary judge concluded that the final relief as first proposed should be varied (J4 [12], [677]). Orders giving effect to her Honour’s revised views were made on 1 May 2019. Those orders and declarations, which are the subject of Q’s amended notice of appeal and the respondents’ further amended notice of cross-appeal, vary slightly from those proposed at J4 [677]. They included:

• declare that, with effect from 1 July 2003, Q held his freehold interest in farm Properties Nos 3, 4, 5, 6, 7 (including the Main Property), 9, and 10, but only from the time of its acquisition in October 2013, on constructive trust for A, B and C in equal shares, subject to an existing leasehold interest in favour of E Co (order 3);

• order that Q transfer those properties to A, B and C within 28 days (order 7);

• order that Q pay A, B and C $577,465 in respect of the proceeds of sale of Property No 12 (order 14);

• order that A, B and C pay Q the net present value of a notional rent in respect of those properties for the remaining years of Q’s life expectancy, that value being $640,000 (order 12);

• declare that, with effect from 1 July 2003, Q held his shares in E Co and EM Co on constructive trust for A, B and C in equal shares (order 4);

• order that Q’s shares in E Co and EM Co be transferred to A, B and C on Q’s death, he being entitled during his lifetime to participate in any dividends payable in respect of those shares (order 6);

• order that A, B and C pay to Q the amount of E Co’s unpaid rent in respect of the farm properties for the years ended 30 June 2014 to 30 June 2019 (order 16); and

• order that Property No 11 be sold; that there be paid out of the proceeds of its sale the amount necessary to satisfy any liability of Q for capital gains tax in respect of the farm properties the subject of orders 3 and 6 by reason of the making of those orders; and that the amount, if any, remaining be paid to A, B and C (order 17).

11. On 3 September 2019, by consent, the primary judge partially stayed those orders pending the resolution of this appeal, and noted undertakings of the respondents to similar effect.

Issues in the appeal and cross-appeal   

12. Q’s amended notice of appeal raises the following issues:

1. Whether the primary judge erred in finding that Q’s conduct gave rise to a proprietary estoppel in favour of each of A, B, C and E Co in the absence of a finding that Q by some “positive act” promised, represented or assured that he would make the farms available to E Co during his lifetime and leave them to his sons on his death; it being contended that his “acquiescence” (in the sense of merely standing by) in the sons’ more general assumption that they would inherit the farms under Q’s will, which her Honour did not find was created or encouraged by Q, was insufficient to give rise to a proprietary estoppel by encouragement (ground 1).

2. Whether the primary judge erred in holding that any equity arising out of A, B, C and E Co’s detrimental reliance on such an expectation encouraged in September 2002 could give rise to an equitable interest in properties not owned by Q as at 1 July 2003 (being Properties Nos 10, 11 and 12) (ground 2).

3. Whether the primary judge erred in finding that C relied on the assumption underlying that expectation in “making his time available to assist in the family business and to look for investment opportunities to pursue as part of the family business or with his brothers and with the potential involvement of his father” (J1 [1127]); it being contended that the “appropriate and compelling inference to draw from the whole of the evidence” was that C would have entered into the family business irrespective of whether that assumption was made (ground 3).

4. Whether the primary judge erred in finding that B and C’s reliance on the assumption underlying that expectation was detrimental; it being contended that the countervailing material and professional advantages which accrued to each of them because of their participation in the family business had the consequence that their doing so did not constitute “material detriment” (ground 4).

5. Whether, assuming the sons’ proprietary estoppel claims are made out, her Honour erred in declaring that from 1 July 2003 Q’s farm properties, including those acquired after that time, were subject to a constructive trust for the benefit of A, B and C, and E Co, to the exclusion of Q; and whether as a condition of “accelerating” the sons’ interest in Q’s land, the primary judge ought to have granted the relief proposed in her first judgment, including: (a) the payment to Q of an amount being the net present value of the estimated market rent of the properties over the balance of Q’s life expectancy; (b) the payment to Q of an amount being the book value of the cattle transferred as at July 2003, and the total of the cash sums advanced to E Co; and (c) the immediate purchase by A, B and C of Q’s shares in E Co at a value to be agreed or assessed (ground 5).

13. By their further amended notice of cross appeal, the sons and E Co make three responses to the appeal. First, by grounds 1, 2, and 3, they seek to uphold the orders as accelerated made by the primary judge on 1 May 2019 by reference to different formulations of the estoppel claims made below – estoppel by encouragement, estoppel by acquiescence, and also each of those claims “based upon the work performed by A, B and C through E Co”. None of these grounds seeks the “discharge or variation of the decision below” and accordingly each is not properly raised as a ground of cross-appeal (see Uniform Civil Procedure Rules 2005, r 51.17(1)). Secondly, if the orders made by the primary judge cannot be maintained, by grounds 4 and 10 the sons seek to uphold their joint endeavour constructive trust claim and A’s proprietary estoppel claim in relation to Property No 4. Thirdly, by grounds 5, 6, 7, 8 and 9, the sons and E Co seek to uphold the orders made by the primary judge, subject to one amendment, being to order 12 and by reducing the net present value of future rent from $640,000 to $600,000.

14. By their further amended notice of contention the sons and E Co also make three responses to the appeal. First, by grounds 1, 5 and 6 they seek to uphold the primary judge’s orders in relation to their primary claim, including her Honour’s findings as to reliance and detriment. Secondly, they contend that her Honour’s orders should be affirmed on the basis of their claim to an estoppel by acquiescence (ground 2) and, alternatively, on the basis of E Co’s separate claim to a proprietary estoppel (ground 3). Finally, they contend for different relief on the basis that their claim to a joint endeavour constructive trust is upheld (ground 4). This last ground is not properly the subject of a notice of contention (see Uniform Civil Procedure Rules 2005, r 51.40(1)), which is to be filed by a respondent who does not “seek a discharge or variation of any part of the orders of the court below”.

Whether Q engaged in conduct supporting a proprietary estoppel by encouragement (ground 1)

15. Q’s argument in support of this ground emphasises the distinction between proprietary estoppel by encouragement and proprietary estoppel by acquiescence, the latter understood in the sense of “standing by”. The former, as formulated in Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 at [6], is founded in an assumption as to the future acquisition of ownership of property which has been induced by a representation or promise upon which there has been detrimental reliance by the plaintiff. As Mr Handley observes in Estoppel by Conduct and Election (2^nd ed, Thomson Reuters, 2016) at [3-001], a representation or promise “may be implied wholly or partly from conduct or inferred from silence or inaction”. Whether any, and if so what, representation has been made is to be judged “objectively according to the impact that whatever is said [or done] may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee” per Mance LJ in MCI [2004] 2 All ER (Comm) 833 at 844. See also Thorner v Major [2009] 1 WLR 776; [2009] UKHL 18 at [24]-[27] (Lord Rodger) and at [80], [84]-[86] (Lord Neuberger). In this Court, see Galaxidis v Galaxidis [2004] NSWCA 111 at [93]; Sullivan v Sullivan [2006] NSWCA 312 at [85]; and Evans v Evans [2011] NSWCA 92 at [124].

16. Proprietary estoppel by acquiescence, on the other hand, describes a much narrower principle, and arises “where a person improves land in the mistaken assumption that it is his own, the true owner being aware of the mistake and deliberately doing nothing to undeceive the other” per Jordan CJ in NSW Trotting Club Ltd v Council of the Municipality of Glebe (1937) 37 SR (NSW) 288 at 308. In such circumstances equity regards it as “fraudulent” for the true owner to set up his existing rights as against the person who has made a mistake as to his legal rights and acted to his detriment on the basis of that mistaken belief: Willmott v Barber (1880) 15 Ch D 96 at 105-106 (Fry J). See generally Estoppel by Conduct and Election at [11-002], [11-008]. As the author observes, “Estoppels by standing by are rare”. The “conduct of the owner which attracts the estoppel... is his silence, but it differs from other estoppels by silence because there may be no pre-existing relationship or duty, and no dealings direct or indirect” (at [11-011]). The “improver acts on his mistaken belief and not on any representation by the land-owner” (at [11-012]).

17. Mr Handley’s reference to “other estoppels by silence” recalls the statement of Lord Eldon LC in Dann v Spurrier (1802) 7 Ves Jun 231 at 235-236; 32 ER 94 at 95 that a court of equity “will not permit a man knowingly, though but passively, to encourage another to lay out money under an erroneous opinion of title; and the circumstance of looking on is in many cases as strong as using terms of encouragement” (emphasis added). In Doueihi v Construction Technologies Australia Pty Ltd (2016) 92 NSWLR 247; [2016] NSWCA 105 at [109] this statement was taken to support the undoubtedly correct view that silence or inaction, in the context of other conduct, may constitute an “element of assurance” in support of a claim to a proprietary estoppel by encouragement.

18. Ultimately, however, Q contends that this case is not one of encouragement by silence or inaction taken together with other conduct. It is also contended that the evidence could not support a proprietary estoppel by acquiescence because such an estoppel is confined to mistaken assumptions concerning presently existing rights. Here, as the primary judge observed (J1 [924]), the sons’ expectation was as to the future acquisition of ownership of property, and not to any present entitlement to that property.

Appellant’s submissions

19. The appellant’s argument commences with a consideration of her Honour’s findings. First, whilst accepting that A, B and C entered into the September 2002 discussions expecting that the farms would be left to them under Q’s will, it is said that her Honour made no finding that Q did anything to induce those “pre-conceived” expectations, or to encourage his sons to maintain them in the context of the implementation of the arrangements involving E Co. Secondly, with respect to the September 2002 discussions, it is said that the primary judge made no finding as to the making of any express promise or statement by Q that he would hold onto the farms so that his sons would inherit them on his death. Furthermore, it is emphasised that when considering the sons’ claims in contract and express trust, the primary judge found that in the September meetings the possibility of Q transferring his land to E Co was not discussed (J1 [740], [417]). It is also said that whilst the primary judge canvassed the issue, her Honour did not make a finding that, at the meeting on 25 September 2002, Solicitor No 2 had given advice that Q’s objective of passing on the properties to his sons could be achieved by his holding onto them so that they passed under his will.

20. Ultimately, it is contended that, as is said to be reflected in the primary judge’s conclusion at J1 [981], the conduct of Q which her Honour relied on as giving rise to the proprietary estoppel was not encouragement but “mere acquiescence”, in the sense of standing by:

... I am so satisfied that – by his acquiescence in the discussions for the proposed business structure and implementation of that structure, in the context of his admitted knowledge of the sons’ expectation that they would inherit the farms (and hence have the benefit of the capital improvements effected by them and the business to be established and operated by them together with their father) – the first defendant encouraged each of his sons (and through them E Co) to believe that he would hold onto the farms during his lifetime and make them available for the purposes of the new family farming business and, on his death, would leave the properties to his sons under his will [emphasis added].

21. It is submitted that this conclusion is to be understood in the context of her Honour’s earlier observations at J1 [47]-[49], and in particular the observation at J1 [47] that “fundamental” to her conclusion in relation to the “holding/inheritance” expectation (a reference to the emphasised words in J1 [981] above) was the acceptance by Q in cross-examination of a succession of propositions as to what he had agreed with his sons, what his intentions were and, critically, as to his awareness of their expectations in relation to the family business and the farms in particular, at the relevant time – namely from 25 September 2002.

22. So understood, the essence of her Honour’s finding is said to be that “Q sat silently through two meetings, which were proceeded by a period of talk and activity pertaining to succession planning, in which it was agreed that Q would transfer his grazing business, but not his farms, to a family vehicle, and then acquiesced thereafter in the process of implementing that agreement. The assumption as to inheritance was formed prior to those meetings and it is not found that [Q] induced it. Her Honour did not find that the [sons’] assumption that they would have the use of Q’s lands for the purposes of the family business until the end of his life [was] either created or encouraged at the September meetings”. Finally, it is said that Q’s conduct alone was too ambiguous to constitute encouragement of the formation of the assumptions which underlie the claimed estoppel, and that if the position were otherwise, Q’s belief and knowledge as to his sons’ expectation would not have been a necessary aspect of the primary judge’s reasoning.

Respondents’ submissions

23. The respondents first observe that, as Q accepts, in some circumstances silence or inaction will convey a promise or representation, and that there will accordingly be cases in which what might colloquially be described as “acquiescence” will give rise, when considered in context, to an estoppel by encouragement.

24. However, their principal submission is that the primary judge made a number of findings concerning Q’s conduct which supported her Honour’s conclusion that he had encouraged the sons’ expectation, rather than merely ‘stood by’ as they acted upon it. Contrary to Q’s submission that he sat silently through the September meetings and did not participate in the implementation of the new family business structure, it is pointed out that her Honour found that by 25 September 2002 Q had “agreed in principle” to the new structure, and subsequently adopted and participated in it. His agreement in the new structure was said to involve “the essential elements” of the sons’ expectation. The primary judge had, for one thing, found that the discussions concerning the new structure involved “succession planning”. Also, contrary to Q’s contention, it is said that the primary judge accepted much of the sons’ evidence as to the content of the September discussions, including B’s evidence that Solicitor No 2 had given advice during the second meeting that it was preferable for Q, for capital gains tax reasons, to pass on the farms by his will rather than transferring them to a unit trust.

25. Having regard to those findings, and what are said to be other unchallenged findings as to the background and content of those discussions, the sons submit that there was ample support for the primary judge’s conclusion that their expectation was engendered by “the discussions held in September 2002 and [Q’s conduct] in participating in the new business structure following those discussions” (J1 [808]). Reference is also made to her Honour’s finding that given the sons had, to the knowledge of Q, come away from the September meetings with the relevant expectation, it was simply “implausible that he did nothing to create or encourage such an expectation” (J1 [52]-[53]).

The structure of the primary judge’s reasons

26. The disposition of these arguments requires close attention to her Honour’s findings and conclusions with respect to Q’s encouragement of his sons’ expectation. At the commencement of her first judgment, the primary judge provided a summary of her critical findings and the reasoning supporting them (J1 [45]-[81]). As is already apparent, the parties rely on aspects of this summary to colour the primary judge’s subsequent reasoning. Her Honour then set out a detailed chronology of relevant events (J1 [82]-[405]). That chronology includes facts which were agreed, or not controversial, as well as matters remaining in contention, particularly with respect to the meetings of 18 and 25 September 2002. In relation to the matters remaining in contention, her Honour noted at J1 [84] that findings “will be set out separately in due course”.

27. That chronology is followed by a statement of the “factual disputes” between the parties as formulated by the respondents (J1 [417]). Those “disputes” do not describe particular issues arising with respect to the sons’ separate estoppel claims. Two of those factual disputes are, however, relevant to matters relied on in the argument in support of ground 1. The first, described as question (a)(i), was whether “there was ever discussed the possibility that [Q] would transfer ownership of the farms to the new business entity – especially at the meetings of 18 and 25 September 2002”. The second, question (a)(iv), included “whether Q had induced his sons to believe, and/or stood by in the knowledge that his sons had the belief, that if they joined the new family business they would inherit the farms”.

28. Her Honour addressed the first of these disputes in the context of considering a subject referred to as the “major fault line” (J1 [694]-[738]); and the second in the context of considering what was termed the “Dispute as to “transfer” of land agreement or representation” (J1 [741]-[790]). This latter dispute related primarily to the sons’ claims in contract and to an express trust. In the course of making findings in relation to that dispute (J1 [777]-[788]), her Honour made findings which appear to qualify her earlier “negative” answer to question (a)(i) (J1 [740]). In particular, at J1 [780] her Honour found that it was more likely than not “there was discussion at the meeting of 18 September 2002 as to the capital gains tax implications of a transfer of the farms and as to the interposition of a unit trust to hold the assets of the proposed new family business arrangements”. Her Honour’s affirmative answer to question (a)(iv) at J1 [808] was not the subject of any later qualification.

29. At J1 [791]-[812], her Honour then considered the “Dispute as to ‘holding/inheritance’ expectation”, finding at J1 [808] that the expectation of the sons’ engendered by the September discussions and conduct of their father was:

... that the sons would be involved, with their father, in the management and operation of the family farming business on their father’s farms; that their father would make his farms available to them during his lifetime for the use of the farming business that was to be transferred to the new business entity (E Co) (and in that sense that the first defendant would “hold” – or retain ownership of – the farms for his sons during his lifetime); and that the farms would be left to them on his death.

30. Her Honour next dealt with each of the pleaded claims of the respondents (J1 [813]ff), commencing with the claims in contract, express trust, and for the imposition of common intention or “joint endeavour” constructive trusts. Her Honour then turned to the proprietary estoppel claims (J1 [900]ff), identifying the first legal issue as being whether there were sufficiently clear representations or promises by Q, dealing with that question in relation to the sons’ jointly made estoppel claims at J1 [965]-[982], and concluding at [982]:

[Q’s] encouragement or creation of such an expectation is evidenced not simply by the steps that [Q] took in the implementation of the new family business structure but by his concessions in the witness box as to his awareness that the sons had those expectations and the fact that he was content to let them continue as they did with the family business holding those expectations (without enlightening them as to the uncommunicated “success” condition).

31. The reference to the “uncommunicated ‘success’ condition” is to a condition which according to his evidence Q imposed, but did not communicate to anybody, as to the basis on which he was participating and would continue to participate in the implementation of the family business structure. His evidence was that at the time of the September discussions, and at all times through to at least June 2009, his intention was that he would hold the properties until he died, when they would be inherited by his sons, subject to their making a success of the farming business (see, for example, J1 [792], [799]). In other words, Q’s understanding of what was expected from him corresponded with that of the sons, except for this uncommunicated condition.

32. The second issue which the primary judge identified had two aspects –whether in respect of the estoppel by encouragement each of the sons made the relevant assumption, and whether that assumption was induced by Q (J1 [903], [987]). Her Honour addressed the former aspect at J1 [1002]-[1031], concluding at [1031]:

I find, based on the evidence referred to above, that each of the sons held the expectation that their father would hold onto the farms during his lifetime, make the farms available during his lifetime for the conduct of the farming business by E Co and his sons, and would leave the farms to his sons under his will. (Insofar as I have not excluded Property No 8 from that finding it is because I am not satisfied that there was consideration given to this at the time of the September 2002 meetings but nothing turns on this as no relief is sought by the plaintiffs in relation to Property No 8.)

33. The “evidence referred to above” is unchallenged evidence of A and B as to their discussions with Q, or in his presence, before and at the two September 2002 meetings. It included: that leading up to those meetings, B had conversations with Q involving “not just how this new family business might work, but at least in general terms how [Q] would pass on his wealth to us” (J1 [1008], [1010]); that B’s recollection of that first meeting included that Accountant No 1 explained the details of the proposed structure using a whiteboard and, after making his presentation, answered some questions (J1 [1016]); that at the 18 September meeting A first heard the expression “succession plan” and was told that the farms would be transferred into a trust, the trustee being E Co (J1 [1010], [1017]); and that the recollection of B and A of Solicitor No 2’s advice at the 25 September meeting was that if Q transferred the farms to E Co a significant capital gains tax liability would be incurred and that accordingly the farms should not be transferred into the name of E Co, Solicitor No 2’s opinion being that the farm assets should be kept separate from the operational company. Q could then pass on his assets to the sons under his will, and there would be little or no capital gains tax payable (J1 [1017]-[1022]). The respondents submit that her Honour’s conclusion at J1 [1031] necessarily involves a finding that advice to this effect was given by Solicitor No 2 at this meeting, and in Q’s presence.

Unchallenged findings, non-controversial facts and uncontroverted evidence   

34. The following summary of unchallenged findings and non-controversial facts also includes B’s evidence, as recorded by the primary judge, on aspects of the meetings on 18 and 25 September 2002. The status of that evidence is addressed below.

35. Q commenced cattle-farming in about 1978. In 1988, Q sold Property No 1, which had been acquired in 1978, and purchased Property No 2 in 1989. By June 2002, the farm properties owned by Q were Properties Nos 3, 4, and 5 (acquired in 1993), 6 (acquired in 1998), 7 and the Main Property (the latter acquired in 1999, and so named because for some time Q lived on that property) and No 8 (acquired in April 2002 and described by Q as his “retirement block”). Q agreed that from April (following his capital distribution from the Sydney Family Trust) he was “looking to set up [his] sons for their future with money available from” that trust; that it was his intention that his estate be left to his three sons in equal shares; that he assumed that each of them understood that was his position; that from that time he wanted to involve the sons “in a structure whereby they would be set up for their future”; and that to do so he believed it was necessary “to ensure that each of them had a role in the structure going forward”, notwithstanding that he appreciated that each of them had “different skills”.

36. On 4 June 2002, Q met with his accountant, Accountant No 1, “to review options that related to the involvement of the sons” in “potential business structures” and the “primary production business” (J1 [113], [773]). There was a further meeting on 11 July 2002, between Accountant No 1 and A, B, C and Q, to discuss “the various options available and issues regarding possible business structures that could be implemented” (J1 [119]). On 29 August 2002, A contracted to purchase Property No 9, described as an “improved pasture beef cattle property which runs in conjunction with fish farming” (J1 [138]-[139], [144]). On the following day, 30 August, Accountant No 1 met with Q and B “regarding a new family business entity structure, purchase [Property No 9] and [N] bottle shop” (J1 [146]). On 2 September 2002, Accountant No 1 spent time discussing “new family entity structure options” for Q’s family with Accountant No 2, also an adviser to Q (J1 [146]). On 9 September 2002, Q’s solicitor, Solicitor No 1, wrote to Q concerning the purchase of Property No 9, referring to “a recent meeting at which time you informed me that a company would be set up to act as the purchaser of the above property” (J1 [152]). On 12 September 2002, E Co was incorporated.

37. The meeting on 18 September 2002 was attended by Q, A, B and Accountant No 1. The accountant’s contemporaneous time record describes a “meeting with [Q, B and A] regarding new coy structure, operation of same, will, legal considerations” (J1 [159]). Q could not recall any discussion concerning trusts at this meeting, but he did recall wills being discussed at the meetings of 18 and 25 September, and that those meetings proceeded “on the basis that [he] intended to leave his estate to his three sons and in turn [that he] understood that was his sons’ understanding”.

38. B’s note, made at this meeting (J1 [722]), describes a structure in which a unit trust was established to hold the assets of the family business, the unit holders being trustees of separate “family” discretionary trusts for each of Q, A, B and C. B also recalled that, towards the end of the meeting, Accountant No 1 recommended that Q and his sons obtain legal advice on the trust structure which he proposed, and in respect of the various documents they had signed (J1 [168]). Accountant No 1 did not doubt that at this meeting he discussed capital gains tax with Q, A and B. As what was proposed at that time was that the assets of the business would be held by E Co, the likelihood was that the capital assets being discussed were Q’s farm properties (J1 [777]).

39. The meeting on 25 September 2002 was attended by Q, A, B and C, Accountant No 1 and Solicitor No 2, who had been retained by Accountant No 1’s firm on behalf of its client, Q (J1 [572]). At that meeting Accountant No 1 handed out a diagram headed “the [XXX] group Existing Capital Structure 25-Sep-02” (J1 [789]). That diagram described E Co as the “Trustee of Unit Trust”, identified the shareholders and directors of E Co as Q, A, B and C, and described the “E Co Unit Trust” as “Owner of Assets”. The discretionary trusts of Q, A, B and C were shown as the unit holders in that trust (J1 [183]). Accountant No 1’s timesheet recorded “family meeting regarding new structure involving [Solicitor No 2]” (J1 [181]).

40. B’s evidence was that Accountant No 1 advised that “the farming assets would be held by a trust and the operating entities would lease or rent assets to run the businesses. That is how the trust generates income from its assets. The trust then makes distributions of the income to each of the unit holders, being the family trusts”. Accountant No 1 did not deny that he might have said words to that effect (J1 [194], [195]). B also recalled Solicitor No 2 advising that “there is no need to transfer the assets into a trust. That is something that accountants always suggest to rack up fees. The same result will be achieved if [Q] continues to hold the properties for you until his death when the properties pass to the boys under [Q’s] will but that way you do not pay capital gains tax on the transfer of the land” (J1 [197]). Solicitor No 2 did not give evidence. Accountant No 1 accepted that it was “likely” Solicitor No 2 had said words to the effect attributed to him (J1 [198], [672]). What followed was wholly consistent with that advice having been given and accepted.

41. Accountant No 1’s timesheet for 25 September 2002 includes “update [Accountant No 2] and instruct regarding livestock & plant & equip. rollover” (J1 [181]). On or before 3 October 2002, Accountant No 2 prepared a draft letter to Mr Aitken of Stockford Tax Consulting. That letter recorded that Accountant No 2’s client “currently operates a substantial primary production enterprise as a sole trader. As part of his succession planning strategy, he wishes to transfer/sell the business operations to a company. The assets to be transferred/sold are livestock (cattle), plant, machinery and equipment. No liabilities are to be transferred/sold to the new entity.” The draft letter identified the relevant issue as being to advise on “the taxation implications regarding the transfer of plant and equipment and livestock” from Q to E Co (J1 [204], [205]). That reference was to capital gains tax implications.

42. The purchase of Property No 9 by Q, rather than A, was completed on 10 October 2002. From about October 2002, E Co conducted the grazing business previously conducted by Q. With effect from 1 July 2003, Q’s livestock (cattle) were transferred to E Co at book value ($758,427, being 2,838 head of cattle at $267.24 per head). An agreement for lease was formalised in minutes of a meeting of directors of E Co dated 1 July 2003, but prepared around 17 March 2004, when that meeting in fact occurred (J1 [251], [252], [255]). Those minutes identify the leased properties as Properties Nos 3, 4, 5, 6, Main Property, 8, 9 and 10 (acquired in October 2003) (J1 [238], [241]). The lease fee payable was $300,000 per year – $250,000 for land and $50,000 for plant and equipment – plus GST; and inclusive of rates, taxes and insurance, which were to be paid by Q.

43. In December 2003, Q acknowledged that the properties being managed by A included Property No 10 (J1 [245]). In the period from 1 July 2003 to 30 June 2010, Q advanced monies to E Co totalling $1,572,000. Those advances and the amount for the transfer of the cattle were recorded in E Co’s accounts as debits to Q’s loan account. With effect from 1 July 2003, all of Q’s employees were employed by E Co (J1 [235]).

44. EM Co was incorporated in March 2003. B’s evidence was that that company was established as a vehicle through which Q and the sons would make off-farm investments (J1 [227]). In November 2004, EM Co invested $225,000, provided in equal shares by A, B and C, in a property development, the E Project, which was a success (J1 [269], [270]). Later, in about October 2006, EM Co invested $561,000 in the B Project, which was not. The funds for that investment were borrowed by EM Co from Rabobank, on the security of a personal guarantee provided by Q and a first mortgage over Property No 4; after the failure of the B Project that loan was repaid by E Co (J1 [270]). The W Project, though described as an off-farm investment, was ultimately made by Q personally with only peripheral involvement of EM Co. Q purchased 50% of the units in the Unit Trust which held land the subject of the development project, and distributed them equally between himself and each of his sons (J1 [273]).

34. The sons’ interests in the P Hotel and the C Hotel were also described as off-farm investments (J1 [303], [313]), though Q has no interest in either hotel. The P Hotel was initially acquired by B and a business partner in August 2010 (B’s wife would acquire B’s partner’s interest on the latter’s death), which acquisition was financed by a loan secured by B’s own home. In July 2011, B and that same partner exchanged contracts to acquire the C Hotel, which was purchased by the corporate trustee of a unit trust (J1 [311]-[317]). Shares in the unit trust were held as to 44 units each by B and his partner, through their family trusts, and as to 6 units each by A and C (on the death of B’s business partner, they would each take half of his interest in the C Hotel). Part of the finance for its acquisition was secured by a mortgage over Property No 7 and the Main Property and Q’s personal guarantee (J1 [314]). In 2013, both hotels were refinanced by Westpac on the security of a $2 million guarantee and indemnity provided by Q, supported by a mortgage over the same properties and guarantees from each of the sons (J1 [354]-[364]).

35. The purchase of Property No 10 was completed in October 2003, and for the purposes of the argument on ground 2 it was treated as acquired after 1 July 2003 irrespective of whether the contract for sale was made before that date. Property No 11 was acquired in July 2005, and Property No 12 in September 2005. Upon its acquisition each was used by E Co and included as one of the properties leased by it from Q (J1 [258], [259]).

36. No rent was paid by E Co to Q between 1 July 2007 and at least 30 June 2011, during which period there was a drought affecting the rural area (J1 [261], [322]). From late 2011 it was agreed that E Co would pay Q $100,000 per annum, Q remaining responsible for the payment of rates and insurance (J1 [530]).

Disposition of ground 1      

48. At the outset of her reasons, the primary judge noted two matters about the way the sons’ joint proprietary estoppel case was made. First, it did not rest on specific words attributed to Q that engendered the expectation found (J1 [51], [965]). As her Honour observed, that was not necessarily surprising given the time that had elapsed between the meetings in September 2002 and hearing, which commenced in August 2017. Secondly, although the encouragement relied on consisted of discussions and conduct occurring in and after September 2002, the expectations as to “the family farming business being for the benefit of [the sons]” provided the context in which Q’s conduct was to be considered and understood (J1 [21]).

49. The expectation which the primary judge found Q encouraged in his three sons (see [20] above) had two aspects. The first was an arrangement under which the new corporate entity, E Co, would carry out the farming operations, for the purposes of which Q’s livestock, plant, machinery and equipment would be transferred to E Co. That arrangement included that each of the sons and Q would have a role in the activities of the company, and that its business would involve potential “off-farm” investments. The primary judge found that as at 25 September 2002, Q and his sons had reached substantial (albeit not binding and enforceable) agreement as to that structure (J1 [790], [740]).

50. The second was the “holding/inheritance expectation” that Q would hold onto the farms and make them available for use in the farming business of E Co during his lifetime, and that on his death the sons would inherit them. Ground 1 is directed to her Honour’s finding at J1 [981] that Q encouraged this aspect of the sons’ expectation.

51. The primary judge’s conclusion at J1 [808] describes the “holding/inheritance” expectation as “engendered as a result of the discussions held in September 2002 and the conduct of their father in participating in the new business structure following those discussions”. At J1 [981] her Honour refers to Q’s “acquiescence in the discussions for the proposed business structure and implementation of that structure”. And at J1 [47], her Honour described as “fundamental” to her findings Q’s acceptance “as to what he had agreed with his sons; what his intentions were; and, critically, as to his awareness of their expectations in relation to the family business and the farms in particular… from 25 September 2002”.

52. Q relies on three particular aspects of her Honour’s findings in support of the ultimate submission that his involvement in the 18 and 25 September 2002 meetings and participation in the implementation of the family business structure was essentially passive, and too “ambiguous” to constitute encouragement of the holding/inheritance expectation.

53. The first is the primary judge’s negative answer to question (a)(i) (see [27] above) which was directed to whether there was discussion at the 18 September meeting about the “possibility that [Q] would transfer ownership of the farms to the new business entity”. Later, the primary judge addressed a slightly different question, namely whether the question of capital gains tax was discussed at that first meeting. Her Honour found (J1 [777]) that:

on the balance of probabilities, there was a discussion at that 18 September 2002 meeting as to the capital gains tax implications of a transfer of the farms (existing or after – acquired), since otherwise the reference to capital gains tax in B’s notes would make no sense (the first defendant and Accountant No 1 both accepting that a discussion as to the transfer of plant and equipment, livestock or personnel would not give rise to capital gains tax); and, since Accountant No 1’s advice was that the family members should consult a solicitor, I would conclude, on the balance of probabilities, that what was contemplated in the discussion on 18 September 2002 was a specific proposal for the new family business structure, rather than simply a general discussion as to capital gains tax divorced from the circumstances of the then farming operations (that were conducted by the first defendant on his own farms).

54. Her Honour did not make an express finding as to the nature of the “specific” proposal referred to. However, the reference to “a transfer of the farms” at J1 [780] suggests the finding related to the possible transfer of all Q’s farm properties, in the context of discussion as to the “interposition of a unit trust to hold the assets of the proposed new family business arrangements” (J1 [780]). That finding is not inconsistent with her Honour’s earlier finding, which was directed to a different question – Q’s preparedness to transfer ownership (see J1 [694]), a matter assumed in the context of the later finding.

55. The second is whether, as Q submits, there was no finding as to Solicitor No 2 having advised at the 25 September meeting that it would be better, in order to avoid capital gains tax liability, for Q to “hold” the farms so that his sons could inherit them under his will, rather than that he transfer them into the new business structure. It is correct that there is no express finding accepting that Solicitor No 2 gave such advice. However, her Honour’s finding at J1 [1031] (discussed at [32]-[33] above) necessarily accepts the evidence of B and A as to the advice given by Solicitor No 2. Their evidence of advice given in those terms was relied on as supporting the finding that the “holding/inheritance” expectation was held; and her Honour made that finding “based on" that evidence.

56. Thirdly, Q submits that although her Honour found that there was agreement at the 25 September 2002 meeting that the farms would be made available, there was no finding that it was agreed E Co would have the use of that land for Q’s life. It is said that the primary judge’s finding in that respect was only as to the sons’ “expectation”, the evidence of that being Q’s “concession” (J1 [799], [800]) that his sons entered into the new business on the basis that they would be involved in the farming business with him until he died (J1 [48]). This submission is correct, so far as it goes. However, the primary judge also held that Q knew that this was the sons’ expectation and that their expectation corresponded with his intention at that time, which was that he would hold the farms during his lifetime and leave them to his sons on his death, subject to the satisfaction of the uncommunicated “success” condition (J1 [802], [806]).

57. Q’s broader argument in support of this ground commences with the proposition that, whilst the context of the discussions in September 2002 included an existing expectation on the part of the sons that they would inherit Q’s estate, there was no express finding that Q did anything to induce that assumption. That appears to be correct, although, as her Honour observed, it was not “seriously” in dispute that leading up to 2002 Q had given the sons assurances to that effect (J1 [21]).

58. Between June and September 2002 there were discussions between Q, his sons and Accountant No 1 concerning the setting up of a “new family business structure” in which each of them would be involved. That structure, and their participation in it, was to be the means by which Q would “pass on his wealth” to his sons, that wealth including money available to Q from the Sydney Family Trust. That was Q’s intention at that time (see [35] above). That intention was communicated to his sons (see [35], [51] above) and Q sought to give effect to it by involving them in discussions with Accountant No 1 from early July 2002 (see [36]ff above).

59. At the meeting on 18 September 2002, Accountant No 1 proposed a structure in which E Co, as trustee of a unit trust, was to hold the assets of the family business, the unit holders being trustees of family discretionary trusts for each of Q, A, B and C (see [38] above). The meeting also concerned the operation of that structure, associated legal considerations and, as Q recalled, wills, discussed on the basis that he intended to leave his estate to his three sons (see [37] above). There was discussion about capital gains tax in the context of a structure which proposed the transfer of assets from Q to E Co. At the conclusion of the meeting, Accountant No 1 recommended to Q and the sons that they obtain legal advice on that structure.

60. Thus, the shared understanding between father and sons was that Q intended to leave his estate to them and that what he proposed was a business structure in which each of the sons would be involved that would give effect to that testamentary intention. He would also put money distributed by the Sydney Family Trust into the business. The sons would each have a role, and share in its successes. Her Honour made findings to that effect. None of those findings is challenged. They include: (1) that in June 2002 Q was considering how to structure his farming business going forward (J1 [773]); (2) that in the period from at least 11 July 2002, there were discussions as to a new business structure in which the sons were to be involved in the primary production business (J1 [774]); (3) that the effect of what was being discussed leading up to and at the 18 September 2002 meeting was a “succession plan” whereby Q would give effect to his intention that his sons would inherit the farms and family business (J1 [776]); (4) that Q’s intention at that time (subject to the uncommunicated success condition) was that the sons inherit the farms and the family farming business, Q not expecting any benefit from the family business and intending to put money distributed by the Sydney Family Trust into the business for the benefit of his sons and their families (J1 [776]); (5) that, at the time of the 18 September 2002 meeting, each of the sons had the expectation, to their father’s knowledge, that the farms would be left to them under his will (J1 [778]); and (6) that the proposed business structure included the participation and involvement of Q and his sons through the new corporate entity in off-farm investments (J1 [779]).

61. Legal advice concerning the structure was given by Solicitor No 2 on 25 September. The effect of that advice was that Q should hold the properties until he died. At that time, they would pass to the sons under his will. Following this meeting, a structure giving effect to that advice was adopted. It included the transfer of Q’s livestock, plant, machinery and equipment to E Co and the retention of the farm properties by Q. However, they were to be made available to E Co, and accordingly to the sons and Q, for the long term.

62. In all of this, Q was not a mere bystander. The new family business structure had the involvement of his sons as a central element, and could never have proceeded without Q’s agreement. Q took advice, involved his sons in the discussions with his advisers, and acted in accordance with the advice given. He made clear that the sons’ expectation of inheritance was well-founded, and participated in the development and implementation of a structure directed to giving effect to that expectation by passing on his wealth to his sons and their families.

63. Q’s “concessions” in cross-examination (addressed at J1 [791]-[800], [810] and earlier at [47]-[54]) confirm what emerges from the foregoing analysis of his conduct in proposing and effecting his sons’ involvement in the new family business structure. They included: (1) that as at 25 September 2002, Q believed that each of his sons “knew” that they were going to inherit from him (J1 [49]); (2) that Q “encouraged” the sons’ expectation that they would be involved in E Co until he died (J1 [50]); (3) that from 25 September 2002, Q knew that his sons were entering the farming business on the basis that they would be involved in it until he died (J1 [48]); (4) that Q knew that the sons had made “life-changing decisions” to go into the business “for the long term” – until he died – and also knew that they were not aware of his uncommunicated condition that “they made it a success” (J1 [48]); (5) that between September 2002 and October 2009, Q was representing to his “sons that [he would] hold the farms for them and [they would] inherit the farms from [him] without conditions but secretly” keeping to himself a condition that this would only happen if they made a success of it (J1 [48]); and (6) that at no time before July 2012 did Q advise his sons that there was any “risk that they’d be disinherited” (J1 [49]).

64. The following evidence of Q is extracted at J1 [799]:

Q. But at all times from October 2002 through to 30 June 2009, while you’re standing by and let them do, let them, that is [E Co] through your sons, do the works to the farms, you knew that your sons had the expectation that you’d hold the farms for them and they would inherit the farms under your will when you passed, correct?

A. If they were successful but they weren’t told that.

Q. During this period from October 2002 to 30 June 2009 you had it in your mind’s eye but without telling your sons that you could in effect pull the rug out from underneath them, is that what you’re saying?

A. Pretty much in those words, yes.

Q. Your sons are there from October 2002 through to 30 June 2009 working away in the family business with the expectation that you’re holding the farms for them and that they’ll inherit the farms under your will and you’re keeping from them that in your mind you could change that arrangement whenever you felt like it. Is that correct?

A. Pretty much, yes.   

Q. You’d agree wouldn’t you that to conceal that from your sons was to deceive them wouldn’t you?

A. No. It would have defeated the purpose of the whole exercise. I wanted them to work the farms, pull together as a crew because they wanted to do it not because I was holding some sort of thing as a [carrot] or anything else. And they had to prove to me that they’d earned the right for me to pass these properties onto them because there’s no point in giving someone something that you think that they might blow up against the wall as soon as they get control of it and that’s the way it was heading,

Q. But you never told them that did you?

A. I didn’t tell them that.

[emphasis added]   

65. As this cross-examination shows, Q regarded his sons’ inheritance of the properties on his death as a “right” which they had to “earn”. But he did not tell his sons that. Instead, by agreeing to and implementing their involvement in the new family business structure, he encouraged and allowed them to believe that his purpose in doing so was to create the means by which they would inherit the farming business and assets, and the farm properties. The sons’ involvement required that they decide to join the family business, which was to – and did – make capital improvements to the farm properties. From Q’s perspective, the “purpose of the whole exercise” was that they should do exactly that, whilst unaware that Q might bring the “exercise” to an end if he judged it not to be a success.

66. Q’s argument on this ground is essentially that the two aspects of the sons’ expectation, discussed above at [49]ff – that they would implement the new family business structure; and that Q would hold onto the farms for them to use during his lifetime and inherit on his death – were only contingently connected. As the primary judge found, the evidence did not support that view. In Q’s language, the “whole concept” of the new structure “was to see whether they could manage the [rural] side of the business and if they were successful, then through my will they’d inherit the properties” (J1 [792]). Q intended that the new family business structure would provide the means by which his wealth, including eventually his landholdings, was passed on to his sons. Save for the uncommunicated success condition, the sons shared, and acted on the basis of, his understanding of that “whole concept”.

67. Q’s participation in the conception and implementation of the new structure did not involve his merely standing by, and was not ambiguous. Q’s concessions in cross-examination, including as to his knowledge of the sons’ understanding of the ultimate purpose of the new structure, demonstrate clearly his own understanding of what he had committed to implementing with his sons. In all the circumstances, there was nothing unreasonable in the sons understanding Q’s conduct as they did – which was, in large part, as he did. Ground 1 must be dismissed.

Whether any equity arising from detrimental reliance on the expectation created could give rise to an equitable interest in after-acquired properties (ground 2)

68. The appellant makes three arguments in support of ground 2. First, he submits that the primary judge did not “directly address the proposition” that the expectation encouraged by Q extended to properties acquired after 1 July 2003 (being Properties Nos 10, 11 and 12) for a total amount of $3.215 million, referring only to “the farms” as an undifferentiated group of properties, and that there is therefore no finding about the scope of the expectation as it applied to properties acquired by Q after July 2003. Secondly, it is submitted that Q cannot be bound in conscience in relation to those after-acquired properties, because her Honour did not find any continuing reliance by each of the sons on an expectation of inheriting those properties. Indeed, no such detrimental reliance could have been found, because the sons’ life-altering decisions took place before those properties were acquired. Finally, it is said that the sons’ reliance could not found an equity in relation to the properties acquired after 1 July 2003, because in order to found a proprietary estoppel the underlying expectation must relate to a certain interest in specified land owned by the party estopped at the time of reliance on that expectation.

69. The respondents in essence make two points in explaining why her Honour did not need to differentiate between properties held as at 1 July 2003 and those acquired subsequently. First, the sons’ initial expectation as found by the primary judge involved an expectation as to the acquisition of further properties (with money received by Q from the Sydney Family Trust) for use in the family farming business. Secondly, it is said that the sons’ case was put as one of continuing encouragement and reliance, that their expectation and reliance naturally broadened as further properties were acquired, included in the lease agreement, and used by E Co for the purposes of the farming business, and that the primary judge made findings to that effect.

154. There is nothing contrary to Giumelli or Sidhu in having regard to the benefits which accrued to a party attempting to set up an estoppel. The suggestion that doing so reflects English rather than Australian law – as it was put, “positive” rather than “negative” proportionality – confuses two questions, namely whether there is detriment and whether, where there is, the ordinary or usual remedy will be to require the party estopped to make good the encouraged expectation. It is possible to conceive of cases in which a party relying on an expectation will have benefitted so greatly through his or her reliance that he or she would suffer no prejudice or disadvantage if the expectation were departed from. In such a case conscience would be unlikely to require that the party who created the expectation make it good, in whole or part.

155. The authorities concerned with “life-changing” decisions do not suggest otherwise. In each of them there is an examination of the change of position which is directed to determining whether those decisions would be liable to operate as a source of prejudice, if the relevant expectations were departed from: see Giumelli at [21]-[27]; Donis at [48]-[60]; Sidhu at [76]-[77]; Gillett at 234-235; Riches at 301.

156. What is foreclosed by authority is attempting to quantify all forms of advantage and disadvantage when making a comparison between the relying party’s position in fact and their position as it might have been in the absence of reliance on the encouraged expectation. In oral argument Q’s counsel accepted that that exercise does not require any precise calculation, and that it may involve evaluative judgments as to the possibility of more favourable outcomes in the counterfactual. However, he submitted that “the conditions of B and C here are stark” and that the way the case was put required the primary judge to engage in some form of evaluative process, as the Chief Justice did in Ashton v Pratt (see [128] above).

157. Thus, the question becomes whether this was a case in which there were opportunities forgone by B and C through reliance which cannot readily be valued but which nevertheless cannot be rejected as carrying only a fanciful or unrealistic prospect that the party encouraged would have been better off. As Allsop P observed in Delaforce at [5]:

The importance of keeping a party to a representation or encouragement previously made is all the stronger where, as here, the encouragement or representation has been relied upon by a party to abandon a course of conduct that could possibly have led to a different outcome. This can be described in the language of loss of a chance that is not fanciful or unrealistic, or in the language of proceeding thereafter on the basis of a new or changed convention or conventional basis... For instance, if, as here, in reliance upon a representation or encouragement, a court case is abandoned and the representation or encouragement is later sought to be resiled from, the party to whom the representation or encouragement was made and in whom the expectation was raised is left in the position not only of the loss of the entitlement to pursue his or her rights in the case in the past, but also is likely to be in the position of being unable to demonstrate what would, or even may, have happened in the case, it being an alternative, complex and now hypothetical body of human conduct. That the party encouraged cannot show that he or she would have been better off in the posited alternative reality is not fatal to the making out of the estoppel. Indeed, the inability to prove such things reveals a central aspect of the detriment: being left, now, in that position. Of course, if it is self-evident or can be clearly demonstrated that the case was fanciful or otherwise doomed to fail, there may be no real detriment; but that was not the case here.

See also Giumelli at [27]; Gillett at 235; Walsh at [26].

Was B and C’s reliance detrimental?   

159. B worked full time in the business of E Co for the better part of a decade, continuing to do so part time after he acquired his own business interests in late 2010. His income while working full time in that business was considerably lower than it had been while he worked in retail management, which he did roughly until discussions concerning the new business structure began in earnest in mid-2002. And although he eventually acquired significant business interests of his own, he did so much later than he might otherwise have done.

160. The primary judge found that had B not joined E Co, he would have continued to work as an employee while looking to pursue his own business interests. He has lost a decade or more in which he could have pursued employment elsewhere whilst attempting to nurture his own business interests and ventures; and done so with the likelihood of financial support from Q. Instead, relying on the expectation Q created as to the particular manner in which he intended to pass on his wealth to his sons, B invested his time and energy in a farming business which has no value as a going concern without the assurance of the use of Q’s properties.

161. Turning to C’s position, true it is that his contribution to the business of E Co was much less than that of his brothers. Unlike B, he will not have wasted much of a decade of full time work if E Co is rendered inoperable. On one view, his efforts on the farms will have been amply compensated for by his share in E Co’s net assets. There is, however, a limit to the extent to which it can be held against him that he took the role in the business of E Co it was proposed he would take (see above at [132]).

162. More significant so far as C is concerned is that he too has lost the chance of pursuing his own business interests, or of making investments with his family better structured to protect his own position, over the period up to early 2011, also with the likely benefit of Q’s financial assistance. His personal investments in real estate and property development are not without value, but they do not yet provide him with an income; his evidence is that any earnings from those companies are being reinvested to help them grow. His only present source of income, his $2,000 per month “consulting fee”, will be jeopardised should the farms be sold. The likelihood is that his financial position, both income and net assets, would be very different and more favourable had he pursued similar business interests at an earlier point in time with his father’s support.

163. The opportunities forgone B and C in this “alternative reality” need not be valued. It is sufficient to observe that significant resources were available to each of them, including the support of Q, and that their opportunities outside the family business were substantial (as is evidenced by their activities after 2010). In those circumstances, even taking account of the value of their respective quarter shares in E Co (principally reflecting the value of its cattle herd), the primary judge was correct to find that both B and C’s reliance on the holding/inheritance expectation involved substantial detriment. Ground 4 should be dismissed.

The measure of relief (ground 5)   

164. Ground 5 raises a series of related issues. The first, pressed in relation to B and C, is whether the primary judge erred in requiring Q to make good the expectation. The remaining issues arise in the event that challenge fails and concern conditions which Q says should have been imposed on that relief. Those issues are complicated by the decision of the primary judge to “accelerate” the sons’ inheritance expectation by ordering that the farm properties be transferred immediately rather than on Q’s death. No separate objection is taken to that step, which her Honour thought necessary to achieve a “clean break” between Q and his sons, but it cannot therefore be ignored in dealing with the other issues.

165. It is as well to note at the outset that there is uncertainty as to the standard of appellate review of relief for a proprietary estoppel claim. Whether House v The King (1936) 55 CLR 499; [1939] HCA 40 applies, on the basis that there is a true discretion as to relief, or whether a trial judge’s assessment of what conscience requires is instead entitled to no deference on appeal, has been left open by other intermediate appellate courts: Fifteenth Eestin Nominees Pty Ltd v Rosenberg (2009) 24 VR 115; [2009] VSCA 112 at [272]; Browne v Browne [2019] WASCA 1 at [96]-[100]. The parties did not address the point, which is, as will be seen, ultimately not material to the outcome of the appeal.

Whether the expectation should be made good      

166. In terms, ground 5 is directed to whether the primary judge erred in imposing a constructive trust on and from 1 July 2003. The appellant’s objection is not to the declaration of constructive trust as a means of making good the sons’ expectation but to being required to make good the expectation at all. Indeed, if he is, and the expectation is to be accelerated, a declaration of constructive trust will be “akin to orders for conveyance” (Giumelli at [6]) and, in view of the separate order that Q transfer the farm properties, otiose. The observation of the plurality in Giumelli at [10], to the effect that a constructive trust is a remedy of last resort, would tell against a declaration of constructive trust if it were understood to have any other incidents.

167. There is no dispute that the sons are prima facie entitled to have their expectation made good: Sidhu at [85]. What is disputed is whether the primary judge erred in not departing from that presumption, having regard to what is said to be the disproportion between the value of that expectation and the detriment suffered by B and C. With respect to that dispute the parties rely on their submissions on ground 4, including as to whether the sons’ case is one to which Nettle JA’s observations in Donis are applicable.

168. For that reason two observations made in dealing with ground 4 are again relevant. First, the sons’ detriment is to be considered as part of a broad inquiry as to whether good conscience requires Q to make good the sons’ expectation: AFSL v Hill at [88]; Donis at [20]. Considerations other than detriment are relevant to that inquiry (Delaforce at [3]-[4]), including the nature of the expectation and the conduct of the relevant parties in inducing or relying on it. Q’s (correct) submission that a court of equity “goes no further than is necessary to prevent unconscionable conduct” (citing Waltons Stores at 419) directs attention to the role of proportionality between relief and detriment in assessing what good conscience requires.

169. Secondly, it is clear from Sidhu at [84]-[85] that the prima facie measure of relief will “usually” be consistent with conscientious conduct, regardless of whether the party making the claim took “life-changing decisions with irreversible consequences of a profoundly personal nature”. That statement gives compendious expression to the principles governing the assessment of detriment. It is not itself a test. Only in relatively unusual cases, including those in which detriment involves only “a relatively small, readily quantifiable monetary outlay”, will some lesser relief be appropriate.

170. The distinctive feature of this case is the size of the sums involved: the farm properties are together worth roughly $20 million and B and C have each received through their reliance a quarter share in a company with substantial net assets. Equally, however, the opportunities foregone or postponed by B and C in reliance on the expectation were opportunities of substantial value, including the opportunity of having Q provide money or security to assist them to acquire and pursue business opportunities of their own. Even considering only B’s reduced income and wasted labour in the period up to 2010, together with the postponement of his acquisition of the P Hotel and C Hotel, the sums involved are substantial. That is, however, likely not the true counterfactual. Determining the extent of the prejudice suffered by B and C in financial terms is a wholly speculative and unnecessary endeavour in circumstances where they acted to their detriment on Q’s assurance.

171. It may be accepted, embarking on such a speculation and notwithstanding its difficulties, that the financial disadvantage suffered by B and C would in all likelihood be less than the value of the expectation. However, that is not the question, because in a case such as the present the relief which is necessary to prevent Q’s unconscionable conduct in resiling from his assurance is “usually that which reflects the value of the promise” (Sidhu at [85]; and see Riches at 302; Giumelli at [36]). The question is whether any such inequality involves so great a disproportion between the detriment to B and C and the value of the promise as to render it wholly inequitable and unjust to require Q to make good the expectation. Subject to what follows regarding the conditions on relief, it does not. Q committed himself to a particular means of passing on his wealth, asking only that each of his sons work with him in the family business in the particular capacities to which they were suited. They each did so, giving up not only other employment and investment opportunities but also, critically, other and possibly more favourable means of Q giving effect to his general testamentary intention to pass on his considerable wealth to his sons and their families. That is enough.

The imposition of conditions on the “acceleration of the expectation”

172. It remains, however, necessary to distinguish the holding/inheritance expectation from that expectation as accelerated. Making good the former would involve requiring Q to hold the farm properties and allow them to be leased by E Co for use in its farming business until his death, and then to leave them to his sons by will. It is not submitted by Q that the expectation should not be accelerated in the event it is held that B and C are entitled to have it made good. But the sons are not entitled as a matter of course to relief giving effect to the accelerated expectation, which is substantially more generous to them, and asks more of Q, than the measure of relief that is prima facie appropriate.

173. The sons will receive $20 million of farmland immediately rather than on their father’s death. Practically speaking, they will be free to put an end to the business of E Co and realise the present value of the farm properties (subject to any estoppel of E Co itself, which, given the acceleration of the transfer of the properties, may be at an end: cf J4 [641]). For his part, putting the rental value of the properties to one side, Q will be deprived during his lifetime of the use of the farm properties as a residence and as security. It is not necessary to consider the precise contours of the sons’ understandably imprecise expectation to observe that it contemplated both possibilities, at least to some extent.

174. In that circumstance to impose “conditions” on relief, as the primary judge initially proposed, need not involve any “idiosyncratic” exercise of discretion and does not press the maxim “he who seeks equity must do equity” into improper service: cf the objections recorded at J4 [627]. Her Honour ultimately accepted that those objections precluded the imposition of two of the conditions initially proposed, “unless perhaps [the conditions were] necessary to prevent disproportionality” (J4 [647]).

175. So to reason involves treating the accelerated expectation as the expectation which the sons were prima facie entitled to have made good, taking account of any disproportionality. But there is no need to identify disproportionality before imposing conditions on relief that would otherwise be more generous than the appropriate measure. Conscience neither requires Q to make nor entitles his sons to receive an unqualified present gift of the farm properties. In that circumstance, placing conditions on the acceleration of relief, which all parties accept is otherwise appropriate, is necessary because “to grant unqualified relief... would exceed any requirements of good conscience and be unduly oppressive of the other party”: see Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 442 (Deane J); [1990] HCA 39; Giumelli at [42]; AFSL v Hill at [153]-[154] (Gageler J).

176. To do so does not “substitute moral for legal standards” (cf Langman v Handover (1929) 43 CLR 334 at 351; [1929] HCA 42) or require terms which do not “flow from the legal or equitable rights of the defendant to the suit” (cf Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [67]). It may be accepted that the reference in Giumelli at [42] to requiring a party seeking relief to do equity has no broader meaning. But to impose conditions on relief in this case is to do no more than shape relief according to the requirements of conscience, in circumstances where it is accepted that the making good of the encouraged expectation should be brought forward. In substance there is no distinction between qualifying relief by imposing a condition on the party relying on the estoppel and qualifying relief by giving effect only in part to the underlying expectation. So understood the conditions sought to be imposed flow not from any distinct right of Q but from the limits of the respondents’ equity: see eg Crabb v Arun District Council [1976] Ch 179 at 189-190 (Lord Denning MR); Flinn v Flinn [1999] 3 VR 712 at 750-751; [1999] VSCA 109.

177. Nonetheless the appropriate conditions are not at large. What good conscience requires must be understood by reference to the position which would have obtained had the holding/inheritance expectation been made good, but not accelerated. As Robert Goff J suggested in Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1984] QB 84 at 108, it would be contrary to principle for a party to “obtain the benefit of rights without incurring the burden of corresponding obligations which he would have incurred if the rights had been enforceable without the aid of the doctrine of estoppel” or, one might equally say, if the otherwise appropriate measure of relief had been enforced.

178. It remains to consider the particular conditions which Q submits should be imposed. They are the payment by E Co and the sons of (1) the present discounted value of future market rents for the farm properties over the balance of Q’s life expectancy and (2) the amounts recorded as book debts totalling $2.123 million; and (3) the purchase by the sons of Q’s quarter share in E Co.

The present discounted value of future rent    

179. As explained above, the primary judge initially proposed to require payment of the present discounted value of the market rents which would have been payable over the balance of Q’s life expectancy (as to which see J1 [1219] and [1222]). The evidence led following the reopening suggested that after allowing for outgoings to be borne by Q, the net market rents, and accordingly profits to Q, over time would have been or exceeded $160,000 per year (J4 [49], [93]).

180. In the fourth judgment, her Honour accepted the submission of the respondents that such a requirement would be “conceptually inconsistent with a recognition that the freehold interest in the properties was held in trust for the sons” (J4 [93], [647]). Her Honour also gave a further and separate reason for not imposing a condition requiring the payment of market rent, namely that “in practical terms [it] would be inconsistent with the basis on which the lease agreement was struck in the context of the joint farming business endeavour in which the first defendant and the plaintiffs were participating” (J4 [651]).

181. Those considerations did not, however, prevent her Honour from ordering the payment of the present value of a “notional” rent of $80,000 per annum for that same period (J4 [661]). That sum was “informed by the basis on which, historically, rent for the properties had been set” and was calculated to “support [Q] for the balance of his life” (J4 [658]). Her Honour assessed that rent taking account of the fact that Q would no longer own the properties and accordingly would not be liable for rates, insurance or other outgoings (J4 [659], [661]). Accordingly, in practical terms the difference between the rent fixed by the primary judge and that sought by Q is on the order of $100,000 per annum, and is said to be justified by the evidence of market rents.

179. Her Honour’s “conceptual inconsistency” basis for rejecting the condition as sought by Q is, with respect, wrong. If imposing a constructive trust would be conceptually inconsistent with the receipt by Q of a market rent to which he would otherwise be entitled, that would be a good reason not to impose a constructive trust in circumstances where orders for conveyance would suffice. More importantly, however, there is no conceptual inconsistency.

180. A constructive trust recognised by way of relief for a proprietary estoppel does not necessarily have the incidents of an express trust, nor those of other species of constructive trust: see Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8^th ed, 2016) at [13-02]. In general, it is “a fallacy to suppose that every trustee has the same duties and liabilities”: Earl of Egmont v Smith (1877) 6 Ch D 469 at 475 (Sir George Jessel MR) (speaking of the “trust” between vendor and purchaser, as to which see Tanwar Enterprises Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [53]).

181. In Giumelli, it was said of the constructive trust declared by the Full Court of the Supreme Court of Western Australia that it was proprietary in nature and “oblige[d] the holder of the legal title to surrender the property in question”, but did “not necessarily impose upon the holder of the legal title the various administrative duties and fiduciary obligations which attend the settlement of property to be held by a trustee upon an express trust for successive interests”: at [3], [5]. That is, to describe a person as a constructive trustee is not necessarily to say more than that they are estopped from claiming a full beneficial interest in the relevant property.

182. As Keane J explained in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1; [2016] HCA 26 at [150], a constructive trust of the kind described in Giumelli involves “the legal title of the owner of the property [being] subjected ... to limitations necessary to meet the requirements of good conscience”. That explanation directs attention to two features of such a trust. First, the obligations of principal importance are those impressed on the title to the relevant property, rather than imposed personally on the constructive trustee. Obligations of the latter kind will not invariably be present. Indeed, in appropriate cases relief for a proprietary estoppel may involve the recognition of an equitable proprietary interest without the label of “constructive trust” and its potentially misleading connotation of personal fiduciary obligations: see eg Plimmer v Mayor, &c., of Wellington (1884) 9 App Cas 699 at 713-714; Hamilton v Geraghty (1901) 1 SR (NSW) Eq 81 at 88, 89, 91; and Giumelli at [58]. Secondly, and in this case critically, the incidents of the trust must be consistent with the expectation underlying the claimants’ equity.

183. It follows that whether Q should be paid the present value of future market rents, or rents calculated on some other basis, depends not on the recognition of a constructive trust but on the expectation Q encouraged his sons to adopt.

184. It is important to note at the outset that the proposed market rent condition was not based on a finding as to the scope of the expectation. At J1 [77], the primary judge explained that the basis for the proposed condition was that “the family business arrangement is now to be brought to an end” and there was therefore no reason that Q would not obtain a market rent for the farm properties, were he to retain them. However, Q could never have retained the properties unencumbered by the family business consistently with the encouraged expectation.

185. The primary judge’s finding, consistent with B’s contemporaneous notes (J1 [230]), was that the historical level of rent was “commercial” in the sense that it was intended to satisfy the Australian Taxation Office (ATO) that the lease was the product of an arms-length, commercial arrangement (J1 [29], J4 [87]). Nonetheless, her Honour accepted the sons’ submission that the expert valuation evidence of the properties’ rental value on the open market “did not have regard to the manner in which the properties were in fact historically leased between the parties (on what is said to have been a “commercial” basis, not a “market” basis)” (J4 [85]).

186. Her Honour gave significant weight to the evidence, which emerged from Q’s cross-examination and contemporaneous documents (J1 [255]), that the initial lease agreement for a rent of $300,000 per year (including $50,000 for plant and equipment) was not intended to produce a “taxable profit” in Q’s hands (J4 [87], [91]). Q’s intention at the time was that this rental income would be offset by pasture development and capital improvements, together with rates and insurance, all of which would remain his responsibility, E Co being responsible for pasture maintenance and general repairs. That evidence may be accepted. What it does not show is that it was or became an aspect of the expectation of E Co or the sons that Q would not receive any rental income from the farm properties. Indeed, from 1 July 2011 Q’s net rental income of $100,000 less rates and insurance, for which he was responsible, amounted to as much as $55,000 per year (J4 [90]). Thus, the expectation was that E Co would have security of tenure provided that it paid a “commercial” rent. It was initially intended that Q would reinvest that rent in improving the properties, which were used in the farming business, in part to minimise in some way his income tax liability. Nothing further follows.

187. The term “commercial” was used to describe a rent which was sufficiently realistic to be described to the ATO as a “market” rent. Nonetheless it is apparent from the history of the lease arrangements between Q and E Co, including the waiver of any liability to pay rent during the period of acute drought from 1 July 2007 to late 2011, that they were generous to E Co and clearly at or below the bottom of any range of market rents.

188. In this state of the evidence, any conclusion about the expectation of E Co or the sons with respect to the level of rent will involve a degree of false precision. Doubtless all of the parties assumed that informal renegotiation of the lease arrangements from time to time would both respect E Co’s security of tenure and take account of considerations which included the need to satisfy the ATO, the state of the farm properties, and the respective financial positions of E Co and Q. It is difficult, to say the least, to reconstruct the outcome of those negotiations. The expert evidence of market rents was relevant to the exercise of fixing a notional future rent, but not determinative of its outcome.

189. There was no challenge in this Court to the primary judge’s findings as to the likely value of future market rents, which accepted the expert evidence of Mr Tremain, the valuer engaged by the respondents (J4 [93]). Mr Tremain’s opinion was that the net rental, arrived at by deducting from the gross market rental all of the lease outgoings and the costs of substantial pasture improvement (J4 [56], [58]-[59]), “was $166,245 for the period 2018-2022 and $185,611 for the period 2022-2026” (J4 [49]). As her Honour observed, that opinion gave significant weight to E Co’s “wish to conduct farming operations at a profit” (J4 [43]), and might properly be subject to an “adjustment to increase the rent once the proposed pasture development program had taken place” (J4 [93]).

190. The primary judge did not expressly have regard to the expert evidence when fixing a notional net rent of $80,000 per year. Erring on the side of generosity to E Co in determining a net rent by reference to that evidence, and accounting for the fact that E Co would not have the use of Property No 11 (to be sold to cover any CGT liability of Q, a step to which there is no separate objection), an allowance for the present value of a notional net rent of $80,000 remains an appropriate condition for the acceleration of relief. On the evidence, that amount exceeds any net rental income Q previously received from E Co. There is no basis for concluding that had the inheritance expectation not been accelerated Q could or would have received any higher net rent consistently with the holding expectation.

191. Although by ground 7(b) of their amended notice of cross-appeal the respondents suggest that the present discounted value of a future rent of $80,000 per annum is $600,000 rather than $640,000 (applying a discount rate of 4.5% rather than 3%), no written or oral submissions were directed to whether the primary judge erred in adopting the lower rate of 3% (J4 [662], [663]). Her Honour’s calculation should be left undisturbed.

The amounts recorded as book debts    

195. The primary judge rejected Q’s claim that the E Co book debts totalling $2.123 million were “repayable during his lifetime” (J1 [1234]). Those debts as recorded consisted of the value of Q’s cattle originally transferred and sums later advanced by Q. Her Honour’s conclusion is consistent with one or other of the following findings in the face of the book entries in E Co’s accounts. The first is that the accounts, which were only prima facie evidence, did not reflect the true position, being that there were no debts due to Q. The second is that while the sums were correctly recorded as loans, it was either a term of the loans, or an aspect of the encouraged expectation, that they were not repayable by E Co until Q’s death. The benefit of the loans would form part of Q’s estate, and presumably (although it is not clear there was any expectation to this effect) ultimately pass to the sons.

196. Doubtless because of its significance for ground 4, counsel for Q accepted in argument that the $2.123 million was not due as a debt. However, and accepting that the distinction between these two inconsistent analyses was not always kept in view, it is tolerably clear that the primary judge ultimately preferred the second, which gives some effect to the records in E Co’s accounts. As her Honour observed at J1 [69] and [70]:

Therefore, had the first defendant’s claim for the repayment of the advances and payment of the book value for the cattle transferred to E Co been considered in isolation, I would have been of the view that there was a strong basis for E Co to resist the claim for repayment based on the detriment to which it would now be put if the first defendant were permitted to resile from the expectation induced in his sons in that regard (at least in the absence of a reasonable time for repayment that would not be destructive of the company’s ongoing business operations)...

However, it does not seem to me that it would be unconscionable in all circumstances for the first defendant to depart from the expectation that E Co (and his sons) were to have the benefit (indefinitely or during his lifetime) of the advances made to E Co or the transfer of the cattle (and hence to require the repayment of the sums he has made available to the company over the years and recover the book value of the cattle) at least if a reasonable timeframe were allowed in that regard, so as not to prejudice the ongoing business operations of E Co. So, for example, if E Co were to have ceased the farming operations and were now to be wound up, I would not see it as unconscionable for the first defendant then to call for repayment of the moneys recorded as being owing to him in the company’s books (though the question of interest is another matter).

197. That reasoning proceeds on the basis that the advances, including the loan being the value of the transferred cattle, were not outright gifts and thus repayable, at least in some circumstances – for otherwise there would be no “claim” for their recovery which might be “considered in isolation”, nor any possibility of Q recovering the sum on a winding up – but that it was an aspect of the expectation of E Co and the sons that repayment would not be required until Q’s death.

198. The sons’ expectation was that on Q’s death they would inherit the farm properties and Q’s shares in E Co; in all likelihood they would also inherit the benefit of the debts due to Q from the farming business. The latter would no doubt in a practical sense be netted off, either by the debts being forgiven or by the sons assisting E Co with payment. The question then is whether it is appropriate, in circumstances where the sons are to receive the farm properties well in advance of Q’s death, that there should be “accelerated” repayment of the $2.123 million which would otherwise have been due from E Co at that time.

199. Q was never to enjoy the benefit of these loans, save perhaps in the event of a winding up of E Co (in which case he might have been entitled to be paid their present value). Nevertheless, in the circumstances of the acceleration of the sons’ receipt of the farm properties, in my view it is appropriate for Q to be repaid the value of the loans. As the sons’ entitlement to enjoy ownership of the properties is to be accelerated, so too should Q’s entitlement to repayment of the advances, which would have arisen on the happening of the event resulting in the sons’ ownership of those properties.

200. Accordingly, the orders for relief made in favour of the sons and E Co should be subject to a condition for the repayment by E Co of the loan account, but not subject to interest or to any discount on the basis that the amount might be received earlier than would otherwise be the case.

The compulsory purchase of Q’s shares in E Co       

201. The primary judge declared that Q was entitled during his lifetime to participate in any dividends payable in respect of these shares, and that on his death they should be transferred to A, B and C for no consideration (see above at [10]). Q seeks an order for the immediate purchase of these shares by A, B and C at their fair value, to be agreed or assessed. No equivalent order is sought in relation to the purchase or early transfer of the shares in EM Co.

202. No principled reason was offered for the imposition of such a condition, other than that a consequence of the acceleration of the inheritance expectation would be that Q would no longer have any interest in the farm properties or the business of E Co (other than in respect of his entitlement to participate as a shareholder in dividends).

203. Regardless of the acceleration of the transfer of the farm properties, in view of the encouraged expectation (see J1 [78]-[79]) the only value to Q of his shareholding is the net present value of any dividends payable during his lifetime. There is no evidence which suggests that entitlement has any real value. Historically, E Co was unprofitable even with infusions of capital from Q. His submissions, which address the value of the shareholding on the basis of E Co’s net asset value, ignore the fact that the shareholding was held for the benefit of his sons, except with respect to his entitlement to dividends.

Conclusion

204. In the result, grounds of appeal 1 to 4 should be dismissed. The appellant has had partial success in relation to ground 5.

205. In view of those conclusions it is not necessary to address the respondents’ further amended cross appeal (subject to [194] above) or further amended notice of contention.

206. The parties should attempt to agree short minutes of order which give effect to these reasons, including as to the costs of the appeal. On the face of it, those costs should be borne by Q, subject perhaps to some allowance for his partial success in relation to ground 5. If they cannot do so within 14 days of the delivery of judgment, they should exchange written submissions supporting the orders contended for and remaining in issue. Those written submissions, not to exceed 5 pages, should be exchanged and filed with the Court within a further 14 days. In the absence of any further direction, the final orders to be made will be determined on the papers.

207. LEEMING JA: I agree with Meagher JA.

208. PAYNE JA: I agree with Meagher JA.

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Decision last updated: 21 September 2020