Stephenson v Santos

Court of Appeal (NSW)|2020-10-02|Before: Basten JA, Leeming JA, McCallum JA, Parker J

[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.]

Reasons of the primary judge

The primary judge (Parker J) heard the trial over three days and delivered ex tempore reasons on the third day. His Honour's central finding of fact was that Ms Santos and Ms Stephenson agreed that the property would be held by Ms Stephenson but that both women would pay half of the expenses and Ms Santos would own a half share.
The primary judge referred to a deal of objective evidence in making the finding of a shared intention that the property be held in equal shares by the two women.
First, a "rebate" of $18,000 had been agreed in relation to a grant under the State government's first home buyers' grant scheme. Although the contract for sale recorded a deposit of $35,000, an amended settlement statement in evidence referred to a deposit of $1,000, and a rebate of $18,000 which, subject to adjustment for rates, strata levies and land tax, led to $331,537.89 being due on settlement. The document recorded that the bank provided $326,000 and the first home buyer's grant was $24,000. After deducting various disbursements, there was when the grant was received a surplus of $16,897.61. The primary judge recorded, accurately, that: "The copy of the settlement sheet in evidence shows that some further calculations were done by Ms Stephenson and Ms Santos. The calculations are noted in handwriting, some of which was written by Ms Stephenson and some by Ms Santos. What the figures show is that a calculation was done so as to split the settlement refund equally between Ms Stephenson and Ms Santos. Some other household and property expenses were also brought to account."
Secondly, there were documents recording handwritten calculations dividing property expenses in two (typically, handwritten annotations on invoices and rates notices), reflecting the amounts Ms Santos would pay her niece.
Thirdly, there was the testimony of Ms Aracan, who said that she knew of an arrangement between Ms Santos and Ms Stephenson for the former to pay half of the expenses and to own half a share of the property.
Fourthly, around the time when the relationship between the two women was breaking down, Ms Stephenson sent a text message to Ms Santos as follows: "I'm not giving u MY bank statement. Anyway since we're both Sick and tired with dealing with the house, I will put this on the market and u can have ur money and buy ur own house. Just to finish this mess." The primary judge referred to Ms Stephenson's cross-examination on this text message, and the unpersuasive attempts to explain it as a reference to the unpaid contributions outstanding at this time. Those contributions were, at most, a few thousand dollars, and would be hopelessly inadequate for the purpose of buying a house. The primary judge concluded at [48]: "Again, I thought that Ms Stephenson's attempts to deal with this issue under cross‑examination were unpersuasive. She seemed reluctant initially even to accept the obvious, namely that the unpaid contributions could not possibly be used by Ms Santos to buy a house. Ultimately she had no real explanation for why she expressed herself in the way in which she did in the text message if, as she contended, her aunt had no interest in the property and only an obligation to pay half of all of the expenses. In my view, the text message does strongly support Ms Santos' case."
After finding in favour of Ms Santos on the question of fact, his Honour then heard the parties further on relief, and continued, making orders requiring Ms Stephenson to account to Ms Santos. That process has not as yet occurred. The Court was told that some accounting had been done, but that the result was not agreed.

The appeal

It is perhaps unclear whether there is an appeal as of right. The orders requiring Ms Stephenson to account follow a final hearing, but involve a further working out, and perhaps a further contest, between the parties; in that respect they resemble what was noted in Krnjulac v Lincu [2015] NSWCA 367 at [8] as to the possibility of a requirement of leave. It may also, perhaps, not be clear how the requirement of leave imposed by s 101(2)(r) of the Supreme Court Act 1970 (NSW) concerning appeals involving a "matter or issue amounting to or of the value of $100,000 or more" or claims "respecting any property amounting to or of the value of $100,000 or more" applies to a claim for a half share in the modest surplus generated by the sale of the Rooty Hill property. Certainly, there was no evidence that the $100,000 threshold had been satisfied. Nonetheless, the parties proceeded on the basis that there was an appeal as of right. Against the possibility that that be wrong, there should to the extent necessary be a grant of leave.
It will be convenient to follow the order of the parties' oral submissions, which addressed three issues: the inadequacy of reasons, the challenge to the factual findings, and the effect of illegality.

Inadequacy of reasons?

Ms Stephenson first elaborated grounds 6 and 7, which complained of an absence of reasons. Her focus was upon the absence of reasoning connecting the finding at [54] that there had been an agreement between the two women that in return for a 50% contribution to costs, Ms Santos would be recognised as having a 50% beneficial interest, with the order for an account ultimately made. Ms Stephenson submitted that although his Honour stated at [62] that he considered that "the most satisfactory approach is to treat Ms Santos' claim under the rubric of a 'common intention constructive trust'", no explanation was given for that conclusion and indeed that no reasons or findings justified such a conclusion. Ms Stephenson maintained, by reference to what was said in Bijkerk Investments Pty Ltd v Bikic [2020] NSWSC 1336 at [116]-[120], that the uncertain juristic nature of such a trust made reasoning justifying it all the more important. She also submitted that there were no findings of detriment referable to the common intention.
Insofar as Ms Stephenson's written submissions extended to a challenge to the adequacy of the reasons on the critical finding on the existence of the common intention, this was not elaborated orally, and I would reject it. The primary judge gave commendably clear and succinct reasons immediately after the conclusion of the evidence, explaining why that finding was made, reconciling the testimonial evidence of the three witnesses and in particular, how he relied upon the contemporaneous documents and addressed the inevitable consequence that Ms Santos had lied to Centrelink.
True it is that there is no comparable reasoning linking the finding of common intention to what was said about a common intention constructive trust at [62]. That might be of greater significance if relief by way of constructive trust had been ordered. But no such orders were made. All that was ordered was that Ms Stephenson account to Ms Santos for (approximately) 50% of the net proceeds of sale. In the circumstances, nothing turned upon whether at the time Ms Stephenson owned the property, she did so on the basis of a common intention constructive trust, or under some slightly different basis.
Either Ms Stephenson was liable in equity to account to Ms Santos, or she was not. That reflected how the litigation had been argued. In particular, in her closing address, after extensive submissions on the evidence bearing upon the alleged agreement, Ms McIntosh concluded: "Now, as to - so, to wrap that up, essentially what that says is that there was no clear and specific agreement. The evidence does not support it. The evidence actually mitigates against it. There was sharing of specific expenses throughout these many, many years, and - but that doesn't point to an ownership - a proprietary beneficial ownership. Now, as to the accounting, the onus rested on the plaintiff to make that case. Your Honour has indicated there's a dearth - a lack of evidence."
So far as the record discloses, the parties proceeded on the basis that if there were the intention for which Ms Santos contended, and which Ms Stephenson opposed, then the latter would be obliged to account to the former. That was a sensible way to proceed, especially in litigation where the plaintiff was unrepresented and unable to provide assistance on equitable doctrine. If one party has acted to her detriment on the strength of a representation, or agreement, for many years, then it may readily be seen that if the representation or agreement is departed from, the other party may be ordered to account. Whether that result is achieved by way of a common intention constructive trust, or a constructive trust of the type or analogous to that described in Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59 (which did not turn on a common intention, as is plain from what is said at 146-147 rejecting the Court of Appeal's reliance on the absence of a common intention, and endorsing Mahoney JA's dissenting judgment in Allen v Snyder [1977] 2 NSWLR 685 to the same effect), or by an estoppel, or by some other doctrine does not much matter.
Indeed, Ms McIntosh accepted during the hearing of the appeal that she had conceded at trial that "if the primary judge was against you on the factual question of a 50/50 arrangement that you accepted that some form of equitable relief would follow".
Insofar as it was necessary, in order to obtain equitable relief, to find that Ms Santos had incurred material detriment on the basis of the representation or the common intention, his Honour found that over the eight years, she had paid a considerably higher amount in mortgage repayments than she would have paid in rental payments in the North Ryde property. His Honour recorded that not only did he have no doubt that there "would have been a considerable difference" but also his suspicion that "Ms Stephenson's evasion reflected an acknowledgment on her part that the point Ms Santos was making was a sound one": at [33].
That is sufficient to dispose of these grounds. Two further points may be made.
First, it is quite possible that the absence of any dispute as to Ms Stephenson's obligation to account was confirmed when the judge heard further submissions, after making his principal finding, and before turning to relief. Those submissions were not included in the appeal book. The onus rests with the appellant, who seeks to make out a ground of appeal, to supply the material necessary to do so.
Secondly, even if there were a deficiency in the reasons, this Court would not intervene unless it were persuaded that the finding could not stand. This appeal is by way of rehearing, and there is no need for Ms Stephenson to establish error of law. For the reasons given under the heading "Inadequacy of reasons as separate ground" in Shellharbour City Council v Rhiannon Rigby [2006] NSWCA 308, which have subsequently been followed in NSW Police Force v Winter [2011] NSWCA 330 at [89]-[90], these grounds were not of themselves sufficient to make out an appeal.

Challenge to the finding of common intention

The second submission advanced by Ms Stephenson on appeal was a challenge to the critical factual finding of a common intention. It was said that insufficient attention was given to the evidence in chief from Ms Aracan, who recorded statements by Ms Santos to the effect that Ms Santos was "not after the title, as long as I am able to live with my … niece and I will pay rent to her". Indeed, Ms McIntosh went so far as to say that the primary judge "avoided to mention this evidence, didn't deal with it". It was also said that a review of the entirety of the cross-examination of Ms Santos yielded an absence of any reliable basis to found a common intention. And Ms Stephenson complained that the primary judge did not refer to certain emails between Ms Stephenson and Ms Aracan at the time that the property was acquired, which did not mention any beneficial interest.
These submissions are unsound in a number of respects. First, the primary judge did address the evidence of Ms Aracan. He summarised her evidence, concerning acquiescing in Ms Stephenson being the sole registered proprietor. The primary judge was entitled to rely upon what was contained in her affidavit. True it is that the primary judge did not refer extensively to Ms Aracan's evidence in cross-examination (it is not clear whether his Honour had the benefit of a transcript). But it is to be borne in mind that Ms Aracan was giving evidence of a conversation she heard 12 years ago. She did not purport to have a clear and distinct memory of it. Although submissions were pressed during the appeal, repeatedly, to the effect that Ms Aracan's recollection was the sort of uncontroverted evidence sufficient to engage the principles in Fox v Percy (2003) 214 CLR 118; [2003] HCA 22, that is not so.
The gravamen of this submission was that Ms Aracan made concessions as to what Ms Santos had said when she appreciated that she would not be a registered proprietor. The primary judge was well placed to assess those concessions, about events many years ago, in light of his assessment of Ms Santos as "not a person who is particularly concerned to accumulate money to spend on herself" but who has "dedicated herself to the financial advancement of her family" and "diverts any spare money that she has to that objective": at [34].
Secondly, the primary judge relied, entirely appropriately, upon a series of contemporaneous documents which are difficult to reconcile with anything other than the common intention which his Honour found. When taken to these, Ms McIntosh accepted that there had been agreement between the women to split equally the surplus from the first home-owner's grant of $8,448.80 each. Ms McIntosh also accepted that the agreement extended to Ms Santos paying half of the strata levies, half of council rates and domestic management charges, and half of the repayments of principal and interest to the bank.
True it is that it is possible to contemplate an agreement whereby a tenant contributes in equal shares to costs ordinarily borne by the landlord. But those features are much more likely associated with obtaining a half share in the property.
Further, Ms McIntosh made no submissions (either in chief, or in reply, in response to Ms Santos' reliance upon it) concerning the text message to which the primary judge gave considerable weight of 18 January 2017 which has been reproduced above. That message is difficult to understand as anything other than an admission that Ms Stephenson regarded some of the proceeds of sale of the property as belonging to Ms Santos.
I have read the entirety of the cross-examination of Ms Santos, as Ms McIntosh invited this Court to do. There is nothing which detracts from the inferences - which I regard as close to compelling - available to be drawn from the contemporaneous documents.
No basis has been established to overturn the factual findings of the primary judge who heard and saw the parties give evidence.

The effect of illegality

Ms Stephenson's third main submission was that the primary judge should have found that Ms Santos was telling the truth when she told Centrelink she was paying rent in order to obtain rental assistance and should have found that Nelson v Nelson (1995) 184 CLR 538; [1995] HCA 25 was inapplicable.
Insofar as this submission seeks to review the finding of fact that Ms Santos was paying money to Ms Stephenson in the belief that she owned an interest in the property, it must be rejected for the reasons already given. The separate issue raised by this submission turns on the effect of illegality upon Ms Santos' entitlement to equitable relief.
There was no dispute that during the eight or so years in which Ms Santos lived in the Rooty Hill property, she had applied for and obtained rent assistance from the Commonwealth Government. The primary judge recorded that Ms Santos conceded in cross-examination that when applying for rent assistance, she had represented that she was not an owner of the property and that the amounts she was paying to Ms Stephenson as owner of the property were payments by way of rent.
There was also no reason to doubt that Ms Santos' lies were deliberate. The primary judge considered emails in mid-2013, between the women, which were in evidence together with the following translation: "If Centrelink enquires, tell that our rent is $100 each and there is no lease contract as this is private rental."
It does not follow that Ms Stephenson is permitted in equity to take the benefit of 8 years of contributions to the financial burdens of ownership of the property in accordance with the parties' intention without accounting to Ms Santos. The primary judge rightly regarded the case as similar to Nelson v Nelson, and granted similar, conditional, relief. The order from which this appeal is brought was conditioned upon an undertaking by Ms Santos to repay all rental assistance welfare payment received by her in connection with her occupation of the property, together with any interest and penalties associated with such repayments.
Mrs Nelson had lied about not having an interest in any other property in order to obtain a subsidised home loan. Nonetheless, the High Court granted her equitable relief, conditioned upon the repayment of the present value of the subsidy to the Commonwealth. That was because the policy of the statute did not bar such relief. McHugh J stated that except in a case where a statute made rights arising out of a particular type of transaction unenforceable in all circumstances, a court should not refuse to enforce legal or equitable rights on the ground of illegality if to do so would be disproportionate to the seriousness of the conduct or if it would not further the purpose of the statute: "It is not in accord with contemporaneous notions of justice that the penalty for breaching a law or frustrating its policy should be disproportionate to the seriousness of the breach. The seriousness of the illegality must be judged by reference to the statute whose terms or policy is contravened. It cannot be assessed in a vacuum. The statute must always be the reference point for determining the seriousness of the illegality" (at 612-613).
In Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7, in a passage reproduced by the joint judgment in Gnych v Polish Club Ltd (2015) 255 CLR 414; [2015] HCA 23 at [35], French CJ, Crennan and Kiefel JJ stated that an agreement may be unenforceable for statutory illegality in three categories of case. The first and second categories were where the statute expressly or impliedly prohibited the making of the agreement. Of the third, their Honours said: "(iii) the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a 'contract associated with or in the furtherance of illegal purposes'. In the third category of case, the court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute 'whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable'."
It was not suggested that the federal law which was contravened by the fraud upon Centrelink expressly or impliedly prohibited the agreement between Ms Santos and Ms Stephenson (indeed, Ms Stephenson did not identify the statute upon which this aspect of her submissions relied). The facts giving rise to this appeal therefore fall within the third category. There is no reason to doubt that the legislative purpose can be fulfilled by conditioning such relief as Ms Santos is entitled to by her undertaking to repay the rental assistance together with interest as a term of relief.
Insofar as Ms Stephenson complained that Ms Santos was being permitted to advance a case in equity inconsistent with the basis upon which she had obtained money from the Commonwealth government, that submission is inconsistent with settled principle established by the High Court.

Orders

For those reasons, the appeal should be dismissed. Costs should follow the event. I propose the following orders: 1. To the extent necessary, grant leave to appeal. 2. Appeal dismissed, with costs.
McCALLUM JA: I agree with Leeming JA.

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: 21 October 2020

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