Blog 54. Proprietary estoppel/Trusts

Groom v Leafbusters Pty Ltd (in liq) [2021] VSC 765, Cavanough J (20 November 2021).

Olsen v Olsen [2022] VSC 95, Ierodiaconou AsJ, (1 March 2022).

Konkoly v Konkoly & Anor [2022] VSC 74, Irving AsJ, (23 February 2022).

These cases concern trusts, mainly what Cavanough J compendiously described as the “common intention constructive trust (by way of proprietary estoppel)” (Groom v Leafbusters Pty Ltd (in liq)) at [4].  In that case caveats were lodged over a property based on various forms of trust.  In a long judgment following a final hearing, ie not a proceeding under the Transfer of Land Act s. 90(3), Cavanough J found that the claims of the caveator to an interest in land failed on the facts.  His Honour also stated certain legal points, one of which was engaged in the other two cases which were proceedings under s. 90(3).  In Olsen the caveator established a serious question to be tried of an interest in land based on proprietary estoppel or a constructive trust.  In Konkoly the caveator failed to establish a serious question to be tried of any interest in land.

Groom v Leafbusters Pty Ltd (in liq).

The caveator relied on a ‘separation agreement’ between him and his wife, the most important part of which stated what assets were to go to whom for what payment if any.  The agreement was evidenced by a photocopy of a three page rough, informal, unsigned document, which Cavanough J with some hesitation found to be authentic yet also “of doubtful status and doubtful meaning” and, if unsupported by descriptions and purported explanations in oral evidence, “close to meaningless”.  The caveator pleaded but abandoned the argument that this document created an express bare trust of the relevant property – it did not comply with s. 53(1)(b) of the Property Law Act.   The plaintiff’s case comprehensively failed on the facts.   Cavanough J. held –

1. There was no sufficient agreement, promise or commitment between the parties.  There was no documentary or other objective evidence of any meeting of the minds on essential terms of the alleged separation agreement, such as: who was obliged to pay out the mortgage and by when and concerning the consequences of failure to pay; by when and in what instalments a particular sum was to be paid and concerning the consequences of non-payment. [4], [89]
2. If there had been an intention to implement the arrangement as envisaged in the document certain things not in fact done would have been done. [90]-[92], [95], [96]
3. While it was possible to create a trust by declaration without communication to any person, the fact of little or no communication of the existence of the trust was relevant to whether any trust existed at all.  This principle was engaged on the facts of this case. [123]-[124]
4. Even if, in equity, the agreement had given rise to some binding and persisting obligation, it was conditional on the defendant first paying the mortgage remaining on the property, which condition had not and now could not be met. [177]
5. The underlying principle of proprietary estoppel was that conduct of the promisor in engaging the complainant to change his or her position to their detriment on the footing that the promised property will be theirs, when acted upon by the complainant, created an equity which binds the promisor to make good the expectation.  To establish proprietary estoppel a plaintiff must show –

   (a)    promises and undertakings by the owner to him or her to confer an interest in property.  Further 

   (i)    a promise or undertaking may found a proprietary estoppel claim al­though not suf­fici­ently certain or specific to satisfy the requirements of an enforceable contract at law.

   (ii)       in equity a representation bound an entity, eg a company, where the per­son making the representation had os­tensible, ap­­par­ent or implied authority, as a person dealing with the matter, or who in the ordinary course of business… ordinarily acted for the entity, or who was entrusted by the entity with the ability to make representations.

   (b)   action in reliance thereon, which action was reasonable, with the owner know­ing or intending such reliance;

   (c)    the action was to the detriment of the actor. [8]

6. The requirements for a common intention constructive trust (by way of pro­priet­ary estoppel) were not established. In particular

   (a)   the determinative effect which the plaintiff sought to give to the document, and to the separation agreement generally, was insufficiently supported by the actual terms of the document or by the other evidence, and was contradicted by subsequent conduct. The plaintiff has not established that the document, or the alleged separation agreement itself, was really intended to commit, or should be taken to have committed, anyone to a new, permanent regime in relation to the control and the true beneficial ownership of the property. Nothing agreed at that time was sufficiently clear or sufficiently definite for the purposes of the equitable claim now made.

   (b)   the plaintiff had not established that he had incurred any or any sufficient detriment as a result of any or any reasonable reliance on the alleged separation agreement. [4]

Olsen v Olsen.

The facts were –

• Barry and Beryl Olsen were farmers with three children, one being Niels. Barry died in 2020.  Beryl was his executrix.
• The farm consisted of land with components named as follows: Yarrabin, in the estate; Prickle Patch, in the estate; Hallora, in the estate, leased to Niels, he being in arrears of rent; Colgons, owned by Barry and Beryl as joint tenants and now by her by survivorship, leased by another son; three other properties owned by Niels or his brother.
• Niels caveated over Prickle Patch and Hallora. Beryl applied under s. 90(3) for the caveat to be removed.
• Niels deposed (largely disputed by Beryl) –
  • that Barry made representations to him in 1977 and again in 1985 that “when [Barry] can no longer work on the farm, half of it will be [Niels’]”. He deposed that in 1985, Barry told him that this would include Hallora.
  • he began working more on the farm from 1974. The work increased until he left school when he was 17 years old, which was approximately in 1981.
  • in around 1981 he commenced an agricultural apprenticeship and part-time work at a saleyard. On telling Barry that he wanted to work full time at the saleyard Barry said that if he did not continue to work on the farm he would not receive his previously promised half share.  Based on this he did not take up the full-time sale-yard work.
  • he did not receive adequate pay during his apprenticeship.
  • in 1985 he purchased property adjacent to Hallora, on which he worked while continuing to work on the family farm, because Barry told him that his half of the family farm previously promised would now include Hallora.
  • the promise of receiving Hallora was repeated in 1996.
  • in 2004 he was the only family member maintaining Hallora.
  • in reliance on Barry’s representations he completed significant farm work with little benefit. The promise of the land was the driving force behind him working and learning the skills to run the farm.
  • he was gifted about 25 dairy cows.
• On the balance of convenience the evidence was –
  • Beryl was aged 80 and until recently resided in the family home on Yarrabin. It was quite isolated, she had been seriously injured in a fall but could not get help quickly, and on medical advice she had moved close to medical facilities and with mobile telephone reception.
  • Beryl deposed that she and Barry had been preparing to sell Prickle Patch, that she had listed it for sale and received a purchase offer, and that it was the only property which could be sold because the other pieces of land were necessary for the working of the farm or for her income.
  • Beryl deposed that in November 2021 she entered into a contract to purchase a unit in a nearby town with settlement in February 2022. To fund this she used a large amount of her savings and entered a mortgage.   Accordingly her savings were much reduced, her income would be limited, her liabilities would considerably exceed her income.  Accordingly unless Prickle Patch was sold she may be in mortgage default or unable to meet other essential liabilities.
  • The estate inventory showed net assets of $2.78 million and no liabilities. Beryl appeared to be the residuary beneficiary and so entitled to Barry’s personal assets of approximately $132,000.

Ierodiaconou AsJ held –

1. There was a serious question to be tried that Niels had an interest in Prickle Patch on the basis of proprietary estoppel or a constructive trust.  (Although Her Honour uses the words “Prickle Patch” it appears from the general context that her Honour meant to include Hallora). [38]
2. The balance of convenience favoured maintenance of the caveat, because 

(a)   the estate could apparently meet expenses;

(b)   the residuary estate could be distributed to Beryl;

(c)   Beryl’s claimed expenses included estate expenses.  It appeared that her costs may exceed her income by about $10,000 per annum. However, she also had savings and if in financial difficulty could deal with her property Colgons.

(d)   Prickle Patch was unique, primarily because it was near Hallora and contained spring water. If sold, damages were unlikely to be an adequate remedy.

(e)   it was anticipated that the matter would be listed for trial shortly. [51]-[56]

Konkoly v Konkoly & Anor.

A couple purchased a property in which they lived in the 1990s.  Their daughter moved into the property with her children in February 2014.  The parents listed the property for sale, on 14 October 2021 the daughter caveated over two of the three titles of the property on the ground of ‘implied, resulting or constructive trust’, and on 15 October the parents entered a contract of sale due for settlement in March 2022.  There were various proceedings between the parties, including this proceeding under s. 90(3) for removal of the caveat.

In her Statement of Claim the daughter pleaded that in about February 2014 she occupied the property on representations to the effect that: her parents wanted her and her children to move into the property as her family home; she could make any additions or alterations that she deemed necessary or desirable; the property would be hers or otherwise left to her in their Will.  No particulars were given.  She then pleaded that in reliance on the representations and to her detriment she paid approximately $100,000 towards improvements, repairs and maintenance.  Although not spelt out it appeared that she was alleging estoppel by encouragement (ie proprietary estoppel) giving rise to a constructive trust.

Irving AsJ held –

1. The plaintiff’s pleading did not identify all the material facts necessary to establish the cause of action, nor were any of the material facts separately or coherently pleaded. For example, the pleading did not state the form of the representations, their time and date, who they were made by and where they were made.  Nor was the alleged detriment adequately particularised.  The affidavit material did not elucidate this – the evidence to demonstrate the representations was evidence of the plaintiff’s beliefs based on a general assertion that unspecified representations had been made.  That evidence was often ambiguous and of a level of generality insufficient to establish a serious question to be tried. [40], [46], [47]
2. The balance of convenience favoured removal of the caveats because: the sale required to be completed; the plaintiff had agreed to remove the caveats, but on conditions not agreed; the property was now vacant; to the extent that the dispute related to payment in recompense of amounts spent by the plaintiff on the property, maintenance of the caveats would be unduly restrictive on the defendants’ right to deal with their property. [49]-[50]

Note. As is customary the Registrar of Titles was joined as a party to the caveat removal proceeding.  This would not be worthy of note, save that Irving AsJ at [10] spelt out the role of the Registrar and the basis of it, namely that in accordance with the usual practice the Registrar did not intend to take any active role in the proceedings and would abide by the court’s decision in accordance with the principles enunciated in R v Australian Broadcasting Tribunal, Ex parte Hardiman & Ors (1980) 144 CLR 13 at 35 – 6.  Another reason for joining the Registrar is that it simplifies the form of order removing the caveat, ie the order for removal can be made directly against the Registrar as a party to the proceeding, rather than being made against the caveator (who might delay in carrying out the order).

       Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, April 27, 2022