27 ER 934
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61
53 NSWLR 153
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833
117 FCR 424
Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502 (CA)
Classic International Pty Ltd v Lagos [2002] NSWSC 1155
60 NSWLR 241
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24
Source
Original judgment source is linked above.
Catchwords
27 ER 934
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 6153 NSWLR 153
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833117 FCR 424
Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502 (CA)
Classic International Pty Ltd v Lagos [2002] NSWSC 115560 NSWLR 241
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24149 CLR 337
Colyer v Clay (1843) 7 Beav 18849 ER 1036
Commonwealth v Verwayen [1990] HCA 39302 FLR 230
Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314
McRae v Commonwealth Disposals Commissioner [1951] HCA 7984 CLR 377
Milroy v Lord (1862) 45 ER 1185
Muschinski v Dodds [1985] HCA 78160 CLR 583
Norman v Federal Commissioner of Taxation [1963] HCA 21Crothers v Crothers [1930] VLR 49113 CLR 385
Sheriff v Coates (1830) 1 Russ & M 15939 ER 61
Sidhu v Van Dyke [2014] HCA 19251 CLR 505
Solle v Butcher [1950] 1 KB 671
Svanosio v McNamara [1956] HCA 5596 CLR 186
Taylor v Johnson [1983] HCA 5151 CLR 422
Walton Stores v Maher [1988] HCA 7
Judgment (8 paragraphs)
[1]
e County Council [1994] 1 WLR 1016
Texts Cited: Edelman, James, "An Uncommon Mistake" (2004) 15(1) King's College Law Journal 127
Heydon, J, Leeming, M, and Turner, P, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (LexisNexis Butterworths. 2014, 5th ed)
MacMillan, Catharine, Mistakes in Contract Law (Hart Publishing Oxford, 2010)
McCamus, John, "Mistaken Assumptions in Equity; Sound Doctrine or Chimera?" (2004) 40 Canadian Business Law Journal 46
Seddon, N, "Contract: Mistake Mistake" (2006) 80 Australian Law Journal 95
Seddon, N, Seddon on Deeds (Federation Press, 2015)
Story, J, Commentaries on Equity Jurisprudence as Administered in England and America (A Maxwell, London, 1839, 2nd ed)
Yeo, Tiong Min, "Unilateral Mistake in Contract: Five Degrees of Fusion of Common Law and Equity - Chwee Kin Keong v Digilandmall.com Pte Ltd" [2004] Singapore Journal of Legal Studies 1
Category: Principal judgment
Parties: Plaintiff - Jennifer Jane Hawcroft In Her Capacity As Executor of The Deceased Estate of Martin Hawcroft
Defendant - Hawcroft General Trading Co Pty Limited
Representation: Counsel:
Plaintiff Mr LT Livingston
Defendant Mr MW Sneddon
Solicitors:
Plaintiff Staunton & Thompson
Defendant Fox & Staniland Lawyers
File Number(s): 2015/129403
[2]
Judgment
YOUNG AJ: This is an application for an order that the Defendant pay the proceeds of a Comminsure Life Policy (the Policy) to the estate of Martin Hawcroft in compliance with cl 2 of the "General Indemnity" entered into by the Plaintiff and Defendant on 20 May 2014 (the Deed). In the alternative, the Plaintiff seeks a declaration that Martin Hawcroft was, at the time of his death, the beneficial owner of a Comminsure Life Policy (the Policy) on the basis of an equitable assignment or alternatively a constructive or implied trust such that the Defendant holds the proceeds of a Comminsure Life Policy (the Policy) on trust for the estate of Martin Hawcroft.
The Defendant cross claims and seeks a declaration that it is the legal and beneficial owner of the proceeds of the Policy and that the Deed should be set aside on the ground of mistake.
The Plaintiff, Jennifer Hawcroft, was the wife of Martin Hawcroft from 31 July 1994 until his death on about 30 April 2012 and the executor of his estate. Martin Hawcroft was a director and shareholder of the Defendant, Hawcroft General Trading Co Pty Ltd, from 1986 until his death. The Plaintiff was appointed as a director of the Defendant on 16 May 2012.
The Defendant owns and operates "Noah's on the Beach" hotel in Newcastle and "Noah's in the Valley" motel in Muswellbrook. The Defendant also operated a cattle property until it was sold in 2010. After the death of their father, Edward Hawcroft, in July 2003, the only directors of the Defendant were Martin Hawcroft and his brother Peter Hawcroft. Michelle Jamieson and John Hawcroft were subsequently appointed to the Board on 4 September 2007. Peter Hawcroft resigned from the Board in August 2011, at which time Michelle Jamieson and John Hawcroft became equal shareholders with Martin Hawcroft.
It is not disputed that the Policy over the life of Martin Hawcroft was issued in the name of the Defendant in 1996 and the Defendant has at all times been named as the legal owner of the Policy. The Policy was initially taken out to satisfy the security requirements for a loan from State Bank to the Defendant.
After Martin Hawcroft's death, the parties jointly retained Ms Cheeseman SC to provide an opinion as to the beneficial ownership of the Policy. Ms Cheeseman SC provided a written opinion on 20 August 2013. On 27 September 2013, the Defendant, Plaintiff, Michelle Jamieson and John Hawcroft entered into an "Evaluation Agreement" with Ms Cheeseman SC to provide a further "neutral evaluation". The evaluation was provided on 26 February 2014. Subsequently, the parties entered into the Deed on 20 May 2014. The parties entered into a further "Development Agreement" and "Succession Agreement" on 25 November 2014 under which the Plaintiff agreed to lend funds to the Defendant.
This matter was heard on 14 and 15 March 2016. Mr Livingston appeared for the Plaintiff. Mr Sneddon appeared for the Defendant. The key issues in this matter are: (1) whether the Deed is enforceable; (2) whether there was an equitable assignment of the Policy to Martin Hawcroft between 2005 and his death; (3) whether the Defendant held the Policy on constructive or implied trust for Martin Hawcroft; and (4) whether the Defendant is otherwise estopped from claiming that it is the beneficial owner of the proceeds of the Policy. I will deal with each of these issues in due course and then consider (5) the result of the litigation.
[3]
Enforceability of the Deed
The Plaintiff's primary argument is that the Defendant is obliged under cl 2 of the Deed to account to the Plaintiff for the proceeds of the Policy.
The Defendant submits that the Deed and Development Agreement should be set aside because the agreements were entered into under the shared mistaken assumption that Ms Cheeseman SC's opinion and evaluation were correct.
The relevant provisions of the Deed are as follows:
DEED OF INDEMNITY dated 20 May 2014
BETWEEN:
JENNIFER HAWCROFT (Indemnifier); and
HAWCROFT GENERAL TRADING PTY LIMITED CAN 000 409 076 (Company)
RECITALS:
…
E. In and subsequent to 2005 events occurred which have raised issues regarding entitlement to the proceeds from the Insurance Policy.
F. The parties have jointly obtained advice of Counsel on respective entitlement to the proceeds from the Insurance Policy as a result of which the parties have agreed to enter into this Deed.
OPERATIVE PROVISIONS:
1. Interpretation
In this document:
…
Insurance Policy means the CommInsure Policy No. 00049702 in the name of the Company on the life of Martin Hawcroft
2. Indemnified Event
The Company will promptly claim upon and account to the Indemnifier for the whole of the proceeds of the Insurance Policy.
…
4 Preservation of Company's rights
…
4.4 Reinstatement of the rights of Company
If any transaction or payment under this document is void, voidable or otherwise unenforceable or refundable:
(a) the Company is entitled against the Indemnifier to all rights under this document and any collateral rights or security that it would have had if the transaction or payment had not occurred or been made, as the case may be; and
(b) the Indemnifier must do all things and sign such documents necessary to restore to the Company its rights under this document and any collateral rights or security immediately before that transaction or payment.
…
The relevant provisions of the Development Agreement of 25 November 2014 are as follows:
RECITALS:
…
G. Proceedings are being commenced in the Supreme Court of NSW for declaratory relief in relation to an insurance policy and for which legal advice has been obtained confirming that Martin's estate (and/or Jennifer) is entitled to the Policy Proceeds.
H. Jennifer has agreed to lend an amount of $1million from the Policy Proceeds.
…
OPERATIVE PROVISIONS
…
6.3. Undertaking
So as to properly effect the agreements between the parties, the parties agree and undertake as follows:
(a) the Company will join in the Court Proceedings;
…
(c) upon determination of the Court Proceedings the parties will undertake all necessary steps to effect a transfer to party nominated by the Court as entitled to the Policy Proceeds;
(d) until the date of such determination interest will continue to accrue for the benefit of the ultimate beneficiary of the insurance policy.
…
15.7. Entire Agreement
All oral representations, communications and prior deeds in relation to the subject matter are merged in and superseded by this deed and the Succession Deed.
[4]
Jurisdiction with respect to common mistake
For the reasons above, it is not strictly necessary for me to decide whether, if there were an operative common mistake, that mistake would render the contract void or the circumstances would be such that equity would give relief. However, for the reasons that follow, even if I am wrong as to the existence of an operative common mistake, I would not have found that the Deed should be set aside.
The Defendant submits that the applicable principles in this case are those set down by Denning LJ in Solle v Butcher [1950] 1 KB 671 at 693:
A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.
The Defendant submits that Solle v Butcher was "picked up" by the High Court in Svanosio v McNamara (1956) 96 CLR 186 and is good law in Australia. In Svanosio v McNamara, Dixon CJ and Fullagar J stated at 195:
So far as the contract is concerned, it may be assumed that all parties believed that the hotel stood wholly on the land sold. In that sense there was a "common mistake". It may also be assumed that the appellant, if he had known that a considerable part of the building stood on Crown land, would not have entered into the contract. But these facts do not make the contract void. The subject of "mistake" in relation to contracts has recently received a good deal of attention in the courts and in legal journals. This Court in McRae v Commonwealth Disposals Commission adopted with respect a passage in the judgment of Denning LJ (while saying nothing as to the actual decision) in Solle v Butcher …
Of course, Solle v Butcher was given a fair, but not complete seal of approval in McRae v Commonwealth Disposals Commission [1951] HCA 79; 84 CLR 577.
The Defendant submits that Solle v Butcher was also cited favourably in Classic International Pty Ltd v Lagos (2002) 60 NSWLR 241. However, as submitted by counsel for the Plaintiff, Palmer J noted in that case that the correctness of Solle v Butcher was not put in issue.
The Plaintiff submits that Solle v Butcher [1950] 1 KB 671 is no longer good law in Australia and that a Court of Equity has no jurisdiction to set aside a contract on the basis of a "fundamental" common mistake. Instead, the Plaintiff submits that it must be demonstrated that the parties entered into the contract upon a common assumption as to a state of affairs and the non-existence of that state of affairs renders performance of the contract impossible.
[5]
Appointment of expert
I now turn to the alternative submission that Ms Cheeseman SC's view was the decision of an expert whom the parties appointed to resolved their doubts and that they are bound by the expert's report even if it was later found to be wrong. However, again, for the reasons above, it is not strictly necessary for me to decide whether this submission is correct.
The Plaintiff submits that the parties were bound by their appointment of Ms Cheeseman SC as an expert. The relevant provisions of the Evaluation Agreement are:
9. The Parties appoint the Evaluator as an expert and not as an arbitrator to evaluate the Dispute in accordance with the terms of this agreement.
14. The Evaluator will not:
a. Impose a result on any Party;
b. Make decisions for any Party;
…
The Plaintiff submits that the Evaluation Agreement must be interpreted in a "businesslike and commercial way" and submits that there was "no point" in the parties submitting to an evaluation when they had already obtained advice from Ms Cheeseman SC unless they "impliedly bound themselves".
The Defendant, however, emphasises that cl 14 of the Evaluation Agreement states that the Evaluator will not "impose a result" and submits that an implied term that the parties bound themselves would therefore be contrary to the principle in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.
In Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, McHugh JA stated at 336:
Is the mistake in the present case of a kind which enables the court to set aside the valuation? In my opinion it is not of the relevant kind. There is nothing in the contract which would enable the valuation to be set aside on the simple ground that the valuer made a mistake. Nor do I think it possible to imply a term to that effect: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. The rent review clause makes the decision of the valuer "final and binding on the parties to this lease". Nothing in the lease suggests that it was not to be final and binding if it was the result of error or mistake or was unreasonable. The decision - whatever it is - is to bind the parties. It is true that the valuer is "acting as an expert and not as an arbitrator". But those words which have been commonly used in agreements since the Common Law Procedure Act 1854 serve the purpose of excluding the provisions of the Arbitration Act 1902. They avoid the necessity for the valuer to hear evidence and the parties and to determine judicially between them. They enable him to rely on his own investigations, skill and judgment: Re Dawdy (1885) 15 QBD 426 at 429, 430. Indeed they reinforce the view that the parties, as between themselves, rely on the honest and impartial skill and judgment of the valuer.
[6]
Moral entitlement
Before dealing with those matters, as I indicated earlier, I must consider the Plaintiff's submission that she did not enter into the Deed or the Development Agreement in reliance upon Ms Cheeseman SC's advice. In her affidavit of 3 February 2016 the plaintiff said:
My decision to execute the Deed did not depend on Ms Cheeseman's Opinion or Evaluation being correct or any view on my part about that. If I had had any reason to think Ms Cheeseman's conclusions were not, or might not be correct, I would still have executed the Deed as I believed that Martin or his estate had a strong moral entitlement to the Policy proceeds regardless of what the strict legal position might be.
The Plaintiff also relies on the evidence of Michelle Jamieson in cross examination that (T112):
Q. At the time you signed the deed, you understood from your discussions with Jennifer that Jennifer believed the company had a moral obligation to pay the proceeds to her?
A. Yes.
…
Q. And immediately after you signed the deed, you knew from your discussions with Jennifer that she believed the company had a moral obligation to pay the proceeds to her whether or not it had a legal obligation to do so.
A. Yes.
The Defendant submits that if, contrary to its position, the Court accepts that the Plaintiff entered into the deed based on a sense of "moral" claim to the proceeds rather than the advice of Ms Cheeseman SC, then the Plaintiff was in any event mistaken as to her "moral" entitlement.
The Plaintiff submits that a belief in a moral entitlement "does not lend itself to a conclusion that it constitutes a mistake".
Of course a belief in a moral entitlement does not lead itself to a conclusion that it constitutes an operative mistake. However I do not accept that any belief that the Plaintiff had as to her moral entitlement would, in the background of having lawyers agreeing to enter into a neutral evaluation and a Deed, be the operative factor in her entering into the Deed or the Development agreement.
[7]
Equitable assignment
The Plaintiff submits that in 2005, or at least at some point prior to Martin Hawcroft's death in 2012, a specifically enforceable agreement arose between Martin Hawcroft and the company constituted by the company's conduct and supported by valuable consideration such that the estate of Martin Hawcroft is the beneficial owner of the Policy: In Re Crothers; Crothers v Crothers [1930] VLR 49; Donovan v Secretary, Department of Family and Community Services [2003] FCA 438 at [10].
The Plaintiff submits that Martin Hawcroft's personal funding of the Policy premiums constituted valuable consideration. The actual facts are that the Defendant paid the premiums and then charged Martin Hawcroft's loan account for them. The parties have rightly taken these facts to mean that Martin Hawcroft paid the premiums.
The Plaintiff relies on the decision in Norris v Perpetual Executors, Trustee & Agency Co (WA) Ltd [1941] 44 WALR 21. In that case, the deceased agreed to transfer a life insurance policy to her husband on the condition that the husband would pay the premiums. The husband paid all but the three last payments with the deceased's knowledge and approval. Dwyer J held that the assignment of the policy did not fail for lack of consideration and that the estate of the deceased was estopped from so alleging.
The decision in Norris v Perpetual Executors can be distinguished from the present case on two bases. Firstly, in Norris, Dwyer J noted that at the time the husband commenced payment of the premiums, the policy "was of no real monetary value at all", having been recently taken out (at 23). In this matter, by August 2005, the Defendant had been paying premiums for about nine years. While the Plaintiff submits that the Policy in this case was a term policy and as such had no surrender value, as I noted in the hearing of this matter, it may have had a market value (a matter which was not explored).
Secondly, in Norris v Perpetual Executors, his Honour noted that, given that the policy was payable at death, the payment of premiums could not be construed as "gifts" to his wife as the premiums could not "accrue for the wife's personal enjoyment" (at 24). As I noted at the hearing of this matter, arguably Martin Hawcroft's payment of the premiums might reflect his desire that the Defendant company continue even after his death. Again, this was not explored.
[8]
Amendments
05 May 2016 - Paragraph [14], change res extinca to res extincta.
Paragraph [64], change Willimas to Williams.
Paragraph [125], change "I did not consider that his proposition was not entirely correct" to "I did not consider that his proposition was entirely correct".
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: 05 May 2016
The Plaintiff submits that the doctrine of mistake has no application in the circumstances of this case. First, the Plaintiff submits that there was no common mistake. Secondly, the Plaintiff submits that in any event, upon proper construction, the Deed expressly or impliedly provided that the Defendant was to bear the risk that Ms Cheeseman SC's opinion and evaluation were erroneous. Thirdly, the Plaintiff contends that there is no equitable jurisdiction to set aside agreements on the basis of a common mistake about a fundamental matter. Finally, the Plaintiff submits that the parties are bound by their appointment of Ms Cheeseman SC as an expert.
Before dealing with the sub-issues I should deal generally with mistake at law and in equity.
The Plaintiff submits that there was no common mistake here. "Common mistake" is a term used in contract law to denote the situation where both parties make a mistake when entering into their contract and they make the same mistake. The usual cases are cases of res sua (where a party contracts to buy something which he or she already owns) and res extincta (where a party contracts to buy something that does not exist though he or she thinks it does). However it also extends to some fundamental misconceptions which go to the root of the contract. The term is distinguished from mutual mistake where both parties make a mistake but make different mistakes and unilateral mistake where a person makes a mistake and the other party to the contract knows that he or she has made that mistake yet proceed with the contract.
Recital F to the Deed is not an operative part of the Deed. The law as to recitals is fairly clear (see e.g. Seddon on Deeds [5.3]). A recital is a statement of fact but not a warranty nor a promise. Indeed misinformation in a recital is not usually of any significance save that it might base an estoppel.
I will use the word misinformation rather than the technical word common mistake because it is clear that not every piece of misinformation would constitute an operative common mistake at law.
There was a suggestion in the submissions of both counsel that if parties contract based on the mistaken view of fact or law, particularly a mistaken view on a fundamental matter, the resultant contract is void or voidable. This is not necessarily so.
There is no overriding principle that a fundamental mistake by one or both parties will make a contract void or voidable. For instance in a case of supposed unilateral mistake, Riverlate Properties Ltd v Paul [1975] Ch 133, the English Court of Appeal said at 140 that a lessor was not entitled to rescission of a lease on the basis that it made a serious mistake in drafting the lease where the lessee was unaware of the mistake.
More generally, the aspect of the law known as conventional estoppel has developed to cover cases where parties have both acted on a mistaken view of fact or law. Far from the mistake vitiating their contract, they may even be estopped from denying the truth of that matter of fact or law. When I mentioned this during argument, the reaction was that I intended to deal with this case as one of conventional estoppel. I endeavoured to make it clear (though I think I failed) that that was not my intention: I merely pointed to the existence of this principle to demonstrate that the submission that all common mistakes vitiate the resultant contract cannot be universally true if it be true at all.
However an operative common mistake does not necessarily have to be found somewhere in the contract itself. The fact that the parties have contracted in a res sua or res extinca situation will usually appear from matters dehors the contract. The recital is some evidence from which a court can infer that as a background fact each part accepted that Ms Cheeseman SC's advice was correct.
The next question is whether that inference should be drawn in the instant case.
Here it is significant that the recital does not actually say that either party accepted that the advice was correct. The recital merely says that they had jointly obtained advice and as a result they agreed to enter into the Deed. One could infer that this means that the parties accepted the advice as being correct, but one should ask why they didn't actually say so. However nobody has admitted that that party took the view that the advice could well be wrong but it suited them to accept it. The Plaintiff's only comment was that she considered that she had a moral entitlement to the Policy. However a view of moral rights would not, especially in the case of a person who had a solicitor and had just obtained counsel's advice, be sufficient to exclude from her significance the result of the legal position.
It would seem clear that the Defendant considered, as a result of the advice given, that the Policy belonged to the Plaintiff and that the Deed and subsequently the Development Agreement were the best it could do commercially. The Plaintiff however says that it was not a major factor in her entering into the Deed that Ms Cheeseman SC's advice had come out in her favour. There does not seem to me to be any reason to disbelieve her and indeed cross-examination did not shake her on her attitude though that attitude does seem a little naïve. I will consider the submissions on moral entitlement later in these reasons.
The proposition that the advice of Ms Cheeseman SC was a vital factor in the Deed is reduced by the clear fact that the parties intended to embark on litigation. It might be asked why they would do this if the advice of counsel, including the neutral evaluation which followed it, was conclusive.
One answer to this question is that there was some taxation reason for commencing the litigation. It would seem that the parties or at least the Defendant consider there might be some tax to be paid on the moneys paid from the company to the Plaintiff when it paid over the proceeds of the Policy to the Plaintiff but that that would be avoided if a court should declare that the Policy belonged to the Plaintiff. One could infer that the Defendant thought that it would be a fait accomplit that the declaration would be made in favour of the Plaintiff.
Again, it is significant that the Plaintiff's solicitor sent an email to the Plaintiff in September 2013 describing the process of independent neutral evaluation and stating that "either way it would not prevent either side from litigating the matter". That email appears to have reflected the view then taken by both sides.
What appears to have happened is that when the present counsel became seized of the matter and closely examined Ms Cheeseman's advice, they saw that it may not be correct. I should mention here that although both counsel seemed to take the view that, on the material before the Court, Ms Cheeseman's advice was incorrect, I would not make the assumption that the advice was incorrect when it was given. Counsel's advice is only as good as the factual scenario presented to counsel by his or her brief. If counsel is not given the full facts then, whilst the ensuing advice may not be correct when all the full facts are revealed, it cannot be said to be wrong on the facts which were given. However both parties have addressed on the assumption that the advice was wrong and I need to consider the case on that basis.
Was there then an operative common mistake? I consider that the answer is "No". The parties may have been mistaken as to whether it was safe to contract on the basis of Ms Cheeseman SC's advice but there being no promise or warranty, litigation being contemplated and there being a mere recital, it does not seem to me that that is sufficient to constitute operative common mistake at law or equity, the authorities making it quite clear that the existence of such a mistake must be clearly established.
As I have noted, the Plaintiff submits that if there were a common mistake, the Deed expressly or impliedly provides that the Defendant is to bear the risk that the opinion was wrong. For the reasons above, it is not necessary for me to decide whether that submission is correct. However, I must confess that I can see no material to support that submission.
The Defendant submitted that Recital G and cl 6.3 of the Development Agreement which was signed some six months after the Deed establishes that the correctness or otherwise of Ms Cheeseman SC's opinion was a condition precedent or precondition of the agreements. I cannot see how the later agreement can have this effect.
The Plaintiff submits that the applicable principles are as set out by Atkinson J (with whom Jerrard JA agreed) in Australian Estates Pty Ltd v Cairns City Council [2005] QCA 328:
[48] In Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, the Court of Appeal, in a judgment of conspicuous clarity, examined the common law of mistake and the equitable doctrine of rescission for mistake. The court held that the following elements must be present if common mistake is to avoid a contract at common law:
"(i) there must be a common assumption as to the existence of a state of affairs;
(ii) there must be no warranty by either party that that state of affairs exists;
(iii) the non-existence of the state of affairs must not be attributable to the fault of either party;
(iv) the non-existence of the state of affairs must render performance of the contract impossible;
(v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible."
…
[63] The appellant in this case argued that the parties were mistaken about a fundamental matter and that Australia Estates, the party seeking to set aside the contract, was without fault. That is the test from Solle v Butcher. However for the reasons already given, that is no longer the appropriate test. Even if it were the test, for the reasons given below, the appellant would fail.
[64] In my view, the correct question to be posed on this appeal is whether the agreement is void at common law for common mistake. The test that should be applied is that found in the five elements set out in Great Peace Shipping v Tsavliris. It is abundantly clear in applying those elements to this case that the common law of mistake could not be used to declare the agreement void. For the reasons discussed below, there was no mistake. Even if there had been, the mistake (or non-existence of a state of affairs) alleged by the appellant did not render the performance of the agreement impossible. There is no equitable jurisdiction to set aside, on the ground of common mistake, an agreement, which is valid and enforceable at common law.
The third judge, McMurdo P, said that as no mistake had occurred, it was not necessary to consider whether Great Peace Shipping should be followed.
The decisions in Great Peace Shipping and Australian Estates were discussed in HWG Holdings Pty Ltd v Fairlie Court Pty Ltd [2015] VSC 519; 302 FLR 230 at [52]-[55] but were not necessary to the decision in that case. However, Sifris J said at [35] that the plurality of the High Court in Taylor v Johnson [1983] HCA 5; 151 CLR 422, although a unilateral mistake case, had accepted that a contract was voidable if affected by operative mistake and accepted the position taken in Solle v Butcher.
The decision in Great Peace Shipping has not been followed in Singapore (see Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502 (Singapore CA)) and has been criticised (see Seddon, N, "Contract: Mistake Mistake" (2006) 80 Australian Law Journal 95; James Edelman, "An Uncommon Mistake" (2004) 15(1) King's College Law Journal 127 at 131; John McCamus, "Mistaken Assumptions in Equity; Sound Doctrine or Chimera?" (2004) 40 Canadian Business Law Journal 46 at 75ff; Errichetti Nominees Pty Ltd v Paterson Group Architects Pty Ltd [2007] WASC 77 at [61]-[63]).
In Great Peace Shipping, Lord Phillips MR who delivered the judgment of the Court of Appeal considered that Lord Denning's formulation in Solle v Butcher did not provide an adequate basis for differentiating between "fundamental" mistake and the common law test of a mistake that makes the subject matter of the contract "essentially different". His Honour stated at [131] that:
If the result in Solle v Butcher extended beyond any previous decision the scope of the equitable jurisdiction to rescind a contract for common mistake, the terms of Denning LJ's judgment left unclear the precise parameters of the jurisdiction. The mistake had to be 'fundamental', but how far did this extend beyond Lord Atkin's test of a mistake 'as to some quality which makes the thing without the quality essentially different from the thing as it was believed to be'? The difficulty in answering this question was one of the factors that led Toulson J. to conclude that there was no equitable jurisdiction to rescind on the ground of common mistake a contract that was valid in law. Was it open to him after half a century and is it open to this Court to find that the equitable jurisdiction that Denning LJ identified in Solle v Butcher was a chimera? Principles of both equity and common law have been developed by the judges and that is not a process which ceased with the Judicature Act. Does the doctrine of precedent require, or even permit, this court to hold that the jurisdiction that Denning LJ purported to exercise in Solle v Butcher does not exist because that decision was in conflict with that of the House of Lords in Bell v Lever Brothers?
However, as noted by the Court of Appeal of Singapore in Chwee, while the more simplistic approach adopted by the decision in Great Peace Shipping avoids the difficulties in delineating precisely when equity ought to intervene and in determining when a contract is to be void as opposed to voidable for common mistake, the approach does not necessarily lead to a just result. The Court of Appeal stated at [75]-[77] that:
We appreciate that there are difficulties in delineating precisely the considerations which should apply for equity to intervene. One suggested way to differentiate the application of the common law rule and equity would be to hold that the former is limited to mistakes with regard to the subject matter of the contract (like that in Bell v Lever Bros), while the latter can have regard to a wider and perhaps open-ended category of "fundamental" mistake: see William Sindall Plc v Cambridgeshire County Council [1994] 1 WLR 1016 per Hoffmann LJ at 1042.
In view of the difficulties, one may be tempted to take a clear simplistic approach, namely, where there is actual knowledge, the contract would be void at common law. But where there is no actual knowledge, the contract ought to be performed. There would then be no room for equity to operate. But we believe that simplicity may not always lead to a just result, especially where innocent third parties are involved.
We do not think this court should approach the issue in a rigid and dogmatic fashion. Equity is dynamic. A great attribute, thus an advantage, of equity, is its flexibility to achieve the ends of justice. Constructive notice is a concept of equity and whether constructive notice should lead the court to intervene must necessarily depend on the presence of other factors which could invoke the conscience of the court, such as "sharp practice" or "unconscionable conduct". Negligence per se, on the other hand, should not be sufficient to invoke equity. Parties to a contract do not owe a duty of care to each other.
The Court of Appeal continued at [81]-[82]:
The judge below felt that "the price for equitable justice is uncertainty" and that the recognition of an equitable jurisdiction to rescind a contract for unilateral mistake might only encourage further litigation. That fear, with the greatest of respect, is more apparent than real. The courts here, as well as in other common law countries, have been applying equitable principles from time immemorial. While certainty is desirable, it is not an object which should prevail in all circumstances, even against the dictates of justice. As Assoc Prof Yeo Tiong Min in his article "Unilateral Mistake in Contract: Five Degrees of Fusion of Common Law and Equity - Chwee Kin Keong v Digilandmall.com Pte Ltd" [2004] SJLS 1 so aptly observed at p 12:
The fear that the use of "elastic" equitable principles will lead to uncertainty and encourage litigation is arguably exaggerated.
We share this view. It is not more difficult to determine what is "equitable" than what is "reasonable" at common law.
Moreover, as a matter of justice, as between a legal system having exclusively only a common law principle of unilateral mistake, which encompasses both actual or constructive knowledge of the non-mistaken party and a system that embraces both the common law principle and equity in the sense which we have alluded to above, there is certainly much to be said in favour of the latter system. We have no doubt as to which system better serves the ends of justice. As we have said before, the great advantage of an equitable jurisdiction is its flexibility, to do justice not only between the immediate parties, but also to innocent third parties.
Where does this discussion leave a single Supreme Court Judge?
It seems to me that one must look at the problem at two discrete levels - namely, (1) what is the position at law in Australia with respect to common mistake? (2) what is the position in equity?
As to the former, common mistake was traditionally only a vitiating factor at common law in two cases - res sua (where a buyer contracted to buy something that he or she already owned) and res extincta (where the buyer contracted to buy something which in fact did not exist). In each case, the purported contract was void at law. However, as the law developed, a third category of "fundamental" common mistake emerged as a further case of a common mistake for which the common law would declare a contract void.
In Great Peace Shipping, it was stated that if a fundamental common mistake makes a contract void at law, there is no room for an equitable principle that the court can in its discretion set aside such a contract in equity (at [96]). It could be argued that Great Peace Shipping was accepted by the majority in the Queensland Court of Appeal in Australian Estates Pty Ltd v Cairns City Council and that decisions of the Courts of Appeal of other States are to be followed unless clearly wrong. However, that acceptance was, as Sifris J said in HWG, obiter.
As N Seddon points out in his note "Contract: Mistake Mistake" in (2006) 80 ALJ 95, the Great Peace Shipping approach is a retrograde step. If contracts are to be held void as opposed to voidable, third party rights to property will be detrimentally affected without recourse.
The proposition that, so long as there is a common mistake as to an essential matter the purported contract must be taken to be void, must be too wide. Cases such as McRae v Commonwealth Disposals Commission make it quite clear that a person who is in a position to know the true facts yet mistakenly believes that certain property exists and induces the other party to share that belief cannot treat the contract as void.
Next, even if one completely ignores Australian cases where it might be said commercial law based on equitable principles has developed more strongly in Australia than in England, English cases (particularly Scott v Coulson [1902] 2 Ch 249 (CA), considered later in these reasons) show that the English Court of Appeal earlier in the 20th Century had no difficulty in recognising that both law and equity gave relief in proper cases of common mistake. It must be remembered that, whilst if statute or the common law change course and gives relief formerly only available in equity, the equitable remedy is treated as suspended as there is no need for equity to supplement the common law, that principle can be overstated. In cases where the statute or change in the common law does not cover the whole field, equitable principles remain and can be enforced in the appropriate case. Examples are Sheriff v Coates (1830) 1 Russ & M 159; 39 ER 61 and Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133.
A series of English commercial cases in recent days have shown that English and Australian commercial law have diverged over the previous few decades. Although this is a gross oversimplification, English jurists have elected certainty over discretionary considerations, the commercial community over consumers, whilst Australia has made the opposite philosophical choice. It is now over 50 years since we considered ourselves actually or virtually bound by English decisions and this fact has probably assisted this development. I made mention of this when writing extra-curially in (2016) 90 ALJ 2 as did Edelman J writing extra-curially more expansively in (2016) 90 ALJ 150ff.
There are great problems with applying both Great Peace Shipping and the principles espoused in leading Australian cases such as McRae v Commonwealth Disposals Commission, Svanasio v McNamara and Taylor v Johnson endorsing the role of equity in cases of mistake. At the very least, despite what is said in Great Peace Shipping, there must be some room for the operation of equitable principles.
The authors of Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed) at [14-045] criticise the plurality's judgment in Taylor v Johnson as "somewhat facile"; whether that is so or not, it is a binding decision that I must follow.
Even if one applies Great Peace Shipping, there are still some difficulties in this case in applying it. Just what is covered by the expression "state of affairs" in the guidelines? The fifth guideline says that it covers "the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible." Clearly covered are assumptions as to the existence and ownership of the commodity the subject of the contract and certain fundamental conditions to performance, but does it cover a statement of the reason as to why the parties have entered into the contract?
Accordingly, I do not consider that even if both parties made a mistake as to the correctness of Ms Cheeseman SC's advice that the purported contract is void.
I should note the Plaintiff's submission that she entered into the Deed on the basis of a moral claim, to which the Defendant responded that the parties would have been "completely at cross purposes, and that would leave consequently the contracts void at law" (T153). While these submissions enter into the field of mutual mistake, I do not consider, for the reasons already discussed, that, this scenario would lead, at law, to the contract being void.
It follows that I must then consider whether the circumstances are such that equity should give relief.
In her book Mistakes in Contract Law (Hart Publishing Oxford 2010), Professor MacMillan says at 38 that Chancery, before the Judicature Act, recognised that mistake like accident or fraud could affect the conscience. In such circumstances it would be unjust for a court of equity to allow a contract founded upon mistake to stand. However, equity only gave relief in a limited number of fact situations.
Additionally, she reminds (at 62) that Story in Commentaries on Equity Jurisprudence as Administered in England and America (A Maxwell, London, 1839, 2nd ed) notes that equity before 1875 gave rescission for mistake where a mistake pertained to a material ingredient in parties' contract and disappointed their intentions (vol I, 133 s151). The author cites Bingham v Bingham (1748) 1 Ves Sen 126; 27 ER 934.
Bingham is only sketchily reported in 27 ER, and one has to go to Ves Sen Sup 79; 28 ER 482 to find a summary of the facts. Essentially, there was a complicated what we would call Old System Title and the defendant strongly maintained that he was the proprietor of the land. He contracted to sell it to the plaintiff and the plaintiff paid the purchase price. However, the plaintiff himself was the true owner. The Master of the Rolls ordered that the purchase money be refunded. The Master of the Rolls held that no fraud was involved. The case would be one later classified as common mistake of the res sua type.
Professor MacMillan further states at 62 that "rescission is granted because to allow an agreement to stand when it was formed under a mistake would be "manifestly unjust"". She cites as authority Lord Langdale in Colyer v Clay (1843) 7 Beav 188, 193; 49 ER 1036, 1038.
In Colyer v Clay, a man had settled ₤2,000 on his wife for life and then as to capital and income to his two nephews, John Warren and John Willson, with the survivor to take the whole fund. On 12 January 1820, whilst the wife was still alive, Willson assigned his interest to Colyer for ₤500 being a valuer's assessment of its then value. Although no one was then aware of the fact, Warren was already dead by January 1820. This meant that Willson's interest was much more valuable. Although there was no fraud, Lord Langdale set the transaction aside.
It may be that Colyer v Clay can be explained as falling under equity's special care of impecunious expectant heirs. However, it is another example of equity giving rescission type relief in a case of common mistake not involving fraud.
However, that case was followed by both Kekewich J and the English Court of Appeal in Scott v Coulson [1903] 1 Ch 453 and on appeal [1903] 2 Ch 249. In March 1902, the parties entered into a contract to sell a life insurance policy on the life of a Mr Death. Both parties thought that Mr Death was still alive. In fact, he had died on 23 December 1899. Kekewich J at 456 considered that the contract should be set aside in equity on the ground of common mistake. In the Court of Appeal, Vaughan Williams and Robert Romer LJJ considered that the contract was void at common law, but that it could also be set aside in equity (252-33). Cozens-Hardy LJ merely dismissed the appeal.
Counsel for the Plaintiff submits that a Court of Equity will not grant rescission absent some fraud or misrepresentation on the part of the Plaintiff. He cites in support Svanosio v McNamara (1956) 96 CLR 186 at 196; Taylor v Johnson (1983) 151 CLR 422 at 444.
This citation is not as strong as it would first appear. The passage quoted from Svanasio actually reads that Dixon CJ and Fullagar J found it difficult to conceive of cases where relief would be given where fraud or misrepresentation or a condition expressed or implied in the contract was not demonstrated. The passage in Taylor comes from the dissenting judgment of Dawson J who took a completely different view of the case generally to that taken by the plurality.
The Plaintiff's submission may be broadly accepted so long as 'fraud" is taken in the sense of equitable fraud or unconscionable conduct and one substitutes "rarely' for "not", i.e. "absent equitable fraud or misrepresentation on the part of a plaintiff, equity will rarely grant rescission for common mistake".
However, in this case, the precise form of the principle makes little difference to the result. Both parties were represented by solicitors, neither party sought to take advantage of the other, neither party could be considered "vulnerable"; there is therefore no unconscionable conduct and no special reason has been advanced as to why equity should interfere.
To state the obvious, whatever the status of Solle v Butcher, it would not lead to any order being made.
The Defendant submits that this case can be distinguished from the Hudson line of authorities on the basis that in those cases, there was a contractual obligation to refer disputes to a third party for adjudication. It submits that by contrast, in this case, there was no express or implied agreement that the advice and evaluation of Ms Cheeseman SC were binding. In support of this proposition, it relies on an email from the Plaintiff's solicitor Bruce Thompson to the Plaintiff dated September 2013 that describes the process as "Independent neutral evaluation" and states that "either way it would not prevent either side from subsequently litigating the matter".
Although I had some initial attraction to this point, I consider the Defendant's submissions on the point are correct on the facts of this case.
Remaining matters
The foregoing is sufficient for me to find for the Plaintiff. However, I must briefly deal with three other matters that were raised: (1) whether there was an equitable assignment of the Policy, (2) whether there is a trust over the Policy in favour of the Plaintiff and (3) whether the Defendant is estopped from denying the Plaintiff's entitlement to the Policy.
The lack of formal documentation means that I must consider the conduct of the parties with respect to the policy.
The plaintiff submits that the course of conduct between Martin Hawcroft and the Defendant was such that, viewed as a whole and objectively from the point of view of a reasonable person on both sides, the dealings show a concluded bargain: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [74]-[81] (Heydon JA). She submits that the appropriate test is that put forward by Allsop J in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [369]:
The essential question in such cases is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract.
The Plaintiff calls in aid various minutes of the Defendant's board. One must always be careful with respect to this type of evidence as often minutes are created by a company's accountant rather than being prepared by someone recording what actually happened at the meeting. In the instant case, the company's accountant, Mr McKensey, did have an active role in preparing minutes. So long as one approaches the minutes with some caution, they probably constitute the best evidence available.
The Plaintiff relies on evidence in the Defendant's board minutes that it authorised the transfer of ownership of the Policy to the joint ownership of itself and the Plaintiff. The minutes of the meeting of 8 March 2005 record that:
It was agreed that Colonial be contacted immediately with a view to transferring the policy on the life of [Martin Hawcroft] to joint ownership with [Jennifer Hawcroft], obtaining the cost of limiting the total cover on the life of MH to $2,000,000 and $3,000,000 and cancelling the cover on the life of [Jennifer Hawcroft].
Such agreement is also recorded in the file note of Hugh McKensey of Forsythes Financial Services Pty Ltd dated 4 August 2005:
Agreement was reached between MH and Peter Hawcroft on 8 March 2005 to reduce the cover on MH to $2,000,000 or $3,000,000 (subject to cost) and change ownership to HGT and JH as tenants in common with each owning 50% and MH paying 50% of the premium.
However, as emphasised by the Defendant, this evidence refers to an agreement to transfer the Policy to the joint ownership of the Defendant and Plaintiff rather than to Martin Hawcroft and/or the Plaintiff. Under cross-examination, Hugh McKensey stated that there was no formal resolution after 8 March 2005 in respect of a transfer of the Policy to the Plaintiff alone but that he was "discussing it regularly with Martin and Peter Hawcroft" and that many directors' meetings were "not formal meetings".
The Plaintiff further submits that from August 2005 onwards, Martin Hawcroft paid the Policy premiums as evidenced by invoices issued by the Defendant to Martin Hawcroft, deductions for the premiums from Martin Hawcroft's loan account, and the evidence of the Defendant's external accountant Kellie Wright in her affidavit dated 24 April 2015 that the premiums were paid by the Defendant then repaid by Martin Hawcroft by way of loan repayments. The Plaintiff relies on evidence of Hugh McKensey that Martin Hawcroft commenced paying the premiums because Peter Hawcroft, the only other director of the Defendant at that time, objected to the Defendant bearing the cost. In his affidavit of 24 May 2015, Hugh McKensey states that Peter Hawcroft said words to the effect that "the Company should not be paying this cost as it benefits Martin's family and the Company does not need it". The Plaintiff submits that an inference may be drawn from the Defendant's failure to adduce evidence from Peter Hawcroft that his evidence would not have assisted the Defendant.
The Defendant contends that an inference should not be drawn because of Peter Hawcroft's medical condition. According to Michelle Jamieson's evidence given under cross-examination, Peter Hawcroft never expressed the view to her that the Defendant should not be paying the premiums but rather that the premiums were too high. Michelle Jamison and John Hawcroft both gave evidence at the hearing of this matter that they were not aware that Martin Hawcroft was paying the premiums until after his death.
The Plaintiff next emphasises that the file note of Hugh McKensey dated 4 August 2005 records that:
Following the receipt of all relevant information MH met with Hugh McKensey and Anthony Brian on 4 August 2005 and recommended: to cancel the policy on JH forthwith, reduce the sum insured on MH to $2,000,000, have the ownership of the policy transferred to JH, arrange for the monthly premium of around $390 to be paid from a personal bank or credit card account of MH.
It is not disputed that the Policy was subsequently amended to cancel insurance over the life of the Plaintiff and reduce cover over the life of Martin Hawcroft. Similarly, it is not disputed that in July 2007, Martin Hawcroft contacted the Insurer with respect to a transfer and was informed that certain documentation would need to be provided. However, while the evidence before the Court includes a completed "Nomination of beneficiary" form dated 7 September 2010 nominating the Plaintiff as beneficiary, there is no evidence that it was sent to the Insurer.
The Plaintiff contends that the Defendant acquiesced to Martin Hawcroft taking the abovementioned steps towards the formalisation of a transfer of the Policy and paying the Policy premiums. The Plaintiff further submits that as Martin and Peter Hawcroft were joint managing directors, Peter Hawcroft's conduct in objecting to the Defendant paying the premiums and Martin Hawcroft's later steps towards a formal transfer may be attributed to the Defendant. In support of the proposition that Martin and Peter Hawcroft were joint managing directors, the Plaintiff submits that Martin Hawcroft's responsibilities were "that of a managing director" in managing "Noah's on the Beach" hotel and "Noah's in the Valley" motel and that Peter Hawcroft managed the cattle property. The Plaintiff submits that Martin Hawcroft was identified as managing director in publications following his death (to which the Plaintiff states in her evidence that she did not contribute).
The Plaintiff further emphasises that in a document prepared by Hugh McKensey entitled "Proposed Preliminary Protocols for Managing Hawcroft General Trading Co Pty Limited from 1 September 2011" (the Protocols) that was signed by Martin Hawcroft, Michelle Jamieson and John Hawcroft on about 31 August 2011, Martin Hawcroft was identified as managing director. Under cross-examination, John Hawcroft gave evidence that he believed Martin Hawcroft was managing director of the hotel.
The Defendant's primary contention is that the Plaintiff cannot succeed because a mere mandate to assign an interest is not sufficient to amount to an assignment (Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 at 396; Re Danish Bacon Co Ltd v Staff Pension Fund Trusts [1971] 1 WLR 248) and the Defendant did not do everything necessary on its part to alienate its beneficial interest in the Policy (Milroy v Lord (1862) 45 ER 1185; Anning v Anning (1907) 4 CLR 1049; Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 25, 29). It emphasises that the relevant documentation required to transfer the Policy was never provided to the Insurer in response to its letter dated 30 July 2007.
The Defendant also submits that any payments of premiums by Martin Hawcroft would not be sufficient to vary the Defendant's beneficial ownership because there was no company resolution to transfer that interest. It disputes the assertion that Martin Hawcroft was managing director on the basis that there was no company resolution appointing Martin Hawcroft as managing director in accordance with Article 91 of the Table A Fourth Schedule of the Companies Act 1961 (NSW) (which govern the Defendant per Article 1 of the Defendant's Articles). The Defendant also relies on the affidavits of John Hawcroft and Michelle Jamieson dated 16 November 2015 in which they assert that they stated that they were signing the Protocols as a draft or work in progress and that the Protocols were not finalised prior to the death of Martin Hawcroft.
As I noted at the hearing of this matter, the difficulty with the Plaintiff's submissions with respect to the conduct of Martin and Peter Hawcroft as "managing directors" is that at the relevant time, each owned only 24% of the shares in the company. Therefore, the majority shareholders never agreed to any assignment of the beneficial ownership in the Policy. Should Martin Hawcroft have sought an order that the Defendant transfer the Policy to him before his death, he may have been precluded on the basis of unclean hands.
Another significant matter is that the Defendant's original financiers required that the company take out key man insurance in respect of Martin Hawcroft. However, the Defendant refinanced with Newcastle Permanent Bank and NAB, neither of which required any form of key man life insurance. Under cross-examination, Michelle Jamieson and John Hawcroft stated that they did not know that those financiers did not require any form of life insurance. In their affidavits, Michelle Jamison and John Hawcroft also state that Hugh McKensey of Forsythes Financial Services Pty Ltd told them that there was no insurance for Martin Hawcroft (a matter conceded by Hugh McKensey in his affidavit dated 2 February 2016) and that the Policy was "definitely Jennifer's".
The Plaintiff further submits that Martin Hawcroft told her not to worry about financial security because of the Policy. She emphasises that an "Appointment/Change of Financial Advisor" form dated 24 November 2011 sent by Martin Hawcroft to the Insurer identifies the Policy as held in his own name rather than the Defendants and that in late 2011, Martin Hawcroft applied for a life insurance policy with Macquarie Life Ltd disclosing that he already held an existing life insurance policy.
The Defendant asserts that the Plaintiff and Martin Hawcroft told Lance Swansbra of Forsythes Financial Services Pty Ltd that the Policy was owned by the Defendant at a meeting on 8 November 2011. It relies on a "Statement of Advice" prepared by Lance Swansbra dated 21 November 2011 which states as follows:
Martin & Jennifer, in our meeting we expressed some concerns that your current levels of Life & TPD cover would not be financially sufficient for your surviving family if Martin were to prematurely pass away or suffer serious injury or illness.
…
Martin, from our discussion we have agreed to apply for $1.5 Million in Lifecover - this should be sufficient enough to cover your debt obligations of $400,000 and provide a significant lump sum to take care of Jennifer.
The Defendant submits that, if as the Plaintiff contends Martin Hawcroft was the beneficial owner of the Policy, there would be no reason for concern as to current levels of cover when Martin and Jennifer Hawcroft were only $400,000 in debt. It also relies on the affidavit of John Hawcroft dated 16 November 2015 in which he states that Martin Hawcroft told him in 2011 that he had "a policy for the family and a policy for the hotel". In cross-examination, the Plaintiff stated that she was "quite upset about the content of the meeting" as Martin Hawcroft had been unwell and did not recall discussion of the Defendant being the owner of the Policy.
The Plaintiff submits that as the Defendant failed to call Lance Swansbra to give evidence, an inference should be drawn that that evidence would not assist the Defendant's case.
The Plaintiff also submits that the abovementioned Protocols assumed that Martin Hawcroft was the beneficial owner of the Policy. Clause 16 of the proposed Protocols dated 31 August 2011 states:
HGT will take over and continue the payment of key-man insurance on the life of MH for $2,000,000 at a cost of approximately $1,800 per month that was previously paid by HGT prior to the death of Edward Samuel Hawcroft. In the event of a claim on this policy the proceeds are to be used by HGT to employ a competent manager to prepare NOTB for sale within a maximum period of two years from the receipt of such proceeds of claim to enable the liquidation of HGT.
On 19 October 2011, cl 16 was replaced with a new cl 16:
a. HGT will forthwith take out key-man Insurance on the life of MH for a sum assured of $2,000,000 for death and total and permanent disability ("TPD") with an "own occupation" definition for TPD.
b. In the event of a claim on this policy ("the Claim"), the after tax proceeds of the Claim are to be immediately applied by HGT in part to employing a chief executive officer ("CEO") for NOTB.
c. The CEO will prepare NOTB for sale and will place NOTB on the market for sale within a maximum period of two years from the receipt of the proceeds of the Claim.
d. Notwithstanding a to c above MH and JH may within 90 days of the receipt of the proceeds of the Claim by HGT agree in writing by way of notice to MH or to his legal representatives that they (or they and their nominee or nominees) will purchase the shares in HGT owned by MH ("the MH Shares") (in whatever proportions they decide) at fair market value at the end of the calendar month preceding the Claim.
e. Fair market value of the MH shares will be determined by a valuer unanimously agreed and appointed by MJ, JH and MH (or his legal representative) whose costs shall be paid by HGT and if such agreement cannot be reached within 90 days of the Claim by a valuer appointed by the auditors of HGT.
f. Payment of the MH Shares is to be made in full to MH or his legal representatives within 180 days of the Claim or as otherwise agreed by MH and his legal representatives.
g. The price to be paid for the MH Shares is to be adjusted for trading profits and losses of HGT and dividends paid by HGT between the date of valuation and the end of the calendar month prior to the date of payment for the MH Shares.
The Plaintiff submits that the Protocols were adopted on 15 February 2012. Hugh McKensey in his affidavit of 2 February 2016 states that at the Board meeting of 15 February 2012, he asked the directors whether they were satisfied with the draft protocols subject to a final version incorporating provisions covering the exit of a shareholder and that each director said "yes". At the hearing of this matter, Hugh McKensey gave evidence that the draft was "intended to be binding but subject to mutual agreement as to any changes that may be required to it subsequently".
As noted above, this is disputed by the Defendant who relies on the affidavits of John Hawcroft and Michelle Jamieson in which they assert that they stated that they were signing the Protocols as a draft or work in progress and that the Protocols were not finalised prior to the death of Martin Hawcroft. Under cross-examination, Hugh McKensey accepted that he prepared the draft Protocols without instructions to do so and presented them at the meeting of 31 August 2011 without having circulated the draft prior to the meeting.
I believe I have set out all the relevant facts and contentions. In the light of my finding on the principal issue, my finding on the alleged equitable assignment may well be academic. However, in my view, the Defendant's submissions set out in [97] above are correct. Martin Hawcroft knew what was needed to effect a formal assignment; he paid the premiums because Peter Hawcroft was objecting to them being paid by the company and the company's attitude to the Policy changed from time to time. He continued to sit on the fence. I cannot infer that an equitable assignment took place.
Implied or constructive trust
The Plaintiff next says that there was a constructive or implied trust over the Policy because there was a specifically enforceable agreement to assign the Policy: Baloglow v Konstanidis [2001] NSWCA 451 at [120]-[125]. She relies on the same evidence referred to above that she alleges establishes a course of conduct such as would lead a reasonable person on both sides to believe that there was a concluded bargain.
The Defendant submits that this Court cannot find a trust because "there is no precision" or certainty as to whom the trustee would be "i.e., the Company, the deceased, or someone else" nor as to the "subject matter of the trust". It further presses the remarks of Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 615 that:
The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles …
For much the same reasons as the claim for an equitable assignment failed, so does this submission. There is insufficient material to justify a finding that there was a specifically enforceable promise to assign the policy.
Estoppel
The Plaintiff submits that the Defendant is estopped from contending that it is not liable to account to the Plaintiff for the proceeds of the Policy. The Plaintiff variously presses its case on the basis of a promissory estoppel, estoppel by acquiescence or encouragement, or proprietary estoppel. It submits that the underlying purpose of each category of estoppel is "protection against the detriment which would flow from a party's change of position if the assumption (or expectation) that led to it were deserted": Sidhu v Van Dyke (2014) 251 CLR 505 at [1]; Commonwealth v Verwayen (1990) 170 CLR 394 at 409 (Mason CJ).
The plaintiff submits that elements of promissory estoppel are those put forward by Brennan J in Walton Stores v Maher (1988) 164 CLR 387 and that these elements are present in the circumstances of this case because:
a. Martin Hawcroft and/or the Plaintiff assumed that the Defendant would account to Martin's estate for the proceeds of the Policy. The Plaintiff submits that it is not necessary to establish that the Defendant would be legally obliged to do so: EK Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 at [261], [268]; Ramsden v Dyson (1866) LR 1 HL 129 at 170-171; Plimmer v Mayor of Wellington (1884) 9 App Cas 699 at 711-714.
b. The Company through its conduct induced Martin Hawcroft and/or the Plaintiff to adopt the assumption that he was the beneficial owner of the Policy or the rights under that Policy.
c. That representation was relied upon by the Martin Hawcroft and/or the Plaintiff through Martin Hawcroft's payment of the premiums without formalising transfer of the legal ownership of the Policy. The Plaintiff relies on her affidavit of 3 February 2016 in which she states that she would have objected to her husband paying the premiums and believes he would have stopped paying the premiums.
d. The Defendant knew or intended such reliance by Martin Hawcroft and/or the Plaintiff.
e. The Plaintiff and/or estate of Martin Hawcroft will suffer detriment if the representation is not fulfilled because the estate will be denied the proceeds the Policy.
f. The Defendant has failed to avoid that detriment
The Plaintiff submits that it would be unconscionable or unconscientious for the Defendant to depart from its representation and emphasises the remarks of Dwyer J in Norris v Perpetual Executors at 25:
It would be a most inequitable state of affairs if a person were allowed to pretend to give to another a worthless asset, encourage him to spend hundreds of pounds on it, and then deprive him of the property whose value he had created.
The Defendant submits that the Plaintiff's estoppel claim ought to fail because a person "cannot be estopped on an ambiguity". It submits that the abovementioned minutes of the Board meeting of 8 March 2005 are "equivocal or ambiguous". It further submits that the Plaintiff has failed to demonstrate "substantive or material detrimental reliance".
The Plaintiff is in the position of seeking to deploy the principle of promissory estoppel to obtain a positive order for property to be vested in her or at least a declaration to found the same result.
In Saleh v Romanous [2010] NSWCA 274, Handley AJA stated at [74] that:
A promissory estoppel is a restraint on the enforcement of rights, and thus, unlike a proprietary estoppel, it must be negative in substance. In Hughes Lord Cairns LC in his classic statement of principle quoted by Lord Wilberforce in Bank Negara said:
"… the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which had thus taken place between the parties." (emphasis added).
In a recent paper on Promissory Estoppel shortly to appear in 90 ALJ, I indicated that with respect to Handley AJA, I did not consider that his proposition was entirely correct. Whilst it is true in most cases of promissory estoppel, there are some situations where a positive order can be made. However, the present case comes within Handley AJA's proposition and thus the Plaintiff's claim fails
In summary then, the plaintiff is entitled to the relief she seeks on the basis of the binding nature of the Deed of Indemnity of 20 May 2014.