Ng v Cheng

Respondent's primary claim (constructive or resulting trust)

1. The respondent's primary claim (that the 50% share of the Property registered in the first plaintiff/first cross-defendant's name is held on trust for his benefit) is brought on two alternative bases.
2. Both are predicated on an agreement alleged to have been entered into between the three parties (i.e., the respondent and the plaintiffs/cross-defendants) in or around the middle of 1999 in relation to the purchase of the Property (the Property Agreement). The alleged agreement is particularised as being an oral agreement.
3. The respondent alleges that the terms of the Property Agreement were that the plaintiffs/cross-defendants would each be 50% registered owners of the Property, but that the first plaintiff/first cross-defendant would hold her 50% beneficially for him (see cross claim at [5]); and that it was also agreed that the respondent would pay the first plaintiff/first cross-defendant's share of the expenses related to the Property (i.e., 50%), and that the respondent would be entitled to use the Property for the purposes of carrying on the Business (see cross claim at [5]).
4. The purchase price for the Property was $760,000.00 plus stamp duty. The respondent alleges that he contributed $210,000.00, the applicant contributed $210,000.00 and the remainder was funded by a loan from HSBC. The respondent contends that, notwithstanding the terms of the Property Agreement, he has paid all of the relevant outgoings for the Property since December 1999, including the mortgage and other bills and has paid $163,000.00 towards a renovation of the Property (see cross claim at [11]; [18]).
5. In or around August 2017, the plaintiffs/cross-defendants informed the respondent that they would no longer be leasing the Property to him or one of his related entities for the purposes of carrying on the Business from the Property (see cross claim at [14]).
6. By reason of the above, the respondent contends, primarily, that the first plaintiff/first cross-defendant holds her 50% interest in the Property on constructive trust for his benefit. Alternatively, he contends that she holds her interest, insofar as it relates to his $210,000.00 contribution to the purchase price, on a resulting trust for him.

Respondent's alternative claim (imposition of equitable charge)

1. The alternative claim is brought against both of the plaintiffs/cross-defendants. The respondent made clear that this alternative claim is pressed only if his primary (constructive or resulting) trust claim fails.
2. The alternative claim, whereby the respondent seeks the imposition of an equitable charge over the Property is put on the basis that, since December 1999, he has paid: all bills, charges and levies for the Property; all mortgage payments for the Property; and the sum of $163,000.00 in renovation costs in relation to the Property; all allegedly on the basis that, at the time of making those payments he had a reasonable expectation, based on what the plaintiffs/cross-defendants had said to him in 1999, that he would be entitled to occupy the Property indefinitely to carry on the Business (see cross claim at [18]-[19]).
3. The respondent contends that, in those circumstances, it would be unconscionable and inequitable for the plaintiffs/cross-defendants to resile from the representation made in 1999 as to him occupying the Property whilst at the same time seeking to retain the benefit of those moneys. It is pleaded using the terminology redolent of a claim in restitution.

Status of the proceedings

1. In September 2018, on the respondent's application, these proceedings were transferred from the District Court to this Court. As at 18 March 2019, neither of the plaintiffs/cross-defendants has filed a defence to the cross claim.

Relevant principles

1. The applicant's notice of motion is brought pursuant to r 13.4 of the UCPR on the basis that no reasonable cause of action against her is disclosed by the cross-claim.
2. There is no dispute between the parties as to the applicable test on a summary dismissal application: namely, that which is generally referred to as the General Steel test (see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69; see also Ren v Jiang (2014) 104 ACSR 149 at [49] (Ren v Jiang)). It was noted in General Steel by Barwick CJ at 129 that: [t]he test to be applied has been variously expressed; "so obviously untenable that it cannot possible succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense".
3. It is accepted that, for the purposes of considering a summary dismissal application, one proceeds on the basis that the allegations in the pleading are taken at their highest (see Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405 at [200] (Simmons)) As the Court stated in Simmons at [200]: The party applying for summary dismissal must accept the truth of all allegations in the statement of claim, and the ranges of meaning which the assertions of fact in the statement of claim are capable of bearing.
4. The respondent argues that in order summarily to dismiss the cross-claim against the applicant at this stage the Court must form a view that the claim would fail if permitted to go to the trial such that it would be an abuse of process for the Court to allow the proceedings to continue (citing Ren v Jiang at [49]).
5. The applicant, on the other hand, notes that the exercise of this jurisdiction is not reserved for those cases where (or even extensive) argument is unnecessary to evoke the futility of the claim sought to be summarily dismissed.

The applicant's submissions

1. The nub of the applicant's submissions is, first, that the primary claim (for a constructive or resulting trust) does not affect her interest in the Property and that no allegation is made against her of breach or wrongdoing in relation to the Property Agreement (and hence she submits that there is no need to bind her to any orders made against the first plaintiff/first cross-defendant in that respect); and, second, that the alternative claim (based on the alleged unconscionability of the applicant retaining the benefit of sums allegedly paid by the respondent) is doomed to fail.
2. In that regard, the applicant argues that the cross-claim pleads unconscionable conduct or unconscionability not in the sense that the respondent suffers from any special disadvantage of which the applicant has unconscientiously taken advantage (i.e., in the Amadio sense) but in the first sense in which such terms are used in equity (namely, as giving rise to a situation where a court will intervene to remedy situations that offend against any equitable principle) (see Commercial Bank of Australia Limited v Amadio (1982-1983) 151 CLR 447).
3. The applicant points to the allegation at [5(e)] of the cross claim that the respondent occupied the Property for the purpose of carrying on a "fish mongering business"; and to the lack of any allegation that the respondent or other entities occupied or were entitled to occupy the Property or that the respondent paid any rent or consideration for that occupation. It is submitted that, in those circumstances, the Court should treat the occupation or the right to occupy the Property which was exercised by the respondent as "sufficient consideration entitling the cross defendants to the protection of equity".
4. It is submitted that it is "only normal in the course of commerce" that the respondent (as sole occupant) be responsible for paying the outgoings and expenditures for the Property and that it would not be open to the respondent then to claim that the plaintiffs/cross-defendants acted unconscionably by accepting the benefit of the payments made by him.

The respondent's submissions

1. The respondent submits that the motion should be dismissed for three reasons.
2. First, that since the alternative relief sought is the imposition of an equitable charge over the whole of the Property and the applicant is a 50% owner of the Property, any such relief will affect her rights and therefore she is a proper party as relief is sought against her.
3. Second, that the question of what relief is ultimately appropriate will depend upon the factual findings which are made in respect of: the Property Agreement, the respondent's reliance upon the right to occupy the Property; and the payments made towards outgoings and capital expenditure for the Property; and that such findings cannot be made on an interlocutory application of this kind. It is submitted that it is not possible at this stage for it to be said that there is no possibility of an equitable charge over the entire Property being imposed at the conclusion of the hearing (noting that this is particularly so where the applicant has not even filed a defence to the cross-claim). Reference is made in this regard to the decision of White J, as his Honour then was, in Irvine v Scaysbrook [2005] NSWSC 565 for the proposition that His Honour accepted that an equitable charge might be imposed where there was unconscionable conduct although on the facts of the case none was ultimately imposed).
4. Third, that, since the applicant is a party to the Property Agreement, it is at least arguably necessary for the respondent to join the applicant when seeking relief in relation to that agreement (referring to John Alexander's Clubs Pty Ltd v While City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [132]-[134]), particularly where, as the second plaintiff, the applicant will be involved in these proceedings regardless of the outcome of the motion.
5. As to the submission that the alternative claim, for the imposition of an equitable charge, is doomed to fail, the respondent notes that an equitable charge can be imposed on a property to "remedy unconscionability" and to "satisfy the demands of justice and good conscience" (referring to Chalmers v Pardoe [1963] 1 WLR 677 at 681; Morris v Morris [1982] 1 NSWLR 61 at 64; Catherine Margaret Thorn, as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd and Dawn Kathleen Boyd [2016] NSWSC 1344 at [46]) and that the circumstances in which such a remedy may be imposed are broad and are to be determined according to the facts of each particular case.
6. The respondent points to his pleading that he had a "reasonable expectation", on the basis of what was said to him by the plaintiffs/cross-defendants in 1999, that he would both have a beneficial interest in and be able to continue to carry on the Business from the Property when he made 18 years' worth of mortgage and outgoing payments in relation to the Property and that, in August 2017, the plaintiffs/cross-defendants informed him that was no longer the position. It is submitted that, if the primary trust claim is not made out, there is at least an arguable claim that it would be "unconscionable and inequitable" for the plaintiffs/cross-defendants to resile from what was conveyed (or represented) to him in 1999, without the plaintiffs/cross-defendants first accounting to him for the moneys he has expended.

Determination

1. In oral submissions, the solicitor appearing for the applicant pointed to the lack of any pleading that it was a term of the Property Agreement that the respondent be permitted to occupy and operate the Business from the Property "indefinitely" as being inconsistent with the allegation that the respondent had a reasonable expectation at the time that he would be entitled to do so. At T 8.27ff, it was put thus: … there are no definite or indefinite term being pleaded, or the term of the cross‑claimant[']s occupancy of that property is not pleaded in that paragraph. He expects it to be indefinite. That is what was pleaded in paragraph 19. … He expects that to be indefinite. But there was no express agreement in any way or form in terms of how long he will be entitled to operate his fishmongering business in the Hurstville property, and therefore whether or not that expectation arises from a representation that was made by the cross‑defendants is questionable in that it hasn't been pleaded at all.
2. Emphasis was placed on the fact that the respondent had had sole occupancy of the Property without the payment of rent. It was submitted that it would be reasonable to expect a sole occupant in commercial circumstances to pay towards at least the council outgoings, water usage, and fitting out expenses; and that it would not be unconscionable for the respondent to pay the mortgage repayments where no rent was paid. It was submitted (at T 9.3ff) that: … section 127 of the Conveyancing Act [1919 (NSW)] would be irrelevant [sic; scil, relevant] in this respect, in that that section assumes that the tenancy that has no agreed term or any form of written agreement, in that it will be a tenancy terminable at will. And so given that no terms were pleaded, or there were no term of tenancy in and of itself, then the expectation that it will be definite in that sense will be an unreasonable expectation, or a reasonable person would not be expecting that to happen. And, of course, an indefinite tenancy in and of itself would be uncommercial in any sense, or no‑one with any commercial sense would enter such a tenancy of indefinite terms. And therefore, that is how we are pushing on the ground that because the terms that were pleaded, or the terms and conditions that were pleaded in and of itself does not support an allegation that representations were made to induce the cross‑claimant to believe that he will be able to occupy that property indefinitely, ….
3. The applicant's position is thus that the respondent has suffered no detriment (due to him not being required to pay any rent) by reason of the payment of the moneys he expended, and that it would not be unconscionable in the circumstances as a whole for the plaintiffs/cross-defendants to retain the benefit of those moneys.
4. The difficulty that I had with those submissions is that there is a high burden to be met in establishing that a cause of action is untenable or doomed to failure. The matters to which the applicant points may well mean that ultimately the respondent will fail in his claim that the retention of the benefit of those moneys (without accounting for them in some fashion) is unconscionable. However, that will depend on factual findings made at the end of the contested hearing that cannot here be anticipated or made.
5. Ultimately, much of the applicant's submission as to the alternative claim went to why the applicant believes the respondent's claim will not succeed on the merits. However, taking the pleading at its highest it cannot be said that it is doomed to failure.
6. Accordingly, and without needing to rest this on whether the applicant was a necessary party to the proceedings (as a party to an agreement in respect of which relief is sought against the first plaintiff/first cross-defendant), in which respect the applicant says that there will be differences in terms of costs in having to prove the claim in the primary proceeding rather than having to defend the cross-claim, the conclusion I reached on the hearing of the summary dismissal application was: that the alternative claim was maintainable against the applicant; that any deficiency in the pleading (namely as to the fact that there was no allegation that it was a term of the agreement that the respondent be able to occupy the premises indefinitely) was something that might well be addressed in due course but was not fatal to the respondent's claim (if one assumes that the pleaded facts are made good); and that summary dismissal was therefore not appropriate.

Costs

1. That led to an argument as to costs. The applicant accepted that, having lost on the application for summary dismissal, costs should follow the event but submitted that this should be on the ordinary basis. The respondent sought costs on the indemnity basis, relying on an email sent on 15 November 2018 in which the respondent's solicitor outlined the basis on which the cross-claim was brought against the applicant and invited the applicant to withdraw the motion for summary dismissal (see Ex 1, responding to the applicant's solicitor's letter of 17 October 2018 - see Ex 2, the applicant's solicitor's letter of 17 October 2018 in which the applicant invited the respondent to withdraw his claim on the basis that the allegations did not give rise to any claim for relief against her).
2. The respondent's solicitor's email (expressed to be an "open letter") gave three reasons as to why the applicant was a proper party (in effect those being the reasons here put forward as to why the summary dismissal application should be rejected), including that the alternative relief sought was an equitable charge over the whole of the Property and that the applicant's rights would be affected if such an order were to be made. The offer made was for the notice of motion filed 15 November 2018 to be dismissed on the basis that there be no order as to costs.
3. Although in oral submissions the applicant initially apprehended that the indemnity costs application by the respondent was based on there having been some misconduct in her conduct of the summary dismissal application (such as might ground a special costs order - see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 364; 81 ALR 397), Counsel for the respondent clarified that the application was based on the well-known Calderbank principles (see Calderbank v Calderbank [1975] 3 All ER 333; (1975) 3 WLR 586), as stated in the offer letter itself.
4. In Commonwealth of Australia v Gretton [2008] NSWCA 117, Beazley JA, as her Honour then was, noted the public policy considerations that underpin the making of favourable costs orders where a Calderbank offer has been made (see at [41] citing Leichhardt Municipal Council v Green [2004] NSWCA 341 per Santos JA at [14] (Leichhardt Municipal Council)), those being the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants.
5. The relevant question is whether in all the circumstances the failure to accept the offer "warrants departure from the ordinary rule as to costs" (see SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]). The Court in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 (Miwa) at [8] summarised the frequently adopted approach as asking: whether there was a genuine offer of compromise; and whether it was unreasonable for the offeree (here, the applicant) not to accept the offer. The party seeking to rely upon the offer (here, the respondent) bears the onus of establishing that it was unreasonable for the other party to reject, or not to accept, the offer in question (see Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]).

A genuine offer of compromise

1. As stated above, for the Calderbank principles to be capable of application it is necessary that the offer contain a genuine element of compromise (Miwa at [8] and [9]). Here, the offer in effect amounted to demand for capitulation by the applicant (insofar as it required dismissal of the notice of motion) and hence an acceptance by the applicant that she was a proper and necessary party to the cross-claim and that there was a reasonable cause of action there pleaded against her. A demand for capitulation alone may not be seen as a genuine offer of compromise (see Herning v GWS Machinery Pty Ltd [No. 2] [2005] NSWCA 375 at [5]; Klain v Mobbs (No 2) [2008] NSWSC 599 at [5] per Harrison J). However, at least to the extent that costs would here have been involved by the respondent in his solicitors reviewing the notice of motion and engaging in correspondence as to the application, it can be assumed that there was at least a small element of compromise in the offer that there be no order as to costs.
2. As stated at [36] in Leichhardt Municipal Council, it is open to the Court to exercise its discretion to conclude that an offer to 'walk away' based upon each party paying its own costs constitutes a genuine offer of compromise. Moreover, as was submitted by the respondent, it is difficult to see what scope there would be for any other element of compromise - since the position was as to whether the pleading was such as warranted summary dismissal. The respondent argues that once the correct position was pointed out there could not be anything other than an offer requiring in effect capitulation by the applicant. It has been recognised that even a small element of compromise may suffice to attract the application of the Calderbank principles (see Miwa at [17]; Leichhardt Municipal Council at [37]).

Was it unreasonable not to accept the offer?

1. For the applicant it was submitted that it was not unreasonable for her not to accept the offer in light of the pleading issues that had been raised in the course of oral submissions (particularly the complaint that the terms of the pleaded agreement at [5] and the pleaded expectation at [19] did not match up with each other). However, the debate before me was not about pleading issues as such (it was as to whether the claim should be summarily dismissed) and there was no suggestion made in the correspondence before the hearing that the applicant's concern could be met by amendment to the pleading.
2. As to the time open for acceptance, in effect the applicant was given a week to consider the position as to whether or not to accept the offer. In the circumstances that seems to me to have been a reasonable time, since all that was required was consideration of the pleading in light of the explanation that had been provided by the respondent's solicitor as to the basis of the cross-claim against the applicant.
3. In the circumstances, although it appears that the applicant's position was affected by a misapprehension as to the ambit or basis of the alternative claim, the respondent's position in that regard was clearly articulated in the letter of 15 November 2018. In light of that explanation, the summary dismissal application was doomed to failure; and it was therefore unreasonable in my opinion for the applicant not to accept the offer made in the Calderbank letter.
4. Accordingly, I consider that the applicant should pay the respondent's costs of the summary dismissal application on an indemnity basis from 16 November 2018.

Orders

1. I have already dismissed the applicant's motion for summary dismissal with costs. The only further order now to make is: 1. Vary the orders made on 5 March 2019, such that the applicant pay the respondent's costs of the notice of motion for summary dismissal on the indemnity basis from 16 November 2018.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 March 2019