Bailey v Bailey

1. [1]

   These proceedings concern a property at Cremorne in New South Wales, being the land in folio identifier 11/SP3525 (the Property).

2. [2]

   By Summons filed on 16 May 2023, the plaintiff moves the Court for orders under s 66G of the Conveyancing Act 1919 (NSW) for the appointment of trustees for sale of the Property and the distribution of the proceeds. The plaintiff claims an entitlement to part of the sale proceeds referrable to his payments made towards the mortgage over the Property.

Background

1. [3]

   On or about 19 November 1982, the plaintiff, Mr Bruce Bailey, and the defendants, his sisters, Ms Glenice Bailey (Ms Bailey) and the late Annette Bailey, became the registered proprietors of the Property as tenants in common in equal shares. Annette Bailey died on about 24 July 2020.

2. [4]

   Ms Bailey claims to be the executrix for the Estate of Annette Bailey. However, no application for probate has been made, and the NSW Trustee and Guardian has been notified of the proceedings, and considers it need only be a nominal defendant and does not propose to take any active role in the proceedings.

3. [5]

   In the mid 1990s, when the parties’ father died, there was a dispute concerning his will and family provision proceedings were brought. Those proceedings were settled without a judgment. The settlement document is not in evidence, however, Mr Bailey does not deny that he agreed to transfer his interest in the Property to his sisters on request. This issue is dealt with further below.

4. [6]

   In 2017, the first and second defendants entered a loan agreement with the Commonwealth Bank of Australia (Bank), with the Plaintiff as a guarantor. The Bank registered a mortgage over the Property securing the loan obligations. From about June 2020, the defendants ceased making regular repayments on the loan.

5. [7]

   In February 2022, the Bank issued a letter of default to Ms Bailey.

6. [8]

   On 11 April 2022, the Bank notified Mr Bailey, as guarantor, of the default.

7. [9]

   On 12 July 2022, the Bank issued a notice of demand to Mr Bailey.

8. [10]

   On 25 July 2022, the Bank commenced proceedings against all the parties, seeking to enforce the mortgage, including seeking vacant possession of the Property for the purposes of a mortgagee sale.

9. [11]

   At no time did Ms Bailey agree to the sale of the Property.

10. [12]

    On 18 October 2022, Mr Bailey paid to the Bank all the arrears on the loan instalments, and agreed to make regular repayments to avoid the Bank continuing enforcement action. As at 18 January 2024, Mr Bailey had paid $73,387.00 for amounts owing under the loan and mortgage.

11. [13]

    Ms Bailey has resisted Mr Bailey’s demands to indemnify him for the payments made, or to agree to the sale of the Property to discharge the Bank mortgage.

12. [14]

    As noted above, on 16 May 2023, Mr Bailey commenced these proceedings by way of summons, seeking the appointment of trustees for the sale of the Property pursuant to s 66G. The Bank has consented to a trustee sale and a form of orders concerning the distribution of the proceeds of sale and did not seek to be heard or appear at the hearing.

Principles

1. [15]

   Section 66G(1) provides:

2. [16]

   There is no doubt that on the face of the register the parties here are co-owners as defined in s 66F(1) of the Act, being equal tenants in common.

3. [17]

   The principles which apply on an application under s 66G of the Act are well established. Recently in Foundas v Arambatzis [2020] NSWCA 47 at [63], White JA (Bell P and Basten JA agreeing) summarised the relevant principles as follows:

Ms Bailey’s defence

1. [18]

   On 3 October 2023, Ms Bailey, who has always been self-represented in these proceedings, filed a document styled a “defence” and an affidavit. I accept that the document styled ‘Defence’ ought to be read as submissions.

2. [19]

   Ms Bailey resists the orders sought on the following grounds.

3. [20]

   First, she is in possession of the Property. I accept that there may be some hardship if Ms Bailey was required to vacate the Property, in which she lives, and it were to be sold. However, as the authorities make plain, hardship alone is an insufficient reason for the Court to decline relief sought by a co-owner.

4. [21]

   Secondly, Ms Bailey asserts that her indebtedness for the loan is the result of an allegedly illegal transfer of ‘Hazeldene’ and misleading legal advice. ‘Hazeldene’ is not the property in question in these proceedings. It was the subject of various disputes in the 1990s. In 2017, Rein J delivered a judgment in Bailey v La Hood [2017] NSWSC 1354, in which he touched on those disputes. The solicitor defendants had advised Ms Bailey that she did not have "high prospects" of success in a proposed claim against a second firm of solicitors for the manner in which it conducted proceedings brought by Ms Bailey against a third firm of solicitors. The third firm of solicitors had, in turn, acted for Ms Bailey in a dispute with her father concerning ‘Hazeldene’. Rein J rejected Ms Baily's claims that the defendants had given negligent advice, breached their fiduciary obligations or engaged in misleading and deceptive conduct.

5. [22]

   Ms Bailey claims the outcome of that case led to her incurring the mortgage debt and she informed the Court that she “intend[s] to appeal [this decision] to the Court of Appeal”. There is no evidence of any appeal and I also note that any future appeal would be out of time and leave would be necessary to pursue any such appeal pursuant to rule 51.10 of the Uniform Civil Procedure Rules 2005 (NSW). Therefore, as matters currently stand, this consideration is irrelevant to the exercise of the discretion under s 66G.

6. [23]

   Thirdly, Ms Bailey asserts that Mr Bailey holds his interest in the Property on trust for her sister’s estate and herself by reason of the settlement agreement referred to in both her and Mr Bailey’s evidence. This is considered further below.

7. [24]

   Ms Bailey is not legally qualified and has presented her case as best she could. I raised with Mr Bailey’s counsel all possible legal bases which might characterise the proprietary arrangements of the parties, taken from authority, cited in his written submissions. He has not sought further time to consider or address on those matters. I am grateful for his assistance.

On what basis does Mr Bailey hold his proprietary interest?

1. [25]

   Mr Bailey, as noted, is registered on the title to the Property. The law is clear that if there is an inconsistent contractual or proprietary right, then the discretion to order a trustee sale will not be exercised. The usual categories of exception are an agreement concerning the plaintiff’s proprietary interest, an estoppel, a trust or other fiduciary relationship. I consider the possibilities that arise on the evidence.

2. [26]

   Ms Bailey asserts that an agreement was reached during the family provision dispute that “included a provision to the effect that [Mr Bailey] would, if required by Glenice and the Estate, sign all documents required to remove him from the title of (among others) the Property”.

3. [27]

   As noted, any documented settlement agreement is not in evidence. However, Mr Bailey’s evidence is to a similar effect as Ms Bailey’s; he accepts that an agreement was reached, whereby he would relinquish his title to the Property in favour of his sisters. His affidavit evidence is:

4. [28]

   It therefore appears common ground that Mr Bailey was prepared to transfer his interest in the Property if requested to do so by the defendants.

5. [29]

   I consider the evidence of both witnesses on the existence and term of the contract admissible. First, it is admissible pursuant to s 48(1)(a) of the Evidence Act 1995 (NSW) in relation to Mr Bailey, being an admission as to the contents of the document. Alternatively, I consider it admissible under s 48(4)(b), because Mr Bailey gave evidence that the document is ‘unavailable’ to him. In relation to Ms Bailey’s evidence, I consider it admissible pursuant to s 48(4)(b). Her situation was made apparent through her affidavit and submissions that she has not been able to obtain all the documents she required for the proceedings. I therefore consider any documented settlement agreement to be “unavailable” to her.

6. [30]

   I do not accept the submission that it is not possible to construe the nature of the promise Mr Bailey made, because the whole written document is not before the Court. The only term either party refer to is that Mr Bailey would transfer his title in the Property to his sisters on request. In the context of the settlement of a family provision proceedings, it is quite possible this was the only term concerning title to the Property and other terms did not touch on that matter. No party raised a concern with the proper construction of the language the parties have used in their evidence to prove the relevant term of the contract.

7. [31]

   While not conclusive, I consider the existence of that term can also be tested against the conduct of the parties after the time of alleged formation. Mr Bailey’s evidence in cross-examination was that he took no part in the maintenance of the Property as it was a matter for his sisters. Ms Bailey’s unchallenged affidavit evidence was that she continued to pay all expenses relating to the Property after the settlement agreement, including that the original mortgage was paid off in 1996.

8. [32]

   I consider that by reason of the agreement accepted by both parties, Mr Bailey was bound as a matter of contract not to deal with his interest in the Property, other than to transfer his interest to the defendants upon request. Inherent in the promise to transfer his interest upon request, was a promise not to deal with his interest as a beneficial owner. I consider Mr Bailey’s attempts to have the Property sold, as he seeks now, would be a breach of that agreement.

9. [33]

   However, Mr Bailey places considerable weight on the events in 2017, when he agreed to sign the guarantee and mortgage over the Property. There is no doubt that Mr Bailey then became exposed to personal liability as a result.

10. [34]

    The question is whether that conduct changed the legal nature of the relationship between the parties at that time.

11. [35]

    Mr Bailey submits that if an agreement is found, it was “varied by conduct” when the defendants sought to borrow money from the Bank and Mr Bailey was asked to sign a guarantee of the loan obligations. His affidavit evidence is:

12. [36]

    Therefore, it appears that Mr Bailey was prepared to sign the guarantee with the personal obligations it entailed, and did not resist the suggestion that he may be required to transfer his interest in the Property to his sisters. While he may have entered into the guarantee on the representation of Ms Bailey, there is nothing to suggest the Bank was aware of any such representation. Mr Bailey does not claim that he has a legal basis to set aside the guarantee.

13. [37]

    This position is consistent with a document executed on the same day the guarantee was signed, namely 21 December 2017 (2017 Release). The document was witnessed by someone at the Commonwealth Bank of Australia and is stamped as such. It may be that the Bank was aware of that document at the time of the loan, guarantee and mortgage.

14. [38]

    A copy of that document is reproduced below.

15. [39]

    I do not accept that, by reason of the settlement agreement, Mr Bailey was obliged to sign the mortgage or the guarantee. It appears he did so on the basis of the 2017 Release, by which the defendants agreed to release him from any liability concerning the Property.

16. [40]

    Mr Bailey submitted that the entry into the guarantee amounted to a variation by conduct expressed as:

17. [41]

    I do not accept that there was any variation of Mr Bailey’s restricted ability to deal with his proprietary interest as alleged. The 2017 Release must be read together with the guarantee. The substance of both transactions is consistent with the parties attempting to maintain the status quo – Mr Bailey was signing the guarantee, but was to be indemnified for any costs or liabilities concerning the Property. The 2017 Release does not refer to releasing him from his promise to transfer his interest in the Property whenever his sisters requested. I do not accept it is possible to infer the alleged variation, with all its complexity, from the parties’ words and conduct.

18. [42]

    While as a practical matter, the defendants could not orchestrate a transfer of Mr Bailey’s interest unless the mortgage was discharged, or the Bank agreed to release him from the guarantee, Mr Bailey made the submission that such a requirement was a condition precedent to the performance of the obligation to transfer. However, I do not consider it amounts to a relevant variation of his original promise to transfer his interest on request. It merely postponed performance of it. I do not accept that Mr Bailey is now entitled to claim that he is entitled to the beneficial ownership evidenced in the register.

19. [43]

    If that conclusion is wrong, then I consider that an estoppel operates to prevent Mr Bailey seeking to engage the s 66G discretion.

20. [44]

    Recently, the Court of Appeal explained the operation of proprietary estoppel in a domestic context in Kramer v Stone [2023] NSWCA 270. Ward JA, Leeming and Kirk JJA agreeing explained:

21. [45]

    Further, there must be reliance on that expectation and detrimental change of position as a result.

22. [46]

    In that case, Ward P (Leeming J and Kirk JA agreeing) offered the following comments on the test for “reliance” in proprietary estoppel cases.

23. [47]

    This is consistent with what the Court of Appeal observed in Trentelman v Owners - Strata Plan No 76700 (2021) 106 NSWLR 227 at [156]:

24. [48]

    Here, I find that Mr Bailey, as registered proprietor encouraged the defendants to alter their position in the expectation of obtaining Mr Bailey’s proprietary interest in the Property.

25. [49]

    They agreed to settle the family dispute on the basis, inter alia, of that encouragement, and solely contributed to the maintenance and other costs of the Property, without ever looking to Mr Bailey for contribution based on his legal entitlement. While somewhat vague, Ms Bailey’s unchallenged and uncontested affidavit evidence is that she suffered financially because of Mr Bailey not contributing. Mr Bailey also acted consistently with that arrangement and he stated in cross-examination in effect that it was a matter for the defendants how they maintained the Property.

26. [50]

    I consider that conduct gave rise to a proprietary estoppel to the effect that it would be unconscionable for Mr Bailey to assert his legal rights as a registered co-owner for the purposes of s 66G.

27. [51]

    I do not accept that the arrangement between the parties changed with the creation of the loan, guarantee and mortgage for the reasons identified in relation to the argument about an agreement. I consider there was an ongoing arrangement between the parties that Mr Bailey would transfer his interest in the Property when requested, and when the defendants could obtain the Bank’s consent or discharge of mortgage.

28. [52]

    At most, in 1982 Mr Bailey contributed an unknown sum towards the deposit of the Property in question. The highest his evidence of such contribution rises is his recall in cross-examination that at the beginning he contributed something towards the deposit. He had no records to demonstrate such contribution. Ms Bailey’s evidence was that Mr Bailey did not contribute anything. While such a situation may have given rise to a resulting trust in the defendants’ favour, there is no dispute that Mr Bailey has since paid towards the more recent mortgage debt since 2022 and to date.

29. [53]

    However, based on the above, it is unnecessary to decide whether Mr Bailey holds his proprietary interest by way of express or resulting trust for his sisters.

Discretion

1. [54]

   As noted above, the discretion to order a trustee sale will not be exercised, if it would be inconsistent with a contractual or equitable right.

2. [55]

   While the whole history of the relationship between the parties giving rise to the current situation is not in evidence, based on the above, this is not an appropriate situation in which to exercise the discretion.

3. [56]

   Mr Bailey holds his proprietary interest in the Property pursuant to an agreement or on the basis of an estoppel, both of which are inconsistent with the application for trustee sale, and contrary to the wishes of the defendants, who do not want the Property sold. To order the appointment of trustees for the sale of the Property would therefore be inconsistent with the parties’ legal or equitable positions.

4. [57]

   I do not accept that Mr Bailey’s potential right to subrogation is relevant to the discretion. At no time has Mr Bailey been entitled to the rights of the mortgagee by reason of subrogation. In New South Wales, the law is clear that a right of subrogation only arises when the whole of the principal’s obligations to a creditor have been discharged by a guarantor. For example, in In the matter of Fellmane Pty Ltd (in liq) [2020] NSWSC 595 at [46]-[48], Gleeson J stated:

5. [58]

   Mr Bailey does not suggest he has paid the whole of the defendants’ debt and discharged the Bank’s mortgage. Had he wanted to stand in the shoes of the Bank and enforce the proprietary rights of a mortgagee, then he would need to have paid the whole of the Bank debt and thereby have obtained the right of subrogation.

6. [59]

   I consider that making orders for a trustee sale would, in effect, accelerate any future right to subrogation, and tells against the discretion being exercised.

Orders

1. [60]

   I am therefore not satisfied that s 66G orders can be made in the circumstances.

2. [61]

   However, Ms Bailey has raised no defence to Mr Bailey’s claim to be indemnified by reason of him making mortgage repayments as guarantor. Merely because Ms Bailey alleges that Rein J erred in 2017, and a different result would have led to the defendants avoiding the need for the Bank loan, there is no allegation that the Bank has acted improperly in advancing the loan sum and seeking repayment in accordance with the loan, guarantee and mortgage.

3. [62]

   Therefore, even if Ms Bailey’s foreshadowed appeal from Rein J’s judgment is successful and Ms Bailey is entitled to payment from third parties, that would note remove her liability to the Bank, it would merely provide a means of discharging that obligation.

4. [63]

   Therefore, I consider that Mr Bailey is entitled to a declaration in the form of the proposed orders handed to the Court numbered one, it’s appropriate to give judgment for Mr Bailey against the defendants in the sum of $73,387.

5. [64]

   While Mr Bailey has not been entirely successful in his claim, I consider that he is entitled to his costs. I therefore order that the defendants pay Mr Bailey’s costs.

6. [65]

   The summons is otherwise dismissed.