HOGAN v BASEDEN SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL EQUITY DIVISION MASON P, BEAZLEY and STEIN JJA 26 September 1997, 24 November 1997 [1997] NSWCA 151 Real property — Declaration that parties held property as tenants in common — Whether trial judge erred in making order that property not to be sold without written consent of the respondent — Whether appellants entitled to order for sale of property — Conveyancing Act 1919 (NSW) s66G. This appeal arose from a finding that contributions made by the appellants to improvements on the respondent's property were made in circumstances in which the appropriate relief was a declaration that the appellants and respondents held the property as tenants in common in equal shares. In addition to the declaration, an order was made that the premises should not be sold without the written consent of the respondent or her legal guardian (04). The appellants challenged 04, submitting that they were entitled to an order for sale of the property, pursuant to s66G of the Conveyancing Act 1919 (NSW). HELD, allowing the appeal: 1. The trial judge erred in making O04. 2. Although the power of the Court in s66G is discretionary, cases in which discretion is exercised against the applicant are limited to matters where some proprietary right, or some contractual or fiduciary obligation would make an order for sale inconsistent. Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068; Stephens v Debney (1959) 60 SR (NSW) 468; Ngatoa v Ford (1990) 19 NSWLR 72; Williams v Legg (1993) 29 NSWLR 687 considered. 3. In this case findings of fact upon which the trial judge based O4 were not, or of themselves were not, sufficient to refuse an order under s66G for the appointment of trustees to hold the property on the statutory trust for sale. 4. However, it would be inappropriate to make an order for sale as it did not appear that the principles which apply to a s66G application were fully canvassed before his Honour, if it all. Nor was it certain that the parties had directed their evidence to the issues relevant to a s66G application. Certainly, there had been no compliance with the procedural requirements of a s66G application. Mason P I agree with Beazley JA. I would add this. It would not be a proper exercise of the power to decline relief under s66G of the Conveyancing Act to refuse an application on grounds of hardship or general unfairness: See Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068; Ngatoa v Ford (1990) 19 NSWLR 72 at 75. It follows that in the unhappy event that the parties are unable to settle their differences then the making of an order appointing trustees for sale seems inevitable unless the respondent could establish a legally binding agreement not to put her out of occupation of her home, or circumstances that would ground some estoppel to similar effect. On either issue the Court would need to address at least four questions: first, whether anything that was said on the particular topic was intended to have legal effect; secondly, whether any arrangement or understanding (if legally effective) it was intended to apply in the circumstances which happened following the breakdown of amicable relations between the 2 UNREPORTED JUDGMENTS parties; thirdly, whether any agreement or understanding was subject to a condition that the respondent would dispose of her remaining interest in the property in any particular way upon her death; fourthly, whether the rights (if any) of occupancy reserved to the respondent under such arrangement (if it existed) were in the nature of a life estate or a right of residence terminable upon the respondent vacating occupancy for any reason. The learned trial judge found that the respondent was estopped from denying that the appellants had an equal interest in the property. He also found a "specific agreement" to similar effect. The judgment then continued as follows: "T am conscious that the defendant has limited means and she is a pensioner. In the circumstances, bearing in mind that she had lived in the house for so many years, it would not be appropriate for her house to be sold, unless that was the wish of the defendant. Quite clearly upon the evidence each of the plaintiffs intended, at the time of expenditure upon the property, that the defendant would continue to reside in the house in her lifetime and that the plaintiffs would, essentially, occupy the first level. The defendant held the same belief and it arose out of the circumstance, which appears to still be valid, that the parties do not have any moneys to live elsewhere. In my view, that arrangement should bind the parties, despite the unfortunate differences which have occurred. It is to be hoped that with the resolution of these proceedings, the relationship between each of the plaintiffs and the defendant will be restored. After so many years of such a close and obviously loving relationship it would be a tragedy if the parties were unable to overcome their differences." Despite the use of the term "arrangement" in the passage just quoted, I do not read this as a finding that addresses or satisfies the principles I have adverted to in the preceding paragraph. I agree with the orders proposed. Beazley JA This is an appeal from a decision of Cowdroy AJ in which his Honour declared that the appellants and respondent held property at Ryde as tenants in common in equal shares, made consequential orders to give effect to his declaration, and further ordered that the premises should not be sold without the written consent of the respondent or her legal guardian. The appellants do not challenge the trial judge's finding in respect of the tenancy in common. They submit, however, that they were entitled to an order for sale of property. Background to the Dispute The respondent is a 71 year old woman who is the registered proprietor of a property at 42 Samuel Street, Ryde. She purchased that property jointly with her husband in about August 1955. Shortly after that, the first appellant, who is her nephew, commenced to reside with the respondent and her husband and has continued to do so since. The respondent's marriage broke down in 1966 and in September 1973, she became the sole owner of the property, subject to a mortgage. The mortgage was discharged in 1992. The respondent has no children of her own and in 1976 made a will leaving her whole estate to the first appellant. On various occasions she told him that she would leave the house to him. The respondent denied that there had been any such discussions although did not dispute the making of a will in the terms referred to. In July 1991, the first appellant, who by that time had formed a relationship with the second appellant, suggested to the respondent that they build a new floor on the upstairs of the home. The proposal was to construct living accommodation for the appellants and an area which they could use as a dance floor. URJ HOGAN v BASEDEN (Beazley JA) 3 The respondent raised no objection to the construction of the extensions. The appellants had plans prepared and engaged a builder. In April 1992, approximately 3 weeks before building work was due to commence, the second appellant moved into the property. She sold her home in Chippendale and received $78,000 by way of the net proceeds of sale. This sum, together with a personal loan which she arranged in the sum of $20,000 was paid to the builder. In addition, the second appellant paid out the small mortgage which remained on the Ryde property prior to the building work commencing. All parties signed the building contract on 4 May 1992. Apparently, it was necessary for the respondent to sign the contract because of the local council's requirement in respect of building applications. The work was completed in August 1992. The first appellant did some work on the premises himself. In April 1993, the appellants obtained a loan for $25,000. This was used to pay out the $20,000 loan which the second appellant had obtained in 1992 and also for the purchase of a motor vehicle. The respondent witnessed the appellants' signatures on the loan application. The relationship between the parties began to deteriorate in 1994. By the second half of 1995 it had deteriorated to the extent that the appellants commenced these proceedings. Findings of the Trial Judge His Honour found that the respondent raised no objection to the work being undertaken on the property at the appellants' expense and that she was advised prior to entry into the building contract that the second appellant would be selling her house and applying the proceeds of the sale towards the costs of the extensions so as to allow the appellants to reside on the upper level. He also found that the respondent had shown her will to the first appellant and that the parties had had discussions to the effect that the property would devolve upon the first appellant. His Honour concluded that the appellants would not have proceeded with the construction without the respondent's consent and without her acknowledging that the appellants could have a one half interest in it. His Honour further concluded that the respondent said things to the appellants which gave them to believe and understand that the respondent did not object to this course. His Honour found that these facts gave rise to a trust in favour of the appellants as to a one half interest in the property. His Honour further held that the respondent was estopped from denying the appellants' entitlement to a one half interest in the property. His Honour considered the relief which ought to be granted. He referred to the decision in Knox v Knox (unreported, 16 December 1994, Young J). In that case, 'Young J held that the circumstances did not give rise to an entitlement to an interest in the property. He stated, therefore, that where there was an incontrovertible benefit provided by the person who sought restitution against the owner of the property, the benefit was the lesser of the increase in value and the cost of providing the benefit and the Court's order should be formed on that basis. Cowdroy AJ found, however, that that decision had no application to this case, having regard to the specific agreement the parties had made that the appellants could have a half interest in the property. He thus determined that the parties held the property as co-tenants. His Honour continued: 4 UNREPORTED JUDGMENTS "T am conscious that the [respondent] has limited means and she is a pensioner. In the circumstances bearing in mind that she has lived in the house for so many years, it would not be appropriate for her house to be sold unless that was the wish of the [respondent]. Quite clearly upon the evidence each of the [appellants] intended, at the time of expenditure upon the property, that the [respondent] would continue to reside in the house in her lifetime and that the [appellants] would, essentially, occupy the first level. The [respondent] held the same belief and it arose out of the circumstance, which appears to still be valid, that the parties do not have any monies to live elsewhere. In my view that arrangement should bind the parties... *(emphasis added.) On the basis of that finding, his Honour made O4, that the premises not be sold without the express written consent of the respondent or her legal guardian, to which I have referred earlier. The appellants challenge this order on the basis that the trial judge failed to take into account the principle that, except in very special cases, a co-owner is entitled to an order for sale and division of the proceeds, pursuant to s66G of Conveyancing Act 1919. It is a well established principle that where it is found to be unconscionable for a person to take the whole beneficial ownership without recognising a contribution of some other party, equity orders the minimal relief necessary to relieve the conscience of the legal owner: Nichols v Nichols (1986) 4 BPR 9240; Knox v Knox (supra). The relief which will be granted is flexible, the court in each case looking at the circumstances in deciding in what way the equity can be satisfied: Plimmer v Wellington Corporation (1884) 9 App Cas 699. In Chalmers v Pardoe [1963] 1 WLR 677 at 681, 682, the Privy Council stated: "There can be no doubt upon the authorities that where an owner of land has invited or expressly encouraged another to expend money upon part of his land upon the face of an assurance or promise that that part of the land will be made over to the person so expending his money, a court of equity will prima facie require the owner by appropriate conveyance to fulfil his obligation; and when, for example for reasons of title, no such conveyance can effectively be made, a court of equity may declare that the person who has expended the money is entitled to an equitable charge or lien for the amount so expended..." See also Muschinski v Dodds (1985) 160 CLR 583; Baumgartner v Baumgartner (1987) 164 CLR 137. There are numerous cases where these principles have been applied including Morris v Morris [1982] 1 NSWLR 61; Bennen v Horgan (unreported, NSW Supreme Court, 3 June 1994); In the Marriage of Ryan (1992) 16 Fam LR 826. The principle which emerges from these cases is that the court's approach to relief is flexible, concordantly with the principle that the court will give the minimum equity necessary to relieve the conscience of the legal owner. Once the court decides upon the appropriate relief, other principles of law which may be relevant to the relief ordered will operate in the ordinary course. In this case, it was submitted that the Court, having declared the tenancy in common, failed to have regard to the principle that a co-owner, prima facie, is entitled to an order for sale of the property in accordance with the provisions of s66G of the Conveyancing Act 1919. S66G provides, relevantly: "(1) Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition. URJ HOGAN v BASEDEN (Stein JA) 5 The section is a discretionary provision and does not give rise to an absolute entitlement to an order. However, the circumstances where relief has been refused have been constrained. Indeed, the discretion has been defined as a limited one: Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068. In that case, Myers J identified the type of matters which could be a bar to the application as being "some proprietary right, or some contractual or fiduciary obligation with which an order for sale would be inconsistent'. See also Stephens v Debney (1959) 60 SR (NSW) 468, where Myers J stated that a convenant not to make such an application would be a sufficient answer to such an application. In Ngatoa v Ford (1990) 19 NSWLR 72, Needham J, after reviewing the authorities, followed Re McNamara and Stephens v Debney, and stated at 77: "Tt is not, I think, desirable that one should attempt to define exhaustively the circumstances in which an order may be refused; judicial experience is that such matters should be resolved on a case by case basis. My opinion is, however, that a contractual limitation upon the exercise of the right, provided it does not fall within the principle of Hall v Busst (1960) 104 CLR 206, is a proper consideration to be taken into account in such applications". The reference to the principle in Hall v Busst is a reference to the principle that the law will not enforce an impermissible restraint on alienation. In Williams v Legg (1993) 29 NSWLR 687, the New South Wales Court of Appeal endorsed the reasoning of Myers J in McNamara and Stephens v Debney. The Court held that the acceptance of a testamentary gift, expressed to be subject to conditions for the benefit of a third party, gave rise to a personal equitable obligation to perform the conditions upon which, under the provisions of the will, the donee became entitled to the property. That equitable obligation was analogous to a contractual obligation. The donee was not, in such circumstances, entitled to an order under s66G for so long as the rights of the third party subsisted. In this case, the findings of fact upon which 04 was based, were not, or at least by themselves were not, findings which would give rise to the exercise of discretion under s66G in favour of the respondent. It follows, in my opinion, that the trial judge erred in making O4. I do not consider it appropriate, however, that this Court make an order for sale. It does not appear that the principles which apply to a s66G application were fully canvassed before his Honour, if at all. Nor is it certain that the parties directed their evidence to the issues relevant to such an application. Certainly, there was no compliance with the procedural requirements of a s66G application. I consider the appropriate course, therefore, is to allow the appeal and set aside O4. The respondent should pay the appellant's costs, but have a certificate under the Suitors Fund Act 1951, if so entitled. The parties are, of course, entitled to make such application as they see fit in respect of the declared co-tenancy. Stein JA I agree with Beazley JA. Appeal allowed, O04 of Cowdroy AJ set aside. Respondent to pay the appellant's costs, but to have a certificate under the Suitors Fund Act 1951 (NSW) if so entitled. Counsel for the appellant: P T Taylor Solicitors for the appellant: Rockliffs Solicitors Counsel for the respondent: M K Meek 6 UNREPORTED JUDGMENTS Solicitors for the respondent: Michael Maher Solicitors