New South Wales Supreme Court CITATION : PENNIE v PENNIE [2010] NSWSC 565 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 24, 25 & 27 May 2010 JURISDICTION : Equity JUDGMENT OF : Pembroke J EX TEMPORE JUDGMENT DATE : 27 May 2010 DECISION : See paragraphs 48 et seq of Judgment CATCHWORDS : EQUITY - TRUSTS - Whether implied trust - No intention - EQUITABLE REMEDIES - Whether constructive trust - No unfulfilled promise or assurance - No unconscionability - Equitable charge - Minimum equity - Expenditure of money on another's land - No right to enhancement value CATEGORY : Principal judgment Baumgartner v Baumgartner (1987) 164 CLR 137 Forgeard v Shanahan (1994) 35 NSWLR 206 CASES CITED : Giumelli v Giumelli (1999) 196 CLR 101 Henderson v Miles (No 2) (2005) BPR 98200 Morris v Morris [1982] 1 NSWLR 61 Muschinski v Dodds (1985) 160 CLR 583 PARTIES : Harry George Pennie - Plaintiff Stuart Pennie - Defendant FILE NUMBER(S) : SC 2008/282026 COUNSEL : J. A. Trebeck for the Plaintiff D. K. Raphael for the Defendant SOLICITORS : Herbert Weller (Plaintiff) Mersal & Associates (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION PEMBROKE J THURSDAY 27 MAY 2010 2008/282026 HARRY GEORGE PENNIE v STUART PENNIE EX TEMPORE JUDGMENT 1 HIS HONOUR: This is a case resulting from the break down in a relationship between father and son. The father is the plaintiff. He is the registered proprietor of the land and improvements known as 30 Manns Road, Wilberforce. Until 2008 the plaintiff shared his home with his son and daughter-in-law. They are the defendants. 2 As a result of conflict between the plaintiff and his daughter-in-law it has not been practical for the father to reside in his home for some time. He seeks a declaration that he is entitled to possession - to which he is indubitably entitled. The Dispute 3 The substance of the dispute is whether the son is entitled to any equitable interest in the Wilberforce property arising as a result of three matters: (a) the financial contributions represented by his expenditure on building materials for the home; (b) his contributions to the plaintiff's loan repayments; and (c) his ownership of an earlier property at Smithfield, his expenditure on its improvements, and the use that was made of the net proceeds from sale of that property in funding the purchase of Wilberforce. 4 As far as the Wilberforce property is concerned, the amount of the son's expenditure on building materials is agreed at $50,441.40. The amount of his contribution to the plaintiff's loan repayments is agreed at $96,760 subject to two small components which the plaintiff disputes. 5 The first disputed amount is $13,200 in respect of the 1994/95 period, which the plaintiff says should be more accurately characterised as a rental contribution in respect of the parties' temporary accommodation in a house adjoining the Wilberforce land. This was necessary while the house was being constructed on the Wilberforce land. 6 The second disputed amount is $850 which the plaintiff says reflects a shortfall during the period when the son failed to make his usual contribution to the father's loan. Given the passage of time, the absence of contemporaneous objective evidence, and the correctness of the balance of the son's calculations of his contributions to the father's loan, (which the plaintiff concedes), I propose to give the son the benefit of the doubt in relation to these two small amounts. 7 I will adopt the figures of $50,441.40 and $96,760. This amounts to a total financial contribution by the son to the Wilberforce land of $147,201.40. The plaintiff conceded $133,151.40 of this amount. I will consider the evidence in relation to the Smithfield property later. The Causes of Action 8 From this broad factual basis the son claims that there was a joint venture resulting in him being entitled to a 50 percent interest in the Wilberforce land. Although the defendants' pleading was excessively wide, it was clear during addresses that the son sought to give effect to this entitlement by an implied or constructive trust. The foundation for his claim for an implied trust was an actual intention, or at least a presumed intention that could be inferred from the facts and circumstances. The claim for a constructive trust depended in part on the extent to which, if at all, the plaintiff's conduct has been unconscionable in the events that have occurred, regardless of the absence of any actual or presumed intention. For reasons which I will explain, the evidence does not support the claims for either an implied or constructive trust. 9 The evidence does, however, support a claim for an equitable charge over the property to secure the amount of the son's expenditure - in respect of both the building materials which were contributed to the improvements on the Wilberforce land and the contributions to the plaintiff's loan. The remedy of an equitable charge in circumstances such as these is a well recognised equitable entitlement which has been explained in separate decisions of former Chief Judges of the Equity Division of this court – viz Morris v Morris [1982] 1 NSWLR 61 and Henderson v Miles (No 2) [2005] NSWSC 867; 12 BPR 98200. 10 The entitlement to an equitable charge was conceded by the plaintiff. For the defendants, it was very much a fall back position on which they relied only if the trust for a 50 per cent interest in the Wilberforce land were not established. 11 On whatever trust basis the defendants relied, the resolution of their claim required me to find that the plaintiff's evidence should not be accepted. This is because the claim based on an implied trust required me to reject the truth of the plaintiff's account of certain conversations and the sequence of events. And the claim based on a constructive trust required me to find that in the events that transpired, it would be unconscionable for the plaintiff not to acknowledge that the son is entitled to a 50 percent interest in the Wilberforce land. If I accepted the plaintiff's explanation of what occurred and what was said, there was no basis for finding unconscionability. For those reasons I should make some observations about the evidence of the plaintiff and his son. Harry Pennie 12 The plaintiff was down to earth, honest, and well intentioned. He at all times tried to do the right thing by his only son. His evidence was, in my view, credible and plausible. It was also direct. On occasions when it was appropriate, he made concessions. When it was reasonable to do so, he acknowledged the imperfections of memory. He did not overstate his case, assert the improbable or deny the obvious. I have no hesitation in accepting his evidence. I regard the sequence of events he related as more probable than not. His memory appeared to be more reliable than that of his son. Where they differed I preferred the evidence of the plaintiff. Stuart Pennie 13 As to the son, I have some sympathy for him. His once close relationship with his father has deteriorated as a result of circumstances, not entirely of his own making. His evidence, however, was confused, unsatisfactory and ultimately tearful. But fundamentally it was deficient in the sense that it never rose high enough, whether in his affidavits or in his oral evidence in cross-examination, to support a claim for any sort of trust. When I gave him an opportunity at the end of his cross-examination to explain in his own words the basis for his claim he could only say that, "I was supposed to live there until my father passed and that was going to be left to me" (sic). The Factual History 14 The plaintiff has spent much of his later adult life near the Hawkesbury River. His own father died in a work accident when he was aged 14 and he was brought up by his mother. He married in 1964, divorced in 1972 and returned to live with his mother. The first defendant was born in 1966 and was his own only son. From the age of 14 the son stayed with his father and grandmother on a full time basis. Father and son would often water ski together and would spend weekends in a caravan at Lower Portland on the Hawkesbury River. 15 In about 1985 the plaintiff's mother entered a nursing home. Father and son continued to live in her home until she died some months later and the property was sold. There were no moneys from the plaintiff's mother's estate. Father and son then took a lease in their joint names of a unit at Gymea for about nine months before moving in with friends at The Horsley Drive, Smithfield. The Smithfield Property 16 In about early 1987 the plaintiff and his son saw a property for sale at The Horsley Drive, Smithfield and decided that they should buy the property. The plaintiff said to his son words to the effect, "We should buy this property. I have got about $4,000 in the St George Bank. I could sell my car and raise the rest of the deposit from that". He also said that because of concerns about the liquidation of a company with which he was concerned he should put the property in the first defendant's name. The plaintiff and his son proceeded with the purchase of the property at 560 The Horsley Drive, Smithfield. The purchase price was $55,000. The plaintiff contributed the monies he had received from the sale of a Fairlane motor vehicle, being $10,000. He also contributed a further $2,000 which came from his St George Bank account. The first defendant contributed the sum of $1,000. The balance of the purchase price came from a Commonwealth Bank loan. The plaintiff was the guarantor of that loan. The title to the Smithfield property was put into the first defendant's name. The transfer in favour of the first defendant is dated 30 March 1987. 17 A joint bank account was set up in the names of the plaintiff and the first defendant, and repayments for the mortgage were made from that account. They were approximately $375 per month, and the first defendant paid approximately half of the monthly mortgage payments. 18 In or about early April 1987, the plaintiff and his son moved into the Smithfield property. While they were there they carried out repairs and improvements to the property by themselves and with the assistance of their neighbours. Overall, the plaintiff estimates that during the period of time that he and his son lived at the Smithfield property he spent approximately $25,000 on repairs and renovations to it. I accept that evidence. The plaintiff paid all outgoings in respect of the Smithfield property, and between 30 March 1987 and 2 February 1990 he and his son paid the loan repayments on the mortgage advance in equal shares. From 3 February 1990 to 1 January 1994 the plaintiff paid all of the loan repayments related to Smithfield. Ultimately, it is not necessary to make findings about the precise amounts of contributions made by each of the father and the son to the Smithfield property because I accept the following evidence and make finding to that effect. 19 In about February 1990 a conversation occurred between the plaintiff, the first defendant and first defendant's then girlfriend Leanne. In that conversation the first defendant said that he wanted to get married to Leanne and that they wanted to buy their own home in Bligh Park. He said that they wanted to save $10,000. The plaintiff responded by saying that he thought that his son might want to stay at Smithfield. He offered to move down the river and live in a caravan. The first defendant responded in words to the effect "No, you stay here. We will move out and buy our own place in Bligh Park. If you make all the payments on Smithfield you can have it and do what you like with it. That will give us an opportunity to save for our own home". The plaintiff agreed to take over all of the payments. 20 The plaintiff was naturally tested on this evidence but he said he was one hundred per cent certain about it and I believe him. His evidence accords with the probabilities. The father and son were close. In return for giving up any claim in relation to the Smithfield property the son was given the opportunity to save for his own home at Bligh Park. He had been able to live at Smithfield from 1987 to 1991 having only to pay half the mortgage. He did not have to pay more than $1,000 towards the building materials that were used for its repairs and improvements. Nor did he have to pay rates. He was free in mid-1991 to start a new life with his girlfriend and to be in position to buy his own home without the obligations and commitments which attached to the Smithfield property. Most importantly, he became free of any obligation to service the Smithfield loan. Purchase of Bligh Park 21 In about mid 1991 the first defendant informed the plaintiff that he and Leanne had saved $10,000 to buy their own house. They purchased the property at Bligh Park. The purchase price was $58,000. The transfer is dated 16 August 1991. The first defendant and Leanne had a loan from the St George Building Society to assist in the completion of the purchase. On the settlement of the purchase the first defendant moved out the Smithfield property and commenced to reside in his new home at Bligh Park. Shortly afterwards, when they were married, Leanne moved into the Bligh Park property with the first defendant. Sale of Smithfield 22 In early 1993 the plaintiff arranged for the Smithfield property to be put up for sale. He was looking for land on the Hawkesbury River where he wanted to spend his retirement years. I accept that evidence. A buyer was found for the Smithfield property. The sale price was $134,000. At that time there was still $36,000 owing to the Commonwealth Bank. The first defendant made no claim for any share of the net proceeds of sale from Smithfield. This was an important aspect of the case. One of the first defendant's principal contentions was that, he had a legal entitlement to a share of the net proceeds of sale of Smithfield. This was said to be a springboard for his entitlement to the equitable interest which he claimed in the Wilberforce property, which was funded in part with the proceeds of sale of Smithfield. 23 This aspect of the first defendant's evidence was difficult to accept. The firm of solicitors known as Grech & Partners were instructed on the sale of the Smithfield property by the plaintiff and by the first defendant. The proceeds of sale were given to the plaintiff. That was done, I infer, on instructions of the first defendant. All communications in relation to the transaction were with the plaintiff, subject to the important qualification that the first defendant saw Grech & Partners. He said he did not remember directing Mr Grech to hand over the proceeds of sale to his father. But I regard this as unlikely. It is inconsistent with the contemporaneous documents. I find that he did give instructions to do so. The fact that he did so is consistent with the conversation between father and son which I related in paragraph [19] above. The Purchase of Wilberforce 24 The plaintiff found a property which suited his requirements at 30 Manns Road, Wilberforce. He discussed the purchase of the land with his son and his son's then wife Leanne. He calculated that he could buy the Wilberforce property for about $97,000. He wanted to build a small house on the land and retire there. He knew that he could buy the land without the need to borrow money from the bank but he decided to keep $30,000 in his Commonwealth Bank account, apply that $30,000 towards the cost of building a new home, borrow the same amount and apply that towards the cost of the purchase of the property. 25 His son and Leanne came with him at one stage and looked over the land at Wilberforce. The plaintiff told them that "This is the one I want to buy. It's all I can afford". His son expressed the view that the block was not appropriate, but the plaintiff insisted that this was the property that he wanted to buy. He said he wanted to build a small house and retire there. The son responded by saying, "Leanne and I are staying at Bligh Park". The sale of Smithfield was settled in January 1994 and the purchase of the Wilberforce property occurred around the same time. When the Smithfield sale was settled the plaintiff moved into a caravan at Lower Portland for the time being. Stuart's Divorce and the Shared Rental 26 At around this time, in about early 1994, the first defendant and Leanne separated and the first defendant moved into another house at Berkshire Park with a new girlfriend whose name was Michelle. 27 The first defendant and Leanne sold their home at Bligh Park and the first defendant said to his father, "I will not get any money out of the sale of Bligh Park and I don't have any money. I'm now living with Michelle". His divorce from Leanne took place in late 1994. 28 The first defendant and Michelle lived in rented premises at Berkshire Park. The plaintiff was still living in a caravan at Lower Portland and relations were cordial. The son and his new girlfriend would visit the plaintiff at the caravan park and sometimes stay overnight. Michelle had financial difficulties and in April 1994 was declared bankrupt. The son informed the plaintiff about this fact. While the plaintiff was still living in the caravan park the house beside the property at Wilberforce came up for rent. The owners were the same persons who owned the vacant block of land which the plaintiff had agreed to purchase. 29 The plaintiff was concerned about the financial problems of his son and his girlfriend. He thought that he could assist them by renting the house next to the Wilberforce land. He thought that if they lived in that house with him, it would save them some accommodation costs. 30 A rental of the adjoining property was arranged and the three persons, father, son and son's girlfriend Michelle, moved into the adjoining property which they rented from the owner. The rent was shared between them. At this stage the plaintiff was 53 years of age and was contemplating retirement in the not too distant future. Construction of Wilberforce 31 In about March or April 1994 the first defendant drew a sketch plan of a house which he showed to his father. He told him that this was a sketch of the house which his father might like to construct on the land. He suggested it would cost about $60,000 to build. 32 The defendants' amended cross-claim contains the following allegations: "Prior to the acquisition of the Wilberforce land, the first defendant and the plaintiff agreed, and it was their common and/or presumed intention that: (f) the first defendant would beneficially own the house so constructed and the improvements on the Wilberforce land extending to the house and its improvements and the reasonable curtilage of each. The plaintiff would live in a granny flat accommodation in the house being constructed by the first defendant as long as he wished to do so and could not be evicted therefrom". 33 Particulars were given of this allegation. It was said to derive from an oral agreement concluded between the first defendant and the plaintiff in or around March 1984. This allegation bears no resemblance to the evidence, including the first defendant's own evidence. I find that no conversation to that effect took place; that there was no such agreement; and no such intention. 34 In mid to late 1994 construction of the house on the Wilberforce land commenced. After a considerable amount of money had been spent the plaintiff said to the first defendant in January 1995 words to the effect, "I don't have any of the $30,000 left. You had better go and borrow some money. I have also spent most of the money in my personal account". The first defendant apparently tried to raise some money but responded by saying that he could only borrow about $8,000. In February 1995, the plaintiff requested and obtained an increase in his loan with the St George Bank. The loan was increased by a further $30,000 which enabled the construction of the house to continue. Further, in 1995 the plaintiff received an inheritance from the estate of an aunt which was worth approximately US$11,000. He paid the monies into his Commonwealth Bank account and used those funds to pay for various disbursements in connection with the construction of improvements on the house. Residence at Wilberforce 35 The plaintiff, his son, and Michelle moved into the home at Wilberforce in December 1995. The first defendant and Michelle then commenced to provide a contribution to the plaintiff of approximately $150 per week. The plaintiff paid the mortgage, insurances, rates, electricity and contents insurance. The defendant did work around the house and in the garden, as did the plaintiff. 36 Not long after the three of them moved into the new home, and prior to May 1996, the plaintiff and Michelle had a disagreement. The plaintiff became upset and moved out of the new house and back to the caravan park where he lived for 8 or 9 weeks. He later spoke to his son who suggested that they build a flat underneath the house in which the father could live. Father and son then commenced work on the construction of a flat. The plaintiff paid all of the expenses of construction. 37 In early 1998 the first defendant informed the plaintiff that he and Michelle had bought an investment property at Lemon Tree Passage. The transfer in relation to this property is dated 7 April 1998. In 1999 Michelle requested a new kitchen in the home at Wilberforce. The plaintiff paid the cost of the new kitchen in the sum of about $10,000. In about May 2000 Michelle wanted to sell the property. She informed the plaintiff that the property at Wilberforce should be sold and that she wanted to buy a property with the first defendant at Lower Portland. She showed him a brochure relating to the prospective property. The plaintiff's response was to say, "I do not want to sell this place. I bought this to retire on. What you have suggested is not suitable. I want to retire on this property". 38 In 2001 the first defendant bought a second hand boat with no motor. The plaintiff assisted him by paying $5,000 for a motor. The first defendant did some work on the motor but it blew up. He then wanted to purchase a new power head for the motor. He asked the plaintiff to pay for it, which he did. This cost the plaintiff another $5,000. Also in 2001 the first defendant and Michelle wanted a swimming pool at the Wilberforce property. They asked for, and the plaintiff gave them, the money for the swimming pool. That was approximately $20,000. 39 The plaintiff told the first defendant that he should pay back the $40,000 which he had advanced in respect of the swimming pool, the kitchen and the boat. The plaintiff and the first defendant agreed that the first defendant would repay this at the rate of $850 per month. The first defendant and Michelle have, in fact, repaid the $40,000, although no interest was paid. 40 In 2008, as a result of conflict and dispute, primarily between the plaintiff and Michelle, the plaintiff left the Wilberforce property. It has not been practical for him to return since. Factual Conclusions 41 Having regard to the findings which I have set out above I have reached the following conclusions: (a) The plaintiff was wholly entitled to the net proceeds of the sale from the sale of the Smithfield property; (b) The first defendant had no beneficial entitlement to those monies; (c) At the time of the purchase of the Wilberforce land there was no intention by either father or son that the father should hold any part of his legal interest on trust for the son. Nor was there any promise or assurance, let alone agreement to that effect; (d) The father and son both made contributions to the construction of the home on the Wilberforce land in order to improve their mutual quality of life as well as that of the second defendant; (e) The son had a natural expectation that, upon his father's death, the whole of the Wilberforce property would pass to him; (f) Neither father nor son contemplated the father's departure from the home consequent upon the breakdown of the relationship with the second defendant and then with his son Legal Conclusions 42 As I indicated at the outset, there is no room on these facts for inferring the existence of any actual intention that a trust be created in favour of the first defendant. Subject to the defendants' entitlement to have their expenditure recouped, there is, in the events which have occurred, nothing unconscionable about the plaintiff's conduct, or the facts and circumstances, that would justify a declaration of constructive trust as to some part of the Wilberforce land, even if it were legitimate to do so. Compare Muschinski v Dodds (1985) 160 CLR 583; Baumgartner v Baumgartner (1987) 164 CLR 137. The plaintiff has not failed to fulfil any promise or assurance to his son. Nor, in the circumstances, was the son entitled to any expectation other than that he would continue to reside in the property with his father and that its improvements and its enhanced value would eventually pass to him on his father's death. This is the only relevant assumption that he made. That assumption has probably, but not necessarily, been defeated by the events which have occurred. 43 There are risks involved in spending money on another's property. But in this case there was, in my view, no "joint venture" for which the defendants contended. Neither the plaintiff nor his son had any intention that the son would have a beneficial interest in the property. A constructive trust should not be imposed if, in all the circumstances, there is an appropriate equitable remedy which falls short of the imposition of a trust: Giumelli v Giumelli (1999) 196 CLR 101. The principle that adequately protects the defendants is explained in the following analysis by McLelland J in Morris v Morris (supra) at 63: However, in my view wider equitable principles operate in the present case. The plaintiff spent money on the defendants' property in the expectation, induced or encouraged by the defendants that he would be able to live there indefinitely as a member of their family. This expectation has been defeated by the occurrence of events which were not in contemplation when the money was spent and as a result of which any subsisting right of residence by the plaintiff in the property is now of no practical consequence. In my opinion, on the facts of this case, it would be unconscionable and inequitable that the defendants should now retain the benefit of the expenditure by the plaintiff of his money on their property free of any obligation of recoupment to him. Consequently an equity arises in favour of the plaintiff and the court must determine how in all the circumstances justice requires that the equity be satisfied. What a plaintiff in such a case as this should in justice receive will not necessarily correspond with what, when the relevant expenditure was made, he expected to receive. 44 Although some broad submissions were put to the effect that the equitable charge should secure more than the amount of the son's financial contributions and should, in some way, reflect the enhancement in value of the property, the defendants did not, in fact, present such a case. No evidence was adduced which would enable me to make such a finding. Even if I thought it was appropriate, I am in no position to speculate as to the extent to which the expenditure by the son contributed to the enhancement in value of the property between 1994 and 2010. A beneficial interest in any enhancement was never contemplated by the son, except, as I said, in the event of the property passing to him on his father's death. 45 This is, unfortunately, a case of a breakdown in a family relationship without blame being attributed to the plaintiff. But there was no unfulfilled promise on his part and no proper basis for a reasonable assumption by the son that he was entitled to a beneficial interest in the property during his father's lifetime. The minimum equity to do justice goes no further than that which I have outlined. 46 Further, the defendants have had the benefit of occupation of the Wilberforce land continuously since December 1995. At all material times, the plaintiff has been prepared to accede to the grant of an equitable charge to secure the expenditure by the son. He does not seek to set off against the amount of the charge an occupation fee in respect of the period from 1995 to 2010. 47 This approach is broadly consistent with that which applies in an analogous area of law relating to co-ownership. If a co-owner, or for that matter a tenant, effects repairs or improvements he will be entitled to an allowance but the amount of the allowance is the lesser of the value of the enhancement to the property and the cost of improvements or repairs. See Forgeard v Shanahan (1994) 35 NSWLR 206 at 223 (per Meagher JA): If a co-owner in occupation effects improvements on the co-owned property, he may claim an allowance for any improvements in value effected by him. Such an allowance may be claimed in an action for partition. The allowance is not a reimbursement of the amount expended, but an allowance in respect of the amount by which the value of the property has been increased, not exceeding the amount expended, the 'value' to be ascertained at the commencement of the action. … Thus, in summary, a tenant who effects repairs, is entitled to an allowance for the lesser of the value of the enhancement of the property and the cost of effecting the repairs. There is authority that no allowance for improvements will be allowed in favour of the occupying owner unless the non-occupying owner seeks to charge him with an occupation fee, so that the two rights are truly mutual: one cannot claim one without suffering the other. Orders 48 I do not propose to go further than to declare that there should be a charge to secure the amount of $147,201.40. This is an appropriate minimum equity. Anything further is not justified by the facts, by the evidence that was put before me, and as a matter of principle. Interest should, however, accrue on the secured amount from the date from which the defendants give up possession to the plaintiff. 49 As I have been forewarned that the parties wish to make submissions as to costs having regard to certain offers that were made before the hearing, I will reserve costs. 50 The orders I propose to make, other than costs, are these: (1) I give judgment for possession in favour of the plaintiff in respect of the land known as 30 Manns Road, Wilberforce. (2) I grant leave to the plaintiff to issue a writ of possession 30 days from the date of this order. (3) I will make a declaration that the defendants are entitled to an equitable charge over the Wilberforce land to secure the sum of $147,201.40 together with interest at Supreme Court rates from the date from which possession is given to the plaintiff. 0o0 31/05/2010 - Notice of change of solicitor filed 28 February 2010 - Paragraph(s) na (cover sheet) 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.