Rex Phillip Tory v Sarjit Kuar Tory [2007] NSWSC 1078 | Case summary

2169/07 Rex Phillip Tory v Sarjit Kuar Tory JUDGMENT 1 HIS HONOUR: This is an application under s 66G of the Conveyancing Act 1919 (NSW) for an order appointing trustees for sale of land in Yamba in New South Wales. 2 The plaintiff and the defendant are co-owners as tenants in common in equal shares. The land in question is 15.24 hectares of rural land with a potential for development as residential land if it is rezoned. 3 The defendant opposes the application unless an order is made on terms that she first have the opportunity to purchase the plaintiff's interest at valuation. The defendant contends that a valuation should not be made on the basis of fifty percent of the unencumbered value of the property, but should be based on what a willing, but not anxious, buyer would pay to acquire the plaintiff's fifty percent interest so as to become co-owner with the defendant. 4 The defendant submits that the plaintiff is estopped from seeking an order for the appointment of trustees for sale except on such terms because an order appointing trustees for sale would defeat an expectation that she was induced to adopt, and on which she acted to her detriment, that the land would be held for rezoning and development. 5 The defendant also submits that, in seeking an order for the appointment of trustees for sale, the plaintiff is in breach of a fiduciary duty he owes to her. Background 6 On 1 June 1967, the plaintiff acquired land of which the subject land forms part as tenant in common in equal shares with his brother, Mr Kevin Tory. 7 In 1975, Kevin Tory married the defendant. They later divorced. On 14 August 1986, Kevin Tory's interest in the land was transferred to the defendant pursuant to orders of the Family Court. 8 Subsequent to her acquiring her interest in the land, the defendant has paid her share of costs in connection with holding the land and seeking the council's approval to its rezoning and development. The plaintiff has done all the work needed to co-ordinate efforts to that end. 9 In 1992, the plaintiff arranged for the preparation and submission of a development application for the subdivision of the land. 10 In 1993, the council granted two development consents for twenty-five building blocks on the land. An appeal to the Land and Environment Court in respect of one of the conditions of approval was upheld. 11 The defendant left it to the plaintiff to handle the matters associated with obtaining those consents, paying her share of out-of-pocket expenses. 12 There was a further unsuccessful application in 1994. In that year, part of the land was acquired by the council for a sum which has not been disclosed but which was shared equally. 13 In 1995, twenty-five building blocks, for which development consent had been given, were sold to a developer. The defendant left it to the plaintiff to negotiate and arrange the sale. 14 This sale left the parties with 15.24 hectares of land known as lot 51 in deposited plan 861895. The land is zoned "Rural Investigation" meaning that it has the potential to be rezoned for residential development. 15 In 2001, the plaintiff proposed that the land be cleared. The defendant agreed and the plaintiff arranged for that to be done. Costs were shared. 16 In November 2002, the plaintiff applied to Equititrust Limited for a loan of $60,000 for himself and the defendant. He told Equititrust that the loan was for costs of developing the land. 17 He sought and obtained the defendant's consent to her mortgaging her share of the land and to being a borrower. It was understood between them that the plaintiff would be solely responsible for repayments. The plaintiff told the defendant in writing that he needed the loan both to meet his share of the costs, to make the property viable and to meet his commitments, or, as he put it, to provide "finance for kids and self for Christmas". 18 In about December 2002, the defendant agreed to be named as a joint borrower and joined in a mortgage of the land to secure the loan of $60,000 from Equititrust. 19 In connection with that transaction, the plaintiff represented to the defendant that the loan would only be for twelve months. He said "we will get the rezoning in twelve months time and the loan will be discharged. After the development we will be making millions". He also said "I need the moneys to cover my share of developing the property. We will get a favourable outcome on rezoning and then we can develop the property. Once the property is developed then the loan will be paid out. It's only going to take us twelve months anyway". 20 The defendant assumed that the $60,000 to be borrowed from Equititrust would be used by the plaintiff in paying for the expenses of the development of the property, that the loan would be paid out of the plaintiff's share of the profits after the property had been rezoned and sold or developed, and that the plaintiff would do nothing to prevent them both from seeking the rezoning and developing of the property. 21 During the first half of 2003, the plaintiff arranged for more clearing of the land to take place. He also did work in connection with the obtaining of the consulting engineer's report on the environmental effect of a residential development of the remaining land. 22 In June 2003, the plaintiff asked the defendant to agree to increasing the loan by another $45,000. He said to her that: " I will need more money to pay for my share of the development costs. I will need another $45,000. We cannot stop the development now otherwise we will not achieve what we set out to do. Look, Council has stuffed us around and I would not be asking for this money if Council had accepted the 2001 LEP. We will make millions. The development will be completed in a short time and the monies paid back. " 23 He agreed that the loan would be paid from his share of the profits from the development. 24 The defendant agreed to their borrowing another $45,000 on that basis. She assumed that the further $45,000 would be used by the plaintiff in paying for the expenses of the development, that the full $105,000 loan would be repaid out of the plaintiff's share of the profits after the property had been rezoned and sold or developed, and that the plaintiff would do nothing to prevent them both from seeking the rezoning and developing of the property. 25 The plaintiff continued to arrange for submissions to be made to the council that rezoning of the land residential would not have significant impact on the local environment. He dealt with the consultants engaged for that purpose and with the council. 26 In August 2004, the plaintiff telephoned the defendant and said words to the effect: " The Equititrust loan has expired so I need to refinance. I am making arrangements with First Mortgage Managed Investments to borrow two hundred and thirty thousand. We've got to get the property developed or else the Greenies will take it away from us. The council will impose too many restrictions if we do not act now. I don't know about you but I am not letting anyone take this property away from me. We have to act now. " 27 The defendant did not agree to them borrowing $230,000. She agreed to borrowing $125,000 to refinance the Equititrust loan and to pay the plaintiff's share of council rates which were then owing. 28 She deposed that, based on what the plaintiff and she had previously discussed, she assumed that the $125,000 borrowed from First Mortgage would be repaid out of the plaintiff's share after the property had been rezoned and sold or developed, and that the plaintiff would do nothing to prevent the two of them from seeking a rezoning of and developing the property. 29 Again, she mortgaged her share in the land to First Mortgage Limited and became a joint borrower. Again, it was understood that the moneys would be provided for the sole benefit of the plaintiff and that he would be responsible for paying interest and making repayments. 30 It took a long time for the council to review a local environmental study for the West Yamba region, to obtain relevant reports, and to consider the preparation of a draft Local Environment Plan. 31 During 2004, 2005 and 2006, the plaintiff continued his efforts in liaising with consultants and lobbying or addressing the council and the State Government. 32 On 22 November 2005, council decided to submit a draft LEP to the Department of the Planning and requested a certificate under s 65 of the Environmental Planning and Assessment Act 1979 (NSW) for its public exhibition. 33 In April 2006, the plaintiff approached the defendant to agree to increase the mortgage by a further $57,000. She refused. 34 An independent expert's report obtained from the Department of Planning recommended that the zoning be amended so that part of lot 51 would be zoned Environmental Protection (Riparian) and part would be zoned Environmental Planning (Residential Habitat). It did not recommend the residential zoning the parties desired. It found that the proposals would be likely to result in severe and irreversible detrimental effect on the flora and fauna in designated areas. 35 On 3 October 2006, the plaintiff made submissions to the council as to the depth of the proposed riparian zone and as to the proposed zoning of the land into five-acre lots. Further consultant reports were tendered in support of the submission. The defendant also made a briefer submission at this stage. 36 In March 2007, the defendant arranged for another consultant to meet representatives of the council about the rezoning. 37 On 15 May 2007, the council deferred a decision on the West Yamba LEP for six months to allow completion of a floodplain risk management study. The draft LEP is not due to be further considered by the council until November 2007. 38 In the meantime, in October 2006, First Mortgage served a notice under s 57(2)(b) of the Real Property Act 1900 (NSW) threatening to exercise its power of sale if interest due on 17 September and 17 October 2006 was not paid. 39 The defendant has made a payment under the mortgage of $4,510. She has recently paid more than her half share of council rates. 40 The summons was filed on 10 April 2007. The plaintiff deposes that he continues to suffer financial difficulties. He is unemployed. He wishes to have the property sold so as to obtain his share of the proceeds of sale. 41 He accepts that the mortgage should be paid from his share of the proceeds, as should the sum of $4,510, in order to indemnify the defendant for the mortgage payments she made. He also accepts that any council rates paid by the defendant in excess of her half share should be refunded to her from his share of the proceeds of sale. General Principles. 42 Whilst an order under s 66G of the Conveyancing Act is discretionary and the Courts have declined to define the matters which are bar to a successful application (Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068), such an order is almost as of right unless on settled principles it would be inequitable to allow the application (Callahan v O'Neill [2002] NSWSC 877 at [8]). An application will be refused, if to make the order would be inconsistent with a proprietary right, or a contractual or fiduciary obligation (Re McNamara and the Conveyancing Act; Ngatoa v Ford (1990) 19 NSWLR 72 at 77; Williams v Legg (1993) 29 NSWLR 687 at 693; Hogan v Baseden (1997) 8 BPR 15,723 at 15,726-15,727). Conventional estoppel may be a ground for refusing an order under the section (Woodson (Sales) Pty Limited v Woodson (Australia) Pty Limited (1996) 7 BPR 14,685 at 14,701 ("Woodson")). It is consistent with a settled principle for equitable estoppel, which may itself be the source of rights, to be a ground for refusing an order. In Woodson, Santow J, (as his Honour then was), held (at 14,701) that unconscionability was a ground for refusing an order if the application under s 66G involved one party in a dominant position taking unconscientious advantage of the vulnerability of the other party, or involved one party asserting or retaining the benefit of relevant property where it would be unconscionable to do so. Equitable Estoppel 43 There was no challenge to the defendant's evidence that, as a result of the statements made to her in November 2002 and June 2003, she assumed that the loan advances would be applied by the defendant towards meeting expenses of the development of the property; that she assumed that the loan would be re paid out of the plaintiff's share of the profits after the property had been rezoned and sold; and that she assumed that the plaintiff would do nothing to prevent them both from seeking the rezoning of the property and developing it. 44 However, to found an estoppel based on a representation, the representation must be clear and unequivocal (Legione v Hateley (1983) 152 CLR 406 at 435-437). There was no express representation that the plaintiff would do nothing to prevent him and the defendant from seeking the rezoning and developing of the land. 45 Counsel for the defendant submitted that such a representation was conveyed by the plaintiff's statements that the loans would be paid out once the property was developed, and his acceptance that the loans would be paid out of his share of the profits. 46 Those statements were made in the context of the plaintiff's projecting that the rezoning would be concluded within a year of November 2002 or within a "short time" of June 2003. The plaintiff's statements could not reasonably have been understood as conveying that, no matter how long the rezoning decision might be delayed, and irrespective of the costs that might be incurred in pursuing rezoning of the land to a residential zoning, and irrespective of his financial circumstances, the plaintiff would not take any steps to prevent them both pursuing the rezoning and development of the property. 47 There was no express agreement that neither would seek an order for the appointment of trustees for sale. Nor would such an agreement be implied, let alone clearly and unequivocally implied. 48 Circumstances have changed since the representations relied on by the defendant as giving rise to the estoppel were made. The land has not been rezoned within the time frame then contemplated. An independent report recommends against the zoning that the parties sought. 49 The plaintiff does not seek to resile from his representation that the mortgage will be paid from his share of the proceeds of sale of the property. 50 I also consider that the refusal of an order for the appointment of trustees would go beyond what is required for conscientious conduct on the part of the plaintiff (Giumelli v Giumelli (1999) 196 CLR 101 at 125 [50], 127-128 [64]). 51 The detriment suffered by the defendant as a result of her acceding to the requests in 2002, 2003 and 2004, was that she incurred a personal liability to the providers of finance and mortgaged her share of the property. That detriment is redressed by the plaintiff's indemnifying her against her liability for the mortgage debt. At least, in a case of proprietary estoppel (as was Giumelli v Giumelli) a successful plaintiff may be prima facie entitled to relief which will make good his or her expectation, even if that exceeds what is necessary to redress his or her detriment (Commonwealth v Verwayen (1991) 170 CLR 394 at 443 per Deane J; Giumelli v Giumelli at 123 [42], and 125 [48]). However, there is a proviso that the relief not go beyond what is required for conscientious conduct on the part of the defendant (Giumelli v Giumelli at 123 [42], 125 [50] and 127-128 [64]) or as Brereton J put it, that the relief not be disproportionate to the requirements of conscionable behaviour (O'Neill v Williams [2006] NSWSC 707 at [73]). 52 The requirements of conscientious behaviour are satisfied by the plaintiff accepting that he is obliged to make all repayments of the loans and that his share of the proceeds of the sale be applied to that purpose. 53 That is so even if the mortgage debt cannot be wholly met out of the proceeds of sale. There was no evidence as to whether that was a realistic possibility. However, if that happens, the plaintiff will remain liable to indemnify the defendant against any amount she has to pay from her share of the proceeds. It may be that the plaintiff would have a cross-claim for reasonable remuneration for the services he has provided for their joint benefit. That claim has not been litigated and is not directly relevant, except to show that, if the plaintiff's share of the proceeds of the sale are insufficient to meet the mortgage debt, there is nothing unconscientious in the plaintiff's asserting that the defendant should be satisfied with her personal claim for indemnity against him, subject to whatever cross-claim he may have against her. 54 Counsel for the defendant submitted that it was unconscionable for the plaintiff to seek an order which would result in a sale of the property and thereby deprive the plaintiff of her opportunity to pursue the rezoning and development of the land unless he first offered her the opportunity to buy his half interest in the land for whatever was the fair market value of an undivided half interest in the land, as distinct from half of the fair market value of the property. 55 Whilst there was no expert evidence on the topic, it is logical to expect that a half interest will be worth less than half the value of the property, because a co-owner is fettered in his or her dealings with the property where the concurrence of the other co-owner is required (Woodson at 14,717). 56 However, an order requiring the plaintiff to offer his interest for sale to the defendant at valuation carried out on such a basis would have no relation to an equity arising from the parties' borrowing moneys for the plaintiff's benefit on the plaintiff's representations as to when and how the borrowings would be repaid. Unconscionability 57 Initially, counsel for the defendant relied on unconscionability as a free standing ground for opposing the orders sought except on such terms. He relied upon Woodson where Santow J treated unconscionable conduct, consisting of the parties asserting or retaining the benefit of relevant property where it would be unconscionable to do so, as a separate and distinct ground for resisting an application under s 66G. 58 While unconscionability is an underlying basis for many equitable doctrines, it does not operate wholly at large (Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at 244 et seq.). It does not create rights merely on the grounds of what is thought fair (Muschinski v Dodds (1985) 160 CLR 583 at 615-616) but requires further definition to explain why the making of the application is unconscionable. 59 In the present case, that depends on the defendant's establishing that the plaintiff is estopped from departing from the assumption he induced her to adopt, and is thereby estopped from invoking s 66G, or it depends upon the defendant's establishing that the application is a breach of the plaintiff's fiduciary duty. 60 In Woodson, Santow J held that it would be unconscionable for the co-owners of trademarks seeking an order for the appointment for trustees for sale to assert a right to, or to seek to retain, the benefit which would flow from the sale of the trademarks for an amount which exceeded the value of their half interest in the trademarks (at 4,717). 61 The facts of that case were complicated. It is, with respect, difficult to discern precisely why it was thought unconscionable in Woodson for the "premium" expected to be paid by a buyer of the whole of the property for unfettered control to have been shared by both co-owners. 62 Whatever the basis underlying that conclusion in Woodson, in this case, I see no basis for saying that conscientious conduct by the plaintiff requires that he yield to the defendant the difference between half of the price the buyer would pay for the whole property and what a buyer would pay for the plaintiff's half interest in it. Particularly is that so as the increase in the value of the land, arising from the negotiations with, and submissions to, the council, is substantially the result of the plaintiff's efforts, rather than those of the defendant. 63 I accept that there is likely to be such a difference in what a buyer would pay depending upon what is being purchased. As the matter presently stands the value of the defendant's interest in the land would be equally diminished to reflect the fetters on a co-owner's dealing with the land. I do not see why the defendant should get the benefit accruing to a person who buys the whole property without the fetters of a co-owner, otherwise than by her paying for it. 64 An order will be made under s 66I allowing either party to purchase the property and to set off his or her share of the net proceeds against the purchase price.

Fiduciary Duties 65 Counsel for defendant also submitted that in seeking the appointment of trustees for sale, the plaintiff breached fiduciary duties he owed to the defendant. If that were so, it would be a well-settled ground for refusing the order. The alleged duties were said to be a duty not to destroy the venture on which the parties had embarked and not to make a profit from the plaintiff's dealing with the land. The "profit" referred to is the profit or advantage referred to in Woodson as the difference between what the plaintiff could expect to receive for his interest in the property and what he could expect to receive from a sale by trustees of the whole property. 66 The parties do not stand in a fiduciary relationship merely because they are co-owners of land, nor because they sought its rezoning and contributed equally to the costs (though not to the time spent in that endeavour). The fact that the defendant was content to allow the plaintiff to do the work connected with that endeavour does not mean that, in all respects, the plaintiff has to subordinate his personal interest to their mutual interest. 67 I do not doubt that in some respects the plaintiff assumed a fiduciary obligation to the defendant. The hallmark of such an obligation is the duty of loyalty with the concomitant proscription of the fiduciary putting himself in a position of conflict or possible conflict between his interest and duty, or using his position, or opportunities or knowledge derived from it, to his own advantage (Chan v Zacharia (1984) 154 CLR 178 at 198-199; Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 at 574-575 [11] and [12]). 68 For example, the plaintiff would have owed fiduciary duties to the defendant in his negotiations with the vendor for the sale of part of the land in 1995. But it does not follow, because there was a fiduciary relationship between them in respect of some aspects of their relationship, that the plaintiff owed a fiduciary duty to the defendant, or that they both owed fiduciary duties to each other, in respect of the exercise of their rights as co-owners of the land. There is nothing that points to their reasonably having expected that each should look after their mutual interest to the exclusion of their individual interests (Gibson Motorsport Merchandise Pty Ltd v Forbes at 574-575 [12]). 69 Counsel for defendant submitted that the alleged fiduciary duty not to destroy the venture on which the parties had embarked for the rezoning and development of the land arose from the representations made by the plaintiff that the loans would be repaid from his share of the profits from the sale of the land after its development. 70 For the reasons previously given, those representations cannot reasonably be understood to convey that, irrespective of the delay in rezoning or the plaintiff's financial position, he would not seek to compel a sale of the property until a rezoning, or rezoning and development, was completed. 71 Accordingly, if, which I do not consider to be case, the parties stood in a fiduciary relationship in a relevant respect, there was no breach of the alleged duty as it did not extend so far as the defendant would have it. 72 To say that the plaintiff owed a fiduciary not to profit by taking a half-share of the benefit that a buyer of the whole property would pay, compared to what a buyer of the plaintiff's half interest would pay, is another way of saying that the plaintiff could not seek an order for the appointment of trustees for sale of the whole property. It is in the very nature of such an application that both co-owners would derive such a benefit. Even if the parties were in a fiduciary relationship, the plaintiff would not be in breach of a fiduciary duty unless he was precluded from making the application. For the reasons I have given, he is not so precluded. 73 The defendant contended that, as a fall back position, she should be permitted to purchase the land at valuation, even if the valuation was made on the basis of a fair market value of the property, rather than the plaintiff's half interest in it. 74 However, I see no reason why the trustees should not take steps to determine what the fair market value of the land in fact is, rather than for the plaintiff's interest to be acquired on a valuer's opinion about fair market value. As I have said, the defendant will have the opportunity to bid for the property. If, as is likely, the property is submitted to public auction, then the price bid at the auction will be the best indicator of its fair market value. 75 For these reasons, I reject the defendant's grounds of opposition to the order sought under s 66G. 76 I make orders in accordance with the short minutes of order which I initial and date today, and place with the papers. Those short minutes deal with the costs of the proceedings.

Rex Phillip Tory v Sarjit Kuar Tory

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