Callahan v O'Neill

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2137/02 - CALLAHAN v O'NEILL JUDGMENT 1 HIS HONOUR: The plaintiff and the defendant are tenants in common in equal shares of the land in Folio Identifier C/337179 being No 4 Tivoli Avenue, Rose Bay. There is erected on that land an apartment building containing two apartments which can conveniently be described as the upper and lower apartments. Because the land is mostly below street level, the garage of the upper apartment is close to street level. 2 The parties acquired the property by being the successful bidders at an auction held on 11 March 1998. 3 Before the auction, there was an understanding between the plaintiff and her husband and the defendant and her husband that the two couples would buy the property and would each live in one of the apartments. There was further conversation as to the future of the property. The details are disputed and I will consider them in due course. The question as to which couple would occupy which apartment was to be decided by toss of a coin. Subsequently, the plaintiff's husband won the toss and she elected to take the upper apartment. 4 The agreement was implemented, at least up to a point. The defendant and her family live in the lower apartment. Up until recently, the plaintiff and her family resided in the upper apartment. 5 The plaintiff says that she has had to move out of the upper apartment because of irreconcilable differences with the defendant. She seeks an order under s 66G of the Conveyancing Act 1919 appointing trustees for sale. 6 The defendant resists such an order. She says that there was an agreement that neither party would make such an application. Alternatively, she says, it would be unconscionable for the plaintiff to make such an application. 7 The defendant has also filed a cross claim seeking reverse declarations and also an order that the plaintiff sell the defendant the plaintiff's interest in the property at a price taking into account the obligations which the plaintiff owes under her agreements with the defendant. 8 It is fairly clear that, as a general rule, any co-owner holding at least 50% of a parcel of real property is entitled almost as of right to an order for partition or sale under s 66G of the Conveyancing Act. It is only in situations where it would, under settled principles, be inequitable to permit such an application, including cases where there has been a contract not to make an application that the order may be refused. This appears from cases such as Ngatoa v Ford (1990) 19 NSWLR 72 and Williams v Legg (1993) 29 NSWLR 687. 9 Accordingly, the forensic onus is on the defendant to show why the order which the plaintiff seeks should be refused. 10 The defendant says that the agreement between the parties went further than the plaintiff will admit. She says that the parties also agreed that they would develop the property by enlarging the balconies and by building two double garages and would, in due course, strata the property. The defendant has referred to this as "the first agreement". 11 Mr O'Neill says that, immediately after the auction, the two couples met in a coffee shop at Double Bay. He says that, after the coin was tossed he said, "We must now submit a development proposal as soon as possible for development, subdivision and strata. I have approached Sorin Dascalu architect to do the necessary work and submit proposals to us and he is proceeding with that". He says that the plaintiff's husband in the plaintiff's presence said, "Go ahead with that." Mr O'Neill then said, "It is very important for me to have at least two garage parking and bigger open balconies in any development." Mr Callahan replied, "I agree. These things are important to me and we must include these in any development." Mr O'Neill, "We intend to live in this long term so what we are going to do must meet our needs." The plaintiff, "This is also our intention, we want to live in the property, long term." 12 The plaintiff and her husband deny that any such conversation took place. 13 The defendant says that this conversation constitutes what she calls "the second agreement". 14 The defendant says that, shortly after the auction she suggested that the arrangement between the parties should be "formalized, in writing" and that everyone else agreed. The defendant's husband said that he would ask his solicitor, Stephen Freeman, to "draw something up." The plaintiff and her husband deny that any such conversation took place. 15 On 13 March 1998, Mr Freeman faxed draft agreement to the defendant's husband. Mr O'Neill says that he gave Mr Callahan a copy together with a copy of the covering letter. 16 Mr O'Neill thought that the draft was merely a pro forma document and it did not address the arrangements the parties had made. A conference with the two couples and Mr Freeman was arranged and this took place on 8 May 1998. This was a week before the purchase was completed which occurred on 15 May 1998. 17 There is no doubt that each of the four "clients" was given a copy of the draft agreement by Mr Freeman at the conference. Mr O'Neill says that it was agreed at the conference that upon registration of the strata plan, the units would be valued and upon a sale of the more expensive unit 50% of the differential greater than 10% would be paid to the owner of the less expensive unit. If the sale did not occur within 10 years that differential would be paid to the owner of the less expensive unit at that time. The valuation would not consider the fit out value. Mr Freeman made notes on his copy of the first draft as the conference, which took over an hour, proceeded. Mr Freeman then read back what had been agreed and all signified assent. 18 The plaintiff denies most of the above. She says that the prime purpose of the meeting was to sign papers needed for the forthcoming settlement of the conveyancing transaction. She says that the O'Neills spent a lot of time discussing matters with Mr Freeman in her presence, but she remained almost mute for the whole conference and certainly never made any agreement. She says that she never regarded Mr Freeman as her solicitor. 19 Mr Callahan agrees that Mr Freeman was the parties' solicitor for the conveyancing transaction, but only that transaction and not in connection with his mortgage or dealings with the O'Neills. He says that the principal purpose of the conference was the signing of the documents required to complete the conveyancing. However, he was shocked that the discussion went further. He remembers a discussion in which Mr Dascalu had said that the parties could not build the garages on the front of the property. He remembers complaining that that was not what was agreed when the property was purchased. Otherwise, he denies that there was an agreement reached at the meeting. He did not, however, agree that his wife was silent during the conference. 20 Mr Freeman's recollection of the conference was that the five people sat around the table, someone would raise an issue which was then discussed by all, resolved and he then made notes on the first draft to guide him to draw up the next draft. He remembers that some issues were initiated by the Callahans. He particularly remembers the plaintiff saying, "The market valuation should ignore the costs of internal fit out of each unit." 21 Mr Freeman drew up a revised draft of the joint venture agreement. However, this document was never executed. 22 As far as credit of the witnesses is concerned, I much prefer the evidence of the defendant and her husband to that of the plaintiff and her husband. 23 The plaintiff came across badly in the witness box. She generally displayed a belligerent attitude to the cross-examiner. She sourly answered questions, only brightening up when she felt that she had scored a point over the questioner. She gave the impression of a woman who had become so obsessed with the righteousness of her cause, that she had mentally discarded the possibility of any other version of the facts having any validity. 24 In some cases, the plaintiff's evidence was almost incredible. An instance is her evidence that she just sat mute at the conference with Mr Freeman. Another is that she signed the development application and agreed to the plans prepared by Mr Dascalu in connection with the application when she had never given Mr Dascalu any instructions as to what was to occur in her unit and his plans were contrary to her wishes. 25 Although Mr Callahan did not go as far as his wife and, indeed, sometimes contradicted her, his evidence is detrimentally affected by his wife's unreliability as an historian. 26 On the other hand, the O'Neills' evidence receives some corroboration from Mr Freeman and Mr Dascalu. 27 I need to say what I have just said although the finding might not be necessary for my decision. 28 Mr V Gray who appeared with Mr Castaldi for the plaintiff submitted that, even if I accepted the defendant's version of the conversations, there was never more than an agreement to agree and that the principles considered in Masters v Cameron (1954) 91 CLR 353 meant that there was no contract in the instant case. 29 Mr Robb QC who appeared with Mr Bartos for the defendant said that there was a contract between the parties, but, even if there were not, there was sufficient in the arrangements made between the parties to constitute an equity which would bar the plaintiff's claim under s 66G of the Conveyancing Act. 30 Mr Robb QC freely concedes that the draft joint venture agreement is not binding as such. However, he submits that the written agreement reflects the substance of the oral agreement reached in Mr Freeman's office. The parties proceeded to implement the agreement because of their then mutual trust and confidence in each other. They proceeded to talk with the architect and sign and progress the development application to the local council. 31 Mr Robb QC puts that whatever view the court takes of the complexity of the agreement, there is clearly an agreement to renovate the property, to effect a strata subdivision so that each couple would have fee simple ownership of their apartment to deal with as they saw fit. The joint venture would not only give each couple a home, but also a financial advantage by the acquiring of a desirable property. It was a venture capable with little effort of being implemented within a few years. 32 In order to obtain a development approval, the parties would have to co-operate. Indeed they did this and shared costs equally. Mr Dascalu was retained by them both, he regarded both couples as his clients and endeavoured to please them both. 33 Mr Robb QC says that the evidence of the plaintiff that Mr Dascalu prepared plans with nil involvement of the plaintiff is just absurd. I agree. 34 In September 1998, the parties received a hefty bill for land tax. As a result, the plaintiff had her solicitors draw up a deed which was executed by the parties on 2 December 1998. This is called the Condominium Deed. 35 The Condominium Deed again appears to be something drawn from a solicitor's precedent bank without taking into account the exact position of the parties. It was doubtless prepared for taxation purposes. However, it is a deed signed by all participants in the venture. 36 The Condominium Deed provides that the parties are to have exclusive use and occupancy of their respective apartments. The deed provides for the sharing of bills for rates, taxes and repairs and kindred matters. Clause 15 provides that neither side will transfer or lease their interest to an unacceptable transferee. 37 In December 1998, the plans prepared by Mr Dascalu were signed by the parties for the purpose of the development application which was lodged with the local council in January 1999. Development approval was granted on 20 July 1999. 38 The plaintiff and her husband maintain that the plaintiff only signed the plans on the basis that Mr O'Neill assured her that she could change the design afterwards if she wished. Mr O'Neill agrees that he mentioned s 96 of the Environmental Planning & Assessment Act 1979 and that there could be limited changes after approval to matters to which both parties agreed. He says that he certainly did not tell Mrs Callahan that she could change the plans afterwards unilaterally. I accept Mr O'Neill's evidence on this matter. 39 An application for a construction certificate was lodged with the council on 24 December 1999. The application was signed by both the plaintiff and the defendant. The construction certificate was granted on 20 April 2000. 40 Thereafter, the defendant says that she wanted to press on with the construction, but the plaintiff consistently raised objection after objection and the parties' relationship deteriorated badly. 41 Mr Robb QC submits that the evidence tends to show that the plaintiff changed her mind about the construction after the construction certificate was sought. She sought advice from a firm of interior decorators, Magnum Interiors whose first drawings seemed to surface about the middle of the year 2000. The Magnum plans show that the plaintiff wished to change the development to the detriment of the defendant by reducing the amount of light which would pass to the defendant's unit. 42 Mr Gray put that, even on the defendant's evidence there were too many critical unresolved issues between the parties for there ever to have been an agreement. In particular he notes that: (i) the building plans and specifications were never agreed; (ii) there were unresolved discussions as to whether prior to the strata plan the property should be held in the name of a company; and (iii) the Condominium Deed runs counter in some respects to the alleged earlier agreements. He specifically notes that the Condominium Deed says not one word about restricting either party's rights to make an application under s 66G. 43 Mr Gray puts in the alternative that had there been any prior agreement, such as the agreement made to buy the land, that agreement was discharged by performance so that the only remaining agreement between the parties was the Condominium Deed. 44 Mr Gray also puts that this is a case of contract or nothing. He submits that it is not permissible to defeat a right to an order under s 66G to rely on some equitable right associated with unconscionability. 45 I do not consider that the present case is analogous to the Masters v Cameron situation. That situation is one where the court needs to consider whether or not the parties have entered into contractual relations. In the present case, there is clearly a contract between the parties whereby they purchased the property and there was clearly a contract between them as to how the property was to be financed and who would live in what unit. The parties had set up a contractual regime. What is unclear is what other terms they agreed upon. 46 In such cases, there is no reason why the parties cannot make a vague or fuzzy contract on the basis that they will in mutual trust and goodwill fill in the uncertainties in their arrangement as the contract is played out. Indeed, even in cases where the courts might have held the arrangement void for uncertainty in its initial stages, the conduct of the parties may fill in the gaps and make the contract good and certain. However, where there is an established contractual regime, particularly if the contract has been partly executed, a court is less inclined to say that there is voidness for uncertainty. 47 Indeed, this principle applies even if there is in law no contract initially because of uncertainty. Examples are Macaulay v Greater Paramount Theatres Ltd (1921) 22 SR (NSW) 66, 73 (where until plans and specifications were supplied, the contract might have been unenforceable, but once they were supplied, the deficiency was overcome); Bradford v Zahra [1977] Qd R 24 (where a "subject to finance" provision was saved by satisfactory finance actually being obtained). 48 It must be remembered that, in this twenty-first century, it is recognized that it is not unusual for parties to have entered into a contract even though there has not been formal offer and acceptance of a complete bargain. This is discussed in Brambles Holdings Ltd v Bathurst CC (2001) 53 NSWLR 153, 177 et seq. It is an adaptation of the American "Implied-in-Fact" contract; see eg Fincke v United States 675 F (2d) 289, 295 (1982). 49 As Bingham J said in Pagnan SpA v Feed Products Ltd [1987] 2 Ll Rep 601, 611, "Parties are to be masters of their contractual fate". One looks at the situation of the parties at the time of the hearing and asks whether they have at that time placed themselves within a contractual regime. This approach is another example of the concept of contractual creep referred to in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, 11,117. 50 In my view, there was a contract between the parties which dealt not only with the acquisition of the property, but also with its development. The next consideration is whether that contract expressly or impliedly excluded a party's right to make an application under s 66G. 51 Mr Robb QC says that there must be implied a condition like that considered in Mackay v Dick (1881) 6 App Cas 251, 263 that the parties would agree to co-operate to the extent necessary to consummate their deal. He also says that this implied duty to co-operate carried with it an obligation not to frustrate the venture by making an application under section 66G. 52 Mr Gray put that that submission was rather a long shot and indeed it ran counter to the Condominium Deed. 53 However, Mr Robb QC put that indeed the Condominium Deed itself manifested the same intention, that is, that the parties would move towards there being separate titles and, in the meantime, as much as they could, treat themselves as separate owners. I agree with this submission. 54 In my view, there was a contract between the parties which included the implied terms as Mr Robb QC submits. The defendant committed herself to an expensive acquisition (the purchase price of the whole property was $3.5 million and, in addition there was over $100,000 in council, architect's and builders' fees) on the basis that the property would be owned in such a way that the parties would each have a strata unit and would co-operate to see that such a strata development came to pass. The significant uncertainties have been resolved by the parties' joining in to obtain the relevant approvals from the council. It would frustrate the whole endeavour if the plaintiff could now change her mind and withdraw from the agreement. 55 Mr Robb QC went further and submitted that the defendant does not have to go so far as to show an actual binding contract that is inconsistent with the right to make an application under s 66G of the Conveyancing Act. 56 In Williams v Legg (supra) at 693, the Court of Appeal said that the ambit of the discretion to refuse an order was sufficiently described by saying "that it enables the court to refuse an order for sale where the order would be inconsistent with some proprietary right, or some contractual or fiduciary obligation". However, it is clear from the approving reference to Re McNamara (1961) 78 WN (NSW) 1068, that generally an equity less than a proprietary, contractual or fiduciary right would be insufficient. 57 There is some room for general unconscionability to be relied on as a defence, see Woodson (Sales) Pty Ltd v Woodson (Aust) Pty Ltd (1996) 7 BPR 14,685 at 14,701, where Santow J said that whilst general hardship or unfairness was insufficient to defend a claim, where there was a conventional estoppel or one party had taken unconscientious advantage of another, that would constitute a defence. 58 However as, for the reasons I have given, the defendant has shown a contractual right which gives her a discretionary defence to the application there is no need in this case to explore the ambit of the defence of unconscionability. I exercise my discretion in the defendant's favour as I cannot see any valid reason for doing otherwise. The plaintiff has merely changed her mind and has thus sought to frustrate the whole joint venture. 59 The cross claim seeks reverse declarations and an order that the plaintiff sell her interest in the property to the defendant at a price calculated to take into account the plaintiff's obligations under the contract. 60 I can see no utility in making the reverse declarations. 61 In my view, the contract only imposes personal obligations on the plaintiff. She may be liable in damages if she breaches her obligations under the contract, but I am not convinced that those damages are any equitable charge on the property. 62 Accordingly, the cross claim ought simply be dismissed. It did not occupy any substantial time at the hearing so should be dismissed without any order for costs. 63 Thus, the proceedings should be dismissed with costs. The cross claim should be dismissed with no order as to costs. The exhibits may be returned.

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