Re Caruso [2022] VSC 242 (18 May 2022)

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IN THE MATTER of an application under Order 54.02 of the Supreme Court (General Civil Procedure) Rules 2015

IN THE MATTER of the intestate estate of MARIO CARUSO, deceased

NATALIE TALIA (in her capacity as administrator ad litem of the estate of MARIO CARUSO deceased, pursuant to order of the Honourable Justice McMillan made 28/07/2021)	Plaintiff

v

CATHERINE ANNE WHITTY & ORS (according to the attached schedule)	Defendants

JUDGE:	Gorton J
WHERE HELD:	Melbourne
DATE OF HEARING:	12 April 2022
DATE OF JUDGMENT:	18 May 2022
CASE MAY BE CITED AS:	Re Caruso
MEDIUM NEUTRAL CITATION:	[2022] VSC 242

INTESTACY– Judicial advice – Property – Where deceased died intestate – Where property is marital home – Where property purchased with loan from second to fourth defendants to deceased – Where first defendant not party to loan agreement – Where deceased and first defendant entered into deed giving deceased’s estate a right to sell on the death of the deceased – Whether joint tenancy between the deceased and first defendant severed.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P Pascoe	Hicks Oakley Chessel Williams Pty Ltd

For the First Defendant	Mr S Pitt	Mills Oakley

For the Second to Fourth Defendants	Mr R Wells	Mazzeo Lawyers

1 Catherine Whitty, the first defendant, and her husband, Mario Caruso, were registered as joint proprietors of a property in Fitzroy that was their matrimonial home (the ‘Fitzroy property’). In order to purchase that property, Mr Caruso borrowed money from his brothers and sister-in-law, the second to fourth defendants, who I will refer to, for convenience, as his siblings. He fell behind in his payments to them. Then, Mr Caruso died unexpectedly. He had insufficient assets in his name to satisfy his, now his estate’s, liability to his siblings. His siblings contend that Mr Caruso had, in equity, a half share in the Fitzroy property; that is, that Mr Caruso and Ms Whitty held the Fitzroy property in equity as tenants in common. If correct, that would mean that Mr Caruso’s estate now has that half interest. That interest would then be available to meet the estate’s obligations to Mr Caruso’s siblings. Ms Whitty, on the other hand, contends that the Fitzroy property is now hers absolutely due to the right of survivorship that applies to joint tenancies. If she is right, Mr Caruso’s siblings will not be able to recover the moneys owed to them out of the proceeds of any sale of the Fitzroy property.
2 Mr Caruso did not have a will. The Court appointed the plaintiff, a lawyer, as administrator ad litem for the purpose of bringing this proceeding in order to obtain answers to the following questions:

3 The central issue in the case is whether equity should treat Mr Caruso and Ms Whitty as tenants in common, rather than as joint tenants. Although Ms Whitty and Mr Caruso agreed to have their interests recorded in the register as joint tenants, they will be treated as tenants in common, in equity, if there is ‘a course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common.’^[1] Another way of expressing the same test is whether there is ‘a course of conduct inconsistent with a joint tenancy from which one would objectively infer an intention to hold property as tenants in common.’^[2]

B. The intention that emerges from arrangements in place between the parties

4 I have noted above that the Fitzroy property was purchased in part with funds that Mr Caruso had borrowed from his siblings. I accept Ms Whitty’s submission that the principle that equity ‘favours’ tenancies in common does not apply in the circumstances of a matrimonial relationship.^[3] It follows that the fact that Ms Whitty and Mr Caruso contributed different amounts to the purchase price of the Fitzroy property is no reason to consider that they intended anything other than a joint tenancy. For like reason, it was common ground that if I were to conclude that the parties did hold the Fitzroy property as tenants in common, then they would hold it in equal shares, notwithstanding the fact that they had contributed different amounts to the purchase price.
5 However, at the same time that Mr Caruso signed the loan agreement with his siblings, Ms Whitty and Mr Caruso signed a deed by which she appointed him, if a ‘trigger event’ were to occur, her agent for the purpose of selling the Fitzroy property. The deed gave her a right of first refusal. The deed referred to the loan agreement between Mr Caruso and his siblings in several ways. It noted as ‘background’ that Mr Caruso had obtained the loan from his siblings ‘to enable’ the purchase of the Fitzroy property, stated that Ms Whitty’s grant to Mr Caruso of the right to sell the Fitzroy property was in consideration of him providing the borrowed sum towards the purchase of the property, and provided that the deed would ‘terminate’ upon the repayment in full of Mr Caruso’s loan from his siblings. One ‘trigger event’, upon which the right to sell the Fitzroy property arose, was a default by Mr Caruso in making payments owing under the loan agreement with his siblings. It follows that the commercial purpose of the deed, read with the loan agreement, was to provide Mr Caruso’s siblings with comfort with respect to the loan. Were Mr Caruso to fall behind in his payments to his siblings, he would have the ability to sell the Fitzroy property in order to raise funds so that he could, if he wished, use those funds to repay his debt to his siblings.^[4] This would be so notwithstanding Ms Whitty’s interest and whether or not she wanted to sell the Fitzroy property.
6 Significantly:

7 Accordingly, under the arrangements between the parties, if Mr Caruso were to die, the amount he had borrowed from his siblings would become immediately payable, and his estate would obtain the right to sell the Fitzroy property with Ms Whitty having a right of first refusal.
8 In this way, the parties anticipated Mr Caruso’s death and put in place an arrangement that made sense if the parties were tenants in common, but made no or little sense if they were joint tenants. If Ms Whitty and Mr Caruso held as joint tenants, then on his death, by reason of the right of survivorship, Mr Caruso would cease to have any interest in the Fitzroy property and it would be held by Ms Whitty absolutely. There could then be no sensible purpose in Mr Caruso’s estate having the right to sell the Fitzroy property. Any proceeds would be Ms Whitty’s and hers alone. Further, given that Ms Whitty would have a right of first refusal, the deed would be anticipating Mr Caruso’s estate acting as Ms Whitty’s agent offering to sell to her property that she already owned. It could not lead to any sensible contract of sale. On the other hand, the arrangement would make sense if the parties held the Fitzroy property as tenants in common. Mr Caruso’s estate would be entitled to half the proceeds of sale which could be used to repay its liabilities, and the right of first refusal would be a mechanism by which Ms Whitty could in effect purchase Mr Caruso’s half interest in the Fitzroy property from his estate. In that way Ms Whitty, if she had the funds, would be able to remain in the matrimonial home.^[5]
9 These matters indicate, objectively, an intention that the parties would hold as tenants in common, rather than as joint tenants. They indicate that Ms Whitty and Mr Caruso intended that Mr Caruso would retain an interest in the Fitzroy property after his death, and this is consistent only with them owning the property as tenants in common. Accordingly, in equity, the parties are to be treated as tenants in common, notwithstanding their registration as joint tenants.
10 It is true, as Ms Whitty submitted, that if the intention had been that the Fitzroy property would act as formal security for the loan, then Mr Caruso’s siblings could have sought a second mortgage, and the fact that they didn’t, or that none was provided, is relevant. It is also correct that nothing in the agreement compelled Mr Caruso to use the proceeds of any sale to repay his debt. But these matters do not lead to a conclusion that the inferred intention was that the parties were to own jointly. Rather, they lead only to a conclusion that the parties did not intend to give the siblings a formal security interest over the Fitzroy property or to compel Mr Caruso to use the property to repay his debt to them. In practical terms, this meant Mr Caruso’s siblings could not themselves take possession of and sell the Fitzroy property as mortgagees. To some extent, although the threat of bankruptcy might have given the siblings a degree of influence over Mr Caruso, Mr Caruso’s siblings were relying on Mr Caruso to use the powers given to him (and to his estate) in the deed to use the Fitzroy property, if need be, to repay his debts. But the fact that no formal security interest was given also protected Ms Whitty’s moiety. If Mr Caruso’s indebtedness to his siblings were to exceed half the value of the Fitzroy property, and the Fitzroy property had been mortgaged to secure that debt, then Ms Whitty could potentially lose some of ‘her share’. But with the arrangement that was put in place, the most that Mr Caruso’s estate could recover by a forced sale of the Fitzroy property was half of its value and in this way Mr Caruso’s siblings could not access Ms Whitty’s share in the Fitzroy property even if Mr Caruso’s share was insufficient to discharge his debt to them. Put simply, the fact that the parties agreed on a more complicated set of arrangements than a simple mortgage is no reason for thinking that they did not, assessed objectively, intend a tenancy in common.
11 I do not accept Ms Whitty’s submission that, whatever the intention that emerges from the agreements may have been, the fact that the agreements were signed on 6 March 2018 and the parties not were registered as joint tenants until 10 April 2018 means that the joint tenancy could not be ‘severed’ by those agreements. The language of ‘severing’ a joint tenancy perhaps implies a pre-existing joint tenancy that is severed by a subsequent act. Sometimes, this may be what happens, and so that language is apposite. But it is not the correct way of analysing matters where parties enter into connected arrangements for the purchase of a property that is then registered in their names. In those circumstances, the correct question is to ask what the parties’ intentions were, looking at the matter as an interconnected whole.^[6] It follows that the surrounding circumstances of the relevant transaction may be looked at in order to ascertain the relevant intention.^[7] It ought not, as a matter of principle, matter whether the circumstances from which the intention is inferred occurred before or after the actual date of registration. If need be, the interest may be treated as having been ‘severed at its inception’.^[8] This is because equity is concerned with matters of substance rather than accidents of timing. There was no reason why, in this case, the entries on the register could not have been made on the same day that the agreements were signed. There is no basis to conclude that the delay somehow indicated some fundamental change in the arrangements agreed to or the parties’ intentions.
12 Were it otherwise — were a later registration of a joint tenancy necessarily to trump earlier-established intentions — areas where it is accepted that parties take as tenants in common would have to be differently decided. For example, it is well-accepted that if two or more parties purchase an investment property and contribute unequally to the purchase price, they will hold, in equity, as tenants in common in proportion to their respective contributions, even if they are registered as joint tenants.^[9] In many, if not all, of these cases the parties’ intentions would have been manifest from communications that took place prior to the actual moment of registration.
13 Ms Whitty pointed out an oddity in the wording of the deed’s right of first refusal granted to her. The deed provided that the sale price ‘shall be that agreed to between the parties’, or if agreement could not be reached, the value be determined by an expert valuer. On a literal reading, this would permit Mr Caruso and Ms Whitty to agree an artificially or absurdly low price, and thereby potentially to frustrate any intention that the Fitzroy property remain available as a means of raising funds to discharge Mr Caruso’s liability to his siblings. However, this does not affect my conclusion that there was an intention to create interests in common rather than a joint interest. It was a scenario that may not ever have arisen. It would not have arisen if Mr Caruso did not want to put himself in a position where he could not repay his debts. And if it did arise, it may be that Mr Caruso’s siblings could prevent or unwind by the bankruptcy process actions by Mr Caruso that could be seen as a way of transferring assets in order to defeat the claims of creditors. But I do not need further to consider these issues, because the fact that these issues could arise does not, to my mind, undermine my conclusion that the deed read in context reveals an intention that Mr Caruso hold an interest in the Fitzroy property as a tenant in common.
14 The plaintiff also argued that there was no ‘unity of interest’ in the Fitzroy property because the deed gave Mr Caruso a proprietary interest in the land that Ms Whitty did not have. In light of my conclusion that the arrangements in place between the parties manifested an intention that they hold as tenants in common rather than as joint tenants, it is not necessary for me to express a concluded views on this argument. But, I consider the argument to be unsound. The relevant right that Mr Caruso obtained under the deed was a contractual right to sell the Fitzroy property in certain circumstances. Even though this right might be enforced, it did not amount to an interest in the Fitzroy property itself. Accordingly, Mr Caruso’s interest did not differ in any relevant way from the interest that Ms Whitty had in the Fitzroy property.

15 It follows from the above that the questions referred to in para 2 above should be answered essentially as follows:

16 I have expressed the answer to the third question the way I have because nothing in these reasons is intended to indicate that Mr Caruso’s siblings had any equitable interest in the Fitzroy property or would have any special claim to the proceeds of any sale of the Fitzroy property beyond the claim that all creditors of Mr Caruso’s estate would have to be paid out of the assets of that estate. As I understood it, no-one argued to the contrary.
17 I will hear the parties on the precise forms of the answers that should be given in light of my conclusions, and on the question of costs.

*NATALIE TALIA (in her capacity as administrator ad litem* of the estate of MARIO CARUSO deceased, pursuant to order of the Honourable Justice McMillan made 28/07/2021)**	Plaintiff

-and-

CATHERINE ANNE WHITTY	First Defendant

GIOVANNI CARUSO	Second Defendant

NICK CARUSO	Third Defendant

CARMEN CARUSO	Fourth Defendant

^[2] Mischel Holdings Pty Ltd (in liq) v Mischel [2013] VSCA 375, [64] (Ashley, Priest and Santamaria JJA), citing Saleeba v Wilke [2007] QSC 298, [38] (Chesterman J).

^[3] Trustees of Cummins v Cummins (2006) 227 CLR 278, 301–3 [68][72] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ); cf Mischel Holdings Pty Ltd (in liq) v Mischel [2013] VSCA 375, [59]–[60], [66].

^[4] Presumably, if he did not choose to do so, his siblings ultimately could bankrupt him and his trustee in bankruptcy could do so.

^[5] Mr Caruso died intestate. Presumably, in the event that his liabilities were less than the value of his share in the Fitzroy property, Ms Whitty would receive the balance as his next of kin.

^[6] See, eg, the third method of ‘severing’ a joint tenancy given in Williams v Hensman [1861] EngR 701; (1861) 1 J & H 546; 70 ER 862, 867 (Page Wood V-C), quoted with approval in Corin v Patton (1990) 169 CLR 540, 547 (Mason CJ and McHugh J), and the broad language used in Mischel Holdings Pty Ltd (In liq) v Mischel [2013] VSCA 375, [98] (Ashley, Priest and Santamaria JJA); Abela v Public Trustee (1983) 1 NSWLR 308, 314–315 (Rath J).

^[7] See, eg, Trustees of Cummins v Cummins (2006) 227 CLR 278, 300 [65] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ); Malayan Credit Ltd v Jack Chia-MPH Ltd [1986] 1 AC 549, 561 (Lord Brightman).

^[8] Mischel Holdings Pty Ltd (In liq) v Mischel [2013] VSCA 375, [100] (Ashley, Priest and Santamaria JJA).

Supreme Court of Victoria

Re Caruso [2022] VSC 242 (18 May 2022)