Equity - Unconscionable retention of benefit - Purchase of land and construction of house and granny flat - Expectation of interest in land - Failure of joint venture - Turns on own facts

Appellants (Defendants) : In person (Mr F J Lawrence)

Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137

Calverly v Green [1984] HCA 81; (1984) 155 CLR 242

Devries v Australia National Railings Commission (1993) 177 CLR 472

Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101

Kais v Turvey (1994) 11 WAR 357

Morris v Morris [1982] 1 NSWLR 61

Paterson v Paterson [1953] HCA 74; (1953) 89 CLR 212

Thornett v Williams [2001] WASC 194

1 WALLWORK J: I agree with the reasons for judgment and the conclusions of Wheeler J.

3 WHEELER J: This is an appeal from a decision of Justice Templeman dated 11 December 2001. It arose from certain payments made in respect of a property, upon which a house was built, the payments being made by Mrs Branch and the house being one purchased by her daughter, son-in-law and grandson ("the Lawrences").

4 As pleaded in the statement of claim, it was alleged that in about August 1998 Mrs Branch and the Lawrences agreed and formed the common intention that she would give money to the Lawrences to assist them in purchasing the land and erecting a house on it, and that in return they would allow her to reside in a granny flat to be erected on the land rent free for as long as she liked. It was pleaded that from that time she had the belief and expectation that she would have an "interest in the land". It was further pleaded that relying on the agreement or, alternatively, relying on her belief and expectation, and to her detriment, she paid sums totalling $79,310. It was alleged that since February 1999 the Lawrences had denied that she had an interest in the land and that it would be unconscionable for them to deny her any interest in the land. The prayer for relief claimed equitable compensation for that detriment or, in the alternative, a declaration or order that she had an equitable charge on the land for the sum of $79,310 together with interest. Although the pleaded facts included an allegation of Mrs Branch's expectation that she would have an interest in the land, the relief claimed was not an interest in the land but equitable compensation or an equitable charge on the land for the sum paid by her together with interest.

5 The Lawrences' defence was that the greater part of the sum was given as an advance on Mrs Lawrence's inheritance from Mrs Branch and that a smaller additional sum was given as contribution towards the cost of incorporating a granny flat into the house to be built on the land, in return for which the defendants would allow Mrs Branch to reside in the granny flat for so long as she liked. They pleaded that Mrs Branch left the premises in February 1999 and thereafter had chosen not to reside in the granny flat.

6 To summarise the findings made by Templeman J, there was common ground that the property was purchased with the aid of $79,310 which was paid by Mrs Branch, and that there was an arrangement that

the money would be used to buy land on which a house was to be constructed with a granny flat incorporated in it. It was expected that Mrs Branch would live in the granny flat. Mrs Branch was, at the time of trial, 78 years of age. She had been for a number of years estranged from her daughter Mrs Lawrence. However, at a time when Mrs Branch was living at the Church of Christ Homes in Mount Lawley and the Lawrences were also living in the metropolitan area, Mrs Lawrence began to visit Mrs Branch from time to time, take her shopping, do banking for her and so on. The relationship between the two women became a closer one.

7 Mr and Mrs Lawrence had lived in rented accommodation, not being able to afford to purchase a home of their own. Mrs Lawrence gave up work in 1997 due to ill health. Mr Lawrence had his own small business rather than having regular employment. That fact, together with their relatively small income, made it difficult for them to obtain finance for purchase of a home.

8 As Mrs Branch and Mrs Lawrence saw more of each other, the relationship progressed to the point where Mrs Branch stayed with Mr and Mrs Lawrence from time to time. It appears that Mrs Branch found it increasingly difficult to manage the upkeep of her accommodation at the Church of Christ Homes. It was in those circumstances - in which Mr and Mrs Lawrence wanted to buy a house but were unable to obtain finance and Mrs Branch was being assisted by Mrs Lawrence from time to time and was concerned that she was finding it more difficult to manage for herself - that Templeman J found that the Lawrences decided to ask Mrs Branch to assist them to buy a house. As is common in such circumstances, his Honour found that no one really gave thought to the detail of the financial arrangements which this proposal would entail.

9 I do not think it is necessary to set out in any detail his Honour's findings as to the construction of the house and the modifications which were made in order to incorporate what was effectively self-contained accommodation for Mrs Branch into that house. Shortly before the house was ready for occupation, however, Mrs Branch moved out of the house in which she was then living with the Lawrences and made it clear that she did not wish to return to live under the same roof with them.

10 His Honour found that it was a breakdown of the relationship between the parties, and particularly a breakdown in the relationship between Mrs Lawrence and Mrs Branch, that caused Mrs Branch to leave. His Honour found that that was not a result of any fault on the part of any person, but was a consequence of the personalities of the two women and probably of the earlier history of the relationship. His Honour found that "The reality is that the parties could now not live together under one roof. It would ... be a recipe for further disaster."

11 In those circumstances, his Honour applied the principle enunciated in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 to the effect that in a case where the substratum of a joint relationship or endeavour is removed without attributable blame, and where the benefit of money contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended that that other party should so enjoy it, equity would not permit that other party to retain the benefit of the relevant property to the extent that it would be unconscionable for the other party to do so. His Honour considered that the substratum of the joint relationship had been removed without attributable blame and that the benefit of the money which had been contributed by Mrs Branch was being enjoyed by the Lawrences in circumstances in which it was never intended that it should be so enjoyed. His Honour considered that it would in those circumstances be unconscionable for the Lawrences to retain the benefit of the payments and that there should be an order for the return of the moneys which should be secured by an equitable charge over the property.

12 His Honour considered whether the charge should reflect the amount actually paid, or the proportionate interest which Mrs Branch may be said to have acquired in the property. The alternative consideration arose because Mr Lawrence expressed the view that the property had declined in value, but his Honour noted that there was no evidence to that effect and that the defendants had not chosen to run the case on that basis. His Honour did consider, however, that it was not necessary for justice to be done that the defendants should be subjected to the burden of interest. This was in part because the arrangements between them had never been put in place, and because if the money had been left in the Church of Christ account from which it was originally withdrawn, it was unlikely that the plaintiff would have received interest on it.

13 The grounds of appeal all essentially complain about his Honour's findings of fact, or failure to make findings of fact. The grounds have, I think, three main elements. First, it is said that his Honour erred in not accepting, as the appellants alleged, that the bulk of the payment was by way of an early inheritance. Second, it was submitted that his Honour erred in failing to find that the breakdown of the relationship was attributable to the fault of Mrs Branch. Finally, it is said that his Honour erred in failing to give reasons for rejecting the appellants' version of the events in question.

14 The first and the last of those three issues can, I think, be dealt with together. The case was one in which his Honour found that there was perhaps a degree of reconstruction, and unreliability, on each side. His Honour rejected the view of the payment as an inheritance for three reasons. He considered that it was not very probable that Mrs Branch would have given away such a significant sum as an early inheritance to her daughter, in a situation where, although she was estranged from two sons, she did have other children from whom she was not estranged and who were entitled to consideration. His Honour noted that the assertion that the payments were by way of early inheritance was not one raised by Mrs Lawrence in her first responses to Mrs Branch's solicitors when proceedings were initially threatened. Most importantly, as it seems to me, his Honour found that the suggestion that the payment was an early inheritance was inconsistent with a contemporaneous document, being a receipt signed by both Mr and Mrs Lawrence and addressed to Mrs Branch, which contains no reference to the payment being by way of gift, and which does appear to be in its tenor inconsistent with an outright gift. In particular, after acknowledging the receipt of the money, the receipt goes on to say: "It is our agreement that the assistance given by my mother and mother-in-law for her to reside with us for the rest of her life period" (sic). His Honour's reasons in relation to this issue appear to me to be highly persuasive, and I do not see any error in the finding which he made.

15 So far as the fault issue is concerned, there were a number of allegations and counter allegations about a variety of incidents, generally of a relatively trivial nature, which caused friction between the parties and particularly between Mrs Lawrence and Mrs Branch. In relation to this issue, his Honour had the very great advantage of observing all of the parties in the course of giving their evidence. It is apparent from his reasons that the impression which he gained of both Mrs Lawrence and Mrs Branch and of their approach to the conflict between them, based on his observations during cross-examination, played an important role in the finding which he made. This is precisely the sort of case in which it is not open to an appellate court to overturn the finding of the trial Judge unless there is some demonstrable error in reasoning or some relevant inconsistency in the evidence or want of evidence. I do not see any error in his Honour's reasoning process, and a review of the transcript of the trial and of the witness statements, tends to suggest that it is distinctly probable that the breakdown in the relationship was one which had its origins somewhere in the history of the long and apparently difficult early relationship between Mrs Lawrence and Mrs Branch. They had been estranged in the past, and it is perhaps not surprising that they became estranged again when they attempted to live in close proximity to each other. In my view this issue is also one in relation to which no fault can be found with his Honour's reasons.

16 Although they were not to be found in the grounds of appeal, two additional issues were raised by the appellants, who were unrepresented, at the hearing of the appeal. The first was that his Honour had been in error in deciding that the parties could not live "under the same roof", since the granny flat was effectively a separate and self-contained dwelling in which it would be possible for Mrs Branch to live without any contact with the Lawrences. The second was that it was suggested that it would be unconscionable to require them to repay the money, because of the change in their circumstances since the time at which the payment was made. That change, as I understood it, was said to be that Mr Lawrence was now some three years older and that, although he could at the time of the payments have obtained a loan in a modest amount in order to purchase a dwelling, it was unlikely that he would now be able to do so. In order to repay the money, it was said that it would be necessary for the Lawrences to sell the house and that they would be unable to purchase another.

17 So far as the first of these contentions is concerned, it has some appeal if one simply considers the floor plan of the house in question, and accepts the appellants' assertion that two of the doors in it can be locked so that a portion of the house then becomes a completely self-contained dwelling with its own kitchen, bathroom/laundry, bedroom and sitting areas. There is apparently a separate entrance to that area of the house. However, I think the finding which his Honour really made about the agreement between the parties was somewhat broader than a finding merely that it involved the granny flat being available for the plaintiff to live in.

18 The receipt to which I have already referred, although there appears to be a word or words missing from it, refers to the respondent living "with us". His Honour found that the arrangement reflected in the receipt was "close" to the actual transaction. His Honour said that it was an arrangement whereby the money would be paid in return for the right of the plaintiff to live at the granny flat "under the terms that I have referred to" for the rest of her life or as long as she wanted to. His Honour went on in the alternative to characterise the payment as a conditional gift, with the condition being not simply that the granny flat be available for the plaintiff to live in, but with it being implicit in the condition that the relationship between the parties would be "harmonious". It is my view that, although it was perhaps not as clearly expressed as it might have been, the "terms" that his Honour referred to included not only terms as to the payment of gas and electricity for Mrs Branch but also included a term or condition that the relationship would continue to be a harmonious one.

19 The reason for that view is not far to see. Mrs Branch already had suitable accommodation at the time at which the arrangement was entered into. It was entered into on her part so that she could live near the Lawrences for the reason that she found it increasingly difficult to manage and needed assistance from time to time from Mrs Lawrence. There would be no point in her living in the granny flat if that assistance were not able to be called on from time to time. Indeed, as counsel for Mrs Branch pointed out, it would be a significant worsening of Mrs Branch's position to go and live in a granny flat, isolated from any other assistance available to elderly persons, rather than remaining at the Church of Christ Homes where she had lived until then.

20 In any event, it appears from the plan that there is no separation of the outdoor living areas, and the question of whether it would really as a practical matter be open to Mrs Branch to live in the granny flat, which would require her to enter through a common driveway, pass the portion of the house occupied by the Lawrences, and through an outdoor area apparently available to any occupant of the house, in order to enter the granny flat, would depend upon the degree of animosity existing between the parties. His Honour formed the view that it would not be possible, and it appears to me that that was certainly a finding which was open to him. Indeed, even Mrs Lawrence appeared to accept implicitly that it would not have been possible, at the time of trial, for Mrs Branch simply to go to the house and occupy the granny flat. Asked the question: "That's your case, isn't it, that she can come and live in the house?", she replied: "My case is that she could come and live in the house but we would have to have counselling and help to solve the problems".

21 Although the pleadings did not appear to raise directly the principle in Muschinski v Dodds, the pleading that the payment had been made in reliance on the agreement and that it would in the circumstances be unconscionable for the Lawrences to deny Mrs Branch an interest in the land, together with the nature of the relief claimed, appears to have led both sides to consider as a live issue whether it would in the circumstances be unconscionable for the Lawrences to retain the benefit of the payment. Cross-examination of Mr and Mrs Lawrence included questions directed to the question of whether they would have been able to afford a house of that kind on their own, and, in effect, whether it was fair in the circumstances that they should retain it while Mrs Branch lived elsewhere.

22 The statements made by Mr Lawrence before us about the change in his position between the time of payment and the time of trial is not entirely consistent, it seems to me, with the evidence which was given at trial by the Lawrences. It is clear that even at that time, because of Mr Lawrence's then age, it was necessary for the third-named appellant Dene Lawrence, their son, to be joined as a party to the loan. Mrs Lawrence's position had not changed. Mr Lawrence's had, however.

23 Mrs Lawrence was asked: "So you don't think there would be any difference now than the position several years ago when you applied for the loan. You'd still have difficulty getting a loan on your own just the two of you?" She replied, "Well my husband is working now. Whether that makes a difference - because we were told at the time because we had a business they wouldn't really look at it, but now he's actually working I don't know whether the matter would change." She amplified that response, and the effect of her amplification was that at the time when her husband had a small business the bank considered that it was not secure enough, but that if he had a permanent job where he was employed he might be able to obtain finance. At the time of trial he did have such a permanent job. Mr Lawrence's evidence was also to the effect that the lack of security at the time at which the earlier enquiries were made, because of his ownership of the small business, had been a difficulty in obtaining a loan.

24 The evidence which Mr Lawrence gave relating to the possibility of the Lawrences purchasing a more modest house than that which had been purchased at the time at which the payments were made, was even more general and more speculative than the assertions which he made in argument on the hearing of the appeal. When asked whether the Lawrences were able to buy a house without the assistance of Mrs Branch, he said: "Not at that stage, but I will say that prior to Mrs Branch coming into it, we were looking at getting a house and I did have a few little assets which I could have sold, which we would have done eventually, and plus possibly got assistance from the bank to get the extra - to get a loan involving myself and a small house." He gave evidence to the effect that it would be impossible for the Lawrences to repay the money to Mrs Branch without selling the house. His evidence was that the

repayments on the loan which he had taken out to assist in the purchase of the house were "up to" $360 a fortnight. Prior to moving to the house, the rent which the Lawrences had been paying was "about $150" per week, although he agreed that the new house was a nicer one.

25 The evidence given in relation to these issues at trial, appears to me to establish that prior to Mrs Branch's intervention, the Lawrences had not been able to afford a home loan, and that the difficulties had been primarily attributable to the insecurity of Mr Lawrence's income from his small business. Mrs Branch's payments enabled them to live in a home which was nicer than the home which they had previously been renting, and at a level of repayments which was only marginally greater, from time to time, than the amount which they had previously been paying in rent. At best, if the house were sold, there was to be nothing to indicate that Mr Lawrence would not be able (assuming at least if Dene were joined again as a borrower) to borrow for the purchase of a more modest home if they wished to do so. At worst, it would again be necessary for them to live in rented accommodation as they had done for many years. In those circumstances, it does not seem to me that there has been any relevant change of position on the part of the Lawrences which would make it unconscionable for them to be required to repay the money paid by Mrs Branch towards the purchase of the home.

27 BURCHETT AUJ: I have had the advantage of reading in draft the reasons for judgment of Wheeler J, with which I agree.

28 A nice distinction must be drawn, in a case of this kind, between "random notions of what is fair and just as a matter of abstract morality" and a decision, according to equitable principle, as to whether the retention by the appellants of the benefit of the arrangement reached between them and the respondent, after the dissolution of that arrangement, would be "unconscionable": Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 at 621, per Deane J. There is, in my opinion, much to be said either way, but in the end the trial Judge's conclusion upon the facts, formed after hearing and seeing the witnesses, must be allowed to prevail.