Williamson v Scarano

Court of Appeal (NSW)|2012-12-12|Before: Meagher JA, Hoeben JA, Ward JA, Bryson AJ

Judgment 1MEAGHER JA: This is an appeal from an interlocutory decision of Bryson AJ, sitting in the Equity Division, on a question of practice and procedure: David Williamson v Vince Scarano [2011] NSWSC 1318. His Honour refused an application by the appellant (as plaintiff) to make certain amendments to his pleading and imposed a term requiring payment of a sum on account of costs in relation to other amendments which were allowed. On 23 March 2012, the appellant, Mr Williamson, was granted leave to appeal by Beazley and Whealy JJA. For the reasons which follow, that appeal should be allowed in part and the imposition of that term set aside. To place those reasons in context, it is necessary to set out briefly the circumstances leading to that interlocutory decision.

The proposed amendments 8On 5 October 2011 the appellant's solicitors served a draft Further Amended Statement of Claim on the respondent's solicitors. The accompanying letter stated: "We will shortly be serving you with our client's submissions on your client's strikeout motion. The amendments set out in the Further Amended Statement of Claim have been made necessary by the sale of the property although the constructive trust remedy is again pressed. We will be relying upon the enclosed draft of the Further Amended Statement of Claim to oppose your client's strikeout motion." No previous reference had been made to those amendments. The draft pleading did not contain amendments to the relief claimed. It included, in relation to the proprietary estoppel claim, allegations that the property had been sold and that the net proceeds of sale were held subject to an equitable charge. As the letter stated, it also alleged that the respondent had held the property subject to a constructive trust as to a one-half interest by reason of the appellant's having made contributions in accordance with an alleged "common intention" to that effect. Those allegations were not materially different from those omitted from the Amended Statement of Claim. The proposed further amended pleading also alleged an oral agreement that in consideration of the contributions made the respondent would grant the appellant a half interest in the property. On the basis of each of those claims it was alleged that the respondent held one half of the net proceeds of sale of the property on constructive trust for the appellant. 9On 13 October 2011 the appellant filed a motion seeking leave to file the Further Amended Statement of Claim. On 26 October the appellant's solicitor, Mr Refenes, swore a short affidavit in support of that motion. That affidavit included the following - "4. In August 2011, Counsel who initially appeared on behalf of the Plaintiff was unable to continue with the brief and I received instructions from the plaintiff to brief new Counsel. 5. As a result of new Counsel being briefed, I received instructions from the plaintiff to reinstate the Plaintiff's claim based upon constructive trust."

The decision of the primary judge 10The primary judge heard together the respondent's motion seeking summary dismissal and the appellant's motion seeking leave to file the amended claim. At the commencement of that hearing a second version of the proposed Further Amended Statement of Claim was produced. That version amended the relief claimed so that it reflected the proposed amendments described above. The first declaration sought was amended as follows: "1. Declaration that the Defendant holds one-half of the net proceeds received by the Defendant on the sale of the land known as ... Ermington ... on constructive trust for the Plaintiff." 11The primary judge refused the appellant leave to amend "to reintroduce the constructive trust claim": [17]. He was, however, prepared to grant the appellant leave to amend to plead events which had happened since the Amended Statement of Claim had been filed. Specifically, his Honour allowed the appellant to allege facts relating to "disposition of the property by the defendant, receipt by the defendant of proceeds and the claim to a charge over the proceeds": [21]. He was only prepared to do so, however, on the basis that the appellant pay "a significant sum to the defendant on account of costs incurred and potentially to be incurred in these proceedings": [23]. He did so on the basis that if "the litigation is to go off in a new direction, the defendant should be relieved of a significant part of the burden thus far imposed on him": [23] 12In his final orders the primary judge identified the amendments in respect of which leave was granted and granted leave to amend on the following terms: 3. Leave to amend is granted upon terms that the plaintiff is to pay to the defendant within 28 days of this order the sum of $20,000 on account of costs ordered and any costs to be ordered to be paid by the plaintiff to the defendant in these proceedings, credit to be given by the defendant when final costs orders are made. 4. Leave to amend is conditional on compliance with the terms in Order 3. 5. If the terms in Order 3 are not complied with, the Notice of Motion is to stand dismissed on 2 December 2011. His Honour also ordered that the appellant pay the respondent's costs of each of the notices of motion.

No leave to appeal from refusal to direct discovery 13In the course of arguing the amendment application, the appellant also sought a direction that the respondent give discovery of documents relating to amounts expended on the improvement and renovation of the property over the period from August 2001 to December 2010 as well as documents relating to the purchase and sale of the property by the respondent: [14]. The primary judge rejected that oral application: [18]. 14In his summons seeking leave to appeal, written summary of argument and draft notice of appeal, the appellant did not identify the primary judge's refusal of that application for directions as to discovery as being the subject of the application for leave to appeal. Notwithstanding that being the position, the appellant's Notice of Appeal filed on 28 March 2012 included, as Grounds 6 and 7, that the primary judge had erred in refusing to order the discovery sought. At the commencement of the hearing of the appeal it was pointed out that these grounds were outside the application for leave to appeal and accordingly not the subject of the leave which had been granted. For that reason, this Court indicated that it would not deal with those grounds. No further application was made for leave to argue those additional grounds.

Orders appealed from 15The appellant appeals from the primary judge's order refusing leave to amend to include the claim to a constructive trust over the proceeds of sale and the order requiring that he pay $20,000 on account of costs as a condition of the limited leave to amend which was granted. As each of these decisions involved the exercise of a discretion, the appellant must demonstrate an error in the decision-making process of the kind described in House v The King [1936] HCA 40; 55 CLR 499 at 505. It is convenient to identify and deal separately with each of the appellant's arguments as to error on the part of the primary judge.

Did the primary judge address the proposed amendments alleging an oral agreement? 16The appellant submits that the primary judge failed to address and exercise his discretion at all in relation to the amendments alleging the oral agreement to grant him a half interest in the property (Grounds 1, 2 and 3). The correctness of that submission depends upon a consideration of his Honour's reasons and how they are to be understood. 17In the shorthand description of the amendments alleging "common intention" and an "oral agreement", which the appellant's solicitors adopted in their communications with the respondent, they were described compendiously as the "constructive trust remedy" or the "claim based upon constructive trust". Each of those descriptions was correct. The proposed Further Amended Statement of Claim which was the subject of argument before the primary judge sought a declaration that the respondent held one-half of the net proceeds of sale "on constructive trust" for the appellant. That claim was justified in the pleading on two bases. The first was the making of financial and non-financial contributions on the faith of a "common intention" that the appellant would receive a half-interest in the property for doing so. The second was that those contributions were made pursuant to an oral agreement and in consideration of a promise that the appellant would be granted a half-interest in the property. The underlying facts relied upon for each basis were the same and depended upon the appellant at least establishing the alleged "common intention". 18The primary judge described the issue with respect to these amendments as being "whether there should be an amendment to allow the plaintiff to introduce or reintroduce allegations of a constructive trust or equitable charge" (italics added): [15]. That description with its reference to introducing or reintroducing allegations is not to be understood as only referring to one of the two bases on which that claim was put. The first basis for claiming a constructive trust was being "reintroduced" and the second was being "introduced". Each depended upon the appellant establishing a "common intention" that he have a half-interest in the property. The primary judge dealt with the allegations as a whole and by reference to the relief ultimately sought. This first argument must be rejected.

Did the primary judge err in concluding that the amendments were made to "stave off Summary Disposal"? 19The appellant submits that the primary judge erred in concluding that the real reason he had sought to introduce or reintroduce the constructive trust claim was to stave off summary dismissal. He also submits that the primary judge erred in taking that conclusion into account in the exercise of the discretion to grant leave to amend (Grounds 4(iii) and (vi)). 20After referring in some detail to the history of the proceedings, including the omission of the claim to a constructive trust from the Amended Statement of Claim, his Honour concluded (at [15]): "It is plain that amending the Statement of Claim to omit this claim was a carefully considered step undertaken with deliberation and that forensic advantages must have been foreseen; avoiding the kind of adverse judicial response which it evoked from White J is a ready example. No explanation was offered of whatever circumstances or reasoning led to its revival and merely to attribute it to a change of counsel explained nothing. The claim must have been abandoned earlier for a good reason. I am not told what that was, and I am not told why the claim is now brought back. I find it irresistible to infer that this is a forensic manoeuvre and not a sincere endeavour to bring forward a matter for adjudication, a contrivance to stave off Summary Disposal." 21The appellant submits that if his Honour was to draw any inference as to why the constructive trust claim was "again pressed" he was required to draw the inference which was most probable. Reference was made to a passage in the judgment of Dixon CJ in Holloway v McFeeters [1956] HCA 25; 94 CLR 470 at 477. In that case the widow had to establish negligence on the part of the driver of an unidentified car which had caused the death of her husband. From the proved circumstances, inferences could be drawn as to where and how the deceased had been struck by a vehicle. There was no evidentiary difficulty in finding a foundation for those "preliminary inferences". The difficulty was that those circumstances as found were consistent with a number of hypotheses, some only implying negligence on the part of the driver as a cause of the death. Dixon CJ's comments (at 477) address what is required in such a case to justify a positive inference as to the negligence of the driver: "The inference may be made only as the most probable deduction from the established facts, but it must at least be a deduction which may reasonably be drawn from them. It need not be an inference as to how precisely the accident occurred, but it must be a reasonable conclusion that the accident in one way or another occurred through the lack of due care on the part of the driver and not otherwise." 22The appellant argues that in the present case the most probable and obvious inference was that the constructive trust claim was reintroduced "because his evidence supported such a claim and it was in his interest to do so". It was submitted that there was nothing improper or contrived in bringing forward an amendment in response to an application to dismiss a claim or strike out a pleading. When considering such an application the Court must have regard to whether the claim could be pleaded in a way which might properly be the subject of an amendment application. Reference was made to Co-Ownership Land Development Pty Ltd v Queensland Estates Pty Ltd (1973) 47 ALJR 519 at 521 (per Walsh J); and Poignand v NZI Securities Australia Pty Ltd (1992) 37 FCR 363 at 365 (per Gummow J). 23The circumstances identified by the primary judge (at [15]) to justify the conclusion expressed in that paragraph were: a constructive trust initially had been pleaded and subsequently abandoned; the proposed amendments did not come forward until well after the appellant had sworn his affidavit and late in the preparation for the hearing of the summary dismissal application; there was no evidence offered to explain why the amendments were sought to be revived having been abandoned some twelve months earlier; and the attribution of the proposed amendment to a change of counsel did not provide such an explanation. None of these circumstances is controversial. Taken together they provided a reasonable basis for the primary judge's conclusion. 24The present case was not one where the appellant had simply brought forward an amendment to address properly perceived deficiencies in an existing pleading. Here, the proposed amendment had been pleaded and subsequently abandoned. The primary judge was entitled to conclude that this happened following "deliberation" and for "good reason": at [15]. The claim was not revived until just before the hearing of the summary dismissal application. It had not been proffered following completion of the appellant's affidavit and no explanation was forthcoming as to why it was revived. The primary judge was entitled to infer that no satisfactory explanation was available and conclude, as he did, that it was only put forward in response to the dismissal application. No error is established in his having drawn that conclusion or in his having taken that conclusion into account as relevant to whether the amendment should be allowed.

Did the primary judge fail properly to take account of the strength of the appellant's case? 25This argument is the subject of Grounds 4(i) and (ii) and of Ground 4(iv). It is not, and could not be, suggested that the primary judge did not address the strength of the claim sought to be made by the proposed amendments. Rather, the appellant submits that the primary judge in effect relied upon earlier comments of White J as to the "apparent prima facie strength" of that claim and did not take account of the fact that the two principal bases on which White J had questioned its strength had been addressed; one by the amendment proposed to paragraph 5(d), which involved deleting the words "in lieu of rent", and the other by evidence of the appellant explaining the circumstances in which in late 2009 he had attempted to purchase the whole of the property from the respondent. 26It is not necessary to consider in any detail White J's analysis or the appellant's assertion that any "criticisms" in it had been addressed. That is because it is not correct to say that the primary judge did not form his own assessment of the strength of the constructive trust claim as pleaded. Nor is it correct to say that his Honour merely relied on White J's assessment. To make that good, it is sufficient to set out what the primary judge said at [16]: "The plaintiff's case when addressed on the limited basis of the pleadings does not appear to be strongly supported; the conversations as alleged are quite barely expressed and it can be expected that there will be issues about whether they formed a reasonable basis on which to act and commit resources. Nothing was said, according to what is in the pleadings, about how much the mortgage debt was, how much the instalments required were, or how long it would take to pay the mortgage off and when the plaintiff could expect to get a half share. It is hard to suppose that in an arrangement which existed in reality these things would not be established, or at least discussed. Overall, the claim is highly contentious. There is also the difficulty of understanding the measure of the advantage it is now said the plaintiff should receive. It is still the case, as White J said, that it could not be said that the plaintiff's case is one of apparent prima facie strength." 27The observation in the last sentence records the primary judge's own assessment as being the same as that of White J. It is not an observation that he has merely adopted that earlier assessment. The reasons which justify the primary judge's own assessment are given by reference to the case proposed to be pleaded and are not the same as those referred to by White J. The argument in support of Grounds 4(i) and (ii) is rejected. The only attack on the primary judge's reasoning in [16] is made by Ground 4(iii). That attack is dealt with below. 28In support of Ground 4(iii), the appellant argues that the matters referred to in [16] could not be "determinative" of whether a "common intention" existed and therefore were not relevant to a consideration of the strength of the case sought to be pleaded. The former proposition may or may not be correct in relation to the existence of a "common intention" but is certainly not correct in relation to whether there was a legally binding agreement. To make good the latter allegation, the appellant must establish that there was consensus as to the essential matters required to be addressed in an agreement of the kind alleged. Some of those matters are referred to by the primary judge in [16]. Furthermore, irrespective of whether the former proposition is correct, the presence or absence of agreement as to the matters referred to by the primary judge in [16] makes it more or less likely that there was in fact a "common intention" on the faith of which both parties proceeded. For these reasons the matters referred to were relevant to an assessment of the strength of the claim sought to be made. Ground 4(iii) must also be rejected.

Did the primary judge fail to give proper reasons to explain the exercise of his discretion? 29The appellant submits that his Honour failed to give sufficient reasons in two respects (Ground 4(v)). First, he did not indicate what the "forensic advantages" to which he referred in [15] might be. Secondly, his Honour did not explain or expose his reasoning as to why it was "inappropriate" to bring back the constructive trust claim (see [17]). For the reasons which follow, that ground should be rejected. 30As to the first of these respects, the fact that the primary judge did not elaborate on the "forensic advantages" which were likely to have informed the decision to abandon the constructive trust claim does not constitute a failure to give reasons. His Honour was entitled to infer, from the fact that solicitors and counsel acting in the appellant's interests had advised on, or at least agreed in, the course of amending the pleading to abandon that claim, that there were thought to be good forensic reasons for doing so. In the absence of any evidence as to what those reasons were, the primary judge was justified in making a finding in the general terms that he did. That did not involve any failure to give reasons for that finding. In any event, his Honour observed (at [15]) that "no evidence is offered of the course of reasoning which led to the claim ... being abandoned". That observation explains why there was only a finding in general terms. 31As to the second of these respects, the primary judge's reasons for the conclusion in [17] that the constructive trust claim was brought back at an "inappropriate time" are given by reference to the discussion in [15]. That discussion demonstrates that the appropriate time to make any amendment would have been following the completion of the appellant's affidavit in May 2011.

Did the primary judge err in the exercise of the discretion to impose a term as to the grant of leave to make minor amendments? 32This issue is raised by Ground 5. The appellant submits that the primary judge did not have power to order him to make a payment of $20,000 to the respondent on account of costs incurred or to be incurred in the proceedings. He also submits that in imposing such a term on the grant of leave, the primary judge took into account a wrong consideration, namely that because the litigation was to "go off in a new direction" the respondent should be relieved of a significant part of the burden of costs thus far imposed on him: [23]. 33The primary judge had power to impose the term as a condition of the grant of leave. However, he erred in exercising his discretion to impose such a term because he took into account the wrong consideration identified by the appellant. The amendments as granted permitted the appellant to plead the sale of the property and the fact that he had not received any of the net proceeds of sale and also to amend the form of declaration sought so as to seek a charge over those net proceeds of sale. There were not likely to be any issues as to the fact of the sale or as to the receipt by the respondent of the net proceeds of sale. For that reason, none of the permitted amendments raised any new issues of substance or required the litigation to go off in a "new direction". The primary judge erred in considering the position was otherwise and in taking that consideration into account. For that reason, the imposition of that term must be addressed afresh by this Court. 34In my view, the circumstances do not justify the imposition of such a term as a condition of the limited grant of leave to amend. That amendment is not likely to involve any significant additional costs to the respondent. The respondent also has the benefit of a costs order in relation to the proceedings before White J and will have the benefit of costs orders in respect of the proceedings before the primary judge and this Court. He remains able to enforce those costs orders, subject to his first obtaining an order of the Court: UCPR r 42.7(2); Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; 55 NSWLR 1. Any further entitlement of the respondent to security for those costs, or for costs yet to be incurred in the proceedings, should be dealt with in an application for security which addresses questions including whether the ordering of security would stultify the prosecution of the proceedings or otherwise be inappropriate where the appellant is a natural person.

Costs 35The appellant has had a minor success on the appeal in relation to the imposition of the term as to the grant of leave. For that reason, it should be relieved of a small part of the burden of paying the respondent's costs of the appeal. However, there is no good reason to alter the costs orders made by the primary judge. The appellant sought an indulgence as to the making of the amendment and failed on the principal question argued. That remains the position. The order that it pay the respondent's costs of that motion should not be disturbed. In relation to the respondent's motion to dismiss the appellant's claim, it failed only because the appellant was given leave to amend. Had that amendment been sought or at least notified earlier, that application may have been unnecessary. In the circumstances, the order that the appellant pay the respondent's costs of this motion also should not be disturbed.

Conclusion 36The outcome for the appeal is that the appellant does not have leave to amend to rely on a claim to a constructive trust based on a "common intention" or "oral agreement". He remains, however, able to pursue his claim to enforce an equitable proprietary estoppel. Such an estoppel may be established notwithstanding that the expectation contains elements which would not be sufficiently certain to give rise to a valid contract: see, for example, Gillett v Holt [2001] Ch 210 at 226 per Robert Walker LJ. In the event that such a claim were successful, the Court would look at the circumstances of the case when deciding how the equity could best be satisfied: see the discussion in Giumelli v Giumelli [1999] HCA 10; 196 CLR 101 and Delaforce v Simpson-Cook [2010] NSWCA 84; 78 NSWLR 483. 37The orders which I consider should be made are: (1)Appeal allowed in part. (2)Set aside orders 3, 4, 5, 7, 8 and 9 made by Bryson AJ on 4 November 2011. (3)Order that the respondent's notice of motion of 1 July 2011 be dismissed. (4)Order that the appellant pay 90 per cent of the respondent's costs of the appeal. 38HOEBEN JA: I agree with Meagher JA and the orders which he proposes. 39WARD JA: I agree with Meagher 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: 20 December 2012

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