When that 1/10th of property law prevails over the 9/10ths of possession: A review of a recent decision concerning a failed claim for a constructive trust over a residential property
In 1865, in Asher v Witlock (1865) LR 1 QB 1, Lord Chief Justice Cockburn, observed that it is ‘… clearly established that possession is good against all the world except the person who can shew good title’, summarising the legal proverb that possession is nine tenths of the law.
The Supreme Court of Victoria recently rejected a claim by George Tsakamkis (George) that a constructive trust arose over a residential property in Northcote that George, his wife and their two sons had lived in (and otherwise had possession of) since 2012 as a result of an alleged promise made by George’s parents, Elpiniki and Antonios, the registered proprietors of the property, in 2011.
The Court found that Elpiniki and Antonios did not make the promise George alleged; thus, George’s claim for a constructive trust over the property was dismissed, resulting in George being ordered to surrender possession to his mother, Elpiniki.
The facts
Elpiniki and her late husband purchased the property in 1965. The property was their family home until 1988, following which Elpiniki and Antonios leased the property to tenants until 2011. George and his family then moved into the property in 2012.
George claimed that his parents promised him in late 2011 that the property would form part of his inheritance and that he could live in the property until he inherited it, on the conditions that he:
move into the property with his family;
maintain and renovate the property;
contribute to outgoings; and
otherwise assist his parents to look after other investments properties they held (together, the Promise).
In seeking a declaration of a constructive trust, George claimed that, in reliance on the Promise, he and his family used their life savings to renovate the property, instead of purchasing their own home, contributed to outgoings for the property and otherwise assisted his parents with their investments properties. George alleged that he would suffer detriment if his parents were allowed to resile from the Promise.
Elpiniki denied that she and her late husband had made the Promise as George alleged. Instead, Elpiniki alleged that she and Antonios had agreed that George could occupy the property for approximately five years without paying rent, on condition that George paid all outgoings, so that Elpiniki and George would not be out of pocket. Elpiniki thus sought orders for possession of the property.
George’s claims
George’s constructive trust claim was premised on the doctrine of estoppel by encouragement: that George would suffer detriment if his parents were allowed to resile from the Promise.
In order to establish such a claim, George had to show:
a clear and unequivocal promise made by his parents, unequivocal in the sense that there was no doubt or ambiguity about what was promised;
a reasonable person in George’s parents’ position must have expected that George would rely upon the promise by some action, omission or course of conduct;
George in fact relied on the promise by acting or omitting to act in a manner that was or would have been expected; and
George would suffer detriment if his parents’ promise was not fulfilled.
(whilst George had lawyers draft the pleadings and assist him initially, George was unrepresented at trial.)
The Court’s analysis and findings
The Court rejected George’s claims, having concluded that George failed to establish any of the elements detailed above.
No clear and unequivocal promise
The Court rejected that George’s parents made the Promise in 2011 because:
George’s evidence about the conversation he said gave rise to the Promise was ‘given in a very general way’, in circumstances where if the Promise had been made, George should have had ‘some recollection of specific aspects of the conversation …’;
George’s evidence about the Promise was inconsistent: on one hand, he alleged that both his parents made the Promise to him and on the other he gave evidence in cross-examination that it was his late father who made the Promise;
there was nothing to corroborate George’s evidence. By way of example, Elpiniki’s will provided for the whole of her estate to be left in equal shares to her 3 children, being George and his brother and sister – had the Promise been made, then one would have expected that Elpiniki’s will would have contemplated that given that she had 2 other children; and
the Court accepted Elpiniki’s evidence that she and Antonios had promised George that he and his family could live in the property for a number of years to allow them to save money to buy their own home, so long as George paid the outgoings; that was also consistent with evidence given by George’s brother and sister at trial.
The Court concluded that George assumed that his parents would ultimately give him the property in their wills but that Elpiniki and Antonios did not induce George into making that assumption.
No expectation that George would rely on the promise
The Court observed that, even if the Promise had been made (which the Court found it wasn’t), then Elpiniki and Antonios did not intend for George to renovate the property – George’s parents in fact wanted George and his family to save money so that they could purchase their own home. Accordingly, the Court found that no reasonable person in the position of George’s parents would have expected that George would have renovated the property in response to him being permitted to live in the property temporarily.
No Reliance
George alleged that had the Promise not been made then he would not have spent his life savings on renovating the property.
In concluding that George had not established that he had relied on the Promise in that regard, the Court found that:
the property, whilst not brand new, was habitable when George and his family moved in, the property having been tenanted prior to 2012;
whilst George spent between $25,000 to $30,000 on renovations to the kitchen, bathroom, new carpets and new wardrobes, those renovations were not done at Elpiniki or Antonios’ request but were instead done because George and his family wanted the property to be ‘comfortable, modernised and to their taste’;
there was no evidence that George had set aside that money for a deposit for his own home – there was no evidence of any loan applications or the money being intended to be used to buy a home; and
whilst George did work on his parents’ other investment properties, George did not do that in reliance on the Promise – it was a small amount of work and was done consistent with the assistance that George’s siblings had given to their parents in relation to the investments properties.
No Detriment
The Court observed that even if the Promise had been made as George alleged, whilst George had contributed to paying some outgoings, he had not contributed to outgoings to the extent that he had alleged as one of the conditions of the Promise.
In the circumstances, the Court rejected the assertion by George that he had suffered detriment. On the contrary, the Court concluded that George and his family had received substantial benefits from being permitted to live in his parents’ property without paying rent (despite George’s bank statements referring to payments as ‘rent’, which the Court was not persuaded were rent payments) and only making limited contributions to outgoings.
Estoppel by Acquiescence
Whilst George did not plead an estoppel by acquiescence, given that George was unrepresented at trial, the Court considered whether an estoppel by acquiescence could be made out.
In support of that, the Court considered George’s assertion that there was no reason why he would have made improvements to the property if the Promise had not been made (i.e. that his parents had effectively consented to the renovations happening).
The Court found that Elpiniki’s evidence strongly indicated that she had not consented to the renovations George had undertaken – there was evidence that George’s parents did not want the renovations done and were upset about specific aspects of the renovations. Accordingly, the Court rejected the notion that there was an estoppel by acquiescence (i.e. that George’s parents were aware of the renovations and simply let them happen without protest).
The Court also observed that had George established some equitable interest in the property arising from the improvements the Court found he had made to the property, any entitlement George had had in the property had been ‘entirely exhausted by the subsequent substantial and valuable benefit he and his family received for living in the property’. In that regard, the Court observed that the courts have recognised that equitable interests in property can be ‘exhausted’ or ‘amortised’ by benefits provided to claimants.
Outcome
Ultimately, the Court concluded that George and his family had not made life changing decisions with detrimental consequences when they moved into the property. Instead, having moved into the property, they ‘received a very significant benefit which was life enhancing’.
Accordingly, Elpiniki was entitled to an order for possession and for the removal of a caveat that George had lodged over the property; in this case, Elpiniki’s 1/10th overcame George’s 9/10ths of possession.
Key takeaways
The Court’s decision provides the following reminders for property owners, families and those involved in property transactions:
if any promises are made or agreements reached about real property, those arrangements should be documented, which documents ought to clearly and precisely identify the parties’ rights and obligations;
keeping contemporaneous records of discussions with potential counterparties to property (or any) transactions are important – a key issue for George in this case was that there was a lack of any corroborating (documentary and testamentary) evidence before the Court that was consistent with George’s allegations;
ensuring that proper records are maintained that record the consequences of transactions. As was apparent in this case, the Court was not persuaded that George paid rent to his parents, despite the descriptions included in his bank statements being to the contrary;
equitable relief will always be moulded to the particular circumstances of the case. Moreover, the Court can offset or amortise the benefits obtained by a claimant in determining whether any equitable relief ought to be granted; and
it is important that we keep our personal affairs up to date, including by ensuring that our wishes are clearly and properly set out in wills and other estate or testamentary documents.
If you have any questions about this article or the issues it raises, please contact us:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au
Jake Cole
Senior Associate
T: +61 3 9611 0112 | M: + 61 413 557 157
E: jcole@sladen.com.au
Two days after the proceeding was commenced, Antonios passed away, resulting in Elpiniki being the sole registered proprietor of the property as a consequence of the right of survivorship.
