Wheatley v Salmon

These proceedings are a case brought in proprietary estoppel by encouragement. Without disrespect, I shall refer to the parties by their given names.

The plaintiff, Adele, is the sister of the first defendant, Gregory. The second defendant, Danielle, is Gregory’s wife.

Gregory was a director and sole shareholder of Marketing Masters Qld Pty Ltd (MM), which operated directly or indirectly a number of Lenard’s chicken franchises. In about May 2003, Westpac Banking Corporation (Westpac) advanced about $550,000 to MM. Both Gregory and Adele (who later became a director but not a shareholder of MM) guaranteed MM’s obligations to Westpac. Adele also gave Westpac a mortgage over her otherwise unencumbered home in New Brighton.

In 2005, MM was placed into administration and then liquidation. By that time MM owed Westpac about $640,000. Adele sold her home and paid Westpac the full amount it was owed in satisfaction of her obligations as a guarantor. She moved in with her elderly parents.

There was no serious dispute that by reason of her payment to Westpac, Adele had a right to contribution from Gregory as her co-guarantor.

Gregory accepted that in 2006 Adele demanded that he buy her a house to compensate her for the loss of her house. Adele accepted that Gregory had refused her request.

Notwithstanding that refusal, her affidavit evidence (denied by Gregory) was that at a family meeting in late 2007 (not attended by Danielle) Gregory said to her words to the effect of “I will buy you a house” and “We’re [Gregory and Danielle] going to buy a property and build up a property portfolio”. Nothing then happened until 2010 when Adele alleged that Gregory rang her and said “Hi Adele, I am just ringing to say you can go ahead and look because I’ll buy you a property.” Adele’s pleading alleged what was called the “Property Promise” that “In about late 2007, Mr Salmon promised Ms Wheatley (with the full knowledge and consent of Ms Anderson) that to compensate her for the loss she had suffered when she paid to Westpac the sum required to discharge the guarantee she had given to Westpac, he would buy her a property”.

In August 2010, Gregory and Danielle purchased what they described as an investment property at Bogangar (the Property) for $285,000 with finance from the Commonwealth Bank, which took a mortgage over the Property. Gregory’s affidavit evidence was that he had said to Adele “If you take care of the day to day up-keep and pay for your utilities, you can stay in the house rent free until you get yourself up on your feet.” Since the purchase of the Property, Adele has lived in the Property rent free, but paying for utilities and various improvements and expenses. Gregory and Danielle have paid the rates, strata levies and mortgage payments.

In September 2018, Gregory and Danielle served a “Notice to Terminate a Tenancy Agreement” on Adele giving her 90 days to vacate the Property. She has refused to do so and still occupies the Property approximately 12 years after she first moved in.

Adele seeks a declaration that Gregory and Danielle hold the Property on constructive trust for her and asks for an order that they convey the Property to her without encumbrances. She relies on the doctrine of proprietary estoppel by encouragement, saying that in reliance on what she says Gregory told her, she did not sue him for contribution, which cause of action became statute barred in 2012. Gregory and Danielle contend that their arrangement with Adele was that she would live in the Property rent free in return for looking after it while they held it as an investment, but that it was never to be Adele’s property.

For the reasons which follow, the Court has come to the conclusion that Adele’s version of events is not to be accepted insofar as she alleges she was promised ownership of the Property, but even on her own evidence her case must fail because she understood the Property was being purchased as an investment for Gregory and Danielle. For this reason, it is not necessary in this judgment to undertake a close factual analysis of the surrounding circumstances and conflicting evidence that is often required in cases of this kind.

In summary, the Court’s conclusions are:

Mr A Crossland of Counsel appeared for Adele and Mr A Katsoulas of Counsel appeared for Gregory and Danielle.

Each of Adele, Gregory and Danielle gave evidence and was cross-examined. There was no contemporary written or independent testimonial evidence of the contested events.

This case is an archetypal example of one which invokes these well-known judicial observations about fact finding relied upon by Mr Katsoulas:

Each of the witnesses’ evidence was obviously coloured, to borrow the words of McClelland CJ in Equity, by perceptions of self-interest as well as conscious consideration of what should or could have been said.

Adele, who is 70 years of age, was a voluble witness given to long and not always responsive answers. She made no attempt to disguise the fact that she had a strong sense of grievance against her brother. Her constant refrain throughout her evidence was “He owed me” (referring to Gregory). As I understood her evidence, this also referred back to other money she had loaned to Gregory and lost before he had established MM. I have no doubt that state of mind coloured all of her dealings with Gregory at the relevant time. It is that state of mind which explains why the Court is satisfied on the balance of probabilities and finds that when Gregory said words to the effect that he and Danielle were buying an investment property in which she (Adele) could live, Adele translated that into a belief (or as she accepted – a “hope”) that she would be the owner of the Property. Adele’s evidence was so strongly coloured by her sense of entitlement and grievance that I am unable to accept her as a witness whose recollection of critical events is reliable.

Danielle is a 59 year old retired senior Queensland public servant. She equally did not attempt to disguise her dislike of Adele, which was evident in an email which she sent to Adele in 2007 describing her as an “evil bitchface”. Danielle sought to distance herself from Adele and downplay her (Danielle’s) knowledge of Gregory’s business affairs in connection with MM. This led to parts of her evidence being strained and not credible, but only about what might be termed peripheral matters. These included, for example, her attempts to resist accepting that at least one reason for her and Gregory’s family home being owned by her was to protect their assets, or resisting the proposition that she made a number of small payments totalling $19,200.00 over three years to help Adele.

However, I have no doubt based upon my assessment of Danielle in the witness box, her evident antipathy to Adele and the inherent likelihood and coherence of her evidence, and find, that:

Gregory is a 65 year old retired businessman. Similarly to Danielle, he sought to distance himself from Adele, downplaying any notion of affection between the siblings. He also tried to minimise any sense of indebtedness or responsibility by him for her situation. His recollection of events suggested that Adele did things to his benefit without much – if any – prompting by him, such as providing the guarantee to MM and searching for properties for his investment portfolio. When asked whether he felt any sadness “to see a family member like [Adele] lose their home and end up with nothing” he responded that he did not. He conceded that he perhaps felt “a little” pity for Adele but not much because he believed it was her fault that she lost her home at New Brighton.

Nevertheless, despite his lack of empathy for Adele, based upon my assessment of Gregory in the witness box, the inherent likelihood and coherence of his evidence, and the fact that it reflects what occurred in relation to the Property without complaint by Adele, I am persuaded, and find, that:

The parties agreed that the elements to establish a proprietary estoppel by encouragement were conveniently summarised by Blue J in Carter v Brine [2015] SASC 204 (Carter):

The present case will be considered against each of those elements.

Particular attention was given by the parties to how certain a representation must be, especially in circumstances where no property had yet been identified or come into the ownership or possession of the representor. Mr Crossland submitted for Adele that it was not necessary for the representation to be completely certain because, in context, it was reasonable for Adele to have relied on it.

Mr Crossland directed the Court to Sullivan v Sullivan & Ors [2006] NSWCA 312 (Sullivan) in which the defendant wrote in a Christmas card to his sister that he promised to provide her a home to live in “for as long as you like”. Mr Crossland placed particular reliance on the decision of Handley JA (in dissent), who said:

Mr Crossland conceded during the course of argument that the representation in Sullivan was more certain than in the present case. In fact, the contrast between the alleged representation in this case and Sullivan is quite stark, as Hodgson JA’s repetition at [58] of the trial judge’s findings demonstrates:

Mr Crossland nevertheless submitted that the assurance in the present case could still be considered reliable because it was made during the “important occasion” of a family meeting after longstanding complaints by Adele and Mary.

Mr Crossland also directed the Court to these observations by Hodgson JA (with whom McColl JA agreed) in Sullivan:

Reliance was also placed upon Flinn v Flinn & Anor [1999] 3 VR 712; [1999] VSCA 109 (Flinn) in which Brooking, Charles and Batt JJA said:

Their Honours in Flinn also listed a number of examples from case law, most of which are not binding on this Court and do not require recitation except to state they were matters in which promises that were not “unambiguous”, “clear” or “unequivocal” were upheld (at 738-44).

Mr Crossland also referred to the decision of Meagher JA, with whom Macfarlan JA agreed, in DHJPM Pty Ltd v Blackthorn Resources Limited [2011] NSWCA 348 where his Honour stated:

The thrust of this statement, in Mr Crossland’s submission, was that persons who are not lawyers often make promises or representations in a more informal manner. They may be more prone to making uncertain statements, especially in a family context. However, in my respectful view, this is exactly the type of conduct about which Bryson AJ urged caution in Hampson.

On the issue of whether a property was required to be within the ownership or possession of the representor at the time of the representation, Mr Crossland referred the Court to the Canadian case of Cowper-Smith v Morgan 2017 SCC 61; [2017] 2 S.C.R. 754 (Cowper-Smith) where it was stated:

Mr Crossland also had recourse to Van Dyke v Sidhu [2012] NSWSC 118 (Van Dyke) which led to Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19. That the property in that case was promised subject to a subdivision meant that, technically, it was yet to come into existence at the time the representation was made.

During the course of argument, it was conceded by Mr Crossland that there was a distinction between Cowper-Smith and the present case. In that case, the property was already known to the parties as it formed part of the promisor’s deceased mother’s estate. In the present case, not only was the Property not owned by the defendants at the time of the representation, but its entire existence was unknown to everybody involved. The same distinction is applicable to Van Dyke, where the property to be subdivided was known.

Mr Katsoulas submitted for Gregory and Danielle:

In his written submissions, Mr Katsoulas directed the Court’s attention to the principle in Legione v Hateley (1983) 182 CLR 406; [1983] HCA 11 at 436 that a representation must be clear and unambiguous.

On the issue of whether a property was required to be within the ownership or possession of the representor at the time of the representation, Mr Katsoulas emphasised the elements of a proprietary estoppel as set out by Blue J in Carter at [22] above. The first element requires that a representation is made in respect of a property that is “owned wholly or partly by the defendant”.

The cases put forward by counsel for both the plaintiff and the defendants demonstrate that a representation need not be exact in its terms, but it must still be sufficiently clear so that it can be reasonably relied upon. In cases of ambiguity, the Court should look to the lower limit of what could be reasonably understood to determine whether this accords with what was relied on by the representee.

Crucially, where the representation relates to a proprietary interest, the property in question does not necessarily need to be owned by the representor at the time it is made. However, at the very least, the property must still be identifiable as the subject matter of the representation at the time that it comes into the ownership of the representor. In my respectful opinion, a representation which states no more than “I will buy you a house” is too uncertain to be reasonably relied upon unless there are other factors that allow the Court to determine the basic features of the house that would satisfy the representation: is it a two-bedroom bungalow or a substantial house on acreage? Even if the words “I’ll buy you a house” were said, for the reasons advanced by Mr Katsoulas recorded in [36] above the Court would not find that to be sufficiently certain to establish even a “lower limit”.

There was disagreement between the parties about the substance and meaning of the alleged representation by Gregory to Adele.

It was submitted for Adele that Gregory had made representations to her on two separate occasions. The first occurred in late 2007 at a family meeting held at the home of Adele and Gregory’s parents. During that meeting, Gregory gave a presentation to the family to the effect that he and Danielle intended to create a property investment portfolio. He had prepared a spreadsheet as part of the demonstration. During the meeting, Gregory said words to Adele to the effect of “I will buy you a house”. The second occurred in 2010 during a telephone conversation between Gregory and Adele in which it is alleged that he said “I’ll buy you a property”. Subsequent to this, the Property was identified and purchased, and Adele moved in.

The meaning conveyed by the alleged representations was, in Mr Crossland’s submission, that:

Mr Crossland emphasised that Adele had, on numerous prior occasions, demanded that Gregory purchase a house for her in recompense for the loss of her home at New Brighton. That these demands ceased upon Adele moving into the Property favoured a conclusion that what was promised was in similar terms. This was supported by Gregory’s admission of having entered the arrangement with Adele for the purpose of appeasing Adele and Mary.

Mr Crossland also drew attention to the statements made by Gregory under cross-examination that the defendants’ next investment property could be somewhere else in Australia, and that Adele might be able to move there as caretaker. However, this was not a proper reflection of the exchange with Gregory in the witness box, which was in the nature of a speculative discussion and in which Gregory gave explicit evidence that he never said anything of this nature to Adele.

The defendants denied there was ever a representation put in the terms alleged by Adele in 2007 or 2010. To the extent he said anything to Adele, Gregory said it was words to the effect of “We’re going to buy an investment property and you can live in there”. The meaning conveyed by the alleged representation was, in Mr Katsoulas’ submission, that:

This was supported by the fact that, during the period of Adele’s occupation of the Property, Gregory and Danielle continued to pay the mortgage, council rates, strata levies and insurance. They also remained the recorded owners on the Owner’s Corporation Strata Roll with the power to make final decisions about the Property. To the extent that Adele could exercise decision-making authority over the Property, she only did this as a proxy holder for Gregory and Danielle.

Mr Katsoulas also submitted that Adele’s own actions were inconsistent with her case because Adele had not:

The Court does not accept Adele’s evidence that on two occasions Gregory said to her words to the effect of “I’ll buy you a house”. This is because Adele’s version of events does not logically accord with the surrounding circumstances as presented by herself and the defendants. I make this finding for these reasons:

However, Adele’s case must also fail if the Court accepts her evidence at face value. Context is everything and it was Adele’s own affidavit evidence that at the family meeting “I will buy you a house” was not all that was said. At the time of the alleged representation in 2007 it was understood by Adele that Gregory and Danielle were looking to build a property investment portfolio. Adele’s own evidence was that the words “I will buy you a house” and “We’re [Gregory and Danielle] going to buy a property and build up a property portfolio” were said to her at the family meeting by Gregory. When taken together, they are incompatible with the notion that Adele was being promised title to the Property.

There is also the difficulty identified in [40] above that, of itself, the representation “I will buy you a house” was too uncertain. It provides no guidance as to the type of property to be purchased, let alone whether it was intended for Adele to obtain ownership or simply to live in. If it was merely for Adele to live in, it is also silent on how long that would be for.

Property purchased as part of a property portfolio or investment conveys that the property could be sold to realise the investment but generally not in the short-term. At its highest, the two sentences “I will buy you a house” and “We’re [Gregory and Danielle] going to buy a property and build up a property portfolio” said in the course of the one meeting could only mean that Adele was entitled to live in the Property as long as it was held by the defendants.

Adele’s own evidence under cross-examination again confirms this:

Although Adele gave oral evidence that when she asked Gregory about the prospect of her moving to a new apartment in 2017, there was no mention that the defendants would bear responsibility for finding her another home.

Hearsay evidence of the wishes of Adele’s late mother is also relevant albeit not decisive given the inability to test its veracity. Bearing in mind the reduced weight to be given to that evidence, the Court is nevertheless satisfied that an arrangement that Adele would be able to live in the Property while it was held by Gregory and Danielle as an investment was consistent with the evidence of Mary’s wishes at [19(2)] above.

To the extent that Adele expected to gain title to the Property, the Court finds that was certainly her hope. Adele made numerous statements during cross-examination, including the statements referred to at [53(3)] above, that it was her desire that she would obtain title to the Property, but the Court also finds this was not based on anything Gregory had actually said to her. She never asked for the title to be transferred after she moved into the Property. Nor did she take steps to ensure a transfer would eventually occur.

In many ways, this case exemplifies what Bryson AJ referred to in Hampson at [15] above. The parties entered into an informal family arrangement of which the details were sparse to solve an immediate problem: accommodation for Adele. However, there was no agreement as to how long Adele could reside at the Property, or what would happen to her if and when Gregory and Danielle decided to sell it. There is already difficulty for the Court to infer a proprietary interest in such cases. That difficulty became insurmountable when Adele accepted that obtaining title to the Property was her own hope or assumption and not referable to anything she had been told by Gregory.

It was common ground that Danielle never made any representation to Adele and that all relevant communications occurred between Adele and Gregory. The plaintiff submitted that Danielle nevertheless consented to and agreed with the representation, a conclusion implied by her knowledge of the surrounding circumstances. It is unnecessary to determine exactly what Danielle knew or to what she had consented, because the Court has found that a representation was not made in the terms alleged by Adele.

Exactly what Adele was caused to assume by what she alleged had been said to her had not been specifically pleaded. The failure to do so, and the inability to be able to articulate what she had assumed, steadily emerged during the hearing as a fundamental problem in Adele’s case. In my respectful view, it is entirely explicable as a consequence of the vagueness or ambiguity of “I will buy you a house” without more. Was it that Gregory and Danielle would buy a house that Adele would live in but not own and, if so, live in for how long? Or were Gregory and Danielle making a gift to her of a house for which they would pay and of which she would be the unencumbered registered proprietor and, if so, when would she obtain that title?

The question of what she assumed was not really confronted in her case until Adele gave evidence under cross-examination that any assumption that she would obtain title in the Property was nothing more than her hope. This is evident in the transcript extracts set out at [53] above.

On the final day of the hearing, the plaintiff sought to file a second further amended statement of claim. The proposed second further amended statement of claim still did not specifically address the matter of Adele’s assumption. That application – and its refusal – is dealt with at [81] to [86] below.

Mr Katsoulas, for the defendants, submitted that Adele’s evidence made it perfectly clear that she understood that what she had was a right to occupy the Property and that right was revocable. Anything else was not based on what was said to her by Gregory.

Mr Katsoulas also drew attention to the fact that, despite being asked on multiple occasions, Adele was unable to specify when she formed the view that she would receive title in the Property, except to say that she had not formed the view in response to the current proceedings. She did not communicate to anyone that she expected to receive title to the Property. Nor could it be said that the defendants encouraged Adele to form any such view because she had never communicated anything about obtaining the title to them.

In light of the lacuna in Adele’s pleadings, and the evidence given by Adele at hearing, the Court accepts Mr Katsoulas’ submissions. To the extent that Adele formed an assumption, the Court finds this was only that she could occupy the Property while the defendants continued to hold it. This was not an assumption that she would have a proprietary interest in the Property and is the only assumption that could be sensibly made consistent with the two things which, on her own evidence, she had been told by Gregory.

The Court also finds that Adele’s belief that she would receive title in the Property was a consequence of her own hope and not caused or materially contributed to by anything Gregory had said to her. This means that there was no reliance by Adele that would satisfy the third element of estoppel by encouragement identified by Blue J in Carter set out in [22] above.

It was pleaded that Adele took these actions in reliance on whatever it was she had assumed:

The latter proposition cannot stand. First, there is nothing in Adele’s evidence that her assumption that she could reside in the Property while the defendants remained the owners required her to make such expenditures. Adele stated under cross-examination that she thought she was being helpful to the defendants and ensuring the Property’s value would increase by doing so. Second, that Adele paid for maintenance on the Property is perfectly explicable on the basis that she resided at the Property in a caretaker role (as was contended for by the defendants).

The former proposition requires further consideration. During cross-examination, Adele gave evidence that she spoke to Mullins Lawyers in late 2007 about recovering the funds she had lost from Gregory. To her credit, she never suggested that she did not understand what she was doing when she guaranteed MM’s obligations. Her evidence was that she was advised that she had no cause of action against Gregory. There was also this exchange (T102:22-8):

Adele had earlier given this evidence of the two “main” reasons why she did not pursue her legal rights against Gregory as one of his creditors (T81:6-25):

The important feature of these answers is that Adele did not suggest that anything Gregory may have told her was one of the reasons (“main” or otherwise) she did not sue Gregory.

It was Mr Crossland’s submission that the fact there were multiple reasons that Adele abstained from pursuing her legal claims against Gregory was no barrier to a finding that she had acted in reliance on the representation she alleged of “I’ll buy you a house”. The critical issue was whether the promise made was a significant factor in that decision. Mr Crossland drew the Court’s attention to the decision of Emmett AJA (McColl and Macfarlan JJA agreeing) in Priestley v Priestley [2017] NSWCA 155 where his Honour said:

Mr Katsoulas placed emphasis on the fact that Adele had received advice from solicitors in 2007 that she had no cause of action against Gregory. He submitted that the legal advice, and the fact that Gregory might be unable to satisfy any judgment against him, were the true driving factors in her decision.

The Court accepts Mr Katsoulas’ submissions. Adele gave clear and confident evidence about the “main” factors that influenced her decision and could not recall any others. These related to concerns that she would be unable to recover what she was owed from Gregory’s bankrupt estate. Even assuming in her favour that the representation that Adele alleged had been made may have had some bearing upon her decision to cease pressing any legal claim against Gregory, in circumstances where she was given the opportunity to give reasons and did not refer to it, the Court is not satisfied that it was enough of a factor in her decisionmaking that it would be unconscionable for Gregory and Danielle to enforce their legal rights in relation to the Property. Adele has failed to demonstrate on the balance of probabilities, or at all, that her change of position – not suing Gregory and thereby now having lost her right to do so because it is statute-barred – was done in reliance on any assumption for which Gregory was responsible. It follows from this that the fourth element in the cause of action identified by Blue J (see [22] above) has also not been proven.

The result of the preceding findings is that it is not necessary for the Court to go on to consider the last two elements of the cause of action identified by Blue J.

However, against the possibility that the matter may go further, I will briefly set out my views on final relief. The existing mortgage over the Property (originally to the Commonwealth Bank and now to ING Bank) and Danielle’s interest in the Property (it being accepted she had said nothing to Adele) would have been decisive discretionary factors against ordering a conveyance of the Property to Adele.

In any event, as was the case in Sullivan, equity would not have required relief so as to make good a representation, if it had been such, to give Adele unencumbered title to the Property. This is due to an issue of causation or proportionality. On Adele’s own case, her loss of her home and her need for permanent secure accommodation were entirely unconnected with the alleged representation and what she had done in reliance on it. She had lost her home at New Brighton several years prior to any alleged representation, an event that came about after the failure of MM. Wherever the fault lay for the business’ failure (each party pointed the finger at the other), Adele accepted under cross-examination that she provided the guarantee to Westpac with full knowledge and understanding that she may be forced to give up her home.

On her case, what Adele suffered, as a result of the alleged representation and what she did in reliance on it, was the loss of her right to prove as an unsecured creditor in Gregory’s estate for the amount he owed her in contribution as a co-guarantor. Had she sued Gregory for contribution, it can be assumed that she would have obtained a judgment and have had to enforce it subject to any secured creditors and the interests of other unsecured creditors. As is clear from [69] above, Adele was acutely aware of this.

Furthermore, as Adele herself saw it, her rent free occupation of the Property represented repayment of a debt. As someone seeking equity, she would have to do equity by crediting the value of the 12 year’s rent free occupation of the Property that she had enjoyed.

In my respectful view, the appropriate relief would, in broad terms, have been to order an inquiry into:

The Court would then have declared that Adele had a charge over all of Gregory’s assets in the sum of the amount to which Adele was entitled for contribution less the value of the rent that she had been saved, together with an allowance for interest.

At the conclusion of evidence, I directed Mr Crossland’s attention to the fact that the relief sought by Adele was all or nothing. The only outcome available on the pleadings was that Adele either obtained an interest in the Property or she did not. The relief pleaded was:

The following day, Mr Crossland sought leave to file a second further amended statement of claim seeking additional relief. I refused that application and informed the parties that I would include the reasons in this judgment. These are the reasons for refusing the amendment application.

The amendment proposed this additional relief:

Mr Crossland submitted that leave should be granted. He contended that there would be no prejudice caused to the defendants because the additional relief did not rely on any new evidence.

Mr Katsoulas submitted that there were two kinds of prejudice caused to the defendants. These were:

The Court accepted Mr Katsoulas’ submissions relating to both forms of prejudice. In addition, the amendment application was being made just before final submissions were to commence and there was no evidence which explained either why the application had not been made earlier or why it was being sought to be made so late at all. The absence of such explanations on oath or affirmation, while not of itself necessarily dispositive, was an important discretionary factor which fortified the conclusion that leave to amend should not be granted.

The effect of this judgment is that Adele is not entitled to remain at the Property without the consent of Gregory and Danielle. Subject to the next paragraph, the proceedings will be dismissed and the parties will be given an opportunity to address on costs if they cannot be agreed.

Furthermore, if agreement cannot be reached about when Adele must vacate the Property, my preliminary view is that the just, quick and cheap procedural course would be to allow the defendants to file a cross-claim for possession. The Court could then make orders for possession subject to allowing the parties to be heard, including on issues of timing and any other conditions.