MacDonald v MacDonald

CATCHWORDS : CONVEYANCING - property held in co-ownership - application to appoint trustees for sale - standing of Plaintiff to make application - whether Plaintiff is a co-owner in possession - meaning of co-ownership in possession - possession here means a right to possession and does not mean physical occupation.

Clement v Jones (1909) 8 CLR 133 Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490 Wheeler v Baldwin (1934) 52 CLR 609 Horton v Jones (1935) 53 CLR 475 Gartside v Inland Revenue Commissioners [1968] AC 553 CASES CITED : Breskvar v Wall (1971) 126 CLR 376 Mik v Cargill 485 P (2d) 229 (Oklahoma) (1971) Ngatoa v Ford (1990) 19 NSWLR 72 Forgeard v Shanahan (1994) 35 NSWLR 206 Commonwealth Bank of Australia v MacDonald [2000] NSWSC 553 Tory v Tory [2007] NSWSC 1078 Kennon v Spry [2008] HCA 56

Holdsworth, History of English Law (3rd ed, 1925) TEXTS CITED : F W Maitland, The Mystery of Seisin (1911) Mendes da Costa, 'Co-ownership under Victorian Land Law' (1961) 3 MULR 137

Kenneth Nigel MacDonald (Plaintiff) PARTIES : Stephen George MacDonald (First Defendant) Denise Carol Carver (Second Defendant) Garant Pty Limited (Third Defendant)

COUNSEL : Mr D. Weinberger (Plaintiff) Mr M. J. Cohen (Defendants)

SOLICITORS : Alan Brown & Co (Plaintiff) Binette Vale Lawyers (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4893 of 2008 KENNETH NIGEL MACDONALD v STEPHEN GEORGE MACDONALD and ORS JUDGMENT 1 HIS HONOUR: These proceedings were instituted (somewhat curiously, in light of the nature of the relief claimed) by a statement of claim filed on 25 September 2008 by Kenneth Nigel MacDonald. The defendants named in that pleading are Stephen George MacDonald, Denise Carol Carver and Garant Pty Limited. 2 By that statement of claim the plaintiff seeks substantively an order pursuant to section 66G of the Conveyancing Act 1919 that there be appointed statutory trustees for sale of certain property situate at and known as 42-44 Leeholm Drive, St Marys (to which I shall refer as "the subject property" or "the land"). The plaintiff also seeks, as well as consequential relief to that substantive relief, an order that the first, second and third defendants account to the plaintiff for one third of the rentals derived from the subject property since 24 April 2007. 3 The significance of the date 24 April 2007 is that that is the date of the death of the late George Sydney MacDonald (to whom I shall refer as "the deceased"), and who was the father of the plaintiff, the first defendant and the second defendant. 4 On behalf of the defendants a defence was filed to the statement of claim on 25 November 2008. That defence was verified by an affidavit of each of the first and second defendants and by a joint affidavit of those defendants in their capacity as the directors of the third defendant. 5 By that defence the defendants admitted paragraphs 1 and 2 in the statement of claim. Paragraph 1 asserts that the plaintiff, the first defendant and the second defendant were at all material times the registered proprietors of the subject property, that the first and second defendants were directors of the third defendant, and that the third defendant has been receiving the rentals from the land. 6 Paragraph 2 asserts that the plaintiff has requested the first defendant and the second defendant to acquire his one third interest in the land and to pay or cause to be paid to him one third of the rentals derived from the land since 24 April 2007. 7 By their defence the defendants deny paragraph 3 of the statement of claim. That paragraph asserts that the first defendant and the second defendant have neglected or failed to offer to acquire the plaintiff's interest in the land on reasonable terms. 8 By paragraph 3 of their defence the defendants expressly do not admit paragraph 4 in the statement of claim. Paragraph 4 is in the following terms: The first, second and third defendants have failed to account to the plaintiff for the rentals being derived by it [the third defendant] from the Land. 9 By their affidavit verifying the defence each defendant has put his or her oath to the assertion that after reasonable enquiry that deponent does not know whether or not the allegations of fact that are not admitted in the defence are true. 10 I do not see how it is possible that the defendants could seriously assert that they, having made reasonable enquiry, do not know whether the allegation in paragraph 4 of the statement of claim is true, that allegation being that the first, second and third defendants have failed to account to the plaintiff for the rentals being derived by the third defendant from the land. 11 The defendants did not file a cross-claim. However, on 9 December 2008 they filed a notice of motion. The relief sought in that notice of motion includes orders that there be an update of a valuation of the land and orders making provision for the costs of such a valuation. 12 By paragraph 4 of the notice of motion the defendants seek an order that the parties enter into a written contract for sale of the land, whereby the first defendant and second defendant purchase the plaintiff's one third interest in the property, subject to provisions then set forth, being included in any such contract. 13 Paragraph 5 of the notice of motion seeks an order that, subject to the parties entering into such a contract for the sale of land, the third defendant account to the plaintiff for one third of the net rentals received from the property from 24 April 2007 until the date of sale. 14 By paragraph 6 the defendants seek an order that, if there be an order for the sale of the property by public auction or otherwise, the first defendant and/or the second defendant be permitted to purchase the property, and, consequential to such an order, the manner of payment upon such a purchase. 15 Paragraph 7 of the notice of motion is in the following terms: Any moneys payable under the written contract for sale of land referred to in order 4, any moneys to be paid pursuant to order 5 and any moneys payable by the First Defendant and the Second Defendant in respect of the purchase by them referred to in order 6, be paid into Court until the earlier of:

(a) the estate of the late George Sydney MacDonald, the father of the plaintiff, is fully administered and the life interest under the last will of the said George Sydney MacDonald ceases; and (b) the written agreement of the Plaintiff, the First Defendant and the Second Defendant. 16 These proceedings came before the Registrar on a number of occasions. Subsequently on 13 February 2009 the matter came before Macready AsJ for the allocation of a hearing date. On that occasion the parties, either expressly or at least by implication, assured the Court that the matter was in a state of complete readiness for hearing. Upon that basis Macready AsJ allocated today, 19 March 2009, for the hearing of the proceedings, specially fixing the matter to be heard by myself. Macready AsJ also directed the plaintiff to lodge and serve written submissions by 5 March and the defendant to reply by 12 March. 17 It appears to have been accepted by all parties that the notice of motion would be heard today, as well as the substantive proceedings. The plaintiff complied with the direction concerning the lodging and serving of written submissions by 5 March. Yesterday, 18 March, there arrived at my chambers shortly after 4 p.m. a document headed "Defendants' supplementary submissions" from Counsel for the defendants. That document made reference, in the final paragraph thereof, to what was described as "the principal outline of submissions dated 12 March 2009." 18 At my request Counsel for the defendants kindly provided a copy of that latter document, which is headed "Defendant's outline of submissions" and is dated 12 March 2009. That copy was received in my chambers at 4.26 pm yesterday, 18 March. 19 From the enquiries which I have addressed to Counsel for the defendants during the course of today's hearing, it has been indicated that the original of that document has been filed. I would here emphasise that Counsel presently appearing for the defendants has only recently come into the matter and was not responsible for the preparation of the original outline of submissions for the defendants and has in no way been responsible for the failure of that document either to reach me or, apparently, to have been properly filed. It certainly has not reached the Court file in the period of one week since it is said to have been filed. 20 The defendant's supplemental submissions enclose a form of amended defence, which those supplemental submissions foreshadowed would be sought to be filed at today's hearing. The filing of that amended defence was opposed by the plaintiff. 21 For the reasons which I set forth in a judgment in that regard delivered this morning, I refused the leave sought by the defendants to file the amended defence. The matter has proceeded upon the issues raised in the defence which was filed by the defendants on 25 November 2008. 22 I would also observe that it is quite unfair not only to the plaintiff but to the Court, when a matter is fixed to be heard upon a certain basis upon certain issues on a specific day and when the Court was expressly assured, or at least impliedly assured, that the matter was in a state of readiness for hearing, for an attempt to be made during the hearing itself to change the issues before the Court in a very fundamental fashion. 23 At the outset of today's hearing I raised with Counsel my concern that I might not have the power to grant the entirety of the relief sought by the defendants in the notice of motion. In consequence, the parties obtained from Palmer J, sitting as Duty Judge in the Equity Division, an order referring the determination of the entirety of the matters in the notice of motion to be heard by myself. Thus, any concern which I might have had concerning the extent of my powers to grant that relief has now been set at rest. 24 The substantive proceedings are brought pursuant to the provisions of section 66G of the Conveyancing Act 1919. That section comes within Part 4, Division 6 of that statute and deals with statutory trusts of property in co-ownership. Where the property is held in co-ownership section 66G empowers the Court to appoint trustees of the property and to vest the property in such trustees, to be held by the trustees upon the statutory trust for sale. 25 I have already referred to the fact that the plaintiff, the first defendant and the second defendant are the children of the late George Sydney MacDonald ("the Deceased"). There has been placed in evidence the will of the deceased, who died on 24 April 2007. The plaintiff, the first defendant and the second defendant are the executors named in that will. They are also the residuary beneficiaries under that will. 26 It would appear that there has been no grant of probate in respect to the will. Neither have any of three named executors, each of whom is a residuary beneficiary, obtained a grant of letters of administration with the will annexed. No explanation has been offered or provided in the evidence concerning the absence of any grant of probate or letters of administration. 27 The absence of any such grant has some relevance to the proceedings which are presently before me, in that there appeared to be asserted some right in the first and second defendants as named executors under the will of the deceased to have some form of control over the estate or to consider that there might be a claim against the estate which would justify their opposition to the relief sought by the plaintiff in the present proceedings. 28 The defendants oppose the substantive relief claimed by the plaintiff. That opposition, in the terms of the defence as originally filed and in the terms of the outline of submissions dated 12 March 2009, was essentially based upon the discretion in the Court to withhold the making of an order for the appointment of statutory trustees for sale. 29 It should be recognised that, whilst such an order is discretionary and whilst the courts have declined to offer any comprehensive definition of the kinds of matters in which the court would decline to grant such an order, nevertheless such an order is almost always granted unless on settled principles it would be inequitable to allow the application. (See Ngatoa v Ford (1990) 19 NSWLR 72, a decision of Needham J; and more recently, Tory v Tory [2007] NSWSC 1078, where White J referred to various authorities at paragraph 42, and said that an application will be refused if to make the order would be inconsistent with a proprietary right or a contractual or fiduciary obligation.) 30 I would also for completeness refer to the decision of the Court of Appeal in Forgeard v Shanahan (1994) 35 NSWLR 206 and, in particular to the judgment of Meagher JA. 31 In the instant case the essential ground upon which the defendants originally opposed the making of the order for the appointment of trustees for sale is set forth in paragraph 2.2 of the original written outline as follows: The essence of the Defendants' opposition to the orders sought is discrete. There is not, and has never been, any opposition to the sale of the Property. Indeed, the First and Second Defendants have on several occasions submitted proposals for the purchase of the Plaintiff's share in the property upon appropriate terms. However, in the absence of appropriate releases and/or indemnities, the First and Second Defendants incur a significant risk. 32 That risk is articulated in the affidavit of Stephen MacDonald sworn 9 December 2008. 33 The risk which the defendants perceive appears to relate to the possibility of claims being made upon the interest of the first and second defendants as co-owners of the subject property, or against the estate of the deceased, of which the first and second defendants are two of the three named executors. 34 It must be appreciated however that the plaintiff, the first defendant and the second defendant became the registered proprietors of the subject property as tenants in common in equal shares in June 1983, more than 20 years before the death of the deceased. If, as I gather it is now being suggested, the subject property was held by the three registered proprietors for the deceased in a beneficial capacity, then presumably any claim which might be made against the registered proprietors could be made only by the estate of the deceased, or, if it is being asserted that the deceased himself was holding the benefit for some other trust, then by the beneficiaries of that trust. 35 I have already referred to the unexplained absence of any grant of probate or administration of the estate of the deceased and to the fact that the first and second defendants, in any event, even if administration had been granted to the three named executors, would not have been entitled to act other than unanimously with their co-executor, the plaintiff. 36 In the supplementary submissions which were delivered and served yesterday, the defendants raised for the first time the standing of the plaintiff to make the present application. 37 The precise words of subsection (1) of section 66G are as follows: 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. 38 Section 66F contains the following definition of "co-ownership" as used in Division 6 of the statute, 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.

39 It has been submitted on behalf of the defendants that the plaintiff does not come within the foregoing definition and that in consequence he does not have the standing to make the present application. The ground upon which it is submitted that the plaintiff does not come within the foregoing definition is that, although the property is held by the plaintiff and the first and second defendants as tenants in common, the property is not held by those persons "in possession". 40 It is submitted on behalf of the defendants that the subject property has been in possession of the third defendant and not of the registered proprietors. The defendants do not by this submission attempt to go behind the register. They would be very rash if they thought they could do so. And they do not attempt to challenge the indefeasibility of title to the subject property, consequent upon the registration of the plaintiff, the first defendant and the second defendant as registered proprietors as tenants in common in equal shares. (As to indefeasibility in that regard see the decision of the High Court of Australia in Breskvar v Wall (1971) 126 CLR 376.) 41 The defendants, in making the submission that the property is not held in possession by the registered proprietors, point to various matters of an evidentiary nature. In particular, they rely upon the fact that rents from the property have never been received by them and upon the fact that the property appears to have been treated as an asset of a trust in which the deceased had a beneficial interest. That is, so it is submitted on behalf of the defendants, the registered proprietors held the property and currently hold the property as bare trustees. It would appear that the deceased in 1986 provided the funds from which the subject property was purchased. 42 Section 7 of the Conveyancing Act contains a general interpretation provision, which refers to the word "possession" when used with reference to land as including the receipt of income therefrom. That definition is not intended to be an exhaustive definition. However, had the plaintiff received rental income from the subject property there would have been no doubt that it was held by him in possession. 43 But the submission of the defendants is not only that the plaintiff is not in possession but that none of the three registered proprietors (either the plaintiff, the first defendant or the second defendant) has ever been a co-owner in possession. The defendants submit that all three registered proprietors have been nothing more than bare trustees. 44 I am not in agreement with that submission made on behalf of the defendants. It seems to me to be based upon a misunderstanding of the meaning of the phrase "in possession" as used in the law of real property. The reference to an owner in possession and, in the case of co-owners, to co-owners in possession, refers to a right to possession. 45 In the case of tenancy in common there must be an equal right to possession of every part and parcel of the subject matter of the tenancy in order to constitute a tenancy in common. Unity of the right of possession is required. 46 In this regard Young J in Commonwealth Bank of Australia v MacDonald [2000] NSWSC 553, (21 June 2000) stated, at [36]: To constitute a tenancy in common, there must be an equal right to possession of every part and parcel of the subject matter of the tenancy; joint possession is not essential, unity of the right of possession being all that is required: see Mitra's Co-ownership and Partition 7th ed (Eastern Law House, Calcutta, 1994) p 10 and Biswanath v Rabija (1930) 33 CWN 46. Unity of possession means that each co-owner is as of right as much entitled to possession of any part of the property as the others. 47 And his Honour then referred to the classic treatise Blackstone's Commentaries II, 182. 48 His Honour went on to quote with approval the article 'Co-ownership under Victorian Land Law' (1961) 3 Melbourne University Law Review 137, where the author, Mendes da Costa said, at 138, Whatever the method of co-ownership, one feature true of all, is that each co-owner, whether he be a joint tenant or a tenant in common, is entitled, concurrently with the other co-owners, to possession of the whole of the land, although he has no exclusive right to possession of any part. It is this right to possession of the entirety of the land, a right which exists irrespective of agreement with, or the permission of the other co-owners, and which, at common law cannot arbitrarily be determined by order of the court... that is the essential characteristic of all forms of co-ownership: without it there is several, that is separate, and not concurrent ownership… 49 And his Honour later in his judgment, at paragraph [45], cited with approval the judgment in a partition suit heard before the Supreme Court of Oklahoma in Mik v Cargill 485 P (2d) 229 (Oklahoma) (1971), where Berry CJ on behalf of that Court, in referring to the definition of a tenancy in common, said: A tenancy in common has been defined as a joint interest in which there is unity of possession, but separate and distinct titles. The relationship exists where property is held by several distinct titles by unity of possession, and is not an estate but a relation between persons, the only essential being a possessory right, as to which all are entitled to equal use and possession. 50 The reference to co-ownership in possession or to the vesting of property in possession may be contrasted with the vesting of property in interest (for example, a future interest, such as an estate interest in reversion or remainder; or a contingent interest where the contingency has already occurred). 51 In the High Court of Australia in Horton v Jones (1935) 53 CLR 475, Rich and Dixon JJ in a joint judgment referred, at 486, to the interest of the beneficiary in an incompletely administered estate where that beneficiary under the terms of the will was entitled to land. Their Honours recognised that such a beneficiary had an interest in land, but that such an interest was not an interest in possession, in the sense that the beneficiary had no immediate right to possession. Their Honours at 486 stated: But it is not the consequence that no right of property subsisted in the deceased, nor that no right of property subsisted involving an interest in land. The deceased possessed equitable rights enforceable in respect of the assets considered as a whole. It is true that he had no immediate right to possession or enjoyment and that his precise rights involved, at any rate prima facie, administration, and possibly necessitated conversion and calling in of investments. But, none the less, he had more than a mere equity. He had an equitable interest and it related to assets which included interests in lands. And their Honours in that joint judgment referred to a number of other authorities of similar purport.

52 The mere fact that in the instant case a number of registered proprietors may hold the land on trust (and I would emphasise that the evidence is far from complete in this regard), does not mean that the three registered proprietors do not hold the land in possession. 53 In property law, in relation to the concept of possession, it is appropriate that reference should be made to the decision of the High Court of Australia in Wheeler v Baldwin (1934) 52 CLR 609 and especially to the judgment of Dixon J (as he then was). His Honour embarked on a scholarly consideration of the right to possession and referred to the celebrated essay of F W Maitland, in his collected papers, on The Mystery of Seisin (1911) vol 1, p 370 and to the development of the law in this regard set forth in Holdsworth's History of English Law (3rd ed, 1925) vol 7 pages 23 to 81. 54 In this area of the law possession means a right to possession and does not mean physical occupation. The mere fact that the plaintiff, the first defendant and the second defendant were not in physical occupation of the property is of no relevance whatsoever to the question of whether they would be described as co-owners in possession. The reference to co-owners being "in possession" is to the co-owners having a right to possession. 55 In Leigh v Jack Cockburn LJ (1879) 5 Ex D 264 said at 271 that if a man does not use his land he does not necessarily discontinue possession of it. 56 Griffith CJ in Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490 said, at 498, The essential element of an "estate in possession" is, in my opinion, that the owner of it has a present right of beneficial enjoyment, whether accompanied by physical possession of the land or not. 57 (In this regard see also Clement v Jones, a decision of the High Court of Australia (1909) 8 CLR 133 at 139; Gartside v Inland Revenue Commissioners [1968] AC 553; and Kennon v Spry [2008] HCA 56; (2008) 83 ALJR 145, especially per Heydon J at [156].) 58 The foregoing authorities make it abundantly clear that the phrase "in possession" used in the definition of co-ownership in section 66F of the Conveyancing Act, being ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common, means having a right to possession. I am totally satisfied that the three registered proprietors in the instant case have such a right, and that the plaintiff is a co-owner in the sense in which that phrase is used in section 66G, as defined in section 66F. I am fully satisfied that the plaintiff has the standing to bring the present application. 59 None of the arguments or submissions made by the defendants in opposition to the substantive relief sought by the plaintiff in my view enlivens the exercise of the judicial discretion against the making of the order. I have already quoted what White J said in the very recent decision of Tory v Tory [2007] NSWSC 1078, that such an order is made almost as of right unless on settled principles it would be inequitable to allow the application. There is in my conclusion nothing whatsoever inequitable in allowing the application. 60 The dispute which has emerged from the correspondence between the respective solicitors for the parties goes solely to the question of the valuation of the property. That is a matter which the trustees will be able to determine for themselves in carrying out their statutory responsibilities upon their appointment. Any other questions concerning the estate of the deceased or concerning the entitlement of any persons to make claims against that estate are outside the ambit of the present proceedings. 61 As to the entitlement of the plaintiff to the taking of an account in respect to the rentals received for the subject property, I am satisfied that the plaintiff is entitled to such an account. Indeed, as I have already observed, one of the orders sought in the defendants' notice of motion is for the taking of an account, although in somewhat limited terms and by somewhat different quantification from that sought by the plaintiff. 62 Since I am satisfied as to the identity of the proposed trustees and of their fitness, by the affidavit of fitness which has been provided, together with their consent, I propose therefore to make the appointment of those trustees as sought in the statement of claim. 63 I propose also to make an order for the taking of an account, and in that regard it will be necessary for the matter to be referred to the Registrar's list for appropriate directions to be made. I propose also to dismiss the defendants' notice of motion. 64 I observe that the plaintiff in prayer 5 of the statement of claim seeks an order that the defendants pay the plaintiff's costs on an indemnity basis. The usual order that is made concerning the costs of an application, even a contested application, for the appointment of statutory trustees for sale of land in co-ownership, is that the costs of the parties be paid out of the proceeds of sale, and where there is unsuccessful opposition by one or more of the co-owners, that the costs of the successful plaintiff be paid out of the share to which the opposing co-owners would be entitled. 65 I will give Counsel an opportunity to address me on costs. But unless they can persuade me otherwise, it seems to me that the usual order, which I have just outlined, is the one which should be made. 66 I make the following orders: 1. I make orders as in prayers 1, 2, 3 and 4 in the statement of claim.

I order that the notice of motion filed by the defendants on 9 December 2008 be dismissed.

I order that the defendants pay the costs of the plaintiff of the aforesaid notice of motion, such costs to be on the party and party basis.

I order that the third defendant pay one-third of the costs of the plaintiff of the proceedings and that the balance of the costs of the plaintiff of the proceedings be paid equally from the share of the proceeds of sale of the land to which the first defendant is entitled and the share of the proceeds of the sale of the land to which the second defendant is entitled, all such costs to be on the party and party basis.

I stand the matter over to Thursday, 16 April 2009 before the Registrar for directions in respect to the taking of the account pursuant to prayer 4 in the statement of claim.

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.