Duic v Duic

FACTUAL CIRCUMSTANCES 3The property in question is in a largely residential neighbourhood. The main building on it comprises storage space and residential accommodation. It is in poor condition. A second building houses a workshop used for vehicle radiator repairs. There is also a carport on the property. A licensed valuer assessed the value of the property at 2 February 2012 at $680,000, with a rental potential of $44,320 per annum ($10,440 per annum for the workshop alone). 4Josip became the sole registered proprietor of the property in 1974, after he and his wife divorced. Emil came to live with him. Another son lived with his mother. In 1981 Josip and Emil commenced operating a vehicle radiator business on the property. At some stage Josip ceased involvement in the business. Emil states that this occurred in 1982. Josip and Emil fell out in 2006, but Emil continued to carry on the business on the property. 5In 2010 Josip served a Notice to Quit on Emil and, the following year, commenced proceedings for possession. Emil cross-claimed, seeking declarations that Josip was estopped from denying his entitlement to the property and held it on trust for him. The proceedings were heard in the Equity Division by Einstein J who delivered a judgment dated 16 February 2012 ([2012] NSWSC 76) in favour of Emil.

EMIL'S CASE 6In his affidavit of 16 March 2011, Emil deposed to a conversation with his father in about 1982 in which Emil agreed to pay his father $350 per week for his support and maintenance, and to pay "all the rates and charges for the property", on the basis that "everything here is mine" ([8]). Emil said that he commenced, and continued, to make such payments and, on many occasions over the following years, his father assured him that "everything is yours as long as you keep paying me and paying the property liabilities" ([10]). He said that there were conversations in about 1984 in which there was also reference to him paying for improvements to the property. 7Emil gave evidence that since 1982 he had, "on the basis of my understanding that the Property was effectively mine", paid Josip $350 per week from 1982 until 2007, bought a boat and accessories, a car, airfares and goods for his father and supplied radiators and servicing to his father's friends, as well as contributing to expenses and maintaining and effecting improvements to the Property ([20]). He described the contributions, improvements and maintenance as follows: "1. Contributions: (a) I have paid council rates, water rates, insurance on the business premises, telephone, gas and electricity since 1987. A record of these payments can be found in Exhibit ED-1, and proof of payment is also available for inspection. 2. Improvements: (a) I was responsible for many improvements to the property, including the installation of new gates, garage roller door, repairing brick fencing, replacement of electricity box, repair of sewerage drain and toilet, payment for all advertising and signage to the premises. (b) I set up the radiator business located on the premises, including building the work premises, cementing the driveway and parking area to accommodate several vehicles, building an extensive security brick fence around the premises comprising 75 metres in length and 2 metres in height. Exhibited and marked 'ED-3' is photos of the said Property. 3. Maintenance (a) I maintained and painted the buildings on the premises at my own expense, including time and material purchased for this purpose. (b) I maintained the landscaping of the premises including mowing lawns, cutting and pruning trees, watering and maintaining the gardens, general upkeep, at my own expense, including time and material purchased for this purpose" ([23]). 8In his affidavit of 27 June 2011, Emil said he suffered a work injury in 1979 and began to receive WorkCover benefits. He said that the following conversation with his father occurred after he received a WorkCover settlement payment of $54,750 in December 1981: "After I received the settlement amount I called my father to discuss my future at the business now that I was no longer on Work Cover benefits. We agreed to meet at the Property and we had a conversation in words (in Croatian) to the effect: ED: Now that I am off Work Cover, I can contribute fully to the business. As we talked about, is everything mine as you promised? If not, I will use the settlement money to buy the industrial property across the road at 1A Mellor Street. JD: Don't be silly; this is all yours. Don't waste your money. The property was yours from the day you started living here back in 1974 because you are my only good son who followed me. ED: What about the business? JD: Everything is yours. You have to continue working the business. I believed my father and did not buy the industrial property across the road as I believed that the property and the business were mine and there was no need for me to buy the industrial property. I trusted him with his promises as he was my father" ([39] - [40]). 9Emil went on to give further details of the contributions, improvements and maintenance made or undertaken by him and said that he discontinued payment of $350 per week to his father in December 2006. 10Emil's wife, Ms Sue Duic, gave evidence corroborative of her husband's evidence concerning Josip's promises and Emil's improvements to the Property, although not his evidence as to his reliance on the promises in doing that work. She did not give evidence about any possible alternate business site across the road from the Property. The primary judge rejected her evidence that her husband made payments of $350 per week to his father. 11Mr Ivan Petch gave evidence of conversations with Josip corroborative of Emil's case that Josip had promised the property to Emil. Josip's other son, Mr Robert Duic, gave evidence supportive of his brother's case that their father had promised the property to him.

JOSIP'S CASE 12Josip denied promising the property to Emil and denied at any time receiving $350 per week from his son. He could not recall any arrangement for such payment and did not claim any such payments to be due.

THE JUDGMENT AT FIRST INSTANCE 13The primary judge expressed the following conclusions concerning the credibility of Josip and Emil as witnesses: "26 ... There are elements of truth in both party's cases but there are also significant fictions which were clearly constructed by the parties in an effort to either strengthen their respective cases or hide the true state of facts from various government authorities. In such circumstances I am forced to reject the whole of Emil and Josip's evidence and reconstruct the true state of affairs from the independent contemporaneous records with assistance from the other witnesses where appropriate". 14These findings were not challenged on appeal. Nor was the following further conclusion concerning Emil's evidence: "38 On the whole I formed the view that Emil purposely manufactured evidence in his affidavits and under cross-examination in an effort to strengthen his case". 15The primary judge found that Josip "did promise the ... Property to his son" saying that he made the finding "independent of the conflicting evidence given by Josip and Emil and on the basis of the evidence given by Robert Duic and Ivan Petch" ([55]). 16The primary judge's findings concerning the detriment that Emil alleged that he suffered included the following: "60 Emil gave evidence of a number of detriments he suffered in reliance on Josip's promise. Emil has failed to satisfy the Court that he made payments of $350 a week to his father for 24 years or for anytime at all. Further, I am not satisfied that if these payments were made that they were in reliance on the father's representations. These payments were a fiction created by Emil to strengthen his case. 61 However, the defendant led evidence of other detriments including a failure to buy [the property across the road] and evidence of improvements made to the ... Property. I am satisfied that these detriments occurred in reliance on Josip's representations. ... 69 Emil also relied on other detriments. In relation to Emil's evidence that he mowed the lawn at [the Property], sent his grandmother some clothes after the Bosnian war and bought a boat for his father, I do not accept that if these claims are true (and on the evidence I am unable to decide either way) that they were linked to the property or the father's promise. They were simply actions carried out by a son for his father. In this sense they do not give rise to an equitable interest in [the Property]. 70 However, Emil gave evidence largely corroborated by Mr Petch, that he made improvements to the driveway and carports on the property and forwent the opportunity to purchase the property across the road to start a radiator business. Had Emil not relied on his father's promise he would have had the opportunity to start his business from a different location. His father's promise has denied him this opportunity. 71 Early in the cross-examination Mr O'Sullivan challenged this evidence, putting the feasibility of Emil purchasing the property into question. In cross-examination Emil conceded that [the property across the road] was (without significant and expensive renovations) unsuitable for a radiator repair business. There was no building, no carport and inadequate fencing. Further, it was clear that had Emil purchased [the property across the road] he could not have also afforded to purchase his house. Emil explained that he would have preferred to have bought [the property across the road] rather than his new house, and he would have organised his finances accordingly. Emil's desire to operate a radiator business was not put into question. As a young man at the time the representations were first made it is evident that Emil had a desire to work. In reliance on Josip's representations he stayed at [the Property]. If Josip sells this property, Emil will not have premises out of which to run his business. This is all the more significant since the business has operated out of the same premises since 1981." 17Having referred to this Court's decision in Delaforce v Simpson-Cook [2010] NSWCA 84; 79 NSWLR 483 and to that of the High Court in Giumelli v Giumelli [1999] HCA 10; 196 CLR 101, the primary judge expressed the following views concerning the remedy to be granted: "82 In these circumstances, the apparent appropriate exercise of the Court's discretion is to order that Josip be estopped from transferring the legal title of the ... Property to any person other than Emil without his consent. Josip should also be estopped from serving a Notice to Quit on Emil or taking possession of the property. This effectively gives Emil a life interest in the property. 83 However, this order would place the parties at a stale mate. It would produce a situation where Emil is operating out of ... premises owned by his father indefinitely against his father's will. In these circumstances the Court prefers a clean break (see Sullivan v Sullivan [2006] NSWCA 312 per Handley J at [48] and Young, Croft and Smith On Equity, Thomson Reuter, 2009 at 14.240). The more appropriate order is therefore that Josip takes all steps necessary to enable the Registrar-General to record on the Real Property Act Register Emil as registered proprietor of the ... Property in terms of Order 3 in the cross-claimant's amended statement of cross-claim. 84 In conjunction with this order an adjustment must be made in Josip's favour. On Emil's own evidence, the agreement between the parties required Emil to pay $1, 400 a month to Josip for maintenance. Emil conceded that he has not made these payments since December 2006. Any departure from this admitted obligation would bestow an unjust windfall upon Emil. In such circumstances it is appropriate for the Court to make an adjustment to do equity between the parties; Maguire v Makaronis (1996) 188 CLR 449. 85 I order that Emil pay Josip the sum of $88,200 which represents the 63 months since December 2006 for which Emil has failed to make payments to Josip. Emil is to pay Josip an additional $25 000 to cover all expenses associated with the transfer of the ... Property and the costs of moving. ... 88 The findings of fact in this case are capable of giving rise to either a proprietary estoppel or a constructive trust. The Court could have held that Josip holds the ... Property on constructive trust for Emil. In that case, Josip would retain an equitable lien over the property to the extent necessary to do equity between the parties. This amount would be $88, 200 plus an additional $25, 000 to cover sundry expenses".

THE ISSUES ON APPEAL 18On appeal, neither party challenged the primary judge's credit findings. Although Josip's counsel expressed disquiet concerning the quality of the evidence upon which the primary judge based his finding that Josip promised the property to Emil, no formal challenge to that finding was made. Nor does either party challenge the primary judge's findings that there was no arrangement to pay $350 per week and that payment of that (and by inference, any other) amount was never made by Emil to Josip. 19As a result, the issues on appeal were, first, whether Emil changed his position in reliance on Josip's promises, rendering it unconscionable for Josip to resile from them (the proprietary estoppel claim) and, secondly, if he did, what remedy was appropriate. Emil's case was framed in the alternative as a claim that Josip held the Property on a constructive trust for him but neither side suggested that the outcome of this claim would be any different to that of the proprietary estoppel claim.

THE ALLEGED PROPRIETARY ESTOPPEL 20In essence, a proprietary estoppel arises where there has been detrimental reliance by a party on an assumption, as to his or her ownership or future acquisition of a property, which has been induced by representations of the property owner (Giumelli v Giumelli at [6]). The following presently relevant points need to be made about the principle: (a) Detrimental reliance is not established by the promisee establishing that he or she would be disadvantaged if the promisor did not fulfil the promise, rather: " ... equitable estoppel [by contrast] with contract ... does not look forward into the future [it] looks backwards when the promise falls due to be performed and asks whether, in the circumstances which have actually happened it would be unconscionable for the promise not to be kept" (Delaforce v Simpson-Cook at [81] citing an unreported judgment of Hoffmann LJ; see also Waddell v Waddell [2012] NSWCA 214 at [54] and Brown v New South Wales Trustee and Guardian [2012] NSWCA 431 at [80]). Thus, in the present case, it is necessary to determine whether, in reliance upon Josip's promises, Emil changed his position in such a way, and to such an extent, that it would be unconscionable for Josip not to keep his promises. For example, whilst expenditure by Emil on improvements to the property may, when made, have appeared to be advantageous to Emil on the basis that the property was, or was to be, his, falsification of that assumption might, in retrospect, give the expenditures a detrimental character. Thus, as observed in Evans v Evans [2011] NSWCA 92 at [107], "[t]he relevant time for consideration is the time that the defendant seeks to disappoint [the] expectation". (b) If the elements of a proprietary estoppel are established "[t]he court should, prima facie, enforce a reasonable expectation which the party bound created or encouraged" (Delaforce v Simpson-Cook at [63]). Relief is thus not limited "to removing or reversing the detriment suffered by the party entitled to the estoppel" or enforcing "the minimum equity to do justice to the plaintiff" (ibid at [56]; and see [3] and [59]).

Whether conduct in reliance of promises 21Unsurprisingly, Emil's case that he changed his position in reliance upon his father's promises was founded, at least primarily, upon his own evidence. However, the primary judge rejected the whole of his evidence (Judgment [26] quoted in [13] above), finding that Emil "purposely manufactured evidence in his affidavits and under cross-examination in an effort to strengthen his case" (Judgment [38] quoted in [14] above). 22Notwithstanding these findings (which are not challenged on appeal), the primary judge found that in two respects, Emil had acted in reliance on Josip's promises (Judgment [61] quoted at [16] above). In doing so, his Honour did not refer specifically to Emil's evidence (which he had rejected in toto) but referred more generally to evidence "led" by Emil, apparently a reference to another witness called in Emil's case, Mr Petch. 23It is apparent from Judgment [70] (also quoted in [16] above) that his Honour's conclusion on this topic was based on a misunderstanding by his Honour of the extent of the evidence given by Mr Petch. Emil's counsel argued that the first sentence of Judgment [70], when read strictly, does not assert that Mr Petch corroborated all of Emil's evidence that is referred to in that paragraph. I consider however that a natural reading of the sentence is that his Honour was indicating his understanding that Mr Petch corroborated the substance of the evidence referred to. This view is supported by his Honour's reference in Judgment [26] to the need for him to decide the case on the basis of "the independent contemporaneous records with assistance from the other witnesses where appropriate", in light of his inability to rely upon any of Emil's (or Josip's) evidence. 24It would not have been rational for his Honour, as Emil's counsel contended he did, to have expressed the forceful and comprehensive view about Emil's evidence in Judgment [26] and the conclusion that Emil "purposely manufactured evidence ... to strengthen his case" in Judgment [38], but then, without explanation, have proceeded to accept uncorroborated evidence of Emil on the crucial issue of reliance. Clearly, his Honour was indicating that he accepted this part of Emil's evidence only because he thought it was corroborated by Mr Petch's evidence. 25The difficulty for Emil's case is that Mr Petch did not in fact corroborate Emil's evidence of reliance. He gave some evidence about Emil effecting improvements, but none about whether Emil did that work in reliance on Josip's promises. Furthermore, Mr Petch gave no evidence at all about Emil's possible purchase of a property across the road from the subject property. He did not even mention that other property. 26There was no express evidence of Emil's reliance other than his own and the objective circumstances that were proved did not give rise to any inference of reliance. For example, Emil's improvements to the property were wholly consistent with him facilitating his carrying on of the radiator business on the Property on the rent-free, long-term basis that was, on the judge's findings, applicable. Indeed in his affidavit of 16 March 2011, Emil described the work as having been done for that purpose (see [2(b)] set out in [7] above). 27Furthermore, there was no evidence of objective circumstances relating to the property across the road from which an inference of reliance could be drawn. That property was not mentioned in the evidence, other than by Emil. 28Emil's counsel submitted that Emil's evidence of reliance should be treated as accepted by the primary judge because it was not challenged in cross-examination and also that the absence of such challenge might account for the primary judge's acceptance of that evidence when his Honour said elsewhere in his judgment that he rejected all of Emil's evidence. The latter submission cannot be accepted as the judge referred expressly to Josip's counsel challenging Emil's evidence of reliance (Judgment [71], first sentence). Nor can the first proposition be accepted. The allegation of reliance by Emil was in issue on the pleadings (Red Appeal Book p 35E) and denied in Josip's affidavit of 6 August 2011 ([41]). Accordingly Emil was well aware that his evidence on the topic was challenged and there was no need to address it expressly in cross-examination (see Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 17 and 26). In any event, I consider that there was in fact a sufficient challenge to the evidence in cross-examination. 29In these circumstances, Emil is left without any evidence of reliance and his proprietary estoppel claim must fail, and Josip's appeal succeed. 30In light of this conclusion, it is unnecessary to deal in detail with the other arguments advanced by the parties. I would simply add the following observations concerning the remedy that was appropriate if Emil had otherwise established his case.

The appropriate remedy 31Even if Emil had established that he acted, in the two respects to which the primary judge referred, in reliance upon his father's promises, the primary judge's grant of relief in his favour would not in my view have been appropriate. 32The improvements referred to were of a very limited nature and were for Emil's benefit in the conduct of the radiator business on the Property. They were effectively "amortised" as a result of the benefit that Emil obtained from them over many years (see Delaforce v Simpson-Cook at [61]). 33Similarly, I would not have regarded Emil's foregoing in 1981 of an opportunity to buy the property across the road as rendering it unconscionable for Josip to resile from his promises 30 years later. Whilst the Court does not attempt to weigh the value of a lost opportunity and compare it to the detriment that would flow to a promisee from a promisor resiling from promises, the evidence concerning the alleged loss of opportunity was so limited that it would be mere speculation to conclude that, even if Emil's evidence were accepted, an opportunity of any enduring significance had been lost (compare Delaforce v Simpson-Cook at [5]). For example, such evidence as Emil did give about the property indicated that much expenditure would have been required to render it suitable for use for the radiator business. There is no acceptable basis for concluding that the property was unique in its suitability for the business. 34The present facts fall well short of those in Waddell v Waddell [2012] NSWCA 214 where there was ample evidence that the promisee made a career choice, affecting his life over a long period, in reliance on the promises made to him (see [67]). In my view, the enforcement of Emil's expectation would have been out of all proportion to any detrimental reliance which his evidence (if it had been accepted) proved. 35Moreover, it is difficult to understand why the primary judge required adjustments to be made in Josip's favour. The principal adjustment represented $350 per week from December 2006, when Emil said he ceased making the weekly payments to his father. However, elsewhere the primary judge found that there was no arrangement for payment of a weekly sum and such a sum was never paid. If the primary judge had accepted that there had been such an arrangement and that it had not been fulfilled, there might have been a basis for an adjustment, but the findings that Josip's promises were conditional upon the making of substantial payments over a long period and that the payments were never made should have led to the refusal of relief to Emil, rather than the making of an adjustment in favour of Josip. 36In addition, Josip's counsel could not identify any significant expenses that Josip might have had to bear (stamp duty, for example, would have to be paid by Emil) which warranted the primary judge providing for a further adjustment of $25,000 "to cover all expenses associated with the transfer of the ... Property and the costs of moving" (Judgment [85]). That adjustment was accordingly inappropriate. 37Another issue, which need not be pursued in light of the failure of Emil's proprietary estoppel case, is whether the promises made by Josip justified an order for immediate transfer of the property, as distinct from one to take effect on Josip's death, with orders to protect Emil's ability to continue his business on the property in force in the meantime.

ORDERS 38For the reasons I have given, Josip's appeal should succeed. I propose the following declarations and orders: The Court declares that: (1) The appellant has at all times since 2 April 1975 been the beneficial owner of land known as 2A Mellor Street, West Ryde, 2114 being the whole of the land comprised in folio identifier B/396928 (the "Property"). (2) The appellant has not at any time held the Property on trust for the respondent. (3) The respondent presently holds the Property on trust for the appellant pending the performance of Order 4 below. (4) The occupation of the Property (or part of it) by the respondent since 7 December 2010 has been as tenant at will of the appellant. The Court orders that: (1) The appeal is allowed. (2) The cross-appeal is dismissed. (3) The orders of the Court below made on 16 February 2012 and 22 February 2012 are set aside and, for the avoidance of doubt, declared void ab initio. (4) Direct the respondent, within 28 days after the making of these orders, to take all such steps and execute all such documents prepared by the appellant as are reasonably necessary or desirable to enable the Registrar-General to record the appellant as the registered proprietor of the Property, including but not limited to a transfer in registrable form. (5) Order the respondent to pay to the appellant, within 60 days after the date of these orders, mesne profits for the period 7 December 2010 to 7 February 2013 in the sum of $22,666.45 and from 7 February 2013 to the date of these orders in a sum calculated at the rate of $200.08 per week, and to pay within 30 days of the end of each calendar month, mesne profits at the rate of $800 per month for any period in which the respondent has occupied any part of the Property. (6) Order the respondent to pay all reasonable costs associated with the transfer referred to in order 4 above. (7) Order the respondent to pay the appellant's costs in the proceedings below. (8) Order the respondent to pay the appellant's costs of the appeal and cross-appeal. (9) Grant the respondent a certificate under the Suitors' Fund Act 1951, if he is qualified. 39BARRETT JA: I agree with Macfarlan JA.

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: 01 March 2013