Capolingua v Da Silva

The Deed

1. Clause 3 of the Deed makes detailed provision in respect of the transfer by any owner of their interest in the property. Broadly, a party wishing to transfer must give a transfer notice to the other parties, who may purchase the interest in accordance with clause 3.4. Such a purchase may be: 1. at the price and on the terms prescribed in the transfer notice; 2. at a price and on terms agreed upon in a negotiation under clause 3.6; or 3. at a price and on terms determined by a valuer in accordance with clauses 3.7 and 3.8.
2. Clause 5 of the Deed provides: None of the parties shall under any circumstances seek to exercise any rights of sale conferred by Section 66G of the Conveyancing Act or otherwise unless and until: (a) An offer has been conveyed to the other parties for the purchase of the interest of the person wishing to exercise such rights of sale in accordance with the provisions hereinbefore contained at a price determined by agreement with that party or failing agreement as determined by a valuer appointed by the President or principal officer for the time being of the New South Wales division of the Australian Property Institute (Incorporated). (b) If that interest is not sold in accordance with the provisions hereinbefore contained the party wishing to exercise such rights of partition or sale has marketed the interest conscientiously and with all due diligence for a period of one (1) year from the date of the transfer notice referred to in clause 3(a) above. (c) In the event that the land is sold by a trustee for sale appointed pursuant to section 66G of the Conveyancing Act the parties agree that the trustee shall be entitled to distribute the net proceeds of sale by applying the formula embodied in clause 3.8 hereof.
3. Clause 10.1 provides: Provided that this clause shall not be construed to prevent a party from commencing proceedings for the appointment of a trustee for sale pursuant to s 66G of the Conveyancing Act where such party has complied with the provisions of clause 5 hereof a party will not start arbitration or court proceedings (except proceedings seeking interlocutory relief) in respect of a dispute arising out of this agreement ('dispute') unless he or she has complied with this clause. …

Principal contentions of the parties

1. The essence of the defence to the s 66G claim is that the relief should be refused because the plaintiff has failed to comply with clause 5 of the Deed, in particular clause 5(b), and that the Deed makes it plain that a party is precluded from seeking such relief unless and until that party has complied with clause 5.
2. The plaintiff accepts that he has not yet complied with clause 5(b). However, the plaintiff submits that, viewed in all the circumstances, including the acrimonious relationship between the parties, this failure does not warrant the withholding of relief. The plaintiff submits that he has attempted to comply with the Deed but that his efforts to market the property have been frustrated by the defendant. He further submits that there is little point requiring his interest to be marketed for a twelve month period because there is no real likelihood of any willing purchaser being found.

Summary of salient facts

1. As early as 31 January 2011 the plaintiff indicated to the defendant that he wanted to bring the co-ownership to an end. His solicitors sent a letter to the defendant on that date which included the following: Our client wishes to terminate the Co-Ownership and for that purpose is obliged under the terms of the Deed to enter into negotiations with you for the purpose of determining a price. The price that he has nominated for his interest in the property is $750,000.00. Please advise us as to whether you are in a position to buy his interest for this amount. If you are not, would you please confirm in writing that you will permit a valuer to inspect the part of the property on which you reside for the purposes of clause 3.8 of the Deed. Please respond to this letter within fourteen (14) days.
2. The defendant replied on 12 February 2011. She stated, amongst other things, that she was not interested in purchasing at $750,000, but gave permission for a valuer to inspect her part of the property "if it helps to get a realistic evaluation of what Nick's share is worth".
3. Later in 2011 the plaintiff, through his solicitor, took steps to have a valuer appointed in accordance with clause 3.7 of the Deed. In June 2011, a valuer (Mr Owen Allsopp) was appointed by the Australian Property Institute. Mr Allsopp provided a quote for his fees in the amount of $7,700 including GST. However, the plaintiff could not afford the fee which, by clause 3.8(g) of the Deed, he was obliged to bear. As a result, the valuation did not proceed.
4. In February 2013 the plaintiff approached a Mullumbimby real estate agent, Mr Mark Cochrane, about the sale of his interest in the property. Mr Cochrane told the plaintiff that it would be very difficult to sell a two-thirds interest. Mr Cochrane gave evidence to the effect that the reasons for giving that advice were: 1. that a prospective purchaser would be unable to borrow money secured on the property unless the co-owner was also a party to the mortgage, and thus for all practical purposes a purchaser would need to be a cash buyer; 2. that the history of conflict between the plaintiff and the defendant, which to some extent was known within the community, reduces the attraction for a prospective purchaser regardless of which party may be the cause of the conflict; and 3. that the dwellings on the property were in close proximity to one another such that the privacy of the occupiers was adversely affected.
5. Mr Cochrane agreed in cross-examination that he may have said something to the plaintiff along the lines of: There is no way you can sell your interest in the property with an aggressive neighbour still owning an interest in the property.
6. In about June 2014 the plaintiff approached McGrath Real Estate at Byron Bay about listing his interest for sale. The plaintiff gave evidence to the effect that Mr Reisch of that office declined to list the interest for sale, citing the conflict that existed between the plaintiff and the defendant. The plaintiff gave evidence that Mr Reisch showed him a letter the defendant had sent to Mr Reisch on 2 June 2014 which contained various statements about problems with the property said to have been caused by the plaintiff. The letter concluded with the following: Mr Capolingua can either fix these problems himself, i.e. dig up all the rubbish and dispose of it safely, redo the drainage, and put in a proper sewerage system, or, at point of sale I will require a sum of $50,000.00 to address these problems myself, excluding the sewerage system. The buyer's need to be informed of these problems so they know what they are buying. Unless these conditions are met I will not sign the necessary documents for the sale of his share.
7. On 8 July 2014 the plaintiff's solicitor wrote to the defendant about the events surrounding the attempted listing of the plaintiff's interest. An application for orders under s 66G was foreshadowed in the letter. As noted earlier, the proceedings were in fact commenced on 7 October 2014. The Statement of Claim referred to the circumstances of the aborted listing with McGrath Real Estate as a reason in favour of appointing trustees for sale.
8. On 30 October 2014 the plaintiff's solicitor sent an email to the defendant which referred to the possibility of mediation, and included the following: Furthermore as a prerequisite to mediation our client requires that you agree to a valuation being conducted of the property and interests of the parties in accordance with the provisions of the deed on the basis that you are a 1/3 owner of the property. This valuation would need to be conducted by a valuer agreed upon by the parties. If it was not possible for you to agree as to a valuer I would propose that a valuer be appointed by the Professional body namely the Australian Property Institute.
9. The defendant replied by email shortly thereafter in which she stated that any mediation would be a waste of time unless it was based upon the problems caused by the plaintiff's excavation works on the property. I note that this issue was one of the matters subsequently deleted from the defendant's Cross-Claim.
10. In any event, by June 2015 a valuer, Mr Stephen Tancred, had been jointly retained by the parties to provide a valuation. Mr Tancred produced a report dated 19 June 2015 (as amended on 14 October 2015). It is apparent from his description of the purpose of the valuation that he was instructed to produce a valuation in accordance with the provisions of clause 3.8(e) of the Deed. Mr Tancred concluded that: 1. the value of the "land as established" was $360,000; 2. the added value of improvements was $315,000; and 3. the total market value was $675,000.
11. On 29 October 2015 the defendant's solicitors wrote to the plaintiff's solicitors. The letter included the following: Now that we have the Valuation of the Property we invite your client to comply with clauses 5(a) and 5(b) of the Deed dated 10 September, 2003. We are of the view to comply with the Deed your client must offer to our client to sell his interest in the Property. Failing acceptance by our client your client should market his interest in the Property with a real estate agent. From our reading of the Valuation the price should be about $474,000. We have provided a table of calculations.
12. On 25 February 2016 the plaintiff's solicitors wrote to the defendant's solicitors. The letter included the following: We refer to the pleadings in this matter and wish to advise that our client has instructed us to make an open offer to your client to purchase his interest in the subject property for the sum of $475,000.00. He has also instructed us to make an offer to purchase your client's interest in the property for the sum of $200,000.00. These offers are open offers and will be relied upon for the purpose of costs. Please obtain instructions and advise.
13. On 29 February 2016 the defendant's solicitors replied by email which included the following: Our instructions are to reject your client's offers. To comply with the Deed your client should now list his interest in the property for sale with a real estate agent. The price according to the valuation of HTW should be about $474,000.00.
14. The plaintiff then took steps to engage a real estate agent. Mr Cochrane of The Professionals of Mullumbimby was retained. On 9 March 2016 an Agency Agreement was entered into. According to the Agency Agreement, the plaintiff's interest in the property was to be offered at a price of $473,100. The agent's estimate of the selling price or price range was stated to be $450,000 to $470,000.
15. On 23 March 2016 the plaintiff's solicitors sent a further letter to the defendant's solicitors. The letter is in the following terms: We refer to your email of the 29th instant and wish to advise that our client has instructed us to make a further offer to sell his interest in the property to your client for the sum of $473,100.00. It is an open offer and it will be relied upon for the purpose of costs.
16. The offer was not accepted.
17. The plaintiff signed a disclosure of relevant and material facts document on 6 April 2016. That document was annexed to the Agency Agreement. At some time in April 2016 a draft contract for the sale of the plaintiff's interest was prepared.
18. Mr Cochrane gave evidence concerning his marketing of the plaintiff's interest in the property. He stated that the property was: 1. listed on The Professionals office website; 2. featured on a sign in the firm's shop window; and 3. included in the office brochure.
19. There is also a "For Sale" sign located on the driveway that is shared by the property and another property that is listed for sale with The Professionals at Mullumbimby. Mr Cochrane said that the sign, which is not a "photograph sign", serves both properties. Mr Cochrane explained that the property was not listed on the website realestate.com because the plaintiff was not prepared to pay the costs of that (which would be $1,050) in the event there was no sale of the interest. Mr Cochrane further stated that in about June or July of 2016 one of his colleagues listed the property on the domain.com website without charge to the plaintiff.
20. Initially, the promotional material included the words "cash buyer only". Those words had been deleted by about mid-May 2016 after the defendant's solicitors informed Mr Cochrane that the defendant would be prepared to offer "mortgage assistance" to potential buyers of the plaintiff's interest. In cross-examination the defendant stated that she would be prepared to allow an incoming purchaser to borrow under a mortgage for which she was also liable. She pointed out that she had done that with the plaintiff in the past.
21. The marketing campaign has not been successful to date. Mr Cochrane gave evidence that approximately two dozen mainly telephone enquiries (and one as a result of the domain.com listing) have been received, but that no inspections have taken place.
22. In cross-examination, Mr Cochrane reaffirmed his view that it will be hard to sell the plaintiff's two-thirds interest. However, he stated that it was "saleable" and with a potential commission of about $15,000 he was "going to have a go". Mr Cochrane did not agree that the marketing campaign was rather limited. He also rejected the suggestion that he has not conscientiously marketed the property.

Applicable principles

1. Section 66G(1) of the Conveyancing Act provides: Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.
2. There was once a question as to whether the terms of s 66G(1) conferred a discretion or was in effect mandatory. The question was comprehensively considered by Needham J in Ngatoa v Ford (1990) 19 NSWLR 72 at 74-77. At 77, Needham J expressed his agreement with the conclusions reached by the Full Court of the Supreme Court of Queensland in Re Permanent Trustee Nominees (Canberra) Limited [1989] 1 Qd R 314 concerning the equivalent section of the Property Law Act 1974 (Qld). The Full Court had concluded that mandatory effect is not necessarily to be given to the word "may" in the section, and there is a limited discretion in the court to refuse to make an order. It was further stated that the existence of a contractual obligation with which an order for the appointment of trustees for sale would be inconsistent was a matter which may lead to a refusal to make an order. Needham J continued (at 77): It is not, I think, desirable that one should attempt to define exhaustively the circumstances in which an order may be refused; judicial experience is that such matters should be resolved on a case by case basis. My opinion is, however, that a contractual limitation upon the exercise of the right, provided it does not fall within the principle of Hall v Busst (1960) 104 CLR 206, is a proper consideration to be taken into account in such applications.
3. His Honour declined to make an order under s 66G in that case because such an order would be inconsistent with the defendant's rights of purchase under a deed.
4. In Williams v Legg (1993) 29 NSWLR 687 at 692, the Court of Appeal expressed its agreement with Needham J's conclusion as to the existence of a discretion under s 66G. At 693, the Court referred to various cases decided in New South Wales, including the decision of Myers J in Stephens v Debney [1960] SR (NSW) 468, and stated: We find the reasoning of Myers J persuasive. To adapt the language of Farwell J sitting at first instance in Re Buchanan-Wollaston's Conveyance [1939] Ch 217 at 223-224 the section could not be intended to require a court to extend relief to one who is putting forward a claim for what is equitable assistance merely to enable that party thereby to escape contractual obligations. "To do so would be to disregard the well-established rule of equity that he who seeks equity must do equity." For present purposes in describing the ambit of the discretion it is sufficient to say 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: see per Myers J in Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068.
5. The relevant principles were more recently described by White J in Tory v Tory [2007] NSWSC 1078 at [42]: Whilst an order under s 66G of the Conveyancing Act is discretionary and the Courts have declined to define the matters which are bar to a successful application (Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068), such an order is almost as of right unless on settled principles it would be inequitable to allow the application (Callahan v O'Neill [2002] NSWSC 877 at [8]). An application will be refused, if to make the order would be inconsistent with a proprietary right, or a contractual or fiduciary obligation (Re McNamara and the Conveyancing Act; Ngatoa v Ford (1990) 19 NSWLR 72 at 77; Williams v Legg (1993) 29 NSWLR 687 at 693; Hogan v Baseden (1997) 8 BPR 15,726-15,727)…

Determination

1. Although both parties have at times suggested that the other party has been in breach of the Deed, there is no suggestion that the Deed no longer remains on foot. It is appropriate to proceed on the basis that the parties remain bound by it.
2. Clause 5 of the Deed is expressed in emphatic terms. It clearly states that a party shall not under any circumstances seek to exercise any rights of sale under s 66G unless and until the party has made an offer in accordance with clause 5(a) and marketed the party's interest in accordance with clause 5(b).
3. I consider that the plaintiff has now complied with clause 5(a). The defendant has not contended to the contrary. Mr Tancred's valuation ascribed to the property a total market value of $675,000. The valuation was interpreted by the defendant's solicitors as calling for a price of about $474,000 for the plaintiff's interest. Even if the offer made on 29 February 2016 slightly exceeded that figure, the offer made on 23 March 2016 was slightly less than that figure. The defendant has not accepted either offer.
4. The plaintiff has not, at least at this stage, complied with clause 5(b). That provision requires a one year period of conscientious and diligent marketing of the interest to be sold. The one year period is stated to commence "from the date of the transfer notice referred to in clause 3(a)". The reference to clause 3(a) is clearly an erroneous reference to clause 3.2(a). The giving of a transfer notice pursuant to clause 3.2(a) initiates the transfer process envisaged by clause 3 of the Deed.
5. The letter sent by the plaintiff's solicitors to the defendant on 31 January 2011 in my view constituted a transfer notice for the purposes of clause 3.2(a). The marketing of the plaintiff's interest, which commenced in about April 2016, is obviously taking place much later. However, I see no reason why it cannot constitute marketing for the purposes of clause 5(b). I would not construe clause 5(b) as requiring marketing to commence immediately upon the giving of the transfer notice. Clause 3.4 provides for an "offer period" of 30 days from the date of receipt of the transfer notice, within which the recipient must give notice of their intention. A period of negotiation may follow, and a valuation may be required. It would be an odd result if the transferring party was nonetheless required to immediately place the interest on the open market or else lose the ability to later seek orders under s 66G. Moreover, clause 5(b) in its terms operates if the interest is not sold in accordance with the preceding provisions of the Deed. It seems to me that clause 5(b) may be satisfied by marketing that commences upon the failure to achieve a sale in accordance with those provisions. That view is consistent with the view taken by the defendant. Her solicitors, in their letter sent to the plaintiff's solicitors on 29 October 2015 following the receipt of Mr Tancred's valuation, invited the plaintiff to proceed to comply with clauses 5(a) and 5(b) of the Deed. On 29 February 2016 the defendant's solicitors, after rejecting the plaintiff's offer to sell, stated that, the plaintiff "should now list his interest in the property for sale with a real estate agent" in order to "comply with the Deed".
6. In my opinion, the marketing of the plaintiff's interest from about April 2016 is marketing that satisfies the requirement of clause 5(b) that the interest be marketed conscientiously and with all due diligence. The plaintiff placed his interest with an apparently competent and experienced real estate agent. Mr Cochrane has considerable experience of selling in the local area, including sales of rural holdings and sales of shares in multiple occupancy properties. Mr Cochrane was an impressive witness, and I generally accept his evidence. In particular, I accept his evidence to the effect that, despite the difficulties involved in selling the plaintiff's interest, he is trying to effect a sale. I do not accept the suggestion that Mr Cochrane is not conscientiously marketing the property. I further accept Mr Cochrane's rejection of the suggestion that the marketing campaign is a rather limited one. As explained by Mr Cochrane, the mere fact that the interest is not listed on the realestate.com website does not lead to that conclusion. Neither does the fact that, for a time, the interest was marketed to cash buyers only. It was not unreasonable to take that course, for the reasons given by Mr Cochrane.
7. The fact remains that the marketing has not been undertaken for a period of one year. The making of an order under s 66G now would thus cut across the terms of clause 5 of the Deed. As the authorities referred to earlier demonstrate, that circumstance may warrant the exercise of the discretion to withhold s 66G relief.
8. The plaintiff advanced various reasons why any failure to comply with clause 5(b) should not lead to that result.
9. First, the plaintiff points to the defendant's conduct in relation to the attempted listing of the property in 2014. I accept that the defendant's intervention may have caused McGrath Real Estate to decline to accept the listing of the plaintiff's interest. The content of the defendant's letter to Mr Reisch of 2 June 2014 indicates a high degree of conflict between the co-owners, and suggests that any sale in those circumstances would be difficult to achieve. However, whether the defendant's grievances were soundly based or not, I do not think it has been shown that the defendant was not genuinely asserting those grievances. I accept that she was motivated by a desire to have the problems fixed rather than to ensure that no sale would go ahead. In any event, as the experience with Mr Cochrane shows, it remained open to the plaintiff to list his interest with another agent in order to comply with clause 5(b), even if it was unlikely that such listing would result in a sale.
10. Second, the plaintiff refers to the acrimonious relationship between the parties which has led to the plaintiff moving away from the property. The plaintiff also refers to his personal circumstances, including his age (of 60) and that he is suffering from early stage Parkinson's Disease. It was submitted that the circumstances desperately require the intervention of the Court. I accept that these are relevant matters to consider and I have taken them into account. Nonetheless, it seems to me that whilst bringing the co-ownership to a speedy conclusion can be seen as a desirable outcome, I do not think that this should outweigh the fact that the parties agreed that s 66G relief should not be sought unless and until clauses 5(a) and 5(b) were satisfied.
11. Third, the plaintiff submits that it is highly unlikely that a purchaser will be found for his two-thirds interest. There is some force in this submission. The existence of the Westpac mortgage, which secures amounts borrowed by both the plaintiff and the defendant, presents obvious difficulties. I accept that the other factors mentioned by Mr Cochrane also diminish the prospects of the sale of the plaintiff's interest. However, the evidence does not in my opinion establish that such a sale is impossible. Mr Cochrane said that the plaintiff's interest was "saleable", and I have no doubt that he will try to achieve that result. A sale is in my view unlikely to occur, but I do not think that a continuation of the marketing for a full year ought be seen as a futile exercise.
12. The plaintiff also submitted that compliance with clause 5 of the Deed was not possible until rectification of clause 3.8 of the Deed occurred. That may be so in that an incoming purchaser would be required to agree to be bound by the Deed (see clauses 3.9 and 11), and insofar as a valuation was to be prepared in accordance with clause 3.8. Nevertheless, the proposed rectification had been agreed to by the defendant by April 2015. There is no evidence that rectification had been raised as an issue with the defendant prior to the commencement of proceedings in October 2014. She did not have solicitors acting for her until March 2015.
13. As noted earlier, the essence of the defendant's defence to the s 66G application is based upon the plaintiff's failure to fulfil the requirements of clause 5 of the Deed. The defendant also submitted that the plaintiff was acting vindictively in seeking the appointment of trustees. This submission rested on the assertion that the plaintiff's offer to sell for $750,000 was not genuine, and was made so as to enable proceedings to be commenced for the appointment of trustees for sale. I do not accept the submission. There was evidence that the plaintiff purchased a one-third interest in the property in 2007 for $310,000. Further, the plaintiff gave evidence, which I accept, that when he made the offer in 2011 the house had recently been renovated and was in good condition.
14. I have concluded that in the circumstances of this case it is not appropriate, at the present time, to make orders under s 66G. To do so would be inconsistent with clause 5 of the Deed. It would be inequitable to deprive the defendant of the benefit of the clause. The various matters raised by the plaintiff, even when viewed cumulatively, are not sufficient to overcome the inequity that would arise if orders were made now.
15. That is to say, I consider that the discretion to withhold such relief should be exercised. In these circumstances it is, of course, open to the Court to simply dismiss the application. It is also open to the Court to stay or adjourn the application. The Court would thereby exercise, on a temporary basis, the discretion not to make a s 66G order (see Grizonic v Suttor [2004] NSWSC 137; (2004) 12 BPR 22,797 at [8]).
16. In my view, the preferable course is to adjourn the application to April 2017 for further consideration. Given that the plaintiff has complied with clause 5(a) of the Deed, and that the current marketing of the plaintiff's interest in the property satisfies the standard set by clause 5(b) of the Deed, there is a good prospect that by April 2017, unless a sale intervenes in the meantime, the agreed pre-conditions to the seeking of s 66G relief will be satisfied. Adjourning rather than dismissing the application may avoid the need for fresh proceedings to be commenced.
17. The defendant's Cross Claim should similarly be adjourned. The only remaining aspect of the Cross Claim is a claim for damages for the plaintiff's seeking of s 66G relief contrary to clause 5 of the Deed. The damages claimed are restricted to legal costs incurred by the defendant in the proceedings. While this claim is problematic, it should be finally determined at the same time as the plaintiff's s 66G application.
18. The Court will order that the proceedings be adjourned to a date in April 2017 that is convenient to the Court and the parties.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 August 2016