1 HIS HONOUR: On 29 October 1990 I made orders disposing in principle of the claims in these proceedings and on 29 September 1993 an appeal against those orders was dismissed: Brown v Brown (1992-1993) 31 NSWLR 582. When the Summons was issued on 5 April 1990 the late Mrs Alice Veronica Brown was the plaintiff. She died on 29 August 1990, during the hearing. On 21 September 1990 I appointed her daughters to conduct the proceedings as representing her estate and they have since obtained a grant of Probate which confirms their standing to be plaintiffs. The proceedings relate to the beneficial ownership of the house property with surrounding land at Nos. 118-120 Morrison Road, Gladesville, formerly the land in Certificate of Title Volume 4919 Folio 227 of which the defendants were registered proprietors. The house and land were Lots 12 and 13 in Deposited Plan 2166. The land was subdivided by Deposited Plan 789012 registered on 3 May 1989 into two lots, Lot 100 in area 652 square metres, on which the house at 118 Morrison Road stands and Lot 101, then vacant land in area 1774 square metres, referred to as No. 120 Morrison Road, with frontage to Morrison Road of 19.685 metres and a large rear area accessible only from Morrison Road. The defendants are still the registered proprietors of Lot 100 and the house, and Declaration 1 of my orders establishes that they hold it on trust for the estate of Mrs Alice Veronica Brown in the proportion of 2,125 parts in 4,800 parts; and the defendants themselves are the beneficial owners of the other 2,675 parts. The defendants sold Lot 101, and also the adjoining Lot 15 DP2166, in one sale for $670,000 by contract dated 7 October 1988 to Orlit Pty Limited - Exhibit E. The sale was completed on 13 July 1989 and the net proceeds received by the defendants were $654,300. Lot 15 was the adjoining lot to the south at the rear of Nos. 118-120 Morrison Road, which the defendants acquired about 1985 in a transaction in which Mrs Alice Brown had no interest. Lot 15 had frontage and access to Kemp Street, so the land sold had frontages to both Morrison Road and Kemp Street. No claim was made that the acquisition and disposal of Lot 15 brought with it any consequences of the kind associated with Keech v. Sandford (1726) Sel Ca t. King 61; 25 ER 223.
2 In 1998 I heard the Inquiry directed earlier to ascertain the amount of proceeds of the sale of Lot 101 which is subject to the trust. The trust was a resulting trust, a bare trust with no express powers, and the sale was in breach of trust as the late Mrs Alice Brown had not authorised it. The remedy to which her estate is entitled is an account for and payment of 2125 parts in 4800 parts of so much of the proceeds of sale as is attributable to inclusion of Lot 101 in the sale. The attributable part is obscure because there was a further breach of trust in that the defendants mixed and confused the interests of the trust with their own interests by selling Lot 15 in the same sale as Lot 101, and the purchase price was undifferentiated. By acting in breach of trust the defendants incurred whatever disadvantages flow from doubt about an appropriate apportionment. Disapproval of their conduct is mitigated by the enhancement of the realisation for the sale of each parcel achieved by selling them in one line; the development potential of both and each was plainly enhanced. Claims 6 and 7 relate to accounting for and payment of the proceeds of Lot 101.
3 I also heard the further consideration of several claims in the Summons. Claims 2 and 5 relate to Lot 100, the house at No. 118 Morrison Road of which the defendants are still registered proprietors, and claim appointment of trustees under s.66G of the Conveyancing Act 1919, sale and distribution of the proceeds.
4 Claim 8 relates to interlocutory restraint and has been dealt with thus far as follows. On 21 September 1990 the defendants gave the following undertaking:
"The defendants by their counsel undertake to the Court that they will not without leave of the Court permit the total of the balances standing to their credit in accounts at the State Bank at Gladesville to be reduced below $225,000."
On the same day I made an interlocutory order restraining the defendants from "selling or otherwise disposing of or mortgaging or otherwise encumbering Lot 100 in Deposited Plan 789012." On 12 August 1996 the following direction was made by consent by a Registrar.
"That the defendants on or before 19 August 1996 provide to the plaintiff written evidence from the State Bank of NSW Gladesville of the defendants' deposit of at least $225,000 and copy of direction to the State Bank by the defendants not to disburse the deposit without consent of the plaintiffs and/or Court order".
5 Further consideration of claims for damages and interest was also reserved.
6 The Inquiry and further consideration came on for hearing on Monday 16 February 1998. No evidence explains this long interval. I deal first with the Inquiry and the proceeds of the sale of Lot 101. The net proceeds of $654,300 are an agreed fact. It is then necessary to identify the part of that net amount which is the subject of the resulting trust.
7 Much evidence of valuers was directed to the contribution of Lot 101 DP789012 to the total proceeds of sale of the consolidated land. At times the presentation of the defendants' case seemed to assume that anything not shown to be attributable to Lot 101 should be attributed to Lot 15 and pass to the defendants. That assumption has no proper basis. When the consolidated land was sold in one line it became different to the sum of the two parts; the development potential of the whole was different to, greater than and of greater value than the development potential of each, and of the sum of both. In the state of facts which actually existed, in which the defendants also owned Lot 15 DP 2166 with its Kemp Street frontage an address to the valuation of lot 101 on its own is rather artificial. It is very unlikely that the defendants would have sold Lot 101 on its own, as it was very obvious that the value of both lots would be enhanced by consolidating them. The same artificiality affects addressing the value of Lot 15 on its own as it too obviously gained in value from consolidation.
8 In selling Lot 101 the defendants acted in breach of trust in that no power of sale was conferred on them. If the defendants had sold Lot 101 on its own to a person who had no opportunity to consolidate they would have incurred no blame but they would have missed the advantage. The exercise is one of apportioning the advantage which flowed from the unauthorised action which created it The breach was a judicious one, evidently advantageous to those interested in the trust. The plaintiffs have not suggested otherwise, and by the manner in which they presented their claim for part of the proceeds of the sale they did not impeach the defendants' conduct in selling the land. The ground on which the defendants are accountable is that they as trustees may not profit from dealings in trust property, and may not mix their own interests with the interests of the trust and earn an advantage for both, as in so doing they employ trust property for their own advantage. In a survey of texts I have not observed an analogous case where trustees have sold trust property and property of their own in one line and derived a profit. Many cases have dealt with mixing trust money with the money of trustees, with mixing the moneys of two different trusts, and with gaining advantages by cumulating the voting power of trust shares with the voting power of privately owned shares. The principle that a trustee may not profit from dealings in trust property is sometimes stated in absolute terms in the authorities, but normally there is some recognition that there may be qualifications. The absolute principle would make the defendants accountable to the trust for all profits derived from the sale of the land; and the profits would be ascertained by deducting the value of their Lot 15 from the proceeds and treating the balance as the value of trust property which they ought to restore and the profits for which they are accountable. The value of the trust property would not enter into the calculation. Where trustees have made investments with a mixture of trust moneys and their own moneys and the means of apportioning profits have been readily and arithmetically available the courts have often apportioned them.
9 At first instance in Scott v Scott (1964) VR 300 at 307 Hudson J first stated the principle in absolute terms:
"Fundamental to the claim of the plaintiffs is the rule that a trustee may not derive a profit from his trust. He must not use or deal with trust property for his own private benefit and if he does so he is accountable for any profits, benefits or advantage which he may derive from such use or dealing. This it was said is a rule of the broadest scope extending into every activity of any person who occupies a fiduciary position."
But his Honour also apportioned the proceeds of a
mixed investment.
10 On appeal in Scott v Scott (1963) 109 CLR 649 observations in the judgment of the High Court at 658-659 support a constructive trust of all profits of a mixed investment, but the case was not disposed of on that basis; it could not be because of limitations arising from the nature of the challenge on appeal to the judgment of Hudson J, and their Honours' obiter observations at 663-664 may support severing the proceeds of a mixed investment; or in any event do not express disapproval.
11 The proceeds of a mixed investment were severed in Paul A. Davies (Australia) Pty Ltd (in Liq) v Davies & Anor [1983] 1 NSWLR 440 Mahoney JA spoke of apportionment of profit in guarded language not necessarily expressing his approval: See 458 B-C.
12 The observations of Deane J in Chan v Zacharia (1984) 154 CLR 178 at 198-199, 204-205, although directed to a different part of the subject, support the maintenance of some flexibility. Little flexibility is required when there are ready means of apportionment. See too Warman International Ltd v Dwyer (1995) 182 CLR 544 at 556-562.
13 The way in which courts have acted where the contributions from different sources have been readily measurable shows that simple application of the absolute principle is not always appropriate. Equitable remedies should be administered with regard to the facts and circumstances in detail of particular cases. In this case the evidence of valuers enables findings to be made of the values of each lot, with the difficulties to which valuations of real property are characteristically subject. The decision to sell was a judicious decision and the defendants' conduct in selling it is explained by their genuine belief that they were the beneficial owners, not a reasonable belief but a belief which they truly held. The sale of the two properties was not a cloak for machinations to put their own interest at some advantage over Mrs Alice Brown's interest; their fault was in disputing her interest, not in selling the property. In discerning the appropriate equitable remedy in this case and attempting to proceed with due regard to analogies presented by equitable remedies in earlier decisions I do not think it is appropriate to apply the absolute principle when means are at hand to apportion that advantage in the same proportion as the value of the parcels contributed. I will apply the proportion of the values which Lot 101 and Lot 15 would each have had if sold unconsolidated to the net proceeds of sale of the consolidated site. A broad approach to the discernment of a just remedy must be made. In my judgment it is equitable and it is just to apportion the net proceeds that way.
14 Lot 15 had development potential for a development containing a single dwelling house or alternatively a development of three villa units with frontage to Kemp Street, and Lot 101 had qualified development potential for four villa units. The development potential of Lot 101 was qualified because it was uncertain whether development approval could be obtained for development for villa units with street access to Morrison Road frontage, as Ryde City's Council's code, to which Council could make discretionary variations, required a strip of land 20 metres wide and the available land was somewhat narrower. It was also uncertain whether Council would give development consent for villa units on land with frontage to Morrison Road which was classed as a collector road, as there were adverse indications in the Council's code. The alternative to developing Lot 101 for villa units was to subdivide it into two housing lots with a long access strip. Development consent for three villa units on Lot 15 presented no real difficulty. The consolidation meant that there were very favourable prospects of consent to a development of seven villa units with frontage to Kemp Street, and one housing lot with frontage to Morrison Road. This was not put to the test because Orlit Pty Ltd, the purchaser from the defendants acquired yet further land from another adjacent owner and obtained development approval for nine villa units and one housing lot, and that development was carried out.
15 In 1988 Lot 101 had potential for development as villas in that it had sufficient area for the construction of more than five villa units; by the calculations of Mr Architect Poole, 5.9 villa units. The available area is only one of the considerations affecting a development application. Another consideration was that access to the villa development would be by way of the Morrison Road frontage; Morrison Road was described for Town Planning purposes as a collector road and carried relatively heavy local traffic, and Town Planning considerations would support limiting development with vehicle access to Morrison Road or directing development towards access to side roads. Another consideration was that Lot 101 had a frontage to Morrison Road of 19.685 metres and its effective lateral width was 18.98 metres by my calculation (although not calculated in evidence), whereas the development code by which Council then usually acted required access 20 metres wide. There was also the need to produce a development proposal for layout and internal traffic which Council found satisfactory. From the point of view of a hypothetical purchaser of Lot 101 there were prospects of obtaining development approval for villa units, but approval would be obtained only if Council took a favourable view of the development and there were factors which indicated that Council well might not. Development potential for villa units was distinctly qualified and this would have had a moderating affect on value.
16 If Lot 15 had been offered for sale on its own in 1988 or 1989 it also would have had potential for development of villa units. Its dimensions and its frontage to Kemp Street, a quiet side street which carried less traffic than Morrison Road, meant that a development application for three villa units was likely to be approved. It is in issue whether development of villa units was the highest and best use of Lot 15 as it was suitable for development for a single dwelling.
17 The development undertaken by the purchaser Orlit Pty Ltd serves, with qualifications, to illustrate the development potential of Lot 101 and Lot 15 when consolidated. Consolidation created a parcel the value of which was attributable largely to its potential for redevelopment in seven villa units and a house lot. Special Condition 3 in the Orlit contract made completion conditional on obtaining approval for a seven-unit development. Although development approvals are discretionary there was a fair certainty of obtaining approval for the seven villa units and a single dwelling on Morrison Road frontage. With the excision of a single-dwelling lot, the land from Lot 101 which was consolidated with Lot 15 was almost large enough in area to meet the Council's area requirements according to its code for four villa units (although this calculation is inter-dependent with the size of the single-dwelling units to be built). Of course the rear of Lot 101 could not have been developed for villa units on its own as it did not have street access.
18 Orlit Pty Ltd did not need to rely on Special Condition 3 because it was able to do even better. Orlit Pty Ltd purchased other adjoining land, Lot B FP364730, a small parcel with frontage to Kemp Street which had once been part of Lot 14 DP2166 with house No. 116 Morrison Road at the corner of Morrison Road and Kemp Street, and had been sub-divided from it in 1947. By Deposited Plan 805387 Orlit Pty Ltd consolidated Lot 101, Lot 15 and Lot B and subdivided them into Lot 200, comprising Lot B and Lot 15 and the rear of Lot 101, and Lot 201 which had been the front of Lot 101 and became the site for a single dwelling with Morrison Road frontage. The area of Lot 200 and its Kemp Street frontage enabled Orlit Pty Ltd to obtain approval for and construct a complex of nine villa homes - Strata Plan 38787, and Orlit also constructed and sold off a single dwelling on Lot 201. Development consent of 14 December 1988, Exhibit K approved the subdivision of Lots 12 and 13, DP2166 into Lots 100 and 101. Development consent obtained (Exhibit J) on 31 May 1989 related to Lot 101, Lot 15 and Lot B and approved nine villa units.
19 Efforts to hypothesise the value of Lot 101 to an owner of Lot 15, or of Lot 15 to an owner of Lot 101 are elusive, and these sales could not have happened in the practical world in 1988 when they were in common ownership. To an owner of Lot 15, acquiring Lot 101 offered the potential for turning a single-dwelling or three villa unit development site into a seven villa unit development together with another single-dwelling site, while to an owner of Lot 101 consolidation with Lot 15 offered the prospect of turning a doubtful four villa unit development into a fairly certain seven villa unit development together with a housing lot.
20 Discussion and debate in the course of evidence about how many of the villa units in a development of seven units would actually have stood on land forming part of Lot 101 were extensive, but contribute nothing to my conclusion; the development potential of the consolidated land is different to and of greater value than the development potential of either part. Several expert witnesses dealt with identifying how many villa units or parts of villa units in a development of seven villa units would have actually stood on what was formerly Lot 101 and how many units in the eventual development of nine units stood on Lot 101. This was completely unproductive. What the consolidation created was new in its development potential.
21 When the Inquiry first came on for hearing in February 1998 the valuation evidence tendered was directed principally to the appropriate apportionment of the proceeds of the sale of the two parcels in one line to Orlit Pty Limited. I found this body of evidence unsatisfactory because the apportionments supported were conclusions based not only on matters of facts and the expert opinions of the valuers, but also on views about the fair and appropriate basis for apportionment, and that is not correctly to be dealt with by expert opinions. The principles of apportionment are for the Court's judgment.
22 The valuation evidence proceeded on principles which I find difficult to state; in some way it was assumed that a fair approach involves working backwards from the net proceeds and considering what contribution Lot 101 made to rendering the consolidation suitable to development for villa units. What was under consideration was, I think, what particular advantages flowed to the project of developing Lot 15 for villa home units by adding Lot 101. This led Mr Phippen, valuer, in his report of 23 January 1997 and affidavit of 30 January 1997 to an exercise of which he said:
"…We have not been instructed to assess the market value of the property - we were only instructed to determine what proportion of the proceeds of the sale that occurred at that time should apply to the subject property."
23 In this exercise he addressed how many of the units to be built in the development would actually stand on Lot 101 and how many on Lot 15. The hypothetical development exercise Annexure C to the report with Mr Phippen's affidavit of 12 February 1998 proceeds on a similar assumption.
24 I do not accept these approaches. Apportionment by land area or rate per square metre and consideration of the number of units in the redevelopment which actually stand on the former Lot 101 do not appear to me to have any validity as methods of apportionment. Once the parcels are consolidated the development potential and the design possibilities are completely recast, and every part of the consolidated land makes much the same contribution to the outcome, whether it ends up as open space, access way or dwelling site. The approaches also seem to me to involve elements of an assumption that the trustees were in some way to be associated more closely with the redevelopment than they actually were; they did no more than consolidate the parcels and sell them on to the developer.
25 To my mind the just method does not involve reasoning back from the final result and does not involve considering what contribution each parcel made in any terms but its value on its own.
26 For these reasons I have disregarded Mr Phippen's conclusion in his report of 23 January 1997 that the value of Lot 101 as part of the total development site sold for $670,000 would be $400,000 and his report of 10 February 1997 Annexure C to his affidavit of 11 February 1998 in which, on one set of assumptions, his apportionment to Lot 101 was as high as $414,000. Mr Bleus, valuer, who was called by the defendants, also made an apportionment in which he apportioned $300,000 of $670,000 to the land on Morrison Road, and $370,000 of $670,000 to the Kemp Street land: See his letter of 8 August 1996, Exhibit F and his affidavit of 15 November 1996, paragraph 6. I have also disregarded this.
27 I made some observations on this and other subjects at the end of the third hearing day, 18 February 1998. There was a long interval before the Inquiry could be resumed on 3 August 1998 and some further valuation evidence was assembled. Mr Phippen prepared a report dated 3 June 1998 which is annexed to his affidavit of 16 June 1998 and deals with the valuation of 120 Morrison Road as at 7 October 1988 the date of the Orlit contract. At that date 120 Morrison Road was vacant. The valuation which is relevant is in my view the valuation of the land which the defendant sold to Orlit; that land was identified as Lot 101 on a plan annexed to the contract, and the plan when registered on 3 May 1989 became DP289012. The Deposited Plan is exactly the same as the plan annexed to the contract in what it shows as Lot 101.
28 According to my understanding of his report of 3 June 1998 the subject land which Mr Phippen valued was not exactly Lot 101; at paragraph 3.1 he says that when the subdivision (which means DP789012) was registered the subject comprised of Lot 101 and part Lot 100, and he points out in his report at paragraph 3.5 his view that the subdivision could have been effected in a slightly different way in which more land would have been thrown into Lot 101 and less into Lot 100, and (at paragraph 4.2) Lot 101 could have been 20 metres wide which would have overcome the difficulty with the Council's code.
29 DP789012 shows at two points the distance between the house No. 118 on Lot 100 and the western boundary of Lot 100; at one point the distance is 1.28 metres and at another the distance is 1.225 metres. This would suggest that the boundary could have been placed a little further east than it was; it could have been 0.325 metres eastward and still maintained 0.9 metres clearance from the house. If that had been done, there would still not, it seems to me, have been a strip with a perpendicular width of 20 metres forming part of Lot 101. As well as maintaining clearance of 0.9 metres from the wall it is necessary to maintain clearance of 0.685 metres from eaves and gutters, and it was the evidence of Mr Bleus that this could not be done, although he did not have any precise measurements to offer.
30 A subdivision which achieved a perpendicular width of 20 metres would require that the structure of the house No. 118 be altered in some way, and there is no evidence establishing that this would be practicable or economic. Any boundary alteration which would reduce the curtilege of house No. 118 could be expected to have adverse affects on the value of Lot 100. Mr Phippen contemplated reduction from 653 square metres to 580 square metres, about one-ninth of the area. I doubt whether it was feasible to recast Lot 101 in the way Mr Phippen has contemplated, but whether or not it was feasible, the correct approach in principle is to value the land actually sold; there is no basis for imposing liability on the defendants on the footing that they did not make an appropriate decision about how the land was to be subdivided.
31 Mr Phippen addressed the value of the property he identified as 120 Morrison Road, Gladesville by considering its potential as:
1. A large single residential building block; and his valuation on this basis was $200,000.
2. A two-building block in-globo subdivision; and he considered its value on this basis was $215,000.
3. A four-villa home development site; and he considered its value on this basis was $300,000. He made a hypothetical development analysis which produced $275,000 and an analysis by reference to a rate per villa site based on another sale of a property suitable for redevelopment as villa units nearby in July 1989, and after considering factors of comparability which in his opinion produced a rate of $75,000 per villa site or $300,000 for the whole property.
32 Mr Phippen's valuation reasoning was challenged at a number of points. The principal challenge was his conclusion that the highest and best use of Lot 101 was that it should be acquired by a developer for use in a development of four villa units, which necessarily would have a frontage to Morrison Road. I am satisfied that Lot 101 is sufficiently large and that its layout is such that it is feasible to construct four villa units on it; this was not really challenged. Much discussion in evidence about what unit development on Lot 101 was feasible was directed to construction of units on a consolidated site. The evidence of Mr Ian Poole, architect was directed to the development potential of both lots for villa units; but he substantially addressed the development potential of Lot 101 in consolidation with Lot 15 but with Lot 201 excised.
33 Significant detriments to the development potential were the perpendicular width and the traffic considerations. I do not accept that the deficiency in the perpendicular width, 1.02 metres short of the Council's code requirement of 20 metres, would of itself be a reason why development consent for villa units would not have been available. Council had a discretion in the matter, Council's decisions were subject to appeal, and it is very unlikely that this deficiency was critical. With good design it should be possible to put most or all the structure of the units in the wider section of the land (referred to by counsel as the bulb) distant from Morrison Road, and the utility of the land closer to Morrison Road for access, visitor parking, garbage and other utilities and for an open set-back from the road is not materially different at 18.98 metres to its utility at 20 metres. Mr Phippen cited developments where less than 20 metres had been accepted; they were not closely similar. Mr Bleus claimed that his experience was that Council never departed from the 20 metre requirement. It seems to me that the Council or Court responsible for the decision would probably allow the minor variation involved.
34 More serious was the doubt raised by traffic requirements. Morrison Road was a collector road with relatively heavily traffic, and the traffic situation was complicated by a high point in the road a little to the east which limited visibility to some extent. Although vehicle access to four dwellings would not be very intense, it would be relatively more intense than vehicle access to one or two dwellings, and the traffic question would probably loom large in the consideration of the Council or the Court when deciding whether there should be development consent. There is less than complete certainty that development consent for four villa units would be obtained, and that uncertainty would enter into the reasoning of the parties to the transaction, which for valuation purposes must be hypothesised, in which the purchaser is a developer intending to develop Lot 101 for villa units. Mr Phippen did not make any allowance for this contingency in his valuations, and in my view he should have done so.
35 Mr Bleus gave evidence that in 1988 when he was undertaking sale of the properties for the defendants he asked the Ryde City Council's Town Planner what development of Lots 12 and 13 was feasible and was advised that the site would not be available for villa development. An inquiry of this kind is not a fair test of the development potential of the land, and a recollection of an oral answer to an inquiry ten years earlier is not a reliable indication of the Council's attitude. It may very well be that the Council's Town Planner did no more than point out that in the Villa Homes Code there were restrictions on the development of villas on collector roads; he ought to have pointed that out in response to such an inquiry. I do not accept that this evidence of Mr Bleus establishes how an application for development consent would have been dealt with, or what view an informed developer would have taken of the prospect when he considered whether to purchase Lot 101.
36 I do not regard the supporting reasoning for Mr Phippen's valuation of $300,000 as strong. His hypothetical development analysis suffers from the characteristic difficulty that these analyses introduce a number of integers which are themselves the products of opinion and assessment and not capable of concrete demonstration; the projected sale price of the units is the most important of these, but there are other elements which are matters of opinion and reasonably subject to variation according to how the hypothetical developer chose to manage affairs. The result of a hypothetical development analysis is sensitive to variations not only in the sale prices hypothesised but also in development costs, construction costs, development period, the interest rate and in the profit and risk factor required by the hypothetical developer. The elements which produce Mr Phippen's figure of $275,000 are not highly concrete. His figure of $75,000 per villa site is based on adjustments from one sale, effected in July 1989, nine months later, in a superior location and discounted after consideration of factors of comparability, and is not highly concrete either. Mr Phippen's other valuations on the basis of development as a single dwelling and as a two lot subdivision were not subject to detailed challenge.
37 Mr Bleus, who was called by the defendants, produced with his affidavit of 14 February 1998 his valuation of 11 February 1998 in which he valued Lot 101 as at 7 October 1988 at $170,000. This was the most substantial piece of evidence produced by the defendants in dealing with the subject, and it was markedly disruptive that, in a hearing to begin on Monday, 16 February 1998, evidence of such importance appeared only in an affidavit sworn on the preceding Saturday. The defendants had well over seven years to prepare for the hearing of the Inquiry, and did not take even the most rudimentary steps to participate in the inquiry on a basis which could be procedurely fair to the plaintiffs. The defendants did not do anything reasonably to be expected of trustees, did not produce accounts in any form, however imperfect, and did not give to the plaintiffs reasonable notice of what they proposed to bring forward. The defendants' participation took markedly disruptive forms and did not recognise the basic reality that it was for the defendants as trustees to account for themselves and their dealings. The plaintiffs would not have made any progress at all if they had not embarked on the Inquiry on the footing that they brought forward material for consideration, while the defendants did nothing effectual until the last moment. To a large extent the defendant's case was conducted on the footing, which was quite wrong, that the plaintiffs bore the burden of establishing every relevant fact, as if the defendants did not have a duty to account for their dealings.
38 In Mr Bleus' report of 11 February 1998 he said that Lot 101 could not be developed for villa homes in isolation because of the 20 metre minimum requirement in the Council code. Although he adhered firmly to this position, I am satisfied that this requirement is not a reason why consent for villa homes development was impossible; it was a difficulty, but overall not a substantial difficulty for obtaining consent. Mr Bleus gave calculations which produced a value of $170,000 for the site on the footing that its highest and best use was for development by subdivision into two housing lots, a street-front lot and a battle-axe lot with a three-metre access corridor. In his analysis the gross realisation for each of the lots to be created was $140,000 making a total of $280,000, and he allowed $78,100 for development costs, costs of sales, interest on the development costs and a profit and risk allowance (of $40,000). He also divided the net return by a denominator of 1.1935, which represents acquisition costs and interest on the land and other acquisition costs for the duration of the development.
39 It seems from Mr Phippen's evidence that it is a standard process to reason in this way; Mr Phippen would adopt a lower denominator, 1.1735. Use of a denominator masks the period of time from acquisition to realisation, which is not stated by Mr Bleus, and masks the rate of interest assumed. The factor of 1.1935 appears to assume interest of an amount of about 16% per annum for one year on the net realisation. If the reasoning were to be understood, it would be necessary to know the interest rate, the period involved and the reason for applying it to the net realisation and not the amount outlaid.
40 Overall, I did not find Mr Bleus' valuation methods impressive. Mr Bleus' valuation is highly sensitive to his appraisal of the gross realisations to be expected, and he did not produce any sales evidence for these. Mr Phippen, speaking somewhat off-hand, as was forced on him by late production of material, appraised the gross realisations as $160,000 to $170,000 for one lot, and $140,000 to $150,000 for the other; taking the mean, $310,000. He also disputed Mr Bleus' development costs, but as they were stated at a gross figure it was difficult to take this to any detail.
41 In an earlier expression of opinion, Exhibit F, a letter from Mr Bleus to the defendants's solicitor of 8 August 1996, Mr Bleus assessed the gross realisations at $150,000 and $120,000, totalling $270,000, with costs of $30,000 producing $240,000 net to the owner, to be reduced by a component for profit and risk for a developer. In exercises addressing an appropriate division of the net proceeds of the Orlit sale, Mr Bleus had attributed $300,000 of $670,000 to the Morrison Road property and $370,000 to the Kemp Street property in his affidavit of 15 November 1996 and $248,000 for the Morrison Road property and $422,000 to the Kemp Street property in his valuation of 13 February 1998 and his affidavit of 14 February 1998. I do not accept that the whole approach of reasoning back from the net proceeds is appropriate, but the lack of proportion among Mr Bleus' various exercises and the contrast between the views he expressed at different times is adverse to confidence in his reasoning.
42 The defendants also called the evidence of Mr Russell L. Jackson, valuer. In his first report of 23 September 1997 he followed the apportionment method and attributed $235,000 of $670,000 to Lot 101 and $435,000 to Lot 15. However, he revised his work extensively as his first report contained acknowledged errors of method. His second report, Exhibit 7, depended in significant respects on co-operative work with Mr Bleus, and adds little of significant weight to Mr Bleus' opinions. His second report proceeds on the basis of assumed availability of consolidation with Lot 15 and addresses unit development as part of a development of the consolidated parcel. Overall Mr Jackson's evidence can be looked to only for conclusions on the basis which I have decided not to accept.
43 If the highest and best use of Lot 101 is subdivision into two parcels each for one dwelling house, I regard Mr Phippen's valuation at $215,000 as reliable. I do not accept Mr Bleus' valuation of $170,000 and I would act on Mr Phippen's conclusion. However, in my finding Lot 101 had significant potential for redevelopment as four villa units and that potential would make a marked contribution to its value in the market as of October 1988. Developers of villa units would out-bid others, but they would be unlikely to pay the figures of $275,000 or $300,000 which Mr Phippen produced on bases which assumed that development consent would be available; the hypothetical prudent purchaser would discount these figures because of the element of doubt. It is also necessary to remember that Mr Phippen valued a notional lot which would be slightly larger than the actual Lot 101. While there is no very clear basis on which to proceed and the uncertainty which besets all valuation is clearly present, I find that the value of Lot 101 was $245,000.
44 In Mr Bleus' evidence tendered in August 1998, his Valuation Report dated 26 February 1998 and letter of 16 July 1998 which together form Exhibit "10", he valued Lot 15 at the date of the Orlit sale at $312,000. This valuation was based on the view that the improvements which then existed, a three bedroom aluminium and fibro clad cottage, did not add value, and that prospective purchasers were people looking for a larger site to develop a single residential property. Mr Bleus saw the site as suitable for development with three villas, and it is to be implied from his valuation methods that he saw redevelopment for a large single residential property as the highest and best use. (In this he differs from Mr Phippen). Mr Bleus considered four comparable sales, three of which were nearby; the parcels were significantly smaller in size and located at 130 Tennyson Road, 20 Bayview Street and 2 Kemp Street. The sales occurred in March, May and August 1989. Another sale at 28 Aitchandar Road, Ryde occurred in October 1988; it is of an even larger parcel and the sale price was $320,000. It serves only to illustrate that large sums could be obtained for very good residential blocks.
45 Mr Bleus' valuation rationale was to develop from the three nearby sales, a rate of $290.00 per square metre which he applied to Lot 15. In my view the application of a rate per square metre or other unit rate to the area of residential land is inappropriate and a more detailed address to comparability ought to be undertaken; residential land is not fungible like butter and the apparent precision of reasoning by square metre of area is spurious.
46 However, it does appear to me that Lot 15 Kemp Street if sold on its own had significant advantages as a superior single dwelling residential site. It had some potential for development to take advantage of views westward, it was in a relatively elevated position in a quiet street, and a single dwelling house could attain a height at which views could be enjoyed which could not be realised with villa units, which would be subject to height restrictions as the floor could be no more than 1 metre above ground level.
47 My view is that Lot 15 was a valuable residential lot, of higher potential for residential redevelopment than Mr Phippen would allow to it, and that, although villa unit development on it was feasible, it was attractive only when amalgamated with other land. All in all I feel that the Kemp Street property had significant advantages over the three nearby comparable sales referred to by Mr Bleus: see Paragraph 45 above. Of the greatest importance of the three is the sale of 2 Kemp Street which is on the opposite side of Kemp Street; the sale occurred in May 1989 and brought $292,000 for a parcel which was significantly smaller, had greater elevation and was later developed with a new house.
48 Mr Phippen valued Lot 15 in his affidavit of 16 June 1998 at $225,000. In his view the then existing permalum and tiled residence contributed little to its value, and he valued the property as an existing residence at $220,000, as a single residential building block at $200,000 and as a home unit development site for three villas at $225,000. Earlier, in oral evidence-in-chief at T 37, he had given $243,715 as the value on the basis of a three villa home unit development site. Mr Phippen was criticised in cross-examination for his address to the valuation of Lot 15. It was contended that he had not taken adequate notice of the advantages of Lot 15 over comparable sales to which he referred with respect of size, views, and the effect of traffic, and that he had not had regard for 1989 sales.
49 In my finding Mr Phippen did not make a correct conclusion about the potential of Lot 15 for residential redevelopment; it was much more attractive and its potential for residential redevelopment was higher than Mr Phippen considered it.
50 Mr. Phippen made a critique of the comparable sales upon which Mr Bleus relied. Significant to this critique was Mr Phippen's evidence to the effect that in the Real Estate boom which it is notorious was in progress in 1987 and 1988, prices in the relevant area continued to rise rapidly in 1989. Mr Phippen supported this by reference to his own experience as a Real Estate Agent in Gladesville at the time, and not by reference to any statistical material. Mr Bleus disputed the continuance of the rapid rise in 1989, and claimed that published statistics supported him. I am not satisfied that the level of prices continued to rise between October 1988 and the dates of these sales, particularly May 1989, the date of the Kemp Street sale, at the rate of which Mr Phippen speaks, or at a rate which would disentitle these sales to consideration. Mr Phippen also pointed to the fact that the property at No. 2 Kemp Street was acquired by wealthy immigrants who did not demolish and rebuild for some two years after acquisition; these circumstances do not appear to me to qualify its significance as an indicator of value.
51 I prefer to accept Mr Bleus in his appraisal of the potential of the site, but I am unable to accept Mr Bleus' valuation rationale and his employment of a rate per square metre. My finding is that comparable sales referred to by Mr Bleus give a general indication of the level of value, and that although precision is not available I should find the value to be somewhat higher than the sale price of the smaller parcel of land at 2 Kemp Street. I find that the value of Lot 15 at the date of the Orlit sale was $300,000.
52 Under the claims for accounts, damages and interest, the plaintiffs presented a claim in respect of the occupation of the house No. 118 Morrison Street on Lot 100, which since Mrs Alice Brown went to live in a nursing home on 29 April 1987 has been occupied by the second defendant Mr Jack Brown and his family. It is for consideration whether the defendants are or Mr Jack Brown is accountable to the plaintiffs for any sum for his occupation. Evidence by Mr Phippen of the rental value from time to time was tendered and was not challenged in cross-examination or by countervailing valuations. If an occupation fee is payable other elements enter into establishing its amount, such as expenditures on municipal rates, land taxes, repairs and any other outgoings. The defendants have not kept accounts or records of these elements; they have made no attempt to account for themselves and their dealings, even for the period since 29 October 1990, and they have defeated the exercise of taking accounts and ascertaining what credits should be allowed against an occupation fee. Exhibit O sets out agreed amounts as totals of expenditure, but the expenditures are not allocated to times.
53 The simple fact that Mr Jack Brown has been in occupation is not of itself a ground upon which he is liable to pay an occupation fee. As an equitable co-owner his occupation has been lawful and he would not ordinarily incur any obligation to another co-owner. Forgeard v. Shanahan (1994) 335 NSWLR 206 shows that liability of a co-owner to pay an occupation fee would arise only if there had been some wrongful exclusion of the claiming co-owner from occupation. In the last years of her life Mrs Brown lived in a nursing home and was unable to occupy the premises and there could be no claim in respect of the period from 29 April 1987 until 29 August 1990.. I would think that entitlement to an occupation fee would arise only if some event established the plaintiffs' entitlement to sale of the property and distribution of the proceeds.
54 Mrs Alice Brown claimed the sale of the property by trustees under s.66G of the Conveyancing Act in her Summons and her daughters have always maintained this claim since her death. No express terms place the trustees under any active duties and the circumstances of the time of the acquisition of the house show that while Mrs Alice Brown was alive all that was then required of the trustees was to hold the property available for occupation by the beneficial owners as their home. Mrs Alice Brown's claim for sale was a turning point in trust affairs. It was not in Mrs Brown's power as one beneficiary whose interests were outweighed by those of the trustees to compel sale of the property; but her claim under s.66G, although dependent on a discretionary decision of the Court, was so strong, in the absence of any circumstances which could ground resistance to an order for sale, that it was no longer appropriate for the trustees to use the trust property as a home for one of them and for Mr Jack Brown to continue to occupy the premises rather than to sell the property and distribute the proceedings. The death of Mrs Brown and the end of any possibility of occupation by her marks a further distinct turning point. By the date of my order of 29 October 1990 Mrs Alice Brown had left the premises because she was in need of care and could not live in them, she had brought proceedings claiming an order for sale by trustees, she had died and it was established by the Court's order that the resulting trust existed. The accumulation of events produced the result that with fair certainty, trust affairs had to be wound-up and the property had to be sold. In my opinion from that time onwards resistance to a claim for sale by trustees was no longer reasonable. Mr Jack Brown continued to occupy the house and did not concede the obviously appropriate course of selling it. Trust affairs ought to be administered on the basis that he should pay a reasonable occupation fee to the trust in respect of his occupation, or should pay the appropriate proportion of the occupation fee to the plaintiffs. So that trust affairs will be administered on the basis that what ought to have been done should be deemed to have been done, the occupation fee should be calculated by reference to the rental value from time to time.
55 There were no express arrangements by the contributors declaring the existence of a trust or establishing the purposes of the trust or their intentions. The contributors purchased a house in which the family was to live, Mrs Alice Brown applied the proceeds of the sale of the previous family home to the purchase, and the family, including Mrs Alice Brown then lived in the house for some decades. These circumstances show that the contributors acted in the contemplation that the house would be used as a family home for all the contributors and their families, and the purpose contemplated was completely exhausted when it became impossible for Mrs Alice Brown to live in the house because she needed to live in a nursing home, or if not then, when she died. There is nothing to indicate that the parties considered what was to happen when one of the contributors died or became unable to share in the use of the house.
56 These circumstances constitute a very strong case for making an order under subs 66G(4) of the Conveyancing Act, 1919. The Court has a discretion to refuse such an order, and does so if there is a ground of sufficient substance for refusing to enable the applicant to realise proceeds of his co-ownership. The discretion is established by the decisions in Ngatoa v Ford (1990) 19 NSWLR 172 (Needham J) and Williams v Legg (1993) 23 NSWLR 687 (Court of Appeal); see further discussion in Forgeard v Shanahan (1994) 35 NSWLR 206 at 219-220 (Mahoney JA) and Kirby P (dissenting) at 212-214. Section 66G extends to co-ownership under trusts, even trusts with powers of sale; see Re Cordingley (deceased) (1948) 48 SR 248. There are in my opinion strong grounds favouring a discretionary decision to order sale: the purposes contemplated at the time of acquisition became impossible to achieve almost twelve years ago, Mrs Alice Brown died in 1990, there has been a long deadlock during which no tangible advantage whatever has been available to Mrs Alice Brown or to those interested in her Estate and the defendants are using the property solely for the advantage of one of them and have expressed no intention and shown no sign of doing anything that would recognise the Estate's interest. Unless the Court orders a sale the plaintiffs will not achieve any practical recognition of the Estate's right. Against this can only be put the inconvenience to Mr Jack Brown and his family of leaving the home which they have long occupied, which is not a prominent consideration in view of the limits of his beneficial interest in the property. He can take his place among the prospective purchasers.
57 I propose to make orders appointing trustees for sale and to appoint the persons whose suitability has been established by evidence read by the plaintiffs; their suitability for appointment has not been disputed.
58 In my opinion an equitable adjustment of interests in the trust property requires that the defendants be treated as if they were accountable to the trust for the rental value of Lot 100 from 29 October 1990, when the Court declared that the property was held on trust for the persons interested in Mrs Brown's Estate; or possibly from 29 August 1990 when she died. With those events it became completely clear that the purposes contemplated when the trust property was acquired had come to an end, and a new turn in administering the trust had to be made to recognise the interest of Mrs Alice Brown's Estate. In no form whatever did the defendants make use of No. 118 Morrison Road or any advantage relating to it available to the plaintiffs. Even when the defendants attended at the house to collect moveable property belonging to Mrs Alice Brown's Estate their task was not facilitated and difficulties were made. At no time since have the defendants taken any step which would in a tangible way recognise the minority interest or accord value to it, and they have employed the property wholly for the benefit of Mr Jack Brown and his family. This has been a highly partisan application of the trust property, in no way even-handed among the persons interested. The only fair and equitable adjustment for the occupation of the property by one of the trustees is that the trustees should account as if they had made a fair charge in the nature of rent to Mr Jack Brown for his occupation, and they should pay the Estate a proportion of that charge.
59 The amount of rent, taking the fair market rental value of the property, is established at $86,910 for the period 29 October 1990 to 29 January 1997 by paragraph 8 of Mr Phippen's affidavit of 30 January 1997; this evidence was not challenged. I propose to adopt $300 per week, the last rate supported by Mr Phippen's evidence for the period from 30 January 1997 to the 28 April 1999, that is 67 weeks at $300 which equals $20,100. The total rent to be allowed is $107,010. Exhibit O shows that the agreed outgoings incurred by the defendants in respect of Lot 100 total $12,935. The defendants are accountable to the trust for the balance of $94,075 and my judgment will include $41,648 for their liability to the plaintiffs; $41,648 is 2125 parts in 4800 parts of that balance.
60 The proportion of the net proceeds of sale of $654,300 attributable to Lot 101 is:
Value of Lot 101 Value of both Lots x $654,300