72 Mrs Fern must have known and intended that Mrs McCulloch would endeavour to persuade Mr McCulloch to consent to her making the July payment. She must have known and intended that all of the ties of natural love and affection between Mr and Mrs McCulloch, as a married couple of twenty years by that time, would be drawn upon by Mrs McCulloch in persuading her husband to agree to what she wanted. She must have known and intended that Mr McCulloch feel the vulnerability of his own position if he refused: he would jeopardise his relationship with his wife and children, all of whom were then living with Mrs Fern on the Wapengo property and appeared to be under the domination of Mrs Fern.
73 Mrs Fern exploited for her own advantage Mr McCulloch's vulnerability to persuasion by Mrs McCulloch. I accept Mr McCulloch's evidence as to his attitude at the time of the payment to the extent that I am satisfied that he would certainly have refused to consent to an outright gift of the money if Mrs Fern herself had asked him directly in July 1988. But Mrs Fern placed Mr McCulloch in a position of special disadvantage by conveying her request through the medium of Mrs McCulloch, whose request she must have known and intended Mr McCulloch would find very difficult to refuse. As I have found, Mrs Fern procured Mrs McCulloch's request through undue influence. In those circumstances, Mrs Fern could not conscientiously retain the benefit of the payment as against either Mr McCulloch or Mrs McCulloch. Subject to the questions as to laches and the standing of Mr McCulloch, the July payment is liable to be set aside in equity as against Mrs Fern.
Mr Fern's position
74 Mr Fern's business experience up to 1985 was as a real estate agent. It was, therefore, he who assumed responsibility, at his wife's request, for preparing the letter to Mrs Fern's followers, sent out in July 1986, which broadly suggested a means whereby the followers could acquire land adjoining the Wapengo property. It was he who drafted the statement in that letter that Mrs Fern wanted to bring to her followers' attention that "the members of the church must make it their responsibility to see that the 75 acre portion [of the Wapengo property] earmarked as church property is paid for by them" .
75 Mr Fern also typed the letter of solicitation from Mrs Fern which accompanied his own letter. He said that he had no part in its composition but merely typed it from a document prepared by Mrs Fern.
76 Mr Fern does not describe himself as a believer in the Church Universal and Triumphant. He says: "I couldn't form an opinion but I couldn't find fault and I looked for 25 years" . In my view Mr Fern, while probably not a professed adherent of Mrs Fern's group, was familiar with its tenets and was sympathetic with his wife's beliefs and with what she was trying to achieve in the form of a religious community resident on the Wapengo property.
77 Mr Fern was living on the property during the whole time that Mrs McCulloch, her children and other followers of Mrs Fern were living there. Although he says that he did not participate in prayer meetings and other religious devotions of the group, it would have been impossible for him not to observe the influence that his wife had over her group of followers, particularly Mrs McCulloch. He knew Mrs McCulloch well. By July 1988 the McCulloch and Fern families had been good friends for some eleven years. Mrs McCulloch had been to prayer meetings in the Ferns' home before they moved from Melbourne. The McCullochs' youngest daughter, Maree, had been living with the Ferns on the Wapengo property for more than a year. It is inconceivable that Mr Fern was unaware that Mrs McCulloch was obedient to the will of Mrs Fern.
78 Mr Fern knew that his wife had obtained the cheque for $93,325 from Mrs McCulloch. The cheque was signed by her, given to Mrs Fern, who gave it to Maree who, in turn, gave it to Mr Fern to bank. Mr Fern must have seen that the cheque was drawn on the joint bank account of Mr and Mrs McCulloch.
79 As at July 1988, the financial affairs of Mr and Mrs Fern were not flourishing. As I have noted above, in June 1988 they had closed down at a loss the small business that they had been conducting on the property. Mr Fern had taken a job in a real estate office in Tathra. I infer that money was tight.
80 I am satisfied that Mr Fern was content to take the benefit of the July payment knowing that it had been procured by his wife from Mr and Mrs McCulloch while Mrs McCulloch was obedient to Mrs Fern's will. He must have been aware that, in obtaining Mr McCulloch's consent to the payment, Mrs McCulloch would have been doing so at Mrs Fern's request He must have appreciated that Mr McCulloch would have found it much more difficult to refuse Mrs McCulloch's request for the money than if he or Mrs Fern had asked Mr McCulloch for it directly. Indeed, I am satisfied that Mr Fern himself would never have dreamed of asking Mr McCulloch directly for $93,000 to pay off the mortgage on his property. Yet he was content to take that money when it was procured for that purpose by his wife through the medium of Mrs McCulloch.
81 In my opinion, subject to the questions of laches and standing, it would be unconscionable for Mr McCulloch to retain the benefit of the July payment.
Mr McCulloch's standing
82 Mr and Mrs Fern say that the true analysis in law of what happened on 24 and 25 July 1988 is that on the evening of 24 July Mr McCulloch made an unconditional gift to Mrs McCulloch of his interest in the jointly owned money the subject of the payment. When Mrs McCulloch came to draw a cheque for the payment and gave it to Mrs Fern the next day, Mrs McCulloch was dealing exclusively with her own property. This is because the gift by Mr McCulloch of his interest in the joint property to Mrs McCulloch had severed the joint tenancy in the property. If the gift by Mrs McCulloch is liable to be set aside in equity, say Mr and Mrs Fern, the only person who can properly make that claim now is an administrator of Mrs McCulloch's estate.
83 That is not the only way in which the transaction can be analysed. Mr McCulloch's consent to the payment which his wife proposed may simply have been the act whereby both joint tenants, by agreement, made a payment of joint property to third parties. The fact that Mrs McCulloch alone signed the cheque is immaterial. Clearly, a signature of either joint tenant was authorised to operate the joint bank account. If joint tenants of property jointly agree to dispose of it in a certain way, but only one of them signs the relevant documentation with the consent of the other, that cannot without more bring about a severance of the joint tenancy by way of a gift to the signing party so that the rights inherent in the transaction thereafter are held exclusively for the benefit of the signing party.
84 In the present case, it is highly arguable whether what was said between Mr and Mrs McCulloch in their telephone conversation of 24 July 1988 evidenced an intention on Mr McCulloch's part to make a gift of the money to Mrs McCulloch. What was clearly in the contemplation of both parties was a payment out of their joint property to Mr and Mrs Fern; they obviously never addressed their minds to the nice question whether Mr McCulloch was giving his interest in the money to his wife so that she could, in turn, make a gift of it to Mr and Mrs Fern.
85 The words which Mr McCulloch says he used when his wife said that she was going to write out a cheque - "you can have it because I love you" - are quite consistent with an intention on his part to let her have her way in a disposition of joint property. Those words might unequivocally have evidenced an intention to make a gift to Mrs McCulloch if Mr McCulloch had used them on an occasion upon which he was clearly referring to property which was exclusively his own - for example, if he had bought a piece of jewellery from his own money and had spoken the words while handing it to his wife.
86 In the end, it probably does not matter how one categorises in law the process by which the money left the joint account of Mr and Mrs McCulloch and was applied for the benefit of Mr and Mrs Fern. To borrow the pithy words of Lord Denning MR in another context: 'Fraud or collusion unravels everything" : Campbell v Edwards [1976] 1 WLR 403 at 407.
87 Mr McCulloch's consent as joint owner to a payment of joint property to Mr and Mrs Fern or, alternatively, Mr McCulloch's gift of his interest in the joint property to his wife, was procured by unconscionable conduct in which both Mr and Mrs Fern were implicated in different ways. Thus, whatever Mr and Mrs McCulloch did in effecting the payment was tainted by the equitable fraud of Mr and Mrs Fern. Subject to the question of laches, the whole transaction is liable to be set aside and the parties restored as far as possible to their positions before the payment. If that were done, Mr and Mrs McCulloch must be treated as never having disposed of their joint interest in the money. Mr McCulloch would now be entitled by survivorship to the whole of the money.
88 In my opinion, Mr McCulloch has standing to bring proceedings seeking the aid of equity to restore him to that position in so far as it is just and equitable to do so.
Laches, acquiescence and delay
89 Mr and Mrs Fern contend that it is now too late for Mr McCulloch to seek equitable relief. They say that the causes of action which Mr McCulloch now endeavours to prosecute arose on 25 July 1988, that Mr McCulloch was fully aware at that time of all relevant facts and circumstances, and that he stood by for eleven years before commencing these proceedings in 1999. During that time, they say, they have expended money in improvements to the Wapengo property, they have mortgaged their property to Westpac Banking Corporation on two occasions, and they have expended the proceeds of the loans for their own purposes.
90 Further, they say, because of the lapse of time they have been prejudiced in the conduct of their defence in that Mrs McCulloch died in 1990 and they have been deprived of the benefit of her evidence. In addition, they claim, medical evidence in relation to Mrs McCulloch has been lost, a letter from Mr Fern to Mr McCulloch in about 1990 referring to repayment of the money has been lost as has, probably, other relevant documentary evidence.
91 Mr and Mrs Fern say that Mr McCulloch's delay in commencing proceedings has caused them to alter their position in reasonable reliance on Mr McCulloch's acceptance of the status quo, so that he should now be refused relief.
92 I am unable to accept the suggestion that, from the time of the July payment in 1988 to the commencement of these proceedings in 1999, Mr and Mrs Fern were unaware that Mr McCulloch was seeking either repayment of the money or else some corresponding interest in the Wapengo property, and that they conducted themselves and dealt with the property on that basis. The evidence is overwhelmingly to the effect that shortly after Mrs McCulloch returned to live with him in late 1988, Mr McCulloch began to express regrets at having permitted the payment, not only to his wife but to Mr and Mrs Fern. Mr and Mrs Fern assured him on a number of occasions over the following years that the money would be repaid, or that he would be given a portion of the property after Mr Fern had obtained approval for a subdivision. Nothing came of those assurances. Relations between Mr McCulloch and Mr and Mrs Fern were at first cordial, especially as Mr McCulloch's daughter, Maree, had married Mr and Mrs Fern's son, Michael. But as Mr McCulloch's requests for payment went unsatisfied, it seems that the relationship soured and the two families became estranged.
93 It is necessary to recount some of the particulars of this history.
94 Mrs Fern says that in about January 1989 she had a conversation with Mr McCulloch in which he told her that he was unhappy about the payment of the money and that he wanted his name on the title to the Wapengo property. According to Mrs Fern, Mr McCulloch acquiesced when reminded by Mrs Fern that the payment was a gift with no strings attached. Mr McCulloch denies having acquiesced.
95 According to Mrs Fern, some months after Mrs McCulloch's death in February 1990, she had a telephone conversation with Mr McCulloch in which he said that if he could not get his name on the title to the Wapengo property, then he wanted a document confirming that he would get his money back when the property was sold. She says that she reminded him that the money was a gift, but said that she would talk it over with her husband. She says that she discussed the matter with Mr Fern, who said that he would write to Mr McCulloch promising to repay the money, as a gift, when the Wapengo property was sold.
96 It seems clear that Mr Fern did write to Mr McCulloch in 1990. The letter has been lost and there is some disagreement about its terms. Mr McCulloch says that the letter was in accordance with what Mrs Fern said she discussed with Mr Fern, that is, that Mr McCulloch would be repaid when the Wapengo property was sold.
97 Mr Fern says that he wrote that he and his wife had received the money as a gift, but that he considered that he had some moral obligation to Mr McCulloch. He says that he did not say anything in the letter about repaying the money when the property was sold.
98 I am satisfied that in the 1990 letter and the conversation between Mr McCulloch and Mrs Fern which had preceded it, Mr and Mrs Fern acknowledged that Mr McCulloch had a claim to repayment of the money. They were aware thereafter that Mr McCulloch was seeking to enforce that claim. For their part, they were not willing to honour the claim unless and until it was convenient for them to do so, as the following circumstances show.
99 On a number of separate occasions between 1991 and 1996, Mr McCulloch's daughter, Maree, who was living on the Wapengo property, told Mr McCulloch that Mr Fern would either repay the money or give him some of the Wapengo property if he obtained permission to subdivide it. No doubt Maree wished to prevent her father from taking action against her parents-in-law. It appears that during this time Mr Fern was indeed making efforts to procure Council approval to a subdivision of the Wapengo property.
100 In 1996, Mr McCulloch visited the real estate agency in Tathra which Mr Fern then owned. Mr and Mrs Fern and their children were present at the time. Mr McCulloch asked: "When am I going to get the money you owe?" According to Mrs Fern, she and her husband offered to pay Mr McCulloch back at the rate of $250 per week, but Mr McCulloch wanted to be repaid in a lump sum. Mrs Fern says that she did not want to repay Mr McCulloch anything, but her husband had "continued to make these promises to Mr McCulloch [to repay] and then I was subject to that … there was nothing I could do" .
101 Mrs Fern also accepts that she had had a conversation with Mr McCulloch in 1996 about a possible transfer of 50 acres of the Wapengo property to Mr McCulloch. She says that she knew that Maree had relayed to Mr McCulloch an offer from Mr Fern of 50 acres. Mrs Fern told Mr McCulloch that there would be conditions attached to the offer. There is disagreement about what the conditions were.
102 Mr Fern agrees that, on a number of occasions in 1996, 1997 and 1998, he discussed with Mr McCulloch repaying him the money by transferring 50 acres of the Wapengo property when it was subdivided. He agrees that that proposal was something that he was holding out to Mr McCulloch as a way of discharging his "moral obligation". He says that in September 1998 he had a conversation with Mr McCulloch and his second wife in the street at Bega, in which he said: "When I have the land subdivided, I would give you fifty acres of that subdivision." Mr McCulloch's second wife said: "Are you serious about that?" . Mr Fern says that he responded: "I have given my word. Yes."
103 On 19 September 1998, Mr McCulloch wrote to Mr and Mrs Fern referring to the offer to transfer 50 acres. He wrote again on 25 September, saying that he awaited advice as to how Mr and Mrs Fern intended to fulfil their "moral obligations". On 9 November 1998 he wrote a letter, clearly on legal advice, in which he sought a transfer of 75 acres on the basis of a valuation of $110,000 for that parcel, as compared with a valuation of $150,000 for the 25 acres upon which Mr and Mrs Fern lived.
104 On 16 November 1998, Mr Fern responded:
"Dear Kevin,
I am deeply troubled by your conduct.
The gift made to Anna had no strings attached at all. It could be said that Anna did provide appropriate reward.
In any event, I have acknowledged that I have a moral obligation.
Any intervention by you can only lead to a repudiation of previous arrangements. Your conduct and actions may have adverse effects upon us all.
With kindest regards, Don"
105 -On 25 November 1998, Mr McCulloch caused a caveat to be lodged on the title to the Wapengo property, claiming an interest in the land. These proceedings were commenced by Summons filed on 23 April 1999.
106 Other relevant matters to note are that in June 1993 Mr and Mrs Fern borrowed in excess of $40,000 from Westpac Banking Corporation on the security of a registered mortgage over the Wapengo property. In January 1996, a further sum of money was borrowed from the Bank upon the security of a second registered mortgage over the property. The proceeds of the second loan were used to repay the first loan, a personal loan and another overdraft. It does not appear from the evidence what is the balance, if any, now owing to the Bank by Mr and Mrs Fern upon the security of a mortgage over the property.
107 There is some scant evidence that Mr and Mrs Fern have expended some of their own money in improving the property. The improvements seem to consist of repainting the house which they occupy. There is no evidence of substantial expenditure for pasture improvement or the carrying on of any farming or grazing activity. It appears that the property has not been used for farming to any material extent.
108 I am satisfied on the evidence that at all times from early 1989 to the present Mr and Mrs Fern have been fully aware that Mr McCulloch has been claiming the return of the July 1988 payment. They have frequently recognised a "moral obligation" to repay the money. The mortgages of the property to Westpac and the incurring of liability to the Bank for the secured loans have been undertaken with full appreciation of an overriding commitment either to repay Mr McCulloch or to provide him with title to at least half of the Wapengo property.
109 I note in this regard that Mr Fern says in his affidavit that he acknowledges that he has a moral obligation to repay $93,000 to Mr McCulloch. He says that that money can only come from the sale of the Wapengo property and, in the meantime, it is the only place where his extended family can reside. He continues:
"Accordingly, after taking advice from my solicitor, I offer the plaintiff a third mortgage over the land at no interest and repayable on the sale of the land with the proviso that if the land is rezoned to permit subdivision and is subdivided beforehand, then the mortgage may be discharged by transferring to the plaintiff the equivalent of 50 acres of land. The other terms of the mortgage will be the usual terms of a mortgage."
110 Mrs Fern also offers a third mortgage over the property on the same terms.
111 Mr McCulloch's delay of eleven years in commencing these proceedings is, in my opinion, excusable in light of the repeated assurances which he was receiving over that period from people who were not only related to him by marriage, but had been his friends. In those circumstances, a reluctance to commence legal proceedings until all else had failed is very understandable. Mr McCulloch has not slept on his rights; he has been lulled into inactivity by the promises of Mr and Mrs Fern.
112 In my opinion, there is in this case no injustice in requiring Mr and Mrs Fern to honour an obligation which they themselves have acknowledged for the last thirteen years. The possible loss of evidence in the meantime through Mrs McCulloch's death, and the loss of other documents, is not a sufficient countervailing consideration given that the facts and circumstances of the case are very clear even without such evidence.
113 Accordingly, in my judgment, the defence of laches, acquiescence and delay fails.
Orders
114 The gift of $93,325 to Mr and Mrs Fern out of the joint property of Mr and Mrs McCulloch should be set aside. Mr McCulloch is now entitled, by survivorship, to the whole of that money and interest thereon. The money has been applied towards the acquisition by Mr and Mrs Fern of their beneficial interest in the Wapengo property in circumstances in which it is appropriate that equity imposes a constructive trust.
115 It is true that Mr and Mrs Fern have themselves paid part of the purchase price of the property and have paid interest on the mortgage to Mr Hankinson until that mortgage was substantially discharged in July 1988 by the payment from Mr and Mrs McCulloch. On the other hand, Mr and Mrs Fern have had the benefit of $93,325 interest free for some thirteen years as well as the capital appreciation of the Wapengo property.
116 In those circumstances it is appropriate to declare that Mr and Mrs Fern hold the whole of their unencumbered interest in the Wapengo property upon a constructive trust for Mr McCulloch in the proportion that $93,325 bears to an amount being the sum of the purchase price of the property, the costs of acquisition and the interest paid by Mr and Mrs Fern from their own money under the mortgage to Mr Hankinson.
117 However, I note that the plaintiff's Summons makes various prayers for relief in the alternative, including a prayer for the sale of the property under Div.6 of Pt.IV of the Conveyancing Act 1919 (NSW). It may be that a forced sale of the property is not in the interests of all parties and that a better solution can be found by sensible agreement. I think that the parties should have some little time to consider these reasons and to discuss the best means whereby they can be given effect.
118 The orders I make are as follows:
1. Order that the gift of $93,325 by the plaintiff and the late Maureen McCulloch to the defendants be set aside.
2. Declare that the defendants hold the whole of their unencumbered interest in the property comprising Lot 87 in DP 880417 at Wapengo in the Shire of Bega Valley, being the land in Folio Identifier 87/880417, upon a constructive trust for the plaintiff in that proportion which $93,325 bears to an amount being the sum of the purchase price of the said property, the costs of acquisition of the said property and interest paid by the defendants from their own money under a mortgage to Mr John Hankinson.