[2001] VSCA 167
Q (a pseudonym) v E Co (a pseudonym) [2020] NSWCA 220
Smith v NSW Bar Association (1992) 176 CLR 256
Source
Original judgment source is linked above.
Catchwords
[2001] VSCA 167
Q (a pseudonym) v E Co (a pseudonym) [2020] NSWCA 220
Smith v NSW Bar Association (1992) 176 CLR 256
Judgment (11 paragraphs)
[1]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[2]
Judgment
THE COURT: Judgment in this appeal was delivered on 21 September 2020, and directions made for the parties to attempt to agree short minutes of order giving effect to those reasons: Q (a pseudonym) v E Co (a pseudonym) [2020] NSWCA 220. (These reasons continue to use the pseudonyms adopted by the primary judge and in those reasons.) Producing such agreement became less straightforward as a result of the appellant Q's death on 8 October 2020 and the decision of the executor of his last known will to renounce probate on 17 November 2020.
On 13 November 2020, the respondents filed a motion seeking orders for the appointment of the (at that time) proposed executor to represent Q's estate in the proceedings and leave to reopen the appeal to adduce evidence of Q's death, contending that the Court should recall its reasons in so far as they imposed conditions upon the relief then proposed on the basis that Q would be forfeiting ownership of the Properties during his remaining expected lifetime. Following the executor's decision to renounce probate, an amended motion was filed seeking the appointment of Michael Callanan, a solicitor, to represent Q's estate.
The application for the appointment of the representative party was heard and determined by Hallen J on 9 December 2020. His Honour ordered, pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 7.10(2)(b), that Michael Callanan be appointed to represent the deceased appellant's estate for the purpose of these proceedings. For convenience we will refer to him as the Estate Representative.
The balance of the motion was then listed before the Registrar of this Court and directions made for the exchange of written submissions. Those submissions have regard to and rely on evidentiary material which is the subject of affidavit evidence of the respondents' solicitor, Michael Fitzgerald, in three affidavits sworn 13 November 2020, 2 December 2020 (18 paragraphs) and 2 December 2020 (3 paragraphs).
Whilst this Court has delivered its reasons, because Q's death occurred before any final orders were made in the appeal, the Court remains in the position to alter those reasons so as to take account of the fact of Q's death and any other relevant matters: Smith v NSW Bar Association (1992) 176 CLR 256 at 265; [1992] HCA 36; Fletcher Constructions Australia Ltd v Lines Macfarlane & Marshall Pty Ltd (2001) 4 VR 28 at 47; [2001] VSCA 167 at [49].
The parties should have leave to reopen the appeal to adduce evidence to enable the Court to deal with the respondents' argument and determine the final orders to be made. It has not been necessary, to this point, for the Court to hear oral argument. The matters proved by the three affidavits referred to above are not controversial, and the affidavits are taken to have been read without objection. As the matters to which they refer occurred after the hearing at first instance, evidence of them was received under Supreme Court Act 1970 (NSW), s 75A(7), (9).
The matters established include: (1) that Q died on 8 October 2020; (2) that Mr Callanan was appointed on 9 December 2020 to represent Q's estate in the appeal; (3) that Mr Andrew Sneddon, a Chartered Tax Adviser retained on behalf of A, B and C, has advised in writing by a report dated 2 December 2020 that no capital gains tax is likely to be payable by Q's estate by reason of any beneficial interest of A, B and C in the Properties held by reason of the constructive trust declared from 1 July 2003 or the subsequent transfer of those properties to A, B and C, or as a result of the sale and transfer by Q of Property No 11 in 2020; (4) that the sale of Property No 11 was completed in March 2020, the net proceeds of sale now held being $1,488,584; and (5) that a legal costs consultant, Ms Chris Davitt, by a report dated 9 October 2020, determined 90% of the respondents' reasonable costs of the appeal assessed on the ordinary basis to be $494,291.
The primary judge made orders and declarations on 1 May 2019 and 3 September 2019 (Judgment [10], [11]). On 1 May 2019 her Honour made declarations in relation to relevant real and personal property, orders providing for the transfer of that property, and orders for the payment of moneys as between A, B and C, on the one hand, and Q, on the other. Those moneys were the proceeds of sale of Property No 12, moneys due under the W Deed, moneys due as unpaid rent of the Properties, and an amount of $640,000 representing the net present value of future rent, which was to be paid to compensate Q for giving up ownership of the properties during his lifetime. Finally, those orders provided that the net proceeds of sale of Property No 11 be retained to enable payment of any capital gains tax liabilities arising in relation to the Properties or Property No 11 (which had not been sold at that time), the balance, if any, to be paid to A, B and C; and that the orders for payment of money should be stayed in the first instance until the issue of costs was determined, and then "set off against each other". The primary judge's further orders, made by consent on 3 September 2019, included declarations with respect to water licences, and orders for the transfers of those licences, and an order that Q pay the respondents' costs of the proceedings in the amount of $2,250,000, which was to be included in the set off provided for by the orders made on 1 May 2019.
The final orders in the appeal as contended for by the respondents are set out in the draft short minutes attached to these reasons and marked annexure "A". Those short minutes in turn adopt the pseudonyms listed in Confidential Schedule 1 to the primary judge's reasons in E Co v Q (No 4) [2019] NSWSC 429. They take as their starting point the orders and declarations made by the primary judge, and then seek to accommodate the consequences of Q's death in relation to those existing orders. The respondents and the Estate Representative have exchanged submissions concerning the proposed orders. It is convenient to deal with them by reference to the subjects to which they relate, as identified in the respondents' written submissions.
[3]
Beneficial ownership of properties, shares and water licences
The declarations with respect to beneficial ownership of the Properties, Water Licences, shares in E Co and EM Co, Motor Vehicles and Plant & Equipment, made by the primary judge on 1 May 2019 and 3 September 2019, should stand (Orders 3, 4 and 5 made on 1 May 2019 and Order 2 made on 3 September 2019).
[4]
Vesting of legal ownership of real and personal property in A, B and C
The primary judge also made orders providing for the transfer of that real or personal property to A, B and C. Other than the order in relation to the Motor Vehicles and Plant & Equipment (Order 8 made on 1 May 2019), those orders (being Orders 6 and 7 made on 1 May 2019 and Order 4 made on 3 September 2019) should be set aside. In their place orders are to be made under Trustee Act 1925 (NSW), s 71(1) that the Properties, shares in E Co and EM Co, and Water Licences held by Q on constructive trust for A, B and C, vest in them as tenants in common in equal shares. That power is enlivened by s 71(2)(l), there being no legal representative of Q, who at the time of his death held that real or personal property on constructive trust for the respondents. No vesting order is necessary or sought in relation to the Motor Vehicles and Plant & Equipment, because those assets were transferred to A, B and C on or about 17 September 2019.
[5]
No need for imposition of conditions
The principal significance of Q's death is that it is no longer necessary to impose any conditions on the grant of relief to compensate Q for giving up the ownership of the Properties during the balance of his expected lifetime. The two conditions proposed in this Court's reasons (Judgment [194], [200]) were that the respondents pay an amount representing the present discounted value of future rent of the properties ($640,000) and that E Co repay the amount of $2,123,253 representing, in the books of E Co, the value of Q's cattle originally transferred and sums later advanced by Q, in each case to E Co. The effect of Q's death is that there will in no sense be any "acceleration" of the respondents' holding/inheritance expectation, because that expectation included that on Q's death the Properties and shares in E Co and EM Co would vest in the sons by operation of his will.
In the result, there is no reason to impose either of the proposed conditions as terms of orders for the vesting or transfer of the Properties and shares to A, B and C. It follows that Order 12 made on 1 May 2019, which imposed the condition requiring the payment of an amount on account of future rent, should be set aside. There remains a question between the parties concerning the repayment of the amount of $2,123,253.
The orders proposed by the respondents do not include an order that they or E Co pay $2,123,253 to Q's estate in satisfaction of the book debt. They contend, and the Estate Representative does not contest, that the making of such a payment should not be imposed as a condition of relief. We agree.
The respondents also observe that Q's cross-claim for amounts which included the amount of $2,123,253 was dismissed by the primary judge (Order 2 made on 1 May 2019), and that there is no appeal from that order. The primary judge dismissed that claim because her Honour was not satisfied that the advances made were "by way of loan repayable during" Q's lifetime (E Co v Q [2018] NSWSC 442 at [1235]). At the same time, her Honour considered that in the event the respondents' entitlements to the Properties and shares were accelerated "it would not in my view be unconscionable for [Q] to require the repayment of those moneys, assuming a reasonable repayment regime...".
This Court addressed this subject briefly at Judgment [195], where it observed that the "benefit of the loans would form part of Q's estate, and presumably (although it is not clear there was any expectation to this effect) ultimately pass to the sons". Whilst there was a "likelihood" that the sons would also inherit the benefit of the debts due (Judgment [198]), there was no finding of "any expectation to this effect", that not being part of the sons' claim as formulated before the primary judge. Nor was it an issue before this Court. Accordingly, the question as to its repayment remains a matter to be dealt with as between Q's estate and E Co, but not as part of any relief granted in these proceedings.
The respondents' submissions also address the event that they "are ordered to pay" that debt, and contend that it would be "wholly unjust" if in that circumstance the debt was not included within the set off arrangement to which the parties agreed by their consent to Order 1 made on 3 September 2019. It is not necessary to deal with this contention, as the Court does not propose to impose as a condition of relief that the debt be repaid.
[6]
Release of funds from sale of Property No 11
On 1 May 2019, the primary judge ordered (Order 17):
Order that Property No 11 be sold as soon as practicable by the first defendant (at public auction or otherwise by agreement with the third, fourth and fifth plaintiffs) and that, after payment of any amount to the Australian Taxation Office in payment of any capital gains tax liability arising in respect of a capital gains tax event in relation to the Properties, the first defendant pay first, to the Australian Taxation Office any capital gains tax liability arising in respect of a capital gains tax event in relation to Property No 11, and then second, to the plaintiffs the balance, if any, of the net proceeds of sale by way of equitable compensation for the loss of their expectations in relation to Property No 11.
Mr Fitzgerald's evidence is that the sale of this property was completed on about 27 March 2020 and that an amount of $1,488,584 is currently held by respondents' solicitor, subject to their obligation to see that any capital gains tax liability arising in relation to the vesting or transfer of the Properties is paid from that amount. Mr Sneddon's evidence is that the sale of Property No 11 resulted in a capital loss.
The respondents seek an order that on the undertaking of A, B and C to meet any capital gains tax liability in respect of the Properties, the balance of the proceeds of sale of Property No 11 be paid to them in equal shares as equitable compensation for the loss of their expectation in relation to Property No 11.
The Estate Representative does not contend that there is any risk that if that money is released to A, B and C they would not thereafter be in a financial position to meet any liability for capital gains tax in accordance with their proposed undertaking. Rather, his concern is with the "manner of enforceability of that undertaking by any future administrator of the estate of Q".
This concern may be accommodated without any need to explore difficulties that may arise in the enforcement of such an undertaking on behalf of Q's estate. The Court would make an order that the net proceeds of sale of Property No 11 be paid to A, B and C in equal shares provided they first execute in favour of Q's estate, and in the form of a Deed Poll satisfactory to the Estate Representative, a joint and several indemnity with respect to any relevant capital gains tax liability of Q or his estate.
[7]
Set off of money amounts payable between the parties
The orders proposed provide that the set off first contemplated by the primary judge's Order 18 made on 1 May 2019, and extended to include the costs of the proceedings at first instance by Order 1 made on 3 September 2019, continue to apply and extend to include the costs of the appeal. The Estate Representative does not oppose that set off arrangement, which will result in a significant judgment in favour of the respondents against Q's estate. It is to be noted, although no objection is taken on this basis, that the set off arrangement consented to in the orders made by the primary judge (and that proposed by the respondents' short minutes) involves the setting off of liabilities of the third, fourth and fifth respondents to Q's estate against liabilities of Q's estate to the respondents (in the case of the costs orders) or some of them (in the case of the other orders).
The orders proposed identify the payment obligations which are to be the subject of the set off arrangement and provide for the entry of a judgment in favour of the respondents "in a sum to be agreed between the parties" or, failing agreement, as determined by the Court. To accommodate this proposal, the orders the Court will make include a direction that if the parties cannot agree on that amount, there should be an exchange of written submissions enabling its determination by the Court on the papers.
[8]
Costs of the appeal
It is agreed that Q's estate should pay 90% of the respondents' costs of the appeal. It is also agreed that, in accordance with Civil Procedure Act 2005 (NSW), s 98(4), this Court should specify a gross sum to be paid. The respondents contend, relying on the assessment of Ms Davitt and incorporating a discount, that those costs should be ordered in the sum of $494,291. The Estate Representative accepts Ms Davitt's assessment of those costs as "reasonable". Accordingly, a gross sum costs order should be made in that amount. The foregoing excludes costs incurred after 9 October 2020. The orders made today, which give 7 days to the parties to apply to vary the proposed orders, will permit the parties to reach agreement as to the final order by way of costs they ask this Court to make, or alternatively to identify their final positions and the reasons in support of those positions.
[9]
Proposed orders
There follow the orders which the Court proposes to make. If either party takes issue with any of those orders, or seeks that further orders be made, they should do so by lodging written submissions (not to exceed 5 pages) with the Associate to Meagher JA within 7 days of the Court's direction to this effect. Having considered those written submissions, the Court will make final orders.
The orders proposed are:
1. Note that in these orders:
1. Properties means Properties Nos 3, 4, 5, 6, 7, Main Property, 8, 9 and 10 listed in the Confidential Schedule 1 to the reasons for judgment of Ward CJ in Eq in E Co v Q (No 4) [2019] NSWSC 429.
2. Water Licences means the Water Licences connected with the Properties as defined in Order 2 of the orders made by Ward CJ in Eq on 3 September 2019.
3. The remaining pseudonyms, including those of the parties and the farms, are those set out in the Confidential Schedule 1 described above.
1. Order that the appeal be allowed in part.
2. Set aside Orders 6, and 7 made on 1 May 2019 and Order 4 made on 3 September 2019, and instead make the following vesting orders under s 71(1) of the Trustee Act 1925 (NSW):
1. That the deceased appellant's shares in E Co vest in A, B and C as tenants in common in equal shares.
2. That the deceased appellant's shares in EM Co vest in A, B and C as tenants in common in equal shares.
3. That the Properties vest in A, B and C as tenants in common in equal shares.
4. That the Water Licences vest in A, B and C as tenants in common in equal shares.
1. Order that Orders 9, 10, 11, 12 and 13 made on 1 May 2019 be set aside.
2. Order that Order 16(f) made on 1 May 2019 be set aside and that the following orders be made instead:
1. "(f) $19,039.04 in respect of rent for the financial year ending 30 June 2019"; and
2. "(g) $101,917.80 in respect of rent for the period 1 July 2019 to 8 October 2020".
1. Order that the caveats described in Order 1 made on 11 July 2014 cease forthwith to have any operation or effect.
2. Order that Orders 4, 6, 7, 8 and 9 made on 3 September 2019 be set aside.
3. Order that the respondents be released from the undertakings to the Court noted in paragraphs 10, 11, 12 and 13 of the orders made on 3 September 2019.
4. Direct that the parties attempt to agree the net amount now due from Q's estate to the respondents after the set off from the amounts due from the estate to the respondents or some of them under Order 14 made on 1 May 2019, Order 1 made on 3 September 2019, and Order 14 below, of the payments due from the third, fourth and fifth respondents to Q's estate under Orders 15 and 16 made on 1 May 2019. Failing agreement as to that amount within 7 days, the parties are to exchange written submissions (each not to exceed 5 pages) as to the net amount within a further 7 days. Those submissions are to be lodged with the Associate to Meagher JA. The Court will determine the net amount which will be the subject of a judgment in favour of the respondents and against Q's estate.
5. On condition that the third, fourth and fifth respondents execute in favour of Q's estate, and in the form of a Deed Poll, a joint and several indemnity against any liability of the estate for capital gains tax payable to the Australian Taxation Office in respect of the vesting or transfer of the Properties, that indemnity to be in a form satisfactory to the Estate Representative, Order that the balance of the proceeds of sale of Property No 11 be forthwith released and paid to A, B and C in equal shares as equitable compensation for the loss of their expectation in relation to Property No 11.
6. Order that the appeal otherwise be dismissed.
7. Order that the cross-appeal be dismissed.
8. Order that the deceased appellant's estate pay 90% of the respondents' costs of the appeal.
9. Order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW) that the respondents are entitled to $494,291 in satisfaction of the costs order in (13) above.
[10]
Orders
The Court makes the following direction:
1. Direct that if either party takes issue with any of the proposed orders, or seeks that further orders be made, they should do so by lodging written submissions (not to exceed 5 pages) with the Associate to Meagher JA within 7 days.
[11]
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: 22 February 2021