Parties Dispute Quantum of Contributions to Property

Woods v McKinlay (No 2) [2021] NSWSC 1510 (23 November 2021)

A house was purchased by the defendants for the plaintiff to live in.  The purchase financed with a loan in the names of the defendants.  The plaintiff contributed to the mortgage repayments and paid outgoings.  The Court, in resolving whether or not the plaintiff was merely renting the property from the defendants, relied upon the terms of constructive trust.

Facts:

The defendants are the registered proprietors of a property at Evans Road, Telopea, near Parramatta.  The plaintiff claims an equitable interest in it.  The plaintiff, Antoinette Patricia Woods, and the first defendant, Orlene Bernadette McKinlay, are sisters.  The Telopea property was purchased by Orlene and David in 2001.  

Orlene and David purchased the Telopea property in 2001 with the intent that Antoinette would live there, and that is what happened.  Antoinette remains in occupation.  The purchase was financed with a loan (strictly speaking, two loans with the same terms) for the amount of $415,500in the names of Orlene and David. Following the completion of the family law proceedings between Antoinette and her former husband, and the receipt of her property settlement, Antoinette paid the sum of $130,000 off the principal amount outstanding on the loan.  

Later she had Orlene re-draw $15,000 for her.  Antoinette has made a net payment of $115,000 off the loan principal.  Since the property was purchased, Antoinette has also paid all or nearly all of the council rates, water rates and insurance costs for the property. She has maintained it and made some improvements to it. 

Since the completion of the family law proceedings in mid-2002, she has made regular monthly payments to Orlene and David towards the payments on the loan.  Antoinette claims to have made some other payments towards the loan up to late 2002.  Early on the payments did not fully cover the interest being charged. According to Orlene and David, the shortfall over the life of the loan is about $47,000.

The amount still outstanding on the loan is about $230,000.  Antoinette’s statement of claim pleaded a case of equitable estoppel, giving rise to a claimed entitlement to the whole of the equity in the Telopea property.  Antoinette’s case was that the property was purchased for her and was effectively held by Orlene and David on her behalf.  Orlene and David accepted that the property was purchased with the intention that Antoinette would live there but said that this was as a tenant only; the regular payments made by Antoinette were rent and nothing more. 

Antoinette in her amended statement of claim sought an order providing for the property to be sold; the parties (Antoinette on one hand, and Orlene and David on the other) would receive repayment of their respective contributions to the capital cost; and the remainder would be divided between them.  Orlene and David maintained their claim to the whole of the equity in the property.

Issues:

I. Whether or not the plaintiff was merely renting the property from the defendants.

II. Whether or not the property was subject to a joint endeavour constructive trust.

Applicable law:

Anson v Anson [2004] NSWSC 766 - where it was found that the acquisition and improvement of the property was a joint endeavour of the relevant type, which had come to an end as a result of the severance of the joint tenancy in circumstances where no agreement had been reached by the parties to cover that eventuality.

Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 - held that equity favours equality and, in circumstances where the parties have lived together for years and have pooled their resources and their efforts to create a joint home, there is much to be said for the view that they should share the beneficial ownership equally as tenants in common, subject to adjustment to avoid any injustice which would result if account were not taken of the disparity between the worth of their individual contributions either financially or in kind.

Bijkerk Investments Pty Ltd v Bikic [2020] NSWSC 1336 - Leeming JA, sitting at first instance, questioned whether the common interest constructive trust continues to exist as a recognisable doctrine in Australian law. 

Bryson v Bryant (1992) 29 NSWLR 188 - relied upon by his Honour in considering that as the arrangement had been terminated by the death of the deceased it was not a premature end. 

Craig v Silverbrook [2016] NSWSC 530 - pointed out that there have been suggestions from the High Court that the principle is ripe for reconsideration, although that has not yet happened. 

Gissing v Gissing [1970] UKHL 3; [1971] AC 886 - relied upon in stating that in counsel’s taxonomy a common interest constructive trust is a trust recognised by the court where property is acquired by A pursuant to an agreement with B, or otherwise under a common intention with B, that B is to have an interest in it, and B acts to his or her detriment on the basis of that common intention, typically by contributing to the purchase or holding costs.

Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 - provided that equity acts to prevent one party to the relationship from obtaining an advantage from legal title acquired by that party in the course of the joint endeavour where it was not agreed that that party would so benefit. 

Nelson v Nelson (1995) 184 CLR 538 - relied upon in holding that Orlene and David are not themselves seeking equitable relief, so the imposition of a condition that they amend their tax returns may not be directly available.

Pallant v Morgan [1953] Ch 43 - Harman J found that the agents’ agreement was insufficiently certain to give rise to a binding and enforceable contract.

Shepherd v Doolan [2005] NSWSC 42 - where although such a trust is described as a constructive one, it can only be recognised where the parties did actually hold the relevant common intention when the property was acquired.

Stowe v Stowe (1995) 15 WAR 363 - a case of de facto relationships where the possibility of taking into account indirect and non-financial contributions made by the plaintiff as homemaker could be taken into account.

Togias v NSW Trustee and Guardian [2021] NSWSC 573 - identified the elements of the cause of action as the parties’ entry into the joint endeavour, and the acquisition of property pursuant to it. 

Watson v Foxman (1995) 49 NSWLR 315 - observed the difficulties of proof of the content of oral agreements or representations apply with particular force to Antoinette’s evidence.

West v Mead [2003] NSWSC 161 - held that part of the justification for imposing the Baumgartner constructive trust is that the parties have jointly been building up assets, on the basis that those assets will be available for the joint endeavour in future. 

Zhang v Metcalf [2020] NSWCA 228 - provides that for the purposes of a joint endeavour constructive trust, loan repayments, at least of principal, count as “contributions”. 

Analysis:

In a letter dated 2 August 2002 addressed to Coralie Stapleton of the ACT/NSW Regional Registrar’s office of the Child Support Agency, Antoinette stated that she was paying rent of $350 per week and was “in arrears for the last four months due to financial hardship”.  Furthermore, a letter dated 31 March 2006 from Antoinette to Orlene and David states "This is to confirm that I Ms Antoinette Woods is currently renting the property [XX] Evans Road, Telopea NSW at a monthly [illegible] of $1,200."  The March 2006 tax letter referred to her “renting” the property, was signed by her at Orlene’s request, after Orlene told her that she was potentially in trouble with the Tax Office.  

During the first year or so Antoinette’s contributions did not cover the whole of the interest cost.  Orlene was required to tip in money from her own earnings and she also obtained contributions from David.  The claim made on Antoinette's behalf was that the property was subject to a joint endeavour constructive trust.  While the parties agreed that Antoinette would occupy the property and pay the outgoings and interest on the mortgage, there was no agreement about who would get the equity in the property.  

Mr Horowitz, counsel for Orlene and David, contended that the joint endeavour constructive trust could not arise unless the joint intention involved mutual economic benefit to the parties.  However, applying the Muschinkski principle, there is no need to consider whether the facts of the case would fit a common intention constructive trust (or, if that is only an application of proprietary estoppel, whether that doctrine would apply as originally pleaded).

Conclusion:

The Court concluded that Antoinette has made out her case for the imposition of a constructive trust over the Telopea property.  Subject to further submissions, the constructive trust will provide for sale of the Telopea property with the proceeds being applied first in repayment of Antoinette’s contribution to the purchase cost (as indexed) and the remainder being divided equally between Antoinette and Orlene and David.  Arrangements should be made for the sale of the Telopea property, the distribution of the proceeds, and the lodgement of trust tax returns for the period from 9 December 2019 onwards.