26 The picture that this paints is quite inconsistent with Peter having available funds approaching $200,000 to pay any capital reductions of his home loan between late 1994 and May 1996.
27 I have already recorded that when Peter and Iskra purchased McPherson Place, they borrowed from the National Australia Bank 100 percent of the purchase price of $235,000. It is prima facie very unlikely that a bank would lend 100 percent of the purchase price in the absence of some collateral security. It appears that the bank regarded one of the existing mortgages on Barrier Place - which secured advances not only to Jovan and Luba, but also advances to Jovan, Luba and Peter - as that collateral. Indeed, the loan approval letter for the McPherson Place home loan refers to one of the existing mortgages on Barrier Place as being the security. In that context, it is likely that the bank would have sought a reduction of the amount secured on McPherson Place, upon the sale of the property that provided the collateral security for that borrowing. This is all the more likely in the context that there were indications that Peter and his company were under some financial stress at that point. On the other hand, there is admittedly also evidence that McPherson Place had increased in value by late 1994 to $360,000, which reduces the probability that the bank would have insisted upon a reduction. Nonetheless, there remains at least a possibility that the sale of Barrier Place was an occasion for a reduction being required.
28 There were also two capital payments totalling $90,000, made in reduction of the company's overdraft, on 27 September and 13 November 1995, which are described in the bank statements as "prepayments", and which, it might be inferred, were the early repayment of a term deposit. The defendants were granted leave to re-open to tender further evidence, which shows that those funds were probably transferred from an account of a client - who also happened to be Peter's brother-in-law and Jovan and Luba's son-in-law - in payment of a job that Peter was performing for him. Nonetheless, the circumstance that those amounts were applied in late 1995 to achieve substantial reductions in the company's overdraft would make it curious if other funds from business income were applied, not to reduction of the overdraft (which there appears to have been a need to achieve, to remain within limits), but to reduction of the home loan, which was in order.
29 Moreover, Peter and Iskra received into their joint account 65-805-7153 on 23 December 1994 the sum of $41,000, and on 28 December 1994 a further sum of $26,000. 23 December 1994 was two days following completion of the transaction. It was also the date on which the amount of $13,418.53 required to discharge the original $50,000 loan secured by mortgage on Barrier Place were deposited into that loan account, and I would infer those funds came from the proceeds of the sale of Barrier Place, as is the discharge of the mortgage that had secured it was necessarily handed over on settlement, and was registered immediately prior to the transfer of Barrier Place. It is striking that a sum of $41,000 was paid into Peter and Iskra's personal joint account - not the company account, so that it is not readily explainable as company income - on the same day. Moreover, 28 December 1994 would be about the time that one would have expected the deposit held by the agent on the sale of Barrier Place to have been released by the agent and received, and $26,000 corresponds with the amount approximately one would expect to see remaining after a 10 percent deposit had been reduced by agent's commission on the sale.
30 I readily accept that none of the matters to which I have referred about the bank accounts are affirmatively probative of receipt by Peter and Iskra of $360,000 or any other amount, and that the possibilities to which I have referred involve elements of speculation. I do not rely on these matters to conclude that $360,000 was paid, but they do show that there is no force at all in any contention that the bank records and other documents produced in the defendants' case negative, are inconsistent with, or tell against receipt by the defendants of the $360,000.
31 It was submitted for the defendants that a further reason for concluding that $360,000 was not paid was that the raison d'etre of the transaction was a gift from Peter and Iskra to Jovan and Luba. I do not accept this, as will be apparent from my analysis of the elements of the understanding and arrangements between them. Moreover, such a raison d'etre is not consistent with Peter's own acceptance that it was anticipated that at least some of the proceeds of the transaction would come to him in reduction of the overdraft and to repay construction costs. Nor is it consistent with the overall intent of the parties of combining the resources of both properties to provide a more suitable home for all of them on one.
32 It was also submitted on behalf of the defendants that the transaction concerning McPherson Place was documented in the way it was, and involved an acknowledgment of receipt of consideration in the way in which it did, solely for stamp duty purposes. Again, I am unable to accept this. If it were solely for stamp duty purposes, the Contract for Sale was completely unnecessary. If it were solely for stamp duty purposes, no reference to a consideration of $360,000 in the transfer was required; the transfer could have referred to a consideration of $1, but would of course had been stamped with duty on the true value as established by valuation. There is initially some apparent force in the view that if the true arrangement were that the proceeds of sale of Barrier Place were made available to Peter and Iskra, there was no need to obtain a valuation because the consideration would be fixed by the proceeds of Barrier Place, but the answer to that is that it would in any event have been necessary to obtain a valuation, because the Stamp Commissioner would not accept a transfer between related parties without independent evidence of value. The fact that such evidence of value was necessary does not mean that the sole purpose of putting a value in the transfer was to satisfy the Commissioner.
33 Accordingly, I do not think that any of the matters to which reference has been made provides reason to disbelieve the acknowledgment of receipt of consideration in the transfer document, or to conclude that the consideration that the transfer says was received, was not received. On the probabilities I find that the $360,000 was, upon completion, applied for the benefit of Peter and Iskra.
What are the legal consequences?
34 Jovan and Luba are the purchasers under a completed Contract for Sale of McPherson Place, the consideration having been paid. Prima facie they are beneficially entitled to McPherson Place, and entitled to be registered as proprietors. However, this prima facie position is complicated in the present case in two different ways.
35 The first is that the transfer has not been registered, and cannot be registered unless and until the mortgagee consents. Jovan and Luba could not compel the mortgagee to consent. Peter and Iskra were obliged to use their best endeavours to procure the mortgagee's consent, and to indemnify Jovan and Luba in respect of the mortgage, but given the fourth element of the original understanding to which I have referred, they were not obliged to procure its discharge other than in accordance with its terms. The position is further complicated by the circumstance that Peter has now refinanced McPherson Place, the original mortgage to the National Australia Bank having been discharged and replaced by a mortgage to the Commonwealth Bank.
36 Where there is an equitable entitlement to a transfer of property arising by expenditure in reliance upon an assumption that the property would be conveyed, the prima facie remedy is to compel a transfer of the property. However, where, for reasons of title or the lack of a requisite consent, such a transfer cannot take place, an alternative remedy of imposing a charge for the expenditure is often appropriate. Thus, in Chalmers v Pardoe [1963] 3 All ER 552 Sir Terence Donovan, speaking for the Privy Council, constituted by himself, Lord Evershed and Lord Hodson, said (at 555):
There can be no doubt on the authorities that where an owner of land has invited or expressly encouraged another to expend money on part of his land on the faith of an assurance or promise that that part of the land will be made over to the person so expending his money a court of equity will prima facie require the owner by appropriate conveyance to fulfil his obligation; and when, for example for reasons for title, no such conveyance can effectively be made, a court of equity may declare that the person who has expended the money is entitled to an equitable charge or lien for the amount so expended. That was in fact the orders made in the Unity Joint Stock Mutual Banking case [(1858) 25 Beav 72, 27 LJCh 585] though it appeared in that case that the land-owner had never actually engaged or promised to make over the appropriate land.
37 See also, for example, Morris v Morris [1982] 1 NSWLR 61, 64; Giumelli v Giumelli (1999) 196 CLR 101, 119 [31]. Given the difficulties presented, not only by the need for the mortgagee's consent in the first place, but the circumstance that the property has been refinanced with another mortgagee, that remedy of an equitable charge for the plaintiffs' expenditure, rather than a transfer of the property, is available in this case.
38 The second complication is that the basis upon which Jovan and Luba obtained their entitlement to become registered as proprietors was one that involved them allowing Peter and Iskra to reside indefinitely with them in McPherson Place, and leaving their estates (or at least the survivor of them) to Peter. In those circumstances it would be unconscionable for Jovan and Luba to take title but to deny Peter and Iskra the rights of residence and inheritance that formed elements of the underlying transaction [see, for example, Ogilvie v Ryan [1976] 2 NSWLR 504]. In those circumstances, Jovan and Luba would be obliged in equity, as a condition of obtaining the equitable relief they seek, to do equity by offering to permit Peter and Iskra to continue to reside with them in McPherson Place, and to undertake to leave their estates to Peter. Jovan and Luba have indicated, through their counsel, that they are prepared to proffer undertakings to do so as a condition of obtaining a transfer of the property; however, in the light of the breakdown of the relationship between the parties, they prefer an alternative remedy, which would provide a clean break between the parties by way of separating the interests of the parties, rather than a transfer with those conditions attached to it.
39 Jovan and Luba have not acted contrary to their obligations under the original 1994 understanding: they have not excluded Peter and Iskra from McPherson Place, and - despite an assertion to the contrary in Jovan's affidavit evidence - they have not revoked the Wills that they made in 1995 leaving the estate of the survivor to Peter. Although it is true that at the time of the breakdown of the relationship in early 2004, Jovan expressed severe displeasure with Peter, he did not say anything to the effect that he would no longer honour his obligations under the 1994 arrangements or revoke his Will.
40 On the other hand, Peter and Iskra have repudiated their obligations under the 1994 arrangements. As I have said, and in their favour, I do not accept that they were aware before 2002 that the transfer of title had not taken place. I accept that they did not receive the misaddressed correspondence from Ms Zlatevska in which production of the Certificate of Title was sought, and that until 2002 they assumed that a transfer had taken place. I also accept that they did not exclude Jovan and Luba from McPherson Place, but rather that Jovan and Luba left of their own volition when the relationship broke down. But what is crucial is that, in early 2004, Peter and Iskra formed the intention not to perform their obligations under the 1994 arrangements by completing the transfer, and instead maintained they were not obliged to do so. While they did that in the belief, which I accept they by that time held, that they were not obliged to do so, objectively their position was inconsistent with their obligations as I have found them to be, and amounted to a repudiation of their equitable obligations.
41 In this context I use the term "repudiation" in a rather less technical sense than in the law of contract; when dealing with the dictates of good conscience one need not be excessively troubled by the technicalities of the law of contract. In this case, the defendants manifested an intention no longer to be bound by the equitable obligations that arose from the 1994 transaction. It is established that where a joint venture breaks down without attributable fault, the parties are entitled to a return of their contributions [Muschinski v Dodds (1985) 160 CLR 583]. Where there is attributable fault - as there is here, where it is the defendants who have repudiated - justice requires that the innocent party's rights be no less, but it does not require that their rights be enlarged by permitting them to take title free of the obligations which were attached to it in the first place. In my view, by analogy with the law of contract, the plaintiffs in effect may elect between two remedies. The first of those remedies is to insist on performance of the obligations originally undertaken, namely, to have a transfer of the property, subject to the mortgage but with an indemnity in respect of the mortgage, and conditioned on permitting Peter and Iskra a right of residence and on undertaking not to revoke the 1995 Wills or alternatively to make further Wills to the same effect. The alternative remedy, which is the equitable equivalent of acceptance of repudiation of a contract, is to recoup their contributions pursuant to an equitable charge on the property.
42 In this case, upon the findings of fact I have made, upon the probabilities Jovan and Luba contributed $360,000. On this basis too, they would be entitled to a return of that $360,000 charged on the McPherson Place property. As they have had the benefit of occupation of the property until they vacated in or about April 2004, it is appropriate that that benefit be recognised by not allowing interest so long as they enjoyed that benefit. The practical break down of the relationship was when Jovan and Luba departed in April 2004, and since that time, they have not enjoyed the benefit of their contribution, whereas Peter and Iskra have been in a position to enjoy it to their exclusion. That is sufficient justification for an award of interest from April 2004.
Conclusion
43 To sum up then:
44 First, the December 1994 transaction had as its essential elements:
· that Peter and Iskra would transfer title to McPherson Place to Jovan and Luba;
· that Peter and Iskra would be entitled to reside in McPherson Place with Jovan and Luba indefinitely;
· that Jovan and Luba or their survivor would leave their estates to Peter;
· that the transfer would be subject to the existing mortgage to the National Australia Bank, which would remain on title, but Peter would be responsible for servicing it in accordance with its terms;
· that the proceeds of the transaction would be made available to Peter and Iskra, inter alia to reduce the company overdraft, to repay or reimburse funds that had been used to construct the home on McPherson Place, or to fund completion of that home.
45 Secondly, the consideration for the sale of McPherson Place of $360,000 was paid to or applied for the benefit of Peter and Iskra.
46 Thirdly, the consequences are that Jovan and Luba, as purchasers under a completed Contract for Sale were entitled to be registered proprietors of McPherson Place, but subject to the consent of the mortgagee, Peter and Iskra being liable to indemnify them in respect of that mortgage. However, it would be unconscionable for Jovan and Luba to assert their rights to title without honouring those aspects of the understanding which benefit Peter and Iskra, namely, the right of residence and the right to inherit.
47 Fourthly, the breakdown of the relationship is ultimately attributable to repudiatory conduct on the party of Peter and Iskra, who formed the intention not to transfer title. While this is no reason to deprive Jovan and Luba of their equitable rights under the 1994 arrangements while they remain prepared to do equity, they are in any event entitled to the alternative relief of a charge to recoup their contributions on two bases: first, that the requirement for consent, not only of the original mortgage but now, following the refinance, of a new mortgagee, pose such obstacles to a transfer of title as warrant the imposition of a charge instead; and secondly, because upon repudiation by Peter and Iskra, Jovan and Luba are entitled to elect, if they wish, to recoup their contributions upon failure of the venture rather than to insist on performance of the original obligations.
48 Finally, because Jovan and Luba have had the benefit of occupation of the property, and thus of their contribution, until April 2004, interest should not commence to run until that date. Interest on $360,000, at the rates prescribed from time to time for interest on unpaid judgment debts by the Rules of Court from 1 April 2004 to date, amounts to $112,180, producing a total of $472,180.
49 Accordingly, I make the following orders:
(1) Give judgment that the defendants pay the plaintiffs $472,180.