Cresswell v Cresswell [2017] VSCA 272 (28 September 2017): specific performance, agreement, contract and equity and procedural fairness

October 19, 2017 |

The Victorian Court of Appeal in Cresswell v Cresswell [2017] VSCA 272 upheld a decision from the County Court which ultimately revolved around procedural fairness and a fair trial.  It also highlighted the importance of clear pleadings.

FACTS

The facts revolve around land and unfortunately arrangements between family members that went awry.  Not an unusual situation which often enough gives rise to litigation.

The Applicantsare the parents of the Respondent and his sister, Tamarand [1].

Prior to 30 November 2001, the Applicants and the Respondent and Tamarand agreed, at [2], that:

(a) the applicants would purchase a property;

(b) the applicants would pay $100,000 towards the purchase price and borrow the remainder by a mortgage facility;

(c) the respondent and Tamarand would each contribute $125 per week to the repayment of the mortgage and would maintain the property;

(d) the applicants would hold the property as an investment for the benefit of the applicants, the respondent and Tamarand; and

(e) on the sale of the property, the proceeds of sale would be applied in payment of each party’s contributions and the balance divided equally between them.

On 30 November 2001 the Applicants purchased, for $294,750, a three-bedroom townhouse at 3 Annie Borat Close, Brunswick (‘the property’) [3], paying approximately $100,000 borrowing the balance of $208,750 from the Commonwealth Bank of Australia (‘the CBA’) secured by a first registered mortgage [4]. In January 2002 they were registered as the property’s proprietors [5]. Soon after the Respondent and Tamarand lived at the property, each paying $125 per week to the Applicants by internet transfers [6]. Towards the end of 2003, Tamarand ceased living at the property and making payments [7]. The Respondent continued to reside at the property [8]   and shortly afterwards the Applicants, the Respondent and Tamarand agreed that:

(a) Tamarand would no longer make payments towards the mortgage;

(b) the respondent would pay $500 a fortnight to the repayment of the mortgage;

(c) the applicants would hold the property as an investment for the benefit of themselves and the respondent; and

(d) on the sale of the property, the proceeds of sale would be applied in payment of each of the applicants’ and the respondent’s contributions, and the balance would be divided equally between them.

From 2004 until 2007, the Respondent increased his payments to $500 per fortnight and in 2007, he commenced paying for outgoings related to the property [10].  In 2007, the Applicants and the Respondent agreed that the Respondent would make full payment of the mortgage. From March 2007, the Respondent further increased the amount of his fortnightly payments to $662 and from March 2008 increased them to $750 [12].

There was a further agreement in September 2009 where:

(a) the Respondent would make his payments of the mortgage directly to the CBA; and

(b) the Applicants would transfer ownership of the property to the Respondent on payment by the respondent of:

(i) the balance of the mortgage;

(ii) the $100,000 deposit paid by the applicants; and

(iii) other outgoings that had been paid by the applicants in respect of the property.

Soon after the Respondent commenced paying instalments  directly into the loan account with the CBA and made some arrangements to obtain a valuation of the property and a loan [15]. Towards the end of 2009, the relationship between the applicants and the respondent broke down [16].

In 2010 and 2011, the Respondent made payments directly to the mortgage [17] but from July 2012 to November 2012 stopped paying the mortgage and from August 2013 he ceased paying altogether [18].

On 1 October 2012, the Respondent lodged a caveat on the property’s title, at [19], stating:

The registered proprietors hold the land on trust for the Caveator pursuant to a constructive or resulting trust.

On 8 August 2014, the Applicants lodged an application with the Registrar of Titles under s 89A of the Transfer of Land Act 1958 for the removal of the caveat [20].

On 10 September 2014, the Respondent commenced a proceeding in the Supreme Court, which was transferred to the County Court, alleging that the Respondent made payments towards the mortgage and other expenses connected with the property with the common intention with the Applicants that, if he did so, he would be beneficially entitled to the property and sought a declaration that the Applicants held their interest in the property on trust for the Respondent and an order to transfer the property to him [21]. On 17 October 2014, the Applicants filed and served a defence and counterclaim alleging that the Respondent was a tenant under two agreements made between the parties, and the alleged breach of those agreements formed the basis of the counterclaim.

On 18 April 2016 the final hearing commenced [24] where relevantly:

  • in response to the Respondent’s opening, the Applicants raised an objection that the opening differed from the indorsement of claim.
  • the respondent applied for, and was granted, an adjournment of the proceeding and leave to file an amended statement of claim.

The respondent’s amended statement of claim, at [25]:

  • stated that a number of agreements were made between the parties, culminating in an agreement made in about September 2009 (‘the 2009 agreement’) and that:

(a) all the payments that the respondent had made since taking up residence at the property were made in reliance upon the agreements between him and the applicants;

(b) it was his common intention with the applicants that, if he made the payments, he would be beneficially entitled to the property;

(c) it was his common intention with the applicants that, if he made the payments referred to in the 2009 agreement, the property would be transferred to him upon payment by him of the balance of the mortgage and repayment of the deposit and other ‘outgoings’ paid by the applicants in respect of the property;

(d) it was unconscionable for the applicants to deny the respondent’s interest in the property and they were estopped from doing so; and

(e) hence, the applicants held the property for the respondent’s benefit under a constructive or resulting trust.

  •  claimed:
    • specific performance of the 2009 agreement.
    • that the Applicants held their interest in the property on a constructive or resulting trust for him and sought an order that they transfer the property to him on payment of the balance of the mortgage, the deposit that they had paid and other ‘outgoings’ paid by them in respect of the property [28].

On 12 October 2016, the Respondent filed a second amended statement of claim [29].

On 19 October 2016, the Applicants filed a second amended defence and counterclaim where they denied:

  • any of the pleaded agreements were made and
  • the Respondent’s entitlement to an order for specific performance of the 2009 agreement or any other remedy.

The primary judge found:

  • the Respondent ‘placed primary reliance upon his application for specific performance of the 2009 agreement’ [31]
  • that the parties had entered into the agreements alleged by the Respondent [31].
  • the Respondent’s requirement in the 2009 agreement to pay the applicants the amount of the ‘outgoings’ to mean ‘outlays’, which included all loan repayments made by the applicants [32]
  • that there should be a decree of specific performance of the 2009 agreement [33] which would be subject to the performance of conditions for payment by the Respondent of the mortgage balance and other amounts to the applicants
  • it was unnecessary to consider the estoppel or constructive and resulting trust claims made by the respondent, because the respondent had ‘obtained the relief which is his primary application’ [34]
  • the trust claims were ‘fall back’ positions and that:

the respondent would be no worse off if his claims to an equitable interest in this property were to fail, than if he had simply gone to the private rental market for the period from 2002 to date.

whilst a finding of detriment along those lines might in theory be made, the evidentiary basis for it does not seem to have been made at the trial in this proceeding

  • there was no evidence of the tenancy agreements alleged by the applicant [35]

DECISION

The Applicant’s proposed grounds of appeal were, at [36], relevantly:

4. In finding that the 2009 agreement was specifically enforceable, the learned Trial Judge conflated equitable principle with contract, and thereby misdirected himself as to the circumstances in which equity requires a promise or assumption to be fulfilled.

5. Alternatively, the learned Trial Judge misdirected himself by finding that the 2009 agreement was specifically enforceable as a contract, as contract was not in issue between the parties, and was contrary to the respondent’s pleadings or his conduct of his case at trial.

6. The learned Trial Judge thereby denied procedural fairness to the applicants as they had no opportunity to allege that (a) the 2009 agreement was an oral contract for the disposition of an interest in land that was unenforceable as it was not adequately evidenced in writing as required by the Statute of Frauds as enacted in Victoria by s 126(1) of the Instruments Act 1958, and s 53 of the Property Law Act 1958, (b) the respondent was in breach of essential terms of it by his failing to continue to contribute to the mortgage according to its terms, and (c) the respondent failed to plead or prove that he was ready, willing and able to comply with it.

The Applicants contended that:

  • the finding that the respondent had suffered no detriment was fatal to the claim for a constructive trust.
  • there could be no resulting trust as there was no evidence that the Respondent had supplied the purchase price for a property which was registered in someone else’s name; in fact, the evidence was to the contrary: the purchase price had been supplied by the applicants.
  • the claim for specific performance could not be upheld as the finding that the Respondent had suffered no detriment was fatal to a claim based on equitable estoppel or to a claim for a constructive trust based on common intention [38].
  • the trial judge conflated the principles of equitable estoppel with those of contract in holding that the term ‘outgoings’ in the 2009 agreement meant ‘outlays’, because he determined that issue by applying the test for implying a term into a contract [39].
  • the Respondent did not allege that he was a party to a ‘contract’ or that there had been a breach of ‘contract’.
  • the judge ‘should not have departed from the equitable claims which the respondent relied upon’, which did not establish that the respondent was entitled to specific performance.
  • they were denied procedural fairness because they had had no opportunity to contend that:
    • the oral agreement for the disposition of an interest in land was unenforceable or
    •  the respondent was in ongoing breach of essential terms of the agreement or
    •  the Respondent had not established that he was ‘ready, willing and able’ to perform the contract [40].
  • the case had been not been clearly pleaded as a contractual claim [41].
  • the pleading in respect of the 2009 agreement was mixed up with the claims in estoppel and constructive trust and the claim in respect of specific performance was properly understood as ancillary to those claims and as a means of giving effect to them [41].
  • the pleading did not contain the usual indicia of a contractual claim in particular:
    • given that this was an agreement between members of a family, an intention to create legal relations should have been pleaded.
    • there was no distinct pleading that the agreement had been breached.
  • during opening submissions, a proposition advanced by counsel for the applicants that the case did not involve contractual claims had not been corrected.
  • the claim in contract was not raised until closing submissions at trial, and, even then, it was raised in a way that was unclear.
  • had a claim in contract been clearly propounded, the defence would have been amended to raise issues such as
  • given the way in which the case was conducted, in upholding a claim in contract the trial judge denied the Applicants procedural fairness [41].
  • once trial counsel for the Applicants had said that the case did not involve contract it was incumbent upon counsel for the Respondent to say that that was in error [41].
  • the case should not have been allowed to proceed on a misapprehension as to what were the issues to be decided [41].

The Court summarised the Applicants’ principal argument as being that the Respondent did not put them fairly on notice that his claim was for the specific performance of the 2009 agreement as a contract and that that was the sole basis upon which the respondent succeeded at trial [47].

The Respondent contended that:

  • the grounds of appeal relating to a constructive trust and a resulting trust should be dismissed as the trial judge had not found that either form of trust arose [42]
  • specific performance is a remedy that does not depend upon a finding that there is a constructive trust being an independent equitable remedy based on agreement between the parties.
  • specific performance was explicitly sought in the statement of claim & not  auxiliary to a finding of an implied trust or estoppel. Allegations of implied trust and estoppel had been made in the alternative to the primary claim for the specific performance of the 2009 agreement.
  • once the court was satisfied that the agreement was made, there was no longer any need to rely upon principles of equitable estoppel or implied trust & specific performance was available to compel performance of an executory contract.
  • there had been no denial of procedural fairness in respect of the claim relating to the 2009 agreement as
    • the amended and the further amended statements of claim the Respondent had pleaded its existence and had claimed an order for its specific performance.
    • the Applicants had joined issue on the existence of that agreement and positively alleged that the Respondent had not performed it.
    • the Applicants were seeking to raise matters on appeal that had not been run at trial and that, had they been run at trial, it would have been necessary to identify them in a notice given under rule 13.07 of the County Court Civil Procedure Rules 2008.[44]
  • the pleading of the 2009 agreement differed from the pleading of the earlier agreements in the second amended statement of claim there was a pleading of mutual promises which provides the consideration necessary for the formation of a contract.
  • specific performance is a remedy available for contracts and the pleading contained an allegation of breach, namely:
    • the denial by the Applicants that they held the property for the benefit of the Respondent
    • the Applicants’ contention that he was only entitled to a share of any profit made upon its sale.
  • while relief for estoppel may have consequences similar to the specific performance of a contract, specific performance is not a remedy for estoppel.
  • in the Applicants’ closing written submissions at trial they responded to a case in which specific performance was being sought for a contract.
  • in oral submissions, the Respondent had addressed a case in contract & counsel for the applicants had not protested then that he had been under any misapprehension [45].

It was not in issue that the judge decided the case in contract [48]. The question was whether it was open to him to take that course.

The Court reproduced the Second Amended statement of Claim, at [49], and noted that there was force in the Applicants’ contention that the pleading did not plead “with sufficient clarity” that the Respondent was seeking to enforce the 2009 agreement as a contract because:

  • the amended statement of claim refers to none of the agreements, including the 2009 agreement, as a contract.
  • the claims in respect of each of the agreements involve claims in relation to equitable estoppel.
  • the claim in relation to the 2009 agreement contains a claim for common intention estoppel or constructive trust
  • there was no readily recognisable allegation of breach of contract [51].

The Court noted that:

  • a claim for the specific performance, as was the case in relation to the 2009 agreement, was “usually predicated on the enforcement of contracts” [52] and citing Commonwealth v Verwayen that ‘the enforcement of promises is not the object of the doctrine of equitable estoppel. The enforcement of promises is the province of contract’ [57]. However it may be used to explain the enforcement of non-contractual obligations [55]
  • any agreement for the sale of land remains executory until all the documentation necessary to achieve it has been executed, including the sale of land agreement necessary to comply with the Statute of Frauds and the transfer.  The Respondent  submitted that what had been sought was the enforcement of an executory contract which was not made clear in the pleading [54]
  • the pleading did not identify what ‘all things necessary or required to transfer the property to the plaintiff’ were to be.
  • at the commencement of the trial, counsel for the Respondent said that the primary claim is was in relation to the 2009 agreement and that he sought specific performance of that agreement [58] 
  • counsel for the Applicants said that
    • No express trust was alleged, no contract of a binding nature was alleged and that it was  all entirely confined within the doctrines of constructive or resulting trust [59].
    • he understood the case as involving one or other of the forms of equitable estoppel [60]
  • it should have been clear that counsel for the Applicants had not apprehended that he was facing a case in contract [60]
  • the Applicants relied on extensive final written submissions which did not address any claim for the specific performance of the 2009 agreement as a contract [61] but rather focused on claims of constructive trust, estoppel and equitable compensation.
  • following the Applicants submission counsel for the Respondent commenced his final submissions:
    • repeating the submission  made in opening to the effect that the ‘primary claim is for specific performance’
    • in the alternative‘an order effectively for the sale of the property and the division of the proceeds’
  • shortly after the commencing of final submissions, counsel for the Respondent handed up an ‘outline of argument’ which counsel for the Applicants had no opportunity to study it [63] did not use the word ‘contract’; but referred to  other terms “redolent of contract”[66].

Regarding situation where a trial proceeds beyond the pleaded case the Court cited:

  • Water Board v Moustakas where  Mason CJ, Wilson, Brennan and Dawson JJ said:
    • a narrow or technical view should not be taken.
    • particulars may not be decisive if the evidence has been allowed to travel beyond them, although where this happens and fresh issues are raised, the particulars should be amended to reflect the actual conduct of the proceedings.
    • it is necessary to look to the actual conduct of the proceedings to see whether a point was or was not taken at trial, especially where a particular is equivocal.
  • Suvaal v Cessnock City Council where McHugh and Kirby JJ said:
    • if a party participates in a trial to meet a particular case which that party has pleaded and presented in only one way, it would be unfair to the other party to decide the case on a different basis of which the losing party had no fair notice and no proper opportunity to defend.
    • while cases stray from the pleadings without consequential amendment, such practices cannot excuse procedural injustice.
    • a party is entitled to know the issues of fact that are to be decided in a trial where these are determinative of its success or failure

The court acknowledged that the issue was not straightforward noting that:

  • on the one hand the Respondent pleaded an agreement and sought an order for its specific performance, that remedy is usually associated with contract & the applicants should have understood that the claim was one made in contract.
  • on the other hand:
    • some legal encyclopaedias suggest that specific performance may be awarded in aid of an estoppel
    • if there was a claim in contract pleaded, it was intermingled with claims for one or another form of equitable estoppel.
    • it was understandable that ‘specific performance’ may have been taken to be a loose expression used to describe the kind of relief that was sought by way of estoppel or constructive trust [71].

The court found the parties at trial were at cross purposes with:

  • the Applicants in their opening saying that no case in contract had been made against them, an  assertion  remained uncorrected.
  • the Respondent’s opening address stating that he ‘effectively’ sought specific performance. This shorthand reference did not identify the foundations relied upon for relief of that description. Again, what was said was open to different interpretations.
  • the Applicants’ closing address treating the case as one of estoppel or constructive trust and not one of contract.
  • the Respondent only in final written submissions raising for the first time the principles from which a ‘contract’ could be inferred invoking notions pertinent to the proof of a contract and treating the claim for specific performance as distinct from the claims based on equitable estoppel and constructive trust but even then:
    • sought specific performance on the basis of an ‘agreement’, rather than any contract.
    • relied upon a common intention constructive trust only to support an alternative form of relief by way of an order for sale of the property and division of the proceeds.
    • still made no reference to there being a claim in contract. The most that can be said is that, by the time of final address, counsel for the respondent [74].
  • the applicants treated the claim as one for specific performance in the loose sense [75].

The court found the pleadings were far from clear as they :

  • did not identify any contract (including any consideration for a contract),
  • did not plead any contractual terms or any breach of those terms,
  • interspersed between the paragraphs which,inferentially, contained allegations about breach of contract were with allegations of detrimental reliance relating to estoppel and trust claims;
  • was ambiguous in treating specific performance without reference to notions of contract

The Court found that counsel for the Applicants was justified in treating the case in the way that he did [75] and that the applicants were not put fairly on notice that a claim for specific performance of the 2009 agreement as a contract was being made [77].

The Court noted that had the claim been clearly brought in contract it would have had a different complexion. As such it was not a case where even if procedural fairness had been afforded, the result would inevitably have been the same [78]

The appeal was allowed and the matter was remitted to the County Court [79]

ISSUE

This case highlights that pleadings matter. The slavish adherence to archaic pleading rules are no longer part of the litigation landscape but pleadings must still contain material facts, identify causes of action without difficulty and be logical in their layout.  Something that was lacking at the trial.

Clear, precise and logically consistent pleadings make it significantly easier for both parties to avoid what happened in the trial in this case.  In the Court of Appeal’s  forensic analysis in determining how the pleadings evolved and the trial was run it is clear that both parties had a different understanding of what was in controversy.  The decision also highlights the need for parties to take issue early with badly drafted pleadings and making objections at the earliest opportunity when there is confusion and ambiguity in the way an opponents case is being presented.   Sometimes taking issue with pleadings before trial is money well spent.  Vague, discursive and overbroad drafting can give rise to the danger of the pleadings meaning what a party wants them to mean.

One Response to “Cresswell v Cresswell [2017] VSCA 272 (28 September 2017): specific performance, agreement, contract and equity and procedural fairness”

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