Reported Decision : (2001) NSW ConvR 55-989 New South Wales Supreme Court CITATION : Cumming v Sands [2001] NSWSC 2 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 5003/98 HEARING DATE(S) : 21 & 22 June, 13 July and 16 August 2000 JUDGMENT DATE : 5 January 2001 Delys Louise Cumming (P) PARTIES : Margaret Lesley Sands (D1 & XC) Peter Elliott Brand (D2 & 2XD) Robert Bruce Gordon (D2 & 3XD) JUDGMENT OF : Hamilton J J M Atkin (P) COUNSEL : B A Coles QC and S Hughes (D1) No representation (D2, 2XD & 3XD) Walters (P) SOLICITORS : Heidtman & Co (D1) Submitting appearance (D2, 2XD & 3XD) CATCHWORDS : CONTRACTS [172] - Particular parties - Principal and agent - Authority of agents - Construction and extent of authority - Implied authority of general agents - Sister leaves to brother for 20 years all decisions re tenancy of property in which they have interest in common as landlords - EQUITY [39] - General principles - Equitable charges and liens - Money expended or benefit conferred on property of another. LEGISLATION CITED : Evidence Act 1995 ss 60, 136 Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] VR 279 Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26 Chalmers v Pardoe [1963] 1 WLR 677 Dewhirst v Edwards [1983] 1 NSWLR 34 Equiticorp Finance Pty Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 Fensom v Cootamundra Racecourse Reserve Trust [2000] NSWSC 1072 Lee v The Queen (1998) 195 CLR 594 CASES CITED : Morley v State Tobacco Services Ltd [1993] 1 VR 417 Morris v Morris [1982] 1 NSWLR 61 Singh-Bal (1997) 92 ACrimR 397 Sunstar Fruit Pty Ltd v Cosmo [1995] 2 Qd R 214 Svenson v Payne (1945) 71 CLR 531 Unity Joint Stock Mutual Banking Association v King (1858) 25 Beav 72; 53 ER 563 Welsh (1996) 90 ACrimR 364 Willmott v Barber (1880) 15 Ch D 1996 Bowstead and Reynolds on Agency (16th ed, 1996) Articles 8, 22 & 32 DECISION : Charge should be declared for amounts expended. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J FRIDAY, 5 JANUARY 2001 5003/98 DELYS LOUISE CUMMING v MARGARET LESLIE SANDS & ORS JUDGMENT 1 HIS HONOUR: These proceedings are between two people associated with the late Dr Nugent Elliot Brand of Lismore, who was during his lifetime universally known as Bill Brand. The two people are his sister, Margaret Leslie Sands, who is the defendant, and Delys Louise Cumming, who was his long time receptionist and personal assistant. 2 Dr Brand was during his lifetime long engaged in specialist medical practice in Lismore. He was also for decades rather than years involved in community activities in that city, including being a director of Northern Star Limited from 1967 to 1991. He was married and his wife survived him, but she does not play a significant part in the evidence in these proceedings. The plaintiff was employed by Dr Brand in mid 1963. In September 1963, she commenced a sexual relationship with Dr Brand which continued until the time of his death. Although Lismore is a provincial city, this appears not to have been generally known, and was certainly not known to the defendant. The mother of Dr Brand and the defendant ("the mother") was alive when the plaintiff commenced employment with Dr Brand. The plaintiff became friendly with the mother and did the mother various services during the mother's lifetime. The mother bought the house at 1 Elton Street, East Lismore, which is the subject matter of these proceedings ("the property"). She lived in it until the time of her death. 3 Dr Brand and the plaintiff were executors of the will of the mother, who died on 13 July 1973. By her will, Dr Brand and the defendant were appointed her executors. Small legacies were given of shares, which subsequently became valueless, and the residue of her estate, of which the property was the major item, was left to Dr Brand and the defendant in equal shares. The property was under old system title. Essentially the estate was long ago administered. There was, however, no formality carried out to indicate transmission to Dr Brand and the defendant, as co-owners, of the property and a question remains whether during the 1980's they held the property as executors or became legal co-owners of it. In light of the views I have come to, this does not matter, except perhaps as to costs. At all times they were entitled to the property as executors or were persons beneficially entitled to the property or to the relevant interest in the mother's estate represented by it as tenants in common in equal shares. 4 After the mother's death the property was kept closed up until mid 1974 with the plaintiff going to open it to air it out each week. In mid 1974, Dr Brand offered the plaintiff a tenancy of the property at $120 per month. That rental was set by him at the time after inquiry of a real estate agent as to the then appropriate rental of the property. By agreement between Dr Brand and the plaintiff, the plaintiff was to maintain and pay contents insurance in relation to the property and pay for the maintenance of the gardens and lawns. The estate was to pay rates, building insurance and all items of building maintenance. The terms of the letting remained unchanged until 1986 when Dr Brand increased the rent to $200 per month and indicated that the whole of the rent paid would inure for the benefit of the defendant; he would take and did take no part of it. 5 In 1975 he had given a power of attorney to the plaintiff, and also that year he made his will with her as an executor. By 1980 he had indicated to her that he wanted her to have the house in the long term and would try to acquire the defendant's share in it to make that possible. He made the defendant an offer in writing for the property in 1980 which was rejected. The subject matter of his possible acquisition of the defendant's share in the property was never again raised between Dr Brand and the defendant. 6 Over the years the plaintiff expended significant sums of money on the property for maintenance, despite the fact that it was under the agreement for lease the landlord's obligation to maintain the property, and for improvements to the property. She deposed that between 1990 and 1995, those sums totalled $51,741.24. The improvements included a second bathroom and a gazebo which was described by the defendant as "as big as Ben Hur". At least one source of the defendant's hostility to the gazebo is a suggestion that the erection of such a structure in the curtilage of a modest three bedroom house in Lismore was an over capitalisation. There is no doubt that the plaintiff's expenditure on maintenance of and improvements to the property were approved of and encouraged by Dr Brand. 7 In February 1995 Dr Brand became ill. On 16 March 1995 he made a codicil to his will by which he left his interest in the house to the plaintiff. On 20 June 1995 he died. The plaintiff continued to occupy the property until August 1996 or August 1997 (I am not entirely clear which), but ceased to pay rent on 1 August, 1995. 8 Throughout the period from 1974 to 1995 the defendant lived in Sydney. She visited Lismore only occasionally. She learned in 1974 that the plaintiff had become the tenant of the property. Over all the years she visited the property only once, in 1975 in company with Dr Brand, to inspect furniture that continued in the property. Otherwise she never saw the property and was unaware of the improvements to it. She left all matters concerning the property and tenancy to Dr Brand. There are significant passages in her cross examination concerning this matter as follows: "ATKIN: Q. Is it the case, and again I am not being critical, that between you and your brother ... effectively he took over complete control in relation to the property? A. I should think so because I trusted him. Q. You gave him control of that property? A. I was never asked for it. Q. Did you make any objection? A. No, ... …… HIS HONOUR: Q. Did you give any thought during those years as to whether you were still carrying on duties as co-executors or not as opposed to whatever you were doing as co-owners of the house? A. I think I probably thought of co-owners of the house. ATKIN: Q. Mrs Sands, is it the case then that you trusted your brother to manage the property? A. Completely. Q. If you had not trusted him, I take it, then, you would have at least checked up on what he was doing and maybe even visited the property once every five years or something like that; is that the case? A. Yes, I trusted him completely. We were very close. …… ATKIN: Q. Mrs Sands, in trusting your brother completely, didn't you effectively allow him to control the property? A. I guess in a way I did. Q. Well, to the extent that you and he never discussed the property for the best part of 20 years? A. Yes. HIS HONOUR: Q. That is literally true, is it? A. We didn't discuss it at all, ever. Not ever." On at least one occasion, the defendant signed blank withdrawal forms on the account relating to the property for Dr Brand, though she says she expressed unhappiness at the time at doing so. 9 The property was sold in 1998 by the defendant purporting to act as executor of her mother for $132,000. 10 The two most important witnesses who gave oral evidence were the plaintiff and the defendant. The plaintiff was rigorously cross-examined, particularly as to the sources of funds she said she expended upon the property. I found her an impressive witness who did her best to give evidence of matters as she recalled them and stated frankly when she could not. I generally accept her evidence. Many of the facts stated above are based on her evidence, which I accept, including her evidence as to the history and terms of the tenancy. In areas which are contested, I generally accept her evidence as to the moneys she expended on the property during all the years, and in 1990 to 1995, and as to Dr Brand's encouragement of her to do so. In particular, I accept that all the moneys she expended were out of her own funds. Even if the money had been given to her by Dr Brand for that purpose, it would not in my view in the circumstances matter, since the evidence shows that the funds were expended by her. However, on the evidence, I do not find that he gave her any part of the money. The defendant was a much less impressive witness, being often unwilling to answer questions or answer them directly. However, I accept her evidence as to her lack of knowledge concerning the improvements to the property, as to her trust of her brother and as to the extent of communications between them concerning the management and tenancy of the property. 11 One basis upon which the plaintiff claims in these proceedings is that she has expended moneys on the property of another in circumstances in which it would be unconscionable for the other to retain the benefit without reimbursing the expenditure. There is no controversy that Dr Brand's share of the proceeds should be charged with the expenditure, but the defendant says she did not acquiesce in the expenditure of the moneys on the property, as she had no knowledge of the expenditure. This claim is made in the sum of $51,000 odd, being the moneys expended during the years 1990 to 1995. Claims of this sort have long been recognised in equity and enforced by the imposition by courts of equity of a charge. Among the cases in which this has been done I shall refer in particular to three. 12 The first is the decision in Unity Joint Stock Mutual Banking Association v King (1858) 25 Beav 72; 53 ER 563. In that case a father, who had purchased a small piece of land, did not acquire the title, but built a granary upon it at an expense of about £280. In May 1855 he put his sons in possession of the land and buildings and they erected two further granaries, a coal shed and a dwelling at an expense of £1,200. They had also supplied their father with goods to the extent of £249-13-7 in respect of his outlay in the building of the first granary. Sir John Romilly MR was of the opinion that the sons were entitled to a charge over the father's interest in the land in the sum of £1,200 plus £249-13-7, and declared that the sons had a charge or lien upon the property for those amounts. 13 Chalmers v Pardoe [1963] 1 WLR 677 is a decision of the Privy Council on appeal from the Court of Appeal of Fiji. In that case, Pardoe held land under a leasehold title from the Fiji Government. He allowed Chalmers into possession of the land and Chalmers erected buildings and made improvements on the land by an expenditure of £2,600. Thereafter, Pardoe excluded Chalmers from the land and refused to make any reimbursement for the expenditure. Delivering the opinion of the Privy Council, Sir Terence Donovan said (at 681 - 682): "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 faith 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. That was in fact the order in the Unity Joint Stock Banking case, though it appeared in that case that the landowner had never actually engaged or promised to make over the appropriate land. The facts of the case were most unusual. It was said in Plimmer v Wellington Corpn (1884) 9 App Cas 699, 714, that the court must look at the circumstances in each case to decide in what way the equity can be satisfied." In that case the plaintiff did not succeed, but only because the transaction between Pardoe and Chalmers was illegal, in that the prior consent of the Minister had not been obtained, and it was said that equity would not enforce an obligation which was illegal. 14 The third case is the decision of McLelland J in this Court in Morris v Morris [1982] 1 NSWLR 61. In that case, a father sold his home unit and advanced $28,000 to his son and daughter-in-law on the basis that they would use the moneys to pay for the construction of a second storey extension to their house which on completion would be occupied by the plaintiff. This in fact occurred, but the defendants thereafter fell out and divorced, and the plaintiff was not able to continue in occupation of the premises. His Honour cited the passage from Chalmers v Pardoe set out above. He emphasised that the remedies to which the principle gives rise are imposed to satisfy the demands of justice and good conscience, and may in some cases extend to the declaration of a constructive trust. In that case, in his opinion, the plaintiff's equity would be satisfied by his having an equitable charge over the property in the sum of $28,000 together with interest from the commencement of his proceedings. 15 In submissions the defendant does not deny this principle but emphasises the element of encouragement referred to in those cases, citing also Willmott v Barber (1880) 15 Ch D 1996, Dewhirst v Edwards [1983] 1 NSWLR 34 and Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26. The submissions continue that she could not be said to have encouraged or even acquiesced in the expenditure because of her ignorance of it. The submissions also rely on the decision of the High Court in Svenson v Payne (1945) 71 CLR 531, where it was held that remaindermen were not estopped by mere acquiescence from denying a life tenant's claim to reimbursement for the cost of improvements made during his occupation. However, unlike the facts in Svenson, the defendant here was not a remainderman, but had equal entitlement to the property or the proceeds of it as did her brother. 16 But the real answer to both these contentions in this case arises from the plaintiff's argument that Dr Brand was constituted the defendant's agent in relation to the letting of the property, and relations with the tenant, so that his actions in that regard were taken with her authority and she was bound by those actions, including his encouragement of the expenditure. There is no doubt on the evidence that she was not constituted his agent expressly. However, the appointment of and conferring of actual authority on a principal may arise by implication as well as expressly. 17 This matter is dealt with in Bowstead and Reynolds on Agency (16th ed, 1996). Article 8 in that work is as follows: "IMPLIED AGREEMENT Agreement between principal and agent may be implied in a case where each has conducted himself towards the other in such a way that it is reasonable for that other to infer from that conduct consent to the agency relationship. Comment No special rules of law peculiar to agency are involved here: this Article simply represents, in the sphere of agency, the obvious proposition that contracts are not always expressly made, but often inferred by the court from the circumstances. The same principle applies to non contractual liability. 'While agency must ultimately derive from consent, the consent need not necessarily be to the relationship of principal and agent itself (indeed the existence of it may be denied) but it may be to a state of fact upon which the law imposes the consequences which result from agency.' ( Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552, 587, per Lord Wilberforce (dissenting)." In Article 22 the learned authors express the proposition that the authority of an agent may be actual (express or implied) and also apparent, where it results from a manifestation made by the principal to third parties. Speaking of actual implied authority, the learned authors continue at par 3/003: "The most obvious cases of implied authority arise in the forms of incidental authority (implied authority to do whatever is necessarily or normally incidental to the activity expressly authorised), usual authority (implied authority to do whatever an agent of the type concerned would usually have authority to do) and customary authority (implied authority to act in accordance with such applicable business customs as are reasonable); there is a further general category of implied authority arising from the course of dealing between the parties and the circumstances of the case." The last subject matter is dealt with by the learned authors in Article 32 as follows: "AUTHORITY IMPLIED FROM COURSE OF DEALING AND CIRCUMSTANCES OF CASE An agent has, in addition to the forms of authority previously indicated …, such authority as is to be inferred from the conduct of the parties and the circumstances of the case." In the commentary upon that Article the learned authors say: "The question as to implication does not stop at the matters previously mentioned, but goes on to involve consideration of the whole circumstances of the agent's position. This may lead to the agent's having a wider authority initially, or to his authority being enlarged by his principal's acquiescence in his assuming further powers. Thus in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 the chairman of a company acted as de facto managing director and chief executive of it, and entered into larger transactions on its behalf which he would sometimes merely report to the board without seeking prior authority or subsequent ratification. The Board acquiesced in this course of dealing. The chairman was held to have had actual authority equivalent to that of a managing director, though he was acting beyond the normal powers of a chairman. This type of implied authority corresponds to the implied appointment of an agent dealt with in Article 8. It results from the application of the general rules as to interpretation and construction of contracts and agreements." 18 In Australia authority by implication has been recently discussed in cases. These include Morley v State Tobacco Services Ltd [1993] 1 VR 417, where there is discussion of the principles by Ormiston J at 431 - 436, approved by the Appeal Division (Crockett, Southwell and Hedigan JJA) at 458 - 459 and see the judgment of the Appeal Division (McGarvie, Marks and Beach JJA) in Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] VR 279 at 361 - 362. The matter was dealt with in the New South Wales Court of Appeal in Equiticorp Finance Pty Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50. At 132 Clarke and Cripps JJA said: "Giles J found that Hawkins had actual authority to commit the liquidity reserve to discharge of the Uruz Pty Ltd debt and it is this finding which is challenged. An agent may have actual authority to bind a principal which is quite distinct from, but may overlap, ostensible authority. Actual authority may be express or implied. There is no evidence that Hawkins had express authority to commit the use of the liquidity reserve and the only question is whether implied actual authority or ostensible authority was established. Actual authority arises where a principal grants, and an agent accepts, authority for the agent to perform specific tasks on behalf of the principal - in short there must be a consensual agreement between the principal and agent. Notwithstanding the absence of an express agreement, the parties, that is, the principal and agent, may conduct themselves in such a way that it is proper to infer that the relevant authority has been conferred on the agent. Accordingly, where the question is whether the agent has implied authority to act in a particular way the court directs its attention to the conduct of the parties in order to decide whether the inference of authority should be drawn. … there may be no evidence of a grant of actual authority and yet the principal may have so acted as to hold out the agent as having the requisite authority. In many instances the circumstances which give rise to ostensible authority may also provide a basis for inferring an actual grant of authority." 19 In this case Dr Brand and the defendant had coequal authority in relation to the property, its proceeds and its income, whatever their precise rights relating to it from time to time. The defendant wished to retain it, knew it was let and to the plaintiff, and received some income from it from time to time. She visited it once in 1975 to look at furniture. Otherwise she never saw it and literally never spoke to her brother about it for 20 years. She completely trusted her brother, to whom she was "very close". On at least one occasion she signed blank withdrawal forms relating to it. The inference that I draw is that her brother had her authority to deal with the property on her behalf in all matters relating to its management, including its letting, and the relations and dealings with any tenant. His authority did not extend to the sale of the property, as is apparent from the fact that in 1980 he caused written communication to be made with her relating to its sale and she refused to sell. But apart from the sale of the property, in my view she gave him plenary authority over it. 20 In those circumstances, I find that the defendant, through her agent, Dr Brand, encouraged the expenditure on improvements from time to time and on maintenance which was the landlord's responsibility under the agreement relating to the tenancy. I do not necessarily accede to the proposition that the only circumstances in which a Morris v Morris charge may be imposed is where there is actual encouragement of the expenditure. The principle is a flexible one and there may be other circumstances, such as the acceptance of the benefit or its fruits without willingness to reimburse, which may in appropriate circumstances attract relief. However, in this case the matter squarely falls within the principle enunciated in Chalmers and Morris, since I have found that there was relevant encouragement of the expenditure which is binding on the defendant, although, as I have said, the charge may be moulded to the circumstances. The usual order is for the charge to be in the amount of the expenditure, and orders were made in those terms in all of the Unity Joint Stock Banking case, Chalmers and Morris. In my view, the declaration of a charge in the amount of the moneys expended on improvements and on maintenance which was the landlord's responsibility, would meet the requirements of justice and is the appropriate order in this case. 21 One other matter should be mentioned which arises from the submissions and which has peripheral relevance to what I have said. If an action by an agent is within authority it does not become unauthorised because it does not prove to be beneficial. The authorisation of improvements by a tenant (even if they result in a charge over the property for the cost) is not necessarily detrimental: the landlord will have the benefit of the improvements. But here it is argued for the defendant that the evidence shows that there was absolutely no benefit to the property or its owners from the plaintiff's expenditure. However, there is no evidence that the value was not increased. Normally substantial improvements will improve value. Conceptually they may not, and it is argued in this case that there is no evidence that they did. However, in the absence of evidence to the contrary, I infer there was some increase in value. I do that without reliance upon the one piece of evidence that there was an increase in value. That evidence arises from the affidavit of the defendant's son, Richard Sands. As an annexure to that affidavit he attaches a handwritten note he made of a conversation he had with the plaintiff. A note of one of the matters she said in that conversation is as follows: "Real Estate agent said Value $95 - before work done Value $155 now after work done." That affidavit was read for the defendant and the annexure carried into evidence. There was no objection to the portion I have set out when the affidavit was read - indeed, it was tendered by the defendant. Equally, there was no application under s 136 of the Evidence Act 1995 to limit the use of the evidence, nor any application to excise that or any other part of the handwritten note of the conversation, which was principally put into evidence to corroborate another part of the conversation. But in address the defendant submitted that that statement cannot be taken to have any evidentiary effect whatever because of the hearsay rule. 22 The evidence is that Richard Sands in the annexure said that the plaintiff said that the real estate agent told her his opinion as to the increase in value. It is said that the statement can have no evidentiary effect at all despite the provisions of s 60 of the Evidence Act 1995 (and reference is made to Lee v The Queen (1998) 195 CLR 594) and the fact that both Richard Sands and the plaintiff (though not the real estate agent) gave oral evidence. But, as I have already said, in this case there was no objection to the admission of the whole document or any application to excise any part of it or any application to limit the effect of the evidence. Section 60 of the Evidence Act 1995 therefore applies in its full force: see Welsh (1996) 90 ACrimR 364 at 368 - 369 and Singh-Bal (1997) 92 ACrimR 397 at 405. The statement therefore provides some evidence of a substantial increase in value by reason of the work. Even if the words are to be taken as evidence of the truth of the statement, the defendant says that they should be given no weight at all. I do not agree. I should not be prepared to find on the basis of that statement an increase of $60,000 in value, particularly in the face of evidence that the property was ultimately sold for $132,000, but the opinion is some evidence that the value was increased, although, as I have already said, I should infer that in any event without that piece of evidence. 23 The plaintiff also makes a claim for relief under the modern law of restitution on the basis that the defendant has accepted the benefit of the work she paid for but is unwilling to reimburse the cost. It is not necessary for me to determine that claim in the light of my determination of the claim for a charge which, in my view, satisfactorily meets the requirements of justice. However, I do not see why such a claim should not succeed at least to the extent of any increase in value by reason of the works finally established: see Pavey & Matthews Pty Ltd v Paul (1986) 162 CLR 221; Sunstar Fruit Pty Ltd v Cosmo [1995] 2 Qd R 214; and particularly the decision of Bryson J in Fensom v Cootamundra Racecourse Reserve Trust [2000] NSWSC 1072. There is sufficient basis in the evidence, as discussed above, to order an inquiry as to the increase in value if that were necessary. 24 I am inclined to accept the plaintiff's word that the claimed expenditure of $51,000 - odd was all in the appropriate category of expenditure on improvements or maintenance for which the landlord was responsible. However, I am prepared to hear further submissions based on the evidence as to the precise form of the appropriate order, including the amount secured by the charge. At the same time, allowance for rent or occupation fee in respect of the plaintiff's rent free occupation of the property after August 1995 may be determined. There may also be further argument on costs in the light of this judgment. The latter may necessitate further consideration of the degree of finality of the administration of the mother's estate. Short minutes to dispose of the claim and the cross claim should be brought in before me at 9.30 am on 28 February 2001. …oOo… Last Modified: 03/21/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.