Chettle v Brown [1993] QSC 28 [1993] 2 Qd R 604

IN THE SUPREME COURT OF QUEENSLAND No. 1460 of 1992 BETWEEN: BRIAN LESLIE CHETTLE and LORRAINE ANITA CHETTLE Plaintiffs AND: ANDREW JOHN BROWN, MARGARET BROWN and MARGOT ANNE BROWN First Defendants FOUR YEAR PROPERTIES PTY. LTD. Second Defendant REASONS FOR JUDGMENT - WHITE J. Delivered on the 19th day of February, 1993 CATCHWORDS: Counsel: Solicitors: Caveat - form - land held on trust as partnership asset - individual partners caveating the trust land - amendment to caveat M. Amerena for applicant/second defendant Solicitor for respondent/plaintiffs Butler, McDermott & Egan by their town agentsJohnsons for applicant/second defendant Kinneally Teys for respondent/plaintiffs Hearing Dates: 20th & 21st January, 1993 -- 1 of 11 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: No. 1460 of 1992 BRIAN LESLIE CHETTLE and LORRAINE ANITA CHETTLE Plaintiffs ANDREW JOHN BROWN, MARGARET BROWN and MARGOT ANNE BROWN First Defendants AND: FOUR YEAR PROPERTIES PTY. LTD. Second Defendant REASONS FOR JUDGMENT - WHITE J. Delivered on the 19th day of February, 1993 The applicant second defendant is the registered proprietor of land situated on the Bruce Highway at Nambour. The first two named first defendants are the shareholders and directors of the second defendant. At all material times to the action a motor dealership business was conducted on the land by Babcorp Pty. Ltd. The plaintiffs were the shareholders and directors of Babcorp. Mr. Brown, one of the first defendants, was employed by Babcorp as the financial controller in the dealership business. Mr. Chettle, one of the plaintiffs, was in charge of sales and drew a wage. Mr. and Mrs. Brown and Mr. and Mrs. Chettle had known each other for many years socially and in business in Melbourne. They came to Queensland in about 1988 to set up a car dealership business on the Sunshine Coast. -- 2 of 11 -- 2 The plaintiffs placed a caveat upon the title of the land on 31st August 1992 forbidding the registration of any instrument effecting the land. The applicant seeks an order that the caveat be removed. There are many matters of fact in issue on the face of the affidavits which cannot be resolved on this application. The plaintiffs plead in their statement of claim delivered on 13th November, 1992 that, pursuant to an oral agreement made between Mr. Chettle and Mr. Brown in about May 1988 the Chettles and the Browns commenced to carry on a motor dealership business in partnership at Nambour and that the land over which the caveat is lodged together with the business carried on on the land were partnership assets. The plaintiffs plead that it was agreed that the Chettles and the Browns were to have equal interests in the assets of the partnership. They assert that the funds to purchase the partnership assets were provided jointly by the Chettles and the Browns. (An amended statement of claim tendered after the hearing provides some particulars of the respective contributions). On 17th June, 1991 receivers and managers were appointed to Babcorp by the business's financier ( Toyota Finance) pursuant to a charge and, in due course, the dealership business was sold. The subject land is now leased to the purchaser of that dealership business. The defendants deny that there was at any material time a partnership as asserted or at all between themselves and the plaintiffs. The second defendant wishes to sub-divide and sell the subject land and is prevented by the caveat from proceeding. The caveat is expressed as follows:- -- 3 of 11 -- 3 "An equitable estate or interest as eo-owner in equity of one undivided half-part or share of an estate in fee simple." The grounds set out are:- "Pursuant to a constructive trust arising by operation of law from certain monetary and non-monetary contributions made by the said caveator towards the purchase price with the agreement and intent of thesaid caveator and the said caveatee that by so doingthe caveator would acquire a half estate or interest in the said land." Mr. Amerena for the applicant based his submissions on three grounds, namely, that the caveat is defective as to form and should be struck out; that the evidence supporting the existence of a partnership is so weak that no serious question arises; and, that no caveatable interest has been demonstrated in that the interest of a partner in partnership assets is not such as to sustain a caveat over land which is said to be partnership property. The submission as to form was that the grounds set out to support the interest claimed were internally inconsistent and thus embarrassing. He submitted that, outside the familiar domestic situation, agreement, or common intention as it is usually described, is the antithesis of a constructive trust. The inquiry is not as to the actual or presumed intention of the parties but as to whether, according to the principles of equity, it would be unconscionable for the party in question to deny the trust, see Jacobs, Law of Trusts in Australia, 5th ed., p. 284. Characterising the trust as constructive and yet claiming an agreement which would suggest an express trust is embarrassing but not incapable of amendment, to which I shall refer in due course. It was further submitted that there is a singular lack -- 4 of 11 -- 4 of particularity about the contribution alleged to the purchase of the land and the agreement itself. The essentials to be set out in a caveat are the estate or interest claimed and the quantum thereof and how it is claimed, see Kerabee Park Pty. Ltd. v. Daley [1978] 2 N.S.W.L.R. 222 and Re Moore's Caveat [1985] 1 Qd. R. 31 0. I do not accept that the amount of the monetary contribution needs to be set out in the caveat - that is for the pleadings - and whilst a date for the agreement is desirable, because the contribution is said to be to the purchase price, it is not essential. I do not consider that the caveat fails as to form for that reason. The plaintiffs' statement of claim and the affidavits of Mr. Chettle assert a partnership between the Browns and the Chettles. There is no plea that the second defendant holds the land on trust for the partnership (the amended statement of claim sought to be tendered after the hearing does add this plea) . Mr. Chettle's affidavits do not assert that the second defendant is a trustee. In para. 6 of his affidavit he says:- "It was agreed between the Plaintiffs and the First Defendants [the Browns], prior to those purchases [the business and the land] taking place, that the business and the land would each be owned in equal shares jointly by the Plaintiffs and First Defendants through their interests in Babcorp and the Second Defendant." There is no assertion that the land was bought with partnership moneys. There are a number of documents executed by the parties and Babcorp during the life of the motor dealership business which are not easy to characterise in the light of the plaintiffs' assertions of a partnership. It appears undisputed that the second defendant purchased the subject land with moneys borrowed from A.G.C. secured by way -- 5 of 11 -- 5 of a registered mortgage over the land together with personal guarantees from the Chettles, the Browns and Babcorp. That borrowing and Babcorp's borrowings (to purchase the business) were refinanced in 1989. In about April 1988 Babcorp entered into a lease in writing with the second defendant for a five year term with respect to the subject land. The statements of account for both companies show the rent as having been paid and received respectively. Mr. Chettle seeks to explain the lease as being a requirement of Toyota ~nd an arrangement to enable moneys to come from the business to the second defendant to enable it to reduce its borrowings made to purchase the land. An agreement was executed by the Browns and the Chettles in December 1990/January 1991. Recital C provides:- "The Companies were incorporated and the assets were acquired by the Companies with the intention that the Browns and the Chettles will all have an interest in both of the companies and the property held by the companies (subject to the provisions hereof)." Clause 2. 01 and cl. 2. 02 provide for the interests of the parties: "The parties acknowledge and agree that: 2.01 When the shares in the Companies were acquired by the parties it was the intention of the parties that the business and investment operation of the Companies would be conducted for the joint benefit of the parties. 2.02 When the Companies acquired the business and the Dealership Land the moneys required to fund the purchase (other than funds borrowed from external financiers) were provided jointly by the parties." The agreement appears to assume that the Browns own shares in Babcorp and, as I understand the material, that was not and never has been the case. The agreement provided for the Chettles to -- 6 of 11 -- 6 purchase the Browns' shares in Babcorp and in the second defendant. In due course Toyota indicated that a 50/50 ownership of Babcorp as owner of the. dealership was unacceptable and required a majority shareholding by Mr. Chettle. Mr. Brown says that thereupon Mr. Chettle repudiated the agreement on behalf of the Chettle interests and that he repudiated it on behalf of the Brown interests. Mr. Chettle denies that it was repudiated and asserts that it governs the relations between the parties together with the oral agreement made in 1988. In May 1991 the parties and Babcorp executed an agreement directed, it seems, to putting Babcorp on a more secure financial footing. There were to be further borrowings by Babcorp agreed to by the second defendant. The terms of the lease by Babcorp from the second defendant were redefined. The agreement provided that Babcorp would sell property to the Browns and after paying out the mortgagee would pay the surplus proceeds to Babcorp - to provide further working capital. In the agreement the second defendant acknowledged that it owed Babcorp $118,000 and in order to repay that money it would borrow from Toyota Finance. The second defendant agreed to sell other land which it owned at Buderim and agreed to pay the surplus to the Chettles who would loan the money to Babcorp. Clause 8 of the agreement provided that the second defendant agreed to continue to provide the land and buildings at Nambour on which the business was conducted as security for a bank overdraft to Babcorp. Babcorp agreed to grant the second defendant a fixed and floating debenture charge over all its assets to secure the second defendant's liability -- 7 of 11 -- 7 with respect to the debts of Babcorp and agreed to limit the personal guarantees of the Browns and the second defendant with respect to the liabilities of the second defendant and/ or Babcorp to the sum of $930,000. The Chettles agreed to give indemnities for any future liabilities incurred by Babcorp to the Browns and similarly the Browns agreed to give the Chettles indemnities for any future liabilities incurred by the second defendant. This agreement is not in the language of a partnership relationship. Mr. Chettle says that its purpose was to introduce an equity partner into the business but none was found and the agreement was not acted upon. Mr. Worrell, the receiver of the business, says that he was never informed that the business was run in partnership. Mr. Chettle says that he had no opportunity to tell him so. Toyota says that it did not know that the business was a partnership which Mr. Chettle says he doubts. It is not clear that the Browns were to join in the losses of the arrangement as well as enjoying the profits. These are features which make the assertion of a partnership difficult to sustain. However the whole of the dealings between the parties and the credibility of each of Mr. Brown and Mr. Chettle will need to be scrutinised to ascertain their precise relationship. I would not go so far as to conclude that the state of the evidence is such that a partnership was "inherently improbable", Re Divoca Pty. Ltd.'s Caveat [1991] 2 Qd.R. 121 at 127. The prayer for relief in the statement of claim seeks a declaration that the second defendant holds the land on trust for the benefit of the partnership. The question is then whether -- 8 of 11 -- 8 individual partners have an estate or interest in the land in that circumstance such as to support a caveat. The partnership as a whole is said by the plaintiffs to be the beneficiary of the alleged trust created over the land. If the beneficiary of an unadministered trust has a proprietary interest in trust assets such as would support a caveat, see Costa & Duppe Properties Pty. ltd: v. Duppe [1986] V.R. 90, in my view, individual partners do not have such an interest because of the nature of a partner's interest in the partnership assets. "The nature of a partner's interest in the partnership property has often been explained. The partner's share in the partnership is not a title to specific property but a right to his proportion of the surplus after the realization of assets and the payment of debts and liabilities. However, it has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a 'beneficial interest', notwithstanding its peculiar character. The assets of a partnership, individually and collectively, are described as partnership property (Partnership Act, 1892, as amended (N.S.W.), s. 20). This description acknowledges that they belong to the partnership, that is, to the members of the partnership. In In re Fuller's Contract [1933] Ch. 652 at p. 656, Luxmore J. (as he then was) said: as between the partners, thepartnership property must be dealt with in a particular way, but so far as all the rest of the world is concerned, there is no limitation on the interests of the partners; the partners have the beneficial interest in the partnership assets, which are held together as an undivided whole, but they respectively have undivided interests in them.' ... We think that the interest of the partner in an asset of the partnership is sui generis (cf. Livingston v. Commissioner of Stamp Duties (2) (1960) 107 C.L.R. 411 at pp.453-4). It is as we have said recognised as a beneficial interest." -- 9 of 11 -- 9 Canny Gabriel Castle Jackson Advertising Pty. Ltd. v. Volume Sales (Finance) Pty. Ltd. (1974) 131 C.L.R. 321 at pp.327-8; see also Federal Commission of Taxation v. Everett (1980) 143 C.L.R. 440 at p. 447 and Lindley Partnership 15th ed., pp. 516 et seq and s. 25 of the Partnership Act. In an analogous case where statutory trustees had been appointed for the sale of land pursuant to s. 38 of the Property Law Act, G.N. Williams J. held in Re Trepas Pty. Ltd. (Judgment of 5th July 1991 O.S. No. 618 of 1991) that after vesting in the trustees a eo-owner of land has no caveatable interest but· an interest only in the distribution of the proceeds of sale. Even if it is found that there was a partnership between the Chettles and the Browns and that the second defendant is the trustee of the land for the partnership the plaintiffs as individual partners have no caveatable interest in that land. Mr. Teys was invited to make application to amend the caveat in the course of submissions if he was so advised. He tendered an amended caveat the following morning and an amended statement of claim and sought leave to file an affidavit of Brian Chettle formally swearing to the amendments. The proposed amended grounds are in the following terms:- "Pursuant to a resulting Trust arising by operation of law from an oral agreement made prior to May 1, 1988 between BRIAN LESLIE CHETTLE for the Caveators on the one part and ANDREW JOHN BROWN for himself and MARGARET BROWN and MARGOT ANNE BROWN ('the Browns') of the other part that the Caveators and the Browns would own the said land in equal shares but that it would be held in the name of the Caveatee and from certain monetary contributions made by the said Caveators towards the purchase price of the said land." In Queensland Estates Pty. Ltd. v. eo-Ownership Land Development Pty. Ltd. [1969] Qd.R. 150, a decision of the Full Court of the -- 10 of 11 -- 10 Supreme Court of this Court, Hart J. at pp. 158-9 was of the view that s. 99 of the Real Property Act 1861, which enables a court, on the hearing of the summons to show cause why a caveat should not be removed, to make an order as seems just, enabled a party to amend its caveat "so as to protect the rights actually claimed by the caveator". Even if the amendment to the caveat were permitted it would not reflect the rights actually claimed by the plaintiffs. The land is still pleaded to be partnership land. As Griffith C.J. observed in Municipal District of Concorde v. Coles (1906) 3 C.L.R. 90 at p.108:- "The lodging of a caveat is really in the nature of the initiation of litigation, and only those persons should be entitled to initiate litigation who are entitled to litigate the matter of the dispute which is set up by the caveat." The amendment to the caveat is not appropriate to reflect the interest claimed by the plaintiffs. Accordingly I order that Caveat No. L171161H against the land being Lot 1 on R.P. 107175, in Vol. 6128 Folio 46 and Lot 1 on R.P. 140387 in Vol. 6128 Folio 47 be removed. It is not inappropriate that the plaintiffs have leave to amend their statement of claim. Accordingly leave is given to the plaintiffs to amend the statement of claim in the form tendered and marked Exhibit "A" in the application. The defendants have leave to deliver an amended defence as they may be advised. The plaintiffs are to pay the defendants costs thrown away as a consequence of the amendment to be taxed. I further order that the respondent/plaintiffs pay the second defendant's costs of and incidental to the summons to be taxed. -- 11 of 11 --