Wallis v Wallis
[2017] SASC 91
•1 June 2017
Supreme Court of South Australia
(Appeals to a Single Judge: Civil)
WALLIS & ORS v WALLIS & ANOR
[2017] SASC 91
Judgment of The Honourable Chief Justice Kourakis (ex tempore)
1 June 2017
PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - DISCOVERY OF DOCUMENTS - ORDERS FOR FURTHER AND BETTER DISCOVERY
EQUITY - EQUITABLE REMEDIES - EQUITABLE COMPENSATION
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - CONDUCT OF PARTIES
Appeal against a decision of a Master of this Court refusing an application for further and better disclosure.
The plaintiffs and defendants are family and operated a farming business together. The plaintiffs say they worked on the farm for little reward on the basis of promises made by the first defendant and her husband that the plaintiffs would eventually own half the farm. The relationship between the parties broke down and the plaintiffs left the farm. The plaintiffs claim that a constructive trust should be imposed over half the land in their favour from the time they left the farm. If a constructive trust is imposed the plaintiffs seek an account of profits earned by the defendants for the use of land over which they held equitable title. In the alternative they seek equitable compensation from that time.
The defendants applied for further and better disclosure relating to the plaintiffs’ earnings once they left the farm. A Master of this Court dismissed that application on the basis that the plaintiffs’ earnings after that time could not be relevant to an issue on the pleadings, namely the plaintiffs’ claim for relief.
The defendants appeal to this Court arguing that equitable principles require the Court to examine all the circumstances, including the plaintiffs’ earnings, to fashion an appropriate remedy. The plaintiffs contend the appropriate relief is generally to enforce a promise and if that is not appropriate, to order equitable compensation. The plaintiffs say that inquiry concerns the defendant’s conduct and so their earnings are not relevant.
Held per Kourakis CJ, dismissing the appeal:
1. If the plaintiffs succeed, the relevant inquiry in awarding relief is the equity denied to the plaintiffs when the first defendant revoked her promise. Any account of profits awarded would compensate for the defendants’ use of the farm to which the plaintiffs have equitable title. The plaintiffs’ earnings after they left the farm are not relevant.
2. This appeal arose on the basis of counsel for the defendant misunderstanding the plaintiffs’ statement of claim, specifically their claim for an account of profits, despite the plaintiffs making their position clear before the Master in both written and oral submissions. Counsel for the defendant could have taken further steps to clarify the plaintiffs’ position thereby avoiding the appeal.
3. The defendants, appellants on this appeal, are to pay the plaintiff’s, respondents on this appeal, costs on a solicitor/client basis.
Supreme Court Act 1935 (SA) s 30, referred to.
Delaforce v Simpson-Cook [2010] NSWCA 84; Giumelli v Giumelli (1999) 196 CLR 101; Rodda v Rodda [2015] SASC 95; Sullivan v Sullivan & Ors [2015] NSWCA 312; Warman International Limited v Dwyer (1995) 182 CLR 554, discussed.
WALLIS & ORS v WALLIS & ANOR
[2017] SASC 91Appeals to a Single Judge: Civil
KOURAKIS CJ (ex tempore): This is an appeal against a decision of a Master of this Court dismissing the appellant's interlocutory application for further and better disclosure. It is necessary to set out a little of the background before dealing with the primary issue on this appeal.
The substantive proceedings arise out of the breakdown of a family farming partnership. The first respondent, Mr Raymond Wallis, Raymond, and the second respondent, Ms Jennifer Wallis, Jennifer, are husband and wife and the plaintiffs in the action. I will refer to the respondents collectively as such.
The first appellant, Ms Cynthia Wallis, Cynthia, is Raymond’s mother and the second appellant, Mr Hayden Wallis, Hayden, is Raymond’s brother. I will refer to them collectively as the defendants. The only other party to this litigation is Warrindi Nominees Pty Ltd, Warrindi, the third appellant which is the company that currently hold the family farming property. Cynthia and Hayden are directors of Warrindi. Raymond is a former director of that company.
The plaintiffs say they worked in the family farming business on the family farming properties from 1972 and 1982 respectively, until about 2009. They claim that they did so relying on promises made by Cynthia and her husband, now deceased, Max, that upon their retirement the plaintiffs would become part-owners of the family farming properties with Haydon. It is the plaintiffs’ case that because of that promise they worked for very little reward.
From about December 1992, after Max had passed away, Raymond, Jennifer, Cynthia and Hayden operated the family farming business pursuant to a written partnership agreement. In about 2009 the relationship between the plaintiffs and the defendants broke down irretrievably. As a result, the partnership agreement ceased on 30 September 2009, there has been no final accounting in the partnership.
The plaintiffs claim the following as principal relief:
·a declaration that Warrindi holds the farming properties, with some exceptions on trust as to one half for the plaintiffs, and one half for Hayden;
·an order that Warrindi as trustee transfer one-half of the properties to the plaintiffs;
·in the alternative, that the defendants pay the plaintiffs equitable damages and equitable compensation;
·a declaration that the interest acquired by the plaintiffs in the post-2009 farming properties, the profits from farming the family properties in the years 2010-2015 and the assets of the partnership are held by the defendants on a constructive trust for the plaintiffs as to their 50 per cent share.
On 7 September 2016 the defendants filed an interlocutory application seeking further and better disclosure of a number of different categories of documents. The only live issue which remained when the interlocutory application came on for hearing was whether the plaintiffs should disclose their personal tax returns for the period after 30 June 2010, that is after they left the farm. The defendants claimed that those documents were relevant to the plaintiffs' claims for equitable compensation, and more particularly because the plaintiffs claimed a 50 per cent interest in the profits derived from the farming properties since around 2009, which was when the constructive trust was alleged to commence. In general the defendants contend that evidence of the plaintiff’s post-2009 income is relevant because equity has regard to all of the surrounding facts and circumstances when determining the order which most appropriately ‘compensates the plaintiffs for their loss’.
In the course of the submissions made this morning, it appears that the defendants' contention, to some extent at least, was based on a misapprehension that the plaintiffs made a monetary claim for the income they had lost by being denied the opportunity to expend their labour on their interest on the farm after 2009. After I expressed some surprise that the plaintiffs’ claim could have been so understood, Mr Burnett, the plaintiffs’ counsel before the Master and on this appeal, read into the transcript of today's proceedings paras 3 and 10 of the written submissions he made before the Master. Those submissions make it clear that the plaintiffs claimed:
·a constructive trust over, and a transfer of their interest in, the land;
·in the alternative, equitable compensation for the loss of their interest in the land;
·a declaration that they were entitled to an account of the profits made by the defendants from their interest in the land.
The plaintiffs’ oral submissions before the Master were to the same effect. I am satisfied on reading the transcript that at least at one point in the course of the submissions before the Master, the defendants' counsel so understood the nature of the plaintiffs' claim.
The Master dismissed the defendants’ application on 9 March 2017 and ordered that the defendants pay the plaintiffs' costs of the application. First, the Master held that if the primary relief, the constructive trust was imposed, it was likely that there would be an order that the property be transferred and the plaintiffs’ post-2010 tax returns were not relevant to that issue. Second, the Master held that equitable damages are not likely to be awarded pursuant to s 30 of the Supreme Court Act 1935 (SA). There appears to be no challenge to that observation by either the plaintiffs or the defendants. Finally, the Master noted that the purpose of equitable compensation is to compensate the plaintiffs for the defendants' wrongdoing. Therefore, the Court’s inquiry is directed to the defendants' wrongdoing in departing from the representation which induced the relevant expectation, rather than the plaintiffs' conduct once the relationship broke down. For equitable compensation there is no duty to mitigate the loss and the post-2010 tax returns were therefore not relevant.
The defendants appealed against the Master's decision by Notice of Appeal filed on 31 March 2017. In summary the defendants appealed on the ground that the Master erred in finding that the plaintiffs' post-2010 income was not relevant to any issue in the action. The defendants seek an order setting aside the Master's orders on the application and orders instead that the plaintiffs disclose:
·their personal tax returns for the years 2009-2016;
·the PAYG statements for the years 1992-2016;
·bank statements and records for the years 1992 to a date ordered by the Court and;
·any document or record relevant to their employment and earnings for the years 1992 to a date ordered by the Court;
The defendants also seek their costs of and incidental to the application.
It is uncontroversial that the parties to an action are only required to disclose those documents which are directly relevant to the issues on the pleadings and that documents are relevant if they tend to prove or disprove a matter which is in issue. To make good their ground, the defendants rely on broad statements of principle governing equitable remedies including but not limited to:
·equitable remedies are discretionary;
·equity looks to conscience to do justice between the parties;
·any remedies should fit the nature, circumstances and facts of the case;
·courts award remedies with the full benefit of hindsight;
·relief should be proportionate to the detriment suffered; and
·equity does not punish nor unjustly enrich.
The defendants contend that the Court should have information on the plaintiffs’ post-2009 income so that it can fashion a remedy based on all of the relevant circumstances. They contend that to do otherwise would be at odds with the objective of equitable compensation, which is to put those who have suffered loss in the position they would have been had there been no breach of the equitable obligation.
The plaintiffs on the other hand submit that claims of proprietary estoppel and the related imposition of a constructive trust usually involve the enforcement of a promise. Enforcement of that promise requires assessment of the appropriate relief to be granted. According to the plaintiffs the appropriate relief is generally to enforce a promise and if that is not appropriate, to order equitable compensation. The plaintiffs contend that on a claim of the kind they make, the proper approach is:
1The primary remedy is enforcement of the promise, ie transferring the property.
2If the promise cannot be enforced because it is impractical, then the court will award equitable compensation to the value of what the plaintiff would have had, had the promise been fulfilled.
3The court may withhold a remedy if the relief is out of proportion to the detriment suffered if the promise made is unfulfilled or the plaintiffs' conduct has diminished his or her equity.
The plaintiffs' contentions are not disputed and can be accepted subject to some qualification of the contention that enforcement is the primary remedy. It is important, as was observed in Warman International Limited v Dwyer,[1] to keep in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts. Moreover, the High Court in Giumelli v Giumelli observed:[2]
Before a constructive trust is imposed a court should first decide whether having regard to the issues in the litigation there is an appropriate equitable remedy which falls short of the imposition of trust.
[1] (1995) 182 CLR 554.
[2] (1999) 196 CLR 101.
However, it must be observed that what is ‘appropriate’ need not be the minimum equity which will do justice. The question is what is the most appropriate remedy having regard to all of the circumstances and the objective of preventing an unconscionable departure from the representation on which the plaintiff has relied.
The principles to be applied in determining whether an equitable remedy ought to be granted and in fashioning the appropriate remedy, were conveniently summarised by Nicholson J in Rodda v Rodda:[3]
[3] [2015] SASC 95 at [90].
(i)A proprietary estoppel by encouragement may be established where the conduct of the party estopped did not define the expectation. Although, the quality of the assurances which give rise to the expectations may influence the issue of reliance and the question of reliance and detriment are often intertwined.
(ii)The detrimental reliance that supports the estoppel need not constitute, in any sense, a consideration moving to the party bound. It is a unilateral element to the estoppel and not the price paid for it.
(iii)Relief depends very much on the facts: the circumstances of each case will determine the way in which the equity can be satisfied.
(iv)Since Giumelli, it is not the law in Australia that the Court is to look for the minimum equity to do justice to the plaintiff.
(v)Relief may be moulded to recognise practical considerations such as the need for a clean break.
(vi)The court must also take into account the impact of its orders on third parties and any hardship or injustice they would suffer.
(vii)Relief may be refused or reduced if the plaintiff’s equity has been diminished by later events.
(viii) Subsequent events may also enlarge the plaintiff’s equity.
(ix)Relief may also be limited where the enforcement of the plaintiff’s expectation would be out of all proportion to the detriment; this is particularly so where the expectation was not defined and the court has a broader discretion. (This notion is amplified in the next full paragraph).
(x)The courts should, prima facie, enforce a reasonable expectation which the party bound created or encouraged. In Giumelli the plurality judgment quoted, with approval, Deane J in Commonwealth v Verwayen.
Prima facie, the operation of an estoppel by conduct is to preclude departure from the presumed state of affairs. It is only where relief framed on the basis of that assumed state of affairs would be inequitably harsh, that some lesser form of relief should be awarded.
The plurality judgment continued.
The prima facie entitlement to which [Deane J] had referred would be qualified if that relief would “exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party”; an appropriate qualification might be a requirement that the party relying upon the estoppel do equity.
(citations omitted)
I observe that in elaborating on the principle of proportionality in principle (ix), Handley AJA in Sullivan v Sullivan & Ors[4] observed that equity will not grant a remedy which exceeds that which can be justified by the requirement of conscientious conduct and will not grant a remedy which works an injustice on the party estopped.
[4] [2006] NSWSCA 312 at [24]-[29] (Handley AJA).
Importantly I observe that principle (vii) provides that relief may be refused or reduced if the plaintiffs' equity has been diminished by later events. The later events must be relevantly connected to the detriment suffered or the promise made. A wrongdoer will not be relieved of the obligation to act conscientiously because of the subsequent good fortune of the plaintiff which is unrelated to the relevant promise and corresponding detriment.
In this case if the plaintiffs make good their allegations of fact they will, on the face of it, be entitled to a half-interest in the farming properties. That is the equity which was denied to the plaintiffs when the first defendant revoked her promise. The constructive trust would arise at the time the defendant reneged on the bargain in September 2009. The plaintiffs' earnings after that time are not temporally relevant. The Master was correct to find that if a constructive trust were imposed to enforce the first defendant's promise, then an appropriate order would be that the defendants and Warrindi transfer the corresponding interest to the plaintiffs, or that the property be partitioned and a part be transferred.
In the alternative to a proprietary interest, the plaintiffs have claimed equitable compensation. Equitable compensation in a case like this is an alternative remedy to the transfer of the promised property. Nonetheless the inquiry is much the same. The Court must examine the value of what the plaintiff would have been entitled to had the promise been fulfilled. An order compensating the plaintiff for that value clears the conscience of the defendants in equity. The compensation may be adjusted according to whether the relief granted is out of proportion to the detriment suffered by the plaintiff and whether the plaintiff has diminished his or her own equity.
It is not relevant to a determination whether to enforce a constructive trust or to order compensation, or to the precise terms of those orders, that the plaintiffs earned income from other sources after Cynthia resiled from her promise. Whatever income the plaintiffs might have earnt by hard work, ingenuity or good fortune does not assuage the detriment they have suffered by reason of Cynthia resiling from the promise. In fact the conduct of the plaintiffs is generally irrelevant, as Allsop P held in Delaforce v Simpson-Cook:[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
…
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.
[5] [2010] NSWCA 84, at [5] (Allsop P).
The income earned after the breakdown of the relationship is completely unconnected and unrelated to the circumstances which, if proved, give rise to the equity on which the plaintiffs rely.
In the taking of any account of the profits with respect to which the plaintiffs seek a declaration, account will be taken of the labour of the defendants in earning those profits. So much was conceded by the plaintiffs' counsel before the Master. Therefore in no sense can the plaintiffs' claim be considered a claim for income they would have earnt on the strength of their own labour. The income earnt by the plaintiffs from other sources after 2009 is therefore completely irrelevant to any account of profits which might be ordered.
The defendants have not demonstrated an error in the Master's decision. I dismiss the appeal.
The plaintiffs make an application for costs of this appeal on a solicitor/client basis. Mr Ross-Smith has earnestly submitted that he understood the pleading in paragraph 6.2, in particular, to be a pleading claiming compensation for the income the plaintiffs would have earnt if they had been given the opportunity to expend their labour on their interest in the farming properties. I read paragraph 6.2 as seeking the classical remedy known to equity in circumstances of this kind of an account of profit.
If the matter had rested there, I would not have been inclined to award solicitor/client costs because of the different construction that Mr Ross-Smith gave that pleading. However, in the written submissions put by the plaintiffs before the Master, they describe their claim for the period after they left the farm in the classical terms of an account of profits.
Moreover, after Mr Ross-Smith made his submissions, which I accept were on the misunderstanding that the plaintiffs claimed the lost income they would have earnt through expending their labour on the farm, Mr Burnett again rose to make submissions which clearly limit the plaintiffs’ case to an account of profits. Mr Ross-Smith contends before me that notwithstanding those submissions, the pleadings were not amended to make the position even clearer than it already was.
It appears therefore that this appeal has been brought despite the clear statements by the plaintiffs limiting their case to the classical one. Moreover, the case that Mr Ross-Smith attributes to their pleadings is completely unorthodox and would require a major departure from equitable principles. It really was a remote, if not fanciful, possibility that the plaintiffs were making, or would at trial somehow make, those claims.
This is a case which brings into sharp focus the responsibilities of counsel, to assist the administration of justice by ensuring that issues are carefully defined so as to avoid completely unnecessary litigation. This is a case in which if there was really any doubt about the plaintiffs' position, it could quite easily have been clarified even by a simple exchange of letter, if not some formal amendment to make the plaintiffs' claim pellucid. For Mr Ross-Smith to have sought some written assurance instead of pursuing this appeal on a misunderstanding, would not be, as he submitted, to assist the plaintiffs’ legal representatives to articulate their claim. To the contrary, it would be a discharge of his duty to promote the efficient conduct of litigation.
For those reasons I order that the defendants, appellants on this appeal, pay the plaintiffs', respondents on this appeal, costs on a solicitor/client basis.
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