Supreme Court New South Wales Medium Neutral Citation: Josip Duic v Emil Duic [2012] NSWSC 76 Hearing dates: 6/02/2012 - 10/02/2012 Decision date: 16 February 2012 Jurisdiction: Equity Division Before: Einstein J Decision: 1. The plaintiff is to take all steps necessary to enable the Registrar-General to record on the Real Property Act Register the defendant as registered proprietor of the property at 2A Mellor Street, West Ryde. 2. The defendant is to pay the plaintiff the sum of $88,200. 3. The defendant is to pay the plaintiff an additional $25,000. 4. The parties are to bring in short minutes of order reflecting reasons for this decision at which time they will be given an opportunity to address on costs. Catchwords: EQUITY-Oral promise that "everything is yours"-Proprietary Estoppel by encouragement-Reasonable reliance-Detriment-Loss of chance-Constructive trust-Revocability of promises-Appropriate remedies-Proceedings concerning dispute between father and son over real property-Son claiming father promised a property to him-Whether promise proven and if so whether the son prejudiced in reliance upon this promise Legislation Cited: Partnership Act 1892 (NSW) Cases Cited: Baumgartner v Baumgartner (1987) 164 CLR 137 Delaforce v Simpson-Cook [2010] NSWCA 84 Estephan v Estephan [2012] NSWSC 52 Gillett v Holt [2001] Ch 210 Giumelli v Giumelli (1999) 196 CLR 101 Grant v Edwards [1986] Ch 638 Maguire v Makaronis (1996) 188 CLR 449 Muschinski v Dodds (1985) 160 CLR 583 Olsson v Dyson (1969) 120 CLR 365 Saliba v Tarmo [2009] NSWSC 581 Simpson-Cook v Delaforce [2009] NSWSC 357 Sullivan v Sullivan [2006] NSWCA 312 Tasevska v Tasevski [2011] NSWSC 174 West v Mead [2003] NSWSC 161 Yaxley v Gotts [2000] Ch 162 Texts Cited: Young, Croft and Smith On Equity, Thomson Reuter, 2009 Category: Principal judgment Parties: Josip Duic (Plaintiff) Emil Duic (Defendant) Representation: Mr J O'Sullivan (Plaintiff) Mr R Gration (Defendant) Penhall & Co (Plaintiff) Sage Solicitors (Defendant) File Number(s): 2011/64779 Judgment 1These proceedings concern a dispute between a father and son over a property at 2A Mellor Street West Ryde ["Mellor Street Property"]. 2The father ["Josip"] is the plaintiff/cross-defendant. He is the registered proprietor of the Mellor Street Property and has been so since 1975. 3The son ["Emil"] is the defendant/cross claimant. Since 1981 Emil has operated a radiator service business on the Mellor Street Property. For part of this time Josip also worked in the business and at other times Emil would work either alone or with his wife Susan. 4In ordinary circumstances, Josip, as the registered proprietor of the Mellor Street Property has a prima facie entitlement to deal with the property as he wishes. 5The son is attempting to traverse this right, putting his case on two bases: (1)The Mellor Street Property formed part of the partnership assets of a radiator business carried out jointly by the father and son. The Property is therefore held either on constructive trust for the son or otherwise the father holds it as bare trustee for the son; (s 20(1) Partnership Act ); (2)Alternatively, the father represented to the son the property would be his and therefore the father is estopped from denying this representation. The defendant claims sufficient detriment to give rise to an estoppel. 6Whilst there were many issues in dispute, in my view the case ultimately turns on just two questions. The first being a question of fact and the second a question of law: (1) Did the father promise the Property to the son and did the son suffer detriment in reliance on this promise? If the son fails at this factual hurdle that is the end of the matter; (2) If the father made such a promise, is it appropriate for the Court as a matter of law to order an equitable remedy in favour of the son? 7Both counsel agreed that resolution of this dispute requires the Court to decide between the two radically different versions of events put forward by the parties. 8Some of the other factual matters disputed included : (1)Whether at the time the radiator business was established, the father was the sole proprietor of the business, and if so, during what period that remained the case; (2)In the alternative, whether the father and son were partners in the business, and if so when the business commenced and concluded; (3)In the alternative, whether the father was the sole proprietor of the business subject to a profit sharing arrangement or bonus arrangement with the son; (4)Whether an application by the son to register the business name in his own name in 1995 resulted in the son becoming the sole registered proprietor of the business; (5)In the alternative, whether from and after 1995, which if any of the alternatives 2 (a), (b) or (c) applied; (6)Whether initially or some time later the son became a tenant of the father with respect to the subject land, or part thereof by paying of outgoings and/or by periodic payment of money and outgoings [asserted by the son to have been paid for, or on behalf of the father] and which if any of those payments were made; (7)Whether any payments identified to have been made by the son were in the nature of rent, or in the nature of a financial contribution to the acquisition of a constructive trust interest in the business and or the land; (8)Whether any of the facts found by the Court support either a constructive trust, an express trust or a claim of propriety estoppel by the son against the father and whether any such claim relates to the whole or part of the business or to the whole or part of the business and the land; (9)The nature and effect of any statements found to have been made by the father concerning his future intentions with respect to the business and or the land; (10)Whether as a result of any conduct on the part of the father which is found to have occurred, the son has suffered any detriment; and (11)Whether the facts as found by the court imply a periodic tenancy granted or implied at law by the father in favour of the son with respect to the land or part thereof. The relevant legal principles 9Before making any evidentiary findings, it is convenient to treat with the relevant law in cases of this nature. Constructive trusts 10As pointed out by Campbell J in West v Mead [2003] NSWSC 161 the decision of the High Court in Baumgartner v Baumgartner (1987) 164 CLR 137 was a significant extension of the law of constructive trusts in relation to property acquired in the course of a paid domestic relationship. The majority in Baumgartner adopted the analysis of Dean J (with whom Mason J had agreed) in Muschinski v Dodds ( 1985) 160 CLR 583 . That analysis applied to principles developed by Equity Courts to decide entitlements to property following the failure of a commercial venture or partnership. In Baumgartner at 147-148 the majority explained Dean J's position in Muschinski as 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 parties should enjoy them. His Honour said : " 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 to do so...". 11In deciding what would be "the extent to which it would be unconscionable for him to do so" the Court is guided by equitable principles, not by idiosyncratic unstructured or untutored concepts of unconscionability; Muschinski at 614-615 per Deane J. 12Notwithstanding the period of time which has elapsed since the seminal judgments in Baumgartner v Baumgartner and Muschinski v Dodds , the salient propositions for which these two cases are authority remain of critical importance. They have been applied time and time again by Courts, including recently by me in Tasevska v Tasevski [2011] NSWSC 174. Proprietary estoppel by encouragement 13The defendant also put its case on the basis of proprietary estoppel by encouragement. To my mind there are two relevant legal questions that must be considered in the circumstances of this case: (1)In what circumstances may a promise be revoked?; (2)If the promise is irrevocable, what is the appropriate remedy? An irrevocable promise 14The plaintiff submitted that even if the Court found a promise, it was revoked and of no force. 15It is trite that promises unsupported by consideration are prima facie revocable; Olsson v Dyson (1969) 120 CLR 365 per Kitto J at 376. However the authorities indicate that where a promise has been relied upon to the detriment of the representee it becomes irrevocable. 16This proposition was affirmed in Gillett v Holt [2001] Ch 210. In that case, the plaintiff had spent his working life as a farm manager for his friend, the first defendant. His friend made repeated promises and assurances over many years that the plaintiff would be bestowed his farming business, including the farmhouse in which the plaintiff and his family had lived for over 25 years. When relations between the plaintiff and the first defendant deteriorated, the latter made lifetime dispositions to the second defendant, making no provision for the plaintiff. The plaintiff sought equitable relief based on proprietary estoppel. On appeal the Court found in favour of the plaintiff, ruling that where assurances given are intended to be relied upon, and are in fact relied upon, it is not necessary to consider if the promise itself is irrevocable. It is the other party's detrimental reliance on the promise that deems it irrevocable; c.f. Gillett v Holt at 210 & 227-229. 17This principle has been affirmed in recent decisions of this Court (see Estephan v Estephan [2012] NSWSC 52 at 96; Simpson-Cook v Delaforce [2009] NSWSC 35 7 at 29; Saliba v Tarmo [ 2009] NSWSC 581 at 53). The appropriate remedy 18The principles to be applied in determining the appropriate remedy in situations where a representor attempts to depart from its promise were most recently set out in William John Marton Dellaforce v Susan Simpson-Cook [2010] NSWCA 84, handed down by the New South Wales Court of Appeal on Tuesday, 20 July 2010. 19The headnote reads as follows: Following the break-up of their marriage the deceased and his wife negotiated their property settlement which was then incorporated in consent orders made by the Family Court. The husband wished to retain a house property that the wife was anxious to acquire for personal reasons. They agreed that he could have the property but he would leave it to his wife in his will. This promise was noted in the consent orders but was not made the subject of a binding order. The husband's last will gave the property to another. The wife had accepted the promise, and had not sought to have it incorporated in the orders. The trial Judge found that the husband's promise had created a proprietary estoppel by encouragement and ordered his executor to transfer the property to the former wife. The executor appealed. Held: (1) The wife had relied on the promise and her reliance was reasonable; (2) She had changed her position by giving up the chance of having the Family Court incorporate the husband's promise in its enforceable orders; (3) Prima facie equity would enforce the wife's expectation based on an un-ambiguous promise; (4) There was no reason for the court to do otherwise than enforce the wife's reasonable expectation. 20The relevant parts of the short judgment delivered by Allsop P are: [3] I agree in particular with Handley AJA that the reasons of Gleeson CJ, McHugh, Gummow and Callinan JJ in Giumelli v Giumelli [1999] HCA 10; 196 CLR 101 appear to remove as a governing principle in the relief to be granted in equitable or proprietary estoppel cases the notion of enforcement or vindication only of the "minimum equity": see Giumelli at 123-125 [40]-[48]. That, of course, does not make irrelevant matters that can assuage the detriment brought about by the resiling from the representation or encouragement by the party concerned. It does mean, however, that relief in such cases is not to be measured by weighing detriment too minutely in order that it be converted into some equivalent of cash or kind, as if one were measuring the consideration for a commercial bargain. Equity will look at all the relevant circumstances that touch upon the conscionability (or not) of resiling from the encouragement or representation previously made, including the nature and character of the detriment, how it can be cured, its proportionality to the terms and character of the encouragement or representation and the conformity with good conscience of keeping a party to any relevant representation or promise made, even if not contractual in character. Equity has always had a place in keeping parties to representations or promises: see for example, Burrowes v Lock (1805) 10 Ves Jr 470 ; 32 ER 927; Horn v Cole 51 NH 287 ; 12 Am Rep 111 (1868); J N Pomeroy, A Treatise on Equity Jurisprudence Vol 3 (5th ed, 1941) at 179-188 [802]-[803]; R Meagher, J Heydon and M Leeming, Meagher, Gummow and Lehane's Equity: Doctrine and Remedies (4th ed, 2002) at 556-560 [17-065]-[17-070] and 567-568 [17-110]. [4] Proportionality of the claimed interest or remedy to the prejudice or detriment is undeniably a relevant consideration, and sometimes of considerable importance. It should not, however, be transformed into a necessary constitutive element of a cause of action to be pleaded or proved by the party seeking relief. To do so would elevate one consideration above others, and in particular above the importance of making good an expectation by encouragement or representation: Plimmer v Mayor of Wellington (1884) 9 App Cas 699 at 713-714; Riches v Hogben [1985] 2 Qd R 292; Giumelli at 113-114 [10] and 121-122 [35]. It would tend to equate the analysis to one requiring that the party encouraged receive no more than it can prove that it suffered in detriment. This would see the equity become one of compensation for proved equivalent detriment. The equity is a broader one based on the just and conscionable satisfaction in appropriate fashion of the equity arising from the expectation created in another by encouragement or representation. As Handley AJA says, the role of proportionality is better understood, in a doctrine dealing with the legitimacy or otherwise of resiling from an encouragement or representation that has created an expectation, as assisting in an assessment whether what is claimed or contemplated to be granted is disproportionate or unjust in all the circumstances. [5] The importance of keeping a party to a representation or encouragement previously made is all the stronger where, as here, the encouragement or representation has been relied upon by a party to abandon a course of conduct that could possibly have led to a different outcome. This can be described in the language of loss of a chance that is not fanciful or unrealistic, or in the language of proceeding thereafter on the basis of a new or changed convention or conventional basis. Such expression of the matter is not different to how Dixon J put the matter in Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58 ; 59 CLR 641 at 674-675. For instance, if, as here, in reliance upon a representation or encouragement, a court case is abandoned and the representation or encouragement is later sought to be resiled from, the party to whom the representation or encouragement was made and in whom the expectation was raised is left in the position not only of the loss of the entitlement to pursue his or her rights in the case in the past, but also is likely to be in the position of being unable to demonstrate what would, or even may, have happened in the case, it being an alternative, complex and now hypothetical body of human conduct. That the party encouraged cannot show that he or she would have been better off in the posited alternative reality is not fatal to the making out of the estoppel. Indeed, the inability to prove such things reveals a central aspect of the detriment: being left, now, in that position. Of course, if it is self-evident or can be clearly demonstrated that the case was fanciful or otherwise doomed to fail, there may be no real detriment; but that was not the case here. The respondent gave up her right to propound her case in the Family Court on the faith of the deceased's representation. It was not self-evident, or otherwise clearly demonstrated, that she could not have been successful in securing her rights to the subject property after the death of the deceased. 21The judgment of Handley AJA read as follows: [41] The relevant detriment is not the loss flowing from non-fulfilment of the promise or assurance: Commonwealth v Verwayen [1990] HCA 39 ; 170 CLR 394, 415 per Mason CJ, 429 per Brennan J, 445 per Deane J. [42] The detriment that makes an estoppel enforceable is that which the party asserting the estoppel would suffer, as a result of his or her original change of position, if the assumption which induced it was repudiated by the party estopped. This was explained by Dixon J (the Dixon principle) in Grundt v Great Boulder Pty Gold Mines Ltd [1938] HCA 58; 59 CLR 641, 674-5 ( Grundt ): That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment.... [54] In Sullivan v Sullivan [2006] NSWCA 312 I considered the principles which govern the grant of relief in an estoppel by encouragement case. What follows is based on paras [11]-[32] in that judgment. [55] A proprietary estoppel by encouragement may be established where the conduct of the party estopped did not define the expectation: Plimmer v Mayor of Wellington (1884) 9 App Cas 699 at 713; Flinn v Flinn [1999] 3 VR 712 CA, 738-9, 742, 743; Gillett v Holt [2001] Ch 210 CA, 226 per Robert Walker LJ "[T]he quality of the assurances which give rise to the claimant's expectations" is an important factor: Jennings v Rice [2003] 1 P & CR 100 at 112 and 114 per Robert Walker LJ repeating what he said in Gillett v Holt [2001] Ch 210 at 225: "the quality of the relevant assurances may influence the issue of reliance [and] reliance and detriment are often intertwined", which was approved by the Privy Council in Henry v Henry [2010] 1 All ER 988 PC, 995, 1000. [56] Although there are statements in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7 ; 164 CLR 387 and Commonwealth v Verwayen [1990] HCA 39 ; 170 CLR 394 that relief in these cases must be limited to removing or reversing the detriment suffered by the party entitled to the estoppel, the joint judgment in Giumelli [1999] HCA 10 ; 196 CLR 101, 120, 125 established that there is no such restriction. The detrimental reliance that supports the estoppel need not constitute, in any sense, a consideration moving to the party bound. It is a unilateral element of the estoppel and not the price paid for it. [57] Relief depends very much on the facts and, as the Privy Council said in Plimmer (1884) 9 App Cas 699 at 714: ... the court must look at the circumstances in each case to decide in what way the equity can be satisfied. [58] This statement has frequently been approved: Chalmers v Pardoe [1963] 1 WLR 677 PC, 682; Crabb v Arun DC [1976] Ch 179 CA, 188, 193; Giumelli (above) at 113, 125. The court does not exercise an unfettered discretion but adopts a principled approach: Giumelli (above) at 123-4, 125; Gillett v Holt [2001] Ch 210 CA, 225 and Jennings v Rice [2003] 1 P & CR 100 CA, 112. [59] It has been said that the court should frame the relief to enforce "the minimum equity to do justice to the plaintiff": Crabb v Arun DC [1976] Ch 179 CA, 198 per Scarman LJ This principle has frequently been applied in England: Yaxley v Gotts [2000] Ch 162 CA, 175; Gillett v Holt [2001] Ch 210 CA, 235, 237; and Jennings v Rice [2003] 1 P & CR 100 CA, 110, 113; however, as Robert Walker LJ said there it "does not require the Court to be constitutionally parsimonious, but ... recognise[s] that [it] must also do justice to the defendant". The minimum equity principle was applied in Verwayen [1990] HCA 7 ; 170 CLR 394 by Mason CJ at 441, and Brennan J at 429, 430, but since Giumelli is probably not the law in this country. It was only mentioned once, and then only in passing in the speeches in Thorner v Major [2009] 1 WLR 776. This was to the statement of issues in the Court of Appeal: ibid at 792. [60] Relief may be moulded to recognise practical considerations such as the need for a clean break: Pascoe v Turner [1979] 1 WLR 431 CA, 438-9; Giumelli (above) at 113-4, 125; Gillett v Holt [2001] Ch 210 CA, 237; Jennings v Rice [2003] 1 P & CR 100 CA, 115. The court must also take into account the impact of its orders on third parties and any hardship or injustice they would suffer: Giumelli (above) at 113-4, 125; Flinn v Flinn [1999] 3 3 VR 712 CA, 749, 750. [61] Relief may be refused or reduced if the plaintiff's equity has been diminished by later events. In Sledmore v Dalby (1996) 72 P & CR 196 CA the court held that the plaintiff's equity based on his improvements had been fully amortized over 18 years of rent free occupation. Subsequent events may also enlarge the plaintiff's equity as in Crabb v Arun DC [1976] Ch 179 CA where the defendant's repudiation of the expectation had landlocked the plaintiff's land for five years: ibid at 189, 199. [62] Relief may also be limited where the enforcement of the plaintiff's expectation would be out of all proportion to the detriment: Jennings v Rice [2003] 1 P & CR 100 CA, 104, 111, 115. This is particularly so where the expectation was not defined and the court has a broader discretion: ibid at 114. A gardener had looked after an elderly widow and been promised that "he would be alright" and "this will all be yours one day". He was awarded £200,000, and the Court of Appeal rejected his claim to the house and contents worth £435,000. [63] The court should, prima facie, enforce a reasonable expectation which the party bound created or encouraged: Meagher Gummow & Lehane "Equity Doctrine and Remedies" 4th ed 2002, pp 567-8. In Ramsden v Dyson (1866) LR 1 HL 129 at 170 Lord Kingsdown said: "If a man ... under an expectation created or encouraged by the landlord that he shall have a certain interest [acts to his detriment] upon the faith of such expectation ... a Court of equity will compel the landlord to give effect to such ... expectation" (Lord Kingsdown's principle). In Chalmers v Pardoe [1963] 1 WLR 677 PC, 681-2, the Privy Council said that if such an estoppel is established "a court of equity will prima facie require the owner ... to fulfil his obligation". In Attorney-General (Hong Kong) v Humphreys Estate (Queen's Gardens) Ltd [1987] AC 114 at 121 Lord Templeman said: The authorities expound and illustrate the principle upon which a litigant who is led to believe that he will be granted an interest in land and who acts to his detriment in that belief is enabled to obtain that interest. [64] In Giumelli (above) the joint judgment at 123 quoted with approval this statement of Deane J in Verwayen [1990] HCA 39, 170 CLR at 443: Prima facie, the operation of an estoppel by conduct is to preclude departure from the assumed state of affairs. It is only where relief framed on the basis of that assumed state of affairs would be inequitably harsh, that some lesser form of relief should be awarded. [65] The joint judgment continued: The prima facie entitlement to which his Honour had referred would be qualified if that relief "would exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party". 22Turning to Giumelli directly, the authors of Young, Croft and Smith On Equity , Thomson Reuter, 2009 at [14.230] state that the significance of Giumelli was that the High Court retreated from the view expressed in Verwayen that in proprietary estoppel cases, the jurisdiction was confined to giving the minimum remedy which relieved against the claimant's detriment. 23In Giumelli the Court quoted Deane J in Verwayen , who concluded: Prima facie, the operation of an estoppel by conduct is to preclude departure from the assumed state of affairs. It is only where the relief framed on the basis of that assumed state of affairs would be in equitably harsh, that some lesser form of relief should be awarded. 24Deane J went on to explain that : The question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted 25The Court in Giumelli also noted that Deane J's "prima face entitlement" might be qualified if relief based on that entitlement would "exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party". The credibility of the key witnesses 26From time there are cases where parties have failed to tell the truth. Unfortunately this is such a case. There are elements of truth in both party's cases but there are also significant fictions which were clearly constructed by the parties in an effort to either strengthen their respective cases or hide the true state of facts from various government authorities. In such circumstances I am forced to reject the whole of Emil and Josip's evidence and reconstruct the true state of affairs from the independent contemporaneous records with assistance from the other witnesses where appropriate. The reasons for this finding are detailed below. Emil Duic's Evidence 27Mr Emil Duic ["Emil"] is the defendant and the son of the plaintiff, Mr Josip Duic ["Josip"]. Emil runs a radiator repair service out of the Mellor Street Property. 28The substance of Emil's evidence was that following Josip's divorce from Emil's mother in 1974, Josip became the sole registered proprietor of the Mellor Street Property. Around November of that year Emil moved into the property with his father. Josip felt abandoned by his other son and upon Emil moving in to the property Josip promised him "everything". Emil's evidence was that his father repeated this promise on numerous occasions up until they had a falling out in 2006. Emil gave evidence that in reliance on this promise he incurred significant detriment. Amongst other things, Emil paid his father $350 a week, paid the rates and insurance on the property and paid for holidays, a car and a boat for his father. Emil also stated that he performed gratuitous services for his father's friends and paid for improvements to the Mellor Street Property. 29The most important evidence given by Emil concerned his claim to have made weekly payments of $350 to his father commencing in 1982. Emil relied on a ledger in aid of this evidence, marked Exhibit # D14. 30Mr O'Sullivan challenged Emil's evidence that these payments were made in order to obtain an equitable interest in the Mellor Street Property because on Emil's evidence the payments commenced in 1982, yet he claimed that the property was promised to him in 1974. There was therefore no temporal connection between the payments and title to the property. Emil's explanation for this disconnect was that he respected his father and was prepared to accede to any of his requests. Emil was unconcerned about any financial detriment because he relied on his father's promise that he would be remunerated when he was given the Mellor Street Property: Q. So in 1982 when you started paying your father $350 per week you had no reason to pay him for something, ie the property, that you thought was already yours? A. Yes but he asked me to pay him that money because he said he didn't have a means to support himself. Q. So you thought you were paying that money to support your father? A. For, for the property yes. Q. Well you just said that he asked you to pay it to him for his maintenance-- A. Mm. Q. --and that's what he said, he didn't - he never said you have to pay this money and you'll get a share of the property or anything like that did he? A. He said the property is mine, all the time. Q. Right, from 1974? A. 1974. Q. And from 1974 you thought the property was yours? A. I had no doubt that that's what he - that's what he meant. Q. And you therefore had no reason to pay him $350 a week to acquire a share in the property did you? A. Well I just did what my father wanted. 31Of itself this explanation was not inconceivable, although when viewed in light of the other evidence, I reject it. 32There were some further inconsistencies in Emil's evidence concerning the $350 payments. It was suggested that the ledger was manufactured to assist his case. The plaintiff highlighted the curious fact that each entry in the same year was written in the same colour pen. 33Later in the cross-examination there were some more serious and critical inconsistencies in the defendant's evidence. The first example was the defendant's evidence about his father's credibility. Emil was adamant that his father was not to be trusted. He accused Josip of committing a number of frauds. However, the son stated that he trusted his father because he was family. He explained that this was the reason he did not require any written evidence of his father's promise to him: Q. Were you worried that you hadn't recorded this arrangement in writing, so that your father could renege on it; is that what you're worried about? A. He didn't want to record it in writing because he was always trying to scam something and hide things from the taxation department and from Centrelink. Q. And I think you've said in your evidence that he was also trying to scam the Austrian government for payments? A. Well he did, because he never worked in Austria. He was in a camp. He was a refugee. Q. You were aware of this in 1982 I assume? A. I was aware of it before that. Q. And this is the same person who you've just described as trying to scam the tax department. This is the same person you say you trusted implicitly, is that right? A. No, I said that he scammed in - after he scammed the taxation department by buying properties and not showing the taxation department. Q. You said that you'd known about that? A. Yes. Q. Before 1982, correct? A. Yes. Q. So if you'd known that that was in your assertion, the type of person your father was, you'd have no basis to trust him whatsoever, would you? A. Well we're all family and no family is perfect. 34However, this evidence was inconsistent with Emil's affidavit evidence that he repeatedly requested written confirmation of the promise. It was apparent that Emil didn't fully trust his father and it was therefore curious that Emil would allow such an important promise to stand without any documented evidence. 35Next Emil was cross-examined about a caveat that he instructed his solicitors to lodge over the Mellor Street Property. Prior to seeing this document Emil was adamant that he paid his father exactly $350 a week from 1982 until 2006. However this evidence was contradicted by the caveat that stated Emil made payments of $360 a week since 1996. Emil explained that the discrepancy was because of a typographical error on the caveat. Such a significant typographical error seemed unlikely and the more likely explanation is Emil gave his solicitor instructions and later changed his story. 36The most compelling evidence against the defendants' case was the profit and loss statements for Emil's radiator repair business contained in Exhibit # P1. On Emil's evidence he paid his father a total of $16, 800 a year. However in some years the business' before tax profit was less than this. In 2003 it was only $16, 002. It would have therefore been impossible for Emil to have made these payments from the profits of the business. Emil explained that his wife helped him when the business fell short. There was no evidence of this in his affidavit and Emil was unable to say how much his wife helped him. I found this explanation unconvincing. 37Mr O'Sullivan submitted and I accept, there are only two conclusions one can draw from the profit and loss statements. Either Emil didn't make any payments to his father or alternatively he purposely deflated his profit to avoid tax. This view was reinforced by the fact that the profit and loss statements are very comprehensive, yet they do not contain any mention of the $350 a week payments. They were not deducted as a business expense. On the basis of the documentary evidence it is difficult to infer anything other than there were no such payments. This proposition was more forcefully put to Mrs Duic as she was in charge of the couple's book keeping. 38On the whole I formed the view that Emil purposely manufactured evidence in his affidavits and under cross-examination in an effort to strengthen his case. Susan Duic 39Mrs Susan Duic is the defendant's wife and was called to corroborate her husband's evidence. The substance of Susan's evidence was that Josip made numerous representations to her and her husband that they would be given the Mellor Street Property. Susan corroborated Emil's evidence concerning the $350 payments and gave evidence of other detriments suffered as a result of Josip's representations. Susan also gave evidence that at the request of Josip she quit her job and worked full time as a book keeper at Emil's business. Susan said this was a further detriment suffered as a result of Josip's promise. 40The cross-examination focused on undermining Susan's evidence regarding detriment. Following the cross-examination it was clear that Susan did not entirely forgo employment at the request of Josip (as she claimed) but continued doing a number of part time jobs. Mr O'Sullivan also alluded to the apparent absurdity of Susan quitting her job to do the books full time when she was managing to do the books while working. Counsel suggested that Susan quitting her employment had nothing to do with Josip's request and there was no relevant detriment in reliance on Josip's promise. 41The most significant part of Susan's evidence concerned the $350 payments. I had a number of reservations in accepting Susan's evidence in this regard. Firstly, in some respects her evidence was sparse. Susan was adamant that she made up any shortfall in the payments by paying the money out of her own pocket. However, Susan was unable to say how much she contributed to the payments, how often or when. Further, Susan was unable to clearly indicate where in her bank records such payments were evident. 42Mr O'Sullivan also suggested that on the basis of the joint income of Emil and Susan Duic it was impossible for them to make annual payments totalling $16,800 to the plaintiff. From their income tax statements in evidence, the Duic's joint income was approximately $29,000 between 2002 and 2006. They made $6,000 in home loan payments to the Commonwealth Bank per year during this period. Factoring in the alleged payments to Josip of $16,800, this would leave the Duic's with approximately $7,000 to pay for all other living expenses. This equated to just over $50 a week each for living expenses, not including their obligations to their daughter. It is implausible that they were surviving off this amount. 43It is also important to note that the $350 a week payments were not claimed as business expenses in the company records, nor were GST credits claimed. Further, it was very curious that Susan kept all the business records and made all the entries in every ledger, except for the payments to Josip which Emil recorded. This ledger was inconsistent with the way records were kept in the business suggesting the ledger was fabricated. Further, the payments were not entered into the MYOB system like all other payments. Ultimately there was no convincing evidence that the payments were made. On the balance of probabilities the evidence pointed to the opposite conclusion. Josip Duic's evidence 44Significant areas of Josip Duic's (the plaintiff's) evidence were also shown to be untrue. 45Josip affirmed a number of affidavits in these proceedings in which the plaintiff denied almost all of the defendant's claims against him and sought possession of the Mellor Street Property. In particular Josip denied promising the property to Emil, denied receiving $350 a week from Emil and maintained that he had lived in the Mellor Street Property until evicted by Emil. 46Mr Gration was effective in discrediting two key assertions made by the plaintiff. These were Josip's evidence concerning his residence from 1982 until 2006 and the status of his relationship with Ms Pauline Sunay. 47Josip's assertion that he lived uninterrupted, save for some short periods when he was receiving medical treatment, at the Mellor Street Property was shown to be false. Mr Gration put a series of documents contained in Exhibit # D13 to the witness on which Josip listed his home address as the address of Ms Sunay. Josip explained that this was just a mailing address and that he sent documents to this address because mail was getting stolen from Mellor Street. This explanation was unconvincing. If Josip was living at Mellor Street and checking his mail every day repeated thefts of mail would be unlikely. Further, letters were tendered by the defendant Exhibit # D11 that showed Josip sent letters to Emil at the Mellor Street address while in Croatia. This fact was inconsistent with Josip's explanation for having his mail sent elsewhere. 48However, more probative was that Josip could provide no reasonable explanation as to why he put Ms Sunay's address on his patient identity card for the Royal North Shore Hospital, nor why he provided an address in Wyong as his "home address" to the ATO when there was the option on the form to put a different "home address" to a postal address. Josip's evidence was also inconsistent with his application for an AVO against Emil at page 520 of the Court Book. On this document he listed his address as Ms Sunay's and indicated that he only resided from time to time at Mellor Street. The sum total of this evidence led the Court to conclude that Josip was not living at the Mellor Street Property. He resided with Ms Sunay and only temporarily visited the Mellor Street Property. Ultimately this fact was not central to the legal issues in the case but was a significant issue going to Josip's credit. 49The second piece of untrue evidence lead by the plaintiff concerned the nature of his relationship with Ms Sunay. Josip claimed she was nothing more than a good friend whom he resided with. He denied being in a defacto relationship with her. Mr Gration suggested that he denied their relationship because he was defrauding Centrelink. 50Mr Gration put a series of documents to the witness to challenge the nature of his relationship with Ms Sunay. The Court ordered that these documents be a confidential exhibit (Exhibit # D9). I am satisfied from these documents and the very extended period over which Josip lived with Ms Sunay that they are in a defacto relationship. Mr Josip's assertions otherwise are false. 51The letters sent by Ms Sunay to Josip while he was in Croatia and in particular the letter of 5 November 1992 are consistent only with such a relationship. The language used and the subject matter discussed go beyond friendship. I also note that Exhibit # D9 contained a sign in slip for an RSL club where Josip signed in to the club as Pauline and Josip Duic. Of itself this is not conclusive evidence of a relationship, but when taken with the other evidence, contradicts Josip's assertions. 52Mr Robert Duic corroborated Emil's evidence about Josip;s relationship with Ms Sunay. I accept they are in a defacto relationship. 53I also had some concern about Josip's evidence relating to the proceeds of the sale of the Wyong Property in 2008. On Josip's own evidence he received in excess of $100,000 out of this sale. He stated that the money has mostly been spent. However, Exhibit # D6 indicated that Josip had $70,000 in a term deposit account with the Bank of Queensland and at the 8 th of February 2012 had $70,444.20 with the Commonwealth Bank. Josip attempted to explain that the Commonwealth Bank money was transferred to the Bank of Queensland and therefore he did not have $140,000 but rather $70,000. However, as Mr Gration indicated, this explanation is impossible because the money in the Bank of Queensland term deposit account must have been placed in that account in October 2010 and could not be removed until 27 April 2011. Therefore as at February 2011 Josip must have had $70,000 in both accounts. The reason for Josip lying about this money was not further probed. Irrespective, this false evidence impinged upon the Court's view of Josip's credit. The two critical factual questions 54As stated earlier the two critical factual questions are: (1)Did Josip promise the Mellor Street Property to his son? and (2)Did Emil suffer detriment in reliance on this promise? The promise 55I am satisfied on the balance of probabilities that Josip did promise the Mellor Street Property to his son. I make this finding independent of the conflicting evidence given by Josip and Emil and on the basis of the evidence given by Robert Duic and Ivan Petch. Robert Duic's evidence 56Robert Duic is the defendant's brother and the plaintiff's son. He is a solicitor who lived separately from his father from an early age. It was suggested by opposing counsel that Robert was giving evidence to spite his father and to assist his brother. Robert denied this and explained he was only motivated to give evidence to correct assertions made by his father that Robert was being considered in Josip's will. I found Robert an honest and forthright witness and I accepted his evidence in full. 57For present purposes, I found the evidence given by Robert towards the end of his cross-examination highly probative. Robert explained that it was known to him that the Mellor Street Property was to be given to Emil. Robert said that he held this belief because of things both Emil and Josip told him. The topic was not explored in any significant detail with Robert but I formed the impression that this promise was generally understood within the family. Ivan Petch's evidence 58Mr Ivan Petch is a Liberal Councillor for the Ryde City Council. He gave evidence of his long standing relationship with both the plaintiff and the defendant. The witness attempted to assist the Court with his best recollection of events spanning the past 30 years. The most important part of Mr Petch's evidence pertained to the apparent promise Josip made to Emil concerning the Mellor Street Property. There was some inconsistency between Mr Petch's statutory declaration and affidavit as to whether the Mellor Street Property was promised to Emil in the future or was promised in the present. Ultimately the witness could not provide conclusive evidence either way. For this reason, the Court understood the effect of Mr Petch's evidence to be that Josip made a promise to Emil concerning title to the Mellor Street Property but whether this was a revokable future promise or an already executed one was uncertain. Conclusion on the question of the promise 59The Court is confronted with two diametrically opposed accounts of the conversations that occurred between the plaintiff and the defendant. In circumstances where neither witness can be believed, it falls on the Court to make an assessment from the other evidence. Without any written evidence of such a promise, the Court can only rely on the witnesses it viewed as credible. Both Mr Robert Duic and Ivan Petch gave evidence of an understanding between the plaintiff and defendant that Emil was promised the property. I am satisfied on the balance of probabilities that such a promise was made. Emil's detriment 60Emil gave evidence of a number of detriments he suffered in reliance on Josip's promise. Emil has failed to satisfy the Court that he made payments of $350 a week to his father for 24 years or for anytime at all. Further, I am not satisfied that if these payments were made that they were in reliance on the father's representations. These payments were a fiction created by Emil to strengthen his case. 61However, the defendant led evidence of other detriments including a failure to buy 1A Mellor Street and evidence of improvements made to the Mellor Street Property. I am satisfied that these detriments occurred in reliance on Josip's representations. The payments 62On any view of the defendant's evidence the $350 could not have been paid. A cursory examination and calculation of the relevant financial records of the plaintiff and his wife show that in some years the defendant didn't even earn $16,800 after tax. When confronted with this, his explanation was that his wife had paid some of the money, but Mrs Duic couldn't tell the Court how much or when these payments were made. 63For the years where records are available, the combined income of both the defendant and his wife was less than $30,000 in all relevant years. If one deducts mortgage repayments of approximately $6,000 for each of those years to the Commonwealth Bank and deducts from the remainder $16,800 for the alleged payments the defendants, Josip and his wife must have lived on just over $50 a week each for about three or four years. 64Further, the defendant's evidence was that the payments of $350 per week were all cash payments. The defendant's wife was cross-examined about what proportion of the business' takings was cash and she estimated 10%. The business records indicate that the business had a gross turnover of about $100,000. That would mean the business took in about $10,000 in cash a year. On these figures there would not have been enough cash in the till to pay $350 per week. Even if I were to accept Mrs Duic's evidence that she received substantial amounts of money from her mother as presents, these amounts would not be sufficient to make up the short fall. 65Further, even if I accepted that the $350 was paid, I am not satisfied that the payments were made in reliance on the plaintiff's promise. Mr O'Sullivan submitted that the payments could be characterised in a number of different ways. The first is that they were rent. Mr O'Sullivan submitted if payments were made, this was the most likely characterisation. Mr O'Sullivan pointed the Court to Emil's statement to police in the Court Book in which he told the officers that this was the reason for the payments. 66A second characterisation is that the payments were simply paid as maintenance for Josip. 67The third is that they were "wages" for the work that Josip was contributing to the business. 68As I do not accept any payments were made I do not need to make a finding as to the proper characterisation of the payments had they been made. However, I accept the plaintiff's submission that the least plausible explanation for the payments is that they were to acquire an interest in the property. The other claimed instances of detriment 69Emil also relied on other detriments. In relation to Emil's evidence that he mowed the lawn at Mellor Street, sent his grandmother some clothes after the Bosnian war and bought a boat for his father, I do not accept that if these claims are true (and on the evidence I am unable to decide either way) that they were linked to the property or the father's promise. They were simply actions carried out by a son for his father. In this sense they do not give rise to an equitable interest in Mellor Street. 70However, Emil gave evidence largely corroborated by Mr Petch, that he made improvements to the driveway and carports on the property and forwent the opportunity to purchase the property across the road to start a radiator business. Had Emil not relied on his father's promise he would have had the opportunity to start his business from a different location. His father's promise has denied him this opportunity. 71Early in the cross-examination Mr O'Sullivan challenged this evidence, putting the feasibility of Emil purchasing the property into question. In cross-examination Emil conceded that 1A was (without significant and expensive renovations) unsuitable for a radiator repair business. There was no building, no carport and inadequate fencing. Further, it was clear that had Emil purchased 1A he could not have also afforded to purchase his house. Emil explained that he would have preferred to have bought 1A rather than his new house, and he would have organised his finances accordingly. Emil's desire to operate a radiator business was not put into question. As a young man at the time the representations were first made it is evident that Emil had a desire to work. In reliance on Josip's representations he stayed at 2A Mellor Street. If Josip sells this property, Emil will not have premises out of which to run his business. This is all the more significant since the business has operated out of the same premises since 1981. The partnership claim 72The defendant also put his case on the basis of section 20(1) of the Partnership Act 1892 (NSW). That section provides: All property, and rights and interests in property, originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement. 73Emil claimed that the radiator business was a partnership in which he provided his labour while Josip provided the Mellor Street Property and on this basis the Court should divide the property. 74Section 2 of the Act provides the rules for determining the existence of a partnership: Rules for determining existence of partnership (1) In determining whether a partnership does or does not exist, regard shall be had to the following rules: (1) Joint tenancy, tenancy in common, joint property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof. (2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived. (3) The receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business, but the receipt of such a share, or of a payment contingent on, or varying with the profits of a business does not of itself make the person a partner in the business; and in particular: (a) The receipt by a person of a debt or other liquidated demand by instalments or otherwise out of the accruing profits of a business does not of itself make the person a partner in the business or liable as such: (b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such: (c) A person being the widow, widower or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such: (d) The advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person, that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing and signed by or on behalf of all the parties thereto: (e) A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by the person of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such. (2) This section does not apply to or in respect of an incorporated limited partnership. 75On this basis, there is not sufficient evidence of a partnership. 76The defendant's claim is inconsistent with his pleadings, and in particular the defence at paragraph 3, that the cross-claimant solely established the radiator repair business. 77This claim was also inconsistent with the evidence. There were no joint bank accounts for the business, there don't appear to have been any partnership tax records or accounts kept, there hasn't been any written record of the partnership and it doesn't seem that the parties were accustomed to considering themselves or describing themselves as partners. 78There was no evidence of any express agreement between the parties that they were partners and would share the liabilities and profits of the business. In fact they didn't share the profits of the business. Similarly there is no evidence that the parties shared the liabilities of the business. The defendant's evidence was to the effect that he ran the business and paid the outgoings. 79Further, if there was a partnership then Emil failed to establish that the Mellor Street Property was in fact partnership property. The premises have residential quarters in addition to the business quarters and there is insufficient evidence supporting a clear intention between the parties that the plaintiff would contribute the property to the assets of the partnership. A far more plausible characterisation is that the parties contributed their labour and some stock and that Josip provided the premises rent free to his partner. He did not intend to convey the property itself to the partnership. 80For these reasons, I do not find there was a partnership. The equitable remedy 81Delaforce v Simpson-Cook [2010] NSWCA 84 indicates that the starting point for determining the appropriate remedy in cases of proprietary estoppel is to prevent a party who induces an assumption to the detriment of another from departing from that assumption. Despite this, it is a fundamental principle of equity that "The Court must look at the circumstances...to decide the way the equity can be satisfied"; Giumelli v Giumelli (1999) 196 CLR 101 at 113. 82In these circumstances, the apparent appropriate exercise of the Court's discretion is to order that Josip be estopped from transferring the legal title of the Mellor Street Property to any person other than Emil without his consent. Josip should also be estopped from serving a Notice to Quit on Emil or taking possession of the property. This effectively gives Emil a life interest in the property. 83However, this order would place the parties at a stale mate. It would produce a situation where Emil is operating out of a premises owned by his father indefinitely against his father's will. In these circumstances the Court prefers a clean break (see Sullivan v Sullivan [2006] NSWCA 312 per Handley J at [48] and Young, Croft and Smith On Equity , Thomson Reuter, 2009 at 14.240). The more appropriate order is therefore that Josip takes all steps necessary to enable the Registrar-General to record on the Real Property Act Register Emil as registered proprietor of the Mellor Street Property in terms of Order 3 in the cross-claimant's amended statement of cross-claim. 84In conjunction with this order an adjustment must be made in Josip's favour. On Emil's own evidence, the agreement between the parties required Emil to pay $1, 400 a month to Josip for maintenance. Emil conceded that he has not made these payments since December 2006. Any departure from this admitted obligation would bestow an unjust windfall upon Emil. In such circumstances it is appropriate for the Court to make an adjustment to do equity between the parties; Maguire v Makaronis (1996) 188 CLR 449. 85I order that Emil pay Josip the sum of $88, 200 which represents the 63 months since December 2006 for which Emil has failed to make payments to Josip. Emil is to pay Josip an additional $25 000 to cover all expenses associated with the transfer of the Mellor Street Property and the costs of moving. 86A further matter must be noted. The authorities indicate that an overlap exists between proprietary estoppel and the constructive trust. In Grant v Edwards [1986] Ch 638, Browne-Wilkinson V-C said at 656: In both, the claimant must to the knowledge of the legal owner have acted in the belief that the claimant has or will obtain an interest in the property. In both, the claimant must have acted to his or her detriment in reliance on such belief. In both, equity acts on the conscience of the legal owner to prevent him from acting in an unconscionable manner. 87Robert Walker LJ endorsed this passage in Yaxley v Gotts [2000] Ch 162 at 177. 88The findings of fact in this case are capable of giving rise to either a proprietary estoppel or a constructive trust. The Court could have held that Josip holds the Mellor Street Property on constructive trust for Emil. In that case, Josip would retain an equitable lien over the property to the extent necessary to do equity between the parties. This amount would be $88, 200 plus an additional $25, 000 to cover sundry expenses. The voir dire issues 89Finally, early during the cross-examination of Emil, Josip left the room for what I believed was medication. This was not exceptional, but at the same time a person who worked as a process server for the plaintiff's solicitor (Mr Germanos) also left the room. 90Shortly after the next question was put to Emil he turned across to me and asserted that he had been able to see through the door that Mr Germanos was threatening him. I had not been able to discern any behaviour as I had been following the evidence. The net result was that Mr Germanos was called to the bar table and I explained to him that Emil had made a complaint. I made clear that there was no evidence before the Court to suggest that Mr Germanos had acted inappropriately. I also made clear to Mr Germanos that such behaviour would not be tolerated in the courtroom were it proven. 91In those circumstances counsel for the father sought to have the Court take in evidence to suggest that Emil had made up the story about Mr Germanos' behaviour. The matter was dealt with on the voir dire on the basis that the Court would privately determine whether or not counsel for the father could put a submission about the son's suggested false accusation concerning Mr Germanos' alleged behaviour. 92On reflection, I disallow the plaintiff's application. The matter falls away as an insignificant sideshow where there was really no proper reason to take it further. 93The plaintiff also sought to read the affidavit of Dianne Kanaan. This was also objected to on the basis of relevance. I uphold this objection and disallow the affidavit. Amendments 22 February 2012 - typographical error - Ms Pauline Sunay was referred to "Ms Sunray" Amended paragraphs: 48, 50 and 51 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. Decision last updated: 22 February 2012