Collie v Merlaw Nominees Pty Ltd

Collie v Merlaw Nominees Pty Ltd - [2003] VSCA 40 - VSCA 2003 case summary — Zoe

[10]

It is convenient to interrupt the recital of his Honour's reasons at this point to consider the implications of what has so far been summarised and the attitude of the several parties to it. For the purposes of the present appeal, it is significant that the complaint of Mr. G.M. Collie as pleaded, and as determined by Byrne, J., was confined to the granting by Merlaw of the "all moneys" mortgage. That was the case, and the only case, that Merlaw was required to meet. It is true that in paragraph 18 of his above pleading Mr. G.M. Collie alleged that in breach of the contract of sale Merlaw failed, refused and/or neglected to complete the contract and to transfer the land to Terramont and that by clause J of the prayer for relief he sought damages against all defendants. But the particulars under paragraph 34, which contains the only allegation of the suffering by the plaintiff of loss and damage, are expressly confined, in sub-paragraph (a), to "the breach of trust, alternatively the duty" and, in sub-para.(b), to the appropriation by the ANZ bank of the proceeds of its sale of Jolimont to the indebtedness of Merlaw. (The "duty" mentioned is clearly a reference to duties alleged against the third defendant, Mrs. Nolan, in paragraph 31 to exist and in paragraph 32 to have been breached.) There was, then, no claim for relief for repudiation or non-performance of the contract of sale. Paragraph 18 was, thus, no more than part of the narrative. More particularly, there was no allegation in the pleading of the exclusion on 14 April 1989 by Merlaw (through Mr. Nolan) of Terramont or Mr. Ian Collie or his family or companies from possession of the ground floor of Jolimont[3], or of the denial by Mr. Nolan (no doubt on Merlaw's behalf as well as his own) by letter of 6 October 1989 to the ANZ bank that Mr. Ian Collie or his family or companies had any interest in Jolimont. It is true that in paragraph 7(c) of the reply dated 7 December 1998 to Merlaw's defence Mr. G.M. Collie referred to the April 1989 event, but this was only by way of response to Merlaw's allegations that the grant of relief would be inequitable. It is also true that paragraph 29D(b) of the statement of claim contains the general allegation that "in breach of the constructive trust" Merlaw dealt with Jolimont entirely for its own benefit and without regard for the interest held by it on trust for the plaintiff. But I agree with his Honour's view, expressed during argument[4] and in the context of there having been numerous amendments to the pleadings, that paragraph 29D(b) is not an allegation of the April 1989 event or the October 1989 letter as a breach of trust, but rather must be taken as being another way of expressing the complaint about the granting of the "all moneys" mortgage. That is confirmed, if confirmation be needed, by the fact that the declarations sought against Merlaw in clause B of the prayer for relief are confined in terms or by their subject matter to the mortgage and its effect.

[15]

Ground 7 seeks to set up a constructive trust arising from circumstances different from those alleged in support of the only constructive trust pleaded (excluding, for this purpose, the purchase trust). At first sight they appear to be different also from those relied on, according to his Honour, in the only submission to him contending for a constructive trust, but it may be that they are substantially the same as those relied on for Mr. G.M. Collie in final submissions to his Honour, both written[5] and oral[6]. However, the essential facts on which this constructive trust depends are the asserted joint venture nature of the arrangement made and the breakdown of the arrangement by the asserted exclusion of Mr. Ian Collie from Jolimont through the changing of the locks in April 1989, which, it was submitted below and in writing on appeal, would have led equity to impose - and should have led the judge to hold there was - a constructive trust from that point onwards. That contention, if accepted, makes April 1989 (when, the evidence unambiguously showed, Jolimont's value was $900,000) a critical date. Indeed the written submissions for Mr. G.M. Collie below stated, "The events of April/May 1989 are central to this case."[7] If so, it is beyond comprehension that they are not pleaded in the statement of claim. There were real problems facing the appellant's reliance on ground 7: the ground sought to raise a case not pleaded, and, even if there were a relevant arrangement that was in the nature of a joint venture, any consequent constructive trust would, one might have thought, antedate the events of April 1989.[8] But, again, a firm decision on these points is not required because senior counsel for Mr. G.M. Collie (who had, during his address for him in the appeal by Mr. Nolan, digressed, appropriately, to foreshadow to the court the argument in this appeal assimilating the breakdown in arrangements to the breakdown of a joint venture, with the interest of Terramont being measured at the date of the breakdown) informed the court the next morning that the joint venture argument for fiduciary duty, constructive trust and (consequent) compensation would not be pursued in this appeal.

[22]

" 12. QUANTUM 101. Mr [Ian] Collie prepared a document which he entitled Equity Reconciliation and which became Exhibit 34. In it he deducted from the sale price obtained by the Bank of $750,000, sale costs of $20,632, the amount of the bill facility of $300,000 and the amount of the Terramont overdraft of $15,581, giving a net surplus for the two trusts of $413,787. It was put on the plaintiff's behalf that one half of this sum is the equitable compensation payable by Merlaw to him in order to cure the breach of trust to the Terracol Trust alone. I agree in principle, subject to two qualifications. 102. First, where the Terracol Trust seeks equitable compensation it must itself do equity to Merlaw. Under the contract of sale Terramont agreed to assume Merlaw's responsibilities to its mortgagee. To this I would add its responsibility to Merlaw's substitute mortgagee for the sums which Terramont agreed that Merlaw might obtain. This appears to have been accepted in Mr [Ian] Collie's reconciliation inasmuch as credit is given for the full $300,000 facility which was granted in July 1988. Merlaw incurred other obligations to its first mortgagee, Ogge Nominees, other than the repayment of the principal debt. These comprise payments of interest as well as legal and other costs associated with the discharge of the mortgage. Many, if not all of these have been paid by Terramont. Further, when the ANZ facility was established, Merlaw incurred obligations to the Bank in the way of fees and interest each time the $265,000 bills, and later the $300,000 bills were rolled over up to July 1989. These sums, insofar as Terramont has not paid them, must also be brought to account. Finally, in the period when the $300,000 bill liability remained as part of the overdraft in the Merlaw account, Merlaw incurred obligations to the Bank in the nature of interest and fees which are referable to that part of its overdraft. These too, inasmuch as Terramont has not paid them, should be brought to account. The amount of these I shall leave to be calculated by counsel. 103. Second, Mr [Ian] Collie in his reconciliation gives credit for the Terramont overdraft as it stood in April 1989. This date may have been fixed as the appropriate date when the negotiations for the purchase by Mr Nolan or his entities of the Terracol interests broke down. To my mind, however, this is not the relevant date. As at the date of the sale of the property, the Terramont overdraft stood at $25,017.57. This was subsequently paid by Merlaw. It may be said on behalf of Terracol that this represents the balance after the inclusion of payments for expenses under the second agreement, that is, the agreement relating to outgoings and common expenses with which I am not presently concerned. It may be said on the other hand that it represents the balance after the two men or their entities had made contributions, which contributions, on balance, favoured Mr Nolan's interest. It may have been, but was not, said too that since April 1989 Mr Nolan enjoyed the possession of the whole building. My present concern is not with the contributions to Terramont which were made by the two men or their entities; it is with the relationship between Terramont and Merlaw. Terramont should have itself satisfied its obligations to the Bank and not left it to Merlaw to do so. I am of opinion that the two trusts must therefore give Merlaw credit for the sum of $25,017.57. 104. It follows that the proper measure of compensation is to be calculated as follows. From the sale price of $750,000 must be deducted the costs of sale in the sum of $20,632, the sums borrowed from the Bank in the sum of $300,000, the sums paid by Merlaw under the mortgages to Ogge Nominees and to the Bank for which it has not received payment from Terramont. These sums remain to be calculated. Finally, there must be deducted the amount of the Terramont overdraft as at the date of the sale in the sum of $25,017.57. The net proceeds after deduction of these four items reflect the loss to the two trusts as a result of Merlaw's breach. One half of that sum would, in the ordinary course, have been paid to the Terracol Trust on about 18 July 1990 when the proceeds of sale were received. I conclude that this is the amount of equitable compensation payable by Merlaw to the Terracol Trust. 105. The consequence of this is that the plaintiff should have judgment against the firstnamed defendant in a sum which I shall leave to counsel to calculate and agree, and that the third defendant should have judgment against the plaintiff. I will hear counsel further on the question of costs."

[35]

Mr. G.M. Collie contended that, assuming (as I hold to be correct) that compensation was to be assessed by starting from the proceeds of the sale of 18 July 1990, the trial judge failed adequately to compensate him for the damage flowing from the breach of trust by Merlaw. And so I come now to the disputed items in the schedule to his Honour's judgment of 24 November 1999. On these items, besides having the notice of appeal and addresses by counsel, the court has been inundated with paper. We have received an outline of argument for the appellant; one for Mr. Nolan; a supplementary submission for the appellant on quantum dated 9 October 2002; a substituted addendum[24] to the appellant's notice of appeal with an attached schedule corresponding to his Honour's schedule but showing the amounts which Mr. G.M. Collie contended for under each of the four dates for valuation discussed above; a (substituted) submission in reply dated 17 October 2002; and, on 25 October 2002, a response for Mr. Nolan to the substituted schedule to the notice of appeal. In these documents the appellant and Mr. Nolan make, not without repetition, numerous assertions pro and con concerning the disputed items. I have considered all these assertions, but, having regard to the nature of the dispute and the task presented to this Court, I shall on the whole deal only with assertions I regard as decisive. I confine myself naturally to the items which, as I understand it, are still in dispute. The items below are numbered by reference to the schedule to his Honour's judgment of 24 November 1999. Before the disputed items are examined, it may be noted that little argument was directed to the principles on which equitable compensation is assessed, recent statements of which are to be found in Youyang, Target Holdings[25], Maguire v. Makaronis[26] and Hill v. Rose[27]. Counsel for Mr. Nolan did, however, stress that the liability of a defaulting trustee is to pay sufficient compensation to restore to the beneficiary or the trust estate what has been lost by reason of the breach of trust, but no greater or other compensation, citing Target Holdings[28] Since argument concluded, the High Court in Youyang[29] has stressed the importance of the causal connection denoted by the expression "by reason of". This requirement has a pervasive underlying relevance in what follows. .

[36]

Although in the submissions in reply Mr. G.M. Collie treated this as a new item 17.2, it is convenient to deal with it here. Despite a suggestion to the contrary, Mr. Ian Collie agreed with Mr. Nolan to increase the facility to $300,000.[30]. Further, in his reconciliation, Ex 34, which his Honour in his judgment of 22 December 1998[31] agreed with in principle subject to two qualifications, Mr. Ian Collie allowed for the deduction of the full $300,000 from the value or sale proceeds of Jolimont without any off-setting or addition of $35,000. Thus, the net deduction of $35,000 was conceded below. (I would not, however, use against Mr. G.M. Collie as concessions documents prepared by him or his son after 22 December 1998, as I agree with the submission for him in reply that his Honour had in the concluding paragraphs of his judgment of that date effectively precluded argument against the matters he there laid down, including the amount of the mortgage to be deducted from the sale proceeds.) Notwithstanding the references to the total facility of $300,000 in the concluding paragraphs of his Honour's reasons, counsel for Mr. G.M. Collie did on 1 April 1999 and on 24 November 1999 seek before his Honour to have the figure of $300,000 reduced, directly or indirectly, by $35,000. His Honour refused to let the matter be re-opened. The main statement of his reasons was made on the later date. The judge had, in my opinion, been correct when he held in his first judgment in substance that, Terramont having agreed in the contract of sale to assume Merlaw's obligations under the Ogge Nominees mortgage, the agreed replacement of that mortgage by the ANZ bank mortgage and the subsequent agreed increase in the ANZ bank facility meant that Terramont was responsible to the ANZ bank for the full amount of the facility and that Terramont, and so Mr. G.M. Collie, had in the assessment of compensation to allow a deduction of the full amount. The question then is whether Terramont, and so Mr. G.M. Collie, are entitled in the assessment of compensation to a credit or addition of $35,000. For Mr. G.M. Collie, it was argued that there was this entitlement because, that sum having been paid to Merlaw in July 1988 to go against the imbalance in contributions by Mr. Nolan and Mr. Ian Collie, Merlaw would otherwise receive the benefit of the sum twice. Quite apart from the concession referred to earlier, his Honour was, I consider, correct in taking the view on the merits that the point now raised went to the state of accounts generally between the two men and their interests, that is, that it did not relate to the obligations originally assumed under the contract of sale and extended by agreement, but related rather to what his Honour described as the second agreement. Accordingly this point of appeal fails. I would add that, like his Honour, I am not at all sure that on proper analysis there is here a double deduction or benefit in any case.

[40]

Item 7 is in two parts, relating respectively to the bill facility and the overdraft. As to the first, Mr. G.M. Collie contended that certain payments had been made direct to Merlaw or the bank by Terramont or on its behalf or at its direction, express or implied, in or towards the discharge of the obligations of Merlaw to the bank. Any such payments would reduce the credit to be allowed to Merlaw under this item. Merlaw claimed, and the judge found or accepted, that in the period from December 1987 to 15 February 1989 it had paid $52,412.62 in respect of the facility. Mr. G.M. Collie claimed that by reason of various payments the credit was reduced to nil. His Honour in his second judgment and, after the master's report, in his third judgment adjudicated upon the various payments put forward by Mr. G.M. Collie, concluding ultimately that the credit to be allowed to Merlaw for that period was $44,021.62. The appellant now seeks to have that sum reduced, no longer to nil, but by $23,991.92 (as is made clear by Item 17.1 in the schedule to the substituted addendum to the notice of appeal). The latter sum is made up of three payments made by Mr. Ian Collie or a company of his in April and July 1988 to Terramont and found by the master to have been used by the latter to reduce its overdraft. In effect the payments are contributions by or on behalf of the Terracol Trust to the vehicle Terramont. The basis of the appellant's claim for this reduction is that similar payments by Mr. Nolan (more accurately, however, Merlaw) to Terramont were allowed by his Honour under Item 12. In his judgment of 24 November 1999 his Honour refused to reduce the credit in favour of Merlaw by the amount of these three payments, on the ground that they were made to Terramont to enable it to meet its obligations as service provider. His Honour had in his second judgment[34] allowed Merlaw a credit under Item 12 for two payments by it to Terramont totalling $53,300 made to reduce the latter's overdraft. He had done so for the same reasons as he had earlier allowed the credit for the amount of the Terramont overdraft as it stood at the date of sale of Jolimont. Again, as it seems to me, his Honour had had some disquiet in allowing the credit under Item 12, for he said that the payments may have been unconnected with the relationship of vendor and purchaser which existed between Merlaw and Terramont and he referred to the complications that Terramont's dual role caused. In my opinion, his Honour was correct to decline to reduce the credit under Item 7(i) as the three payments were contributions on behalf of the Terracol Trust to the funding of the vehicle Terramont in its capacity as service provider. Whether his Honour was correct to allow Merlaw the credit under Item 12 depends on whether the payments were made by Merlaw in its own right or were in truth contributions on behalf of Terranol. That question was not debated before us, Item 12 not being challenged in this appeal.[35]

[43]

I come now to items which the appellant claimed by way of addition to the proceeds of sale in the assessment of equitable compensation. The contract of sale between Merlaw and Terramont included all electric light fittings and provided that the agreed value of chattels was $10,000, which was included in the price. The chattels, however, also included floor and window coverings, stove, dishwasher etc. as examined and agreed between the parties. The electric light fittings the subject of the contract of sale were, or included, antique light fittings. They were excluded from the mortgagee's sale and Mrs. Nolan said in evidence that they had been returned to her after that sale. The judge was dismissive of this claim, saying that he did not know by whom the fittings had been removed and did not know their value. There was no reason to add any sum under this head. His Honour the Court was told, declined to refer the claim or, it may be, the value of the light fittings to a master. The appellant's complaint is that, Terramont having purchased the antique light fittings and possession of them having passed on settlement (that is, Terramont's assumption of liabilities under the mortgage), Terramont had lost the value of them. It was said that the light fittings had in essence come back to Merlaw. The figure of $12,000, being the appellant's estimate of their value, was sought by way of addition, but in the substitute addendum to the appellant's notice of appeal it was contended that, in the event that it is held, as I would hold, that the assessment of compensation is to commence with the proceeds of sale of 15 July 1990, a reference to the Registrar of the Court of Appeal should be directed. I pass by the questions whether the Court has power to direct such a reference on an appeal to it and the Registrar's power to inquire and report, for, in my opinion, his Honour's decision should be upheld on two grounds. First, he was entitled to hold that there is no evidence of the value of the lights. Secondly, although the removal by the vendor of the antique lights, if that occurred, could constitute a breach of the purchase trust, that was not the breach alleged. Indeed, the statement of claim does not refer to the topic of light fittings.

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