Home / News / Q (a pseudonym) v E Co (a pseudonym) [2020] NSWCA 220

Q (a pseudonym) v E Co (a pseudonym) [2020] NSWCA 220

Anthony McInerney SC and Nick Kabilafkas appeared successfully for the respondent in a recent decision of the NSW Court of Appeal.

The appellant Q, who had by way of an inheritance trust inherited substantial wealth from his own father and invested much of that wealth in farms.  In 2002, following discussions with his three sons A, B, and and C, as well as advice from his accountants and solicitors, he and his sons established a family farming business, to be conducted on his farm properties. The business was to be operated by a company, the first respondent E Co, which would own the assets of the business other than land, which was to be leased from the appellant. It was also to involve investments in non-farm businesses made through another company, the second respondent EM Co. Each of the sons, the third, fourth and fifth respondents, took a role in the family business, and worked in the business full or part-time until at least 2010.

Between 2009 and 2013, the relationship between the appellant and his sons broke down as a result of it coming to light that Q had for years sexually abused the daughters of A and B. After being convicted and imprisoned for these offences, Q served a notice of termination on E Co, informed A, B and C that he was selling the farms, and wrote a will disinheriting his sons. His sons and the two companies brought proceedings in which they claimed, relevantly, the benefit of a proprietary estoppel over the farm properties. It was their case that Q, by his participation in the creation and implementation of the family business, had encouraged them in the expectation that he would hold the farm properties for use in the family farming business until he died, and then pass them to his sons by will when he died.

The primary judge Ward CJ in Eq upheld their claim, finding that Q had encouraged such an expectation, that the sons had each made “life-changing decisions” in reliance on it, and that they were entitled to have the expectation made good: E Co v Q [2018] NSWSC 442. Her Honour also concluded that the irreparable breakdown of the relationship between the appellant and his sons made necessary the “acceleration” of the sons’ inheritance expectation and the immediate transfer of the farm properties.  Ward CJ in Eq initially proposed to impose three conditions on relief: the payment to the appellant of (1) the present value of the future market rents of the farm properties which the appellant would have received over the balance of his life expectancy and (2) the amount of $2.123 million recorded in the books of the first respondent as being owed to the appellant; and (3) the purchase at a fair value of the appellant’s shares in the two companies. After a further hearing, her Honour accepted the respondents’ submissions that these conditions could not be imposed: E Co v Q [2019] NSWSC 429.  Instead, her Honour declared that the appellant had held the farm properties on constructive trust for his sons from July 2003 and ordered that they be transferred immediately, requiring only that the appellant be paid by the respondents the present value of a “notional” rent of $80,000 per year over the balance of his life expectancy. Her Honour also declared that the appellant’s quarter shares in each of the two companies were held on constructive trust for his sons to inherit on his death.

On appeal Q contended that:

  1. The son’s expectation was not encouraged, but merely acquiesced in by Q, and a proprietary estoppel by acquiescence could not be founded on an assumption concerning the future acquisition of an interest in land.
  2. Whether the sons’ detrimental reliance extended to properties acquired after 1 July 2003.
  3. Whether the primary judge erred in finding that C had relied on the holding/inheritance expectation in deciding to join the family business.
  4. Whether the primary judge erred in finding that B and C had suffered substantial detriment in circumstances where they were both said to have received significant benefits by reason of their decisions to join the family business.
  5. Whether the primary judge erred in relation to relief, in determining that the expectation should be made good in relation to B and C and in declining to impose the three conditions initially proposed.

On appeal, Meagher JA, with whom Leeming and Payne JA agreed, rejected the first four grounds of appeal and allowed the appeal on a limited basis in respect of the fifth ground of appeal, altering the relief granted by the primary judge to the extent of ordering that if the ownership of the farms by the sons was to be accelerated from the date of Q’s death to the present, then it was appropriate that payment of the $2.123 million book debt ought be similarly accelerated.

The Court’s decision affirms one of the most significant awards of property by way of proprietary estoppel ever to be made in Australia, and  is an authoritative statement of the law with respect to all the principal elements of that equity including expectation, encouragement and acquiescence, reliance, detriment, and relief.

The link to the judgement can be found here


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