Can I enforce an unregistered restrictive covenant?

In Paragreen v Lim Group Holdings P/L [2020] VSCA 84, the Court of Appeal (Tate, Kaye and Niall JJA) examined whether the respondent could enforce an unregistered restrictive covenant over a laneway against registered proprietors of land which included part of the laneway. 

Background facts

The applicants were the registered proprietors of a property in West Melbourne. The respondent was the registered proprietor of the neighbouring property. The applicants’ property included a strip of land (‘the laneway’) on its western side, which abutted the property of the respondent, and which was subject to a registered easement of carriageway in favour of the respondent’s land.

The respondent purchased its property with the intention of erecting a multi-unit development on it.

The laneway was immediately to the east of the respondent’s property. 

In the course of the development, the respondent’s contractors made extensive use of the laneway in order to carry out the work.

The respondent commenced proceedings in the County Court against the previous owner of the applicants' property. Those proceedings were resolved by an agreement contained in Terms of Settlement. They provided (among other things) that the previous owner would cease to park vehicles on the laneway.

By a contract made in 2009, the previous owner sold the laneway and the applicant's property to a property developer.  

In due course, the developer applied to redevelop and subdivide the applicants' property and a property next door. The development was to consist of three dwellings. The Plan of Subdivision depicted unit 3 as covering the northern section of both the applicants' property and of the laneway. In effect, it included some 9.68 metres of the northern section of the laneway. The two other units in the vendor's development abutted the laneway, with vehicle garages accessed from the laneway. The Plan of Subdivision depicted the section of the laneway that was adjacent to those two units as ‘common property’. The Plan of Subdivision noted that the laneway was subject to the easement of carriageway in favour of the most easterly of the four lots owned by the respondent.

By a contract of sale made in 2011, the applicants purchased the northern most unit in the subdivision from the developer. The contract of sale included a Vendor’s Statement provided pursuant to s 32 of the Sale of Land Act 1962, which annexed a number of documents including the Terms of Settlement.

When the applicants took possession of their property, the right of way was an open laneway. The applicants were a young married couple, and in the years that followed they had two children. During that time, there were a number of intrusions and attempted break-ins to the applicants’ property. The applicants were concerned about their security, and they erected a gate inset two or three metres from their southern boundary across the right of way. At one stage, they also placed a chicken coop, with some chickens in it, and some children’s play equipment on it.

In response, the respondent commenced the proceedings in the County Court, based first, on its rights under the easement, and, secondly, on rights that it claimed to have against the applicants pursuant to the Terms of Settlement, which it alleged contained an unregistered restrictive covenant in the laneway, which precluded the applicants from parking their motor vehicle on it.

The judge, who heard the trial of the proceeding held that the Terms of Settlement contained a restrictive covenant over the laneway, and that notwithstanding that it was unregistered, the applicants were bound by it because it would be fraud, for the purpose of s 42 and s 43 of the Transfer of Land Act 1958, for them to disregard its terms. 

The respondent claimed (among other things) that the applicants had notice of the Terms of Settlement and the covenants at the time that they purchased their property, and, further or in the alternative, the applicants took title to their property subject to the Terms of Settlement and covenants. 

In response, the applicants raised a number of different defences to the claim based on the Terms of Settlement. They included that at the time at which they took title to the land, the respondent had not lodged any caveat on the title to that land, and accordingly the applicants took a transfer of the land free from any unregistered interests or encumbrances by reason of the operation of s 42 and S 43 of the Transfer of Land Act. 

The evidence

The only relevant evidence given at trial was given by the second applicant. 

The advertisements for the sale of the property stated that it had a car parking space appurtenant to it (the applicants were only considering properties that had a car parking space). When the Applicants purchased the property they believed that they were getting a car parking space on it. The existence of that car parking space was ‘factored into’ the amount of the Applicants' offer to the vendor.

As a result of receiving the Vendor’s Statement, the Applicants knew of the Terms of Settlement between the previous owner and the respondent. However, they believed that the terms were a ‘private agreement’ between the previous owner and the respondent. The vendor never asked the applicants to agree to be bound by the terms. 

Reasons for judgment

The registered easement

The trial judge noted that the easement was only appurtenant to the most eastern lot owned by the respondent, and considered that the activities that the respondent intended to carry out on the right of way were for the benefit of all the four titles, without discrimination between them. Thus, the intended use of the right of way, by the respondent, was excessive. 

The judge further considered that the right of carriageway of the respondent over the easement did not entitle it to use the carriageway for the purpose of carrying out maintenance and construction works on the dominant tenement. His Honour further considered that the gate, installed by the applicants, did not constitute an unreasonable interference with the respondent’s right of way over the easement. Accordingly, he concluded that the present use made by the applicants of the part of their land comprising parts of the laneway did not constitute an unreasonable interference with the respondent’s rights as owner of the dominant tenement. 

The judge further noted the evidence that over a period of time the applicants had parked various vehicles on their portion of the right of way. He accepted the contention, made on behalf of the applicants, that there was no reason for the respondent or its licensees to traverse the area to the north of the gate installed by the applicants. Accordingly, the use of that area by the applicants, to park their vehicle, did not constitute an unreasonable interference with the rights of the respondent under the easement.

The unregistered restrictive covenant

The trial judge held that the Terms of Settlement constituted a restrictive covenant, although not registered under the Transfer of Land Act. 

The judge then held that the Terms of Settlement formed part of the Vendor’s Statement that was received by the applicants before they purchased the property, and the applicants therefore ‘took with notice of this promise not to park’.

The trial judge concluded that the effect of clause 7 of the Terms of Settlement, and of S 79 of the Property law Act 1958, was that the Terms of Settlement should be regarded as promises made by the applicants as successors in title to the previous owner.

s 42 and s 43 of the Transfer of Land Act

In respect of the reliance by the applicants on s 42 and s 43 of the Transfer of Land Act 1958, the trial judge referred to the High Court decision in Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604, and the decision of Vickery J in Body Corporate No 12870 v Aldal Pty Ltd (2010) 29 VR 81. He noted that the applicants did not suggest that they were unaware of the existence of the Terms of Settlement. His Honour concluded that the Terms of Settlement were an ‘assumption’ which ‘underlay’ the contract of sale to the applicants, so that it would be fraud, for the purpose of s 42 and s 43 of the Transfer of Land Act 1958, for the applicants to disregard them. 

Three of the grounds of appeal were directed to the conclusion by the judge that it would be fraud, for the purposes of s 42 and s 43 of the Transfer of Land Act, for the applicants to disregard the Terms of Settlement.

The Court of Appeal 

At paragraph 75 of their joint judgment, the Court of Appeal concluded that three points were clear from an analysis of the judgments in Bahr v Nicolay, as follows:

First, the High Court confirmed the long-standing principle that the exception of fraud, in s 42 and s 43 of the Transfer of Land Act, refers to actual fraud, that is, dishonesty or moral turpitude. A finding of equitable or constructive fraud is of itself insufficient to constitute fraud under the Transfer of Land Act, unless the conduct of the registered proprietor, as such, involves actual dishonesty.

Secondly, the registered proprietors in that case purchased and took title to the property in question with the knowledge and understanding, and having acknowledged, that they were bound by the unregistered interest of the plaintiffs, so that the acquisition by them of their registered interest in the property was subject to the right of the plaintiffs to repurchase the property from them.

Thirdly, in Bahr, each of the five judges held that those facts gave the plaintiffs an in personam right in equity against the registered proprietors, that was justiciable at the suit of the plaintiffs. Only two members of the Court — Mason CJ and Dawson J — went further and found that the conduct of the registered proprietors in denying the right of the plaintiffs to repurchase the property from them, constituted actual fraud within the meaning of the Transfer of Land Act.

The Court of Appeal concluded that plainly, the facts of the present case are not only different, but may be materially distinguished, from those that were before the High Court in Bahr. 

The judge was correct to note that the contract of sale expressly incorporated the Vendor’s Statement, and that General condition 1.1 of the contract provided that the applicants purchased the property subject to ‘any encumbrance shown in the Vendor’s Statement‘. However, it was at that point that his Honour’s analysis broke down. Cl 1 of the Vendor’s Statement, under the heading ‘Restrictions’, provided that information concerning any easement, covenant ‘or other similar restriction’ affecting the property was ‘set out in the attached copies of title document(s)’. Clause 8 of the Vendor’s Statement defined the phrase ‘documents concerning title’ in terms of three specific categories, namely, an authorised reproduction of the folio of the register, the proposed plan of subdivision, and the title plan. Relevantly and importantly, those categories did not include the Terms of Settlement. Axiomatically, as a matter of construction of the relevant contractual documents, the applicants, by signing the contract of sale with Mr Ryan, did not thereby undertake or agree to be bound by the obligations contained in the Terms of Settlement.

Further and importantly, the evidence in the case, on which the judge found the assumption which underlay the contract of sale to the applicants, went no further than the contractual documents. There was no evidence, at all, of the kind adduced in Bahr. Importantly, there was no evidence that the applicants gave an assurance or undertaking to the developer, or to his agent, of the kind that the registered proprietors gave in Bahr.

At paragraph 82, the Court of Appeal noted that the evidence in the case did no more than establish knowledge by the applicants of the Terms of Settlement when they purchased their unit. As s 43 of the Transfer of Land Act, and longstanding authority, including Bahr, make clear, that evidence was insufficient to bind the applicants as registered proprietors of the unit, or to form a basis for a finding of fraud.

The Court of Appeal noted that in the conclusion to his reasons, the judge found that it would be ‘contrary to good conscience’ for the applicants to disregard the Terms of Settlement, which was the foundation of his conclusion that the applicants’ conduct, in disregarding the Terms of Settlement, would be fraud for the purpose of s 42 and s 43 of the Transfer of Land Act. 

At paragraph 84 the Court concluded, three points may be clearly made concerning that conclusion.

First, it would seem that the judge erroneously conflated what might, conceptually, be the basis of an in personam claim in equity, in an appropriate case, with actual fraud under the Transfer of Land Act. As the High Court recognised in Ferguson, not all species of fraud, which attract equitable remedies, will amount to fraud for the purpose of the Transfer of Land Act. The two concepts are materially different and distinct from each other. 

Secondly, in any event, there was no foundation in the evidence for a finding that it would be ‘contrary to good conscience’ for the applicants to not consider themselves bound by the Terms of Settlement, and, in particular, to exercise their legal right, as registered proprietors, to park their vehicle in the section of the laneway owned by them.

Thirdly, the conduct of the applicants, in exercising that right, could not, on any analysis of the facts, be found to constitute actual fraud (that is, dishonesty or moral turpitude) for the purpose of the Transfer of Land Act. Nor, the Court of Appeal added, could it be sufficient to be the foundation of some kind of claim in equity. 

The Court of Appeal concluded that the trial judge erred in holding that the respondent had established fraud, under s42 and s 43 of the Transfer of Land Act, comprising the conduct of the applicants in disregarding the Terms of Settlement. 

Conclusion 

The case is of interest due to the Court of Appeal's analysis of the requirements that need to be established in order to make a successful claim alleging fraud under s 42 and/or s 43 of the Transfer of Land Act. 

They confirmed that knowledge of an unregistered instrument (in this case a restrictive covenant) and choosing to ignore that unregistered instrument does not amount to fraud. As the cases have held for more than a century, fraud under the Transfer of Land Act means actual fraud, that is, dishonesty or moral turpitude. A finding of equitable or constructive fraud is of itself insufficient to constitute fraud under the Transfer of Land Act, unless the conduct of the registered proprietor, as such, involves actual dishonesty.

WG Stark

Hayden Starke Chambers

Are there any cases about the Victorian retail tenancies moratorium due to the Covid-19 pandemic?

In C B Buffet (Burwood) Pty Ltd v Delloyd Pty Ltd [2020] VCAT 1234 VCAT member Kincaid heard an application for an injunction to restrain a landlord from taking possession of retail premises. 

The case is of interest as it considered the application of the moratorium on rent in retail leases introduced by the Victorian government for the Covid-19 pandemic. 

As readers will know, in order to establish an entitlement to interlocutory injunctive relief an applicant must first demonstrate that there is a serious question to be tried as to its entitlement to relief. In respect of this question, the applicant must make out a prima facie case in the sense of demonstrating that, in the circumstances, there is a sufficient likelihood of success at trial, in respect of the question, to justify the preservation of the status quo pending the determination of the parties’ rights at trial. This does not mean that the applicant has to establish that it is more likely than not that it will succeed at trial. How strong the probability needs to be depends upon the nature of the rights asserted, and the practical consequences likely to flow from the relief sought.

An applicant must also establish that the balance of convenience favours the granting of an injunction. The Tribunal should take whichever course appears to carry the lowest risk of injustice should it turn out to have been wrong, in the sense of granting an injunction to a party who fails to establish its right at trial or failing to grant an injunction to a party who succeeds at trial.

Background

The tenant alleged that it operated a Chinese buffet style restaurant, and that it suffered a decline in business “from around January 2020” due to the Covid-19 pandemic.

The member stated that it was noteworthy that in late January 2020 the first Australian cases of Covid-19 were reported, mainly incoming travellers from China. The first Australian death from Covid-19 was reported on 1 March 2020, and the WHO declared the pandemic on 11 March 2020. News reports at the time indicated, however, that by early February 2020 Chinese restaurant businesses in Melbourne had substantially lost their customer base, and by mid-February 2020 many well-known Chinese restaurants in Melbourne had been forced to close.

The tenant gave evidence that in “early February 2020” its business was closed.

On 13 March 2020 the tenant received from the landlord a notice of default, which required the tenant to remedy certain defaults within 14 days. 

On 27 March 2020 the landlord took possession of the premises due to the non-payment of rent and other outgoings claimed in the notice of default.

On 29 March 2020 the National Cabinet announced a set of principles by which there should be a moratorium on evictions of commercial and residential tenants over the next six months for tenants who were unable to meet their commitments due to the impact of the Covid-19 pandemic. The principles were formalised on 3 April 2020, and were subsequently contained in what was called the National Cabinet Mandatory Code of Conduct-SME Commercial Leasing Principles During Covid-19 (the “Code of Conduct”).

These principles subsequently became the subject of legislation in Victoria (the “Covid-19 legislation”), comprising:

(a) COVID-19 Omnibus (Emergency Measures) Act 2020 (the “Act”), which came into operation on 25 April 2020;

(b) COVID-19 Omnibus (Emergency Measures)(Commercial Leases and Licences) Regulations 2020 (the “Regulations”), made 1 May 2020 under section 15 of the Act, but taken to have come into operation on 29 March 2020; and

(c) Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (the “Rules”), which came into effect on 9 April 2020.

In summary, the Regulations provide that where a tenant has an “eligible lease” as defined in section 13 of the Act, it is entitled to avail itself of a rent relief regime as described in the Regulations. When promulgated, the Regulations were to expire on 29 September 2020, but they have since been extended.

One of the requirements for qualification as an “eligible lease” was that the lease was in effect on the day the first regulations made under section 15 of the Act came into operation. That date was 29 March 2020. The landlord submitted that the lease, having been brought to an end on 27 March 2020, did therefore not qualify as an eligible lease. 

The landlord also submitted that this was relevant when considering the tenant’s alternative claim for relief against forfeiture, and the liabilities the tenant would have to meet as the usual condition of granting relief.

Interestingly for our purposes, the tenant alleged that the landlord was not entitled to re-enter the retail premises other than by having first complied with the provisions of the Act and the Regulations.

Regulation 9(2) of the regulations provides:

A landlord under an eligible lease must not evict or attempt to evict a tenant under the eligible lease to whom sub-regulation [9(1)] applies.

As noted, an eligible lease under the Act, being a lease that therefore had the protection of the rent relief provisions of the Regulations, was one that was in effect on 29 March 2020. The Tribunal found in this case that there was no serious question to be tried concerning the right of the landlord to bring the lease to an end by re-entry on 27 March 2020, and as a consequence the Tribunal found that there was no serious question to be tried concerning the right of the tenant to the protections against ejectment provided by the Covid-19 legislation.

As well as injunctive relief, the tenant claimed in the alternative relief against forfeiture. 

The landlord submitted that as to the future rent, the tenant may not be able to pay it for months or years as its capability of doing so, being linked to the tenant’s turnover, would require the tenant promptly to operate at the same level as the period prior to the onset of the Covid-19 pandemic. 

The Tribunal concluded that the tenant did not intend to seek relief from its obligation to pay rent and outgoings pursuant to the Covid-19 legislation, such that the amount of rent payable by the tenant until its business started operating again would be a matter for determination, failing agreement between the parties.  

The Tribunal accepted the evidence of the tenant’s director to the effect that the tenant is enrolled in the JobKeeper Scheme, and that the director is an “eligible business participant” engaged in the business of the tenant and entitled to receipt of the Jobkeeper payment. The Tribunal also accepted that the tenant qualified for the JobKeeper Scheme, as “carrying on business” in Australia on 1 March 2020, notwithstanding the landlord having taken possession of the premises on 27 February 2020. 

However, the Tribunal concluded that in regard to the tenant's obligation to pay rent and other amounts in arrears as a condition of the granting of relief against forfeiture, there was no serious question as to whether the tenant was entitled to take advantage of the rent relief provisions contained in the Covid-19 legislation. The Member accepted the landlord's submission that the lease was not an “eligible lease” within the meaning of section 13 of the Act because there was no serious question as to whether it was in effect on 29 March 2020. The tenant would therefore not be entitled to any rent relief or relief from any liabilities under the Covid-19 legislation.

Ultimately the Tribunal granted the tenant’s application for relief against forfeiture on the basis that all rent and outgoings that would otherwise have been paid by the tenant to the landlord to the date of the decision, had the landlord not taken possession when it did, must be paid by the tenant as a condition of granting relief.

This case shows the analysis that the Tribunal must undertake in order to determine whether a case falls within the moratorium granted by the  Code of Conduct and the Act and regulations created under it. 

W G Stark 

Hayden Starke Chambers

How far above ground level can an owner of land enforce their rights of ownership?

In Janney v Steller Works Pty Ltd [2017] VSC 363, (2017) 53 VR 677, Justice Riordan of the Supreme Court of Victoria was asked to consider the extent of a landowner's right to possession of the airspace over their land, and their ability to control entry onto their land. 

The circumstances of the case were that the neighbour was proposing to interfere with the landowner's right of possession by incursion into airspace over that land through the operation of a construction crane sailing over the land at times during a proposed 11 month construction period. The proposed construction was of a four-storey building comprising 27 dwellings above a basement car park on neighbouring properties at Foam Street and Ormond Road, Elwood ("the Construction Site"). 

The developer served a notice purporting to protect works on the Construction Site, which included the use of the crane during the construction. 

In fact, the relevant Building Regulations did not apply to the proposed crane; in any event, the landowners objected to the proposed notice, stating among other things that: "We are very concerned about the safety of our family if/when the crane boom is over our property."

The landowner and the developer engaged in extensive correspondence prior to the court proceedings. The landowner noted that they owned the airspace above their property and that the proposed crane use would be a trespass. They sought compensation to allow them to relocate to a similar property in Elwood for the duration of construction, or alternatively that construction proceed without a crane. The developer rejected this proposal. 

The landowner applied for an injunction to restrain the developer from engaging in the threatened incursion. 

At paragraph 28 of his judgment, Riordan J noted:

The fact that the plaintiffs’ rights as the owner of land extends into airspace is trite. On one view, the owner’s rights extend to protecting not only the land but the sky space above the land stretching the limits of the atmosphere and the soil beneath the surface down to the centre of the earth (The Latin maxim: cujus est solum, equs est usque ad coelom et ad inferos. See Bernstein v Skyviews & General Ltd [1978] 1 QB 479, 485). The issue of whether such rights are limited to the prevention of incursions that ‘[interfere] with that part of the airspace above [the] land which is requisite for the proper use and enjoyment of that land’ (Graham v K D Morris & Sons Pty Ltd [1974] Qd R 1, 4) (such that, for example, claims in trespass cannot prevent aircraft flying over property), has been said to await a definitive ruling from the High Court (Anthony P Moore, Scott Grattan, Lynden Griggs, Bradbrook, MacCallum and Moore’s Australian Real Property Law (Thomson Reuters, 6th ed, 2016) 812 [16.140]).

Despite noting the absence of High Court authority, Justice Riordan concluded that even applying the more restricted view, the incursions of the crane, while in weathervaning mode, constituted an actionable trespass. 

He set out his reasons at paragraph 30. 

He noted that the case of Graham v K D Morris & Sons Pty Ltd [1974] Qd R 1 was a similar fact situation. The judge concluded in that case that the invasion of the plaintiff’s airspace by the projection of the crane jib was a trespass and the overhanging crane interfered with that part of the airspace above the land which is requisite for the proper use and enjoyment of that land. The judge in that case also noted that any hardship which the defendant will suffer [as a result of the injunction] has been brought about by its own negligence and its cavalier and high-handed attitude.

In Anchor Brewhouse Developments Ltd v Berkley House (Docklands Developments) Pty Ltd [1987] 2 EGLR 173, Scott J granted a permanent injunction to restrain a tower crane from weathervaning over the plaintiffs' land. 

Scott J rejected the defendant’s argument that there was no trespass and said:

• •  
    What is complained of in the present case is infringement of air space by a structure positioned upon a neighbour’s land. The defendant has erected tower cranes on its land. Attached to each tower crane is a boom which swings over the plaintiffs’ land. The booms invade the air space over the plaintiffs’ land. Each boom is part of the structure on the defendant’s land. The tort of trespass represents an interference with possession or with the right to possession. A landowner is entitled, as an attribute of his ownership of the land, to place structures on his land and thereby to reduce into actual possession the air space above his land. If an adjoining owner places a structure on his (the adjoining owner’s) land that overhangs his neighbour’s land, he thereby takes into his possession air space to which his neighbour is entitled. That, in my judgment, is trespass. It does not depend upon any balancing of rights.
  • 
    
  • 
    
  • 
    
  • He also noted that:
  • 
    
  • 
    
  • 
    
  • It is not, in my view, accurate to say that no harm is being done to the plaintiffs by the trespassing cranes. 
  • 
    

In London & Manchester Assurance Co Ltd v O & H Construction Ltd (1989) 2 EGLR 185, Harman J also considered a swinging crane, in that case over the Albion Wharf on the Thames. His Honour said:

• •  
    It is, in my view, beyond any possible question on the authorities and the law that a party is not entitled to swing his crane over neighbouring land without the consent of the neighbouring owner.

At paragraph 32, Riordan J noted that by legislative amendments, New South Wales, the Northern Territory, Queensland and Tasmania have provided for the statutory imposition of an easement by the courts to promote land development. That has not happened in Victoria.

The Honourable Justice Riordan concluded at paragraph 33 that:

Even without the authorities, I would conclude that the weathervaning was neither a trifling nor de minimus interruption of the plaintiffs’ rights. The evidence established that the plaintiffs live on the property with their two children. This is not a case ... where the property is used purely for commercial purposes. Collapses of cranes are not unknown. I accept the plaintiffs’ evidence that the plaintiffs and their children may be well justified on leaving their home if very strong winds were forecast ... Owners of property should not have to live with the fear that at any time the boom of a crane may be above their home and the risk (however small) that it may crash down on their family.

He also concluded (at paragraph 34) that:

Neither in money terms is the encroachment insignificant. As Lord Selbourne pointed out in Goodson v Richardson, an interest in land may have ‘precisely the value which that power of veto upon its use creates’.

At paragraph 35, he concluded that:

An encroachment into airspace raises a strong prima facie entitlement to an injunction. He referred to the decision of AL Smith LJ in Shelfer v City of London Electric Lighting Co, to the following effect: 

Many judges have stated, and I emphatically agree with them, that a person by committing a wrongful act … is not thereby entitled to ask the Court to sanction his doing so by purchasing his neighbour’s rights, by assessing damages in that behalf, leaving his neighbour with the nuisance, or his lights dimmed, as the case may be. 

In such cases the well-known rule is not to accede to the application, but to grant the injunction sought, for the plaintiff’s legal right has been invaded, and he is prima facie entitled to an injunction. 

In the result, Riordan J granted the injunction restraining the developer from allowing the tower crane to swing onto the plaintiff's land. 

Conclusion 

As the recent construction boom in Victoria has continued despite the impact of COVID-19, it seems likely that cavalier builders who wish to use construction cranes without considering the effect on neighbours may have to face the possibility that they will be restrained from those actions. 

The take away from these decisions is that builders and developers who propose to construct with the assistance of a tower crane will need to ensure that they obtain their neighbours' permission for any intrusions over the neighbours' air space, prior to the commencement of construction.  

WG Stark 

Hayden Starke Chambers

Can a gift of land during the donor's lifetime defeat a claim against his or her estate after death? - follow up

Further to my post of 22 September 2020 (see: https://melbournepropertylaw.blogspot.com/2016/01/can-gift-of-land-during-donors-lifetime.html), Teri Konstantinou has written an article about a recent NSW Court of Appeal decision (Mentink v Olsen - [2020] NSWCA 182) in which the trial judge set aside a gift by a dying mother to her daughter. See https://www.linkedin.com/pulse/mentink-v-olsen-2020-nswca-182-elefteria-teri-konstantinou/?trackingId=ZhuaYDE6QPOJRPO5pBsdNw%3D%3D

The background was that the mother was terminally ill, aged 75 years, and she was survived by her husband and daughter of a previous marriage. 

In the course of the deceased's life time, she gifted the sum of $2.2m to her daughter in. The widower sued his step daughter alleging that she procured this money from her mother by placing undue pressure and influence on the deceased and by contriving her mother's change of mind to gift that money to her. In so doing, the widower argued further that his step daughter had taken advantage of her mother's vulnerability in unconscionable circumstances.

The Trial judge agreed; so did the Court of Appeal. 

The Court of Appeal found that the real issue was that the daughter could not be satisfied that her mother was capable of making the decision to gift this money to her without any accounting or legal advice. That advice was critical to ensure that the deceased understood whether or not it was her money to gift at all. It followed that the daughter could not be satisfied that her mother gave due and proper consideration to the question whether it was in her best interests to make the gift to her daughter.

Conclusion 

As I noted in the previous post, it will most likely be necessary, for a gift to be effective, to have a medical report confirming that the gift maker is of sound mind, as well as to document the reasons for the gift. 

It would also be useful to have the gift receiver not involved in the transaction. Instead, the gift should be documented by an independent lawyer, who is acquainted with the gift giver, or who at least meets with the giver and satisfies themselves about the circumstances of the gift, and the fact that the gift giver is not being unduly influenced by the donee, and provides the giver with legal advice about the legal effect of the gift. 

Finally, it now appears that it would also be useful to have the gift giver obtain independent financial and accounting advice, as well as legal advice, prior to entering into the transaction, if it is to be saved from attack after the gift giver dies. 

WG Stark 

Hayden Starke Chambers

Can a gift of land during the donor's lifetime defeat a claim against his or her estate after death?

In the case of Daunt v Daunt [2013] VSC 706, the plaintiff and the defendant were twin brothers and sons of the deceased.

While he was alive, the deceased and his wife (the twins' mother) gifted real property to one son as a joint tenant with the deceased, by executing a transfer in the appropriate form. The consideration for the transfer was described as “I desire to make a gift”. 

Upon the death of the father, the title vested solely in that son by survivorship.  This meant that the property did not form part of the deceased’s estate, and could not be subject to a Part IV claim.  The surviving proprietor lived at the Wandong property at the time of the proceeding. 

The plaintiff made a claim against the estate in the Supreme Court of Victoria alleging (amongst other things) that the defendant had unduly influenced their father.

Associate Justice Daly found that the brother lacked standing to make a claim.  This was due to the fact that the plaintiff was merely a disappointed beneficiary under his living mother’s estate.  Consequently, the only person who could make such a claim was their mother. 

The Court of Appeal (Redlich, Santamaria and Kyrou JJA) dismissed the disappointed brother's appeal (see Daunt v Daunt [2015] VSCA 58). 

Daly As J went on further, however, to make comments as to how she would have decided the case had the plaintiff in fact had standing. 

Her Honour concluded that there was no undue influence in this case as the transfer had been a voluntary gift where the transferor had fully understood the consequences of the transfer.

The case came about because the plaintiff lodged a caveat over the title to a property at Junction Road, Heathcote Junction (“Wandong property”). 

The defendant (as surviving registered proprietor) applied to remove the caveat on the basis that the plaintiff did not have the interest in the Wandong property that he claimed. The plaintiff issued the proceedings to justify the caveat.  

At paragraph 40, Her Honour noted that the question of the standing of an actual or potential claimant under Part IV of the Administration and Probate Act 1958 (Vic) has been the matter of some debate, and that debate had yet to be resolved. 

 In Mataska v Browne [2013] VSC 62, McMillan J approved of the view adopted by the Full Court of the Supreme Court of Queensland in Hogarth v Johnson (1987) 2 Qd R 383. While McMillan J stated [at paragraph 53] that: 

A contingent Part IV interest, without more, is insufficient to support standing. 

she found in an application by a child of the deceased to remove the executor of the deceased’s estate in circumstances where the executor was the sole beneficiary of the deceased’s estate, but also the recipient of a gift of the bulk of the assets of the deceased shortly prior to her death, a potential claimant under Part IV of the Act had sufficient standing to make the application for the removal of the executor, and the appointment of another executor for the purpose of investigating the circumstances in which the gift was made.

Daly As J also noted at paragraph 45 that:

... regardless of the standing of the plaintiff, now is the opportune time to determine, on the basis of the evidence before the Court, whether the Transfer of Land ought to be set aside on the basis that the Transfer of Land was procured by the defendant’s breach of fiduciary duty, exertion of undue influence, or unconscionable conduct. The plaintiff and the defendant have filed and served extensive written evidence ...

Continuing on with that analysis, she found at paragraph 47  that there was no factual basis for alleging that the defendant breached his fiduciary duty as power of attorney for his parents by procuring the Transfer of Land: the Transfer of Land predated the defendant’s appointment as an attorney for each of his parents. She also noted that there is no overarching doctrine at law that an adult child otherwise owes a fiduciary duty to his or her parents. 

In her analysis of whether the defendant procured the Transfer of Land by exerting undue influence, Daly As J adopted the principles articulated in Christodoulou v Christodoulou [2009] VSC 583 at [70], where Kaye J stated as follows:

The basic principles relating to the concept of undue influence are uncontroversial. In equity, a transaction, whereby a donor transfers property to a donee (or recipient), is voidable, if it is shown to be the result of undue influence exercised by the recipient over the mind of the donor. There are two categories of cases of undue influence. The first category of cases arises where it has been positively proven that the transaction in question was produced by actual influence exercised by the recipient over the donor. ... The second category of case is where there has been shown to be an antecedent relationship between the donor and the donee, which is such as to raise a presumption that the donee has relevant influence over the donor. In such a case, the court will set aside a voluntary gift, unless it is proven by the donee that the gift was a spontaneous act of the donor in exercise of an independent and informed will. In this category of case, the law has recognised particular relationships which automatically raise a presumption of influence, including the relationship of doctor and patient, solicitor and client, guardian and ward, and parent and child (where the gift is by the child to the parent). However, the classes of relationships, in which the presumption arises, are not fixed and inflexible. In essence, where there is found to be an antecedent relationship between the parties, which gives the recipient of the gift “authority or influence over the donor from the absence of which it is proper that he [or she] should be protected”, the law will presume that any gift by the donor to the donee was the result of undue influence exercised by the latter.

In this case, the plaintiff alleged that the Transfer of Land was procured by the reason of actual undue influence on the part of the defendant. However, Her Honour concluded that the case fell squarely in the second category of cases: that is, by reason of the facts and circumstances of the relationship between the defendant and his parents, there was an antecedent relationship between the defendant and his parents such as to raise a presumption of undue influence which must be rebutted by the defendant in order to avoid the gift to him effected by the Transfer of Land being set aside.

The antecedent relationship did not arise merely by the defendant being the adult child of Mrs Daunt and Mr Daunt senior. However, it was apparent to Her Honour that, at least in the period after the Black Saturday fires and his parents’ movement into institutional care, his parents had become increasingly dependent upon the defendant’s day to day assistance.

At the time that the Transfer of Land was executed, the parents were becoming increasingly anxious about the potential impact of their ongoing ownership of the Wandong property upon their financial security. It had become clear to them that neither the plaintiff nor the parties' sister were either willing or able to provide them with material and/or practical assistance, despite the defendant’s entreaties in his letters to them, and indeed, their lack of assistance was a major source of disgruntlement to Mrs Daunt in particular. 

Her Honour then noted (at paragraph 55) that the finding that there was sufficient evidence to raise the presumption of undue inference was not intended as a criticism of the defendant or his conduct and motivations in assisting his parents. It was simply a recognition of their potential vulnerability to manipulation of them by him, such that it was necessary for him to demonstrate that the Transfer of Land was executed by his parents freely and willingly. 

Daly As J concluded that the onus rested with the defendant to establish that the execution of the Transfer of Land was “a spontaneous act in exercise of an independent and informed will” on the part of Mrs Daunt. 

At paragraph 57 Her Honour concluded that the defendant had discharged that onus. It was apparent from the evidence of Mrs Daunt that she voluntarily gifted her share of the Wandong property to the defendant, with a full understanding of the consequences of the transaction, and a rational basis for embarking upon the transaction. There was, accordingly, no basis for setting aside the transaction on the basis of any undue influence exercised by the defendant. 

Similarly, Her Honour was unable to find any basis for setting aside the Transfer of Land on the grounds of unconscionable conduct on the part of the defendant. 

Her Honour then noted that in order to establish unconscionable conduct on the part of the defendant, the onus was on the plaintiff who had to establish that:

(a) his parents, and in particular, Mrs Daunt, were under a relevant special disability or disadvantage, which seriously affected their (her) ability to make a judgment as to their (her) own best interests; and

(b) the defendant knew, or ought to have known of that special disability and/or disadvantage, and that special disability or disadvantage affected his parents’, and in particular, his mother’s ability to make an appropriate judgment as to whether the transaction was in their (her) best interests.

At paragraph 61, Daly As J found that the plaintiff’s claim with respect to unconscionable conduct fell at the first hurdle: that is, Mrs Daunt was under no special disadvantage when she made the gift of her share of the Wandong property to the defendant. 

Her Honour went on to conclude that the question of whether Mr Daunt senior was under a special disadvantage or disability was peripheral to the real issue in the proceeding, as Mr Daunt senior suffered no material financial disadvantage by reason of the execution of the Transfer of Land. 

In determining the question as to whether the transaction was fair and reasonable in all of the circumstances, Daly As J concluded, having regard to all of the circumstances, the transfer by Mrs Daunt of her interest in the Wandong property to the defendant was fair and reasonable. 

It was apparent from the evidence that Mr Daunt senior and Mrs Daunt were keen to find some mechanism for maintaining Mrs Daunt’s access to the Wandong property while maximising their ability to receive financial assistance from the Commonwealth Government, and it appeared that objective had been achieved by reason of the Transfer of Land. 

Conclusion

These findings support the use of lifetime (inter vivos) gifts as an effective estate planning tool in some circumstances. 

It will most likely be necessary, for it to be effective, to have a medical report confirming that the gift maker is of sound mind, as well as to document the reasons for the gift. 

It would also be useful to have the gift receiver not involved in the transaction. Instead, the gift should be documented by an independent lawyer, who is acquainted with the gift giver, or who at least meets with the giver and satisfies themselves about the circumstances of the gift, and the fact that the gift giver is not being unduly influenced by the donee. 

WG Stark 

Hayden Starke Chambers