New South Wales Court of Appeal CITATION: Cone v Burch [2010] NSWCA 168 HEARING DATE(S): 25 June 2010 JUDGMENT DATE: 29 October 2010 JUDGMENT OF: Beazley JA at 1; Giles JA at 2; Macfarlan JA at 64 DECISION: Appeal dismissed with costs. CATCHWORDS: EQUITY - trusts - resulting trust - proof of beneficial ownership - one party paid for property - second party provided work on property - whether intention that beneficial interest not be held on trust shown - on facts no intention shown. EVIDENCE - rules of evidence - rule in Browne v Dunn - defendant gave evidence - particular evidence then elicited from plaintiff in cross-examination - had not been put to defendant - whether plaintiff could rely on the evidence - evidence could be relied upon. Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (1983) 1 NSWLR 1; Browne v Dunn (1894) 6 R 67; Calverley v Green (1984) 155 CLR 242; CASES CITED: Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353; Giumelli v Giumelli (1999) 196 CLR 101 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) HCA 19; Martin v Martin (1959) 110 CLR 297; News Ltd v Australian Rugby Football League Ltd (1996) 64 FCA 410. PARTIES: Anthony Charles Cone - Appellant Cheryl Anne Burch - Respondent FILE NUMBER(S): CA 2008/281732 COUNSEL: P R Glissan - Appellant A J McInerney & D J Barnett - Respondent SOLICITORS: John McEncroe & Company - Appellant Foott, Law & Co, Grafton - Respondent LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): SC 5861/08 LOWER COURT JUDICIAL OFFICER: Barrett J LOWER COURT DATE OF DECISION: 10 December 2008 LOWER COURT MEDIUM NEUTRAL CITATION: Burch v Cone [2009] NSWSC 1430 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 2008/281732 SC 5861/08 BEAZLEY JA GILES JA MACFARLAN JA Friday 29 October 2010 CONE v BURCH Judgment 1 BEAZLEY JA: I agree with Giles JA. 2 GILES JA: The proceedings below were concerned with the beneficial ownership of (a) a property at Coutts Crossing in New South Wales registered in the names of the plaintiff, Ms Cheryl Burch, and the first defendant (who I will call the defendant), Mr Anthony Cone, as tenants in common ("the Coutts Crossing property"); (b) a Nissan commercial truck ("the truck"); and (c) a diesel generator and a brick making machine ("the machinery"); and with liability under a mortgage of the Coutts Crossing property. 3 The plaintiff claimed that she was the sole beneficial owner of the Coutts Cross property, the truck and the machinery, and that liability under the mortgage was in the proportions 36:64. The defendant conceded the beneficial ownership of the truck. Barrett J declared that the defendant held his half share in the Coutts Crossing property on trust for the plaintiff, and held the machinery on trust as to two-thirds for the plaintiff and as to one-third for himself. He ordered that the defendant indemnify and hold harmless the plaintiff against 61.75 per cent of the mortgage loan. 4 For the reasons which follow, the defendant's appeal against the declarations and order should be dismissed. 5 I will continue to refer to the parties to the appeal, now respondent and appellant, as plaintiff and defendant. Background 6 The plaintiff owned a property at Cedar Creek in Queensland ("the Cedar Creek property"). In about April 2004 the defendant and three of his children became boarders or lodgers at the Cedar Creek property. 7 In October 2005 the plaintiff sold the Cedar Creek property. In November 2005 she and the defendant entered into a contract for the purchase of the Coutts Crossing property. The purchase was completed on 16 December 2005, with the plaintiff and the defendant taking title as joint tenants. All the purchase money was provided by the plaintiff from the proceeds of sale of the Cedar Creek property. The defendant and his children continued as boarders or lodgers, now at the Coutts Crossing property. 8 In February 2006 the plaintiff and the defendant borrowed $50,000 on mortgage of the property. In January 2007 the mortgage loan was increased to $80,000. Over time the money was spent as to $24,090.42 for the joint purposes of the plaintiff and the defendant, as to $16,554.00 for the plaintiff's separate and exclusive purposes, and as to $18,355.58 for the defendant's separate and exclusive purposes. The usage of a further $20,997.50 of the money was disputed. 9 Also in February 2006 the machinery was bought for about $15,000. In the statement of claim it was alleged that it was bought by the defendant and the second defendant, his brother Mr David Cone, and the defendant admitted the allegation in his defence. $10,000 of the purchase money was provided by the plaintiff. The remaining $5,000 came from the mortgage loan. 10 In November 2007 the plaintiff caused conversion of the title to the Coutts Crossing property to tenancy in common. 11 In late 2007 the plaintiff moved from the Coutts Crossing property to Pottsville in New South Wales. The defendant and his children remained at the Coutts Crossing property . 12 The plaintiff and the defendant were not married to each other or in a defacto relationship, and there was no familial relationship. Beneficial ownership of the Coutts Crossing property 13 The plaintiff claimed that, because she provided the whole of the purchase money for the Coutts Crossing property, the defendant held his half share on trust for her: see, for example, Calverley v Green (1984) 155 CLR 242 at 246 (Gibbs CJ); 255-6 (Mason and Brennan JJ); 265-7 (Deane J). 14 The defendant's response, as pleaded in his defence, was that - " … he contributed about one-half of the purchase price of [the Coutts Crossing property], being moneys which he said that the plaintiff owed to him resulting from work performed by him which improved [the Cedar Creek property]." The judge's reasons 15 The plaintiff tendered admissions by the defendant, taken from his affidavits, including that he had not paid rent or board to the plaintiff while he and his children were living at the Cedar Creek property. The admissions were admitted without objection. The defendant later applied for leave to withdraw the admission as to non-payment of rent or board, and gave oral evidence on the voir dire that he had paid $100 per week. The judge refused leave to withdraw the admission. 16 Grounds of appeal that the judge erred in refusing leave and disregarding the oral evidence, which in debate enlarged to whether leave to withdraw an admission was required, were not maintained 17 His Honour accepted that the defendant attended to repairs and maintenance at the Cedar Creek property, and also made some improvements. He said that there was "a dispute as to exactly what he did and the extent, if any, to which it enhanced the property" (at [11]), but that he did not need to decide. 18 It was common ground, and remained so on appeal, that it was necessary for the defendant to rebut a trust in favour of the plaintiff arising from her provision of the whole of the purchase money for the Coutts Crossing property. The judge considered two bases for a claim by the defendant to an interest in the property. 19 The first was a constructive trust in favour of a person who improves the property of another person, for which the judge cited Giumelli v Giumelli (1999) 196 CLR 101. His Honour held that this required a finding that it would be unconscionable for the owner of the property to retain unqualified enjoyment of the improved property, usually because of inducement or encouragement by the property owner and reliance thereon in undertaking the improvements. His Honour said - "13 No such findings can be made in this case. The defendant was an unemployed pensioner with time on his hands while living at Cedar Creek. Because the plaintiff's house had become the home of himself and three of his children, he had an incentive of his own to make it a more pleasant place to live. Because he paid no rent or board to the plaintiff, it was reasonable that he give her benefits in kind by way of work on repairs, maintenance and improvements. There is nothing in the evidence to suggest any basis for an expectation on his part that he should, by his labours, earn an interest in the property." 20 The second was described as an oral contract. The judge recounted the competing positions - "14 … I quote from [the defendant's] second affidavit: 'When Cheryl sold her Cedar Creek property, we had a conversation in words to the effect, Me: 'I want to be paid for all my work here. I want $75,000.00 from the sale.' Cheryl: 'If I pay you, I won't be able to buy Kangaroo Creek [the Coutts Crossing property]. Are you prepared to come in with me as partners in Kangaroo Creek? Since you know how to build houses with mud bricks, I want you to come in with me. I'll give you half the land. At the same time you can help me build a house and you can build one for yourself.' Me: 'Okay'. 15 Later in the same affidavit, the defendant refers to a subsequent conversation in Mr Flynn's office in which he said to the plaintiff, 'I'd sooner take the cash out". [Mr Flynn was the solicitor acting on the purchase of the Coutts Crossing property.] 16 The plaintiff denies any conversations in these terms. She explained in cross-examination that, before she had decided to sell Cedar Creek but at a time when she was thinking of doing so, she came to a loose arrangement with the defendant that if she in due course sold Cedar Creek and then bought vacant land, the defendant would build two mud brick houses on that land, one for her and one for himself and, once he had done so, she would 'see how good the house was' and 'what land he got would depend on' that – in other words, she would give him part of the new land as a reward for building a house for her, but only after the house had been completed. She said that this was the reason why 'his name was put on the deed so that later on I didn't have to spend the expense of putting it on the deed later'. 17 She waited two years. No mud brick houses were built. She moved to Pottsville in late 2007 and later commenced these proceedings." 21 His Honour considered that there were "several unsatisfactory aspects of the defendant's evidence in para [14] above" (at [18]). He described them, and concluded that "it is not possible to find that the plaintiff made to the defendant the representation or promise referred to" at that paragraph (at [20]). 22 His Honour found, referring to the last-mentioned conclusion - "21 ... That, coupled with my earlier findings, means that the only conclusion reasonably open in relation to the money applied to purchase the Coutts Crossing property is that it was owned beneficially, as to the whole, by the plaintiff, being part of the proceeds of the sale of her Cedar Creek property in which the defendant had no interest; also that the plaintiff had not agreed, whether by way of contract or otherwise, to give the defendant any interest in those proceeds or in the other land she later bought with them. 22 The equitable principle relevant to this case is that a trust arises in favour of the person who provides the whole of the purchase moneys when the property is conveyed into the joint names of that person and another: Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 at 245. The operation of that principle may be displaced by evidence of some different intention. It would be for the defendant to produce rebutting evidence. No different intention has been proved by the defendant." The grounds of appeal 23 Counsel for the defendant, who had appeared below, said that the Giumelli v Giumelli basis had not been part of his case at trial. He said that his case had been that the defendant had a half interest in the property "as a reward for doing the work at Queensland". 24 So far as the pleaded defence involved a contract ("owed to him"), it was a contract for doing work on the Cedar Creek property. What the judge described as the oral contract may have been different, perhaps not a contract at all, and an enforceable contract may not have been necessary. It was a question of the plaintiff's intention. Nothing turns on the label. 25 On appeal the defendant cast his net more widely than the conversations in his affidavit. After excluding those concerned with the admission, the grounds of appeal in relation to the Coutts Crossing property were - "3. His Honour erred in disregarding evidence that the Appellant performed substantial work at Cedar Creek, for which the Respondent did not pay any money to him. 4. His Honour erred in disregarding evidence by the Respondent that she intended to purchase the land in the joint names of herself and the Appellant as tenants in common, with each acquiring a distinct and separate share or interest in the land, and that the Appellant was going to receive some benefit from having his interest in his name. 5. His Honour erred in admitting and accepting oral evidence in reply by the Respondent that if she sold Cedar Creek and purchased the land and the Appellant built a mud brick house for her on the land, when she saw how good the house was she intended to give him some of the land, and that she purchased the land with his name on the title to avoid the expense of putting his name on the title later on – because that explanation had not been given in an Affidavit and was not put to the Appellant in cross-examination. 6. His Honour erred in not accepting evidence by the Appellant that the Respondent intended to give to him a half interest in Lot 184 Kangaroo Creek Road Coutts Crossing ('the land') when they purchased it in joint names. 7. Accordingly, his Honour erred in not finding that the presumption of a resulting trust in favour of the Respondent was rebutted by evidence of her intention that the Appellant acquire a distinct and separate beneficial share or interest in the land as a tenant in common with her when they purchased the land in joint names." Ground 3 – error in disregarding evidence of substantial work 26 The judge noted that the work done by the defendant and the improvements to the Cedar Creek property were disputed. His Honour did not disregard the evidence. It is correct that he did not need to decide the extent of the work. 27 The judge's decision on the Giumelli v Giumelli basis recognised the doing of work and improvement of the Cedar Creek property. But the extent of the work did not matter for the decision, which was adverse to the defendant because of the circumstances in which the work was done. The decision on the oral contract basis also recognised the doing of work and improvement of the Cedar Creek property. Again, the extent of work did not matter for the decision. His Honour did not accept the defendant's evidence of the conversation in which the defendant said he wanted to be paid for all his work. The defendant claimed $75,000, the plaintiff proposed an alternative arrangement, and it was not necessary that the claimed $75,000 be correct or be related to any particular extent of work. 28 This was recognised at the trial. In closing submissions the defendant relied on the work as providing "a believable basis for there being an intention on the part of the plaintiff to give the defendant a half interest in the property beneficially". But the submission was propounded after the judge had said that "there is some quantity of work that it is clear that he did", with which counsel for the defendant agreed, and - "HIS HONOUR: Does it matter how much he did? GLISSAN: Not really." Ground 4 – error in disregarding the plaintiff's evidence of her intention 29 The defendant relied on a number of passages in the cross-examination of the plaintiff. The plaintiff agreed that she knew that the Coutts Crossing property was being purchased in joint names. In answer to the question that it was her intention "that the two of you purchase that property" she said, "It was my intention for me to buy the property, yes", and in answer to the succeeding question she agreed that it was her intention "[t]o have it in the name of [the defendant] as well". She agreed that she intended that each would have "a distinct and separate share", although she did not agree that it was her intention that they each have "half the land" and said that the shares were "going to all depend". She agreed that it was her intention that the defendant "be on the title". The defendant particularly relied on the plaintiff's evidence, referring to signing the contract at Mr Flynn's office - "Q. You'd already worked out very clearly in your mind that you were going to put the title into both names, you took Mr Cone along with you for that purpose and you carried out that purpose into effect when you both signed the contract? A. Yes. Q. And I put it to you that you knew when the title was going into both names that he was acquiring an interest in the land? A. Yes. Q. You knew that. And that was in accordance with your intention? A. Yes. Q. And he was going to get some benefit from having that interest in his name? A. He would have yes." 30 The admissibility and relevance of the uncommunicated intention of the plaintiff is not clear: see Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 364-6; Martin v Martin (1959) 110 CLR 297 at 303-5; Calverley v Green at 261-2 (Mason and Brennan JJ); 269-70 (Deane J). It need not be investigated. 31 The passages to which the defendant referred were all consistent with, and (in the contemplation that the shares "were going to all depend") explanatory of, the arrangement summarised by the judge in para [16] of his reasons earlier set out. The plaintiff's evidence must be read as a whole, The plaintiff did intend the defendant to have an interest in the Coutts Crossing property, but it was not an intention that he have it then and there as joint purchaser. His gaining an interest depended on the defendant building a mud brick house for the plaintiff, and the shares depended on how matters turned out. The necessary events did not occur. 32 The passages did not establish an intention that the defendant would have an interest in the Coutts Crossing property, a half share or otherwise, at the time and by virtue of the title going into both names. Reading the plaintiff's evidence as a whole, I do not think that the defendant gains support for rebuttal of the trust arising from the plaintiff's provision of the whole of the purchase money for the Coutts Creek property. Ground 5 – error in admitting and accepting the evidence of the plaintiff 33 The evidence was the plaintiff's explanation recounted by the judge in para [16], and implicitly accepted by his Honour. 34 The plaintiff's case in chief was the tender of the admissions. The defendant's affidavits were then read, his evidence concerning payment of rent or board was taken on the voir dire and the ruling was given, and after some further evidence in chief he was cross-examined generally. An arrangement as summarised in para [16] was not put to the defendant in cross-examination. 35 Some plaintiff's affidavits were read in a case in reply. They did not include evidence of the arrangement. The plaintiff was cross-examined, during which the explanation was given. It was not thrust upon the cross-examiner; in particular, a question sought "the nature of the discussion you had about acquiring Kangaroo Creek in joint names … the substance of that conversation". 36 There was no error in admitting the evidence so elicited by the defendant in cross-examination. 37 No application was made to recall the defendant in order to meet the plaintiff's explanation. The defendant submitted to the judge that - "[t]he fact that she did come out with some sort of an explanation in cross-examination shouldn't be given any weight given what your Honour has already said about the timetable for affidavits and the like, and the fact that that version she gave was not put to my client in cross-examination, not at all, he wasn't recalled and that wasn't put to him in the witness box, it wouldn't be fair that your Honour should place any weight on that." 38 On appeal, the plaintiff submitted that the judge had rejected the defendant's evidence, as distinct from accepting the plaintiff's evidence. I doubt the distinction is sound; as earlier noted, there was implicit acceptance of the plaintiff's explanation. 39 The defendant submitted that non-compliance with the so-called rule in Browne v Dunn (1894) 6 R 67, as explained in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (1983) 1 NSWLR 1, precluded reliance on the evidence. The rule in Browne v Dunn is essentially one of fairness. There is nothing unfair in the plaintiff relying on the evidence elicited by the defendant in cross-examination. It was not for the plaintiff to seek recall of the defendant, and the defendant's counsel did not recall him. The judge was entitled to give weight to, and accept, the plaintiff's evidence notwithstanding the way it had come before him. Ground 6 – error in not accepting evidence of the defendant 40 This was not separately addressed in submissions. No error has been shown in the judge declining to accept the defendant's evidence. Ground 7 – error in the result 41 This is a consequential ground. None of the preceding grounds is upheld, and this ground fails. Liability under the mortgage 42 The $20,997.50 had been paid into a credit union account separately operated by the plaintiff and the defendant. Cash withdrawals by ATM cards could be allocated to each, and the $5,000 for the purchase of the machinery came from the account. The judge found that $17,000 (including the $5,000) was applied for the exclusive use of the defendant and the balance was applied to the parties' joint use. Taking account of the usage of the balance of the mortgage loan, his Honour arrived at the proportions 38.25:61.75, and made the order for indemnity. 43 The grounds of appeal were - "8. His Honour erred in disregarding evidence of the Appellant's repayments of the mortgage on the land. 9. His Honour erred in finding that an equity of exoneration arises in favour of the Respondent in relation to the mortgage on the land." Ground 8 – error in disregarding the defendant's repayments of the mortgage 44 The defendant submitted that he had "paid the mortgage for a very long time from his own money", although we were not referred to the defendant's evidence. It was submitted that the defendant should have been "given credit" for this. It was not explained how. 45 The defendant had not applied for an accounting between co-mortgagors. The issue at trial was responsibility for the mortgage loan according to the separate usages of the money, and availability of an order for exoneration was not disputed. The repayments of the mortgage made by each of the plaintiff and the defendant, so far as material to an order for exoneration, were not raised on the pleadings. No error has been shown in failure to take them into account. Ground 9 – error in finding an equity of exoneration 46 It was submitted that, if the parties were beneficial owners of the Coutts Crossing property in equal shares, there was no basis for the equity of exoneration because liability under the mortgage would be equal. The starting premise has not been accepted. The machinery 47 The judge reasoned that the plaintiff had provided $10,000 of the purchase money; that the other $5,000 from the mortgage loan was part of the $17,000 applied for the exclusive use of the defendant; therefore the beneficial ownership was two thirds/one third. 48 The Court raised a difficulty not adverted to by either party. 49 Unsurprisingly given the admitted allegation, the judge found that the machinery was bought by the defendant and Mr David Cone. Although Mr David Cone was joined as second defendant, he was not served. He was not joined as a party to the appeal. If he was a joint purchaser of the machinery, he was a necessary party in determining the beneficial ownership of the machinery. His interests would be directly affected. 50 This appears to have been overlooked at trial. As I understand it, it was accepted that the declaration made by the judge could not stand: News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 524-5; John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) HCA 19 at [131]-[138]. 51 The parties were invited to propose a pragmatic solution. No proposal was received. The reasons thus far were written. 52 Then over a long period the parties and Mr David Cone came to the position that - Mr David Cone disclaimed any interest in the machinery; and it was common ground between the parties that it had been purchased by the defendant. 53 An affidavit of Mr John McEnroe sworn on 16 September 2010, annexing amongst other documents an affidavit of Mr David Cone, has been filed. The solicitors engaged in a notice of motion, proposed amendments to the pleadings, a proposed notice of contention and cross-appeal, and a deal of correspondence. There was unnecessary formality and expense in a dispute over machinery of little value, and the court should proceed on the common position without more ado. The grounds of appeal The grounds of appeal were - "10. His Honour erred in not admitting oral evidence by the Appellant on the voir dire that he purchased a 4 wheel drive Hilux motor vehicle from Ben Preston for $6,000.00 and gave it to the Respondent in exchange for her interest in the 125Kva diesel generator and S&S brick-making machine both purchased by the Appellant from Howard Hall and Wayne Seymour on or about 16 February 2006 ("the generator and brick-making machine"). 11. Accordingly, His Honour erred in not finding that the Appellant is the owner of the generator and brick-making machine." Ground 10 – error in not admitting evidence of an exchange 54 After objection to evidence on the "topic", on the ground that it had not been dealt with in the affidavits, the evidence was taken on the voir dire. It was not quite as summarised in the ground of appeal. According to the defendant, in a conversation with the plaintiff she got the Hilux in return for her $10,000, so he could pay off the machinery. 55 The plaintiff's objection was then renewed, on the ground that " … it is just too late in the context of these proceedings to be revisiting and requiring factual investigations which may be necessarily undertaken to deal with those issues." 56 The defendant said nothing to justify the lateness. Counsel for the defendant said, rather plaintively, "I am just doing the best I can with the information that's coming to me. I can't do anything more than that." 57 The judge ruled - "The evidence that has been led orally from the first defendant on the voir dire will not be admitted. At the pre-trial directions hearing on 10 November no provision was made for further affidavits. The position must be taken to have been that the evidence was complete. The evidence that has been led gives rise to a need for factual investigation on the part of the plaintiff. It is unreasonable to expect the plaintiff to undertake that investigation at this point when the trial has started." 58 On appeal, the defendant submitted that the plaintiff had been allowed to read affidavits sworn by her a week before and on the day of the hearing, and that it would have been easy for the plaintiff to respond to the evidence as she would have known whether or not the arrangement for an exchange was made. 59 There was no objection to the reading of the plaintiff's affidavits, and no question of her being "allowed" to read them. In any event, tit for tat is not a principle of evidence. Responding to the defendant's evidence was not necessarily only a matter of the plaintiff's say-so – for example, the time or even existence of the underlying purchase of the Hilux might have been in question. Counsel for the plaintiff did not at the time contest that factual investigations might be necessary. No error has been shown in the exercise of his Honour's discretion. 60 The submissions under this ground of appeal went beyond it. The defendant submitted that in any event there was error in the judge's finding, pointing to an answer in the plaintiff's cross-examination - "Q. So it was not ever your intention that you would have any beneficial interest or any ownership of the brick-making machine or the generator was it? A. No." 61 Again, the admissibility and relevance of the uncommunicated intention (or lack of intention) of the plaintiff is not clear. The question and answer followed a series of questions concerned with the defendant's experience in making mud bricks, including with acceptance (now displaced) that the machinery was purchased in the names of the defendant and Mr David Cone. From the "so" at the beginning of the question, it could have been taken to refer to use of the machinery. The question and answer were not followed up by putting to the plaintiff that that her $10,000 was provided way of loan. In the unsatisfactory state in which the evidence was left, I do not think it was sufficient to rebut the presumption arising from the plaintiff's provision of two-thirds of the purchase price. Ground 11 – consequential error 62 This added nothing to the previous ground. The result 63 I propose that the appeal be dismissed with costs. 64 MACFARLAN JA: I agree with Giles JA. ********** 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. 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