Wright & Anor v Wright & Anor [2004] HCATrans 108 (2 April 2004)

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Wright & Anor v Wright & Anor [2004] HCATrans 108 (2 April 2004)

Last Updated: 8 April 2004

[2004] HCATrans 108

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Perth No P128 of 2002

B e t w e e n -

MICHAEL JOHN MAYNARD WRIGHT

First Applicant

ANGELA MARY MAYNARD WRIGHT BENNETT

Second Applicant

and

NATALIE JANE WRIGHT

First Respondent

TIMOTHY JAMES MAYNARD WRIGHT by his next friend SHERAL GLADYS WRIGHT

Second Respondent

Application for special leave to appeal

McHUGH J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 2 APRIL 2004, AT 12.17 PM

Copyright in the High Court of Australia

__________________

MR M.J. McCUSKER, QC: May it please the Court, I appear with my learned friend, MR J.J. EDELMAN, for the applicants. (instructed by Phillips Fox)

MR P.G. CLIFFORD: May it please the Court, I appear with my learned friend, MR H.R. ROBINSON, for the respondents. (instructed by Haydn Robinson)

McHUGH J: Yes, Mr McCusker.

MR McCUSKER: May it please the Court, this application gives rise to consideration of a very important but short point of law and one which has been the subject of considerable controversy. If leave were granted, it would not necessitate the consideration of any factual material and, in my estimation at least, would not take more than half a day to consider. The question, which is the important question that I referred to, is set out at page 33 of the application book, and that is the question of whether the purchaser of shares – although one can say, generally, property – under an executory contract where only part of the purchase price has been paid has equitable ownership of the shares or an equitable interest in the shares or a mere equity to restrain dealings.

McHUGH J: These points were not raised, were they, in the Full Court?

MR McCUSKER: Yes, they were, your Honour. They were certainly raised.

McHUGH J: At all events, the Full Court did not deal with them, did they?

MR McCUSKER: Only obliquely, your Honour.

McHUGH J: Well, that means we have no guidance from the Full Court on these questions.

MR McCUSKER: Your Honour, with respect, there is no need for guidance from the Full Court because there is no factual material on which the Full Court based its conclusions.

HAYNE J: Did the Full Court take the statement of claim as stating the plaintiff’s case at its highest?

MR McCUSKER: That is as I understand it, yes, your Honour.

HAYNE J: Why does that statement of claim not disclose an arguable cause of action that should go to trial? It may be a statement of claim of which some criticism may be made, but why does it not disclose a claim that should go to trial?

MR McCUSKER: Could I take your Honour to page 5 of the supplementary application book, paragraph 16 of the statement of claim, in which it is asserted:

In the circumstances alleged in paragraph 15 –

that is, that there were “conditional contracts of sale” resulting from the exercise of the option to purchase –

Julian’s shares –

as they were called in the pleading –

became the property of Peter Wright at the time of the First Agreement –

So the contention that was raised by the statement of claim was that the shares the subject of the executory contract of sale, which had not been completed, at the time of the making of that agreement – that is, at the time of the exercise of the option – became the property of Peter Wright. That was the assertion.

HAYNE J: Now, let it be assumed, for the purposes of debate, that that is all wrong. Let that be assumed, which is the burden of the point you want to make, is it not?

MR McCUSKER: It is indeed, your Honour, yes.

HAYNE J: What do they then do about paragraphs 26 and thereabouts, where there is an allegation of breach of trustees’ duty which may be good, may be bad, but it is an allegation that is made which, on its face, should seem to be appropriate to go to trial. Why do we bring the case up to deal with one point when there are other points in the statement of claim?

MR McCUSKER: Because this point, in our submission, would resolve the entire question. Paragraphs 26 and 27 raise matters which were not dealt with, but the Master, in his reasons on the application for summary judgment, made it clear – and, with respect, correctly – that once it was determined that the shares were not the property of Peter Wright, did not become the property as alleged in the statement of claim, that must be determinative of the entire action.

HAYNE J: That is far from self-evident to me. Why should we take it up when it is going to trial and you can debate all this at trial?

MR McCUSKER: Because, your Honour, as the Master said, there are no additional facts which were put forward on the summary judgment application which would give rise to any further inquiry. All of the matters which were sought to be raised on behalf of the present respondents on the summary judgment application were before the Master, and there was nothing in those which gave rise to a need to go to trial on the issues before the Master.

McHUGH J: Yesterday, we gave judgment in an important case where the joint reasons of the majority Justices indicated how unsatisfactory it is ever to decide important questions of law on stated cases or on pleadings.

MR McCUSKER: We accept, your Honour, that that is so in most cases, but that is not this case, because the court in this case - - -

HAYNE J: Most especially is that so where this statement of claim is one which, to the uninformed eye – namely, mine – might be open to some criticism and might repay some reconsideration.

MR McCUSKER: Your Honour, neither before the Master nor before the Full Court, nor indeed now, have the respondents sought to amend the statement of claim so as to rectify the criticism that is inherent, perhaps, in the statement of claim. The case went before the Master and before the Full Court on the pleaded case and that is, going back to page 5 of the supplementary application book, paragraph 21:

In the circumstances pleaded in paragraphs 8 to 16 above, at the date of the death of Peter Wright, the assets of his Estate included Julian’s Shares.

That was the issue which was further followed through in the prayer for relief at page 8, where the plaintiffs claim:

1.	A declaration that Julian’s Shares form part of the property of the estate of Peter Wright.
2.	An order the Defendants restore Julian’s shares to the estate.

Briefly, your Honour, although it appears in the reasons of the court, the factual background was that the exercise of the option by Peter Wright - the option to purchase Julian’s shares – was contested by Julian. The estate did not have the assets with which to purchase the shares. Julian was contending that, in any event, the option had not been validly exercised by Peter Wright prior to his death, and, ultimately, the present applicants purchased the shares from Julian themselves. That is the background to it.

The essential question, as raised by the pleading, was whether or not, by virtue of the executory contract of sale resulting from the exercise of the option – and it was accepted, for the purpose of the application and on this appeal, that there had been a valid exercise of the option – whether that resulted in the shares becoming the property of Peter Wright. There is an important reason, of course, why the respondents would seek such a declaration and that appears in the prayer for relief. That is prayer 3 on page 8:

An order that the Defendants account to the estate for all profits obtained by them by reason of their ownership of Julian’s shares.

So if they are right in the contention that they advance in the statement of claim that by reason of the executory contract of sale Julian’s shares became the property of Peter Wright, then it would follow that they would have a right to have an accounting made to them – or, arguably, an accounting made to the estate, I should say – for any dividends paid in respect of those shares.

HAYNE J: They may have an entitlement to an account as on wilful default, not just for the profits actually made, but for those which ought to have been made, where trustees have – so it seems to be alleged – acquired shares which the present plaintiffs in the suit would contend were assets of the estate.

MR McCUSKER: But the problem there, your Honour, is that the applicants were not trustees of the property. They were not trustees who held the shares on trust. The central question is, was Peter Wright the beneficial owner of the shares? Certainly, he was not the legal owner, and the contention which was placed very clearly in this statement of claim was that by virtue of the executory contract of sale, and that alone, he was the owner of the shares. He had an equitable ownership of the shares. The Full Court, in its reasons, dealt with it in this way, at page 24 of the application book. At paragraph 20, it said – this is the judgment of Justice Templeman, with whom the other two justices concurred:

Indeed it seems to me, with respect, that the Master’s view, which in my opinion is correct, that Peter Wright had equitable rights which could have been protected by injunction once he had exercised the option agreement is somewhat inconsistent with his earlier expressed view that the expression “my shares” could not include the option shares.

Now, that crystallises the question. The court has concluded that once there are equitable rights which could have been protected by injunction, that means that the subject matter of the executory contract of sale becomes the property, in equity, of the purchaser. That is a matter which has been the subject of great controversy over a number of years and still is not resolved. The court further said, at paragraph 21:

It seems to me that once it is accepted, as I think it must be, at least arguably, that Peter Wright had an equitable interest in the shares in the circumstances to which I have referred, he would have been perfectly within his rights to describe them as “my shares”. It was only a matter of paying the purchase price and completing the formalities in order to vest in him a legal title.

That gives rise, we say, to the issue which is an important question. It is a controversial issue. Justice Mason in Chang v Registrar of Titles [1976] HCA 1; (1976) 137 CLR 177, a well-known case, halfway down page 184, dealt with this:

However, there has been controversy as to the time when the trust relationship arises –

dealing with the vendor of an estate under a valid contract of sale –

and as to the character of that relationship.

His Honour then proceeded to refer to the many cases dealing with this question in which different views had been expressed, including, towards the foot of that page, where he observed that the Master of the Rolls, Lord Jessel:

held that a trust sub modo arises on execution of the contract but that the constructive trust comes into existence when title is made out by the vendor or is accepted by the purchaser (Lysaght v. Edwards). Sir George Jessel’s view was accepted by the Court of Appeal in Rayner v. Preston.

In the same case, Justice Jacobs referred to the issue at page 190, starting at the top:

It is true that a vendor at the stage of contract where the contract is enforceable by specific performance has at times been described as a trustee: see, e.g. Shaw v Foster; Lysaght v Edwards; and if by that no more is meant than that the purchaser is regarded by equity as the beneficial owner of the estate of which the vendor is the legal owner then there is no difficulty in describing the vendor as a trustee. However, if by such a description it is sought to transpose into the law of vendor and purchaser the law governing the rights and duties of trustees, statutory or otherwise, considerable difficulties arise. The present case is an example of the confusion which can arise from giving this description to a party to a contract for the sale of land assumed to be capable of specific performance simply because he has the obligation under the contract to transfer property to the other party on completion of the contract and because equity regards the other as beneficial owner –

and concluded, importantly –

Where there are rights outstanding on both sides,

as in this case –

the description of the vendor as a trustee tends to conceal the essentially contractual relationship which, rather than the relationship of trustee and beneficiary, governs the rights and duties of the respective parties.

The contractual relationship in the present case was a contractual relationship between Julian, who is not a party to these proceedings and never has been, and Peter Wright. The two applicants were parties to the contract only in that they undertook to Julian to perform the obligations of Peter Wright, and that must carry with it, implicitly, the obligation to pay the purchase price if he exercised the option. So it became an executory contract of sale.

That contractual situation is not one which is raised by the pleadings. The short, sharp point raised by the pleadings is simply whether or not the purchaser under an executory contract of sale, where there are obligations remaining on both sides, is, in equity, the owner of the subject matter. In our submission, that controversy is something which has not yet been finally resolved and ought to be. This is a suitable vehicle for the determination of that question, notwithstanding that the matter has proceeded no further than the summary judgment proceedings which were dealt with by the Full Court.

In our submission, coming back to your Honour Justice Hayne’s suggestion that the statement of claim may be lacking but could be amended, if it is concluded, as we contend, that the purchaser under an executory contract is not the beneficial owner, then there is no way in which this statement of claim could be amended, we would submit, so as to give rise to a cause of action which is arguable.

The controversial issue, which I mentioned, is referred to also in Stern v McArthur, which is in the bundle of authorities at page 47. At page 71, in a joint judgment, Justices Deane and Dawson said:

It has been said in a variety of ways that a vendor under a valid contract for the sale of land holds the land as trustee for the purchaser. He is, however, a trustee only in a qualified sense and the qualifications are such as to rob the proposition of much of its significance or, for some purposes, its validity.

Over the page, at page 72, referring to Rayner v. Preston, where Lord Justice Brett remarked:

“Therefore, I venture to say that I doubt whether it is a true description of the relation between the parties to say that from the time of the making of the contract, or at any time, one is ever trustee for the other. They are only parties to a contract of sale and purchase of which a Court of Equity will under certain circumstances decree a specific performance.”

Again, this question of the nature of the interest or position of a purchaser under an executory contract for sale is referred to as being something which is, as yet, not fully resolved.

There are a number of cases, your Honour, which we refer to in our outline, starting at paragraph 11 at page 35, which demonstrate the controversy and the unsettled nature of the law relating to this particular issue. If it is, indeed, no more than a mere equity which a purchaser under an executory contract has, then the decision of the Full Court, in our submission, is clearly wrong, because the Full Court’s decision turned on the proposition that once it is established that a purchaser has – as we concede the purchaser in this case could have – a possible right to claim an injunction by way of remedy to prevent the vendor from disposing of the property elsewhere, the court concluded that that alone gave rise to a proprietary interest. In our submission, that is the fallacy that is inherent in the court’s decision.

There is no High Court decision, in our submission, where this issue has been directly and clearly resolved. A decision given comparatively recently by this Court in Tanwar, which is contained in the volume at pages 318 and 319 – the Court there, in a joint judgment to which your Honours Justices McHugh and Hayne were, of course, parties, at paragraph [47], the question of:

identifying the “interest” of a purchaser in the land the subject of an uncompleted contract –

was considered, but that was in the context, ultimately, of determining whether or not, as it was put at page 319, paragraph [53]:

the analogies drawn over a century ago in Lysaght with the trust and the mortgage are [to be] accepted.

That was, of course, for the purpose of determining whether relief against forfeiture could be granted to a purchaser under an executory contract for sale where there had been a default, and the analogy between mortgagors and such a purchaser was effectively rejected by the Court in that case.

In Nolan v Collie, which is also in our bundle of authorities, at page 345, a decision of the Full Court of Victoria, in a judgment written by Justice Ormiston, with which the other justices concurred, if I can refer to pages at 345, 350, 352, 354, 356 and 358, the court clearly took the approach that a purchaser under an executory contract did have a proprietary interest in some form of ownership in the property, that is, that a trust was created so that the vendor was the trustee of the property for the purchaser. That illustrates the fact that there is an ongoing controversy as to the correct description of the rights and position of a purchaser under an executory contract.

Coming back to the point I made earlier, your Honours, if the property, that is, the share, is not part of the estate, that is the end of the issue so far as this case is concerned. That is why the Master decided in the way that he did. May it please the Court.

McHUGH J: Yes, thank you, Mr McCusker. We need not hear you, Mr Clifford.

The applicants seek special leave to appeal to challenge orders of the Full Court of the Supreme Court of Western Australia setting aside an order for summary judgment which the applicants had obtained as defendants to an action instituted by the present respondents. We are of the view that an appeal in this case would not be a suitable vehicle to decide the questions. They are questions which are concededly controversial. They arise in the context of a claim for summary judgment, and, importantly, the Court would not have the benefit of the judgments of the Full Court of Western Australia on the points. In determining whether a case is a suitable vehicle for the grant of leave, the fact that the intermediate court of appeal has not dealt with the questions is always regarded as a matter that is important in the exercise of our discretion. In the circumstances, special leave to appeal must be refused with costs.

AT 12.40 PM THE MATTER WAS CONCLUDED