Stewart v Owen

[2020] VSC 175

60 VR 341

STEWART v OWEN Supreme Court of VictoriaForbes J 24 March, 15 April 2020[2020] VSC 175Real property — Co-Ownership — Dispute between tenants in common — Application to Victorian Civil and Administrative Tribunal for orders for sale of property and distribution of proceeds of sale — Whether pt IV of the Property Law Act 1958 confers jurisdiction on the Tribunal to make declaration and order a co-owner to transfer interest in land to a co-owner — Whether correct legal test for imposition of constructive trust applied — Property Law Act 1958 (Vic), ss 225, 228, 232, 233 — Victorian Civil and Administrative Tribunal Act 1998, s 124.Administrative law — Victorian Civil and Administrative Tribunal — Jurisdiction — Original jurisdiction — Sale or division of co-owned land or goods — Orders — Declaration — Whether authority to determine equitable interests in land — Whether authority to order transfer of interest between co-owners — Property Law Act 1958 (Vic), ss 225, 228, 232, 233 — Victorian Civil and Administrative Tribunal Act 1998, s 124.

The applicant and respondent were co-owners as tenants in common of a residential property, in three equal undivided shares, the respondent being the registered proprietor of two shares and the applicant of one.

The applicant applied to the Victorian Civil and Administrative Tribunal (Tribunal) under pt IV of the Property Law Act 1958 (Vic) (PLA) for sale of the property, distribution of the proceeds of sale, orders for compensation, and accounting between co-owners. The respondent sought a declaration by the Tribunal that the applicant held his share beneficially for her and an order that the applicant transfer his interest to her.

Section 225 of the PLA provided that a co-owner of land or goods might apply to the Tribunal for orders to be made in respect of that land or those goods. Section 228 empowered the Tribunal to make any order it thought fit to ensure that a just and fair sale or division of land or goods occurred. Sections 232 and 233 of the PLA contained ancillary provisions (set out in the judgment at [18]). Section 124 of the Victorian Civil and Administrative Tribunal Act 1998 (VCAT Act) provided to the effect that the Tribunal might make a declaration concerning any matter in a proceeding instead of, or in addition to, other orders.

The Tribunal found that the respondent was the sole owner in equity of the property and made declarations that the parties held their respective registered interests in the land upon trust for the respondent and granting the applicant a charge to secure an amount purchase of the property. The Tribunal ordered that the applicant execute a transfer of his registered interest to the respondent upon payment to him of the charged amount.

The applicant sought leave to appeal to the Supreme Court on two questions of law. First, did the Tribunal have jurisdiction to make a declaration that a co-owner could hold their interest in land beneficially for another co-owner and, if so, could such a declaration compel a transfer of the legal interest between co-owners? Secondly, if the jurisdiction was found to exist, did the Tribunal correctly identify or apply the legal test in its imposition of a constructive trust on Mr Stewart’s interest in the property?

doi: 10.25291/VR/60-VR-34160 VR 342

Held, granting leave to appeal and allowing the appeal:

• (1)

  The jurisdiction of the Tribunal to hear applications for real property disputes between co-owners conferred by pt 4 of the PLA did not include the power to compel a co-owner to transfer her or his interest to another co-owner. [40]–[47].

  Krsteski v Jovanoski [2011] VSC 166; Edelsten v Burkinshaw [2011] VSC 362 explained.Pavlovich v Pavlovich [2012] VCAT 869; Binns v Binns [2018] VCAT 759 distinguished.Miller v Martin [2018] VSC 444; Miller v Martin[2020] VSCA 4 considered.

  By Forbes J. On an application under s 225 of the PLA in respect of co-owned land, the role of the Tribunal was to determine orders that were just and fair in connection with the sale or physical division of land or an accounting as between co-owners. For that purpose, a determination of the equitable interests of the co-owners in relation to sale or division or accounting matters was required, but the Tribunal was not otherwise empowered to make orders dealing with equitable interests of co-owners. [26]–[30].

• (2)

  The Tribunal did not have sufficient grounds to impose a constructive trust. The Tribunal had not correctly assessed whether the applicant had asserted a legal interest that disregarded the respondent’s equitable interest in a way that was unconscionable. [59]–[70].

  Muschinski v Dodds (1985) 160 CLR 583; Baumgartner v Baumgartner (1987) 164 CLR 137 considered.

  By Forbes J. In the circumstances of this appeal, it was not necessary to determine whether, in the absence of any order required to determine statutory claims, there was jurisdiction to grant a remedy by way of declaration of the equitable interest of a co-owner pursuant to s 124 of the VCAT Act. [48].

Application for leave to appeal and appeal on question of law

This was an application for leave to appeal to the Supreme Court on a question of law from a decision of the Victorian Civil and Administrative Tribunal pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998. The facts and relevant statutory provisions are stated in the judgment.

B B Carr for the appellant. G B Hevey for the respondent. FORBES J 1Mr Stewart and Ms Owen are tenants in common of 16 Wright St, Clifton Hill (the property) which they purchased in 1986. Ms Owen is the registered proprietor of two of three equal undivided shares and Mr Stewart is the registered proprietor of the remaining share. As tenants in common they are co-owners as defined by s 222 of the Property Law Act1958 (Vic) (the Act). Part IV of the Act deals with co-owned land or goods. In 2017 Mr Stewart applied to the Victorian Civil and Administrative Tribunal (the Tribunal) under Part IV of the Act for the sale of the property and distribution of the 60 VR 343proceeds of sale, and for orders for compensation and accounting between co-owners.2Ms Owen filed a counterclaim seeking a declaration that Mr Stewart held his one third share interest in the property beneficially for her and an order that Mr Stewart’s interest in the Property be transferred to her. After a contested hearing the Tribunal found that Ms Owen was the sole owner in equity and made two declarations, that:

• a)

  Mr Stewart and Ms Owen hold their respective registered interests in the land upon trust for Ms Owen; and

• b)

  Mr Stewart has a charge upon the land for payment to him of $39,192.00.1

The second declaration was the amount that the Tribunal determined had been Mr Stewart’s contribution to the cost of acquisition of the property and costs since then. The consequential orders provided that, on payment by Ms Owen of the amount of the charge and relevant hearing fees, Mr Stewart must execute a transfer of his registered interest in the land to her. In the event of non-payment he was able to apply to renew the proceeding and seek an order for sale and division of the proceeds.

3Mr Stewart has sought leave to appeal these orders pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act). Leave to appeal is only on a question of law. The application for leave identifies essentially two questions of law. The first is whether the Tribunal has jurisdiction to make the declaration that a co-owner holds their interest in land beneficially for another co-owner, and consequent to that declaration can compel a transfer of the legal interest between co-owners. The second question, assuming that jurisdiction exists, is whether in determining that a constructive trust was imposed on Mr Stewart’s one third interest in the property, the Tribunal correctly identified or applied the legal test.4The respondent resists the application for leave on the basis that no arguable question of law has been made out and argues if leave is granted no error of law has been made.

The facts surrounding the co-owned land

5Before turning to the questions of law it is helpful to outline the factual basis upon which the Tribunal proceeded. Generally speaking there was little dispute between the parties as to the chronology of events. Ms  Owen wished to purchase a property as an investment. Although she had some funds for the deposit, her income was insufficient for her to borrow the $75,000 needed to purchase the property. She and Mr Stewart worked together and were involved in a sexual relationship at the time of purchase. Mr Stewart was prepared to act as guarantor for her but the bank would 1

Stewart v Owen (Building and Property) [2019] VCAT 140, 1–2 (Tribunal Reasons).

60 VR 344only approve the loan if both of them were on the title. This was agreed to and they jointly signed a loan agreement. Both made some cash contribution to the purchase but they were not equal contributions. A contemporaneous document was prepared setting out the actual amounts that each contributed.2 The loan funds were treated as being an equal indirect contribution by each of them to the purchase price.36Shortly after settlement the parties also signed a written agreement4 outlining the conditions of ownership. The Tribunal thought that the figures from the cash contributions were likely in the parties’ minds when they arrived at the apportionment5 although the apportionment did not match the respective contributions to the cost of purchase. The Tribunal noted that neither could tell exactly how they arrived at the apportionment of two thirds and one third interest in the property.7The written agreement described various expenses to be paid in proportions reflecting their registered interests. It was agreed that the property would continue to be rented and that the rental received was to be applied to repayment of mortgage interest and principal, and any residue to be divided between them again in proportions reflecting their registered interests. It set out a procedure to be followed if one or other of them wished to live in the property and procedures if either wished to sell the property after retaining it for a minimum of three years.8Ms Owen alleged that Mr Stewart coerced her to sign the written agreement and unconscionably took advantage of a power imbalance. The Tribunal found that on her own evidence this was not made out. The Tribunal regarded Mr Stewart as a truthful and careful witness and found the attempt to paint him as a ‘pantomime villain’ failed utterly.69In 1987 they had a child, Michele. From 1988 they no longer worked with the same employer and their relationship had ended by the end of the 1980s. At no point did they live together at the property or anywhere else.10In 1991 Mr Stewart encountered financial difficulty and voluntarily became bankrupt. In 1992 the trustee in bankruptcy lodged a caveat claiming an equitable interest in Mr Stewart’s registered interest. As a result a draft letter was prepared for Ms Owen to send to the Official Trustee regarding interests in the property. The Tribunal thought it unlikely that either Mr Stewart or Ms Owen prepared the draft and could not determine who did. Mr Stewart had made some handwritten changes to the draft and noted on the back of the draft ‘Phyllis – Suggested draft letter to send’.72

Tribunal Reasons[13]. The Tribunal found that the respective direct contributions to the purchase price were $2,290 (Stewart) and $20,493.12 (Owen).

3

Ibid [16] relying on Calverley v Green (1984) 155 CLR 242, 257.

4

Ibid [19].

5

Ibid [14].

6

Ibid [26], [29].

7

Ibid [51].

60 VR 34511Importantly the letter that was signed included the statement by Ms Owen ‘The property is now and has always been my property and Mr Stewart has no beneficial interest in it’.8 The Tribunal found by this statement both Mr Stewart and Ms Owen were telling the Official Trustee that despite having a registered interest in the property he had no beneficial interest and had never had any.9 This letter assumed importance in the reasoning of the Tribunal and I will return to it. Mr Stewart was discharged from bankruptcy in 1994.12The property remained tenanted until approximately 2000. From 1994 mortgage repayments were reduced and there was a residue from rental income which was retained by Ms Owen. In 2000 when the tenant moved out, Ms Owen wished to live in the property with her daughter. She asked Mr Stewart to resume making the mortgage payments as she was no longer working (having been made redundant). Mr Stewart agreed and did so. They sought a variation from the bank to allow interest only repayments for a four year period and they both signed an amended loan agreement with the bank.13After having moved to the property Ms Owen made an application to the relevant child support agency for child support from Mr Stewart. The Tribunal accepted the evidence that Mr Stewart told Ms Owen that he could not continue to pay both mortgage payments and child support so that if the child support application were to proceed ‘we would need to re-lease the property or she would need to make her share of loan payments from her own resources’.10 A further agreement was then reached between them about Ms Owen and Michele’s continued occupation of the property and payment of expenses, in particular the mortgage. The application for child support was withdrawn. Mr Stewart continued to make mortgage payments until August 2008. Mr Stewart made one final payment of $1,697.05 to discharge the mortgage.14It is also clear that on two occasions Ms Owen had paid lump sums to the bank in reduction of the outstanding mortgage. These occurred in 2000 when she was made redundant and in 2009 on the sale of her parent’s home where she had lived until moving to the property. There were also findings as to amounts representing Mr Stewart’s contribution to rates, utilities and repairs and mortgage payments.15One thing clear from the above chronology is that payment of expenses or receipt of income relating to the property and the arrangement for Ms Owen to live there departed from the contributions and obligations reflected in the written agreement that they both signed. As a result, Mr Stewart’s application to the Tribunal also sought orders for adjustment and accounting between them to take account of amounts payable to each other and by each of them during the period of co-ownership.8

Ibid [49].

9

Ibid [53].

10

Ibid [71] from Mr Stewart’s witness statement.

60 VR 34616The Tribunal granted Ms Owen equitable relief by making a declaration that she was the sole owner in equity, and subject to the charge in Mr Stewart’s favour ordered that he transfer his registered interest to her. It did not grant any of the relief sought by Mr Stewart.

What jurisdiction does VCAT have to make a declaration as to equitable interests in co-owned land or order transfer of title?

17The first two grounds of appeal deal with the question of jurisdiction. They are framed this way:

• (a)

  Does s 228 of the Act confer on VCAT jurisdiction to order a co-owner to transfer his or her part interest in divided land to a co-owner?

• (b)

  Does Part IV of the Act confer on VCAT jurisdiction to declare a co-owner hold his or her interest in land for another co-owner?

18The Tribunal gave specific consideration to whether it had jurisdiction and the source of its power. It said ‘I propose to draw attention to the provision in pt IV div 2 of the Act that are important to the determination that I am making.’ The Tribunal then set out the relevant provisions and a commentary on them which I replicate here:

• 80.

  The power to make the order for sale of the Clifton Hill property and division of the proceeds in the way that Mr Stewart has sought derived from ss 225 and 228, which, so far as presently relevant, provide:

  • 225

    Application for order for sale or division of co-owned land or goods

    • (1)

      A co-owner of land or goods may apply to VCAT for an order or orders under this Division to be made in respect of that land or those goods.

    • (2)

      An application under this section may request—

      • (a)

        the sale of the land or goods and the division of the proceeds among the co-owners.

    ......

  • 228

    What can VCAT order?

    • (1)

      In any proceeding under this Division, VCAT may make any order it thinks fit to ensure that a just and fair sale or division of land or goods occurs.

    • (2)

      Without limiting VCAT’s powers, it may order—

      • (a)

        the sale of the land or goods and the division of the proceeds of sale among the co-owners.

• 81.

  Section 232, so far as presently relevant, provides:

  • 232

    Other matters in VCAT orders

    • In any proceeding under this Division, VCAT may order—

    • (a)

      that the land or goods be sold by private sale or at auction ...

  ....

  • (i)

    in the case of land, that any necessary deed or instrument be executed and documents of title be produced or other things be done that are necessary to enable an order to be carried out

60 VR 347

• • (i)

    effectively ...

• 82.

  Section 233 has importance for the various claims that each party has made for monetary adjustments in the division of proceeds of sale of the Clifton Hill property, if there is an order for sale and division. For reasons that will appear below I have not found it necessary to decide most of those claims. The parts of s 233 that are relevant to the determination I am making are these:

  • 233

    Orders as to compensation and accounting

    • (1)

      In any proceeding under this Division, VCAT may order—

      • (a)

        that compensation or reimbursement be paid or made by a co-owner to another co-owner or other co-owners;

      • (b)

        that one or more co-owners account to the other co-owners in accordance with section 28A;

      • (c)

        that an adjustment be made to a co-owner’s interest in the land or goods to take account for amounts payable by co-owners to each other during the period of the co-ownership.

    • (2)

      In determining whether to make an order under subsection (1), VCAT must take into account the following—

      • (a)

        any amount that a co-owner has reasonably spent in improving the land or goods;

      • (b)

        any costs reasonably incurred by a co-owner in the maintenance or insurance of the land or goods;

      • (c)

        the payment by a co-owner of more than that co-owner’s proportionate share of rates (in the case of land), mortgage repayments, purchase money, instalments or other outgoings in respect of that land or goods for which all the co-owners are liable...

  The reference to s 28A in s 233(1)(b) is to a section that provides that a co-owner receiving more than “a just or proportionate share’ of that co-owner’s interest in property is liable to account to any other co-owner of the property.11

19The Tribunal then expressed the way in which jurisdiction arose in the following paragraph:

• 83.

  Mr Carr of Counsel for Mr Stewart did not dispute that the Tribunal has the power to make the order that Ms Owen seeks: that he transfer to her his equal undivided one third share as tenant in common of the Clifton Hill property. The power conferred by s 233(1)(c) to order an “adjustment” of his interest, by transferring it to Ms Owen, is limited to a case where there were “amounts payable by co-owners to each other during the period of the co-ownership”. This case does not fall into that category. I adhere to the view that I have expressed elsewhere, that the source of the power to make the order sought in s 228(1) when it empowers VCAT to make any order it thinks fit “to ensure that a just and fair sale or division of land” occurs; in a case where VCAT orders a physical division of co-owned land the order would be ineffective unless VCAT could go on to order that one co-owner

11

Tribunal Reasons[82].

60 VR 348

• 83.

  transfer one part of the divided land to the other. (citations omitted)12

20Jurisdiction is conferred on the Tribunal to hear applications pursuant to pt IV of the Act. The respondent takes no issue with the proposition that the Tribunal is a statutory tribunal of limited jurisdiction and has an exclusive jurisdiction to deal with applications under pt IV of the Act with specific exceptions.13 To invoke the jurisdiction an application must be made by a co-owner as provided for by pt IV. Applications may be made under s 225 for sale and/or physical division of the property and under s 234 for accounting. Applications under s 225, if granted, bring to an end co-ownership. Applications under s 234 adjust rights of co-owners without necessarily bringing to an end the co-ownership. Absent an application contemplated by Part IV of the Act being on foot the Tribunal does not otherwise have jurisdiction to make a declaration as to the interest of a co-owner.

21The orders that can be made by the Tribunal in any application are wide. They include orders for sale or physical division of land as set out in s 228, informed by the considerations in s 229 and s 230, as well as orders to control the method of sale (s 232), and orders as to adjustment and accounting (s 233 and s 234B).22A co-owner may have equitable as well as legal interests in the co-owned land.23Both parties accepted that the Tribunal has jurisdiction to consider equitable interests. The Appellant contended that this was confined to identifying equitable interests for the purpose of properly exercising its statutory power. The Respondent contended that once jurisdiction was invoked, the Tribunal had power to make any order including an order transferring title between co-owners to give effect to a declaration of an equitable interest.24The Court of Appeal recently made comment in Miller v Martin14 on the jurisdiction of the Tribunal to hear and determine claims based upon the equitable interests of co-owners. Three men purchased a beach house registered in their three names as tenants in common in equal shares. At the Tribunal there was a dispute as to whether the original purchase was made by a partnership formed by the three friends. Mr Miller disputed that a partnership existed and claimed he had paid the entirety of the purchase price and expenses so that the other co-owners held their interests on a resulting or constructive trust for him. Alternatively he made claims under ss 228 and 233 of the Act for orders that the house be sold and all net proceeds be paid to him.12

Ibid [83].

13

Division 4 of pt IV effectively gives VCAT exclusive jurisdiction for applications under pt IV save in certain circumstances listed in s 234C.

14

[2020] VSCA 4 (Miller).

60 VR 34925The Court described the first basis of his application as ‘the trust claims’ and the alternative application as ‘the statutory claims’. The Tribunal found that the partnership did exist and funds used to purchase the house were from the partnership bank account. The Tribunal therefore dismissed Mr Miller’s trust claims but it failed to deal with the alternative statutory claims. On appeal to the trial division the parties agreed that leave be granted and the appeal allowed insofar as the statutory claims could be remitted to the Tribunal to be determined. The appeal against the order dismissing Miller’s trust claim was dismissed.26Although the appeal pursuant to s 148 of the VCAT Act raised no challenge to the jurisdiction of the Tribunal to deal with the trust claims, the trial judge considered the Tribunal’s jurisdiction to do so. He said:

The commencement point is that VCAT is a creature of statute and does not have a general equitable jurisdiction ... But it is open to Parliament, expressly or by implication, to give power or — if the Tribunal has a duty to act according to law — give it the duty to recognise and apply equitable doctrines’ defences and remedies.15

27The appellant’s submission to me was consistent with the conclusion reached by Mukhtar AsJ when he said:

In exercising jurisdiction under pt IV of the Act and considering what order ought be made “to ensure that a just and fair sale or division of land or goods occurs” there will be a necessity intrinsic to that task, to be decided according to law, to determine the nature and extent of existing interests in the co-owned property be they at law or in equity. That is, in order to carry out and properly adjudicate the conferred jurisdiction, the Tribunal may have to consider the nature and extent of the interests that exist to decide if adjustments are to be made to a co-owners interest and to carry out the statutory jurisdiction to order a just and fair sale or division of land. It will be quite a different matter, of course, if a co-owner applied to VCAT not under pt IV of the Act, but in some other way for the declarations of trust that were sought in this case.16

28The Court of Appeal said this on the issue of the Tribunal’s jurisdiction to deal with equitable interests of co-owners:

Although the question does not arise on appeal to this Court, we agree with the trial judge’s decision in this respect.17(citation omitted)

29The Court of Appeal observed in Miller that the introduction of pt IV of the Act:

arose from a report of the Victorian Law Reform Commission titled “Disputes between Co-owners”. The reasons for reform were expressed in terms that applications to the Supreme or County Court to end co-ownership of property may involve needless expense or delay, and the advantages of having such applications heard at VCAT including: ‘lower costs, less formality [and] quicker hearing times’. Thus, the main purpose of pt IV of the Act is to confer jurisdiction

15

Miller v Martin[2018] VSC 444[150] (Mukhtar AsJ) (Miller v Martin).

16

Ibid [152].

17

Miller [2020] VSCA 4[73] (Niall JA, Hargrave JA, Ashley JA).

60 VR 350

on VCAT wherever the parties chose to, or acquiesce in, the invocation of its jurisdiction in preference to other available forums to resolve their co-ownership dispute.18 (citations omitted)

30What is clear from the reasoning of the trial judge, approved by the comments of the Court of Appeal, is that the Tribunal may have to make findings about beneficial interests in land in order to make its ultimate determination on applications before it and the orders that are appropriate in disposing of those applications. In other words it will be necessary to determine equitable interests of co-owners for the purpose of making orders that are just and fair associated with the sale or division of land or the accounting as between co-owners. It is not otherwise empowered to make orders dealing with equitable interests of co-owners.31Mukhtar AsJ specifically left open a question as to whether the Tribunal can or ought give a declaration as a remedy. He noted that Mr Miller’s primary claim was for declaratory relief and a transfer of the co-owners title to make him sole proprietor. Clearly that primary claim and relief resembled an equity proceeding. The dismissal of the proceeding by the Tribunal meant that it’s finding, (that a resulting trust was not imposed), had not been applied to the conferred jurisdiction to order a just and fair sale or division of land as was required. Whether or not an accounting as between co-owners might produce the outcome that Mr Miller sought — sale of land and distribution of proceeds to him 100% — was a matter remitted to the Tribunal to be determined in accordance with findings already made. As is clear from the Court of Appeal reasons a sale and distribution of proceeds order was ultimately made by the Tribunal.1932The Respondent argued before me that the wording of s 228 empowered the Tribunal to make ‘any’ order and that this included the transfer of title between co-owners even if there is no sale or physical division of land.33The Tribunal determined, at paragraph 83, that the power to make the declaration and order the transfer lay within s 228 and not s 233. That section provides in full:

• 228

  What can VCAT order?

  • (1)

    In any proceeding under this Division, VCAT may make any order it thinks fit to ensure that a just and fair sale or division of land or goods occurs.

  • (2)

    Without limiting VCAT’s powers, it may order—

    • (a)

      the sale of the land or goods and the division of the proceeds of sale among the co-owners; or

    • (b)

      the physical division of the land or goods among the co-owners; or

    • (c)

      that a combination of the matters specified in paragraphs (a) and (b) occurs.

18

Ibid [126].

19

Ibid [89].

60 VR 351

As can be seen above at paragraph [18] when the Tribunal set out s 228(2) it omitted subparas (b) and (c). Similarly in setting out s 225 it omitted applications for a physical division of the land as contemplated by s 225(2)(b) and (c). In both provisions the express wording of the legislation describes a physical division of land. Division is the language used where formerly ‘partition’ of the land was the remedy.20

34The Tribunal reasoned that its power to order the sale or division of land would be ineffective if ‘in a case where VCAT orders a physical division of co-owned land the order would be ineffective ... unless VCAT could go on to order that one co-owner transfer one part of the divided land to the other’.21 The first ground of appeal replicates the language used in this final sentence of para 83 of the Tribunal reasons. The sentence contains an error. As tenants in common, each co-owner holds an undivided share of the property. The share of title describes their proportionate interest but they do not hold divided parts of the land unless an order is made for the physical division of the land.35The Senior Member adopted his reasoning from an earlier Tribunal decision of Binns v Binns.22 In Binns one brother applied for an order that another brother with whom he was a co-owner, transfer his share of co-owned land upon payment of the share of the value of the land or alternatively the land be sold and the proceeds divided in accordance with their legal interests. The parties were agreed that the property should be sold and the co-ownership brought to an end. They were at odds as to whether that sale should be by one co-owner to the other at fair market value or to the public. The Tribunal there dealt with the power to order a ‘transfer’ to give effect to a sale by one co-owner to another. The case did not involve any equitable interests in the land and the transfer was an order as part of a series of orders dealing with the process of sale.36Binns in turn followed the reasoning in Pavlovich v Pavlovich (Real Property)23 which accepted that the term ‘division’ of land was wide enough to include a transfer even though the word transfer is not used in connection with powers of the Tribunal to deal with a co-owner’s interest in land. In Pavlovich a co-owner, the son, was found to have a bare legal interest equitably held on trust for the other co-owner, his elderly mother. The mother did not wish to sell the property. She wished to leave it as part of her estate to the beneficiaries in due course. While her son remained a tenant in common the property would pass to him on his mother’s death. The Tribunal member noted in her reasons that an order for transfer of title was not ordinarily sought.24 She was persuaded however that a physical division of land encompassed the power to transfer title describing it as a ‘swap with 20

See Edelsten v Burkinshaw [2011] VSC 362[26] (Kaye J) (Edelsten).

21

Tribunal Reasons[83].

22

[2018] VCAT 759 (Binns).

23

[2012] VCAT 869 (Pavlovich).

24

Ibid [13].

60 VR 352a monetary adjustment’.2537The reasoning in Pavlovich relied in particular on two decisions of this court: Edelsten26 and Krsteski v Jovanoski.27 With respect I do not think either of those cases demonstrate that the Tribunal has a power to order the transfer of title amongst co-owners unless it is to achieve either a sale or physical division of land or as a result of an adjustment of interest under s 233.38In Edelsten, this Court, exercising jurisdiction to determine claims under pt IV of the Act on the basis of an exception contained in s 234, made orders to transfer interests in land. Those transfers were consequent upon the orders for a physical division in preference to a sale of the land. The three persons held two certificates of title as tenants in common. It was held to be just and fair that each became sole proprietor of that portion of the land where they had lived and farmed for many years. To achieve that result required a physical division of one of the certificates of title and then a transfer of title consequent upon the physical subdivision of the land which took account of the various interests of the co-owners both from use of the co-owned land and the partnership activities. In this way the order transferring legal title was associated with the physical division of land so that the division was just and fair.39It was said by the Tribunal in Pavlovich that Krsteski assumed a power to transfer. The reasoning of Macaulay J makes it clear that he regarded both legal and equitable interests required determination, jurisdiction having been engaged by a co-owner applying for sale. Having so engaged the jurisdiction of the Tribunal, it was necessary for the respondent co-owner to show that the applicant held only a beneficial interest on trust for the co-owner so as to deny the co-owner the relief of sale of the property that was sought. As the co-owner failed to do so, the Tribunal properly made an order for sale and distribution of proceeds in accordance with the co-owners interests. The appeal from the cross-claim of beneficial ownership of the whole property failed. The remedy of transfer of interest consequent on a finding of a beneficial interest may well have been assumed by the parties but its availability at the Tribunal was not considered by Macaulay J.40Finally in Pavlovich the Tribunal accepted that ‘the power of transfer is encompassed in the power of “division" of land’.28 It was described as ‘a division by way of transfer with monetary swap adjustment’.29 A transfer between co-owners is not a division but rather a redistribution of interests. I do not think that a power of transfer between co-owners is encompassed within a power to order the physical division of land.25

Ibid [28].

26

[2011] VSC 362.

27

[2011] VSC 166 (Macaulay J) (Krsteski).

28

Pavlovich[2012] VCAT 869[36] (emphasis in original).

29

Ibid.

60 VR 35341The transfer of an undivided interest between holders of that undivided interest could not be said to be itself a physical division of the property. Bearing in mind that co-owners as defined each have an indivisible share of the entire land or goods, a dispute as to financial accounting will not necessarily end the co-ownership even if it requires an adjustment to a co-owner’s interest in the land. The exercise of accounting or compensation may adjust interests without ending the co-ownership. Sale or physical division ends the co-ownership and any transfer of title is then a consequence of the ending of co-ownership.42Any order transferring title as between co-owners must derive from the statutory power to order sale of the property, a physical division of the property, a combination of both, or by a determination that the adjustment of interest in an application between co-owners requires the transfer. In my view the reasoning of both Kaye J and Macaulay J is consistent with this approach.43Before the Tribunal, leaving aside the question of constructive trust, the unequal contributions and differing occupation of the property by each of the co-owners and their departures from their written agreement called for an adjustment of their respective interests. As both had made contributions, the Tribunal having determined any adjustment and compensation had to determine whether or not it would make an order for the sale of land.44It may be that in such an accounting generally one co-owner’s interest in land is adjusted to nil value or to 100% of the value, so that any adjustment of interest in the land would result in one co-owner holding the entire indivisible share bringing to an end the co-ownership, but that was not the finding of the Tribunal.45In Pavlovich, the mother wished to end the co-ownership but did not wish to sell the property. Her wishes were a relevant consideration for the Tribunal in the making of any order under s 228. Where a sale is not desired by a co-owner the Tribunal does have power to order an adjustment of the legal interest of one co-owner in the exercise of its statutory jurisdiction pursuant to s 233(1)(c). Where on consideration of both the legal and equitable interests of co-owners the position is that there is only one owner, the Tribunal can make orders pursuant to s 232 to give effect to those findings.46If the Tribunal was correct in its conclusion that Mr  Stewart held his one third share upon a constructive trust for Ms Owen, it should have dismissed his application for sale and division of the proceeds and proceeded to determine the remaining statutory claim for adjustment and compensation. Some of the necessary findings in that regard have been made by the Tribunal, notwithstanding its conclusion as to the imposition of a constructive trust, but the claim for occupation rent was not decided.47There was no power, having found an equitable interest held in favour of 60 VR 354Ms Owen, to offset this by the imposition of an equitable charge in favour of Mr Stewart, and thereby require a transfer of title. If the position in equity of the co-owners showed that they both had an interest of value in the undivided property then the Tribunal could sell the property or adjust the legal interest of one or other of them. It could not compel transfer of title. The Tribunal’s order compelling Mr Stewart to do so was attended by error.48For the reasons outlined below, I have determined that there is also error in the imposition of a constructive trust. It is not necessary therefore to determine whether, in the absence of any order required to determine statutory claims, there is jurisdiction to grant a remedy by way of declaration of the equitable interest of a co-owner pursuant to s 124 of the VCAT Act.

Imposition of a constructive trust

49The second issue in this appeal deals with whether the Tribunal identified and applied the correct legal test for the imposition of a constructive trust over Mr Stewart’s one third legal interest.50Ms Owen raised four arguments as to why Mr Stewart held his legal interest beneficially on her behalf. Three of these were rejected by the Tribunal and need only be briefly mentioned. They were:

• (a)

  It was the common intent of the parties that she hold the entire beneficial interest in the land. The Tribunal was not satisfied that a common intent was established.30

• (b)

  Ms Owen having made a greater contribution to the purchase price led to Mr Stewart holding his interest subject to a resulting trust in her favour to the extent that reflects her greater contribution to the purchase price. A resulting trust arising from unequal contributions to purchase price would result in 40.69% contributed by Mr Stewart and 59.31% by Ms Owen. The Tribunal held that the 1986 written agreement rebutted any presumption of a resulting trust.31

• (c)

  Ms Owen alleged unconscionable dealings and duress such that Mr Stewart took advantage of a power imbalance between them and coerced her into signing the 1986 agreement. She also asserted a breach of a fiduciary duty owed to her. The Tribunal rejected the argument that their relationship gave rise to any fiduciary duty and rejected the argument that there was any duress or coercion in making the 1986 agreement.

51The fourth argument was that a constructive trust arose, irrespective of the intent of either, because it was unconscionable for Mr Stewart to assert his legal interest to the exclusion of Ms Owen’s equitable interest. The Tribunal 30

Tribunal Reasons[94].

31

Ibid [86].

60 VR 355said ‘Whether it is unconscionable for Mr Stewart now to assert that he has a one-third beneficial interest in the Clifton Hill property, and to deny that Ms Owen has the sole beneficial interest as she claims, is to my mind the most important question in this proceeding’.3252There were three circumstances said to give rise to the finding that it was unconscionable for Mr Stewart to assert his one third legal interest.53They were set out at para [102]:

• (a)

  He enabled Ms Owen to sign and send to the Official Trustee the letter dated 2 July 1992 which stated that he had no beneficial interest in the Clifton Hill property. There was no evidence that he urged Ms Owen to sign and send that letter, but he had an input into a draft of that letter and approved the draft. By doing so he gave Ms Owen reason to be reassured that he shared her belief that she had the sole beneficial interest in the Clifton hill property and that he did not have any beneficial interest in it.

• (b)

  During the years that the Clifton Hill property was let to tenants, Mr Stewart largely left its management in the hands of Ms Owen. The rent was paid into her bank account. The instalments for repayment of the mortgage loan came out of that bank account. She paid all rates and insurance premiums. Except for one payment by Mr Stewart of $1,500.00 towards roof repairs, all money spent on maintenance and upkeep came from Ms Owen. Mr Stewart allowed Ms Owen to treat the Clifton Hill property as if it were her own.

• (c)

  Once Ms Owen and Michele took up occupation of the Clifton Hill property, Mr Stewart continued to allow her to treat the Clifton Hill property as if it was her own, except that he paid mortgage loan instalments until 2008 and made a small payment to discharge the mortgage. Ms Owen continued to pay all rates and insurance premiums and continued to pay for all maintenance and upkeep. Although (so I have found) the parties discussed the matter of an occupation rent that would be payable by Ms Owen after Michele turned 18, the matter was never raised again before this proceeding commenced.33

54The Tribunal referred to the imposition of a constructive trust as a remedy afforded by equity irrespective of intent. It outlined a summary of the facts and statement of principle from the cases of Muschinski v Dodds34 and Baumgartner v Baumgartner.3555In Muschinski tenants in common who had made unequal contributions but whose registered titles were of equal undivided shares were declared to hold their respective legal interests upon trust to repay each other his or her respective contribution and as to the residue for them both according to their legal interest. The court observed that their common intent at the time of purchase was that they be equal legal and beneficial owners.56When the domestic relationship between them failed and the planned use 32

Ibid [27].

33

Ibid [102].

34

(1985) 160 CLR 583 (Muschinski).

35

(1987) 164 CLR 137 (Baumgartner).

60 VR 356of the land was thwarted by problems obtaining council planning that common intent was not realised. Mrs Muschinski who had provided the lion’s share of the contribution to purchase and improvements sought to obtain an order that she was the sole beneficial owner and Mr Dodds held his interest in trust for her. Mr Dodds had cross-claimed seeking sale and distribution of the proceeds equally between the parties in accordance with their registered interest regardless of his lesser contribution. In determining whether a constructive trust was imposed Deane J said:

Mr Dodds is left as a half owner of the property in circumstances (ie, the collapse of the joint endeavour) to which the parties did not advert and in which it was not specifically intended or specially provided that Mr Dodds should enjoy a benefit at Mrs. Muschinski’s expense. In these circumstances, the operation of the relevant principle is to preclude Mr. Dodds from asserting or retaining, against Mrs Muschinksi, his one half ownership of the property to the extent that it would be unconscionable for him so to do. In assessing whether or to what extent such an assertion or retention of legal entitlement by Mr. Dodds would constitute unconscionable conduct, one is not left at large to indulge random notions of what is fair and just as a matter of abstract morality. Notions of what is fair and just are relevant but only in the confined context of determining whether conduct should, by reference to legitimate processes of legal reasoning, be characterized as unconscionable for the purposes of a specific principle of equity whose rationale and operation is to prevent wrongful and undue advantage being taken by one party of a benefit derived at the expense of the other party in the special circumstances of the unforeseen and premature collapse of a joint relationship or endeavour.36 (emphasis added)

57Deane J’s conclusion was that Mrs Muschinski failed to establish that it would be unconscionable conduct on the part of Mr Dodds to assert and retain his one half share of the estate, such that he held his interest upon trust for her. He concluded however, that it was unconscionable of Mr Dodds to assert his full one half interest in the property against Mrs Muschinski without making any allowance for the fact of the greater contribution by her. He thought it appropriate therefore to order that both parties held the property upon constructive trust for the other so that on realisation of the asset each is entitled to repayment of their respective contribution and as to the residue in equal shares in accordance with their legal interest, Mason J agreed. Gibbs CJ thought that the appeal court below was correct to conclude that Mr Dodds’ interest was not subject to any trust in favour of Mrs Muschinski but took the view that on sale of the property there must be an equitable accounting between parties. On this basis he agreed with the orders proposed by Deane J.58After Muschinski was decided the court again considered constructive trusts in Baumgartner. There the property was purchased in the name of one partner only by a couple in a de facto relationship. There the court said that:

the foundation for the imposition of a constructive trust in situations of the kind

36

Muschinski(1985) 160 CLR 583, 620–1.

60 VR 357

mentioned is that a refusal to recognise the existence of the equitable interest amounts to unconscionable conduct and that the trust is imposed as a remedy to circumvent that unconscionable conduct.37

In Baumgartner the unconscionable conduct was the assertion after the relationship had failed that the property, financed in part from pooled funds, was the sole property of the appellant who held the legal interest to the exclusion of the respondent who had contributed to the pooled funds. Once a constructive trust arose, it was necessary for the court to determine the terms of that trust as to the sharing of beneficial ownership whether equally or subject to some adjustment reflective of disparity of respective contributions.

59These cases demonstrate that the hallmark of unconscionability was the assertion by one registered owner of their legal right without acknowledging any equitable interest of others in the property. It is the assertion of legal right to the exclusion of or at the expense of the other’s interest that calls for protection. The imposition of a trust so that the legal owner holds their share for the benefit of the other is a remedy that protects the beneficial owner in the event of any dealings with the property. This is clear from the emphasis added to the passage quoted above from the judgment of Deane J. The trust in each of Muschinski and Baumgartner was imposed to adjust the rights and obligations of parties as between themselves to compensate for the disproportion between contributions and the identification of legal interest. As was said in Muschinski:

In the absence of any suggestion of direct payment by Mr. Dodds to Mrs. Muschinski to achieve a like result, that adjustment requires, at the least, that the parties be proportionately repaid their respective contributions to the extent allowed by the proceeds of any sale. It becomes necessary to consider their entitlement in equity to share in any surplus after the discharge of any debts...and the repayment to them of their respective contributions ... the extent to which the relevant principle of equity operates to qualify legal entitlement is only that to which it positively appears that it would be unconscionable for one party to assert or retain the benefit of property contributed by the other party.38

60Therefore the question for the Tribunal was whether Mr  Stewart asserted a legal interest that disregarded Ms Owen’s equitable interest in a way that was unconscionable so that a constructive trust was imposed to protect her interest from being excluded. This consideration begins from the starting point that there was no common intent that Ms Owen hold the entire beneficial ownership.61Like Mrs Muschinski, Ms Owen argued that the whole of the legal interest was held in trust for her. She made no attempt to identify a beneficial ownership greater than her two thirds legal interest attributable to the disparity in the financial contributions. Rather her argument was simply 37

Baumgartner(1987) 164 CLR 137, 147 (Mason Wilson & Deane JJ).

38

Muschinski(1985) 160 CLR 583, 622–3.

60 VR 358that she held sole beneficial interest in the property.62The Tribunal concluded from its consideration of Muschinski and Baumgartner that:

the situation in which a constructive trust arises has the following features:

• (i)

  There has been a relationship or joint endeavour which has broken down without any blame being attributable to one party to it.

• (ii)

  There has been a financial contribution by one or both parties to the relationship or to the joint endeavour.

• (iii)

  In these circumstances, and in all circumstances, it would be unconscionable for one party to the relationship or joint endeavour to retain a benefit greater than that party’s contribution.39

63While it is true that Muschinski was characterised as a relationship and a joint endeavour which had both broken down without blame and so met the first two of the three characteristics that the Tribunal identified, it is not to say that either is a feature necessarily giving rise to the imposition of a trust. The court approached the task on the basis that the arrangement of Mrs Muschinski and Mr Dodds was consensual and non-contractual so that rules regulating failed joint ventures or partnership might be relevant. Fundamentally, the reasoning recognised that ‘it will often be inappropriate simply to draw a line leaving assets and liabilities to be owned and borne according to where they prima facie lie, as a matter of law, at the time of failure’40 so that equitable remedies are appropriate. It is the retention of a contribution greater than was made to the joint venture at the expense of the other party’s contribution that was the necessary feature for a constructive trust to be imposed.64The Tribunal found that the joint endeavour of the parties was the acquisition of an investment property. It concluded this venture ended in 2000 when the parties agreed that Ms Owen and their daughter could take up residence there. To my mind it does not necessarily follow that the changed residency arrangements meant an end to any joint endeavour. It was not an unforeseen outcome as the 1986 agreement expressly provided for such circumstances. They retained an asset that could be rented or lived in or sold by agreement between them.65However, the Tribunal’s finding as to the ending of the joint endeavour was not essential to a proper analysis regarding the imposition of a constructive trust. The circumstances are merely illustrative of occasions in which equity will intervene between parties if it is necessary to do so. The fundamental feature of a constructive trust is the need for a remedy preventing a person from exercising their legal right because to do so would be unconscionable. The essential question was whether Mr Stewart asserted his legal one third interest to the exclusion of any beneficial entitlement owed to Ms Owen by her greater contributions to the venture. The answer to that question 39

Tribunal Reasons[98].

40

Muschinski(1985) 160 CLR 583, 618 (Deane J).

60 VR 359required both an accounting of the contributions and obligations of both parties as well as an assessment of whether there was any entitlement in equity to share any gain, or bear any loss in the remaining value of the investment different to a share based upon their legal interests.66The appellant submitted that the Tribunal did not undertake this exercise because it accepted that a finding of unconscionability led to the conclusion that the respondent was the sole beneficial owner. I agree.67Two of the circumstances that the Tribunal found to be unconscionable conduct were described as ‘permitting Ms Owen to treat the property as her own’ during the period of tenancy and continuing to do so once she commenced living there. Finding there was no common intent that she be the sole beneficial owner, it is hard to see any basis for concluding that this behaviour disadvantages Ms Owen’s interest in the property. This is subject of course to recognising a measurable equitable interest that might arise from her greater contributions to expenses. Mr Stewart has not submitted that adjustment as between them should not occur. The fact that she treated the property as her own, even with his acquiescence, does not amount to any failure by Mr Stewart to recognise any greater equitable interest held by Ms Owen. Nor by itself would it lead to Ms Owen obtaining a greater beneficial interest.68The Tribunal made a number of findings which demonstrated that from 2000 the parties continued to conduct themselves on the basis that both had rights and obligations in relation to the property. In the absence of any ongoing personal relationship, Mr Stewart agreed to meet mortgage obligations and both signed a further loan agreement with the bank. Mr Stewart told Ms Owen she would need to meet her share of obligations, or the property would have to be rented out again to cover the mortgage, if she also sought payment of child support from him. Both parties then reached an agreement acceptable to them both as to their co-ownership of the property. The Tribunal was in error is concluding that ‘permitting Ms Owen to treat the property as her own’ amounted to conduct requiring the imposition of a constructive trust on Mr Stewart’s entire one third legal interest.69The third circumstance was the 1992 letter to the Trustee in Bankruptcy. That letter was a representation by Ms Owen. Mr Stewart’s conduct which is said to be unconscionable was to ‘reassure her in the belief that she had sole beneficial ownership’ by agreeing that she send the letter asserting sole beneficial ownership. If Ms Owen held that belief it was misguided absent common intent, given the 1986 agreement demonstrated that she did not hold sole beneficial ownership.70The relevant inquiry is not whether the representation to the Official Trustee was fair and just or even accurate. The letter may well have had the effect of protecting the interests of both title holders from action by the 60 VR 360Official Trustee. The letter’s content was inconsistent with the finding of the Tribunal that there was no common intent that Ms Owen hold the entire beneficial interest. Imposition of a constructive trust is not concerned with random notions of fairness as abstract morality. Ms Owen cannot gain a greater equitable interest for herself at the expense of Mr Stewart’s interest by the representation. The Tribunal was in error concluding that as a result of Ms Owen’s representation to the Trustee in Bankruptcy, Mr Stewart was unconscionably enjoying the benefit of contributions made by Ms Owen while refusing to recognise her entitlement such that a constructive trust should be imposed over his entire legal interest.71It is appropriate for these reasons to grant leave to appeal and to allow the appeal. The matter is to be remitted to the Tribunal for the hearing of further evidence on occupation rent from 2005 onwards and determination of the applications before the Tribunal in accordance with these reasons.72I will receive submissions from the parties as to the appropriate costs orders and ancillary orders.Leave to appeal granted. Appeal allowed. Solicitors for the appellant: Advocatus Legal. Solicitors for the respondent: Elliott Stafford and Associates. M BAILEYSOLICITOR