Baykal v Cronan
[2017] FCA 1332
•19 October 2017
FEDERAL COURT OF AUSTRALIA
Baykal v Cronan [2017] FCA 1332
File number: NSD 514 of 2017 Judge: BROMWICH J Date of judgment: 19 October 2017 Catchwords: BANKRUPTCY AND INSOLVENCY – claim for relief arising from alleged interest in proceeds of sale of bankrupt estate – whether payment was a loan or created an equitable interest by way of a constructive trust – held: no existence of a constructive trust established and therefore no beneficial interest – statement of claim dismissed Legislation: Bankruptcy Act 1966 (Cth), ss 58(1), 116 Cases cited: Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588
Commissioner of Stamp Duties (Queensland) v Joliffe (1920) 28 CLR 178
Kauter v Hilton (1953) 90 CLR 86
In re Cozens [1913] 2 Ch 478
Dates of hearing: 19 October 2017 Registry: New South Wales Division: General National Practice Area: Commercial and Corporations Sub Area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 32 Counsel for the Applicant: The Applicant appeared in person Counsel for the Respondents: Mr B Skinner Solicitor for the Respondents: Grace Lawyers ORDERS
NSD 514 of 2017 BETWEEN: TONBUL BAYKAL
ApplicantAND: JASON SHANE CRONAN AND TERRY VAN DER VELDE AS TRUSTEES FOR THE BANKRUPT ESTATE OF HAKAN TANDOGAN
Respondents
JUDGE:
BROMWICH J
DATE OF ORDER:
19 OCTOBER 2017
THE COURT ORDERS THAT:
1.The applicant’s statement of claim dated 23 January 2017 be dismissed.
2.The applicant pay the respondent’s costs on an ordinary basis up to and including 28 July 2017, and on an indemnity basis thereafter.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
Revised from transcriptBROMWICH J:
The applicant, Ms Tonbul Baykal, is the mother of Mr Hakan Tandogan. The respondents are the trustees of Mr Tandogan’s bankrupt estate (Trustees). This is a claim by Ms Baykal for an interest, by way of a constructive trust, in the proceeds of sale of a unit in West Wollongong, New South Wales (the property), purchased by Mr Tandogan in 2005 and sold by the Trustees. The claim arises by reason of:
(1)a $15,000 contribution Ms Baykal made towards the purchase of the property; and
(2)aggregate contributions of $24,889.41 that she made towards the property mortgage, council rates, water rates and strata levies.
The matter is complicated by the fact that there are no net funds left in the bankrupt estate to satisfy any successful claim by Ms Baykal.
Sometime in October 2005, Ms Baykal paid Mr Tandogan $15,000. The transaction was recorded in a handwritten document signed by both of them, which stated the following (verbatim):
Date 19-10-2005
I Tonbul Baykal lent Hakan Tandogan. The sum off $15,000 for Deposit to purchoce the unit benig unit 10/1.5 mt keira rd Wollongong N.S.W. 2500
Witch he did in November 2005
Tonbul Baykal Hakan Tandogan
[signature] [signature]
It is not in doubt that the money was used for the stated purpose of assisting Mr Tandogan to purchase the property. Mr Tandogan’s bankruptcy statement of affairs dated 24 March 2014 records a purchase price of $95,000, a current value of $120,000 and a debt to creditors (apparently a bank mortgagor) of $57,000.
Mr Tandogan’s statement of affairs records as his only unsecured creditors the owners’ corporation for the block in which the property is located. In answer to the express question of whether there are any other owners of the property, Mr Tandogan placed a cross in the “No” box. Nowhere in the statement of affairs is there any reference to any interest in the property held by his mother or anyone else. There is no reference to any trust of any kind. The part of the statement of affairs about trusts is crossed out by a diagonal line.
Ms Baykal subsequently made payments towards the property mortgage, council rates, water rates and strata levies. However, there is no evidence that any of those payments were made in any particular way, let alone in a way that created any interest in the property. Bank statements and credit card statements are in evidence as a sample of the payments, but that is only the mechanism of payment. That aspect of Ms Baykal’s claim must fail because the mere fact of payment of property outgoings without anything more cannot suffice to establish any equitable interest in Ms Baykal’s favour. The evidence falls well short of establishing any constructive trust.
It remains for determination whether the payment of the $15,000 was, as stated in the contemporary record reproduced above, a loan, or whether, as now asserted by Ms Baykal, that payment created an equitable interest in her favour in the property by way of a constructive trust. It is first necessary to refer to the history of these proceedings, as the only evidence of a constructive trust relied upon by Ms Baykal emerged in that context.
On 24 January 2014, a sequestration order was made against the estate of Mr Tandogan. The debt relied upon by the petitioning creditor was for unpaid strata levies on the property. His interest in the property vested in the Trustees upon the making of the sequestration order: see ss58 (1) and 116 of the Bankruptcy Act 1966 (Cth).
On 24 March 2014, Mr Tandogan completed his statement of affairs. As noted above, no reference was made to the existence of any trust in respect of the property. He was recorded as the sole owner of the property and his mother was not listed as an unsecured creditor.
On 7 July 2015, a caveat was lodged on behalf of Ms Baykal. The caveat alleged the existence of a constructive trust in respect of the money she had paid towards the purchase price of the property and also in respect of money paid on behalf of her son, including after the commencement of bankruptcy.
On 5 September 2015, proceedings for possession were commenced by the Trustees in the Supreme Court of New South Wales by a statement of claim. On 15 September 2016, default judgment was entered.
On 23 November 2016, a lapsing notice was served by the Trustees. On 14 December 2016, Ms Baykal filed a summons to extend the operation of the caveat. That summons is spent as the property, as noted below, has been sold.
On 5 December 2016, an offer to purchase the property was received by the Trustees. On 21 December 2016, the Trustees accepted the offer and entered into a contract for sale. On 1 February 2017, the sale of the property was completed.
On the day after the acceptance of the offer, 22 December 2016, Slattery J in the Supreme Court of New South Wales made directions by consent in his capacity as duty judge, including that the Trustees could deduct out of the proceeds of sale of the property all reasonable commissions and expenses, including legal expenses in the sum of $60,000, of transferring the property to the purchaser. The Trustees were directed to serve on Ms Baykal a list, with substantiation where reasonably available, of the remuneration and expenses that the Trustees claimed may be deducted from the proceeds of sale, realisation and disposal of the property. Ms Baykal was directed to notify the Trustees of the items on the list that she disputed.
On 27 January 2017, Mr Moretti from the firm of the Trustees filed an affidavit on their behalf in compliance with the directions made by consent by Slattery J. The summary of costs deposed to in that affidavit referred to the difficulty caused by the actions of Mr Tandogan in not vacating the property and in re-entering it after he had been evicted.
Ms Baykal did not file a list of items which she disputed in regard to the substantiation of the Trustees' remuneration and expenses. Rather, by a letter dated 24 January 2017, Ms Baykal's then solicitor advised that any remuneration in favour of the Trustees was opposed, a singularly unhelpful approach.
On 23 January 2017, Ms Baykal filed a statement of claim in the Supreme Court of New South Wales. The relief claimed in the statement of claim and the pleadings and particulars was as follows:
RELIEF CLAIMED
1.A declaration that 14.5% of the property at 10/1.5 Mount Keira Road West Wollongong (the “Property”) was held by Hakan Tandogan as a constructive trustee for the plaintiff as at the date of purchase of the Property.
2.The plaintiff be entitled to a further $24,889.41 from the proceeds of sale of the Property under the constructive trust declared for contributions made by the plaintiff towards maintaining the joint endeavour between the plaintiff and Hakan Tandogan.
3.The defendant pay the plaintiff the amount of $39,889.41 from the proceeds of sale of the Property and on completion of the sale of the Property.
4.On an interim basis the defendant’s remuneration for realising the Property as a trustee in bankruptcy be held in a controlled monies account until the finalisation of the plaintiff’s claim.
5.The defendant pay the plaintiff’s costs.
Alternative Relief Claimed
6.In the alternative, a declaration that 14.5% of the property at 10/1-5 Mount Keira Road West Wollongong (the “Property”) was held by Hakan Tandogan as a resulting trustee for the plaintiff as at the date of purchase of the Property.
7.The defendant pay the plaintiff the amount of $15,000 from the proceeds of sale of the Property and on completion of the sale of the Property.
8.On an interim basis the defendant’s remuneration for realising the Property as a trustee in bankruptcy be held in a controlled monies account until the finalisation of the plaintiff’s claim.
9.The defendant pay the plaintiff’s costs.
PLEADINGS AND PARTICULARS
1.The plaintiff is the mother of Hakan Tandogan (the “Bankrupt”) who is a bankrupt.
2.The defendant is the trustee of the Bankrupt’s estate.
3.Around October 2005 the plaintiff gave the bankrupt approximately $15,000 for the purposes of the Bankrupt paying a deposit, the stamp duty and associated purchase costs of a property at 10/1-5 Mount Keira Road West Wollongong (the “Property”).
4.The Bankrupt used these funds for the purposes of paying the deposit on, the stamp duty on and the associated purchase costs of the Property.
5.The purchase price of the Property was $98,000.
6.The Property was purchased as a joint investment with the plaintiff expecting and relying on recovering her investment from the sale of the Property.
7.The acquisition of the Property was a joint endeavour between the plaintiff and the Bankrupt which failed due to the bankruptcy of the Bankrupt without any attributable blame on either party.
8.On 24 January 2014 the Bankrupt was declared bankrupt. There was communication between the Bankrupt and the defendant in relation to the annulment of the Bankrupt’s bankruptcy if certain payments were made by the Bankrupt.
9.The Bankrupt advised the plaintiff that his bankruptcy would be annulled if payments for strate [sic] levies, council rates and water rates for the Property were paid.
10.In reliance on the statements made by the Bankrupt and the defendant, on 8 April 2014 the plaintiff paid $2,815.17 for council rates, $1,330.60 for water rates and $15,743.64 for strata levies for the purposes of annulling the bankruptcy of the Bankrupt, to protect her investment and the joint endeavour.
11.The plaintiff also paid at least $5,000 in mortgage repayments for the mortgage over the Property to protect her investment and the joint endeavour.
On 30 January 2017, the Supreme Court proceedings came before White J for determination of the disposition of the controlled money arising from the sale of the property. There was, in fact, no such money because the net proceeds of sale were fully exhausted. However, Ms Baykal's solicitor persevered. Justice White transferred the proceedings, including the statement of claim, to this Court. Costs of the hearing in the Supreme Court on 30 January 2017 were ordered to be costs in the proceedings transferred to this Court.
There has been no amendment to the pleadings since they were transferred from the Supreme Court. There has been no challenge to the consent orders made by Slattery J, which resulted in there being no funds left with which to satisfy the claims made by Ms Baykal. There has further been no challenge to the remuneration of the Trustees, including unpaid remuneration.
The lack of funds to meet Ms Baykal’s claim has been confirmed by an affidavit filed in this Court on behalf of the Trustees, sworn by Mr Jason Porter from their firm. That affidavit confirms that there are no funds in the bankrupt estate of Mr Tandogan available for the costs of the Trustees relating to the sale of the property or for the costs of administering the bankrupt estate. There are no funds in the bankrupt estate to pay to continue the litigation on behalf of the Trustees or to pay to defend any successful constructive trustee claim over the property as alleged by Ms Baykal, any such claim being denied by the Trustees. Mr Porter's affidavit points out that even in the event that Ms Baykal’s constructive trust claim was successful, the costs of the Trustees that remain unpaid in relation to the realisation sale of the property have a priority over any such constructive trust claim.
It follows from the foregoing that Ms Baykal’s claim of a constructive trust is a barren exercise for which she cannot receive any money even if successful. However, a futile result is still a result which she, at least on one view, is entitled to pursue. The claim must therefore be addressed, and indeed should be for the purpose of completeness.
Consideration
Ms Baykal’s claim of a constructive trust depends upon the circumstances in which the payment of $15,000 was made to her son. She deposes to what took place in an affidavit sworn on 13 December 2016 and filed in the Supreme Court of NSW on 14 December 2016 as follows (emphasis in original):
3.Around November 2005 my son and I purchased a unit at 10/1-5 Mount Keira Road West Wollongong (the “Property”).
4.I could not obtain a home loan because I was not employed but still wanted to purchase the property with my son. My son was working and could get a home loan but did not have sufficient savings for the deposit and other costs of purchasing the Property.
5.I had some savings, I borrowed from friends and sold some of my personal jewellery to come up with the money. I gave my son approximately $15,000 around October 2015 [sic] which was used to pay the deposit on the purchase of property, the stamp duty payable and other ancillary costs. The purchase price of the property was $98,000.
6.To document the payment of money on 19 October 2005 my son wrote on a piece of paper that I lent him $15,000 for the deposit for the purchase of the Property. My son and I signed this document. Attached as Annexure A is a copy of this document. I did not see it as a loan but rather as an investment. I signed the document so that I had a record of the payment of money.
Ms Baykal swore and filed in the Supreme Court a second affidavit on 23 January 2017. That affidavit deposed to the following in relation to the purchase of the property and subsequent events (emphasis in original):
3.Around November 2005 my son and I purchased a unit at 10/1-5 Mount Keira Road West Wollongong (the “Property”).
4.Before we purchased the Property my son approached me said words to the effect of “I saw a property in Wollongong, I want a new start it is a studio and I can live in it too”. My son had gone through a divorce and I had lost a lot of money that I had contributed to his failed marriage and I did not want to lose money again. I said “I will help you out but I don’t want to lose money like I did with your divorce”. He said “You won’t lose your money, you can have a share in the property and when we sell it you can get your money back and make money from the increase in the value of the property”. I said “Ok, good let’s do it”.
5.I could not obtain a home loan because I was not employed but still wanted to purchase the property with my son. My son was working and could get a home loan but did not have sufficient savings for the deposit and other costs of purchasing the Property.
6.I had some savings, I borrowed from friends and sold some of my personal jewellery to come up with the money. I gave my son approximately $15,000 around October 2015 [sic] which was used to pay the deposit on the purchase of property, the stamp duty payable and other ancillary costs. The purchase price of the property was $98,000.
7.To document the payment of money on 19 October 2005 my son wrote on a piece of paper that I lent him $15,000 for the deposit for the purchase of the Property. My son and I signed this document. Attached as Annexure A is a copy of this document. I did not see it as a loan but rather as an investment. I signed the document so that I had a record of the payment of money.
8.I have asked my son to obtain the conveyancing documents for the Property but he told me that his solicitor could not find them because of the time that has passed since the purchase.
9.I have also paid for from time to time the mortgage repayments, council rates, water rates and strata levies for the Property.
10.I have paid at least $5,000 in mortgage repayments, $2,815.17 for council rates, $1,330.60 for water rates and $15,743.64 for strata levies. Attached as Annexure B are copies of my credit card statements showing some of the payments made by me. The entries on the attached credit card statement which are not blacked out are the entries for the payments for the council rates, water rates and strata levies for the Property.
Mr Tandogan also swore an affidavit on 23 January 2017, filed in the Supreme Court on the same day and in part deposing to the circumstances of the purchase of the property as follows (emphasis in original):
3.Around November 2005 my mother Tonbul Baykal and I purchased a unit at 10/1‑5 Mount Keira Road West Wollongong (the “Property”. The property was purchased in my name.
4.I was in a position to get a home loan but did not have any savings to put towards the deposit and other costs of purchasing the Property. I had recently gone through a divorce and did not have much money.
5.Around the time I said to my mum words to the effect of “there is a property in Wollongong lets buy it together, it will help me start over and I can live in it”. She said words to the effect of “I want to help you out but I do not want to lose my money like I did in your divorce case”. In response I said words to the effect of “You can have a share in the property and when we sell it you can get your share back plus the increase in the value of the property”. She said words to the effect “Ok we will do it that way”.
6.My mother gave me approximately $15,000 around October 2015 [sic] which I used to pay the deposit on the purchase of property, the stamp duty payable and other ancillary costs. The purchase price of the property was $98,000.
7.To document the payment of money on 19 October 2005 I wrote on a piece of paper that my mother lent me $15,000 for the deposit for the purchase of the Property. We both signed the document. We did not go to a solicitor to draft an agreement we simply wanted to document the payment of money.
Counsel for the Trustees submitted that the evidence of Ms Baykal and Mr Tandogan was scant and vague and did not support a finding that a trust had been brought into existence, let alone one that was enforceable. Reliance was placed on the statement of principle by the High Court in Commissioner of Stamp Duties (Queensland) v Joliffe (1920) 28 CLR 178 at 181, quoting from the 1904 11th Edition of Lewin on Trusts:
It is obviously essential to the creation of a trust, that there should be the intention of creating a trust, and therefore if upon a consideration of all of the circumstances the Court is of opinion that the settlor did not mean to create a trust, the Court will not impute a trust where none in fact was contemplated.
The subsequent High Court cases of Kauter v Hilton (1953) 90 CLR 86 at 100 and Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588 at 605 have made it clear that all relevant circumstances must be examined to see whether a depositor making a deposit into an account styled as a trust account really intended to create a trust. No less is required when the objective indicia at the time are absent. Subsequent parole evidence to a different effect must be scrutinised carefully, even if not challenged in cross-examination.
While it is true that a trust can be created without any communication to that effect, the absence of any such communication at the time is a relevant consideration. As was pointed out by Neville J in In re Cozens [1913] 2 Ch 478 at 486:
The absence of communication raises a strong inference against an intention to make an appropriation irrevocable. In the absence of evidence to the contrary I think the inference of silence was intended to enable the declarant to adhere to or to abandon the declaration as best served his advantage for the time being.
While the above statements of principle have been considered and applied many times since, it is not necessary to go further. Neither the original document recording the payment of $15,000, reproduced above, nor Mr Tandogan’s statement of affairs of 24 March 2014 give any basis for believing that any trust was intended to be created at the time when the payment of $15,000 was made in late 2005. The most that can be said about the affidavit evidence of Ms Baykal and Mr Tandogan is that they reflect a wish that she would get her money back in the event that the property was sold, not that any trust was intended, let alone created. I am not able to be satisfied that any intention to create a trust existed in 2005, nor that any proper basis exists to infer the creation of a constructive trust.
Conclusion
Ms Baykal has not established the existence of any constructive trust over the property, and thus no beneficial interest in the proceeds of sale. The statement of claim must therefore be dismissed.
Costs
The trustees sought an order for indemnity costs. Initially, I thought that that was not appropriate in all the circumstances. While Ms Baykal’s claim was not successful, it was not necessarily so doomed to fail that indemnity costs were necessarily appropriate. That is so even given the fact that declaratory relief is discretionary.
However, it is not just the theoretical result that matters, but the practical outcome also. In that regard, the basis for the claimed constructive trust was extremely thin but, more importantly, there was no money to satisfy the claim even if successful. Although the situation may not have been clear to Ms Baykal prior to the matter coming before me on 28 July 2017, at that time I made it abundantly clear to her that there was no money to satisfy her claim. She nonetheless decided to persist despite the situation being explained to her with the assistance of an interpreter. In all the circumstances, I therefore consider that it is appropriate that Ms Baykal pay the costs of the Trustees on an ordinary basis up to and including 28 July 2017, being the date at which I note the Trustees were prepared to have the case dismissed with no order as to costs, and that Ms Baykal should pay costs on an indemnity basis thereafter, up to and including today.
The orders of the Court therefore are that:
(1)The applicant’s statement of claim dated 23 January 2017 is dismissed; and
(2)The applicant is to pay the respondents’ costs on an ordinary basis up to and including 28 July 2017, and on an indemnity basis thereafter.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromwich. Associate:
Dated: 15 November 2017
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