By Notice of Motion filed in Court the Defendant seeks leave to amend his defence and to file a cross-claim expressly seeking relief in the form of a declaration that the Defendant holds an equitable interest in a property at Moama, New South Wales (Property) equal to the whole of the value of the Property by reason of a resulting trust.
There is already a pleading that the Defendant holds an equitable interest because of a constructive trust.
The Plaintiffs are the registered proprietors of the Property but have brought proceedings seeking declarations, including that the Defendant has no interest in the Property and that his caveat ought to be removed, and that the Registrar General must amend the register to report the Plaintiffs' changed names. The Plaintiffs appear to accept that they became the registered proprietors because in 2001 the Defendant purchased the Property in their names, signing the contract for sale and transfer form for them without their knowledge.
The Defendant completed the purchase on about 15 January 2002 by means of a loan he took out in the names of the Plaintiffs. This conduct by the Defendant was not with the consent or knowledge of the Plaintiffs. At the time the Defendant took these steps he was a bankrupt. He was discharged from bankruptcy on 17 February 2002. By 16 February 2007 he had paid off the loan. The Plaintiffs accept that they are volunteers and the Defendant paid the whole of the purchase price.
The Defendant denies the Plaintiffs are entitled to the relief they seek, and while currently expressly pleading that he paid 100% of the purchase price of the Property and that he never intended to gift the Property to the Plaintiffs, there is no express reference in the pleading to a "resulting trust" and only a reference to a constructive trust. To date no cross-claim has been filed and served seeking positive relief concerning any equitable interest in the Property that the Defendant may have.
The application to amend and rely on a cross-claim has come very late. It was foreshadowed in the afternoon of the first day of the two-day hearing after discussion between the bench and counsel appearing for both parties.
The Plaintiffs resist leave being granted because the application has come so late. They say they would have raised defences, including illegality because of the fraudulent conduct of the Defendant signing documents as the Plaintiffs. It may be that the Defendant's trustee in bankruptcy needs to be joined and possibly further evidence will be required concerning the Defendant's intention at the time of purchase.
There is no doubt that the Court has power to grant the leave that is being sought. However, it must be done on a principled basis considering the factors outlined by the High Court in Aon Risk Services Australia Ltd v Australia National University [2009] HCA 27; 239 CLR 175 which include:
1. The onus is on the party seeking leave to amend to persuade the Court that such leave should be given;
2. The Court must consider the nature and importance of the amendment to the party applying for it;
3. The extent of the delay and costs associated with the amendment;
4. The prejudice that might be assumed to follow from the amendment;
5. The explanation for any delay;
6. The party's choices to date in the litigation, and the consequences of those choices; and
7. The detriment to other litigants in the Court, potential loss of public confidence in the legal system which can arise where a Court is seen to exceed to applications made without adequate explanation or justification.
The weight to be given to those various considerations individually and in combination and the outcome of the balancing process obviously vary depending on the facts of individual cases. The Court must keep in mind the focus of the overarching purpose that requires the just resolution of disputes, and a just resolution invariably involves resolving tensions between competing interests and prejudices to the parties, and the interests of other litigants in the Court.
In Aon, Gummow, Hayne, Crennan, Kiefel and Bell JJ observed at [102]:
The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment.
The Defendant, who is the applicant, bears the onus of persuading the Court that the amendments and leave to file a cross-claim ought to be granted. Having regard to the issues raised by the Plaintiffs in resisting the application, it has been conceded by the Plaintiffs that they knew the Defendant's intention at the time of purchase of the Property was an issue in the proceedings. As the transcript demonstrates:
HER HONOUR: In terms of intention, he says my intention was not to gift. This is what I did which demonstrates my intention at the time of purchase. I didn't tell them. I didn't communicate that with them. I paid it all off without telling them. Why doesn't all of that inform resulting trust and constructive trust?
GOODYEAR: It would if they were pleaded.
HER HONOUR: But if you say all of that feeds into constructive trust, then it's live questions that your clients have been battling with in these proceedings, so how is it any different if a different legal construct is taken to exactly the same facts?
GOODYEAR: Because the focus in constructive trust is on unconscionability, and intention is not at the fore of everyone's mind there, but it is in a resulting trust.
HER HONOUR: Yes, but you're saying it's not at the fore but it's still there, isn't it?
GOODYEAR: In my submission it's not.
HER HONOUR: You're saying intention is irrelevant when it comes to constructive trust.
GOODYEAR: No, my submission is that it does not enjoy the degree of focus and if the spotlight is well and truly been shone on intention via a expressly pleaded resulting trust by way of a cross claim, then a reply would have been put on and consideration would have been given to spending the extra money to try to find further evidence on intention, which on the present case is not really that important.
Mr Goodyear, for the Plaintiffs, submitted consistently with that transcript, that investigations concerning the Defendant's intention may well have been more thorough had the words "resulting trust" been included in the defence, or a positive declaration been sought by the Defendant.
Nevertheless, objectively it appears that the issue of a resulting trust was not entirely absent in the preparation of the case by both sides. The Plaintiffs' "statement of real issues" provided to the Defendant and the Court before the hearing included:
(1) Does the first Defendant have an equitable interest in the property;
(2) If Mr Haley does have an equitable interest in the property, does that have the consequence that the Plaintiffs hold the property subject to a constructive trust in Mr Haley's favour; and
(3) Does Mr Haley have any caveatable interest to support the caveat he has lodged against the property.
Also, in their Statement of Claim, the Plaintiffs seek orders removing the Defendant's caveat from title, and in that caveat, the Defendant asserts he is entitled to an interest in the Property by reason of contributions to the purchase price by reason of "resulting, implied or constructive trust." I also note that the Plaintiffs' pleading seeks broad reaching declarations not limited to the exclusion of any assertion of a constructive trust, or but also declarations that Mr Haley made a gift of the Property to the Plaintiffs as joint tenants and that Mr Haley has no "right, title, estate or interest in the Property."
The Defendant's evidence is that he paid the whole of the purchase price, and that is not contested by the Plaintiffs. He also asserts he never intended to gift the Property to the Plaintiffs. That evidence has not yet been tested. However, no objection to that evidence was taken on the basis that it was irrelevant, which is also consistent with Mr Goodyear's concession that the Defendant's intention may be a relevant consideration.
It is unfortunate that the Defendant's pleadings were not drawn more clearly, and that the Defendant's opening written submissions only referred to the Defendant's alleged "equitable title" to the Property, without drawing any distinction between constructive or resulting trusts. It was only on day one of the hearing that the Defendant indicated orally that relief on the basis of resulting trust was also sought.
The Plaintiffs also submitted that the change in the Defendant's case would be futile because there can be no resulting trust found for the Defendant personally because the Defendant did not disclose the purchase in the Plaintiffs' names to his trustee in bankruptcy. It is also said this may require the trustee to be joined or heard.
To support that submission I was taken to a decision of Stevenson J in Falloon v Madden [2012] NSWSC 652, in which his Honour heard a case concerning whether a bankrupt had any equitable interest in a property. His Honour concluded that there was such an interest, but was not prepared to make final orders until the position of the official trustee in bankruptcy had been considered. I was informed of a subsequent decision of Farrell J in the Federal Court, Madden v Official Trustee in Bankruptcy [2014] FCA 446; 221 FCR 344, in which her Honour concluded that the trustee in bankruptcy was barred by a particular section of the Bankruptcy Act 1966 (Cth) from making any claim concerning the property.
I do not find persuasive the Plaintiffs' submission that the Defendant's proposed amendments and cross-claim would be futile because the same conclusions would be reached as those of Stevenson J and in particular Farrell J. It may well be that similar conclusions as those by Stevenson J and Farrell J would be reached, but I do not have any material before me as to the position of the trustee, should in fact the conclusion be reached that the Defendant is entitled to a resulting trust.
I do consider that because it will cause some further delay and costs in dealing with all of the issues is the most important consideration in the exercise of my discretion to grant leave or not to amend the pleadings.
There must be a balancing of the prejudice to the Defendant, should this issue not be allowed to be ventilated, and the prejudice to the Plaintiffs if there is potentially to be further work done in dealing with this issue and another day of hearing at some time in the future.
I will grant leave to the Defendant to amend and to file a cross claim in the circumstances, which I have outlined, where it appears to me that it is an issue which has been ventilated in the evidence and albeit vaguely in the other documents. As outlined above, it is not clear on the material that the Plaintiffs were entirely unaware of the issue of the Defendant's intention. Further I consider it possible to alleviate to some extent the prejudice to the Plaintiffs by providing them with an opportunity to answer specifically the assertion of a resulting trust, should they wish to do so.
Another factor favouring leave with the consequent necessary adjournment is that it is appropriate that if there are issues of bankruptcy that they are addressed appropriately, with any necessary evidence and fulsome submissions as to whether any aspect needs to be ventilated in another court.
In relation to costs, the Plaintiffs seek indemnity costs, "wasted by reason of any amendment or by reason of any new pleading brought about at this late stage." The Defendant resists such an order and seeks an order that they be costs in the cause or reserved. I will reserve costs.
Accordingly, the Court makes the following orders:
1. Grants leave to Defendant to file the Notice of Motion in Court.
2. Grants leave to Defendant to file Amended Defence and Cross-Claim.
3. Reserves costs.
4. Adjourns the hearing part-heard.
5. Stands the matter over for Directions before the Real Property List Judge on 10 February 2023.
[2]
Amendments
10 February 2023 - Minor amendment to cover sheet - 10/02/23.
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: 10 February 2023