Foundas v Arambatzis

The Court of Appeal (Bell P, Basten and White JJA) unanimously rejected the application:

Per White JA (Bell P and Basten JA agreeing at [1] and [2] respectively): An order under s 66G of the Conveyancing Act 1919 (NSW) operates to transform a co-owner's beneficial interest in the property into the right to see the trust for sale performed and to a share of the net proceeds of sale: [8], [9]. Once the order under s 66G was made the appellant no longer had a right to possession against the trustees for sale: [13]. Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635; [1993] HCA 45; Application of Richard Albarran; Harb v Harb [2010] NSWSC 125; Abbott v Pegler (1980) 1 BPR 9267: applied. The fact that the trustees for sale had not taken the step of registering their interest resulted in the appellant maintaining the legal title: [11]. However, that bare legal title was insufficient to support a right to possession as against the trustees for sale after the s 66G order was made and on the taking of an account the appellant should be charged with an occupation fee from the date of the trustees' demand: [14].

Judgment

1. BELL P: I agree with White JA.
2. BASTEN JA: I agree with White JA.
3. WHITE JA: The principal judgment in these proceedings was delivered on 24 March 2020 (Foundas v Arambatzis [2020] NSWCA 47). The orders of 24 March 2020 confirmed the appointment of trustees for sale of the property in Magee Street, Ashcroft. As noted in a further decision on 26 March 2020 (Foundas v Arambatzis (No. 2) [2020] NSWCA 51), the appellant sought the variation or setting aside of an order for possession. It appeared that she might also have sought the variation or setting aside of order 8 made on 24 March 2020. Order 8 provided that in accounting for the balance of the net proceeds of sale between the appellant and the first respondent, the second respondents, being the trustees for sale, should charge the appellant with a reasonable market rent for occupation of the property from 29 October 2018 to the date of her delivering vacant possession.
4. Submissions subsequently made by the appellant make it clear that she does seek the setting aside of that order. Pursuant to orders made on 26 March 2020 the parties have provided written submissions on that application.
5. The appellant submits that as a general rule a co-owner (in this case the first respondent) who has chosen not to exercise his right of possession, that is, to live on the property, cannot seek any compensation from the other co-owner because each co-owner has the right to occupy the entire property and does not have to pay for that right.
6. That principle is correct so far as it goes. But as I observed in my reasons for judgment of 24 March 2020: "107 The appellant was not liable to pay any 'rent' or occupation fee while she was a legal owner as tenant-in-common. 108 From 15 October 2018, when the order appointing trustees for sale was made, the appellant was no longer entitled to occupy the property by virtue of her legal ownership. She had no right to occupy the property except under lease or licence from the trustees. She is liable to a 'rent' or 'occupation fee', or I think more accurately, damages by way of mesne profits equivalent to a reasonable rent, for so long as she remains in occupation."
7. In Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635; [1993] HCA 45 Deane, Dawson and Gaudron JJ said (at 657) that: "... there is strong support for the view that the making of the order for sale extinguishes the equitable interests of the co-tenants in the land itself even before a sale is effected."
8. That conclusion follows from the terms of s 66G(1) and (7) of the Conveyancing Act 1919 (NSW). Section 66G(1) provides: "66G Statutory trusts for sale or partition of property held in co-ownership (1) 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."
9. In the present case the primary judge made an order that the property be vested in the trustees on the statutory trust for sale. The vesting order divested each of the appellant and the first respondent of their beneficial interests in the land. After the making of the vesting order their interests were in the proceeds of sale. Section 66G(7)(b) provides: "(7) Where property becomes subject to such statutory trust for sale - ... (b) in any case land shall be deemed to be converted upon the appointment of trustees for sale unless the court otherwise directs." The primary judge did not direct otherwise.
10. In Abbott v Pegler (1980) 1 BPR 9267 Powell J said (at 9270) that: "[T]he more correct view may be that, since the order itself operated as a conversion as from the date of the order ... Mr Abbott thereafter had no estate, interest or right to occupy or remain in possession of the subject land (Burgess v Booth [1908] 2 Ch 648) even though the title to the subject land did not vest in the trustees until registration of the order."
11. Following the making of the orders appointing trustees for sale neither the appellant nor the first respondent had a beneficial interest in the land. Their rights were transformed into the right to see the trust for sale performed and to a share of the net proceeds of sale in accordance with their beneficial interests and subject to an account in equity (Application of Richard Albarran; Harb v Harb [2010] NSWSC 125 at [15]-[19] (Brereton J)).
12. Section 86(1) and (2) of the Real Property Act provides: "86 Recording of vesting order (1) Where an order is made by a court of competent jurisdiction vesting land under the provisions of this Act in any person, the Registrar-General on being served with an office copy of the order shall make such recording in the Register as in accordance with the provisions of this Act may be necessary to give effect to the order. (2) Unless and until a recording referred to in subsection (1) is made, an order so referred to shall have no effect or operation in transferring or otherwise vesting the land the subject of the order, but when the recording is made the person in whom the order purports to vest the land shall become the registered proprietor of the land."
13. It appears that the trustees for sale did not serve a copy of the order appointing them as trustees for sale on the Registrar-General so as to become registered proprietors of the land. A title search dated 12 July 2019 shows the appellant and first respondent as still being the registered proprietors. There is no obvious reason for the trustees not to have done so. Ms Foundas had lodged a caveat that the primary judge ordered to be removed on 6 September 2019. The caveat prohibited the registration of any dealing. That caveat would not have precluded the recording of the trustees for sale as registered proprietors.
14. Nonetheless, it appears that when, on 29 October 2018, Mr Wengel, one of the trustees for sale, made a demand for the payment of a market rent for the property, he and his co-trustee had not become registered proprietors of the property.
15. However, the effect of s 66G(7)(b) of the Conveyancing Act is that Ms Foundas' interest was converted from an interest in the land to an interest in its proceeds of sale. Her legal title to the land as co-owner, preserved by s 86(2) of the Real Property Act, no longer supported a right to possession as against the trustees for sale.
16. Whatever the position might be at law because, after the appointment of trustees for sale, Ms Foundas no longer had a beneficial interest in the land, on the taking of an account in equity she could not insist on her legal right as co-owner to occupy the property without accounting to her co-owner for an occupation fee once demand for possession was made.
17. Ms Foundas relied upon Luke v Luke (1936) 36 SR(NSW) 310, at 312 for the proposition that a co-owner in sole occupation is not liable at law nor in equity to pay an occupation rent to the non-occupying co-owners because each co-owner has a right to possession of the whole property and by exercising that right, it would be unfair for a co-owner to be burdened by a claim for compensation at the suit of the other who had failed to exercise his or her same right.
18. That principle is not in question. But in Luke v Luke the issue was whether, at the time of making an order for sale, an occupying co-owner could be charged with an occupation rent for the period of her occupation when the other co-owner (now deceased) had not been ousted. That is not the present issue. No order has been made for the payment of an occupation fee by Ms Foundas before the trustees for sale made a demand for rent. The rights of Ms Foundas and Mr Arambatzis changed fundamentally on the order appointing trustees for sale in that their rights ceased to be beneficial interests in the land and were converted to a right to the proceeds of sale. Ms Foundas ceased to be entitled as against the trustees for sale to possession of the land, except with the trustees' consent.
19. The second respondents submitted that Ms Foundas had ousted Mr Arambatzis from the property and is liable to account for an occupation fee when seeking contribution for her expenditure. The claim for expenditure has been dealt with (Foundas v Arambatzis at [90]-[93]). Mr Arambatzis did not claim an adjustment on distribution of the net proceeds of sale on the basis that he had been ousted from possession.
20. For these reasons order 8 made on 24 March 2020 should not be set aside nor varied. Ms Foundas' application to set aside order 8 made on 24 March 2020 should be dismissed with costs.
21. The second respondents agreed that they would not seek to enforce the order for possession (order 6) and the order granting liberty to the second respondents to obtain a writ of possession (order 7) prior to 28 May 2020. The first respondent opposes any further extension. The second respondents also oppose any further extension.
22. If the appellant seeks a stay of those orders after 28 May 2020 then the following orders apply: 1. by 14 May 2020, the appellant is to file and serve any affidavit and submissions in support of any application that orders 6 and 7 made on 24 March 2020 be stayed beyond 28 May 2020; 2. any further affidavits or further submissions in response by the respondents be filed and served by 21 May 2020; 3. any affidavit or submissions in reply by the appellant be filed and served by 25 May 2020.
23. The application, if made, will be dealt with on the papers.

Amendments 07 May 2020 - Para 22 "May" substituted for "March". 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: 07 May 2020