Lucas v Lucas (No 2)

1. [1]

   SACKVILLE AJA: After a three day trial judgment was delivered in this matter on 28 June 2018. [1] The following orders were made:

2. [2]

   First, I did not accept either party’s case in full. I rejected the Plaintiff’s claim to be entitled to a transfer of the legal title to the Property if he refinanced or discharged the existing mortgage. I also rejected the Defendant’s affirmative case that he was the sole legal and beneficial owner of the Property. I found that the Plaintiff was entitled to 21.7 per cent beneficial interest in the Property pursuant to a resulting trust arising by virtue of his financial contributions to the acquisition of the Property.

3. [3]

   Secondly, the Defendant did not file a cross-claim in the proceedings. Accordingly, he has not claimed any relief that arguably might have been granted on the basis of the findings of fact in the Principal Judgment. Nor has he made any claim to possession of the Property.

4. [4]

   Thirdly, the position has been complicated by the Defendant’s apparently unilateral decision in about February 2016 to pay out the existing mortgage loan over the Property (although the mortgage has apparently not been discharged). As found in the Principal Judgment, [2] the Defendant paid the sum of $87,326.91 to reduce the balance of the loan to nil. A little earlier the Defendant obtained a separate loan from the same lender (Westpac), but the relationship between that loan and the Property, if any, is not clear.

5. [5]

   Fourthly, as the Principal Judgment records, [3] the Plaintiff has lodged a caveat on the title to the Property claiming “sole beneficial entitlement”. Presumably the caveat remains on the title.

6. [6]

   I pointed out to the parties that it was in their interests to avoid further litigation and to agree on orders that would resolve all outstanding questions, including the Plaintiff’s entitlement to remain in occupation of the Property. [4] I also expressed the view – perhaps prematurely – that there appeared to be no basis upon which orders could be made in the present proceedings giving effect to my finding that the Plaintiff was entitled to remain in occupation subject to making certain payments. [5]

Further submissions

1. [7]

   Both parties accept that the declaration made in the Principal Judgment should remain in place. Unfortunately they disagree as to the other orders that should be made. Neither party addressed the status of the caveat presently on the title to the Property. Neither set of orders resolves all issues that have arisen or might arise between the parties in relation to their respective interests in the Property.

2. [8]

   The Plaintiff seeks the following additional orders:

3. [9]

   The Defendant proposes the following additional orders:

4. [10]

   The declaration sought by the Plaintiff (Order 2) is presumably intended to ensure that his interest is not vulnerable to enforcement action by the holder of a security over the Property. The vulnerability might arise if the Defendant draws down funds on the security of the existing Westpac mortgage or takes out a new loan on the security of a mortgage over the Property (although the Plaintiff’s caveat may limit the Defendant’s ability to offer a mortgage over the Property as security for a new loan). The other orders sought by the Plaintiff are apparently intended to achieve the same result, but also to elevate the entitlement of the Plaintiff to that of a proprietor of the legal estate as tenant in common with the Defendant in shares reflecting their respective beneficial entitlements.

5. [11]

   The Defendant’s proposed orders seek to obtain the benefit of the arrangement between the parties whereby the Plaintiff was entitled to remain in possession of the Property provided that he attended to the mortgage repayments and accepted responsibility for all outgoings. [6] The parties treated the mortgage repayments as equal to $1,000 per month and did so even after the Defendant refinanced the original ANZ mortgage in 2011. [7] The Defendant therefore seeks to have the benefit of the continuing monthly payments notwithstanding that he unilaterally paid out the Westpac mortgage in 2016. The Defendant also seeks to enjoy the benefits of the arrangement without explicitly conceding that the Plaintiff is entitled to remain in possession so long as he makes the agreed payments.

The Court’s duty

1. [12]

   In determining the appropriate orders to be made in this case the Court is bound to obey the instruction in s 63 of the Supreme Court Act 1970 (NSW) (Supreme Court Act):

2. [13]

   Section 63 of the Supreme Court Act must be read with s 56 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act), which relevantly provides as follows:

3. [14]

   The Court’s powers are not necessarily limited to the relief claimed in the initiating process. Thus Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 36.1 states that:

4. [15]

   In the absence of agreement between the parties it is the duty of the Court to attempt to completely and finally determine all matters in controversy between the parties. The issues in dispute in the present case included the terms of any agreement between the Plaintiff and the Defendant relating to the acquisition of the Property and the Plaintiff’s continuing rights and obligations in relation to the Property. Not all issues were the subject of pleadings but they were addressed in evidence and in submissions. The issues in dispute included the terms on which the Plaintiff was entitled to remain in possession of the Property.

5. [16]

   The competing draft orders do not address a number of issues in dispute between the parties that have the obvious potential to generate further legal proceedings between the parties. The Plaintiff’s proposed orders, for example, would result in him becoming the registered proprietor of the Property as to a 21.7 per cent share as tenant in common with the Defendant. One difficulty that Westpac is not a party to the proceedings and may have reasons not to agree to a discharge of its mortgage. Another is that although the orders assume that the Plaintiff is relieved from any continuing obligation to pay $1,000 per month, they appear to ignore his obligation under the agreement to pay all outgoings in respect of the Property.

6. [17]

   The Defendant’s proposed orders suggest that the Plaintiff is obliged to continue paying $1,000 per month notwithstanding that the balance of the Westpac mortgage was reduced to nil in 2016. (Whether the balance remains at nil was not the subject of evidence.) Although the proposed orders require the Plaintiff to pay the Defendant $1000 per month “for so long as the Plaintiff resides in the property”, they do not directly address the Plaintiff’s entitlement to remain in possession of the Property if he makes the monthly payments and meets all outgoings in respect of the Property. Nor do they address whether the Defendant, who will remain the registered proprietor of the Property subject to the Plaintiff’s equitable interest, could borrow funds on the security of the Property, for example by drawing down funds on the security of the (apparently) undischarged Westpac mortgage.

7. [18]

   In my view, orders should be made which resolve, so far as possible, all issues in dispute between the parties. My present view is that the orders should give effect to the following findings and conclusions.

8. [19]

   First, the declaration made in the Principal Judgment should remain in place.

9. [20]

   Secondly, the Plaintiff is entitled as against the Defendant to remain in exclusive possession of the Property provided that he pays all outgoings in respect of the Property (other than land tax assessed to the Defendant). I refer later to the question of the monthly payments in respect of any mortgage over the Property.

10. [21]

    Thirdly, the Plaintiff is not entitled to become registered as the proprietor of a legal estate in the Property, whether as a tenant in common or otherwise. I have not made any finding that the parties entered into an agreement which entitled the Plaintiff to a legal interest in the Property. His equitable interest can be protected by the lodgement of an appropriately worded caveat.

11. [22]

    Fourthly, orders should be made for the removal of the Plaintiff’s existing caveat but without prejudice to his entitlement to lodge a caveat protecting his equitable interest in the Property.

12. [23]

    An issue that remains in dispute is whether the Plaintiff’s entitlement to remain in possession of the Property is conditional upon making monthly payments in respect of the loan secured on the Property. The Plaintiff says that since the Westpac loan has been paid out (although apparently not discharged), the obligation to pay $1,000 per month has fallen away. The Defendant says that the obligation to pay $1,000 per month is independent of the existence of a loan secured on the Property and thus the obligation continues even if the loan has been paid out and the mortgage discharged.

13. [24]

    This issue was not specifically the subject of debate at the trial, although the evidence was directed to the terms of the arrangement between the parties. Subject to any further submissions, my tentative view is that the Plaintiff’s obligation to make monthly payments (as a condition of remaining in possession) was linked to the existence of the original mortgage loan. The rationale for the monthly payment was that the Defendant, having obtained a loan to facilitate the acquisition of the Property, was not to be out of pocket by reason of his obligations under the mortgage. The sum of $1,000 per month was the approximate amount of the instalments payable under the original mortgage (although the mortgage instalments were payable fortnightly rather than monthly).

14. [25]

    My tentative view is also that the Defendant was not necessarily precluded from refinancing the original mortgage loan provided that the terms were not more onerous than the original mortgage loan and provided that the Plaintiff’s obligation to make payments to the Defendant in respect of the loan was not increased above $1,000 per month. This is apparently what occurred in 2012 without protest by the Plaintiff. The entitlement to refinance not only reflects the reality that circumstances change, but takes account of the Plaintiff’s own evidence that he appreciated that loans could be refinanced. He did not suggest that there was any agreement or arrangement that the loan could never be refinanced.

15. [26]

    It is, however, one thing to refinance a mortgage loan; it is another to discharge or pay out a mortgage loan without refinancing it. The evidence suggests that in 2016 the Defendant, without reference to the Plaintiff, reduced the balance owing under the Westpac loan to nil, but did not refinance the loan and did not procure a discharge of the mortgage. The Plaintiff’s obligation to make monthly payments to the Defendant was linked to the latter’s obligation to pay instalments due under the mortgage. My tentative view is that as a consequence of the Defendant’s unilateral act the Plaintiff was no longer obliged to make the monthly payments as a condition of remaining in possession of the Property.

16. [27]

    It is also my tentative view that the terms of the arrangement between the Plaintiff and the Defendant implicitly precluded the Defendant from obtaining a mortgage loan on the security of the Property other than for the purpose of refinancing the original loan or a subsequent loan which replaced the original loan. The purpose of the arrangement was to enable the Plaintiff to remain in possession of the Property on the condition that he paid all outgoings, including an amount equivalent to the mortgage instalments that the Defendant had to pay to the mortgage. The Plaintiff’s entitlement to possession of the Property would be placed at risk if the Defendant was free to use the Property as security to obtain a loan for his own purposes.

Costs

1. [28]

   I expressed the view in the Principal Judgment that, subject to receiving further submissions, the Defendant should be ordered to pay the Plaintiff’s costs, on the ordinary basis. [9] The Plaintiff does not seek different costs orders, but the Defendant proposes that each party should pay its own costs. Alternatively the Defendant submits that he should be ordered to pay only a portion of the Plaintiff’s costs.

2. [29]

   The Defendant accepts that the usual order is that costs follow the event. [10] However he points out that the Plaintiff’s principal claim founded on an express trust failed, and that the alternative claim founded on a resulting trust was only propounded in an amended statement of claim filed on 25 March 2018. Since the Plaintiff only succeeded on his belatedly pleaded alternative case, so the Defendant argues, the Plaintiff should not be entitled to the costs order he seeks.

3. [30]

   This case involved the parties advancing conflicting accounts of the relevant events. The Plaintiff claimed to be the beneficial owner of the Property subject to making certain payments, while the Defendant asserted that he was the sole legal and beneficial owner. Neither party succeeded entirely, but the Plaintiff established an entitlement to a beneficial interest in the Property, albeit limited to a 21.7 per cent share. The Plaintiff also obtained a finding that he was entitled to remain in possession of the Property provided he made payments to the Defendant (an obligation he always accepted).

4. [31]

   In my opinion, the issues in the case cannot be segregated into discrete categories. The Plaintiff was required to initiate and pursue the proceedings to vindicate his claim in the face of the Defendant’s denial that the Plaintiff had any entitlement. In these circumstances it is just that the Defendant pay the Plaintiff’s costs of the proceedings up to date on the ordinary basis. When further submissions are received, I shall determine what order should be made in respect of costs incurred after delivery of this judgment.

Orders

1. [32]

   As my tentative views go beyond matters addressed by the parties, I shall provide a further opportunity to make submissions. It may be that the tentative views I have expressed will enable the parties to take advantage of the opportunity to agree upon orders that will finally determine their respective rights and interests in and in relation to the Property. If the parties still cannot agree they will have the opportunity to make submissions on any matters on which I have expressed tentative views. If either party wishes to adduce further brief evidence on affidavit in order to bring matters up to date (for example, to explain the current state of the Westpac mortgage), they also will have that opportunity.

2. [33]

   The following orders should be made:

3. [34]

   I regret that in the absence of agreement between the parties, they are to be put to the trouble and expense of preparing and filing further submissions but this course is necessary if all matters in dispute are to be finally determined and further proceedings avoided. The parties still have the opportunity to finalise the litigation by agreement and they would be well advised to do so.