HIS HONOUR: The plaintiff (Mrs Boyd) has applied to set aside orders made by Robb J on 13 March 2015 in proceedings 2011/91377 (Thorn as executrix of the estate of the late Betty McAuley v Boyd (No. 2) [2015] NSWSC 199). Mrs Boyd was not a party to the proceedings. She says that her rights and interests were directly affected by the declarations and orders made and that she should have been joined as a party. She contends that the orders should be set aside pursuant to r 36.15(1) of the Uniform Civil Procedure Rules 2005 (NSW) as having been made irregularly.
For the reasons which follow that submission should be accepted.
[2]
Background to the Application
On 22 March 2011 the then plaintiff, Betty McAuley, by her tutor the NSW Trustee and Guardian, commenced proceedings in the District Court against Mr Ian Geoffrey Boyd. Ms McAuley sought judgment for $260,000 and interest in respect of a withdrawal made by Mr Boyd from her account of $260,028 on or about 6 August 2009.
The proceedings were transferred to the Supreme Court. By an amended statement of claim filed on 11 October 2012 Ms McAuley by her tutor claimed additional declarations and orders, including:
a declaration that Mr Boyd applied moneys obtained from Ms McAuley in circumstances involving undue influence and/or unconscionable conduct in payment of a National Australia Bank loan secured by a mortgage on a property in Fletcher Avenue, Miranda (called the defendant's property);
a declaration that the defendant's property was charged in favour of Ms McAuley in respect of moneys applied by Mr Boyd in payment of the NAB loan secured by the NAB mortgage whether moneys had been obtained from Ms McAuley in circumstances involving undue influence or unconscionable conduct;
an order for possession of the defendant's property;
an order for judicial sale of the defendant's property; and
an order for tracing of moneys obtained by Mr Boyd from the plaintiff in payment of the NAB loan secured by the NAB mortgage.
Whilst the statement of claim referred to the property at Fletcher Avenue, Miranda as "the defendant's property", Mr Boyd was not the sole owner of the property. At the time he and Mrs Boyd were the registered proprietors as joint tenants. Mrs Boyd was not joined as a defendant.
The proceedings were heard before Robb J over five days between April and June 2014. Mr Boyd represented himself. By the time of the hearing Mrs McAuley had died. The plaintiff, Mrs Thorn, was the executrix of her will. Robb J found in substance that Mr Boyd took unconscionable advantage of Mrs McAuley's age and infirmities in procuring the transfer of $260,000 and that it was unconscionable for him to retain the money (Catherine Margaret Thorn as executrix of the estate of the late Betty McAuley v Ian Geoffrey Boyd [2014] NSWSC 1159). His Honour also found that Mr Boyd had breached the fiduciary duty he owed Mrs McAuley as her attorney under power. His Honour concluded his reasons as follows:
"Relief
[157] It is necessary that I address the relief that should be granted in these proceedings.
[158] First, an order must be made setting aside the transfer of Mrs McAuley's $260,000 to Mr Boyd that occurred on 6 August 2009, and requiring Mr Boyd to repay that money to Mrs Thorn as executor of Mrs McAuley's estate.
[159] Secondly, an order should be made that Mr Boyd pay interest on the money that he received from Mrs McAuley from that date.
…
[162] As Mrs McAuley's attorney, Mr Boyd owed a fiduciary duty to her that required him to act in her interests rather than his own. For the reasons that I have set out above, I find that Mr Boyd acted entirely in his own interests and ignored the interests of Mrs McAuley. In the manner in which he deployed the power of attorney to cause the Bank to transfer McAuley's $260,000 to his own account, Mr Boyd breached his fiduciary duty.
[163] Consequently, Mrs Thorne is entitled to appropriate orders that will enable her to follow the money into any property owned by Mr Boyd, where that property was either acquired with the money, or where any mortgage over the property was reduced using the money.
[164] As Ms Gleeson observed in her closing submissions: 'The documentary evidence of what became of the money is scant.' It does appear that on 12 August 2009, $200,000 was paid to reduce Mr Boyd's NAB Base Variable Rate Home Loan. There are other transactions (referred to in par 105 of Ms Gleeson's closing submissions) but those transactions do not with sufficient clarity establish what eventually happened to all of the funds represented by Mrs McAuley's $260,000 gift.
[165] I am satisfied that Mrs Thorn is entitled to trace that money, and if necessary to an accounting from Mr Boyd. It may be that Mrs Thorn is also entitled to some interlocutory relief to prevent Mr Boyd from disposing of any property over which Mrs Thorn might be entitled to a charge.
…"
Orders were made on 6 November 2014 to give effect to these reasons. The declarations and orders made included the following:
"The Court declares:
1. That upon receipt of the sum of $260,000 on 6 August 2009 from Mrs Betty McAuley, in circumstances involving unconscionable conduct and breach of the defendant's fiduciary duty, the defendant held such monies on trust for Betty McAuley.
The Court orders:
2. The transfer of $260,000 from Mrs Betty McAuley to the defendant dated 6 August 2009 is set aside.
3. Judgment in the sum of $260,000 to the plaintiff in her capacity as executrix of the estate of Betty McAuley.
4. The defendant is to pay interest on the sum of $260,000 at the rate prescribed in UCPR 6.12(8), from 6 August 2009 to the date of this order.
5. The plaintiff is entitled to trace the sum of $260,000, obtained from Mrs Betty McAuley in circumstances involving unconscionable conduct and breach of fiduciary duty, into any property that the defendant acquired with that money, or in respect of which the defendant repaid a mortgage secured on the property with that money, or any part thereof.
…"
Robb J also made an order that:
"1. By 15 December 2014, the defendant is to file and serve a full detailed account, verified by affidavit, to the best of his knowledge and belief, of his dealings with the sum of $260,000 received by him on 6 August 2009 from Mrs Betty McAuley"
Mrs Boyd does not challenge the validity of those orders.
Mrs Boyd admitted that she was aware of the claims brought by Ms McAuley and Mrs Thorn as executrix of Mrs McAuley's estate, including the amendments to the claim made following the transfer of the proceedings to the Supreme Court. She did not apply to be joined as a party to the proceeding.
There was a further hearing before Robb J on 12 February 2015. On 13 March 2015 his Honour made further declarations and orders which Mrs Boyd now claims should be set aside. Relevantly the declarations and orders included the following:
"The court:
(1) Declares that the defendant holds his interest in the property comprising Lot 10 in Deposited Plan 28150 at Sutherland (the Property), upon a constructive trust for the plaintiff to the value of $200,000.
(2) Declares that so much of the judgment debt in the sum of $260,000 created by order 3 made by the court on 6 November 2014 as represents a principal sum of $200,000, and an award of pre-judgment interest under the Civil Procedure Act 2005 (NSW) s 100 on that principal sum, together with interest accruing after judgment on that principal sum, pursuant to s 101 of the Civil Procedure Act, constitutes an equitable charge on the defendant's interest in the Property.
(3) Grants liberty to apply in respect of the implementation of these orders, including for an order for sale to realise the charge, and an order in respect of the sale of the Property pursuant to s 66G of the Conveyancing Act 1919 (NSW)."
His Honour noted the following:
"[41] Mrs Thorne also seeks a declaration that Mr Boyd holds the unencumbered interest in the property upon a constructive trust for the plaintiff to the value of $200,000. However, Mrs Thorne accepts that Mr Boyd holds his interest in the property as a joint tenant with his wife, and there is no evidence that the property is unencumbered. Consequently, the court should only make a declaration concerning Mr Boyd's own interest in the property, whatever that might be."
Thus, the two declarations are declarations of a constructive trust and an equitable charge over Mr Boyd's interest in the relevant property. However Mrs Boyd submits that the orders directly affect her interest as a co-owner of the property. I will return to that contention below.
It appears from his Honour's reasons that Mr Boyd contended that despite what appeared on a bank statement tendered by Mrs Thorn, $200,000 of the $260,000 Mr Boyd received was paid to a bank account but was not applied by the National Australia Bank in reduction of a mortgage debt over the property jointly owned by him and his wife, but was instead misappropriated by the Bank, apparently in reduction of an unsecured business loan. Robb J described the import of Mr Boyd's evidence as being that "… Mr Boyd had tried to apply $200,000 of the gift to reduce the mortgage on his property, but the bank had in some unexplained way applied the money to reduce some other loan." (at [20]). Robb J rejected this complaint and said there was no evidence to support it (at [25]). It appears from his Honour's reasons that the Financial Ombudsman Service had dealt with a complaint made by Mr and Mrs Boyd against the National Australia Bank and was said to have made adverse findings against the bank resulting in the grant of relief up to the maximum limit available from the Financial Ombudsman Service. Robb J found (at [24]) that the FOS findings did not have the effect of casting any doubt on the bank statements that the bank produced and that Mr Boyd appeared to have misled himself as to the significance of the FOS findings.
Mrs Boyd submitted that she had had the conduct of the application before the FOS and that had she been a party she could have demonstrated the misappropriation (or misapplication) of the $200,000 payment by the bank that her husband had been unable to do. In this respect it might be relevant that Robb J found (at [29]) that Mr Boyd had not proved that a business loan to which the payment was said to have been applied was not secured over the Miranda property. There was no evidence as to why Mrs Boyd was not called to give that evidence in her husband's case. Nor did she adduce evidence on this application that might show that a different result might be reached on a rehearing.
[3]
Issues
The following issues arise. First, whether Mrs Boyd was a necessary party to the proceeding before Robb J in which a declaration was made that Mr Boyd held his interest in the subject property on trust for Mrs Thorn as executrix of Mrs McAuley's estate and declared that she was entitled to an equitable charge on Mr Boyd's interest in the property to secure the judgment debt. Mrs Thorn contends that because the declaration and charging order was expressed to apply only to Mr Boyd's interest in the land, and not Mrs Boyd's interest, Mrs Boyd was not a necessary party to the proceedings at the time the orders were made on 13 March 2015. Mrs Thorn has filed a notice of motion seeking the appointment of trustees for sale of the property and has joined Mrs Boyd as a respondent to that notice of motion. The plaintiff submits that it is only at this point that Mrs Boyd is a necessary party to the proceeding.
If Mrs Boyd were a necessary party to the proceeding in which the declarations and orders were made on 13 March 2015, the second issue is whether she is entitled as of right to have the declarations and orders made on that day set aside. If Mrs Boyd is not entitled to have the declaration and order set aside as of right, the question will be whether the Court should exercise a discretion to set aside the declarations and order where she was aware of the proceedings, but chose not to intervene, and could have been called to give evidence in her husband's case. It could also be relevant that no evidence was adduced on the present application that might show that a different result might have been obtained had Mrs Boyd been joined prior to the hearing on 12 February 2015.
A third question is whether the orders sought by Mrs Boyd can be made by another single judge.
[4]
Mrs Boyd was a necessary party
In my view Mrs Boyd was a necessary party to the proceedings before Robb J, at least from the time that Mrs Thorn pursued a claim for the declarations and orders made on 13 March 2015 following the hearing on 12 February 2015. In John Alexander's Clubs Pty Ltd v White City Tennis Club Limited [2010] HCA 19; (2010) 241 CLR 1 at [131] the High Court approved of the statement of principle of the Full Federal Court in News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 at 524-525 that where a Court is invited to make, or proposes to make, orders directly affecting the rights or liabilities of a non-party, the non-party is a necessary party and ought to be joined. (See also Pegang Mining Co Limited v Choong Sam [1969] 2 MLJ 52 at 55-56 quoted in News Limited v ARL at 524 and Victoria v Sutton (1998) 195 CLR 291 per McHugh J at [77]-[78], 316 and 317.) In John Alexander's Clubs Pty Ltd v White City Tennis Club Limited the plaintiff obtained a declaration that land was held on constructive trust for it and an order for a transfer of the land to it. A third party, Walker Corporation, claimed an interest as mortgagee under an unregistered mortgage. The High Court held that Walker Corporation ought to have been joined as a party as the proprietary relief granted directly affected its claimed equitable interest in the land. The High Court noted (at [134]) that one of Walker Corporation's claims was that the successful plaintiff Club never had an interest in the relevant land and that no constructive trust should have been declared because of the existence of its equitable interest of which the Club had notice.
In the present case Mrs Boyd disputes that there was a ground for the Court's declaring that Mr Boyd held his interest in the property upon a constructive trust for Mrs Thorn to the value of $200,000, or declaring that his interest in the land was charged with a sum of $200,000 and interest. Although Mrs Boyd was not a party to the proceeding before Robb J, she would be bound by the declarations and orders made on 13 March 2015 (John Alexander's Clubs Pty Ltd v White City Tennis Club Limited at [161]). The declaration and orders directly affected Mrs Boyd as they expose her to the prospect of the property of which she is a co-owner being sold upon the appointment of trustees for sale. The grounds upon which a co-owner can resist an application for appointment of trustees for sale under s 66G are very narrow. The declarations and orders made in favour of Mrs Thorn, although made only in respect of Mr Boyd's interest in the land, would be implemented by a later application for the appointment of trustees for sale. That was expressly recognised in the orders made. Because those declarations and orders would in all probability lead to the appointment of trustees for sale, which would have the effect of Mrs Boyd losing her house and instead obtaining a 50 per cent share of the net proceeds of sale, she was directly affected by the orders sought.
The case is analogous to the position stated by the Full Court of the Federal Court in News Limited v Australian Rugby Football League Limited that was approved in John Alexander's Clubs Pty Ltd v White City Tennis Club Limited (at [132]) where the Full Court said:
"Where the orders sought establish or recognise a proprietary or security interest in land, chattels or a monetary fund, all persons who have or claim an interest in the subject matter are necessary parties. This is because an order in favour of the claimant will, to a corresponding extent, be detrimental to all others who have or claim an interest."
On Mrs Thorn's application for proprietary relief, Mrs Boyd as well as Mr Boyd, had an interest in denying that the breaches of duty that Mr Boyd was found to have committed should result in the grant of a proprietary remedy.
Mrs Boyd's legal rights were also directly affected in another way. At the time the orders were made she and Mr Boyd held the property as joint tenants. It was common ground that in 2015, but after the declarations and order were made, a notice of transfer severing the joint tenancy was registered pursuant to s 97 of the Real Property Act 1900 (NSW). But at the time the orders were made the property was held on a joint tenancy. If Mr Boyd had died, Mrs Boyd would have been entitled to the whole property by survivorship. It is a nice question whether the orders of 13 March 2015 themselves effected a severance of the joint tenancy.
The grant of a charge by a joint tenant over his or her interest does not affect a severance of the joint tenancy because the grant of a charge does not constitute an alienation of the interest (Peter Butt, Land Law, 6th ed at [1470]). However, Professor Butt explained (at [1487]) that:
"… A joint tenancy may be severed as a result of a court order that requires the property to be dealt with in a manner that expressly or by necessary implication is inconsistent with the continuance of the joint tenancy. Examples are where the property has been sold and the court orders the proceeds to be distributed between the co-owners … Another example is where the Court orders one joint tenant to transfer his or her interest to the other joint tenant … If the Court order requires a sale or other dealing with the property, there is no severance at law until the appropriate documents have been executed and (for Torrens Title land) registered. Hence, if one joint tenant dies before these steps have been completed, at law the survivor takes the whole property. However, equity does not permit the court order to be frustrated, and holds a severance of the beneficial interest to have occurred if that is necessary to ensure that the order is perfected." (Citation of authority omitted.)
Ms Brigden, who appeared for Mrs Thorn, accepted that if Mr Boyd had died shortly after 13 March 2015 the declarations and order would still have had effect in relation to what had been Mr Boyd's share of the property. I think this concession was correct and illustrates that the declaration and orders effected a severance of the joint tenancy in equity. This was a direct effect on Mrs Boyd's interest in the property.
Needham J considered an analogous case in Pralle v Scharka [1978] 2 NSWLR 450 where a purchaser sought an order for specific performance of a contract for sale by one joint owner of his interest. The contract if enforceable (or at least its completion) would have severed the joint tenancy. Needham J held that the co-owner was a necessary party to the proceeding because he had a proper interest in the resolution of the question of whether his co-joint tenant had severed the joint tenancy by a valid contract (at 451-452).
So it was in this case.
[5]
Mrs Boyd is entitled to have the declarations and orders set aside as of right
In John Alexander's Clubs Pty Ltd v White City Tennis Club Limited the High Court said (at [137]) that as a general proposition, "if a court makes an order affecting a person who should have been joined as a necessary party, while the order will not be a nullity, that person is entitled to have the order set aside, and is not limited merely to seeking the favourable exercise of a discretion".
In Craig v Kanssen [1943] KB 256 Lord Greene MR described an order obtained where the defendant was not served and had had no opportunity to defend the claim as a nullity which the defendant was entitled as of right to have set aside. An order of a superior court is not a nullity. Hence the declarations and order would bind Mrs Boyd if not set aside. Nonetheless, Craig v Kanssen illustrates the difference between a fundamental and a non-fundamental irregularity. In Cameron v Cole (1944) 68 CLR 571 Rich J said (at 589):
"It is a fundamental principle of natural justice, applicable to all Courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person who is affected is entitled, ex debito justitiae, to have any determination which affects him set aside; and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set its determination aside … in such a case there has been no valid trial at all."
It is not an answer that the person who ought to have been joined as a necessary party knew of the proceedings and could have applied to be joined as a party. In News Limited v Australian Rugby Football League Limited the Full Court of the Federal Court said (at 526) that:
"In our opinion, the notice given to the players before trial does not, and could not, extend the jurisdiction of the court to make orders which offend the test stated in Pegang Mining. Absent an application for joinder by a defendant, or by a third party who claims to be directly affected by the proposed orders, it is for the party prosecuting the proceedings to choose who are the necessary parties to enable the court to make the orders sought."
In John Alexander's Clubs Pty Ltd v White City Tennis Club Limited the High Court said (at [140]) that there was no doubt that Walker Corporation was aware of the first proceeding. Walker Corporation said there was a reasonable explanation for its delay in seeking to be joined, but the High Court said whether or not that was so, Walker Corporation had no duty to seek to be joined and its delay did not call for explanation.
In my view, Mrs Boyd is entitled as of right to have the declarations and order set aside as they directly affected her interest in the subject land. She does not need to seek the favourable exercise of a discretion by the Court. Therefore it is no answer to her claim to say that she did not adduce evidence that would show that a different result might be obtained on a rehearing, nor explain her failure or the failure of her husband, to seek to have her joined as a party.
[6]
Jurisdiction to set aside orders
The Court has inherent jurisdiction to set the orders aside (Cameron v Cole (1944) 68 CLR 571; Taylor v Taylor (1979) 143 CLR 1 at 8, 16). In my view, there is also power to set aside the declarations and order pursuant to Uniform Civil Procedure Rules 2005, r 36.15 on the basis that they were made irregularly (Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd [2008] NSWCA 38; (2008) 71 NSWLR 262 at [86] and [87]). In Perpetual Trustees Australia Limited v Heperu Pty Ltd (No. 2) [2009] NSWCA 387; (2009) 78 NSWLR 190 the Court of Appeal said that the focus of r 36.15(1) was on the irregularity in the steps involved in the giving, entering or making of judgment, not on the merits of the decision or on the irregularity of other steps in the proceedings (at [16]). However, the Court went on to say that the rule applies with particular force to, amongst other things, default judgments and orders made ex parte (at [17]).
The inherent jurisdiction, or the jurisdiction under r 36.15, to set aside a judgment or order made irregularly can be exercised by a single judge, even though that involves the setting aside of an order of another judge. However, if the ground relied upon in the application to set aside a previous order has already been considered and determined by the first judge, it would be inconsistent with principles of comity for a second judge to set the order aside on a ground the first judge has rejected (Szanto v Bainton [2012] NSWSC 60 at [8]-[21]). If in such a case the avenue of appeal is not available to an affected person because he or she is not a party, prima facie it would be appropriate for the second judge to remove the proceeding to the Court of Appeal pursuant to r 1.21 of the Uniform Civil Procedure Rules (Onefone Australia Pty Limited v One.Tel Ltd (in liq) [2010] NSWSC 586 at [9]-[11]; Deloughery v Weston [2010] NSWCA 148 at [2]).
In the present case, no submission was made to Robb J that Mrs Boyd was or was not a necessary party. In the course of argument on 12 February 2015 his Honour observed that the final orders to be made should only impinge upon Mr Boyd's interest. His Honour observed that no other owner of the property was a party to the proceedings so that the only party that could be affected by any order was Mr Boyd, and that any beneficial interest the plaintiff in that matter might have in the property would attach only to whatever belonged to Mr Boyd personally (transcript 12 February 2015). His Honour assumed that the joint tenancy would be severed only by proceedings that caused the property to be sold. But that was not an issue raised for determination and his Honour did not decide the question.
In those circumstances there is no occasion for me to refer the proceeding to the Court of Appeal and I must exercise the Court's inherent jurisdiction or the jurisdiction under r 36.15.
[7]
Conclusion and orders
For these reasons I accept the plaintiff's contention that the declarations and order made on 13 March 2015 should be set aside. Mrs Boyd should be joined as a party to the proceedings 2011/91377. Directions should be made for the service of any additional evidence proposed to be relied upon by any party in those proceedings and the matter should be remitted to the Registrar's list to obtain a further date for the hearing of Mrs Thorn's application for final relief in those proceedings. Mrs Thorn's notice of motion filed in those proceedings seeking the appointment of trustees for sale should be dealt with at that hearing.
Mrs Boyd also sought an order for the withdrawal of a caveat that had been lodged by Mrs Thorn against the title to the subject property. No submissions were made in support of the application for withdrawal of the caveat. Robb J found that the plaintiff was entitled to a proprietary interest in Mr Boyd's interest in the subject land. Although the declarations and order made to give effect to that conclusion will be set aside because of the non-joinder of Mrs Boyd, it is clear that it is at least seriously arguable that Mrs Thorn has a caveatable interest in the property. The application for withdrawal of the caveat should be refused.
Mrs Boyd does not have standing to seek to set aside the costs order made against Mr Boyd.
Mrs Boyd represented herself, but would have incurred some costs in her proceeding. She is entitled to costs.
For these reasons I make the following orders:
Order that the declarations numbered 1 and 2 and order numbered 3, made on 13 March 2015 in proceeding 2011/91377 between Catherine Margaret Thorn as plaintiff and Ian Geoffrey Boyd as defendant be set aside.
In proceeding 2011/91377 order that Dawn Kathleen Boyd be joined as a second defendant to the proceeding.
The summons in proceeding 2016/91811 be otherwise dismissed.
The defendant pay the plaintiff's costs of proceeding 2016/91811.
I will hear the parties on what further directions should be made in proceeding 2011/91377 with a view to fixing those proceedings for further hearing. Mrs Thorn's notice of motion filed on 24 November 2015 seeking orders for the appointment of trustees for sale will be stood over to be heard as part of her claims for final relief in those proceedings.
[8]
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Decision last updated: 12 May 2016
Parties
Applicant/Plaintiff:
Boyd
Respondent/Defendant:
Catherine Margaret Thorn as executrix of the estate of the late Betty McAuley