In November 2022, Rocco commenced these proceedings, seeking declarations and orders to dissolve the partnership, identify partnership assets, appoint receivers and take accounts.
In March 2023, Sam filed a cross-claim, seeking a declaration that he has an equitable interest in the Lot, as identified in a survey, and the improvements on the Lot. The Lot and improvements may be seen side-to-side below: (the dotted line is an easement for electricity and may be ignored for present purposes)
[2]
When did the partnership end?
Rocco sought a declaration that the partnership was dissolved on 8 January 2022 by excluding him from the partnership or, alternatively on 6 July 2022, by correspondence. Sam favoured the latter date. Alternatively, Rocco sought an order under s 35(c), (d) or (f) of the Partnership Act 1892 (NSW) that the partnership be dissolved.
[3]
Principles
Section 32(c) of the Partnership Act provides:
"Subject to any agreement between the partners, a partnership is dissolved -
…
(c) If [the partnership is] entered into for an undefined time, by any partner giving notice to the other or others of the partner's intention to dissolve the partnership.
In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is mentioned, as from the date of the communication of the notice."
Absent express provision, a partnership is ordinarily terminable at will; a partner is not required by an obligation of good faith to remain in partnership with another with whom they no longer wish to be associated: Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd (2008) 66 ACSR 1 at [32]-[33] (per Brereton J); Bova v Avati [2009] NSWSC 921 at [27] (per Ward J). A notice of termination must be in writing for partnerships at will constituted by a deed (s 26(2), Partnership Act 1892), but not otherwise.
Notice of intention to dissolve a partnership must be "clear and unambiguous": McNicholas v Sarandopoulos [2018] NSWSC 576 at [34] (per Emmett AJA). Notice of termination may be inferred from conduct: Reynolds v Medway [2013] NSWSC 206 at [40] (per Sackar J). In Bonzalie v Cullu [2013] NSWSC 1576, Robb J endorsed the learned authors' statement of principle in Keith Fletcher, The Law of Partnership in Australia (9th ed, 2007, Lawbook Co): "What conduct will constitute notice is a question of fact. The test appears to be: 'Is the conduct such that a fair inference can be drawn that the partner does not wish the partnership to continue'?": at [77].
[4]
Conclusion
An 'in principle' deal to dissolve the partnership was struck at the meeting in September 2020. To implement that deal, valuations were obtained and updated. Legal documents were prepared and amended. In parallel, the business limped along but was different, where the brothers anticipated that they would soon be running separate endeavours. Control of the finances was passed to Sam. The pooling of fruit from both farms dwindled. Rocco protested when the financial support for Rocco's farm stopped. Sam protested when Rocco did not maintain working hours but expected full wages.
Where this partnership was not constituted by a deed, it was not necessary for a notice of termination to be in writing. It was sufficient that notice was clear and unambiguous, where notice may be inferred from conduct. The question is when can a fair inference be drawn that one or both partners did not wish the partnership to continue. There are a wide range of dates on which it could be said that the conduct of the partners clearly evidenced that they did not wish to continue.
Of the two alternative dates proffered by Rocco, I consider that 8 January 2022 is the date on which the partnership was dissolved. From this date, Rocco ceased to do any work for the partnership, or receive any funds from the partnership. The fruit grown on the two farms had not been pooled for some time. I do not find, despite Rocco's repeated submission, that Sam was responsible for the partnership coming to an end; both brothers contributed to the breakdown of their working relations.
[5]
Partnership assets
Rocco seeks a declaration that the partnership property included the Mangrove Mountain farm, where the parties agreed that the property would be used for partnership purposes and proceeded to do so.
Sam contends otherwise, submitting that the farm was not purchased by the partnership nor recorded in the partnership accounts as an asset. Further, the farm was transferred in September 2002 but the partnership did not come into existence until January 2003; there was no evidence of conversion of the Mangrove Mountain farm into a partnership asset.
[6]
Principles
Section s 20(1) of the Partnership Act defines "partnership property" as "All property, and rights and interests in property, originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business …" Section 21 of the Partnership Act provides that, absent contrary intention, property purchased with partnership money is deemed to be bought on account of the partnership.
Property used by a partnership can remain the separate property of a partner and not become partnership property: Williams v Nicoski [2003] WASC 131 at [249] (per Barker J). Whether the property of a partner becomes partnership property depends on the acts and intentions of the parties: O'Brien v Komesaroff (1982) 150 CLR 310; (1980) 41 ALR 255 at 263 (per Mason J). The partners' agreement on this subject may be express or implied, where the conduct of the partners evinces such an understanding: The Law of Partnership in Australia at [5.10].
In relation to implied agreements, Harman J suggested that an agreement implied by the Court should be no more than is "absolutely necessary to give business efficacy": Miles v Clarke [1953] 1 All ER 779 at 782. However, the High Court suggested that this "may overstate the position" and instead emphasised that "it would plainly be wrong to ascribe agreement to the parties unless their dealings clearly point in that direction": Kelly v Kelly (1990) 92 ALR 74 at 79. Before implying an agreement, the Court will consider all circumstances surrounding the purchase of the property: Gerovich v Gerovich (as executor of the estate of Gerovich) [2018] WASC 153 at [47], cited with approval in Bassett v Cameron [2021] NSWSC 207 at [614]. The fact that the agreed partnership accounts do not record a property as belonging to the partnership, nor credit the partners as having contributed capital to the extent of that asset, but treat the asset as outside the partnership is significant: Harvey v Harvey at 555 (per Menzies J).
As Gibbs J observed in Lucas v Lucas [1962] Qd R 205, the ultimate test in determining what is partnership property is the agreement of the parties; where there is no express agreement, "it is necessary to have regard to the source whence the property was obtained, the purpose for which it was used, and the manner in which it has been dealt with, and the rules laid down in … the Partnership Act": at [6]. More recently, see Fragar v Fragar [2024] NSWSC 193 at [124]-[132] (Hmelnitsky J). The party asserting that property is owned by the partnership bears the onus of proof: Harvey v Harvey (1970) 120 CLR 529 at 549 (per Barwick CJ); Bant v Bant [2003] WASC 137 at [9] (per Wheeler J).
[7]
Conclusion
There was no express agreement that the Mangrove Mountain farm would be owned by the partnership. As to whether there was an implied agreement, four features warrant consideration.
First, it appears that the partnership was established in a series of steps, beginning with the transfer of the Mangrove Mountain farm and refinance of the parents' business loan in September 2002 and culminating the acquisition of an ABN on 1 January 2003. Rocco understood that the partnership was formed on 1 January 2003. This accords with the draft Deed prepared by the brothers to dissolve the partnership, which recorded that the partnership commenced on that date. (Whilst the deed was never executed, Rocco's solicitor did not seek to amend this part of the deed when it was circulated by Sam's solicitor.) On the pleadings, however, the parties agree that the partnership was formed on or about the date of the transfer. In these circumstances, I cannot accept Sam's submission relying on the absence of evidence of conversion of the Mangrove Mountain farm into a partnership asset after January 2003.
Second, the partnership used the Mangrove Mountain farm for its business activities. The same can be said, however, for Rocco's farm, and there was no suggestion that that farm was a partnership asset. Nor is it necessary to imply an agreement that the Mangrove Mountain farm would be a partnership asset from this fact alone. A partnership may use an asset owned by a partner. In such a case, the partnership may pay the partner for use of their asset by, say, the payment of rent. No rent is recorded in the partnership accounts either, although, as both partners also owned the Mangrove Mountain farm, such an arrangement may have resulted in them simply paying rent to themselves.
Third, Mrs Pirrottina Snr, and later Rocco, made mortgage payments for the Mangrove Mountain farm from the partnership bank account. It will be recalled that the parents required the sons to obtain this loan to pay out the parents' business loan. (The amount of the loan was recorded in the partnership accounts as goodwill.) Mrs Pirrottina Snr treated the loan repayments as an expense of the business. I am reluctant to speculate as to why she did this, or why Rocco continued to do this after he took over the task of paying partnership bills.
Finally, the manner in which the partnership dealt with the Mangrove Mountain farm in its accounts is significant. Mr Tisano prepared the partnership accounts and tax returns, as well as those of Mr and Mrs Pirrottina Snr and Rocco. Mr and Mrs Pirrottina Snr recorded "Land Cost" in their 1997 financial statements. Presumably, this was a reference to the Mangrove Mountain farm. Rocco's farm was acquired in 1999, in his name and not in the parents' names, notwithstanding that Rocco's farm was used in the family business and the parents assisted him to buy it. After the brothers formed their partnership, the Mangrove Mountain farm was not listed as an asset in the partnership accounts.
Mr Tisano said he did not include the Mangrove Mountain farm in the partnership accounts as he had always been instructed by the brothers, and also by their parents, that the farm was never to be included as an asset of the partnership. Mr Tisano agreed that he included assets such as building and machinery that were used to derive income for the partnership as assets in the accounts, but not the farm on which the fruit trees were planted, "That been instructed to me not to include it."
It does appear that, historically, the parents had recorded the Mangrove Mountain farm as a partnership asset but took a different approach when Rocco's farm was acquired and, later, when the Mangrove Mountain farm was transferred to their sons. The parents and their sons gave specific instructions to Mr Tisano not to include the Mangrove Mountain farm, or Rocco's farm, in the partnership accounts. Consistently with this, I note that Mr and Mrs Pirrottina Snr drew a clear distinction between the business and the Mangrove Mountain farm in their Wills in 2003: see [66]. Again, I am reluctant to speculate as to why they did this, but the change of accounting treatment appears to have been deliberate. The conduct of the partners as recorded in their accounts strongly points in the direction of an understanding that the Mangrove Mountain farm remained the separate property of the brothers and did not become partnership property.
Whilst Rocco said he believed that the Mangrove Mountain farm was an asset of the partnership, this is insufficient to discharge the onus of proving that the farm is an asset of the partnership. As such, I conclude that the Mangrove Mountain farm is owned by the sons in their personal capacity.
[8]
Estoppel by encouragement
The next issue is whether Sam had an equitable interest in the Lot before the Mangrove Mountain farm was transferred by Mr and Mrs Pirrottina Snr to Sam and Rocco in 2002. Sam contended that, as a consequence of his conversation with his parents in September 1994 (see [29]), Mr and Mrs Pirrottina Snr agreed that, in lieu of purchasing a block of land for their son - in appreciation for the work he had done for the family business and for the work he would do in the future - they would instead give him the Lot and build a house on the Lot for him. His parents represented that the Lot and house would belong to him. Further, Sam contends that his parents represented that they would not sell the Mangrove Mountain property and intended that it remain in the Pirrottina family. This representation was said to be implied by the parents' conduct in building the family business and fostering Sam's role in that business. Further, Sam contended that shortly before he moved into the completed project home in 1996, Mrs Pirrottina Snr made further representations, on behalf of both parents, that the house and the Lot belonged to Sam: see [48].
To the knowledge of his parents, Sam contends that he was induced by the representations made in 1994 and 1996 to assume that the Mangrove Mountain farm would not be sold and would remain in the Pirrottina family. Further, Sam assumed that the Lot and house belonged to him and he was entitled to occupy both for his lifetime. In reliance on these representations, Sam declined his parents' offer to buy him a block of land on which to build his house. Instead, Sam moved into the house and lived there, making it his home and continuing to work in the family business at a level of remuneration below the market rate. Sam refrained from purchasing another home to live in with his family and did not seek legal advice as to the steps necessary to formally transfer the Lot or the home into his name. Sam also accepted a gift from his father-in-law to construct the driveway and pathways, together with landscaping works, on the Lot.
Sam contended that he relied on his parents' representations to his detriment, and would suffer detriment if there was a departure from the assumption induced by their representations. Specifically, Sam forewent the opportunity to have his parents buy a block of land for him, and would have no home of his own. Sam lost employment opportunities, which he did not explore in reliance of his parents' representations. Sam contended that he lost the opportunity to have the Lot formally transferred into his name, lost income and lost the opportunity to have an alternate gift from his father-in-law. Sam contended that it was reasonable for him to make the assumptions he did, in reliance on his parents' representations. In the circumstances, departure by his parents from those representations would have been unconscionable. As such, his parents were estopped from resiling from the representations and held their title to the Mangrove Mountain property on trust for Sam to the extent of his interest in the Lot or house.
Rocco denied that Sam then had an equitable interest in the Lot. Any promise made by the parents was said to be too vague to give rise to any equitable rights and, given the lack of specifics, any reliance on such a promise was said not to be reasonable. Nor did the implied representation arise in the circumstances, having regard to Rocco's role in the family business.
Further, Rocco contended that the parents could not give part of the Mangrove Mountain farm to Sam as it could not be subdivided; the parents and Sam were said to have known this at the time. As such, it was impossible for the Lot to belong to Sam, and Sam knew it. In the circumstances, resiling from any representation would not be unconscionable. Rather, the house was funded by the family business to improve the value of the Mangrove Mountain farm, where one of the proposed uses of the house was as a "workers' cottage". Any assumption made by Sam was not reasonably made or, alternatively, limited to an assumption that Sam could occupy the workers' cottage as long as the partnership relationship with Rocco remained on foot. Nor could Sam be said to have relied on his parents' representations to his detriment, where he lived rent-free in a house paid for by his parents, who also paid expenses in respect of the house.
[9]
Principles
As Ball J summarised the principles in Wantagong Farms Pty Ltd as Trustee for the Bulle Family Trust v Bulle [2015] NSWSC 1603 at [60]-[73], estoppel by encouragement is a type of proprietary estoppel. An estoppel by encouragement "comes into existence when an owner of property has encouraged another to alter [their] position in the expectation of obtaining a proprietary interest and [they], in reliance on the expectation created and encouraged by the property owner, ha[ve] changed [their] position to their detriment. If these matters are established equity may compel the owner to give effect to that expectation in whole or in part": Delaforce v Simpson-Cook [2010] NSWCA 84 at [21] (per Handley AJA).
There are three main elements, being an assurance, reliance and detriment. As Walker LJ observed in Gillett v Holt [2001] Ch 210, these elements cannot be treated as "watertight compartments" and often overlap, "the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine. In the end the court must look at the matter in the round": at 225. As Walker LJ also observed in Jennings v Rice [2002] EWCA Civ 159, "The cases show a wide range of variation in … the quality of the assurances which give rise to the claimant's expectations and the extent of the claimant's detrimental reliance on the assurances. The doctrine applies only if these elements, in combination, make it unconscionable for the person giving the assurances … to go back on them": at [44].
Looking at each element in turn, the assurance which engenders the expectation of the party asserting the estoppel must possess some level of clarity: Wantagong at [63]. Ball J there relied on the formulation of Hoffman LJ in Walton v Walton [1994] CA Transcript No 479, "The promise must be unambiguous and must appear to have been intended to be taken seriously. Taken in its context, it must have been a promise which one might reasonably expect to be relied upon by the person to whom it was made": Wantagong at [63].
Where the parties involved are family members, the law does not require certainty in the promise or representation. Equitable estoppel may arise notwithstanding that the representation would be insufficiently certain to support a contract and may arise from vague assurances; the focus is on the expectation which it creates rather than the promise: DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728 at [54]-[55]. As Lord Walker observed in Cobbe v Yeoman's Row Management Ltd [2008] UKHL 55 at [68]: (emphasis added)
"It is unprofitable to trawl through the authorities on domestic arrangements in order to compare the forms of words used by judges to describe the Claimants' expectations in cases where this issue (hope or something more?) was not squarely raised. But the fact that the issue is seldom raised is not, I think, coincidental. In the commercial context, the Claimant is typically a business person with access to legal advice and what he or she is expecting to get is a contract. In the domestic or family context, the typical Claimant is not a business person and is not receiving legal advice. What he or she wants and expects to get is an interest in immovable property, often for long-term occupation as a home. The focus is not on intangible legal rights but on the tangible property which he or she expects to get. The typical domestic Claimant does not stop to reflect (until disappointed expectations lead to litigation) whether some further legal transaction (such as a grant by deed, or the making of a will or codicil) is necessary to complete the promised title."
The assurance "need not depend on the words of a single conversation, but could arise from conduct over a period of time": Evans v Evans [2011] NSWCA 92 at [107] per Campbell JA (with whom Giles JA and Sackville AJA agreed). The assurance may be express or implied from conduct or even silence. In Q v E Co [2020] NSWCA 220, Meagher JA explained at [15] and [17]: (citations omitted)
"[15] … a representation or promise "may be implied wholly or partly from conduct or inferred from silence or inaction". Whether any, and if so what, representation has been made is to be judged "objectively according to the impact that whatever is said [or done] may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee" …
[17] … a court of equity "will not permit a man knowingly, though but passively, to encourage another to lay out money under an erroneous opinion of title; and the circumstance of looking on is in many cases as strong as using terms of encouragement". … silence or inaction, in the context of other conduct, may constitute an "element of assurance" in support of a claim to a proprietary estoppel by encouragement."
For example, in Thorner v Major [2009] 1 WLR 776; [2009] UKHL 18, the defendant's indirect and implied representations to the plaintiff that he would inherit the farm, on which the plaintiff continued to work without payment for years, was enough despite the absence of any direct statement to that effect, where the defendant was not prone to communication at all and, given the context, was readily understood by the plaintiff as a promise to leave him the farm. Lord Rodger concluded at [26]:
"Even though clear and unequivocal statements played little or no part in communications between the two men, they were well able to understand one another. So, however clear and unequivocal his intention to assure [the plaintiff] that he was to have the farm after his death, [the defendant] was always likely to have expressed it in oblique language. … it is sufficient if what [the defendant] said was 'clear enough'. To whom? Perhaps not to an outsider. What matters, however, is that what [the defendant] said should have been clear enough for [the plaintiff], whom he was addressing and who had years of experience in interpreting what he said and did, to form a reasonable view that [the defendant] was giving him an assurance that he was to inherit the farm and that he could rely on it."
See likewise Lord Neuberger at [80], [84]-[86].
As to reliance, the question is twofold: did the plaintiff in fact rely on the representations, and would the plaintiff have acted differently if the promises had not been made: Wantagong at [83]. Put another way, the extent to which it is unconscionable for the representor to seek to resile from the position expressed in their assurances to the plaintiff may be gauged by reflecting on the plaintiff's likely response if the representator had advised at the outset that they would depart from the representation: Sidhu v Van Dyke (2014) 251 CLR 505 at [77] (per French CJ, Kiefel, Bell and Keane JJ). The promises relied upon do not have to be the sole inducement for the reliance; it is sufficient if they are an inducement: Gillett v Holt at 226; Sidhu at 526.
As to detriment, the question is whether the plaintiff would have been better off if they had not relied on the representation: Wantagong at [90]. The relevant detriment is not the loss flowing from non-fulfilment of the promise but whether departure from the promise would be unconscionable in all the circumstances. The required detriment must be substantial, which depends on whether it would be unjust or inequitable to allow the assurance to be disregarded: Wantagong at [68]-[69]. For example, in Wantagong the plaintiff stood to benefit in ways not anticipated when his parents made representations concerning a proprietary interest in the family farm. Ball J held that it was not unconscionable to permit the parents to depart from the representations, as otherwise the plaintiff "would be benefitted at the expense of his siblings in a way that was neither anticipated nor intended when his parents sought to achieve a just distribution of assets that they had accumulated": at [93].
[10]
Conclusion
As to suggested assurances in this case, I have found that the parents made the 1994 representations. I have found that Mrs Pirrottina Snr made the 1996 representations. There was no evidence suggesting that Mr Pirrottina Snr then held a different view to that expressed by his wife. I note also Mrs Pirrottina Snr's comments in September 2020, as recalled by Mr Lopresti, that Mrs Pirrottina Snr said that the house "belongs to Sam … that's what my husband wanted": see [110]. As such, I find that the representations made by Mrs Pirrottina Snr in 1996 expressed the intentions of both parents.
I do not accept that the express representations were too vague or lacked specificity. Mrs Pirrottina Snr said the area of land indicated by Sam, bounded by the driveway, a drainage passage and the main orchard, on which the parents would build him a house, "will be yours". True it is that the parents and Sam do not appear to have gone into detail as to how this would be achieved, from a legal perspective. That is, the focus was not on intangible legal rights but on the tangible property which Sam expected to get. They did not stop to reflect whether some further legal transaction was necessary to complete the promised title: Cobbe at [68], followed in Doueihi v Construction Technologies Australia Pty Ltd (2016) 92 NSWLR 247; [2016] NSWCA 105 at [150] (per Gleeson JA, Beazley P and Leeming JA agreeing).
Nor do I accept that the parents and Sam were then aware that it was impossible to subdivide the Lot from the Mangrove Mountain farm. The evidence indicates that the family became aware, during the course of seeking development approval to construct Sam's house, that it was not possible to build two houses on the property. The evidence does not indicate that the family enquired as to whether it was possible to subdivide the farm, nor that they had any interest in doing so, where they intended that the Mangrove Mountain farm would stay in the Pirrottina family.
The fact that the representor made a will shortly after the representation was said to have been made, but in terms inconsistent with the alleged promise, indicates that the representation was not in fact made: Bassett v Cameron [2021] NSWSC 207 at [536] (per Ward CJ in Eq); Laird v Vallance [2023] VSCA 138 at [90]. These cases were relied on by Rocco, where the parents' subsequent wills made no mention of Sam's equitable interest in the Mangrove Mountain farm: see [65]-[66]. However, unlike Bassett v Cameron or Laird v Vallance, Mr and Mrs Pirrottina Snr's wills were made after they had divested their interest in the Mangrove Mountain farm. It is one thing to be said to have represented that you would, for example, leave your farm to a particular child and subsequently make a will leaving that farm to others. Here, having already transferred the Mangrove Mountain farm to Sam and Rocco, it was unnecessary for the parents to address that subject in their wills at all, where the Mangrove Mountain farm would not form part of their estates.
As for the implied representation - that the parents would not sell the Mangrove Mountain farm but intended that it remain in the Pirrottina family - Mr and Mrs Pirrottina Snr obviously wanted the farm and business to stay in the family. Angelina's recollection of family discussions on this subject in 1994 is echoed in Sam and Rocco's recollection of their parents making the same point to them in 2001: the parents wanted to transfer the farm to those of their children who were then interested in continuing to run the business, being Sam and Rocco, on the condition that they did not sell the farm. The parents were trying to protect their life's work from the predation of those of their children who did not wish to continue the family business, which the parents had built up "from nothing".
Rocco submitted that no implied representation arose in the circumstances, given his own role in the family business. A similar argument was accepted in Laird v Vallance [2023] VSCA 138 at [83], where the plaintiff's claim rested on a representation that the family farm would be left to him, in circumstances where other children also contributed to running the farm. However, when the express representations were made in 1994 and 1996, Sam was taking the lead, of the children, in his commitment to continue the family business: see [27]-[28], [33]. That is not to say that Rocco did not also work on the farm. That is not to say that Rocco's role did not increase years after the implied representation was said to have been made, following Sam's car accident. But it is to say that I am satisfied that the implied representation was made at the time alleged, from 1994 to 1996, and, in any event, before 2002.
Rocco also submitted that the parents' representations, if made, were subject to conditions, being the continuation of the partnership and a harmonious relationship between the brothers. Reliance was placed on Horn v GA & RG Horn Pty Ltd [2022] NSWSC 1519, where Meek J considered whether a promise to leave a farm in a will was conditional on the property continuing to be used in the family as an "ongoing farm". Whilst his Honour accepted that some generalised statements had been made by the deceased to that effect, Meek J did not regard such statements as "conditions": at [983]. Here, there is no evidence that such conditions was discussed or even "generalised statements" made. Further, the parents' assurances were given six to eight years before the partnership was formed. I am not satisfied that the parents' representations were subject to such conditions, where the partnership had yet to be mooted.
As to reliance, Sam said he assumed that the house and the Lot were his. Sam knew from when he moved into his house that there was no separate title or subdivision that gave him the right to the Lot but said "My mother and father's word was good enough as a contract." Sam never thought about the fact that there was no separate title; he just relied on his parents' promise. I accept that Sam relied on his parents' representations. Sam took his parents at their word and believed that the Lot and the house were his and that the Mangrove Mountain farm would stay in the family. Sam would have acted differently if the representations had not been made, specifically, he would have taken up his parents' offer to buy him a block of land on which to build his own home.
As to detriment, this element falls to be considered in circumstances where the parents never sought to depart from their assurances. The parents' professed motivation for transferring the Mangrove Mountain farm to Sam and Rocco was to keep the farm and the business in the Pirrottina family by entrusting these assets to those of their children who were prepared to continue the business and who had agreed not sell the farm. There is no suggestion that the parents thereby sought to interfere with Sam's interest in the Lot or Sam's house.
Considering detriment and unconscionability in this hypothetical context, Sam both benefited from, and suffered detriment, as a consequence of reliance on his parents' assurances. Sam suffered a detriment as he forewent his parents' offer to buy him a block of land on which he could build a house in favour of a house being constructed on the Lot. Sam and his wife also forewent the possibility of a financial contribution to their married life from Mr Falvo in favour of his contribution to the construction of a driveway, footpath and landscaping around the house. Sam ignored his father-in-law's offer of a job in Sydney in property development, although there is no evidence that such a career would have been more financially advantageous than continuing to live and work on the Mangrove Mountain farm. Nor is there evidence that, when continuing to work in the family business, Sam was paid at a level of remuneration below the market rate. Against this, Sam received a benefit in the form of rent-free housing, with utilities paid by his parents.
Nonetheless, the detriment suffered by turning down his parents' offer to buy him a block of land of his own, rather than accommodation attended with the uncertainties of living on someone else's property, was a substantial detriment. In the circumstances, I consider that the elements of estoppel by encouragement are established such that Sam had an equitable interest in the Lot as a consequence of his parents' representations, on which he relied to his detriment, making it unconscionable for the parents to go back on their word, if they had chosen to do so.
[11]
A personal equity?
Sam seeks a declaration that Rocco holds his half-share of the Mangrove Mountain farm on trust for Sam to the extent of Sam's equitable interest in the Lot. Alternatively, Sam seeks a declaration that he is entitled to occupy the Lot, with a right of way, rent-free, for so long as he occupies the Lot as his home. Sam contends that the Mangrove Mountain farm was transferred to himself and Rocco in 2002 subject to his equitable interest. Sam contends that, prior to the transfer, Rocco was aware of Sam's equitable interest. Further, Rocco was aware of the representations made by the parents to Sam in respect of the Lot, his reliance on those assurances and the detriment he would now suffer if the representations were now departed from.
Further, Sam contends that, prior to the transfer, Rocco represented to Mr and Mrs Pirrottina Snr and Sam that, if the property was transferred to the brothers, then Rocco would not sell the farm but would continue to run the family business from the Mangrove Mountain farm. Rocco is said to have acknowledged or represented to the parents and Sam that his interests would be preserved following the transfer. That acknowledgement is said to have been implied by Rocco's conduct, including his silence as to Sam's interest at the time the transfer was discussed and the fact that Rocco never challenged the existence of Sam's interest in the Lot, including when Mr Falvo completed the road and landscaping works around Sam's house. Similarly, Rocco is said to have represented by implication that, if the transfer took place, he would not interfere with Sam's interest.
Rocco contended that there was no personal equity here as the relevant promises were not made by Rocco but by Mr and Mrs Pirrottina Snr. Nor did he take title to the Mangrove Mountain farm with notice of Sam's interest, or with any apprehension that Sam would one day claim more than a half-share of the property.
[12]
Principles
A "personal equity" is simply the right to access the courts of equity, that is, a personal right to seek an equitable remedy. Indefeasibility of title "in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a court acting in personam may grant": Frazer v Walker [1967] 1 AC 569 at 585 (per Lord Wilberforce); approved in Bahr v Nicolay (No 2) (1988) 164 CLR 604 in respect of the Torrens system: at 637 (per Wilson and Toohey JJ).
The indefeasibility provisions do not protect a registered proprietor from the consequences of their own actions, where those actions give rise to a personal equity in another, such an equity arising from conduct of the registered proprietor before or after registration: Bahr v Nicolay at 638. As Brennan J there observed at 654:
"A registered proprietor who has undertaken that his transfer should be subject to an unregistered interest and who repudiates the unregistered interest when his transfer is registered is, in equity's eye, acting fraudulently and he may be compelled to honour the unregistered interest. A means by which equity prevents the fraud is by imposing a constructive trust on the purchaser when he repudiates the unregistered interest. That is not to say that the registration of the transfer to such a proprietor is affected by such fraud as may defeat the registered title: the fraud which attracts the intervention of equity consists in the unconscionable attempt by the registered proprietor to deny the unregistered interest to which he has undertaken to subject his registered title."
The reported cases are largely concerned with the circumstances in which a personal equity will bind a third party, commonly, a purchaser of land under a contract for sale of land. The import of these cases is that, in order to give rise to a personal equity, the registered proprietor must have notice together with "the additional factor to be superadded" being "some form of acknowledgment of the unregistered interest, or an agreement or undertaking to act in accordance with it, from which the registered proprietor later resiles": The Presbyterian Church (NSW) Property Trust v Scots Church Development Ltd (2007) 64 ACSR 31; [2007] NSWSC 676 at [112] (per Young CJ in Eq), following Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312; [2003] NSWSC 851 at [103] (per Austin J).
For example, in Bahr v Nicolay, Mr and Mrs Bahr sold and leased back land, in order to raise funds to develop the site. The contract of sale provided that, on the expiration of the lease, Mr and Mrs Bahr could buy back the land for a set price. The purchaser later refused to sell back the land. Mr and Mrs Bahr's contractual right was a personal equity enforceable against the registered proprietor, not precluded by indefeasibility of title, as the registered proprietor accepted the transfer of the land on terms that they would be bound by the contract.
Another example was given in Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491. If an agent purchased land for their principal but then registered title in their own name, "The Court can order him to do his duty just as much in a country where registration is compulsory as in any other country…": at 504-505 (per Lord Moulton). In Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198, a contract for sale of land annexed an unregistered lease between the vendor and tenant. By the contract, the purchaser agreed to abide by the terms of the lease. On becoming the registered proprietor, the purchaser sought to evict the tenant. The contract gave rise to a personal equity, the enforcement of which was not precluded by registration: at 212 (per Wood J).
Finally, in Ryan v Starr [2005] NSWSC 170, a contract for sale of land required the purchasers to acknowledge an unregistered easement between the vendor and their neighbour. On becoming registered proprietors, the purchasers refused to register the easement. While there were no personal dealings between the neighbour and the purchaser, White J concluded that the neighbour was entitled to rely on the "personal equity" exception to indefeasibility. His Honour followed Barwick CJ in Breskvar v Wall (1971) 126 CLR 376 at 384-385, who observed:
"Proceedings may of course be brought against the registered proprietor … by persons setting up matters depending upon the acts of the registered proprietor himself. These may have as their terminal point orders binding the registered proprietor to divest himself wholly or partly of the estate or interest vested in him by registration and endorsement of the certificate of title …"
A constructive trust was imposed, where the purchasers were well aware of what they had agreed to such that their subsequent repudiation of the neighbour's interest was unconscionable.
[13]
Conclusion
Rocco denies being aware of Sam's interest at the time of the transfer in 2002. Rocco said he believed that he was receiving half of the partnership assets equally, of which the farm was a part, without any encumbrance. Rocco said that, if he had known that Sam would later claim that the farm was not owned 50/50, he would have raised this with his parents and insisted that Sam pay a greater share of the loan repayments; he would not have agreed to take on an equal liability for the loan from the NAB. Rocco said "I wouldn't have tooken the offer on" if he had understood that Sam was receiving an additional interest in the Lot, as Rocco already had debts in respect of Rocco's farm, "I had a lot of debts over me. … I wouldn't have gotten into that loan if I knew I was not receiving 50% of everything." Further, "I wouldn't have, cause that was not fair. I wouldn't have signed up that deal."
Rocco said that, unlike his other siblings, his parents did not buy a property for him and the only assistance given was to act as guarantors for his loan to purchase the farm. He would also have objected to Mrs Pirrottina Snr paying the electricity, gas and other payments in respect of Sam's house and refused to allow Sam to make those payments from partnership funds. The fact that Rocco proceeded to pay half of the loan repayments, and not object to the payment of utilities for Sam's house, was said to corroborate the fact that Rocco was not aware of Sam's interest at the time of the transfer.
There was an air of unreality to Rocco's evidence. As Rocco agreed in cross-examination, he knew that he was getting a good deal when his parents transferred the Mangrove Mountain farm to himself and Sam. The debt that he and Sam were taking on was much less than the value of the Mangrove Mountain farm. Further, Sam and Rocco accepted the transfer of the business on the basis that their parents continued to have the final say on business decisions. The loan repayments were made from the partnership bank account, which was operated by Mrs Pirrottina Snr. As such, any decision on the use of partnership funds to make the loan repayments was left by Rocco to his mother. For practical purposes, Rocco had little say in the matter.
Nor is it entirely clear on what basis Rocco would have objected to Mrs Pirrottina Snr paying the electricity and gas for Sam's house, where she was making the same payments in respect of Rocco's farm. Nor do I accept that Mr and Mrs Pirrottina Snr did not assist Rocco financially to buy Rocco's farm. Nor is it obvious that the loan in respect of Rocco's farm would have precluded him from taking on half of the parents' business loan. The parents were meeting the running expenses of Rocco's farm. As a consequence of Rocco continuing to live with his parents, he was able to use rent from the house on Rocco's farm to assist in making mortgage payments in respect of that farm. I do not accept Rocco's evidence on this score.
I have found that Sam reported the parents' 1994 representations to Rocco the following day. I have accepted Angelina's evidence of conversation on this subject at the Pirrottina family kitchen table, which included Rocco: see [35]. I have also found that Rocco was present when Mrs Pirrottina Snr repeated the substance of the parents' 1994 representations to Mr Falvo in early 1996: see [1]-[43]. As such, Rocco was aware of the assurances made by Mr and Mrs Pirrottina Snr to Sam in respect of the Lot and the house. Rocco also knew that Sam had relied on those assurances to his detriment, by foregoing the opportunity to have the parents buy him a block of land: see [1]. Over the next six to eight years, Sam's house was built on the Lot, on which Mr Falvo also constructed a footpath, road and hard landscaping. All of this took place in clear view of Rocco, who was living with his parents in the adjacent homestead. I find that Rocco was aware of Sam's interest at the time of the transfer.
In 2002, when Mr and Mrs Pirrottina Snr transferred the Mangrove Mountain farm to Sam and Rocco as tenants-in-common in equal shares, Sam's right to occupy the Lot and house was not re-visited. Nor does the evidence suggest that the parents intended, by the transfer, to defeat or diminish Sam's interest: see [176]. Rocco understood that he was going to get title to the Mangrove Mountain land but that his parents were going to maintain control over the land, its improvements and buildings. Rocco and Sam promised that they wouldn't sell the land. Rocco agreed that he and Sam accepted the land on these conditions. The conditions, while not legally enforceable, indicate the parties' intentions that, apart from the change in registered proprietors, the conduct of the family business and the occupation of the Mangrove Mountain land would continue as before.
Sam contended that Rocco acknowledged or represented by silence that Sam's interest would be preserved. But is it necessary to find some "superadded" factor, such as some form of acknowledgement of Sam's interest, or an agreement or undertaking to act in accordance with it, in a case such as this? I think not, where the principles summarised in Presbyterian Church v Scots Church are in respect of property transactions with third parties. Rocco was not a third party, but a family member with intimate knowledge of the arrangements made between his parents and Sam in respect of the Lot and Sam's house.
Sam's interest in the Lot and Sam's house was not discussed at the time of the transfer, as the continuation and preservation of Sam's interest 'went without saying'. Each of Mr and Mrs Pirrottina Snr, Sam and Rocco intended and understood that the Mangrove Mountain farm was being transferred from the parents to the sons in order to preserve the status quo, save for the identity of the registered proprietors. Indeed, the only reason the registered proprietors were being changed was to preserve the existing arrangements for the Pirrottina family going forward. This is not a case where Rocco knew something which he did not disclose and, thus, it is not necessary to consider whether he had a duty to say something. Rocco did not think he was getting a half-share in the Mangrove Mountain farm, including a half-share in the Lot and Sam's house, but kept this to himself. Rocco was of the same mind as his parents and brother. He knew that the parents were giving the Mangrove Mountain farm to himself and his older brother subject to Sam's existing rights and interests.
To now depart from the basis upon which Rocco agreed to accept the transfer of title to the Mangrove Mountain farm amounts to an unconscionable attempt to deny the unregistered interest which Rocco undertook to subject his registered title. This attracts the intervention of equity. I will return to what relief, if any, should be granted at [224].
[14]
Alternative estoppel claims
If I am wrong about Sam's claim based on a personal equity, then Sam seeks a declaration that Rocco is estopped from denying Sam's interest in the Lot. Sam said he was induced by the representation made by Rocco to the parents shortly before the transfer (see [61]), together with subsequent implied representations by silence in the face of Sam's continued occupation and improvement of Sam's house, that Rocco would not seek to sell the Mangrove Mountain farm, that the Lot belonged to Sam and that Sam was entitled to occupy the Lot for his lifetime. In reliance on Rocco's representations, Sam continued to live in his house and conduct himself in the manner earlier described (at [156]), and also to carry out further improvements to his home at his expense. Sam would now suffer detriment if there was a departure from the assumptions that he made, induced by Rocco's representations, from which it would be unconscionable for Rocco to now resile. Alternatively, Sam claims that an estoppel by acquiescence operated, relying on essentially the same material facts.
Rocco denied that an implied representation by silence was made and further said that the improvements were paid for by the family business or the partnership. Rocco denied that he induced Sam to assume anything or that any reliance was reasonable or sensible. Rather, Sam and his family lived, and continue to live, in the house rent-free. Sam took a risk in paying money towards a property over which he had no specific legal rights.
[15]
Principles
The principles in respect of estoppel by representation are set out at [160]-[167]. The elements of estoppel by acquiescence are similar; the only difference is that the defendant makes a passive, rather than an active, representation by remaining silent whilst aware of the plaintiff's erroneous assumption that they have a proprietary interest in the defendant's property: Carter v Brine [2015] SASC 204 at [327] (per Blue J); E Co v Q [2018] NSWSC 442 at [921]-[922] (per Ward CJ in Eq).
Estoppel by acquiescence arises "where a person improves land in the mistaken assumption that it is his own, the true owner being aware of the mistake and deliberately doing nothing to undeceive the other"; in such a case a Court of Equity, so far as it can, will prevent the owner from profiting by the mistake: The New South Wales Trotting Club Limited v The Council of the Municipality of The Glebe (1937) 37 SR (NSW) 288 at 308 (per Jordan CJ). The owner may be precluded from exercising their legal right where "he has so far acquiesced in the mistaken view of another person that circumstances exist which do not in fact exist, that it would be an act of fraud on his part for him to assert and insist on his strict legal right as against that person": Willmott v Barber (1880) 15 Ch D 96 at 105-106 (per Fry J).
[16]
Conclusion
I have already found that Rocco was aware of the assurances made by Mr and Mrs Pirrottina Snr to Sam in respect of the Lot and the house in the 1990s. Rocco knew that Sam had relied on those assurances to his detriment, by foregoing the opportunity to have the parents buy him a block of land. There is no dispute that, when Mr and Mrs Pirrottina Snr transferred the Mangrove Mountain farm in 2002, Rocco represented to his parents and Sam, that the brothers would not sell the land and would continue the family business.
Sam said they did not discuss his house or the Lot at the time of the transfer, and so he assumed that nothing had changed and the house and the Lot remained his. Sam said that if he had known that one day Rocco would say that Sam's house was not his house or his land, then Sam would have asked his parents to make the position formal in a legal sense at the time when the farm was transferred or would have asked them to buy him another house.
In the 20 years which followed, Sam renovated and extended the house and improved the Lot, in plain sight and in consultation with his parents and brother. Sam said he talked to his parents and Rocco about the work he was doing on his house and land. No one ever suggested that it was not his house or his land. Based on this assumption, Sam carried out this work at his expense, continued to live at the house and continued to work on the Mangrove Mountain farm for the modest amounts he was paid. Sam said he would not have done these things if the house and land were not his. Rather, he would have accepted his parents' offer to buy him a house and land elsewhere. Sam maintained that he would not have spent all that money on his house if he did not have the right to live there.
Rocco said he did not object to the improvements being performed because, in his mind, while Sam received the immediate benefit, Rocco would also benefit from an increase in the value of the farm as a whole as he said he believed he was entitled to 50% of the farm. However, Rocco agreed that he never claimed to any of the family members that he had an interest in Sam's house. Rocco agreed that he never once said to Sam that it was good that he was improving his house, where Rocco owned half of the house.
I have found that Sam and Marisa funded the improvements to Sam's house and the Lot from 2004 on, albeit with some assistance from Mr and Mrs Pirrottina Snr which was minimal in the scheme of things. I do not accept Rocco's evidence that he refrained from objecting to the work as he perceived that these improvements also benefitted him, given his half-interest in the Mangrove Mountain farm. Rather, Rocco understood that his parents had given Sam the house. Mrs Pirrottina Snr's statements that that was the case, at the meeting in September 2020, were not contradicted by Rocco. Further, in November 2021, Rocco instructed his solicitor to add a clause to the proposed Deed recording Sam's "ownership interest" in the house and surrounding improvements: see [123]-[124]. Rocco understood that Sam was entitled to live there with his wife and family and, as a consequence, was also entitled to improve and extend Sam's house as he saw fit to make his family comfortable.
There is no dispute that Rocco represented to Mr and Mrs Pirrottina Snr, shortly before the transfer, that he would continue to run the family business with Sam and not sell the farm. Over the next 20 years, Rocco said nothing whilst Sam continued to occupy and improve Sam's house. The renovations and extensions were substantial. The cost exceeded the initial amount outlaid by the parents to build the house in 1996 (accepting, of course, that building costs likely increased over time). Rocco never suggested that Sam was not entitled to treat the Lot and Sam's house as his own, and to renovate it accordingly. This amounted to a representation by silence that Rocco recognised Sam's interest in the Lot. I am satisfied that Sam relied on Rocco's express representations to the parents, and his implied representation by silence, when Sam continued to outlay substantial funds to improve the Lot and the house. I am also satisfied that Sam would now suffer a detriment if Rocco resiled from those representations. In all of the circumstances, I consider that it would be unconscionable to permit Rocco to do so.
If it be the case that Sam's understanding of his interest in the Lot and the house was mistaken, and Rocco correctly understood that he had a half-share in the Mangrove Mountain farm unencumbered by Sam's interest, then I am also satisfied that estoppel by acquiescence has been established. Sam assumed that the Lot, and the house built on it, was his. Rocco was aware of Sam's assumption. Over a 20 year period, Sam improved the Lot on the basis of that assumption, whilst Rocco chose not to disabuse his brother of that assumption. This gives rise to estoppel by acquiescence, as it would be unconscionable in these circumstances for Rocco to benefit from his brother's sustained expenditure and improvement of the property over 20 years by insisting on Rocco's strict legal rights.
[17]
Unclean hands
Rocco maintained that equity would not assist Sam, as he was said to have unclean hands, relying on Meek J's summary of the doctrine in D Capital 2 Pty Ltd v Western (2022) 20 BPR 42919; [2022] NSWSC 1064 at [881]-[899]. This situation was said to have come about where Sam allowed the partnership to make the mortgage payments and expenses associated with Sam's home. Sam was said to have thereby breached the 'no profit' rule by accepting a benefit in excess of his 50% interest in the partnership, where the Lot was part of the mortgaged land. Sam was said to have been thereby enriched by partnership payments in excess of his 50% entitlement, and without the fully informed consent of Rocco.
[18]
Principles
The principles are set out by Campbell J in Black Uhlans Inc v New South Wales Crime Commission [2002] NSWSC 1060 at [137]-[150], distilled in Lewis v Nortex Pty Ltd (in liq) [2004] NSWSC 1143 at [137]-[138] and D Capital 2 Pty Ltd v Western at [881]-[899]. In short, the Court looks at the past conduct of the applicant towards the defendant. There is a limit on the types of conduct which will be material, where equity does not demand that applicants "have led blameless lives" (Loughran v Loughran (1934) 292 US 216 at 219 (Brandeis J) and is uninterested in "general naughtiness": FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552 at 554 (per Young J). Specifically, the conduct must have an "immediate and necessary relation to the equity sued for": Lewis v Nortex at [138]. Further, there is no general rule in equity that, where there has been any impropriety, equity will allow the loss to lie where it falls: Lewis v Nortex at [138]. Rather, even where there has been some impropriety, equity may not flatly refuse relief, but may grant relief conditioned to ensure that a wrongdoer does not have the benefit of his wrongdoing.
[19]
Conclusion
When the Mangrove Mountain farm was transferred to Sam and Rocco in 2002, it was Mrs Pirrottina Snr who decided what would be paid from the partnership bank account, and Rocco consented to this. The extent to which the mortgage payment was made from the partnership bank account, or apportioned between the brothers to take into account Sam's house, was a decision made by Mrs Pirrottina Snr, with which her sons did not demur. Likewise, the extent to which the utilities for Sam's house (and Rocco's farm) were paid from the partnership bank account was determined by Mrs Pirrottina Snr. In 2015, Rocco took over this task and continued to make mortgage payments, and pay for the utilities on Sam's house (and Rocco's farm), as his mother had done before him.
It was not until after an 'in principle' buy-out agreement had been reached in September 2020, that Sam took over the role of paying bills from the partnership bank account, and Rocco did not argue with this either. Sam continued to make mortgage payments and pay for the utilities on Sam's house (and Rocco's farm) as Rocco and their mother had done before him. After the partnership came to an end, which I found occurred in January 2020, Sam stopped paying the electricity for his house from the partnership account, but continued to pay for gas through that account, for reasons earlier set out. Mortgage payments were suspended in March 2020.
I am not satisfied that Sam had 'unclean hands' in these circumstances, where he was not responsible for making the decisions as to how the mortgage repayments and utilities would be paid by the partnership from 2002 to 2020. To the extent that Sam made these payments from 2020 on, he followed what had been done before by Mrs Pirrottina Snr and Rocco. His impropriety in doing so is not obvious. Nor is there any immediate or necessary relation between any such impropriety and the equitable interest. This defence has no application.
[20]
Laches
Rocco contended that any equitable relief should be refused on the grounds of laches, acquiescence and delay. Rocco submitted that the time for Sam to raise his interest in the Lot was when the farm was transferred in 2002, when Mr and Mrs Pirrottina Snr were both alive and could readily address his claim. Further opportunities were said to arise when the parents' wills were later admitted to probate. Rocco has been thereby prejudiced, since "[b]y the lapse of time, vital evidence necessary for meeting the plaintiff's claim has been lost": Crago v McIntyre [1976] 1 NSWLR 729 at 748 (Holland J).
[21]
Principles
The defence of laches comprises three components: knowledge of the wrong, delay and unconscionable prejudice caused by the delay: Crawley v Short (2009) 262 ALR 654; [2009] NSWCA 410 at [163] (per Young JA, Allsop P and Macfarlan JA agreeing). The question is whether, in all the circumstances, "it would be practically unjust to give a remedy" Crawley at [164]. As Young JA further stated at [175]:
"…all three elements must be taken together and the ultimate question asked as to whether, in all the circumstances, the plaintiff has impliedly, in equity, released the defendant from his or her claim or has so acted as to make it unfair that the claim should now succeed."
In respect of the plaintiff's knowledge of the wrong, knowledge encompasses knowledge of the facts giving rise to the cause of action and, as such, the "availability of the means of knowledge is as good as knowledge": Savage v Lunn [1998] NSWCA 204 (unreported) at 3 (per the court); Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) and (No 10) (2008) 39 WAR 1; [2008] WASC 239; [2009] WASC 107 at [9306] (per Owen J). As Dr I. C. F. Spry states in his treatise, The Principles of Equitable Remedies (9th ed, 2014, Thomson Reuters) at 447, "[i]t is ordinarily sufficient that the plaintiff has been put on suspicion, that is, that he is aware of sufficient matters to raise in his mind a doubt whether an infringement of his rights has taken place."
In respect of the element of unconscionable prejudice, there must be substantial detriment, not merely a trivial inconvenience, caused by the plaintiff's delay: Duke Group Ltd (In liq) v Alamain Investments Ltd (2003) 232 LSJS 58; [2003] SASC 415 at [153] (per Doyle CJ); Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) and (No 10) at [9314] (per Owen J). Prejudice may arise where evidence is lost or witnesses have passed away. In this respect, the issue is not whether evidence per se may have been lost; rather, it is whether evidence that "may have cast a different complexion on the matter has been lost": Orr v Ford [1989] HCA 4; (1989) 167 CLR 316 at 330 (per Wilson, Toohey and Gaudron JJ); Gillespie v Gillespie [2013] QCA 099; [2013] 2 Qd R 440 at [94]-[95] (per Margaret Wilson J, McMurdo P and White JA agreeing).
[22]
Conclusion
Sam did not raise his interest in the Lot or his house at the time of the transfer. Sam did not think he needed to have a legal document in respect of his house, "That was my house that my mother and father built for me to raise my family, and it was the Italian way, being the oldest son that was running my family business."
It is not entirely clear why Sam should have raised his interest in the Lot when the parents' wills were admitted to probate, where the Mangrove Mountain farm did not form part of the parents' estates. In any event, Sam did not take the opportunity when his father passed away, in 2018, to get his mother to sign a piece of paper confirming that he had an interest in the house. Sam said, "I didn't think I had to".
Sam and Rocco were the executors of their mother's Estate. Sam agreed that he was dealing with a solicitor at the time in respect of the administration of the estate but did not think to raise his interest in the farm with the solicitor, "I didn't think I had to. … My house was never an issue. … No one ever raised it because everyone knew it was my house. It was always referred to as my house." Also relevant, I note that three weeks before Mrs Pirrottina Snr died, Sam reached an agreement with his brother, in the presence of Mr Tisano, Mr Lopresti and Mr Macri, which provided a way to buy-out Rocco's share in the partnership and the Mangrove Mountain farm, excluding the value of Sam's house, such that there was then no particular reason to think that his interest in his house was not adequately acknowledged and protected.
Sam proceeded to obtain a valuation, which separately identified Sam's house and put a value of the extent to which it contributed to the value of the Mangrove Mountain farm, for the purpose of deducting this from the 'buy-out' figure. Draft deeds were exchanged, which recognised Sam's "ownership interest" in the house and its surrounding improvements. The first time that Sam's equitable interest was denied was in Rocco's letter before action of 6 July 2022.
As to Sam's knowledge of the wrong, there is no evidence that Sam was aware, nor put on suspicion, of sufficient matters to raise in his mind a doubt that Rocco would deny Sam's equitable interest until July 2022. Rather, Sam's interest had been affirmed by Mrs Pirrottina Snr in September 2020, with which Rocco did not demur. Sam's interest had been acknowledged by Rocco's addition to the draft Deed in November 2021. I consider that Sam only acquired sufficient knowledge shortly before commencement of these proceedings, such that there is no relevant delay.
If I am wrong about this, then nor do I consider that any unconscionable prejudice was caused by delay. The relevant prejudice is said to be the loss of the parents' evidence. As already noted, the issue is not whether evidence per se may have been lost, but whether evidence that may have cast a different complexion on the matter has been lost: Orr v Ford at 330. There was evidence at trial as to what the parents would have said in respect of Sam's interest, as Mrs Pirrottina Snr articulated her views on this subject at the meeting of September 2020, when she also said "that's what my husband wanted". Neither son expressed any disagreement with their mother's statements at the time. This defence fails.
[23]
Equitable relief
Sam seeks a declaration that he has an equitable interest in the Lot, together with a declaration that Rocco holds his title to the Mangrove Mountain farm on trust for Sam to the extent of his equitable interest. Sam submitted that the fact that the Lot was not capable of subdivision did not preclude such relief, where Sam did not seek separation of the farm into two portions. Rather, the appropriate relief to satisfy Sam's expectation and to achieve justice between the parties was to order a buy-out of Rocco's interest (excluding the Lot) by Sam. In the alternative, Sam sought an order that, upon any sale of the Mangrove Mountain farm, he receive a sum representing the value of the Lot and improvements, or equitable compensation.
Rocco submitted declaratory relief ought not be granted where the parents and Sam were said to have known that a separate title for the Lot was impossible. The Court ought not declare a trust over a portion of the Mangrove Mountain farm in the face of local government planning instruments; equity should follow the law. Declaration of a trust would affect Rocco's ability to realise his interest in the land. Any relief should be in the form of equitable compensation, limited to the value of the improvements which Sam paid for personally. Further, Rocco submitted that Sam was wholly responsible for the breakdown of relationship between the brothers and the resulting dissolution of the partnership. In these circumstances, it was not unconscionable to sell the Mangrove Mountain farm. (I have earlier rejected this submission; both brothers contributed to the breakdown of the partnership.) Rocco sought an order under s 66G of the Conveyancing Act 1919 that a trustee be appointed for sale, with either party entitled to buy the property, whether at auction or otherwise, without payment of a deposit and by setting off that party's entitlements to the proceeds against the money bid or offered.
[24]
Imposition of a trust
Where Rocco took the 2002 transfer subject to Sam's unregistered interest, and then repudiated that unregistered interest after becoming the registered proprietor, equity may compel him to honour the unregistered interest by imposing a constructive trust: Bahr v Nicolay at 654. I see no reason to depart from that course in this case. True it is that declaration of such a trust will affect Rocco's ability to recognise his interest in the land. That is the purpose of the equitable remedy: to address the unconscientious insistence by the legal owner of property that they own title free of the equitable interest: Ryan v Starr at [92].
Rocco fully appreciated that he took title to the Mangrove Mountain farm subject to Sam's interest and should not now be permitted to sell the farm as if that interest does not exist. The fact that the Lot cannot be sub-divided from the rest of Mangrove Mountain farm does not preclude the imposition of a constructive trust, but may have implications for what should happen next, where Rocco wishes to realise his interest in the property.
[25]
Expert evidence
It is timely to consider the expert evidence in respect of the value of the Mangrove Mountain farm and the Lot. This is relevant to any award of equitable compensation, any amount to be paid to Sam following a judicial sale, or calculation of any buy-out figure to be paid to Rocco. It may also be relevant to which equitable remedy should be deployed in this case.
In May 2023, Parker J made orders, by consent, for the appointment of a joint expert to value the Mangrove Mountain farm and the Lot. In June 2023, valuer Mr Wood was jointly instructed to value the Mangrove Mountain farm and separately value the Lot "assuming that the Lot does not form part of the Mangrove Mountain Farm but has a right of access."
On 14 July 2023, Mr Wood valued Mangrove Mountain farm at $6.5 million. This figure comprised $4,047,000 in respect of the land alone, adopting a rate of $10 per square metre. To this was added the value of the orchards and improvements. Mr Wood regarded the property as "a prime parcel of real estate". Mr Wood separately valued the Lot at $1.25 million, to which he added the value of the residence ($509,250), resulting in a total of $1.76 million. In doing so, Mr Wood assumed (as he had been instructed) that the Lot had separate title and a right of access to the public road.
Sam also instructed actuary, Mr McBirnie, to value Sam's life interest in the house and the Lot. The actuary took the value of the Lot as opined by Mr Wood, and apportioned 68.6% of the valuation ($1,207,000) to the value of Sam's life interest and the remaining 31.4% ($553,000) to a remainder interest.
Rocco submitted that Mr Wood did not value the Mangrove Mountain farm as part of a business. It was said to be worth more as a going concern. Nor did Mr Wood take into account the goodwill, or plant and machinery that would enable a person to conduct a profitable business from the land. His valuation was said to be outdated. A buy-out order may give Sam a windfall gain in acquiring an ongoing business, deny Rocco the opportunity to buy the Mangrove Mountain farm and was said to be inequitable. Further, Mr Wood's assessment of the value of the Lot was said to be of little weight as it assumed "… separate title to the land and the provision of an access road". Neither was the case. It was said to be unsafe to proceed on the basis of this valuation.
Mr Wood agreed that he did not value the business, nor goodwill, nor take into account fluctuations in business conditions such as the price of fruit, when valuing the Mangrove Mountain farm. He did not take into account the extent to which the trees would generate revenue from fruit sales. This is unsurprising, where Mr Wood was not instructed to do so, in a joint letter of instruction. I do not agree that Mr Wood's valuation should be put to one side, for failing to value the farm on a basis other than that which he was jointly instructed to. Apart from criticising Mr Wood's valuation, Rocco did not proffer an alternate valuation, either on a going concern basis or at all. Nor is it obvious that Mr Wood, or another valuer, would be able to value the Lot on the assumptions proffered by Rocco at trial. Nor do such assumptions strictly align with the parties' understanding of Sam's interest in the Lot, being that the parents had given him the Lot and he owned it.
Ascribing a value to the Lot is thus difficult. This problem does not go away, whether orders are made for equitable compensation, a judicial sale or a buy-out. In all scenarios, a figure must be ascertained. The principles in respect of assessing equitable compensation may assist.
[26]
Equitable compensation
The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation: Nocton v Lord Ashburton [1914] AC 932 at 952 (per Viscount Haldane LC); O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272 (per Spigelman CJ). Compensation is ordinarily computed by reference to the detriment suffered by the plaintiff: Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383 at [171] (per Sackville AJA; Meagher JA and Barrett JA agreeing).
Common law considerations of remoteness and foreseeability are generally irrelevant; in assessing compensation, the courts apply common sense views as to what loss resulted from the breach and so falls to be compensated: Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 163, followed in Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [35]. The amount of compensation is to be assessed at the time of trial, with the full benefit of hindsight and common sense, not at the date of breach: O'Halloran v RT Thomas & Family Pty Ltd at 273 at 276. Where a defendant's actions have made the assessment of loss difficult, the Court should assess compensation in a robust manner and resolve doubtful questions against that party: Houghton v Imner (No 155) Pty Ltd (1997) 44 NSWLR 46 at 59 (per Handley JA with whom Mason P and Beazley JA agreed); Ramsay v BigTinCan Pty Ltd (2014) 101 ACSR 415; [2014] NSWCA 324 at [122].
Assessing equitable compensation can be extremely difficult, where the best the court can do is to make a "guesstimate"; the court must do the best it can on the evidence available: Peter Young et al, On Equity (1st ed, 2009, Lawbook Co) at 1116 citing Ithaca Ice Works Pty Ltd v Queensland Ice Supplies Pty Ltd [2002] QSC 222 at [17] (per Philippides J). Just as with the assessment of common law damages, the Court may discount or adjust the amount of compensation akin to a Sellars discount: On Equity at 1116, citing Dempster v Mallina Holdings Ltd (1994) 13 WAR 124. The cardinal principle is that the remedy must be fashioned to fit the nature of the case and the particular facts: Warman International Ltd v Dwyer (1995) 182 CLR 544; 128 ALR 201 at 210 (per Mason CJ, Brennan, Deane, Dawson and Gaudron JJ).
The breach of equitable obligation for which compensation may be awarded in this case is Rocco's denial of Sam's equitable interest in the Lot. The detriment suffered by Sam as a consequence is the value of that equitable interest at the time of trial. I consider that the value of the equitable interest falls within the range of figures considered by Mr Wood and Mr McBirnie. Using the rate applied by Mr Wood of $10 per square metre for the farm land, the Lot would be valued at $50,640, which is too low given the development of the Lot beyond agricultural land. The value of the residence alone, being $509,250, is also too low as it makes no allowance for the value of the acre of land on which the residence stands.
The valuation of $1.76 million is probably too high, where the Lot does not, in fact, have a separate title to the rest of the farm. The parties never envisaged that it would. The parties did understand, however, that the parents had given Sam the Lot and he owned it. It was also envisaged that Sam would continue to live on the Lot as the Pirrottina family continued to run the farm. However, there was always a risk that things may change, such that the farm would have to be sold, for example, if the citrus orchards proved unprofitable. If things had changed before Mr and Mrs Pirrottina Snr died, then Sam would reasonably expect that his parents would 'make it up to him' if they were in a position to do so, by buying him another property for Sam and his family to live.
To restore Sam to the position he would have been in if Rocco had recognised Sam's interest in the Lot, I consider that the valuation of $1.76 million should be discounted to take into account the risks inherent in the equitable interest conferred by the parents, where Sam was living on property owned by others, and things may change. The discount should be modest, say 20%, where Mr and Mrs Pirrottina Snr's generosity to their children would likely have provided a form of insurance against this risk. A rough and ready way of checking this is to take the mid-point between the value of the Lot as agricultural land plus the value of the residence (together some $560,000) and the value of the Lot with separate title. The mid-point is $1.16 million. This is two-thirds of the value of the Lot with separate title, akin to a 33% discount for vicissitudes. Having regard to the figures reached by both experts, and two means of discounting market value to take into account the facts of this case, I consider that the value of the Lot for the purposes of equitable compensation, payment to Sam on sale of the farm or any buy-out is 75% of $1.76 million, being $1.32 million. Such a figure represents 20% of the value of the Mangrove Mountain farm.
The value of the farm appears to have increased from the first valuation obtained in October 2020, to the updated valuation in August 2021 until Mr Woods' valuation in July 2023. The first and second valuations were not admitted as evidence of value, but I note the upward trend nonetheless. A further 10 months has passed since Mr Woods' valuation. To ensure that Rocco's position is not compromised, Mr Wood should provide an updated valuation of the Mangrove Mountain farm, with equitable compensation, any payout to Sam on judicial sale or a buy-out figure to comprise 20% of that valuation. Sam and Rocco share the remaining interest in the Mangrove Mountain farm equally, being 40% each.
[27]
Judicial sale
Pursuant to s 66G(1) of the Conveyancing Act, the Court "may" appoint a trustee for the sale of real property held in co-ownership. The sub-section confers a limited discretion on the Court to refuse to make an order under the sub-section: Ngatoa v Ford (1990) 19 NSWLR 72 at 77 (per Needham J). The discretion enables the Court to refuse an order for sale where the order would be inconsistent with some proprietary right, or some contractual or fiduciary obligation with which an order for sale would be inconsistent: Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068 at 1068 (per Myers J); Williams v Legg (1993) 29 NSWLR 687 at 693 (per Handley, Sheller and Cripps JJA). The Court has no general discretion to refuse an application on broad grounds of hardship or unfairness: McNamara at 1068; Woodson (Sales) Pty Ltd v Woodson (Australia) Pty Ltd (1996) 7 BPR 14,685 at 14,701 (per Santow J).
The co-owner who opposes the s 66G application bears the onus of establishing a basis for refusing such an order: Woodson (Sales) Pty Ltd v Woodson (Australia) Pty Ltd (1996) 7 BPR 14,685 at 14,701 (per Santow J). The Court will "usually consider it appropriate to make an order unless persuaded by cogent arguments from those who oppose": Cain v Cain (2007) 13 BPR 24,963 at [9] (per Young CJ in Eq). For example, a s 66G order was refused in Williams v Legg, where the applicant received a testamentary gift of a half interest in a property, subject to a condition that the co-owner be permitted to live in the house as long as he wished. The Court held that the applicant was not entitled to an order for sale, as such an order would defeat the limitation to which the gift was subject: at 694. More recently, a s 66G order was refused in Fragar v Fragar [2024] NSWSC 193, where the applicant held her interest in the property on trust for the partners of a partnership "and it would be entirely inequitable for [the property] to be sold": at [164] (per Hmelnitsky J).
An order may also be refused where it would be inconsistent with an estoppel operating on the party seeking the order or amount to unconscionable conduct. As Santow J explained in Woodson at 14,701:
"These equitable grounds may, in appropriate circumstances, suffice either to justify exercising the discretion to withhold approval, or affect the terms of any such approval if given. In the latter case, any terms imposed upon such a sale should represent no more than the minimum equity needed to remove the benefit obtained unconscionably, or in the case of conventional estoppel, needed to avoid the detriment occasioned by reliance on the relevant shared assumption."
In Woodson, Santow J concluded that the plaintiff was estopped from seeking orders for sale, and had engaged in unconscionable conduct. His Honour proposed orders requiring the outgoing partner to offer their half share of the property to the other party at market value, such orders being sufficient to address the unconscionability but no more: at 14,718.
Sam pointed to the fact that, with recognition of his equitable interest in the Mangrove Mountain farm, he could be regarded as owning more than a half-share, relying on Callahan v O'Neill [2002] NSWSC 877 at [8] (per Young CJ in Eq). There, the Chief Judge in Equity noted: (emphasis added)
"It is fairly clear that, as a general rule, any co-owner holding at least 50% of a parcel of real property is entitled almost as of right to an order for partition or sale under s 66G of the Conveyancing Act. It is only in situations where it would, under settled principles, be inequitable to permit such an application, including cases where there has been a contract not to make an application that the order may be refused."
I do not accept the submission that Young CJ in Eq there suggested that, where a co-owner held a greater interest than 50%, that fact would be relevant in the exercise of the court's discretion to refuse the making of an order. Such a submission had been made elsewhere but not embraced: Ferella v Official Trustee in Bankruptcy [2015] NSWCA 411 at [39] (per Tobias AJA, Bergin CJ in Eq agreeing); Ambrus v Buchanan at [84]-[85] (per Williams J). Given the limited discretion conferred on the Court by s 66G, I do not regard this as a factor which the Court ought have regard "unless on settled principles it would be inequitable to make the order": Foundas v Arambatzis [2020] NSWCA 47 at [63] (per White JA, Bell P and Basten JA agreeing).
I do, however, accept Sam's submission that the Court may refuse an order for judicial sale where it would be inconsistent with an equitable obligation, namely, Sam's proprietary interest: Blackwell v Blackwell [2020] NSWSC 1208 at [14] (per Parker J). The fact the Lot cannot be excised from the farm means that Sam's interest cannot be preserved without preventing the sale of the whole farm. An agreement limiting the manner in which a person may dispose of their interest as a co-owner may also provide a ground for refusal of an application for an order under s 66G: Matsen v Matsen [2008] NSWSC 135 at [63] (per Hamilton J). Rocco accepted transfer of the Mangrove Mountain farm on the condition that he would not sell it but would preserve the status quo, including Sam's interest.
I am not forgetting that Sam was partly responsible for the breakdown of the partnership with Rocco. But Sam's equitable interest in the Lot pre-dated the partnership by eight years and was not dependent on the continuation of the partnership for its existence. Sam stands ready to buy Rocco's interest in the farm for fair value and, indeed, has been trying to do so since October 2020. Where an order for judicial sale will defeat the interest which the parents sought to convey to Sam, permitting Sam to buy Rocco's interest at fair value does not prejudice Rocco's rights but preserve Sam's equitable interest. I consider in these circumstances that an order for judicial sale should not be made. Rather, the mechanism adopted in Woodson ought be deployed, requiring Rocco to offer his remaining interest in the Mangrove Mountain farm to Sam at market value. If Sam is not willing or able to acquire Rocco's share at market value within a prompt timeframe, the farm should be sold.
[28]
Buy-out of partnership assets?
Rocco sought orders appointing receivers to the assets and undertakings of the partnership, to take possession of and sell the assets without security. Rocco submitted that 'buy-out' orders were rare and ought not be made in this case.
For his part, Sam sought an order that he acquire Rocco's interest in the partnership property in the possession of Sam for fair value, with Rocco entitled to buy-out the partnership assets in his possession on the same basis. The valuation exercise could be undertaken as part of the partnership account. In the event that Rocco declined to buy-out Sam's interest in any such assets, the assets could be sold in connection with the taken of the final partnership accounts. Such an order avoided practical difficulties associated with Sam being required to purchase the farming equipment in his possession at auction, and ensured that Rocco will receive fair value for the equipment.
[29]
Principles
On the dissolution of a partnership, any partner may to apply to the Court to wind up the business and affairs of the partnership, so that the surplus assets may be distributed to the partners after payment of partnership debts: s 39, Partnership Act 1892 (NSW). As a general rule, in the absence of a provision to the contrary in the partnership agreement, partnership property is to be sold on the dissolution of the partnership. However, the Court has a discretion to determine the mode of sale most beneficial to the parties: Lucas v Lucas [1962] Qd R 205 at 209 (per Gibbs J).
Though the precise mode of sale of partnership assets remains a matter for judicial discretion, the "starting point" is that a sale by public auction is the "appropriate order": Lorebray at [106]; Calacoci v Calacoci [2020] NSWSC 476 at [115]. Notwithstanding this, the Court has a discretion to order a different mode of sale where it is necessary to "achieve fairness and justice between the parties": Lorebray at [106]; Syers v Syers (1876) 1 App Cas 174; Lucas v Lucas [1962] Qd R 205. The Court's discretion to make alternative orders is not "constrained to a particular class of case": Calacoci at [115] citing Lucas v Lucas at 209, 212. One such alternative to sale by public auction is a "buy-out" order, by which one partner is authorised to purchase the share of the other partner or partners in the partnership assets. Such orders are not "unusual", where a sale by public auction would prove less advantageous to the partners: The Law of Partnership at 253. There is no limit to the matters the Court may consider when determining whether to make these orders: Roderick I'Anson Banks, Lindley & Banks on Partnership (21st ed, 2022, Thomson Reuters) at 965, [23-326].
The seminal case is Syers v Syers [1876] 1 App Cas 174, where one brother provided funds to the other, to establish a music hall and tavern in Oxford Street, London, in return for a 1/8th share in the profits. On dissolution of the partnership, the Lord Chancellor (Cairns) observed that "the ordinary course would be for the Court to direct the sale of the assets, and if necessary a sale of the concern as a going concern, and to give liberty for proposals to be made by either party to purchase it". However, "Those provisions are moulded in every case by the court to meet the circumstances of the particular case, and it appears to me that looking at the nature of this business, and looking at the very small interest which was taken in it by the respondent, it would certainly not be desirable in this case to have a sale, or to bring these premises to the hammer for the purpose of ascertaining what sum ought to be given for them": at 2131 (Lords Chelmsford, Hatherley and O'Hagan agreeing). An enquiry was ordered to value the 1/8th share in the music hall and tavern sold as a going concern, with the brother who was to continue to operate the business permitted to purchase that share.
As Hoffmann LJ is reported to have observed, reproduced by Neuberger J in Mullins v Laughton [2003] Ch 250 at [110]: (emphasis added)
"It is I think notorious in the Chancery Division that Syers v Syers is an authority which is far more frequently cited by counsel than applied. But the discretion which it gives seems to be a valuable one which I think judges should not hesitate to use when it suits the justice of the case."
Syers v Syers was followed in Lucas v Lucas, which concerned the dissolution of a partnership between a father and son carrying on business as farmers and graziers. After the farm was purchased, a house was built on the farm in which the son and his wife lived for some 12 years. On dissolution of the partnership, the father sought an order for sale of the farm. The son opposed an order for sale as he wished to attempt to purchase the farm. As to whether the son should be permitted the opportunity to buy-out his father's interest in the farm, Gibbs J observed that the facts in Syers were special. At 212 (emphasis added):
"However, it does appear to me that Lord Cairns was stating a general principle, namely that the court has a discretion to determine in any case whether, on the dissolution of a partnership, the ordinary course should be followed, or whether that course should be departed from to meet the circumstances of the particular case. It seems to me that the court's discretion is not only exercisable in facts such as arose in Syers v Syers, but may be exercised in any appropriate case, although it is true that a most important matter for consideration is that the ordinary course is to direct a sale of the assets by auction."
In Lucas, Gibbs J was satisfied that the matter before his Honour was "one of those exceptional cases in which it is proper to depart from the ordinary course" at 212, [21]. Specifically, the partnership was between the father and son, where the son had lived for a number of years on the partnership property. Further, "The property was purchased for the purpose of the members of the family living on it. The valuation of the partnership property has been made, and there is nothing to cast any doubt upon the accuracy of the valuation. Of course, it is possible that on a sale by auction the property would be more than the valuation figure, just as it is equally possible that it would bring less, but nevertheless, a full valuation of the partnership assets has been made": at 212. It also appeared that, on the conclusion of the partnership, a substantial sum was owing to the son. Whilst each of these circumstances individually would not of itself have been sufficient to justify the exercise of the Court's discretion in favour of an order for private sale, when all of the circumstances of the case were taken together "it does seem to me to be proper that I should permit the [son] to purchase the [father's] interest in the partnership property": at [25].
More recent examples of the application of Syers v Syers assist. In Chia v Ireland [2000] SASC 47 (per Williams J; Prior and Martin JJ agreeing) noted that a buy-out order may be made to require an outgoing partner to sell their share to the continuing partners who wish to carry on the business and are prepared to pay the outgoing partner the market value of their share: at [35].
In Calacoci, Lindsay J declined to make a buy-out order where a family partnership had acquired several shops in Manly, from which rental income was received and divided between different family members. The shops, if sold in one line, were valued at $12 million and, if sold individually, at $12.8 million. Whilst the plaintiffs together held a majority (75%) interest in the shops, Lindsay J considered that this was not itself sufficient to support a buy-out order; nor were cost savings or tax advantages to be achieved by this method of sale: at [116]-[117]. Further, at [118]:
"Neither does the plaintiffs' desire to keep the shops "in the family" carry much weight against the defendants, members of the same family. Having managed the shops for many years, John has no less a connection with them than his siblings. Sentiment aside, the shops represent a financial investment and nothing else."
His Honour considered that the most important consideration was the mode of sale most beneficial to the parties and considered that this was sale by public auction, at which the parties were at liberty to bid.
Most recently, in In the matter of Lorebray Pty Ltd [2023] NSWSC 1650, Richmond J declined to make a buy-out order. The parties were the children of a property developer, John McNamee. Through a trust, Lorebray, Mr McNamee engaged in a property development at Brooklyn through a partnership. The partnership was terminated. It was agreed that the property should be sold, but the family members could not agree to whom. The family members also disagreed on the value of the Brooklyn properties, tendering widely disparate valuations ranging from $3.25 million to $8.5 million.
Richmond J noted that, whilst the Court had a discretion to make a buy-out order in order to achieve fairness and justice between the parties, in the present case, it was necessary that the order "must ensure that the partnership assets are sold at the best price which can be obtained so that one partner is not placed in a better financial position, as a result of the dissolution, than the other": at [106]. Where the parties were at odds regarding the value of the land, "The Court should be careful not to create a situation where one partner … is forced to accept a price for the underlying properties, or its interest in the partnership, which is based on a valuation which it does not accept": at [108]. The appropriate course was to sell the Brooklyn properties in the manner in which the receiver considered would achieve the best price available, being either auction, private treaty or tender.
[30]
Conclusion
The importance of this issue has declined, as I have concluded that the Mangrove Mountain farm is not a partnership asset.
Depending on the referee's conclusions, some of the partnership assets must, for practical reasons, be bought-out by Rocco, as they are installed on Rocco's farm. These comprise citrus trees and an irrigation system. Likewise, some partnership assets are fixtures on the Mangrove Mountain farm, such as a grading packing line and components, and a steel fabricated dip tank with conveyor system. Selling these items at a public auction seems unlikely to generate more value for the partners, where any purchaser would be factoring in the cost of dismantling the items, transport and re-assembly.
The same practical consideration does not affect the bulk of the remaining partnership assets, which comprise motor vehicles and farm equipment: forklifts, trucks, tractors, trailers, utes, pressure washer, spreader, tables, generators, mowers, post hole drivers, picking and pruning machines, pumps, bobcats and scissor lifts. These vehicles and farm machinery are in the possession of either Sam or Rocco, and are presumably used by each of them in their respective farming operations. Where the partnership came to an end four years ago, it is likely that the brothers have supplemented partnership property in their possession with other needed equipment, in order to operate their farms. As such, they are unlikely to have any particular need to buy-out a piece of equipment which has been in the possession of the other for the past four years.
Bearing in mind the costs attending the appointment of a receiver to conduct an auction of second-hand farming vehicles and equipment, I am not satisfied that either brother will do better if these assets are sold at auction rather than each brother buy-out the partnership assets in their possession. Of course, if the brother does not want an asset in their possession, then the other should be given the opportunity to buy it, and if neither is interested, then the item should be auctioned and the proceeds of sale distributed equally between them.
The same approach should be taken, I think, in respect of the remaining partnership assets, including those to be considered by the referee. Where it is necessary for some partnership assets to be bought-out, and practical to proceed in this manner in respect of other partnership assets, the utility in appointing a receiver to sell the few assets that remain declines accordingly.
[31]
Orders
For these reasons, I make the following orders:
1. Declare that the partnership between the plaintiff and defendant was dissolved on 8 January 2022.
2. Declare that the defendant has an equitable interest in the land identified in the survey annexed to the Amended First Statement of Cross-Claim and the improvements thereon (the Lot), located on the property known as 2018 Wisemans Ferry Road off Mangrove Mountain (the Property).
3. Declare that the plaintiff holds his title to the Property on trust for the defendant to the extent of the defendant's equitable interest in the Lot.
4. Direct the defendant to obtain an updated valuation of the market value of the Property from Kent Wood within 28 days, with the cost of the updating report to be borne by the defendant in the first instance, until the issue of costs is determined.
5. Order the defendant to acquire the plaintiff's interest in the Property for 40% of the updated market value, such purchase to be completed within 28 days of receipt of the updated valuation or such other date as may be agreed by the parties.
6. Direct the parties to bring in orders within 14 days in respect of
1. the appointment of a referee to determine whether the remaining disputed items of plant and equipment are partnership assets, and to take an account;
2. the buy-out of partnership assets in the possession of each partner; and
3. how the parties wish to proceed in respect of costs.
1. Parties to notify any errors or omissions within 14 days.
2. Liberty to apply in respect of Orders 4 to 6.
[32]
Amendments
29 May 2024 - [3], [7], [89], [92] - minor typographical amendments.
[240] - figure of 32% amended to 20%.
[241] - 32% amended to 20%; 34% amended to 40%.
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: 29 May 2024
es at [135]-[137] - 'in principle' agreement to dissolve partnership - infer partners did not wish to continue the partnership from date of AVO.
PARTNERSHIP ASSETS - whether farm is a partnership asset - ss 20(1), 21, Partnership Act 1892 (NSW) - principles as [143]-[146] - no express agreement - whether implied agreement - farm not included in partnership accounts - farm was partners' personal property.
REALISING PARTNERSHIP ASSETS - whether a buy-out order should be made - principles at [251]-[261] - brothers continue to farm separately - some assets are fixtures, warranting a buy-out by owner of farm where asset is affixed - consideration of cost of appointing receiver - unlikely to produce better outcome on sale of second-hand farm equipment and vehicles.
UNCLEAN HANDS - principles at [210] - mortgage payments paid by partnership 50:50, without taking into account son's interest in the Lot - son did not control payment of mortgage - no relation between alleged impropriety and equitable interest.
LACHES - principles at [215]-[217] - equitable interest not raised when legal title was transferred - parents since passed away - no knowledge that brother did not deny equitable interest until shortly before action.
EQUITABLE COMPENSATION - principles at [235]-[237] - difficulty in ascribing value to the Lot where no separate title - market value with separate title discounted to reflect possibility that farm would be sold notwithstanding parents' wish to keep it in the family and the parents unable to buy their son another property.
Legislation Cited: Conveyancing Act 1919 (NSW), s 66G
Evidence Act 1995 (NSW), 140(2)
Partnership Act 1892 (NSW), ss 20(1), 21, 26(2), 32(c), 35 and 39
Cases Cited: Attorney-General (NT) v Maurice (1986) 161 CLR 475
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Bant v Bant [2003] WASC 137
Bassett v Cameron [2021] NSWSC 207
Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) and (No 10) (2008) 39 WAR 1; [2008] WASC 239; [2009] WASC 107
Black Uhlans Inc v New South Wales Crime Commission [2002] NSWSC 1060
Blackwell v Blackwell [2020] NSWSC 1208
Bonzalie v Cullu [2013] NSWSC 1576
Bova v Avati [2009] NSWSC 921
Breskvar v Wall (1971) 126 CLR 376
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Brooks v Young (2018) ALR 329
Bullivant v Attorney-General for Victoria [1901] AC 196
Cain v Cain (2007) 13 BPR 24,963
Calacoci v Calacoci [2020] NSWSC 476
Callahan v O'Neill [2002] NSWSC 877
Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129
Carter v Brine [2015] SASC 204
Chia v Ireland [2000] SASC 47
Cobbe v Yeoman's Row Management Ltd [2008] UKHL 55
Crago v McIntyre [1976] 1 NSWLR 729
Crawley v Short (2009) 262 ALR 654; [2009] NSWCA 410
D Capital 2 Pty Ltd v Western (2022) 20 BPR 42919; [2022] NSWSC 1064
Delaforce v Simpson-Cook [2010] NSWCA 84
Dempster v Mallina Holdings Ltd (1994) 13 WAR 124
DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728
Doueihi v Construction Technologies Australia Pty Ltd (2016) 92 NSWLR 247
Drummond v Drummond [1999] NSWSC 923
Duke Group Ltd (In liq) v Alamain Investments Ltd (2003) 232 LSJS 58
E Co v Q [2018] NSWSC 442
Evans v Evans [2011] NSWCA 92
FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552
Ferella v Official Trustee in Bankruptcy [2015] NSWCA 411
Ford v Princehorn; Estate of Ford [2012] NSWSC 1165
Foundas v Arambatzis [2020] NSWCA 47
Fragar v Fragar [2024] NSWSC 193
Frazer v Walker [1967] 1 AC 569
Gerovich v Gerovich (as executor of the estate of Gerovich) [2018] WASC 153
Gillespie v Gillespie [2013] QCA 099; [2013] 2 Qd R 440
Gillett v Holt [2001] Ch 210
Gritzman v McRae [2022] NSWSC 745
Harvey v Harvey (1970) 120 CLR 529
Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312; [2003] NSWSC 851
Horn v GA & RG Horn Pty Ltd [2022] NSWSC 1519
Houghton v Imner (No 155) Pty Ltd (1997) 44 NSWLR 46
In the matter of Lorebray Pty Ltd [2023] NSWSC 1650
In the Will of Greer (1911) 11 SR (NSW) 21
Ithaca Ice Works Pty Ltd v Queensland Ice Supplies Pty Ltd [2002] QSC 222
Jennings v Rice [2002] EWCA Civ 159
Jones v Dunkel (1959) 101 CLR 298
Kelly v Kelly (1990) 92 ALR 74
Laird v Vallance [2023] VSCA 138
Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (Uncle Bens) (1994) 126 ALR 58
Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd (2008) 66 ACSR 1
Lewis v Nortex Pty Ltd (in liq) [2004] NSWSC 1143
Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491
Loughran v Loughran (1934) 292 US 216
Lucas v Lucas [1962] Qd R 205
Matsen v Matsen [2008] NSWSC 135
McNicholas v Sarandopoulos [2018] NSWSC 576
Miles v Clarke [1953] 1 All ER 779
Mullins v Laughton [2003] Ch 250
Ngatoa v Ford (1990) 19 NSWLR 72
Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383
Nocton v Lord Ashburton [1914] AC 932
O'Brien v Komesaroff (1982) 150 CLR 310
O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Orr v Ford [1989] HCA 4; (1989) 167 CLR 316
Prus Grzybowski v Everingham (1986) 44 NTR 7
Q v E Co [2020] NSWCA 220
Ramsay v BigTinCan Pty Ltd (2014) 101 ACSR 415; [2014] NSWCA 324
Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068
Reynolds v Medway [2013] NSWSC 206
Ryan v Starr [2005] NSWSC 170
Saffron v Cowley [2012] NSWSC 1108
Savage v Lunn [1998] NSWCA 204
Sergei Sergienko v AXL Financial Pty Ltd [2021] NSWSC 297
Sidhu v Van Dyke (2014) 251 CLR 505
Skrimshire v Melbourne Benevolent Asylum (1894) 20 VLR 13
Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198
Syers v Syers (1876) 1 App Cas 174
The New South Wales Trotting Club Limited v The Council of the Municipality of The Glebe (1937) 37 SR (NSW) 288
The Presbyterian Church (NSW) Property Trust v Scots Church Development Ltd (2007) 64 ACSR 31; [2007] NSWSC 676
Thorner v Major [2009] 1 WLR 776; [2009] UKHL 18
Walton v Walton [1994] CA Transcript No 479
Wantagong Farms Pty Ltd as Trustee for the Bulle Family Trust v Bulle [2015] NSWSC 1603
Warman International Ltd v Dwyer (1995) 182 CLR 544; 128 ALR 201
Watson v Foxman (1995) 49 NSWLR 315
Williams v Legg (1993) 29 NSWLR 687
Williams v Nicoski [2003] WASC 131
Willmott v Barber (1880) 15 Ch D 96
Woodson (Sales) Pty Ltd v Woodson (Australia) Pty Ltd (1996) 7 BPR 14,685
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15
Texts Cited: Ian Spry, The Principles of Equitable Remedies (9th ed, 2014, Thomson Reuters)
Keith Fletcher, The Law of Partnership in Australia (9th ed, 2007, Lawbook Co)
Roderick I'Anson Banks, Lindley & Banks on Partnership (21st ed, 2022, Thomson Reuters)
Category: Principal judgment
Parties: Rocco Pirrottina (Plaintiff)
Saverio Pirrottina (Defendant)
Representation: Counsel:
C Wood SC / J Hart (Plaintiff)
M Ashhurst SC / K Dyon (Defendant)
Whether executor can waive testator's client legal privilege for own purpose
An initial issue arose as to whether Rocco could have access to his parents' privileged communications - in relation to their Wills and the transfer of the Mangrove Mountain farm to the brothers - where Rocco had been an executor of his parents' estates. I declined to permit the parties to access the privileged material. These are my reasons for so doing.
Rocco and his sister, Angelina, were joint executors of their father's estate. Rocco and Sam were joint executors of their mother's estate. Angelina's attitude to Rocco's application for access was not known. Sam opposed access. Rocco submitted that he was nonetheless entitled to see the documents, as an executor of both estates.
Client legal privilege continues after the death of a privilege holder and will generally enure for the benefit of their successors in title until waived by a person or entity competent and able to waive it: Bullivant v Attorney-General for Victoria [1901] AC 196 at 206 (per Lord Lindley); Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (Uncle Bens) (1994) 126 ALR 58 at 64-65 (per Tamberlin J). Usually, it will be the privilege holder's executor or administrator who may waive such privilege: Prus Grzybowski v Everingham (1986) 44 NTR 7 at 12 (per Kearney J).
An executor is in a position akin to that of a trustee, owing fiduciary obligations to the beneficiaries of the estate: Brooks v Young (2018) ALR 329 at [89]. These obligations include avoiding conflicts, or potential conflicts, between the executor's personal interests and the interest of the estate which they are bound to protect: Brooks v Young at [93] (per Doyle J); Gritzman v McRae [2022] NSWSC 745 at [185] (per Ward CJ in Eq). For example, an executor falls foul of the "no conflict" rule by purchasing property from the estate without authorisation under the Will, the Court or the consent of the beneficiaries: see In the Will of Greer (1911) 11 SR (NSW) 21 at 22. So too where an executor authorises payment of their commission out of the assets of the estate without the consent of the beneficiaries: Saffron v Cowley [2012] NSWSC 1108 at [11] (per White J). Or where an executor withholds an interim distribution to the beneficiaries until their commission had been paid: Ford v Princehorn; Estate of Ford [2012] NSWSC 1165 at [41]-[42] (per White J).
Similarly, an executor is not entitled to be indemnified out of the estate for costs incurred to further the executor's personal interest, as opposed to administration of the estate: Drummond v Drummond [1999] NSWSC 923 at [47] (per Austin J). It has been said that executors who pursued "a purely selfish interest" were "not fighting for the estate any more than if they were not executors at all": Skrimshire v Melbourne Benevolent Asylum (1894) 20 VLR 13 at 18 (per Madden CJ).
Evidentiary matters
As these proceedings are configured, Rocco bears the onus to prove that the Mangrove Mountain farm was a partnership asset, while Sam bears the onus of establishing an equitable interest in the Lot and a personal equity vis a vis Rocco. The standard of proof remains the balance of probabilities qualified having regard to the gravity of the questions to be determined: s 140(2) Evidence Act 1995 (NSW); Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362.
The critical events occurred in 1994, that is, 30 years ago. As such, the passage of time may have exacerbated the general problem that recollections given in the course of legal proceedings may be distorted, albeit innocently, by a desire to succeed. As McLelland CJ in Eq noted in Watson v Foxman (1995) 49 NSWLR 315 at 319:
"… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."
To the problems caused by the passage of time, and the associated loss of memory and records, may be added the problem that the partnership, and Mr and Mrs Pirrottina Snr's earlier business, appears to have involved significant amounts of cash. As a consequence, proving who paid what and when posed difficulties for both brothers, of the kind described by Hammerschlag J in Sergei Sergienko v AXL Financial Pty Ltd [2021] NSWSC 297 at [1].
As for lay witnesses, Rocco gave evidence and relied on the evidence of his sister Vincenza (who was not required for cross-examination) and renderer, Douglas Cetinic.
Sam gave evidence and relied on the evidence of partnership accountant, Antonio Tisano, wife Marisa, sons Saverio (Sammy) and Joseph, sister Angelina and brother-in-law Rocco Marando, father-in-law Tommaso Falvo, aunt Caterina Deidda, long-time family friends Frank Lopresti and Pasquale Macri, bricklayer Joseph Vumbaca, carpenter John Leccas, builder Christopher Hajje and renderer Richard Cetinic (being the brother of Douglas Cetinic, with whom Richard had fallen out). All were cross-examined. Sam also relied on the evidence of plumber Laurie Douglas, roof tiler Terry Lamb, carpenter Bass Yasin and painter Phillip Lagana, none of whom were required for cross-examination; I accept their evidence.
Rocco accepted that he did not intend to use the privileged documents for the purposes of administering his parents' estates, where the administration of both estates had been completed sometime earlier. Rather, the documents were sought to understand the testamentary intention of the parents in relation to the equitable interest sought to be established by Sam. By these means, Rocco sought to defend the contention that his half-interest in the land was subject to the asserted equitable interest, or that he held his legal interest on trust for Sam. That is, Rocco's waiver of his parents' privilege would be for the purpose of advancing Rocco's personal interests.
Client legal privilege is a principle "of great importance to the protection and preservation of the rights, dignity and freedom of the ordinary citizen under the law and to the administration of justice and law … That being so, it is not to be sacrificed even to promote the search for … truth in the individual case": Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 490 (per Deane J). While Rocco may be entitled, as an executor, to waive privilege, doing so in this instance would not be a waiver with a view to discharging his duties as executor, nor would it be in the interests of the beneficiaries per se, but in his own interests. On the face of it, the application for access is inconsistent with an executor's obligation to avoid conflicts between their personal interests and the interests of the estate. I am not satisfied in these circumstances that Rocco (or Sam) should be permitted to access the privileged documents and thereby abrogate the fundamental protection afforded to the parents by privilege.
The main contest, in terms of credibility, was between the brothers. Rocco gave evidence in a guarded and evasive manner. Having sworn multiple affidavits, it was not until the witness box that Rocco denied critical conversations. In the circumstances, I have attached little weight to these late denials. Rocco gave inconsistent answers: for example, see [53], [100]. Rocco ultimately appeared to have taken a particularly dogged stance vis a vis his brother, as Rocco considered that the way things had worked out was "not fair". Rocco's evidence was also at odds with the evidence of a large number of other witnesses, many of whom were one-step removed from the brothers' battle. In the event of conflict, I have preferred the evidence of more impartial witnesses, such as Mr Tisano, Mr Marando, Ms Deidda, Mr Lopresti, Mr Macri and the various tradespeople, to that of Rocco.
Sam was an enthusiastic and passionate witness who was keen to volunteer fervent remarks. He appeared honest. Sam readily accepted that he got some of the details in his earlier affidavits wrong, given that events happened a long time ago, but was emphatic that his recollection of the critical conversation with his parents in 1994 was correct. Sam was more circumspect and less bitter in respect of his brother than was the reverse. I have generally preferred his evidence to that of Rocco in the event of conflict between them. That said, I have accepted a more dilute form of Sam's evidence, to compensate for what appeared to be a slight tendency to overstate the position.
Mr Tisano gave evidence reluctantly, having previously refused to provide an affidavit "because I did not want to be involved". Mr Tisano declined to sign a second affidavit prepared by Sam's solicitor, as Mr Tisano did not think it was relevant. Mr Tisano gave evidence in an impartial manner; he appeared honest and credible. I accept his evidence.
Marisa appeared to answer honestly and made reasonable concessions. Marisa became tearful on occasion. Marisa readily acknowledged that she harboured anger towards Rocco, but denied that it had affected her approach to giving evidence. I have generally accepted her evidence, save that there was a slight tendency to over-state the cost of renovations when compared with the evidence of the tradespeople on the same subject. Sammy seemed straightforward. Joseph was a serious, somewhat nervous and careful witness who appeared credible; I accept his evidence.
Angelina gave evidence in a clear and strong manner. Her evidence had a slightly partisan quality - she was definitely supporting Sam - but was nonetheless a credible witness. Angelina's husband, Mr Marando, seemed to enjoy a little bit of distance between himself and the main protagonists. I accept his evidence.
Mr Falvo was a retired builder. He seemed credible and also experienced at giving evidence. Mr Falvo's evidence hit a delicate subject, concerning his daughter Marisa's elopement with Sam. Mr Falvo said he accepted what they did and blessed them and was happy with what had happened, where it was clear that he was then estranged from his daughter for many years. Mr Falvo's answers to these questions, presumably intended to smooth over deep rifts between himself and his daughter, did not detract from his overall credibility.
Ms Deidda was Mrs Pirrottina Snr's sister. Ms Deidda appeared to take giving evidence very seriously. She was a credible witness. I have generally accepted her evidence, albeit some of the details of events long ago may not have been correct, for example, she recalled Mr Pirrottina Snr telling her that he had bought the Kulnura farm for both brothers, where it may have been just for Rocco: see [56].
As for expert witnesses, the parties jointly instructed valuation expert, Kent Wood. Mr Wood was cross-examined; no issues of credit arose. Sam also instructed an actuarial expert, Douglas McBirnie, to value Sam's life interest in the house and the Lot; Mr McBirnie was not required for cross-examination.
Finally, a party's failure to produce documentary evidence to corroborate their account, where they might be expected to be in possession of such documents, may give rise to an inference that such documents as they may be expected to have would not support their account: Jones v Dunkel (1959) 101 CLR 298 at 320 (per Windeyer J). I have drawn this inference, for example, where Rocco stated that he paid for the Kulnara farm but did not tender his bank statements for the bank accounts from which the payments were said to have been made: see [59].