Lewin v Lewin

Judgment (5 paragraphs)

[1]

Introduction

By Summons filed on 19 February 2018 the plaintiff, Ms Wendy Lewin, claims relief under the Conveyancing Act 1919 (NSW) s 66G for the appointment of trustees for sale in respect of a company title unit in Elizabeth Bay ("the Unit"). The defendant, Ms Suzanne Lewin, is the plaintiff's sister. She is in occupation of the Unit. She has been in occupation since 1985.
The appointment of trustees was for a time resisted by the defendant. Numerous directions hearings were held over the course of 2018, at which various orders and directions were made, including orders requiring the parties to put on pleadings. The matter was also referred to Court-annexed mediation. The mediation was held on 12 February 2019. It proved inconclusive. A further directions hearing was held on 15 February 2019. It was then envisaged that the matter would be listed for a final hearing to commence in the period from May to July 2019.
However, on 22 February 2019, counsel for the defendant informed the Court that the defendant did not oppose or did not contest the relief sought by the plaintiff in the Summons, save in relation to costs. The parties indicated that they were content for the matter, including the question of costs, to be dealt with on the papers. The Court agreed with this course and made directions for the parties to provide written submissions.
Written submissions were received in accordance with the directions made. In order to allow a final opportunity for the parties to resolve all issues, the Court was requested not to deal with the matter until after 22 March 2019.
In support of her claim for relief under s 66G, and on the issue of costs, the plaintiff relies on the following affidavit evidence:

The affidavit of the plaintiff sworn 16 February 2018;
The affidavit of Alexander Tzannes sworn 19 June 2018;
The affidavit of Paul Lewin sworn 2 July 2018;
The affidavit of Terence Hartmann, solicitor, sworn 12 September 2018; and

Determination

I turn then to consider the plaintiff's claim for the appointment of trustees for sale. I accept the plaintiff's evidence that she and Mr Tzannes became co-owners of the relevant shares with the defendant in July 1985. While there is no evidence of the original contract to purchase the shares in June 1985 or the original share certificate issued in July 1985, the plaintiff's account is nonetheless supported by documentary evidence from the years following that transaction. I also accept that Mr Tzannes agreed to transfer his interest in those shares to the plaintiff in September 1994. Finally, I accept that Mr Tzannes had transferred those shares to the plaintiff by May 1998 at the latest, as is apparent from the terms of the share certificate issued on 31 May 1998. That certificate clearly describes both the plaintiff and defendant as tenants in common in equal shares of the group of shares that would give the exclusive right to use and occupy the Unit. While I accept that the best evidence of a person's entitlement to shares in a corporate entity may be the share register itself, a share certificate issued by the company will generally be regarded as a strong indicium of the title of the person or persons named in the certificate. In the absence of any evidence to the contrary, there is no reason not to accept the certificate as evidence of the current ownership of the 5250 shares in Birtley Towers Ltd.
Section 66G(1) provides: Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.
The term "co-ownership" is defined in s 66F as follows: "Co-ownership" means ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common; and "co-owner" has a corresponding meaning and includes an incumbrancer of the interest of a joint tenant or tenant in common.
The term "property" is defined in s 7 of the Act as follows: "Property" includes real and personal property, and any estate or interest in any property real or personal, and any debt, and any thing in action, and any other right or interest.
In support of the claim for relief under s 66G, the plaintiff relied on the decision of Young J (as his Honour then was) in Commonwealth Bank of Australia v MacDonald (2000) 10 BPR 18,111; [2000] NSWSC 553, which considered the applicability of s 66G to shares in a home unit company.
In that case, a husband and wife owned shares in a home unit company which gave them exclusive rights to use and occupy two units. In relation to one of the units, the shareholding was divided between five different share certificates representing 11,140 shares each. Three of those certificates were held by the husband and two were held by the wife. Collectively, the five share certificates represented the entire group of shares required to use and occupy the unit. An application was made under s 66G by the Commonwealth Bank (as an incumbrancer in respect of the husband's shares) for the appointment of trustees for sale.
After reviewing various authorities that considered the word "property" in different contexts, Young J held (at [26]) that "property" was widely defined for the purposes of s 66G, and that "any right which is capable of being held in co-ownership and capable of being vested in trustees is property within the meaning of s 66G". His Honour went on to hold at [27]-[28] that the shares in the home unit company were "property" within the meaning of s 66G. However, his Honour ultimately refused to grant the relief sought because the husband and wife were not in "co-ownership" of the relevant shares. This was because there was no "unity of possession": the husband and wife owned their respective shares in their separate names (see at [46]-[47]).
I accept Young J's reasoning and conclusion that a share in a home unit company is "property" for the purposes of s 66G. As his Honour acknowledged (at [27]), a share in a company is considered to be property under almost any definition of "property" (see also White v Shortall (2006) 68 NSWLR 650; [2006] NSWSC 1379 at [193], citing with approval Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 56 FCR 236 at 255-256). I therefore accept that the shares the subject of the share certificate in the present case are "property" within the meaning of s 66G of the Conveyancing Act.
The next question to consider is whether that property is held in "co-ownership" for the purposes of the section. The parties' rights with respect to the shares in the present case are very different to those of the husband and wife in Commonwealth Bank of Australia v MacDonald (supra). Here, there is only one share certificate issued by the company. That share certificate records that the plaintiff and defendant hold the 5250 shares as tenants in common in equal shares. The plaintiff and defendant are thus equally entitled to the entirety of the shares.
However, is that an ownership "in possession" as required by the definition of "co-ownership"? In my opinion it is. As stated by Young J in Commonwealth Bank of Australia v MacDonald (supra) at [57], the definition of "co-ownership" requires an entitlement to be in possession of the property. In the present case, the property is the 5250 shares in Birtley Towers Ltd. The plaintiff and the defendant are the holders of the shares. They hold them as tenants in common in equal shares. They are entitled to possession of the shares in the sense that they are presently entitled to the rights that are attached to the shares, including the rights in respect of the Unit and rights to dividends. In my view, that is sufficient to constitute ownership of the shares as tenants in common "in possession" for the purposes of the definition of co-ownership.
Physical possession is not required, else joint tenants or tenants in common in fee simple of real property which is subject to a lease would fall outside the concept of "co-ownership" for the purposes of s 66G. The notion of ownership "in possession" must be read in its context as an element of a provision that potentially extends to almost any type of property, other than chattels. (A separate provision of the Conveyancing Act, s 36A, deals with the division of chattels, and may authorise sale to facilitate division.) Where, as here, the property can be seen to be owned, either at law or in equity, by two or more persons in common, the ownership should be taken to be relevantly "in possession" if the co-owners are presently entitled to the rights that inhere in the property.
I note that the Court has made orders under s 66G in relation to choses in action. An example is Woodson (Sales) Pty Ltd v Woodson (Australia) Pty Ltd (1996) 7 BPR 14,685, a case which concerned jointly owned trademarks. Further, Young J in Commonwealth Bank of Australia v MacDonald (supra) did not suggest that there would not have been co-ownership of the 11,140 shares if they had been held by the husband and the wife jointly or as tenants in common. Finally, I note that this question was not adverted to in the recent decision of Neilan v Neilan [2019] NSWSC 66 which concerned shares in a home unit company. It appears that counsel for the plaintiff proceeded on the basis that relief should be sought under s 36A rather than s 66G.
The plaintiff has therefore made out a prima facie entitlement to relief under s 66G. The defendant did not argue that there were grounds to exercise the limited discretion to refuse relief (see Ferella v Official Trustee in Bankruptcy [2015] NSWCA 411 at [36]-[42]). It is appropriate that orders be made appointing trustees for the sale of the 5250 shares in Birtley Towers Ltd. This will be done once the plaintiff files the necessary consents to act as trustee, and affidavits as to fitness to act as trustee. The Court will direct that those documents be filed within 14 days.

Costs

The only remaining issue concerns costs. The usual position in relation to the parties' costs of a s 66G application is that those costs be paid out of the proceeds of sale (Kardos v Sarbutt (No 2) [2006] NSWCA 206 at [28]). Counsel for the plaintiff, however, seeks an order that would depart from this usual position, seeking her costs be paid out of the defendant's share of the proceeds of sale of the Unit on an indemnity basis. The plaintiff contends that she is entitled to this order on two bases: Firstly, because a Calderbank offer was made to the defendant which was not accepted. Secondly, because the defendant's conduct during the course of the proceedings led to increased costs.
The plaintiff contends that an email from Mr Hartmann dated 12 December 2017, sent prior to the commencement of proceedings, was a Calderbank offer which the defendant rejected.
The relevant parts of that email include the following: Wendy has now instructed me that in the circumstances she wants the company title unit you occupy sold and the proceeds divided equally. Alternatively, Wendy is prepared to have the unit valued and sell her share to you in reliance upon that valuation. Accordingly: 1. Please advise whether you are prepared to join jointly in the sale of the company title unit and an equal division of the net proceeds. 2. Alternatively, if you are able to do so, Wendy is prepared to sell her half interest in the unit to you in reliance upon a valuation to be obtained from a qualified valuer, the costs of valuation to be paid equally. 3. If you do not agree to either of the above proposals I have advised Wendy that she must make application to the Supreme Court under Section 66G of the Conveyancing Act for the appointment of trustees for sale of the company title unit. Such an application will frankly be expensive, time consuming and ultimately will not be as advantageous to either of you as a joint sale by the two shareholders on current commercial terms. … Please advise me in writing within 14 days that you will agree to a joint sale by consent, failing which I shall be obliged in the new year to commence proceedings as set out above and if that proves necessary I shall seek an order that the costs of the Section 66G application be paid out of your share of the proceeds of sale of the unit. I recommend that you obtain independent legal advice and show this letter to your legal adviser who will understand and explain to you that the letter is written in accordance with the principles of Calderbank v Calderbank with regard to costs, namely if you do not act reasonably in relation to the disposal of the property and proceedings have to be commenced, on behalf of Wendy I shall seek to have Wendy's legal costs paid out of your share of the sale proceeds.
The plaintiff further contends that the defendant's conduct unnecessarily prolonged the proceedings and raised false issues (see Degmam Pty Ltd (In Liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358). Counsel submitted that there was never any proper basis for the defendant to oppose the relief under s 66G because the assertions that the plaintiff had engaged in fraudulent conduct, and was not a co-owner of the Unit, were unfounded. Further, counsel contended that the documentary evidence shows that the defendant recognised the plaintiff as a legitimate co-owner of the Unit, pointing in particular to the defendant's emails of 11 September 2008 (see [13] above) and of 21 May 2013 (see [14] above). In addition, counsel points to the fact that there were thirteen court appearances since the commencement of proceedings before the defendant decided not to oppose the relief. Counsel also notes that the defendant foreshadowed the filing of a cross-claim on 14 December 2018 and an order was made allowing for the filing of such cross-claim, but no cross-claim was filed.
Counsel for the defendant submitted that Mr Hartmann's email could not be characterised as a Calderbank offer. Counsel argued that the email failed to meet the essential requirements of such an offer for several reasons: Firstly, the email did not state that the plaintiff would rely on the email itself on the question of costs, it was merely asserted that the defendant would have to pay the plaintiff's costs out of her own share of the proceeds. Secondly, and flowing from the first reason, the email stated that the cost consequence would flow from the mere fact of proceedings being commenced, not from a successful outcome in the proceedings. Thirdly, the email made no mention of indemnity costs. Fourthly, the email was not sufficiently clear in what was being proposed in relation to a joint sale. And fifthly, the email does not state why the defendant would fail in any proceedings.
Counsel for the defendant rejected the assertion that the defendant had engaged in conduct that unnecessarily prolonged the proceedings or raised false issues. Counsel argued that the plaintiff has never produced the relevant share register (which counsel submitted is the only evidence that could prove definitively the plaintiff's shareholding), but only produced the share certificate. Counsel also contended that the various statements by the defendant that recognised the plaintiff's shareholding in the Unit are not sworn admissions that would bind the defendant in the litigation.
Counsel for the defendant also contended that the fact that there were multiple court appearances is not the product of any unreasonable conduct on the part of the defendant, but is explicable by illness on her part. The report of Professor Brew dated 18 July 2018 is relied upon in support of that contention.
In that report, Professor Brew notes that the defendant has experienced chronic health issues since around 2005 when she began experiencing a combination of physical and neurological symptoms associated with multiple sclerosis (MS). Professor Brew notes that the defendant has "definitively entered the progressive phase of MS with continued slow decline of cognition, personality change, increasing fatigue and neuropathic pain". When describing the defendant's current state of health, Professor Brew writes: Currently, her cognitive impairment means that information has to be presented slowly in a structured fashion. She cannot process more than one issue at a time. Any material must also be presented in small amounts at a time to enable her to grasp the content…She is liable to misread social clues and have inappropriate or exaggerated responses to issues. She needs sleep for two hours every four hours approximately. Her speech and language are intermittently impaired. She has constant neuropathic pain and muscle spasms. … At present she can manage her own grocery shopping and only minor cleaning. … Her physical disabilities, pain and cognitive functioning are worsened in the heat.
With reference to Professor Brew's report, counsel for the defendant argued that the defendant's personal circumstances made it difficult for her to give instructions or attend conferences. It was ultimately submitted that there should be no order as to costs, or alternatively that any costs order be on the ordinary basis only.
I do not think that the failure of the defendant to accept the proposals contained in Mr Hartmann's email of 12 December 2017, or the conduct of the defendant in the course of the proceedings, whether those matters are viewed separately or together, warrants an award of costs on an indemnity basis.
The 12 December 2017 email, while expressed to be written in accordance with the principles of Calderbank v Calderbank [1975] 3 All ER 333, does not contain any real offer of compromise. It advances two alternatives to proceeding by way of an application under s 66G, either one of which would result in the plaintiff ceasing to be a co-owner of the Unit. Further, the email makes no mention of seeking costs on an indemnity basis.
In any case, I do not consider that the defendant's failure to accept the proposals should be regarded as unreasonable. In some circumstances, the failure of a co-owner to agree upon an alternative to a s 66G application could be considered unreasonable, but it should not be overlooked that a co-owner is ordinarily under no obligation to seek to avoid a need to bring such an application. Moreover, the underlying rationale of the general rule as to costs in relation to a s 66G application (see [30] above) is that the costs are regarded as an incident of the co-ownership.
Of course, the general rule that the costs of each party are payable out of the proceeds of sale may be displaced in the circumstances of particular cases. This commonly occurs where it has been shown that a party has engaged in unreasonable conduct that has caused costs to be unnecessarily incurred.
I have considered the defendant's conduct in relation to the proceedings. I have come to the conclusion that it was unreasonable of the defendant, having made serious allegations against the plaintiff, to continue to resist the application for about 12 months before essentially capitulating. There is force in the submission that the defendant's assertions to the effect that the plaintiff was not a co-owner of the Unit, were unfounded. The assertions were contrary to clear acknowledgements previously made by the defendant. It is clear that a considerable portion of the plaintiff's costs of the proceedings would have been incurred as a result of the defendant's continued resistance to the application.
I have taken into account the evidence concerning the defendant's health. I accept that it has been difficult for her to cope with the litigation, and I think it likely that it contributed to difficulties in obtaining legal representation. However, it seems to me that the defendant's medical condition does not entirely explain the defendant's attitude to the proceedings. It appears from emails authored by the defendant that she is capable of expressing her views with clarity.
Taking all of the circumstances into account, it is my view that a departure from the general rule is warranted to reflect the unreasonable conduct described above. In my opinion, the appropriate order to make for costs in the exercise of the Court's discretion is that half of the plaintiff's costs be paid out of the proceeds of sale before distribution to the beneficiaries, and half of the plaintiff's costs be paid out of the defendant's share of the proceeds of sale. No order will be made in relation to the defendant's costs.
The Court will direct that within 14 days the plaintiff file (by providing to my Associate) the consents and affidavits referred to at [29] above, and submit proposed Short Minutes of Order to give effect to these reasons.

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Judgment (5 paragraphs)

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Legislation Cited (1)

Cases Cited (7)

Cited By (10)