Pipikos v Trayans

The High Court has dismissed an appeal against a decision of the Supreme Court of South Australia regarding the principles governing the doctrine of part performance (namely, when an otherwise unenforceable oral contract over land can be recognised by the court because of acts of part performance of the agreement, so as to support an award of specific performance). The question raised was whether the requirements of the doctrine of part performance should be relaxed in line with the liberal test proposed by the House of Lords in Steadman v Steadman [1976] AC 536, which merely required that the acts pointed on the balance of probabilities to the formation of a contract. The Australian test has hitherto reflected that expressed in Maddison v Alderson (1883) 8 App Cas 467, which requires the acts of part performance to be unequivocally referable to some such contract as alleged. The High Court confirmed that the Australian position remains the same, and declined to adopt Steadman v Steadman.

The case arose from a series of property transactions involving two brothers and their wives. George was then married to Velika (the respondent) and his brother Leon, the appellant, is married to Sophie. In 2002, George and Velika purchased a property in Clark Road, Virginia (‘the Clark Road Property’) in South Australia, of which Velika was the sole registered proprietor. They made improvements to the Clark Road Property. In 2004, the two brothers and their wives jointly purchased a property in Taylors Road, Virginia (‘the Taylors Road Property’), half of which was held in the names of Leon and Sophie, and half of which was held in George’s name alone. Finally, later in 2004, the two brothers and their wives purchased a property in Penfield Road, Virginia (‘the Penfield Road Property’), and each couple held half of the title as joint tenants. However, the deposit and the balance of the purchase price was solely paid  by Leon and Sophie. The dispute concerned the precise nature of Leon and Sophie’s interest in the Clark Road Property. Leon alleged that in 2004, there had been an oral agreement that he would obtain a half interest in the unimproved portion of the Clark Road Property in consideration for him funding the purchase of George and Velika’s interest in the Penfield Road Property. It was alleged that the oral agreement was made at the time of the purchase of the Penfield Road Property, but the only written evidence of such an agreement was a handwritten note from 3 August 2009 which Velika had signed at Leon’s request. In 2012, Leon sought to have his interest enforced by lodging a caveat over the Clark Road Property and when Velika attempted to remove the caveat, Leon instituted proceedings. Meanwhile, Velika and George separated. In 2013, they entered into a matrimonial property settlement in which all George’s interests and liabilities in the Clark Road, Taylors Road and Penfield Road Properties were surrendered to Velika.

The trial judge decided that there was no oral agreement relating to an interest in the Clark Road Property. However, even if there was, she found that it was unenforceable by reason of the operation of s 26(1) of the Law of Property Act 1936 (SA) which provided:

 No action shall be brought upon any contract for the sale or other disposition of land or of any interest in land, unless an agreement upon which such action is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some person thereunto by him lawfully authorised.

Leon attempted to argue that the transaction was an exception to this rule pursuant to s 26(2) because that section said s 26(1) did not “affect the law relating to part performance”.  The alleged acts of part performance were:

  • the payment of the deposit and the balance of the purchase price on the Penfield Road Property;
  • the payment of around $7500 to $8000 to George;
  • a payment of $2500 on the Clark Road Property mortgage in December 2009;
  • the written note signed by Velika of August 2009; and
  • the lodgement of the caveat and the institution of proceedings in 2012.

The acts of part performance were held to not be unequivocally referable to some such contract as alleged. Rather, the payment of the deposit and the balance of the purchase price on the Penfield Road Property was consistent with either a loan by Leon and Sophie, or that George and Leon, who had often had business dealings together, would eventually bring the unequal contributions to account in some other transaction. None of the other acts were unequivocally referable, particularly the written note and the caveat and proceedings, which were instead attempts by Leon to enforce his claim.

The Full Court of the Supreme Court of South Australia held that the primary judge should have found that the oral agreement was made because it was unlikely that Leon and Sophie would have agreed to fully fund the joint purchase of the Penfield Road Property otherwise. The Court also held, however, that the oral agreement was unenforceable because it was not recorded in writing, and the requirements of part performance had not been made out for the reasons explained by the trial judge.

Leon appealed to the High Court on the basis that Australia should adopt the test proposed the House of Lords in Steadman v Steadman [1976] AC 536, which required only that the acts pointed on the balance of probabilities to the formation of a contract, and that this requirement had been made out. His appeal was dismissed unanimously.

There are three separate judgments: (1) Kiefel CJ, Bell, Gageler and Keane JJ, (2) Nettle and Gordon JJ and (3) Edelman J. The following issues are considered by the court:

  1. The origins of and policy reasons behind the doctrine of part performance
  2. The relationship between part performance and estoppel
  3. Whether the doctrine of part performance enforces the underlying oral contract
  4. Whether Steadman v Steadman be adopted in Australia

Although the court did not consider these issues under these headings or in that order, for convenience, the judgment will be summarised under these headings.

The origins of and policy reasons behind the doctrine of part performance

All judges note that s 26 of the Law of Property Act 1936 (SA) is a modern replication of s 4 of the Statute of Frauds 1677 (29 Car II c 3) (Kiefel CJ, Bell, Gageler and Keane JJ at [1], Nettle and Gordon JJ at [84], Edelman J at [127]). Such writing requirements were imposed to prevent fraud in land transactions.

All judges also observe that the courts of Chancery had been concerned not to undermine the Statute of Frauds and had thus developed the notion that acts of part performance must be unequivocally referable to some such contract as alleged in order to constrain its operation, particularly in Maddison v Alderson (Kiefel CJ, Bell, Gageler and Keane JJ at [71] – [74], Nettle and Gordon JJ at [88] – [90], Edelman J at [127] – [133], [156]).

Nettle and Gordon JJ note at [84] – [87] that the doctrine of part performance was not mentioned in the original Statute of Frauds, and argue that its origins lie in a pre-Statute of Frauds jurisdiction of the courts of Chancery to compel the execution of formal covenants agreed to be but not yet sealed. Edelman J’s judgment contains a exposition of how the doctrine may have come to be incorporated despite its lack of inclusion in the original enactment. He explains that Lord Nottingham had been both an initial drafter of the Statute of Frauds and one of the judges making decisions upon its meaning, and therefore, he could claim to understand “the equity of the statute” (at [153] – [155]). This is how the doctrine of part performance came to be recognised by the courts of Chancery despite the lack of any formal mention in the initial Statute of Frauds itself.

While Edelman J also dismisses the appeal, he disagrees with the reasoning of Kiefel CJ, Bell, Gageler and Keane JJ as to the policy of the act. Among other things, he rejects the argument that the court “enforces the equities” arising from acts of part performance (at [126], [138] – [145]). However, he also rejects the appellant’s argument that the rationale of the doctrine was as a rule of evidence (at [134] – [137]) and the argument that the doctrine prevents “equitable fraud” (at [146] – [150]). He argues instead that the rationale is a moral one, namely that if a contract unequivocally exists, it should be performed (at [151] – [156]).

The relationship between part performance and estoppel

All judgments apart from Edelman J’s emphasise that part performance and estoppel have different bases, notwithstanding that American law has tended to treat it as a species of estoppel (Kiefel CJ, Bell, Gageler and Keane JJ at [58] – [65], Nettle and Gordon JJ at [94]). It is stated that the two doctrines are distinct, with different histories, jurisprudential underpinnings and criteria for their application. Kiefel CJ, Bell, Gageler and Keane JJ give several differences between the two doctrines:

  1. Part performance may be invoked by a vendor of land to enforce an oral contract, whereas equitable estoppel is only available against a vendor to vindicate the interests of a prospective purchaser (at [59]);
  2. The concern of equitable estoppel is not an unperformed or partially performed promise, but a concern about the plaintiff’s detrimental reliance on the plaintiff resiling from a promise (at [60]);
  3. The nature of the equity enforced by part performance differs from that enforced by equitable estoppel. Sometimes relief for equitable estoppel may require the defendant to meet the plaintiff’s expectation, but sometimes less is needed to heal the detriment. By contrast, for part performance, there is no insistence on detrimental reliance on the part of the plaintiff, and the plaintiff’s expectation will be fulfilled (at [61] – [66]).

Whether the doctrine of part performance enforces the underlying oral contract

The majority (Kiefel CJ, Bell, Gageler and Keane JJ) hold that the doctrine of part performance operates not to enforce the underlying oral contract but to “enforce the equities” which arise out of partial performance of a transaction, and that this analysis is consistent with a desire not to undermine the Statute of Frauds (at [46] – [55]). It is only at the stage when the equities are enforced that the terms of the oral contract become relevant to shape the decree of specific performance (at [54]).

Nettle and Gordon JJ appear to sit on the fence on this question at [96]. They observe that some cases say that part performance does not enforce the contract itself, but on the other hand, they say that insofar as it enforces the terms of the oral contract, part performance is similar to various forms of estoppel.

Edelman J explicitly rejects the argument of Kiefel CJ, Bell, Gageler and Keane JJ and says at [125] that ‘the court enforces the contract itself’.

Whether Steadman v Steadman should be adopted in Australia

The court is unanimous that Steadman v Steadman should not be adopted in Australia.

The majority holds that early English authority and Australian authority disclose no intention to water down the requirement that acts be unequivocally referable (Kiefel CJ, Bell, Gageler and Keane JJ at [37] – [45]; Nettle and Gordon JJ at [99] – [109]). Moreover, Nettle and Gordon JJ note that it is difficult to extract a definitive ratio from the speeches of the majority in Steadman v Steadman (at [110] – [113]). Kiefel CJ, Bell, Gageler and Keane JJ argue that the subsequent English statutory abolition of the doctrine of part performance can be attributed to the confusion caused by Steadman v Steadman (at [75] – [76]). Edelman J agrees with Kiefel CJ, Bell, Gageler and Keane JJ that Steadman v Steadman does not provide a sound basis for altering the requirement of unequivocally referable acts, and states that any future decisions on part performance should have regard to “the nature and rationale of the doctrine of part performance and the need to keep the doctrine within narrow limits” (at [157] – [158]). Nettle and Gordon JJ also noted that the other overseas cases referred to did not show any clear or rational reason to depart from the established rule (at [115] – [120]).

Interestingly, at [121], Nettle and Gordon JJ refer to the case of John v Federal Commissioner of Taxation, which provided that the High Court should only overturn a previous decision “whether the earlier decision rested upon a principle carefully worked out in a significant succession of cases; whether there was a difference between the reasons of the Justices constituting the majority in the earlier decision; whether the earlier decision has achieved a useful result or has caused considerable inconvenience; and whether the earlier decision has been independently acted upon in a way that militates against change.” In this regard there is said to be no reason to overturn previous reasoning in a succession of cases, particularly given that courts should not undermine the policy of the Statute of Frauds.

Conclusion

Kiefel CJ, Bell, Gageler and Keane JJ say that in the case at hand, because any acts of part performance were consistent with other transactions other than a sale of the Clark Road Property, Leon could not show he was entitled to have his interest in the Clark Road Property executed by means of specific performance (at [56], with which Nettle and Gordon JJ implicitly agree at [83]). Despite his different reasoning as to the policy and origins of the doctrine, Edelman J agrees with this ultimate conclusion (at [159]).

 

High Court Judgment  [2018] HCA 39 12 September 2018
Result  Appeal dismissed
High Court Documents Pipikos v Trayans
Full Court Hearing [2018] HCATrans 47 15 March 2018
Special Leave Hearing [2017] HCATrans 164  18 August 2017
Appeal from SASCFC [2016] SASCFC 138 16 December 2016
Trial Judgment, SADC
[2015] SADC 149 3 November 2015
This entry was posted in Case Pages, Decided Cases, Opinions by Katy Barnett. Bookmark the permalink.

About Katy Barnett

Katy Barnett is an Associate Professor at Melbourne Law School. She was awarded her PhD in 2010, and it was published in 2012 by Hart Publishing as a monograph entitled Accounting for Profit for Breach of Contract: Theory and Practice. In 2013 she was a visiting scholar with Brasenose College, Oxford as part of the Melbourne-Oxford Faculty Exchange.

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