Baker v David

Court of Appeal (NSW)|2015-07-03|Before: McColl JA, Meagher JA, Coll JA

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

McCOLL JA: I agree with Meagher JA.
MEAGHER JA: The appellant (Mr Baker) and the respondent (Mr David) are registered owners as joint tenants of a property in Whiting Avenue, Terrigal. The respondent sought an order under s 66G of the Conveyancing Act 1919 (NSW) for the appointment of trustees for sale of the property. That application was heard by the primary judge (Young AJA) on 25 March 2015. By his judgment delivered on that day, the primary judge made an order appointing Mr Crowe-Maxwell and Mr White trustees for sale; an order vesting the property in those trustees; and an order as to how the net proceeds of that sale should be applied: David v Baker [2015] NSWSC 393. This appeal is from those orders.

Background facts

The appellant and respondent first met in the mid-1990s. At the request of Mr David, Mr Baker became a director and shareholder of a company, Electromed (Aust) Pty Ltd (Electromed), which was seeking to develop an electronic device to treat arthritis. In late 1997 Mr Baker resigned as a director of Electromed. Subsequently he had a conversation with Mr David in which the latter said that he was prepared to pay the costs of establishing a place for Mr Baker to continue to carry out his research on the Electromed electronic device. It was also proposed that this place would accommodate Mr Baker's family.
In 1999 a property was identified at Mardi which is in the Central Coast region of New South Wales. That property was subsequently purchased in the names of Mr David and Mr Baker as joint tenants. The purchase monies were provided partly by Mr David and partly by a loan from Aussie Mortgages Ltd, secured by a registered first mortgage. Following the purchase, Mr David told Mr Baker he wanted to "ensure the future security for you and your family by providing this place as accommodation for you and your family indefinitely".
In about August 2001 Mr David and Mr Baker signed an agreement to record their arrangements with respect to the Mardi property (the Mardi Agreement). That agreement recited their joint ownership, the mortgage to Aussie Mortgages, and that, up to that point in time, Mr David had made "all Mortgage repayments". The terms of this agreement were substantially the same as those of the written agreement later signed in relation to the Terrigal Property (the Terrigal Agreement). The operative provisions of that agreement are extracted in [9] below.
Mr Baker moved into the Mardi property in August 2003, after the completion of some building work. In September 2003, with the agreement of Mr David, that property was sold. Shortly afterwards, the Terrigal property was purchased. Its acquisition was funded in part from the net proceeds of the sale of the Mardi property and in part by a mortgage loan of $510,000 from Permanent Custodians Limited.
At the time the Terrigal property was purchased, Mr Baker and Mr David agreed that their arrangement in relation to the Mardi property should apply to the subsequent purchase. In April 2004 they executed the Terrigal Agreement. That agreement was prepared by Mr Baker with the assistance of a solicitor. The Terrigal Agreement recited the joint ownership of the Terrigal property, that AFIG Wholesale Pty Ltd (AFIG) was mortgagee (presumably based on a misunderstanding as to its role in the arranging of the mortgage) and that, up to the date of the agreement, Mr David had made all mortgage repayments.
The operative clauses of the Terrigal Agreement provided: 1. THE AGREEMENT The Parties agree and acknowledge as follows: 1.1 Bernard David will continue to make all Mortgage repayments to the Mortgagee until the Mortgage is discharged. Bernard David must, from the date of this agreement, put in place arrangements to ensure that the Mortgage is promptly discharged if he dies. 1.2 Geoffrey Charles Baker will have right of exclusive possession of the Property, both while the Mortgage repayments are being made by or on behalf of Bernard David, and after the Mortgage or any other mortgage over the Property has been discharged. 1.3 If either of the Parties dies, the effect of the joint tenancy at law will be that the Property will automatically pass to the surviving party. 1.4 Bernard David, Geoffrey Charles Baker and any spouse or child of Geoffrey Charles Baker has a caveatable interest in the Property and may register a caveat over the title to protect their respective interest under this agreement. 2. DEATH OF BERNARD DAVID 2.1 If Bernard David dies after the Mortgage is discharged in full, then the whole estate will pass unencumbered to Geoffrey Charles Baker. 2.2 If Bernard David dies before the Mortgage is discharged in full, then subject to Bernard David's arrangements referred to in clause 1.1, the Property will pass to Geoffrey Charles Baker. 3. DEATH OF GEOFFREY CHARLES BAKER 3.1 If Geoffrey Charles Baker dies at any time within seven years from 1 January 2000, Bernard David will have the right to either: (a) sell the Property; or (b) transfer the Property to Geoffrey Charles Baker's estate. 3.2 If Bernard David decides to sell the Property; he must distribute the proceeds from the sale between himself and Geoffrey Charles Baker's estate in accordance with the following equation: … 3.3 Geoffrey Charles Baker's estate's share of the proceeds = Sale Price - Bernard David's share of the proceeds. 3.4 If Geoffrey Charles Baker dies at any time after seven years from 1 January 2000, Bernard David must allow continuity of exclusive possession to Geoffrey Charles Baker's family until Bernard David's death. Bernard David's estate must also make arrangements for the Property to be transferred to Geoffrey Charles Baker's family for nil consideration. 4. GENERAL 4.1 This agreement can only be amended, supplemented, or replaced by another agreement signed by the Parties and replaces the previous agreement re joint ownership of the property - XXX Mardi NSW 2259. 4.2 If this agreement is inconsistent with any other document or agreement between the Parties, this agreement prevails to the extent of the inconsistency. 4.3 This agreement is governed by the law in force in New South Wales. The Parties submit to the non-exclusive jurisdiction of the courts of New South Wales.
In May 2005 the mortgage referred to in the Terrigal Agreement (registered No AA37911W) was discharged and replaced by a further mortgage (registered No AB530741V) in favour of Permanent Custodians securing an increased loan of $570,000. That loan remains outstanding.
In 2008 Mr David advised Mr Baker that he could not continue to provide financial assistance to him and requested that he sell the rights to the Electromed electronic device. That did not occur and in about March 2009 Mr Baker ceased to carry out research on that device. Between that time and January 2013, Mr David continued to make repayments in respect of the replacement mortgage and each of the parties contributed to the outgoings on the Terrigal property.

The proceedings at first instance

The principles relevant to the exercise of the discretion under s 66G were not in issue: [2015] NSWSC 393 at [11], [12]. It was accepted, consistently with what was said in Williams v Legg (1993) 29 NSWLR 687 at 693, that a court would be justified in refusing to appoint trustees for sale where the order "would be inconsistent with some proprietary right, or some contractual or fiduciary obligation".
Mr Baker resisted the application for a s 66G order on the basis that he had the benefit of an agreement with Mr David that entitled him to "exclusive possession" of the Terrigal property until his death. The making of the order sought was said to be inconsistent with his continued exercise, as against Mr David, of that contractual right.
Whilst he maintained that he had that contractual right, Mr Baker did not, in the proceedings below, identify the particular agreement for which he contended, and no cross-claim was filed seeking declaratory or any consequential relief in relation to that agreement. More specifically, it was not made clear whether the operative agreement for which he contended was the Terrigal Agreement, the Mardi Agreement or some broader agreement based in part upon the earlier conversations between the parties and in part on those writings.
Mr Baker's written outline of submissions to the primary judge described the two written agreements as determining "in a prescriptive way the arrangements between the parties". Each was said to contain "detailed arrangements as to what is to occur upon the death of the various parties which includes, in the event of the death of [Mr Baker] prior to 2007, a right in [Mr David] to sell the property if he so chooses without any involvement or right of complaint from the estate of [Mr Baker]". In response to the suggestion that Mr Baker had not provided consideration for Mr David's promises, it was submitted that "having been offered secured accommodation in return for certain research work, [Mr Baker having] performed that research work, then [Mr David] is on any view bound by the agreement". The "agreement" being referred to was not made clear. Consistently with that state of uncertainty, Mr Baker's written outline unhelpfully concluded that the "agreements between the parties - both oral and written - preclude the proper grant of an order" in favour of Mr David.
Mr David's written submissions were similarly, and understandably, vague as to the agreement contended for by Mr Baker. It was said: The plaintiff anticipates that the defendant will contend that the terms of a written agreement between the parties dated 2 April 2004 somehow weigh against the appointment of trustees. If that is the case, how the defendant puts his argument is not yet known. The plaintiff will address any such argument in reply. However, the plaintiff submits that, in any event, the agreement is unenforceable for lack of consideration.
In response to the argument that no consideration was provided, Mr Baker's counsel made the following oral submissions, referring to cl 4 of the Terrigal Agreement (tcpt 25/03/15, pp 21-22): … While it is said that there is no consideration evident on the face of the document, if your Honour turns to paragraph 4 of the 2004 Agreement, paragraphs 4.1 and 4.2 contain what are mutual promises between each of the parties. They are promises that, as appears in paragraph 4.2, they describe the fact that no antecedent agreement will be propagated or asserted to be the agreement that binds the parties. Paragraph 4.1, if I can so describe it, mutual promises that are subject only to the terms of the compliance with paragraph 4.1; no party will be asserting that there is some subsequent agreement. So there are mutual promises by each party that this document represents the entirety of their arrangements as regards the Terrigal property. That has particular resonance in relation to the 2004 agreement which is pertinent because of course there was an antecedent agreement, the Mardi agreement. What this agreement does is require each party to accept that that agreement is at an end and that this agreement replaces it. … That one calls in aid that line of authority which says that it is not inadequate consideration to compromise the proceedings, even if it turns out the proceedings would have failed, so long as it is done bona fide.

The decision of the primary judge

Mr Baker contended that there was a binding agreement entitling him to continuing occupation of the Terrigal property. As explained in [13] and [15] above, he relied upon the "detailed arrangements" in the Terrigal Agreement providing for a right of possession and for arrangements as to what would occur, depending upon who of Mr Baker and Mr David died first.
In response it was said that the "sensible construction" of the proposal made by the respondent to Mr Baker in 1999, "bearing in mind that the place was used for both research and accommodation, would be that the accommodation would last for the period of the research the subject of the patronage and that at the time that the patronage was withdrawn in 2008, so then expired the proposal as to the accommodation" (tcpt 25/03/15, p 17). That submission was not in terms addressed to the provisions of the Terrigal Agreement.
The primary judge accepted this argument. In doing so he did not consider Mr Baker's reliance on the provisions of the Terrigal Agreement and how they should be construed. At [14], his Honour said: Mr Neggo [counsel for Mr David] says that it was a situation where the agreement was principally to give the defendant a place to carry on his research and that when the research ceased in 2009 the purpose of the agreement had come to an end. He says further that it could not be a proper construction of the agreement that Mr Baker could inhabit the property with his family indefinitely in the sense of forever or until his death and that the proper construction of the agreement must be that it is terminable at will or terminable when the research is finished. Putting the same thing another way, only for the period of the patronage, all of which ceased by 2008 and 2009. In my view that is a fair construction of the agreement, especially as there was no obligation on Mr Baker to pay anything. If that is so, then there was no contractual rights [sic]. …
Earlier the primary judge had referred to but not determined the question whether the promises for the benefit of Mr Baker in the Terrigal Agreement were supported by consideration. He did so at [7]: The actual research work that the defendant was doing is unclear, for whose benefit it was being done is unclear. It would seem that when the defendant found that he could no longer continue with the work because of his health, he attempted to sell the project and there is no suggestion that the plaintiff was to have any part of the proceeds. Thus it would not appear that any of the work done by the defendant was actually to benefit the plaintiff. Indeed, the use of the word "patron" reinforces that view because a patron in a traditional sense is a wealthy person who smiles upon a poor researcher and allows that person to have resources, even though it is of no benefit to the patron. It appears, accordingly, that there was never any consideration for the promises in the agreement. That probably means that in law there was no contractual rights generated by it.
This view, albeit tentative, does not take account of Mr Baker's argument that the consideration given for entry into the Terrigal Agreement included the discharge or replacement of the Mardi Agreement and his agreement that, to the extent of any inconsistency, the former would prevail.

Disposition of the appeal

Mr Baker's notice of appeal challenges the orders made below on grounds that include that the primary judge erred in holding that there was no consideration "for the various agreements" (ground 1) and in construing them as not entitling him to reside in the Terrigal property until his death (ground 4). However, in the course of oral argument it became apparent that the real basis of the complaint was that his arguments as to the enforceability and construction of the Terrigal Agreement had not properly been addressed.
In Whisprun Pty Ltd v Dixon [2003] HCA 48; 77 ALJR 1598 at [62]-[63] Gleeson CJ, McHugh and Gummow JJ described the trial judge's obligation properly to consider a party's case as a "paramount judicial duty". That does not mean that the judge has to deal with every argument and issue that might arise in the course of a case. However, "where an argument is substantial or an issue is significant, it is necessary to refer to and assign reasons for the rejection of the argument or the resolution of the issue": per Nettle JA (Batt and Vincent JJA agreeing) in Hunter v Transport Accident Commission [2005] VSCA 1; 43 MVR 130 at [21]. As McHugh JA said in Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 279, one of the purposes which the obligation to give reasons serves is that of enabling the parties to see the extent to which their arguments have been understood and dealt with. In some cases a complaint of inadequate reasons may obscure the party's real ground of complaint which is that the court has not addressed a significant or substantial issue: see Gordon v Ross [2006] NSWCA 157 at [81] per Basten JA.
To be fair to the primary judge, as the foregoing discussion shows, Mr Baker's arguments never focused on the Terrigal Agreement as the sole source of any continuing right to exclusive possession. Ordinarily, where a contractual right is relied upon in answer to a claim to relief under s 66G, that contract should be articulated clearly and preferably in a pleading, so that all of the issues as to its existence and terms are identified and can be dealt with.
That was particularly so in this case because it was readily apparent that the matters in controversy were not limited to whether there was a binding contract providing for a right of exclusive possession. The further issues included what the ongoing rights and obligations of the parties were in relation to mortgage payments made or to be made. More significantly for the proper constitution of the proceedings, there was a question as to what rights, if any, Mr Baker's spouse and children had under the terms of that agreement.
Had attention been directed to these matters at the outset two further questions should have become apparent. The first, which required consideration by Mr David, was whether Mr Baker's spouse should be joined as a party to represent the separate and contingent interest that she and her children may have under cl 3.4 of the Terrigal Agreement. The second, which fell for consideration by Mr Baker, was whether a cross-claim should be filed seeking declaratory relief in relation to the other matters in issue concerning the construction and operation of that agreement. Each of these questions had to be addressed to ensure the Court dealt with all of the disputes as to the Terrigal Agreement in the one proceeding and on a final basis. That, where possible, the Court must do so is made plain by the provisions of s 63 of the Supreme Court Act 1970 (NSW) (which requires the avoidance of multiple proceedings dealing with the same subject matter) and Uniform Civil Procedure Rules 2005 (UCPR), r 6.24 (which provides for the joinder of all parties necessary for that to occur).
Under UCPR, r 51.53(1), the Court may order a new trial on the ground of error of law or any other ground if it is satisfied that some substantial wrong or miscarriage has been thereby occasioned. Here there was an error of law because the appellant's arguments as to the enforceability and construction of the 2004 agreement were not addressed. Those arguments are certainly not hopeless and for that reason a substantial miscarriage of justice has occurred.

Conclusion

The orders made by the primary judge on 1 April 2015 and entered on 2 April 2015 should be set aside. The proceedings should be returned to the Equity Division to be dealt with in its Real Property List.
Section 56(2) of the Civil Procedure Act 2005 (NSW) requires the court to give effect to the overriding purpose stated in subs (1), namely to facilitate the just, quick and cheap resolution of the real issues in the proceedings. To that end, this Court at this stage should make the following directions: 1. The matter proceed by way of pleadings. 2. The plaintiff file and serve a statement of claim which joins all necessary parties within 21 days. 3. The defendant file and serve his defence and any cross-claim within a further 21 days. 4. The proceedings be listed for further directions before the Real Property List Judge, as arranged with his or her Associate.
Although the appeal has been allowed, it is not appropriate that any order for costs be made in favour of the appellant. Whilst each party contributed to some extent to the circumstances leading to the allowing of the appeal, the appellant was primarily responsible in failing clearly to identify the contract that he contended governed his ongoing relationship with the respondent. In the circumstances there should be no order as to the costs of the appeal. The costs of the proceedings before the primary judge should be costs in the proceedings.
Accordingly, the orders and directions I propose are:
Appeal allowed.
Set aside the orders made on 1 April 2015 and entered on 2 April 2015.
Remit the proceedings to the Equity Division to be dealt with in the Real Property List.
The matter proceed by way of pleadings.
The plaintiff (respondent) file and serve a statement of claim which joins all necessary parties within 21 days.
The defendant (appellant) file and serve his defence and any cross-claim within a further 21 days.
The proceedings be listed for further directions before the Real Property List Judge, as arranged with his or her Associate.
Costs of the proceedings before the primary judge be costs in the proceedings.
Each party bear his own costs of the appeal.
Grant leave to Mr Crowe-Maxwell and Mr White to apply in the proceedings as remitted to the Equity Division for payment of fees and expenses incurred in acting as Court appointed trustees.
SACKVILLE AJA: I agree with Meagher JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 August 2015

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