A constructive trust, an equitable remedy, involves a person holding property as its nominal owner for a beneficiary. Family law is a balance-restoring measure that grants a person an interest in a spouse’s property if the person has contributed to the purchase, maintenance, or improvement of the property, and it would be unfair for the spouse to keep the sole benefit of the joint effort.
The Court is pivotal in establishing a constructive trust, irrespective of the parties’ intentions. It does so by determining that the nominal owner of the property holds it as a constructive trustee for the beneficiaries. This process comprehensively examines each party’s circumstances and contributions, ensuring a fair and just outcome. Establishing a constructive trust can be challenging, so a Court will consider other remedies before acknowledging the existence of such a trust.
Mushinski v Dodds
In Muschinski v Dodds (1985), the High Court examined the issue of unconscionability a term referring to conduct so harsh or oppressive that it goes against good conscience. Muschinski and Dodds were in a de facto relationship. In 1976, they bought a property in Picton as tenants in common, intending to develop it in the future.
Muschinski paid for the property, while Dodds renovated the cottage, paid for the erection of a kit house, and managed the property as an arts and crafts centre. However, the couple separated, and the planned development did not happen. Muschinski filed a lawsuit in the Supreme Court of NSW seeking a declaration that she was the sole owner of the Picton property.
The case eventually reached the High Court of Australia, whose ruling in favour of Muschinski was a significant development. The majority’s decision, based on the unfairness of Dodds retaining a beneficial interest in the property, reassured the audience about the justice system’s fairness.
As a result of the Court’s decision in Mushinski v Dodds, a constructive trust was imposed in favour of Muschinski, allowing her to transfer the property into her sole name and denying Dodds the ability to receive any funds from its future sale. The ruling set a significant legal precedent, highlighting the power of constructive trusts in redistributing property ownership based on contributions and fairness.
Constructive trusts can become relevant in disputes over deceased estates. Suppose a property owner dies without leaving any benefit to a person who has contributed to the property. In that case, the Court may impose a constructive trust to ensure they receive some form of reward from the estate for their contribution.
Background
On July 1, 2019, the parties entered into a Deed of Family Arrangement (DOFA), a legally binding document that outlined a clear plan for the succession of ownership. This agreement allowed the defendants’ gradual retirement and the plaintiffs to become owners of the land and related agricultural activities by July 1, 2026.
In Brose v Slade [2022] NSWSC 1785, the NSW Supreme Court dealt with an application to extend two caveats lodged during a dispute over the intergenerational succession of a farming business in West Wyalong, NSW. The dispute involved five parcels of land from a farming enterprise that Bruce and Donna Slade (the defendants) owned. Their daughter Kelly and her husband Gareth (the plaintiffs) claimed that the plaintiffs held the land in a constructive trust for them and lodged caveats against the property.
The first and second plaintiffs were the daughter and son-in-law of the first and second defendants. The third defendant, IJAAMOTT Pty Ltd, is a company controlled by the first and \second defendants and registered as the trustee of their self-managed superannuation fund.
The dispute arose from the family’s intergenerational succession planning, particularly concerning the staged transfer of proprietary interests in five blocks of land from the defendants to the plaintiffs. The land is primarily used for agricultural purposes and is operated in partnership with Slade Pastoral Co. The first defendant is the registered proprietor of three blocks (The Slade Land), with IJAAMOTT Pty Ltd being the registered proprietor of the remaining two (The IJAAMOTT land).
Caveat and ELNO’s
A caveat is a legal tool that acts as a statutory injunction, preventing the registration of dealings on a land title. It serves as a warning to others of an individual’s or organisation’s interest in the property. Lodging, a caveat in NSW, is conducted via Electronic Lodgment Network Operators (ELNOs) like Property Exchange Australia (PEXA). The process involves submitting a formal notice of the claim to the relevant authority, which then registers the caveat on the property’s title.
The plaintiffs claim an equitable interest in all five properties based on a common intention of constructive trust. When lodging these caveats, the conveyancer encountered issues with the PEXA system, which did not allow for the input of “an equitable estate or interest in the land such as a constructive trust.”
Extension of the Caveats
Amidst these proceedings, the plaintiffs made an application under s 74K of the Real Property Act (NSW) (RPA) to extend two caveats held by the plaintiffs over both the Slade Land (Slade Caveat) and the IJAAMOTT Land (IJAAMOTT Caveat) registered on September 14, 2022. When the caveats were registered, Bruce informed Kellie of his intention not to transfer the property, contrary to his earlier assurances under the DOFA, due to the deteriorating relationship between the parties. Following the issuance of lapsing notices under s 74J RPA on October 20, 2022, Bruce and IJAAMOTT entered into contracts to sell all five blocks.
The only option for the conveyancer to claim such an interest in PEXA was to “select ‘an Estate in Fee Simple’ and then Claim Category’ Beneficial Interest in Trust.” As a result, the plaintiff’s interest was registered incorrectly, with the defendant’s solicitor arguing that this constituted grounds to deny the application under s 74L RPA.
In late 2022, Kunc J emphasised that electronic caveats filed via ELNOs limit the descriptions available for the claimed estate or interest. In this case, the defendant argued that the caveat was invalid due to an incorrect description of the claimed interest. However, the Court disagreed, noting that the PEXA system’s limitations did not inherently invalidate the caveat.
Kunc J stressed that when correctly identifying the ‘estate or interest claimed’ when lodging caveats, Practitioners should be aware of interim solutions for cases where a caveator claims a beneficial or equitable interest in land and the electronic system lacks an appropriate description.
The Court also highlighted that while it can issue caveats urgently to prevent property sales, those who lodge them must prove the validity of their claims or risk liability for losses incurred.
The plaintiff sought to extend their caveats based on a Deed of Family Arrangement and promises made by the defendants concerning the transfer of land and business ownership. The Supreme Court granted the extension, finding it a serious issue to be tried. The extension effectively prevented the land sale until the parties resolved their dispute.
The broader dispute involved the Slade family’s succession planning, particularly the gradual land transfer to the plaintiffs. Despite a Deed of Family Arrangement, the relationship between the parties deteriorated, leading to an attempt to dissolve the partnership and the lodging of caveats.
The plaintiffs claimed an equitable interest in the properties via a constructive trust. However, due to limitations in the PEXA system, their interest was incorrectly registered, which the defendants argued should invalidate the caveats. The Court, however, allowed the extension of one caveat and granted permission to file a new one, noting that the misdescription was a formality due to PEXA’s constraints.
Appeal
In Slade v Brose [2024] NSWCA 197, the Court of Appeal upheld the decision requiring the defendants to transfer specific farming properties to the Plaintiffs based on their promises. The Court found that the defendant’s representations were clear and reasonable, leading the plaintiffs to remain on the farm, resulting in a significant detriment that justified the Court’s order.
The Court dismissed the defendant’s appeal and allowed a cross-appeal on costs, finding that the primary judge’s decision was correct and that the plaintiff’s reliance on the defendant’s promises was reasonable and substantial.
The Broses alleged that the Slades represented them from 2013 to 2019, including during family estate planning meetings, and that they would receive future land transfers and partnership interests. Leading to the Broses committing to work on the farm. While some properties were transferred to the Broses over the years, a falling out in October 2021 and January 2022 led the Slades to deny any previous arrangement and begin liquidating their rural land holdings and partnership assets.
The plaintiffs lodged caveats on the titles to the disputed properties, claiming detrimental reliance on the defendant’s representations. The primary judge found that the disputed properties were held on a constructive trust and ordered the transfer of three properties to the plaintiffs, paying the defendants $500,000. The judge also ordered each party to bear its costs.
The Court of Appeal unanimously dismissed the appeal, granted leave and allowed the cross-appeal. It found that the defendant’s representations were precise and reasonable for the plaintiffs to rely on them in a family context. The Court also held that the primary judge did not err in assessing their detrimental reliance.