New South Wales Supreme Court CITATION : Hill v Hill [2005] NSWSC 863 HEARING DATE(S) : 23 August 2005 JUDGMENT DATE : 24 August 2005 JURISDICTION : Equity JUDGMENT OF : Campbell J DECISION : Proceedings dismissed. CATCHWORDS : TRUSTS - constructive trusts - arising from failed domestic relationship in accordance with Baumgartner v Baumgartner (1987) 164 CLR 137 - those principles applicable to domestic relationship between parent and child - differences between Baumgartner source of equitable obligation and somewhat similar sources of equitable obligation Baumgartner v Baumgartner (1987) 164 CLR 137 Bennett v Horgan (Supreme Court of NSW, 3 June 1994, unreported) Chalmers v Pardoe [1963] 1 WLR 677 Kriezis v Kriezis [2004] NSWSC 167 Muschinski v Dodds (1985) 160 CLR 583 CASES CITED : Palmer v Bank of New South Wales [1973] 2 NSWLR 244 Palmer v Bank of New South Wales (1975) 133 CLR 150 Schaefer v Schuhmann [1972] AC 572 Swettenham v Wild [2005] QCA 264 Synge v Synge [1894] 1 QB 466 West v Mead [2003] NSWSC 161 June Dorothy Hill - Plaintiff PARTIES : Peter Russell Hill (AKA Russell Edward Martin) - Defendant FILE NUMBER(S) : SC 5678/04 G M Colman - Plaintiff COUNSEL : Defendant appeared in person Geoffrey Edwards & Co - Plaintiff SOLICITORS : Defendant appeared in person LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J WEDNESDAY 24 AUGUST 2005 5678/04 JUNE DOROTHY HILL v PETER RUSSELL HILL JUDGMENT – Ex Tempore 1 HIS HONOUR: This litigation is an unfortunate dispute between a mother and her son. It arises from the mother and the son having agreed, in 1992, that the son and his family would come to share the mother's house, construct extensions to it, and each have their own part of the house to live in. Unfortunately that arrangement has proved not to work, and now the son claims what amounts to a proportionate equitable interest, or an equitable charge over the mother's house. 2 The property in dispute is located at 129 Third Avenue, Narromine ("129 Third Avenue"). 3 The plaintiff in the case is the mother. She has four sons, Robert, Peter, Paul and Gerard. Of those, Robert, Peter and Paul are the children of one of the marriages she had, while Gerard is the child of the later marriage. Peter is the defendant in this case. 4 The plaintiff came to acquire the property at 129 Third Avenue outright as a consequence of her divorce from Gerard's father in about 1984. After that divorce she lived in the home by herself for seven or eight years. In 1991 or 1992 she received an offer to sell the home for an amount of $120,000. She told each of her sons about that offer. Peter, when told about it, suggested that she not sell the house. He was at that time married, and with one daughter, Holly. He put a proposal that he, his wife and daughter would leave their house in Sydney and live with her, that he would pay the rates and do the maintenance and heavy work in the garden to keep the place in order. 5 That arrangement was implemented. It was in about May 1992 that Peter and his family started to live at 129 Third Avenue. Even before then Peter had taken some steps to arrange for the extension to the property to be completed, paying a fee to the Narromine Council for a building permit in March/April 1992. 6 The arrangement was, at least to some extent, recorded in a written agreement made between the plaintiff, Peter and his wife on 25 May 1992. That agreement recited that the plaintiff was the registered proprietor of the property, and continued: " WHEREAS the property requires considerable maintenance and care which is beyond the resources of the mother AND WHEREAS the value of the property has been established at the present day at One Hundred and Twenty Thousand Dollars ($120,000.00) AND WHEREAS the parties have reached agreement that Peter and Margaret should take over the maintenance and care of the property and reside therein AND PROVIDE a unit for the use of the mother SUBJECT TO certain terms and conditions NOW THIS AGREEMENT WITNESSETH as follows - 1. As from the date hereof Peter and Margaret shall be responsible for all maintenance and upkeep of the property. 2. As soon as practicable hereafter Peter and Margaret shall arrange for a "Granny Flat" in accordance with plans and specifications approved by the mother to be erected as extensions to the property for the exclusive use of the mother. It is agreed that the work shall be carried out and completed at the cost of Forty Five Thousand Dollars ($45,000.00) in accordance with the plans and specifications approved by the mother and all such costs shall be met by Peter and Margaret. 3. After the completion of the granny flat Peter and Margaret shall have the exclusive use of the existing part of the house and the mother shall have the exclusive use and occupation of the granny flat. The mother shall have the right to the joint use with Peter and Margaret of the garden and future pool area of the property. 4. The mother agrees that in her Will she will leave the property to Peter and Margaret charged with payment to the mother's other three (3) sons of legacies of Thirty Thousand Dollars ($30,000.00) each being one fourth of the current value of the property." 7 On the same day, 25 May 1992, the mother made a new will, which in substance performed the agreement contained in clause 4 of the agreement. 8 The construction of the second storey proceeded, and was completed by some stage in 1994. 9 Peter worked as a real estate agent. He opened a real estate agency in Narromine, but that business failed and closed down in about 1995. He and his wife then opened a coffee shop, but that also was not a success. After that venture, he opened another real estate business in Narromine and purchased a second real estate business in Warren. So far as is relevant to this case, the business was conducted through a company, Paris Hill Real Estate Pty Limited. 10 At some stage after his second venture into real estate, Peter approached his mother and said he needed to borrow $60,000 from the ANZ Bank, and that the bank would not lend it to him unless she went as a guarantor. She agreed, and a mortgage was taken over her home to support that guarantee. The loan which the ANZ Bank made was in fact a loan to Paris Hill Real Estate Pty Limited. The plaintiff is a lady who has described herself as "not very good with figures", and did not seem to me to be the sort of lady who would pay a great deal of attention to the difference between her son operating the real estate agency in his own right, or through a company. 11 In 2001 Peter's wife died. This was not only a big blow to him personally, but also to his business. His wife had looked after the business side of the real estate agency, while he had concentrated on the selling side, and after her death the business side of the agency did not do well. 12 In around September or October 2002 Peter had some discussions with members of his family. One of them was with his mother and Gerard. In that, Peter told Gerard that things were not looking good with his business and that he did not think he would be able to repay the loan to the ANZ Bank. He asked whether he could be given any help. Gerard suggested that Peter's three brothers should take out a loan with the St George Bank for $60,000 and lend it to him to pay off the loan with ANZ, on the basis that Peter would make the payments and meet the costs. The loan which was proposed was a home loan, which would have lesser monthly payments than the business loan which had been on foot with the ANZ Bank. The plaintiff agreed to St George Bank having a mortgage over the house. Peter also, after this conversation, rang Paul, and told him of the plan which Gerard had put forward. 13 Approval had been given, by St George Bank, to the establishment of the loan in October 2002. However, the loan was not activated until an advance was made on 15 April 2003. That advance, being a little bit less than $60,000, brought the total owing on that St George Bank loan account after fees, to exactly $60,000. The amount advanced by St George Bank in April 2003 was used to pay out the loan account of Paris Hill Real Estate Pty Limited with ANZ Bank. The payment was made just in time: an order for the appointment of a liquidator to that company was made by the court on 28 April 2003. 14 In July 2003 Paul's 50th birthday took place and the family met for that occasion. There was some discussion between the brothers about the fact that Peter had not been paying the instalments of the St George Bank loan. Peter asked Paul to pay the next instalment, and said that he would pay the ones thereafter. As well, on that occasion, Peter produced the agreement which had been entered in May 1992. That was the first that his brothers had heard of that agreement. Peter did not thereafter pay any instalments of the St George Bank loan. It seems to me, however, that that is a matter between him and his brothers, not something which affects the legal obligations owing between himself and his mother. 15 In February 2004 the plaintiff was served with a summons from the Local Court, for unpaid rates. There was a well understood arrangement between Peter and his mother, which endured for many years, whereby he would pay the rates, she would pay the electricity, and they would each pay their own phone bill. It was a surprise to his mother to find that Peter had not paid the rates, and that arrears had built up. Gerard immediately arranged for the payment of $2560.58 for the arrears plus court costs, and was ultimately reimbursed by his mother for that amount. The plaintiff has been paying the rates on the property since then. 16 By August 2004, the relationship between the plaintiff and Peter was not working at all well. It is agreed on the pleadings that the relationship has broken down without attributable blame, so it is not necessary for me to go into the way in which that breakdown manifested itself. On 26 August 2004 the plaintiff entered into a contract to sell 129 Third Avenue, for $205,000. 17 Peter did not approve of this move, and ultimately lodged a caveat, which led to the commencement of these proceedings. 18 The proceedings were begun by the plaintiff on 19 October 2004. In her summons, she sought a declaration that Peter had no proprietary interest in the land, an order that he give up possession of the property, withdraw the caveat, and not lodge another one. Events have moved on since then, so that the only live issue which remains in the proceedings is an issue raised on an amended cross claim which Peter filed on 13 May 2005. 19 On 29 November 2004 the matter came before his Honour, Justice Palmer, as Duty Judge. On that day, his Honour gave a judgment requiring the removal of Peter's caveat, and ordering him to give up possession. That order was stayed for 14 days. His Honour's orders were made on an undertaking from the plaintiff that she would keep the proceeds of sale of the property in a controlled monies account. 20 The settlement of the sale of 129 Third Avenue took place on 17 December 2004, after the sheriff had executed the order for possession. On the settlement, the amount then owing to St George Bank was paid out of the settlement proceeds, and, after the usual conveyancing adjustments had been made, an amount of a little less than $134,000 remained. In accordance with the undertaking which had been given to Palmer J, that amount was paid into a controlled monies account by the plaintiff's solicitor. I also mention here that Holly had continued living at the property, but at some stage towards the end of 2004, after completing her HSC, she moved away. 21 On 8 December 2004 the plaintiff entered a contract to purchase another house for herself, at 117 Third Avenue, Narromine. The purchase price of this property was $118,000. 22 On 3 February 2005 these proceedings came before his Honour, Justice Hamilton, as Duty Judge. The plaintiff was released from the undertaking which she had given on 29 October 2004 on the basis that the funds in the controlled monies account could be spent to purchase 117 Third Avenue, Narromine - but would otherwise remain in the controlled monies account - and any charge which was found to exist in these proceedings over 129 Third Avenue would have effect as a charge over 117 Third Avenue. 23 The purchase by the plaintiff of 117 Third Avenue has since settled. An amount of the order of $11,000 remains held in a controlled monies account, to await the disposition of these proceedings. 24 Peter has filed an amended cross claim, on 13 May 2005, which articulates the basis upon which he claims an interest in 129 Third Avenue. 25 It is of some importance to understand what these proceedings are not. 26 By the sale of 129 Third Avenue, the plaintiff has put it out of her power to perform the agreement to leave 129 Third Avenue by will. As well, she made a different will on 21 April 2004, which aims to achieve an equal division of her estate amongst her four sons, but treating the amount paid in payment of the ANZ Bank loan as though it was a part of Peter's share of her estate which he had received in advance. It is legally possible to have a claim for breach of contract or a promise to make a will, based on anticipatory breach. That can give rise to a claim for damages. However, that is not the claim which is made here. 27 As well, a contract to leave property by will can sometimes be enforced by an action for specific performance, brought after the promisor has died leaving a will in different terms to that promised: Synge v Synge [1894] 1 QB 466. In such a case, the equitable rights of the promisee to obtain specific performance prevails over that of volunteers who take under the will: Palmer v Bank of New South Wales [1973] 2 NSWLR 244 at 248-9 per Hardie JA (affirmed Palmer v Bank of New South Wales (1975) 133 CLR 150); Schaefer v Schuhmann [1972] AC 572 at 587. However, that type of action can only be brought if the promisor still owns the particular item of property at his or her death. In any event, being an action for specific performance, it requires the person suing to have performed his side of the arrangement in an essential respect before it can succeed. The present action is not that type of action. 28 A related area of principle concerns proprietary estoppel. In Chalmers v Pardoe [1963] 1 WLR 677 at 681, 682, the Privy Council said: "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 …" 29 That prima facie rule is one which applies in circumstances where the time for performance of the representation has arrived. That is not so in this case. As well, in such a claim a question of whether the person who seeks to have the promise made good has performed his side of the arrangement enters into whether the court will give effect to the prima facie rule, or whether the maxim that he who seeks equity must do equity will provide a reason for departing from it. This case is not one which raises those issues. 30 There was a submission put by Peter, but not pleaded, that there was an earlier contract between Peter and the plaintiff earlier than May 1992. The plaintiff agreed that at one time in 1992 there was an agreement in principle between herself and Peter for Peter to buy the Narromine house for $120,000. However, that agreement in principle does not amount to a legal contract, if only because it is not in writing. As well, it has been superseded by the inconsistent arrangement which is evidenced by the 25 May 1992 document. That inconsistency is quite fundamental - under the 25 May agreement, Peter had to pay the expense of the renovations only, not the entire $120,000 purchase price, and as well, he undertook obligations of maintenance and upkeep which would not be involved if he were an outright purchaser of the property. 31 At one time, there was a cross-claim which Peter had filed in these proceedings, dated 17 February 2005, which had an annexure H which made a claim to various chattels. However, that cross-claim was amended by the document filed on 13 May 2005, which makes no such claim. 32 What this claim is, is for a constructive trust or charge in accordance with the principles stated by the High Court in Baumgartner v Baumgartner (1987) 164 CLR 137. Mason CJ, Wilson and Deane JJ in that case adopted principles stated by Deane J in Muschinski v Dodds (1985) 160 CLR 583. In Baumgartner at 147-148 their Honours said that the result in Muschinski v Dodds was one reached: "… by applying the general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them. His Honour said ((1985) 160 CLR at 620) "… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that the other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do: cf. Atwood v Maude (1868) LR 3 Ch App 369 at 374-375 and per Jessel MR, Lyon v Tweddell (1881) 17 ChD 529 at 531."" 33 I set out my understanding of how those principles operate in West v Mead [2003] NSWSC 161 at paragraphs [53] – [65], and will not repeat that here. 34 Though Baumgartner v Baumgartner (1987) 164 CLR 137 was a case which involved a couple in a de facto relationship, the principles stated in it can apply to a domestic relationship which does not involve de factos, including a domestic relationship between parent and child: Swettenham v Wild [2005] QCA 264. 35 Concerning the element that the substratum of the joint relationship is removed without attributable blame I adopt the remarks of Bryson J in the Bennett v Horgan (Supreme Court of NSW, 3 June 1994, unreported) at 11, "The concept of attributable blame must be understood and applied with some tolerance; in my view it does not call for a judgment attributing blame among members of a family for the continuing relationship becoming intolerable, unless perhaps in particularly gross cases. Such judgment would be difficult and unreliable, as it is rare indeed that something or other which could be said to be a ground for blame cannot be identified and laid to the charge of each of the persons concerned. Leaving gross cases involving criminality or similarly reprehensible behaviour on one side, it should usually be understood, in my opinion, that where personal relationships deteriorate and the sharing of a dwelling becomes intolerable to some or all of those concerned, there is, within the meaning of Deane J's expressions, no attributable blame and the case is one for an equitable adjustment." 36 That passage has also been approved in Kriezis v Kriezis [2004] NSWSC 167 at [23] per Burchett AJ. In applying these principles the onus is on the person asserting that the trust or charge should be imposed to satisfy the court that it would be unconscionable for the property interest to lie where they fall. 37 This is a situation where the Baumgartner v Baumgartner (1987) 164 CLR 137 type of constructive trust or charge can operate because the relationship has come to an end in circumstances which the parties did not foresee and did not provide for. 38 Unlike many cases where a Baumgartner v Baumgartner (1987) 164 CLR 137 charge or trust is asserted, this is not a case where there has been any acquisition of property in the context of a domestic relationship - the plaintiff owned the relevant property all along. There was no mortgage which needed to be paid off to acquire the property. Thus there is no room for a trust or charge arising from any contributions to the purchase price. 39 There have, however, been improvements effected at Peter's expense. He has given evidence of having paid $26,000 for building permits and materials, $760 for plans, a little over $26,000 for labour, a little under $15,000 for various items of maintenance and improvements inside the house, and a little under $4000 for improvements in the outside area. These amounts total a little over $70,000. The plaintiff concedes that the total amount spent by Peter on the property was $60,000. I will, for the purpose of this case, take these contributions at the figure which he gives evidence of, of the order of $70,000. 40 However, the mere making of the contribution in a domestic relationship is not something which automatically results in a trust, or a charge for an amount equal to the amount of the contribution. 41 Even though there have been improvements carried out to the property, there is no evidence which shows whether the improvements are the type which have increased the value of the property, or, if the value has increased, whether it has increased by an amount which is more or less than the cost of effecting the improvements. 42 Pursuant to the arrangement with his mother, Peter paid the rates on the property for about nine years. He stopped paying in about 2001. He has been able to quantify an amount paid over five years of that period at $4,922. The balance is not precisely quantified. The plaintiff has paid the rates from about 2001. She reimbursed Gerard for the $2,560 that he paid for arrears and costs in 2004, she paid an additional amount of $1430.71 in the course of 2004, and an additional amount of $939.53 was paid to the council on the settlement of the sale of the property. Thus, she has paid a total of $4,929 in rates. 43 In the course of submissions, Peter made an oral claim for recompense for the rates he paid. The basis of it was that the obligation under the agreement of 25 May 1992 to be responsible for "all maintenance and upkeep" was not one which extended to requiring him to pay the rates. I do not need to decide that question of construction. He does not say that the rates were paid under mistake. Rather, in my view, those rates were paid as part of an overall share of the liability of living together, as part of a well understood arrangement, and without there being any expressed or implied obligation on the plaintiff to repay them. A claim for restitution in relation to the rates fails. 44 As well as the contributions which I have mentioned so far, Peter made some other contributions to living expenses like paying for food, but there is no quantification for those claims, and the evidence does not leave me with even an impression of how the proportions of payments for items of living expenses like that ran. 45 The fundamental question in deciding whether a Baumgartner v Baumgartner (1987) 164 CLR 137 type trust exists is whether it would be unconscionable that the rights of the parties, on determination of the relationship, should be simply what the bare legal right of the parties to the assets is. The effect of the arrangement which was entered into in May 1992 is that Peter had available any capital there might have been from the sale of his Sydney property for other purposes, apart from the amount he had spent on the extensions or improvements, and has been spared the need to pay rent for accommodation. I recognise that at no time was there any discussion between himself and his mother about him paying rent, but in deciding whether it is now unconscionable for the plaintiff to retain the legal title to the property without according any equitable interest to Peter one needs to take into account all the contributions that each in fact made to the acquisition or retention of property in the course of their living together. The fact is that Peter and his family were living in her house from about May 1992 to December 2004 - around 12½ years, - in return for a capital input of $70,000, and performance of some maintenance, and payment of some of the rates. 46 The plaintiff alleges that Peter has breached the agreement in some ways - that he has done very little maintenance for five years, and has not built a swimming pool. I accept that he has done little maintenance for five years, and it appears to be undisputed that no swimming pool has been built. However, those breaches of obligation do not, it seems to me, bear on the type of claim which is made here. They would be very relevant in an application for specific performance of the contract – a party seeking specific performance is required to have performed their essential obligations before the court will grant the remedy - but here the equity arises from a different sort of claim, not based on contract. As well, at the factual level, it has not made out that any lack of maintenance had any effect on the value for which the house was sold. 47 A most important factor to take into account is the plaintiff's guaranteeing of the debt of Peter's company. It is well-established that any guarantor has a right of indemnity from the principal debtor - but that does not impact on the relationship between Peter and his mother, because the principal debtor is Paris Hill Pty Limited. As well, though, there is a well recognised species of money paid by the plaintiff for the use of the defendant which can arise when, amongst other things, A requests B to provide a guarantee to C, pursuant to which B is later required to pay. In that situation there is a common money count for money paid by B to the use of A which entitles B to recover the amount paid from A: Mason & Carter, Restitution Law in Australia, para [111]. Here, the relevant question is whether the amount guaranteed entered into the assessment required by Baumgartner v Baumgartner (1987) 164 CLR 137. That depends upon whether the providing of the guarantee was a contribution by the plaintiff to the joint enterprise of them living together in the house. In my view, it was. It was very important for her son's continuing to live there that he have an income from work, and she was making a contribution to that situation continuing. 48 In all these circumstances, I am not satisfied that Peter has established that it is unconscionable for the plaintiff to retain the full beneficial title to 129 Third Avenue. 49 There is an allegation which was made in cross-examination (though not by any positive evidence) that the sale of 129 Third Avenue was at an undervalue, was made using a real estate agent who was inappropriate, and that the selling strategy was inappropriate. I am satisfied that, though there was no display board outside the property, the plaintiff followed the advice that she was given by a real estate agent about the method of advertising the sale, advertised on the Internet, and that five or six prospective purchasers saw the property before exchange of contracts. I am not satisfied that it is made out that this was an inappropriate method of sale, or that it has resulted in the sale being at an undervalue. 50 Further, I should say that even if the property had been sold at an undervalue, it would have been unlikely to affect the result of the case because if Peter had a claim, it would be likely to be for a charge for a definite sum of money not for a proportional beneficial interest in the property. If the plaintiff had, in that situation, sold the property for an undervalue, she would only have been hurting her own interests. 51 For these reasons, the amended cross claim is dismissed. The plaintiff is released from her undertaking given to the Court on 29 November 2004, as modified on 3 February 2005, to retain any of the proceeds of sale of 129 Third Avenue, Narromine in a trust account or controlled money account. APPLICATION FOR COSTS 52 The plaintiff and the cross claimant each seek costs. 53 There is an aspect of the procedural history which I have not previously mentioned. When the matter was before Palmer J on 29 November 2004 his Honour gave a direction which made provision for the cross claimant to file a cross claim. That direction was one that the defendant was required to serve any cross-claim on which he proposed to rely by 13 December 2004. It was the filing of the cross-claim which resulted in there being a need to approach Hamilton J on 3 February 2005. 54 In my view the usual principle that costs should follow the event should apply, and should apply to the interlocutory part of the proceedings. 55 I see no reason in principle why the cross claimant, having failed in the contentions which he puts forward, ought to be entitled to an order for his own costs. 56 I order the defendant to pay the plaintiff's costs of the proceedings. That order includes all costs of the summons, and the cross claim and amended cross claim and reserved costs. ********** 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.