Ceko v Ceko
[2023] SASC 91
•7 June 2023
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
CEKO v CEKO & ANOR
[2023] SASC 91
Judgment of the Honourable Chief Justice Kourakis
ESTOPPEL - ESTOPPEL BY CONDUCT - PROPRIETARY ESTOPPEL
EQUITY - EQUITABLE REMEDIES - EQUITABLE COMPENSATION
The applicant, who is the son of the respondents, claims that:
1.the respondents have wrongly denied him a beneficial interest in their residential property in the township of Morgan following the breakdown of the family relationship; and
2.the respondents are indebted to him for loans he made to them between 2014 and 2019 to assist the respondents with their living expenses.
Held (allowing the claim):
1.The respondents must pay the applicant equitable compensation in the sum of $85,480.07 to satisfy the proprietary estoppel arising from the circumstances of encouraging the applicant to join them as a co-borrower on the CBA loans.
2. Judgment is entered for the applicant on his debt claim in the sum of $126,662.27.
3. The parties will be heard on pre-judgment interest.
Giumelli v Giumelli (1999) 196 CLR 101; Delaforce v Simpson-Cook (2010) 78 NSWLR 483; Rodda v Ian Rodda [2015] SASC 95, considered.
CEKO v CEKO & ANOR
[2023] SASC 91Civil
KOURAKIS CJ: The applicant is Luke Ceko (Luke), who is the son of the respondents, Michael and Cosette Ceko (Michael and Cosette respectively, and the Cekos jointly). Luke’s claims arise out of a breakdown in the family relationship in 2018. Luke claims that Michael and Cosette are indebted to him for monetary advances he made to them and that he has an equitable interest in their now residence in Morgan. Both Luke and the Cekos appeared in person without legal representation, although the Cekos engaged solicitors for assistance in preparation for the trial. As neither Luke nor the Cekos received the benefit of legal advice, and were unfamiliar with the course of a common law trial, they were sworn in at the commencement of the trial so that their testimony would include statements of fact asserted by them throughout the course of the trial whether they were being examined, cross-examining others or addressing me. Tender books prepared by Luke were received into evidence, as was a range of other documentary material. Luke’s wife, Margarita Agadzhanian (Margarita), also gave evidence.
Broadly, Luke makes two claims against the Cekos. First, Luke claims that after the breakdown of the family relationship, the Cekos have wrongly denied him his beneficial interest in a residential property in the township of Morgan (the Morgan property). The Cekos held the legal leasehold interest in the Morgan property land on which the home was built. Luke claims his interest in the Morgan property on the basis that the building of the home on the Morgan property was funded by several loans made to all three of them as co-borrowers by the Commonwealth Bank of Australia (the CBA) as lender. The Cekos were pensioners. It was common ground that the loans were only procured because of Luke’s high income as a fly-in fly-out worker on Nauru. The Athelstone home, in which all three parties resided during much of the relevant period, and which was owned by the Cekos, was mortgaged to secure the CBA loans. However, at the CBA’s insistence, Luke took a 20 per cent interest in the Athelstone home. Luke made all of the repayments on the loan until March 2019 and made 20 per cent of the repayments thereafter.
The home on the Morgan property was built in the last half of 2015. It was intended to be a holiday home for Luke and the Cekos to enjoy. The relationship between Luke and his parents became strained following his engagement to Margarita, whom he had met online. Margarita travelled to Australia from Russia in November 2016 and they married on 4 March 2017. They lived in the Athelstone home until 2018 when Luke and Margarita left to go to Melbourne because of escalating conflict with Luke’s parents.
The Morgan property became the Cekos’ primary place of residence after the mortgagee sale of the Athelstone home in 2020. The CBA’s loans were repaid from the gross proceeds of the sale. Luke received 20 per cent of the net proceeds but was not otherwise compensated for his financial contribution to the development of the Morgan property.
The dispute between Luke and his parents is whether the arrangement entitled Luke to an equitable proprietary interest in the Morgan property from the time of the construction of the home because of his financial contribution, or whether he had no more than an expectation of a future interest which was dependent on a favourable testamentary disposition by either or both of his parents. Luke’s claim is that his financial contribution to the development of the Morgan property was accepted by all to be an investment entitling him to a proprietary interest in it.
Secondly, Luke claims that the Cekos are indebted to him for loans he made to them between 2014 to 2019 to assist them with their living expenses. Luke alleges that he lent them money in the following ways:
·providing cash advances to the Cekos;
·transferring money by bank transfer to the Cekos’ personal account;
·allowing the Cekos access to his personal bank card; and
·paying utilities and other outgoings on the Athelstone and Morgan properties.
Luke claims that the Cekos agreed that the advances would be repaid when they had the funds to do so, either from an inheritance Cosette expected to receive from her father, Stan Pech, or on the sale of the Athelstone home. The Cekos, on the other hand, contend that the payments were gifts made by a dutiful and generous son.
Luke produced a schedule comparing his BankSA statements with his travel itineraries. He used that schedule to identify the cash advances he made to his parents and the withdrawals made by them, often from locations frequented by his parents. Statements for the bank accounts, from which the advances were made, marked up by Luke to indicate the advances he said were made for the benefit of his parents were provided to them (the marked up statements) and they, in turn, indicated on the marked up statements those withdrawals which they accepted were made for their benefit and those which they denied.
Luke produced summary tables of both the accepted and disputed transactions. The tables were received into evidence by consent. I summarise the tables below:
Type of transaction Total (in $) Bank Account 1 Disputed cash in hand/ATM withdrawals/transfers and card payments 86,491.46[1] BankSA Account 2 Electronic transfer to the Cekos on 2 January 2018 950.00 Luke’s CBA account 3 BankSA transactions accepted by the Cekos 39,220.76 BankSA Account 4 Luke’s payments towards loan protection insurance (Morgan) 3,660.00 Loan account 5 Repayments made on the primary and second loans $56,590.07 Loan account 6 Living expenses withdrawals from the building account $8,195.65 Building account [1] Document provided by Luke on 17 March 2022 titled ‘Disputed BankSA Transactions Marked by Respondents’.
I accept the evidence given by Luke as credible and reliable. I reject the testimony of Michael and Cosette. I find that Michael and Cosette agreed to repay Luke such cash advances and transfers Luke directly made to them, the cash they withdrew from his BankSA account and the payments they made using his card for their personal living expenses (transactions 1, 2 and 3). The total of those payments is $126,662.22. I find that they promised to do so on the receipt of an inheritance from Stan Pech or on the sale of the Athelstone home, whichever came first. I find that they intended to legally bind themselves to that effect. The sum of $126,662.22 therefore became due and payable when Michael and Cosette inherited about $200,000 from Stan Pech in March 2019.
On an objective construction of Michael’s and Cosette’s promises, I find that the payment of utilities and outgoings were not included within the scope of the agreement. Those expenses were an incident of Luke’s occupation of the Athelstone home.
I find that Michael and Cosette encouraged Luke to join as a co-borrower because it was the only way they could secure the building of a holiday home on the Morgan property. They represented to him that, by so doing, he would invest in real estate and have an equal proprietary interest in the Morgan property with them. At their encouragement, Luke forewent the opportunity of making an investment in the property and made an arrangement with them which failed because of their unreasonable hostility to Margarita. The appropriate remedy is equitable compensation reflecting Luke’s share of the capital appreciation of the Morgan property between 2015 and 2020 which I find to be $125,000.
A Chronology
The chronology which follows contains the significant milestones in the family drama which has culminated in these proceedings:
Date Event 2011 A storm causes a tree to fall on the Cekos’ dwelling at Morgan and causes severe damage.
The initial dwelling did not have council approval.
July 2013 The Cekos rebuild the shack at Morgan with improvements to the original one without council approval. July 2013 The council sends a notice to the Cekos of demolition due to the dwelling being non-compliant. 2014 (month unclear) Luke commences work as a fly-in fly-out education officer on Nauru. Mid-2014 The Cekos appeal unsuccessfully to the ERD Court. March/April 2015 The Cekos and Luke engage Wayne Gant, a friend from Morgan, as the builder of the Morgan shack. April 2015 The Cekos and Luke visit a mortgage broker to discuss finance to build on the Morgan property. 1 May 2015 The CBA approves finance for $250,0000 (the primary loan) and refinances the Cekos’ existing $40,000 redraw facility with Westpac. May 2015 Luke meets Margarita on an online Russian dating site. September 2015 Luke visits Margarita in St Petersburg. 3 December 2015 CBA approves a top up loan of $50,000. December 2015 The Morgan property build is complete. 9 January 2016 Luke’s sister is married on the Morgan property. Early 2016 Luke flies to Russia to propose to Margarita who accepts. 11 August 2016. Margarita’s visa is approved. 1 November 2016 Margarita arrives in Australia on a partner visa. 4 March 2017 Luke and Margarita marry in Adelaide. Early 2018 Luke and Margarita leave the Athelstone home and move to Melbourne. March 2019 Luke reduces loan repayments on the CBA loans by 80 per cent. 14 May 2019 Luke lodges a caveat over the Morgan property. 30 October 2019 Luke and the Cekos receive a default notice on the Athelstone home incorporating a Notice of Intention to Exercise Power of Sale. 2020 The Athelstone home is sold for $600,000. Family Dynamics
Luke was born on 26 November 1984. His sister, Melanie, was born on 5 October 1982.
In 2014, when Luke was 29, he commenced employment on Nauru as an education officer. His salary was significantly higher than his past earnings as a multicultural manager at Salisbury High School and case manager at Disability SA. He was provided with accommodation and meals in Nauru. His only cash expenditure whilst he was there was on snacks and refreshments between meals. Luke initially worked two weeks on and two weeks off but, over time, his time off was reduced to 10 days. About one year into his employment, Luke began working three weeks on and three weeks off.
In 2014 Luke and his parents were the only family members living in the Athelstone home. Melanie had left six years earlier. In 2014 Michael was a pensioner. He had worked as a Correctional Services Officer for 21 years but he had left that employment about ten years earlier to care for Cosette. Cosette, too, was a pensioner in 2014. She worked at Donnelly Insurance Brokers but had left her employment about ten years earlier on stress leave for which she had received a lump sum compensation payment. Michael became Cosette’s carer several years before 2014 for her ongoing depressive condition and received a social security payment in addition to his pension for that role.
Luke neither paid board nor made a contribution to food or rates and outgoings before 2010. There is dispute as to whether Luke paid board from 2010 to 2014 while he was working at Salisbury High School. Luke says that he paid board during that period in the amount of $150 to $200 per week and that Michael would record the amounts paid in a diary. The Cekos deny that Luke ever paid board.
Luke gave evidence that after his second tour of duty on Nauru, he told his parents that he was well paid. Michael testified that Luke knew his parents were receiving only $600 between them on the pension because their pensions had been reduced by the assets and/or means test. Luke offered to help his parents with expenses if they became stuck with bills.
From time to time in 2014 Luke withdrew cash from his BankSA Complete Freedom Account (Luke’s BankSA account) and handed it over to his father. He sometimes made online payments of utility bills. Luke testified that ‘it was confirmed that [he] would be paid back any money that [he] lent to them when they came into any form of money’. He understood, in particular, that they were relying on an inheritance from his mother’s stepfather, Stan Pech, who was then in his 80s. According to Luke, Mr Pech and the inheritance ‘was the main focus of what they relied on in terms of funding’.
As time went on, Luke’s parents told him that they ‘sometimes [ran] out of money and would appreciate if [he could] leave a card with [them]’ in case an emergency arose whilst he was in Nauru. At that time, the Cekos explained to Luke that they did so because they were embarrassed by having to wait for Luke to withdraw money and that the delay caused them some anxiety. It is not obvious why having to ask added to the embarrassment inherent in borrowing money from their son. Having regard to the frequent use of the card after they received it, it is more likely that it was the anticipated frequency of their requests for assistance which they would have found to be embarrassing.
Be that as it may, Luke obliged and asked his parents to let him know and to ‘give [him] a heads up’ when they were about to use it so that he could track his finances. Luke did not ask his parents on each occasion they used the card, or were given money, when it would be paid back. Rather, he trusted their earlier statements that he would be repaid because his parents regularly spoke of Stan Pech and their expected inheritance.
Early in the trial Michael suggested that the reason Luke gave him access to his credit card was to buy things for Margarita because she had come to Australia in 2015 with no more than a suitcase and two violins. However, Margarita did not arrive in Australia until 2016.
It is common ground that Luke’s relationship with Margarita was the source of the tensions in the Ceko family between 2016 and 2018. Luke and Margarita met online on a dating site called Rose Brides in mid 2015. Margarita was then living in Murmansk, Russia. In early 2016, Luke travelled to Russia and proposed to her. Margarita arrived in Australia on 1 November 2016. They lived in the Athelstone home. Margarita came to Australia with the money from the proceeds of selling her car. In Australia she supported herself by working as a photographer and by playing the violin professionally. Luke and Margarita were married on 4 March 2017 in Adelaide.
I mention here that in the course of the trial, Cosette put to Luke that it cost $40,000 to bring Margarita to Australia. Luke disputed that, said it was an exaggeration and gave evidence, without looking at the bank statements, that it was $5,000 for the migration agent and $16,000 for the visa using bank transfer and the BankSA account. I accept Luke’s evidence. Cosette’s baseless and extravagant exaggeration reflects adversely on her credit.
Margarita did not drive when she first arrived and was dependent on Michael and Cosette for transport.
Margarita’s evidence was that the relationship with the Cekos was good at first, but that tensions increased to the point where she and Luke decided to leave the Athelstone home and live in Melbourne in early 2018. Margarita gave evidence that about four or five months after her arrival she was questioned by Cosette about what she was doing, where she was working and how much money she had brought from Russia. Cosette emphasised to her how much money they had given Luke. That Cosette should do so at a time when the Cekos were heavily reliant on Luke’s income in that same period suggests some concern on her part that Margarita’s arrival might threaten that source of funds.
Margarita’s evidence was that she rarely spent money while living at the Athelstone home. For example, she said on one occasion that Luke’s BankSA card was used to buy clothes for a trip to Wallaroo in November 2016 as she did not bring any summer clothes from Russia. She said the maximum cost of that purchase was $100. She testified that she did not use Luke’s BankSA card in the shops. It was usually Cosette who purchased items for her.
Margarita’s evidence was that she mainly ate at home but occasionally visited nearby cafes. She joined the Russian Women’s Association whose members met at a hall for tea. She did not, contrary to the evidence given by the Cekos, go to the Russian Club.
Margarita gave evidence that over time it became apparent to her that the Cekos bore her great hostility. She became fearful about remaining in the Athelstone home. Margarita gave a number of examples of aggressive incidents at the Athelstone home where she was either threatened or witnessed loud and aggressive behaviour after heavy drinking over dinner. I mention in this respect that I have not had any regard, or given any weight, to the audio tapes which were tendered by Luke. The Cekos contended that they had been unlawfully made. I make no finding in that respect. However, the tapes were of poor quality and ultimately of little probative value.
Margarita and Cosette gave conflicting accounts of an incident which occurred several weeks before the wedding in March 2017. Cosette made a booking for her and Margarita with a cosmetic store to have make-up applied. Payment was made on Luke’s BankSA card. Margarita’s evidence was that she felt uncomfortable about the expense of the exercise. Cosette gave evidence that Margarita laughed at her makeup. Margarita, on the other hand, testified that she may have rolled her eyes at the cost of the cosmetic purchases but she otherwise did no more than offer Cosette advice on the amount and nature of makeup which Cosette should use. In the face of Margarita’s firm and detailed denial of the accusation that she had ridiculed Cosette, Cosette modified her evidence explaining that she meant no more than that they were laughing together and having fun.
Another incident occurred when Luke was in Nauru and Stan Pech came over for dinner. After dinner Michael took Stan home. When Michael returned, he and Cosette watched television and continued to drink. Margarita gave evidence that she heard Cosette commenting that Russian brides were waiting to find an Australian man because they want to have holidays. Cosette’s evidence was that her comments were directed at movies she had seen in which young Russian women married older men. Cosette did not explain why she was concerned at that time with the marriages of older Australian men.
Margarita gave evidence that the day before the wedding, Luke told her that he was contemplating calling it off because the marriage was upsetting his parents. Luke’s evidence was that, at that time, he was upset because Cosette had told him that if the wedding went ahead, she would object to it in the church. Luke agreed that he told Cosette words to the effect of, ‘Mum, I don’t know if I can get married. I’m not sure what to do.’ Luke agreed that he asked Margarita to go back to Russia but that it was to allow him time to sort things out in Adelaide. Margarita gave evidence that Luke appeared to be torn by his desire to marry her and his parents’ antipathy. The wedding nonetheless went ahead.
After the wedding, Luke, Margarita, her parents, Cosette and Michael went to the Wallaroo Caravan Park for a joint family holiday/honeymoon. Luke and Margarita stayed in an apartment which they shared with Margarita’s parents. Cosette and Michael were in their caravan. At first things went well. Luke thought his mother had ‘thrown in the towel’ in her opposition to the wedding. Luke testified that he then received messages from Cosette in the caravan saying that she and Michael felt left out. Cosette’s hostility to Margarita surfaced again. She said words to the effect ‘Luke she’s finished. There is no future. She is evil, she is an actress. … It’s done with her family.’ On other occasions Cosette seemed to soften her attitude yet again. Luke described Cosette’s moods and attitude to Margarita as a ‘roller coaster’.
Luke agreed that after the wedding he, again, asked Margarita to go back to Russia. He told her that he would get money together to pay for that. Margarita pushed back saying she was not going to be sent back like a little package. This occurred at about the time of the operatic performance in which she and Melanie took part.
Margarita testified that sometime after the wedding, Luke said to her ‘we have to send you back … Sorry it does not work. My parents are not happy’. However, a few hours later he returned, apologised and recanted. Luke said that they would sort it out. Margarita linked the occasion to a Sunday when an opera was being performed in Adelaide but the second conversation may have been on the day after the performance. Margarita testified that Luke asked her to go back after receiving messages from Cosette. Margarita gave evidence that Melanie was supportive of her.
Margarita and Luke gave evidence of an occasion when they returned home after a short stay away to celebrate Margarita’s birthday in either 2017 or 2018. Margarita testified that she saw that the door to their bedroom had been kicked open. Luke said that he saw the door a matter of seconds after Margarita had walked up there when he carried up their suitcase. The door, which was solid with strong hinges, appeared to have been forcibly pushed open. The hinges were not damaged but the metal catch, or tongue, was broken. The damage was at the point of the strike plate on the door. Luke had arranged for a lock to be placed on his bedroom door after his parents had placed one on their door.
Luke testified that when his father came up and saw the door he appeared to be quite upset. According to Luke, Michael suggested that someone must have broken into the house and said ‘we are going to go to the police station now and we can report it’. However, Luke neither saw nor heard Michael say that there was any sign of forced entry into the house. Luke placated Michael and said that it was best to forget it. Luke suggested to Michael that, perhaps, a mirror they had hung on the inside of the bedroom door had caused the problem. No report was made. Luke contacted a local tradesperson whom he had seen at his local gym.
In his evidence Michael confirmed that it did look like there had been an attempt to break into the door of Luke’s bedroom. Michael put to Luke that on seeing the door he said to him:
I didn’t kick the door in, mum didn’t kick the door in, so someone must have kicked the door in. … so we will have a look around the house and then if we see anything …’.
Luke denied that his father suggested looking around the house for signs of entry at the time.
Margarita also gave evidence that Cosette often talked of Luke divorcing her and that Cosette called Margarita a bitch. Cosette’s explanation was that Margarita may have misheard the words of a song she was singing. Margarita replied that she had heard Cosette call her own daughter, Melanie, a bitch.
According to Michael, the discord with Margarita was caused, in large part, because Margarita misunderstood the shouting and yelling between Michael, who was a Port supporter, and Stan Pech, who was a Crows supporter, whilst they watched their teams play on television. Michael gave as an explanation for Margarita’s fear, that she might mistakenly have believed that they were screaming things about her that were directed at the television.
The Cekos did not eat meals with Luke and Margarita at the Athelstone home after the wedding day.
Luke put to Cosette that in October 2017 she told him that he would not be getting any money because Margarita would get half. Initially, Cosette did not deny having said so. Her answer was that she could not recall. When I explained that to say that she did not recall is not a denial, Cosette expressly denied making the statement.
On 26 October 2017, Margarita attended the Norwood Police Station and extracted below is the entry that was recorded following that visit:
Victim has been subject to regular verbal insults directed at her by her [blank] and to a lesser extend [blank]. They have tried their best to turn their [blank] against her. There have been regular insults to victim about being a Russian bride and that she is just trying to squeeze as much as she can from their [son]. They have told victim that she is no longer welcome to visit at the house they sometimes live in [blank]. Victim’s [blank] appears to be financially overextended paying for a mortgage on the [blank] property and he also pays all bills for his [blank]. Victim believes that her [blank] is being guilted into paying out all this money to keep his[blank] happy. She believes this places huge stress on their relationship. Victim feels afraid of her [blank] and feels very intimidated that they not only insult her but have started spreading stories to neighbours and other relatives trying to make her look bad.
In cross-examination, Cosette put to Luke that if Margarita was truly fearful he would have moved Margarita out of the house. Luke responded that he accepted that his mother was trying to adjust, and it was going to take some time.
Luke put to Michael that on one occasion in mid-January 2018, when Margarita was upstairs, he and Cosette had a conversation lasting for about 20 minutes in which they discussed kicking Margarita out and dragging her out by her ears. While Luke was putting the question, Cosette interjected ‘oh Jesus’. Michael responded ‘I just can’t believe you are asking that Luke. Cosette then pleaded to Luke to stop saying ‘stop, stop, stop’. When asked by me ‘Michael I take it from you and your wife’s reaction that you do not accept that, but what is your answer?’. Cosette replied ‘never, ever’. Michael replied ‘no your Honour’. Cosette added ‘I am disgusted’.
In about February 2018, Luke and Margarita moved to Melbourne. They remain married. They rent a modest townhouse in the northern suburbs of Bundoora. In Melbourne, Luke operates a small website through which he does some tutoring and homework support. He also sells vintage clothes and books as a side business. He has been doing that for about the last year.
A text sent by Cosette to Luke after he and Margarita moved to Melbourne over a request that Luke pay some bills demonstrates Cosette’s virulent hostility to Margarita. On 9 March 2018, Cosette asked Luke to pay bills. Luke answered ‘no worries’. Cosette felt a need to confirm Luke’s agreement to pay the bills with this reply:
You are a total.low. life snake sleeping with satan to.confirm answer no worries
In the first defence filed by the Cekos, it was alleged that Luke had left his parents ‘high and dry’ when he moved to Melbourne. Cosette testified that she meant that he had left whilst she was undergoing a knee operation in Melbourne and did not mean to refer to the financial position. However, in a text in 2018 she wrote:
… everything have you forgotten that as well we need to sell stans house first as we have to put a fence around the pool but a shed and do the yards we have no money remember 600 a fortnight you left us high and dry on my operation day what a cruel plan Tony and Dave start painting and fixing stans Monday they are hoping for 3 weeks as it is shocking in some places the roof is falling down we already have an agent and it should be on the market in 3 weeks we also have to wait for probate so it is legal to sell …
I asked Cosette the following questions about that text:
His Honour: It just seemed to me that the high and dry you were talking about was leaving you without money.
Ms Ceko:Yeah, probably.
His Honour: And that’s the expression you used in court.
Ms Ceko:Yeah.
His Honour: It was probably more about leaving you with just 600 a fortnight than the way he left, or was it the fact that he left without making arrangements –
Ms Ceko:Both.
Cosette explained that she sent that text because she felt that Luke had snuck away from Athelstone when she was having her knee reconstructed without saying goodbye. She also accused Luke of not reproducing the full text and, in particular, not reproducing statements like ‘I love and I miss your beautiful face’. She accused Luke of agreeing to pay that bill but then not following through.
Michael and Cosette’s continuing hostility to Margarita manifested in the course of the trial. For example, Cosette put to Margarita that she failed to disclose on her online profile that she had previously been married. Margarita accepted that she had been married before meeting Luke and explained that her internet profile simply said that she was not married at that time.
Cosette also gave evidence that Margarita had got to Luke ‘mentally’ because he turned ‘totally and utterly’ against his parents.
Michael conceded that if Margarita had left Australia and not come back, the joint venture would have proceeded as they had contemplated, with Luke living in the Athelstone home.
The Bank Accounts
Throughout the trial, Luke took the Court to a number of bank statements and the parties gave evidence, and were cross-examined on, cash withdrawals from those accounts, transactions which were made and the use of bank cards associated with them. The following table sets out all the bank accounts to which references were made at trial with a defined term provided to each for reference throughout these reasons.
Bank and Account Number Shorthand Reference Use Commonwealth Bank of Australia (CBA)
Standard Variable Rate Home Loan
The primary loan The loan account between the Cekos and the CBA which was secured on the Athelstone home. An initial loan of $250,000 was made in August 2015 and increased by $50,000 in December 2015. CBA
Everyday Offset
The building account The account into which primary loan monies were credited and then expended on the development of the Morgan property by Michael who held a Mastercard which was linked to this account. Luke did not have card access to the account.
On 24 August 2015, $245,675.15 was credited to the account (original loan after conveyancing costs taken out).
On 10 December 2015 an additional $50,000 was credited (top-up loan).
Luke transferred loan repayments into this account from his own account until October 2017 after which time they were automatically debited from his personal account.
CBA
Standard Variable Rate Home Loan
The secondary loan This loan paid out a $40,000 Westpac facility secured on the Athelstone home. CBA
Smart Access
Luke’s CBA account Luke’s account from which payments of the secondary loan were automatically withdrawn from the outset. From October 2017 repayments on both the primary and secondary loans were made by direct debit from this account. BankSA
Complete Freedom
Luke’s BankSA account Account into which Luke’s salary was deposited and to which access was provided to the Cekos while Luke was away in Nauru from 2015. The account from which loan repayments were made. Westpac loan
Housing Loan
Westpac loan Cekos’ redraw facility on the Athelstone home. The loan limit was $40,000 and the balance on 1 April 2015 was $9,765.80 Beyond bank
Cekos Beyond Bank account Cekos everyday account into which pension payments and superannuation withdrawals were made. The Cekos only discovered the statements midway through the trial.
It is necessary to elaborate a little on the Westpac loan and the CBA loans.
Luke’s recollection was that there was a loan of $290,000, comprising the initial $250,000 CBA loan and the Westpac loan of $40,000 which the CBA paid out. He understood that the secondary loan was also intended to provide funds for the build of the house.
The CBA bank statements show that two standard variable rate home loans were provided in August 2015: the primary loan of $250,000 and the secondary loan of $40,000. The interest rate on both loans was 4.6 per cent.
The transactions which gave effect to the CBA loans were arranged by the conveyancer, Vicki Reid. On 2 July 2015 Ms Reid sent an account in the sum of $4,324.85 to Michael, Cosette and Luke. It comprised fees for the transfer of a 20 per cent share in the Athelstone home to Luke. Ms Reid’s costs and bank charges were deducted from the $250,000 loan resulting in a payment into the building account of $245,675.
A CBA document dated 24 April 2015 refers to an executed building contract for $250,000. No such contract was put into evidence but an estimate from the builder, Wayne Gant, and the progress claim sheets he submitted show that the anticipated building costs were of that order. The document suggests that the title to the Morgan property was to be transferred to all three loan applicants who were constructing a holiday home on existing vacant land. The land was not to be encumbered for the loan. A later note on 1 May 2015 refers to an increase in the loan amount to $290,000 and that the structure of the loan was to change to refinance a Westpac loan with the remainder of the funds to be available to construct a home on the vacant land.
As part of the settlement on the CBA secondary loan, a discharge of the mortgage was to be sent to Westpac. The Westpac loan shows an outstanding loan amount of $9,765.80 as at 1 April 2015. The remaining redraw facility was about $30,000. Luke’s evidence was that he has never known how the CBA secondary loan was disbursed.
On 24 August 2015, a final loan repayment of $10,422.98 was made on the Westpac loan. A settlement fee and interest payment of $439.19 was made on the same day, thereby closing the account.
Michael’s recollection was that they initially borrowed $250,000 but when it became apparent that that was not enough, they topped it up by extending their borrowing by a further $40,000. Michael recalled that there was an amount of somewhere between $7,000 and $9,000 outstanding on the Westpac loan. They had not fully paid it back to allow them to redraw on it because it was a ‘war service loan’ to which were attached favourable terms. Michael testified that he did not know how the remainder of the CBA secondary loan was disbursed other than he had assumed it was paid into the building account. He insisted that he did not personally receive the funds from the CBA secondary loan.
He went on to say that he believed he made some house payments on a Mastercard associated with the Westpac account. However, that is unlikely to be correct because the building payments were made from the CBA building account.
On a perusal of the CBA bank statements after the conclusion of trial, I am in a position to find that the remainder of the CBA secondary loan was paid into the building account.
A payment described as ‘special repayments’ in the sum of $29,000 was made into the secondary loan account on 4 September 2015, but then withdrawn on 27 October 2015 leaving an outstanding loan of about $40,000. That payment was the balance of the secondary loan and was, in effect, used to reduce the loan, and the interest payments accrued on it, until the funds were needed for the building of the house on the Morgan property. On 27 October 2015, the day on which the ‘special repayment’ was withdrawn from the CBA secondary loan, $29,000 was paid into the building account.
The interest payments on the secondary loan were made by direct debit from Luke’s CBA account. The outstanding amount on the secondary loan remained close to $40,000 until 15 September 2020 when the total amount was repaid after the sale of the Athelstone home.
The primary loan was increased by $50,000 on 10 December 2015, bringing the total indebtedness to $300,000.
At the end of 2015, when the house on the Morgan property was largely built, Luke was staying in the main bedroom which had been offered to him by his parents. Luke described an occasion on which he came out of his bedroom and saw his mother who appeared worried. Cosette told him that they needed another loan of $40,000 to complete the house and make it ready for Melanie’s wedding on 9 January 2016. Luke was told that they wanted to purchase good furniture for the home and to show it off for the wedding.
Luke and his parents went to the CBA together, initially intending to borrow an additional $40,000 but they ultimately borrowed an additional $50,000 instead. Luke testified that he was reluctant to increase his indebtedness at that time because he was contemplating marrying Margarita after his sister’s wedding and would need money to buy a ring and the like. As we shall see the additional loan amount was applied, at least in part, to pay for furniture, second fix work on the home, painting, landscaping and wedding preparations. It was also withdrawn by the Cekos for their personal purposes.
The Morgan Property
In 1994 the Cekos took a transfer of a 999 year lease over the Morgan property. At the time a simple dwelling stood on the land. During an extreme storm in 2011, it was severely damaged when a tree fell on it. The Cekos commenced repairs without development approval. When the local government authority, the Mid Murray Council (the Council), became aware of the building works, it sent the Cekos a notice to cease all work and remove the dwelling from the land. The Cekos unsuccessfully appealed that decision to the Environment, Resources and Development Court (the ERD Court). Michael testified that they were assisted by a ‘builder’ who worked at TAFE and a solicitor whom he knew. They both agreed to work for no fee to gain experience. However, costs were awarded against the Cekos in favour of the Council.[2]
[2] Outhred English & Associates P/L v Mid Murray Council [2014] SAERDC 41.
The court record shows that the appeal was heard by Judge Costello on 28 August 2014 and that he delivered judgment on 8 September 2014. Outhred English and Associates Pty Ltd was the applicant, presumably in its capacity as the Cekos’ builder. Mr Muscat was counsel for the applicant.
Luke testified that he knew that his parents were required to dismantle the initial dwelling but only discovered that his parents had appealed to the ERD Court after he read about it in a newspaper. Michael testified that the Cekos have been paying the Council’s costs in $500 quarterly instalments and that just under $10,000 remains unpaid.
Luke testified that in late 2014 or early 2015 he told his parents that he was considering investing in real estate having passed his probationary employment in Nauru. His annual income was about $120,000. Luke told them that his income gave him a ‘golden opportunity’ to invest in real estate. Initially he was looking for an apartment in the city or a townhouse in the suburbs. He mentioned a particular property on South Terrace.
At that time he was aware that the Council had issued a notice for the damaged home on the Morgan property to be demolished and that his parents were upset. In that context Luke’s parents suggested that he think about investing in the building of a home on the Morgan property telling him that it was a ‘smarter choice’ to build there than to purchase an apartment or townhouse in the city.
Obtaining Finance
Luke and his parents agreed to redevelop the Morgan property together. They attended on a mortgage broker, Pathway Finance, to discuss obtaining finance. The arrangement proposed by Pathway Finance was that Luke and his parents be co‑borrowers on a loan for $250,000 to build a dwelling on the Morgan property. The loan proposal, supported by an indication of the estimated building costs produced by Wayne Gant, was put to the CBA. The CBA agreed to make the loan on the condition that Luke took an assignment of a 20 per cent interest in the Athelstone home.
Luke and his parents gave conflicting evidence about how the figure of 20 per cent interest was arrived at. There are references in the loan documentation to the proportion being as little as one per cent, or as much as 30 per cent. The latter was suggested in an email from Pathway Finance. Whatever the proportion to be assigned, Luke and his parents agreed that the transfer was requested by the CBA and that the transfer did not manifest any agreement which they had made. There was no explicit discussion about, and no-one turned their mind to, Luke’s 20 per cent interest in the Athelstone home and how it might be dealt with if matters did not work out as they hoped in the redevelopment of the Morgan property. The 20 per cent transfer to Luke in the Athelstone home was effected on 17 June 2015 for no consideration.
The house was at ‘lock up’ by the time an additional $50,000 was borrowed on the primary CBA loan at the end of 2015.
The money was used for second fix and painting. Some of that loan was used to buy instant lawn in preparation for Melanie’s wedding. By the beginning of 2016, the house was finished.
The Morgan Joint Venture
A document entitled ‘Client Needs Review & Preliminary Assessment’ generated by Pathway Finance on 2 April 2015, records the following:
Clients are seeking funding to build a family holiday property on land they currently own in the parent’s name only which is on a 999 year lease in Morgan. We are requesting the borrowing to be the parents name along with their son. If required they are willing to bring the son to title for a 1% share if required. Parents are currently on a Carer & Disability pension & Luke is a teacher working with Transfield. Loan servicing is evidenced from Luke’s income & the pension of the parents. We are seeking a loan of $250K interest only, the clients would prefer the loan be settled on vacant land & they will control the funds to the builder. The builder is to provide details of the costings.
The one per cent share in that note appears to refer to an interest in the Morgan property.
A note on the CBA file dated 24 April 2015 read:
Application is for mother father son to construct a holiday home on existing vacant land (note currently on 999 year lease) with title to be transferred to all three applicants.
Michael gave evidence, on more than one occasion, that his intention and that of Cosette was that Luke would inherit the Athelstone home and the Morgan property when they died. Michael accepted that he, Cosette and Luke contemplated that Margarita would live in the Athelstone home for a substantial period of time, and that both couples would enjoy the Morgan property as a holiday home.
The Cekos gave evidence that before Luke helped them develop the Morgan property, they proposed to leave their assets equally to Melanie and Luke on their death. However, after Luke helped them to redevelop the Morgan property it was their intention that Luke would inherit both after they passed away. In paragraph 10.3.3.1 of the first defence, filed by the Cekos without legal advice, they pleaded that ‘the Morgan property was to be an investment for the whole family, but [Luke] would be the main beneficiary when we passed if it had been sold’.
Michael testified that by main beneficiary he had in mind a 60/40 division. Michael gave evidence that he told Luke ‘when we die you will inherent this property … also you will end up with Athelstone as well’.
Michael agreed that when they embarked on building a home on the Morgan property, it was not contemplated that the primary loan would be paid by the sale of the Athelstone home. Michael’s evidence was that the plan which he, Cosette and Luke had expressly discussed, was that they would all live in the Athelstone home and enjoy the Morgan property together ‘forever just about we thought’. When asked whether the intention was that they would share both the Athelstone home and the Morgan property, Michael responded, ‘Exactly, that’s what we all presumed from the start’. That arrangement was premised on Luke continuing to make the loan repayments.
A text message from Cosette to Luke sent after Luke moved to Melbourne and as the Athelstone home was being prepared for sale read:
… Luke u don’t realise what love is as far as the river house goes it was an investment for u as soon as athelatone [sic] is sold we will pay the bank and then you’ll be free to have your happy ever after …
The first line of the text accepts that the Cekos’ understanding was that Luke’s financial contribution to the Morgan property was an investment in it. That understanding is strongly indicative of a proprietary interest in the Morgan property. However, the second line assumes that the Cekos could unilaterally terminate that interest by paying out the loan.
Luke gave evidence that the ‘agreement was … reflected in the CBA Pathway Finance documents and many conversations throughout 2015, end of 2014’. He testified that the arrangement was that the property would be enjoyed together. Luke explained the arrangement as follows:
So specific percentages were not discussed. It was under the impression, however, numbers weren’t discussed that it would be at least 50% of mine in the future and I was happy and would have been hypothetically your honour, still be happy to service the loan had my wife and I not been banned from going to the property in the latter months of 2017.
Luke accepted that the Pathway documents did not attribute a particular proportion as between himself and his parents but claims that they were treated as joint venturers. Luke testified that it was consistent with his 50 per cent interest that he repay the total loan of $340,000 because it matched the value of the unimproved land.
Luke testified that to reflect the joint interest that both he and his parents believed they had in the home, its design included aspects which reflected both his and his parents’ design preferences. Michael denied that that was so, insisting that the home was built on a template used by Wayne Gant.
Luke put to Michael that in a conference with the conveyancer, Ms Reid, Cosette had said ‘Luke, we will not put you in a position where you will be negatively impacted by the decision to build the Morgan property and support us financially’. Michael could not recall Cosette saying that.
The Cekos put to Luke that the Athelstone home was only kept so that Luke and Margarita would have a place to stay. Luke’s response was that it served all their purposes to continue to reside at the Athelstone home whilst the Morgan property was built. Moreover, he and his parents had discussed holding both properties so that they could enjoy ‘a fantastic joint venture family holiday property together’.
It was put to Luke that his parents had never said he would have a share in the Morgan property. Luke replied ‘Dad, without a question, you did, Dad, and it is referred to in text messages and a defence statement’. Michael put to Luke that the intention was only that it would be left to Luke when they passed away and that his sister would receive some cash and their car and caravan.
I have described in paragraphs [24]-[54] above the deteriorating family relationship during 2017. Luke gave evidence that, by the end of that year, in November 2017, Cosette said to Luke, while they were in the kitchen, that while he stayed with Margarita, he would get nothing.
Michael accepted that he told Luke and Margarita in 2017 that he did not want them to visit the Morgan property but insisted that it was because of the state they had left it in on their last visit.
I accept the evidence of Luke and Margarita that Luke’s parents were hostile to Margarita. For the reasons given below, I find that Michael and Cosette are neither credible nor reliable and reject their disingenuous explanations for their manifestly hostile conduct to Margarita.
I find that it was the breakdown of the relationship caused by the hostility to Margarita that culminated in the exclusion of Luke and Margarita from the Morgan property and their decision to move to Melbourne in February 2018.
The Build
The exact date on which the build commenced is difficult to determine. The Cekos had access to the building account from 24 August 2015. It is likely that building commenced soon thereafter. The build was largely completed by the end of 2015 and was in a state to host Melanie’s wedding in February 2016.
Michael, who alone accessed the building account, maintained that all the funds from the primary and secondary loans were expended on the Morgan property. He put into evidence a notebook in which he had recorded all of the payments made on the build of the house (the shack cost book). He explained that smaller cash payments were made to some local tradespeople, directly, rather than through Wayne Gant. The total of the costs recorded in it is $342,181.14.
In the course of the trial, Michael asked rhetorically ‘why would I build a house that’s like that and pocket money out of it when it is going to benefit me to build the house and do it properly and finish it and would have benefitted all of us and it will benefit all of us’. Michael insisted that all of the funds provided by the CBA were spent on the build of the house. He explained that if he had not paid Mr Gant and tradespeople they would have pursued him for those monies. That is plainly so, and can be accepted, but the cost of building the house on the Morgan property remains difficult to ascertain.
Luke disputed that all of the loan monies were actually expended on the build and the furnishing of the house.
Initially the Cekos strongly denied that any of the primary or secondary loan monies were used to pay the costs order made against them in the ERD Court but Michael later equivocated in the face of questioning by Luke of particularly large withdrawals from the building account.
Luke challenged Michael’s evidence about the cost of the build by pointing to transactions which were unaccounted for in Michael’s shack cost book, such as:
·A withdrawal of $500 at Waikerie on the same day as a $2000 withdrawal for the kitchen which was not recorded in the shack cost book and for which Michael could not account.
·The absence of any receipt from Wayne Gant in respect of the electrician or Luke McWaters.
·Multiple withdrawals that do not correlate to any of the build costs.
As we shall see, Michael did not dispute withdrawing thousands of dollars from ATMs and Post Office agencies in December 2015 (close to the end of the build of the Morgan property) from both Luke’s BankSA account and the building account but could not recall how the money was spent. Nor could Michael explain how withdrawals from the CBA building account between July and October 2016 totalling $2,050 were spent.
It is difficult to identify the costs of the development and building on the Morgan property because Michael engaged Wayne Gant on the basis that he would be paid in cash and because Michael directly contracted out some parts of the building work. Michael provided a document headed ‘original quoted estimate’ on which photocopy is also a photocopy of the business card of Mr Kevin Parker, an employee of Wayne Gant. The building packages are listed in the lefthand column and to the right, under a column headed ‘Actuals’, are lump sum costs for those packages. The total is $240,189 plus an item identified separately as ‘to fit the kitchen’ against which is recorded the sum of $5,000.
However, on one copy of that document, whereas the ‘Actuals’ costs for the windows is listed as $18,000, next to that line are typed the words ‘I did cheaper $13,500’. On another copy, those typed words appear but additionally next to the items of $10,000 for the kitchen and $5,000 to fit it, is a handwritten notation ‘our kitchen $7,232.18 to fit $4,000 plus … cupboard $1,800’. Although it is not clear, it appears from a reading of Michael’s evidence as a whole, that the original typed document, including the typed words ‘I did cheaper $13,500’, was provided by Wayne Gant based as the cost of building his house which was the template for the house built on the Morgan property. It would be surprising if that document is the executed contract mentioned in the CBA loan file. However, no document purporting to be a contract for the building of the Morgan house was put into evidence. Michael testified that the handwritten note was made by Cosette and refers to the price paid by the Cekos for the kitchen installed on the Morgan property.
During the build, Gant & Sons provided a spreadsheet to Michael headed ‘Project Progress Claims’ (the progress claims sheet). Iterations of that document show variations in the cost packages. The progress claims sheets also set out the amount for each of the four progress payments and the building packages covered by each of those progress payments. The iteration of that document at the time of the second progress claim, 15 September 2015, included the kitchen as an item which Mr Gant would provide in the sum of $10,000, the carpets package at a cost of $9,000 and the internal linings package at a cost of $25,000. However, in the project progress claims sheet for the fourth and final progress claim made on 11 December 2015, the kitchen and carpets had been removed from the building packages and the internal linings cost had increased to $28,000.
As best can be ascertained from Michael’s notations on invoices issued by Gant & Sons, the payments he made in full satisfaction of the invoices were almost always exclusive of GST. Michael noted on the first three progress claims dated 17 August 2015, 15 September 2015 and 9 November 2015 that they were paid in the amounts of $94,398 and $71,080 and $51,270 in cash, respectively, being the GST exclusive amounts. There are withdrawals from the building account which match those payments. Michael testified that Wayne Gant told him that the price would be discounted for cash.
Unless otherwise noted on the invoice, for the purpose of my calculations of what was paid to Gant & Sons, I will assume that Michael’s notations that an invoice was paid refer to paying the GST exclusive amounts.
However, as to the first progress claim, Michael testified that he withdrew $105,000 from the building account on 25 August 2015, and delivered it in cash to Wayne Gant when the GST exclusive claim was $94,398.
The invoice dated 11 December 2015 made the fourth progress claim of $10,750 (exclusive of GST) in accordance with the progress claims sheet. However, Michael noted on that invoice that he paid it on 22 December 2015 in the sum of $16,330. He also noted ‘total w/o GST is $17,095 must have got a discount’. The shack costs book records the payment as being for engineering but there is no Gant & Sons invoice for engineering work or for that amount. The entry made in the shack costs book was made on its last page under miscellaneous entries which are not in date order. Michael did withdraw $17,000 from the building account on 22 December 2015 but there is no evidence, independent of Michael, that it was paid to Wayne Gant.
The total cost claimed by all four progress claims was $227,498 without GST. The items excluded over the course of the build totalled just under $30,000.
Other invoices were rendered by Gant & Sons which are not referable to the progress claims sheet. On 16 June 2015 Michael was invoiced for land survey, soil tests, applications and drafting in the sum of $4,720.10 (exclusive of GST). Michael noted on the invoice that he paid it on 19 June 2015. The payment was made before the primary and secondary loans were made available and must, therefore, have been paid from the withdrawal Michael made from Luke’s BankSA account in the amount of $4,720 on the same date.
Another invoice was issued on 14 August 2015 in the sum of $6,942.50 (exclusive of GST). Michael noted that he paid $5,000 in cash on 17 September 2015 and paid the balance on 25 September 2015. That invoice included work along the fence line and cutting down trees which was done by Mr McWaters. Michael said that that part of Mr McWater’s work must have been arranged by Mr Gant.
Towards the end of the building program, there was a further invoice not referable to the progress claim sheet, of $1,600 being an extras charge for tiling and on 22 December 2015, a charge of $1,350 for a certificate of inspection.
On 19 January 2016 there was an amount of $605 charged for installing lights which may have been part of the preparations for Melanie’s wedding.
Michael put into evidence a note on a Gant & Sons Engineering letterhead asking him to make payments on two invoices which had already been sent directly to Xcel Electrical Services. Michael noted on that letter that on 26 January 2016 he paid $5,597. Michael gave evidence that painting was excluded from the Gant & Sons’ scope of work and that he paid the painter himself. However, the shack costs book records ‘Gant Cash Peter Painter’ ($4,000) and ‘Gant Cash Xcel Electrical’ ($5,597). The original quoted costs and the progress claims sheet show a total of $22,000 for electrical work and $5,500 for painting and those amounts were included in the applicable progress claims made by Wayne Gant.
There are also items in the shack costs book which may be referable to tiling which also appears to have been charged in the progress claim sheet.
Michael also testified that Mr McWaters levelled the block, put soil in and compounded it, and excavated for the footings. The amount paid to Mr McWaters recorded in the shack book is $7,700. However, again, the progress claim sheet showed that the footings were included in the first claim of 13 August 2015 for $94,398.
The total of that appears, on the face of the Gant & Sons’ progress claims and the amounts Michael says he paid directly to tradespeople, to be a doubling up of costs for block levelling, electrical, painting and tiling work in the shack costs book in the amount of approximately $15,000. The overpayment of the fourth progress claim, apparently for engineering work, which was included in the progress claim and for which there is no invoice, is approximately $6,000.
If account is also taken of the withdrawals from Luke’s account to pay for the first Gant & Sons’ invoice, the total cost of the build and furnishing of the house on the Morgan property may be approximately $24,000 less than the total of the primary and secondary loans.
The other major cash building costs recorded in the shack costs book for December 2015 and January 2016 were:
21.12.15
Luke Invoice 40 (McWaters)
Cash
650.00
13.1.16
Brendon Cash Kitchen
Cash
4000.00
13.1.16
Luke Water by 3
Cash
500.00
The furniture purchases, which do not appear to be fixtures, made largely in December 2015 and January 2016 include:
A chest freezer
450.00
Bedside tables and ottoman
627.00
Lounge/chaise chair
2,048.00
Black bed
979.75
Modena bed
1,048.00
2 Lulu and Dallas Sofa
597.00
4 bar stools
636.00
Early Settler invoice
1,912.00
Total
8,297.75
Payments and Withdrawals
Luke gave evidence that three months after he started working on Nauru in 2014, his parents approached him for financial assistance. Luke’s evidence is that they sought his help on the basis that they would repay him on receiving an inheritance from Stan Pech or on the sale of the Athelstone home. Luke testified that in response to their request for help, he commenced paying utilities on the Athelstone home and, during 2014, gave his parents cash in hand when it was asked of him. The Cekos agreed that they asked Luke for financial assistance because of the paucity of their pension.
Luke testified that in 2015, at his parents’ request, he left them his BankSA card to use while he was in Nauru. Luke gave evidence that large sums were withdrawn by his parents in that and subsequent years. Luke testified that he did not notice how large the withdrawals were at the time because he was focussed on his work and trusted that his account was being used responsibly. Luke testified that his parents always expressed their gratitude and reiterated that he would be paid back with Stan’s money. On the other hand, in the early part of his evidence, Michael claimed that he could not recall any occasion on which he had thanked Luke for allowing him to make large withdrawals.
Luke’s evidence was that he was careful not to highlight withdrawals which were made for Margarita when marking up the bank statements with those transactions he claimed were made for the benefit of his parents. He also gave evidence that his living expenses in Nauru were minor. He would take small amounts of cash with him to Nauru because he was accommodated there with full board. His expenditure in Adelaide was limited. He purchased items in op shops and made some online purchases using PayPal.
Luke gave evidence of a pattern of behaviour in his parents’ requests for money. Luke’s evidence was that the requests would often be made in the kitchen and the cash was usually handed over to Michael.
The Cekos initially disputed that they were the beneficiaries of many of the transactions which Luke had highlighted in the marked‑up statements. For example, they denied receiving the benefit of withdrawals from Luke’s BankSA account made when Luke was in Adelaide but accepted those when Luke was plainly in Nauru. That approach was a common, and expressly acknowledged theme in the Cekos’ evidence – they denied receiving funds which they believed could not be attributed to them by objective independent evidence. Michael put it in this way:
No, we have, we have gone through and there are sections where one day there was $4,000 taken out, the following day there was like $500 taken out, then two days later there was like $1,300 and $1,500 taken out, and we did not take out that sort of money. This is all just like a statement, and there is basically like dates, but there is no evidence that we can show and he can’t show that we actually took the money out, and we did not take out that amount of money. There are items in there where it shows electricity, I’ve got no qualms about saying yes we paid that, gas, council rates at Athelstone, there were a couple that he paid as well out of that. Items in there that I accept that we did take, but they are amounts of like $4,000 and then every two or three days $500, that I totally dispute.
Michael testified that he had looked through Luke’s claim and the marked up statements but denied that he was the beneficiary of withdrawals of amounts in the order of thousands of dollars:
Never have I ever been handed $3000, $4000 or $2000 or $1000 cash from you and if you say that you did could you show us a receipt or an agreement or something.
Cosette maintained that she never physically took cash from Luke’s account.
Michael accepted that Luke had given him some amounts in cash but maintained that that was only in connection with expenditure on, or for the payment of, utilities. Michael denied that he had received any cash or used the card to withdraw amounts for day-to-day living expenses. He said ‘no, not our day-to-day living expenses’.
However, when asked ‘is that your evidence? You never made use of the debit card and never received cash for your day-to-day living expenses’, Michael equivocated responding ‘to be honest, I can’t really answer that because I don’t know, possibly there might have been some time, but I am not sure how often’.
Later Luke put to his father that they had had conversations in which his father had acknowledged withdrawing large amounts of $500 or multiples thereof and explaining the reasons for the withdrawals. Michael then agreed that he probably did have such a conversation.
Later again Michael accepted that he withdrew money from Luke’s BankSA account to pay for entertainment, meals, alcohol and the like, especially when entertaining Stan. Michael also accepted that there might have been some small amounts withdrawn from the CBA building account that were not spent on the house.
Luke asked Cosette why she had denied that the withdrawals made during 2014 were made by her and Michael. She responded that she did not recall that they had taken the money out. Cosette repeated the argument that there was no independent evidence linking withdrawals to her and Michael and went further claiming that she should not have admitted receiving any financial assistance in 2014 because:
Now you said you gave us your card in 2015, therefore 2014, we should not have ticked anything. There is no proof whatsoever that we got that money’.
Luke put to Cosette that, having withdrawn large amounts in 2015 using his card, his parents were likely to have accepted large cash advances from him in 2014. Cosette accepted that it was possible but complained that Luke should have pointed it out earlier:
Well, I’ve got to say that could be possible, Luke, that could be possible, I just wish to God and wish at the time you had said something, Luke, that's all, and not left it so long where we sound so negative, because we can't remember.
Of course, on Luke’s case, his parents had agreed from the beginning that the withdrawals should be repaid and, therefore, had no reason to complain that the withdrawals were not brought to their attention earlier.
Luke took the Cekos through many transactions in the marked up statements putting to his parents that he was either in Nauru or that the withdrawal was made on the day of his departure. His parents’ response was often to the effect ‘well if you say we took that money Luke then I suppose we did’. I set out the evidence in respect of some of those withdrawals below.
After Cosette had testified that they responded to Luke’s marked up bank statements by admitting only withdrawals that were made when they believed that Luke was in Nauru and had denied everything else, Luke took Cosette to a withdrawal of $4,000 on 17 November 2014. Luke left for Nauru at 3.15 pm on that day. Luke put to Cosette that he would not have taken that amount of cash to Nauru because he had no need for it there.
Cosette answered:
Well maybe you had something to pay, love, I don’t know. I don’t know – there’s a lot of things that you can’t recall, Luke, when, you know, did we give you cash or whatever, you can’t recall a lot, we can’t recall a lot.
Cosette, on another occasion, responded by saying that she and Michael must have needed the money for something. Luke put, again, that they had indicated on the marked up statements that they had not received the money when they had. Cosette answered:
Well Luke you could’ve kept that money for yourself. Did we give a reason, Luke, why you gave the $4,000, ‘cos there’s no way that you sensibly …
Cosette ultimately maintained her denial because she could not remember receiving the money.
When it was put to Cosette that she had denied withdrawals shortly before, or shortly after, Luke had returned from Nauru which were plainly for their benefit, Cosette denied that that was so saying she did not know what Luke’s financial needs were and that, therefore, perhaps he needed that amount of cash. She reiterated that she could not remember taking, or withdrawing, the money for her own purposes.
Luke put to Cosette that she made many purchases from television sales programs and that the withdrawals from his bank accounts totalled thousands of dollars each month. Cosette denied that that was so. Cosette accepted that she had wrongly indicated that the Cekos had not made some withdrawals when Luke was in Nauru.
When Luke put to Cosette that between 12 December 2015 and 22 December 2015, $3,400 was withdrawn from his account, Cosette maintained, by way of implicit denial, that she and Michael lived frugally.
Another amount of $4,000 was withdrawn shortly before Luke left for Nauru on 15 December 2014. Again, the Cekos had indicated on the marked up statements that they had not received it. When Luke put that the money was given to his parents, Cosette responded in a way which was calculated to cause Luke to doubt his own recollection:
Luke, may I ask can you recall actually handing us this money, or are you just wondering what happened to it yourself? Can you actually recall giving it to us?
Luke put to Cosette the inconsistency between the Cekos’ denials at trial that they received substantial amounts from Luke and 9.2 of their original defence, which read, ‘The plaintiff was quite happy to hand money to the defendants, they did not know how much’. Cosette responded that she did not deny that Luke had handed her money but said it was an example of Luke’s generosity, which he displayed to everybody.
After the Cekos disclosed their Beyond Bank account statements in March 2022, Luke again challenged his parents’ denials that they had received the benefit of most of the transactions he had highlighted in the marked up bank statements.
Luke took Michael to a cash withdrawal from his BankSA account of $3,500 in August 2014 which had been disputed by the Cekos on the marked‑up statements. Luke then matched that withdrawal to a deposit into the Cekos’ Beyond Bank account on 19 August 2014 of $2,591. When asked to explain how else the deposit may have been made, Michael ventured that he might have won it on a X-Lotto. However, he also said that he has only ever had one win in an amount of between $1,500 or $2,800 in that time. Michael continued:
I can’t – I don’t know. So whether that’s – like, am I saying I don’t know – maybe that could have happened or I don’t know how to answer that because I can’t recall it honestly, that’s the – honestly, I can’t.
Next, Luke took the Cekos to an ATM withdrawal of $500 on 25 August 2014 which they had admitted making and to a withdrawal of cash in the sum of $4,000 from his BankSA account on 15 September 2014 which they had disputed. He then took them to their Beyond Bank account statement showing a deposit of $2,000 on 17 September 2014. Michael acknowledged that the withdrawals and deposit might be linked:
Then maybe I did receive that cash in hand – that I did do that withdrawal – maybe I got that wrong when my wife and I disputed it.
The total of the withdrawals at about that time was $8,000. Michael could not recall those withdrawals even though, for a couple living on Centrelink payments, it was a substantial amount of money.
On 9 December 2014 $1,000 was withdrawn from Luke’s BankSA account and on 15 December 2014 $4,000 was withdrawn. Deposits of $500 and $3,000 were paid into the Cekos’ Beyond Bank account on 10 December 2014 and 15 December 2014 respectively.
Luke took his parents to a withdrawal from his BankSA account of $3,500 on 6 March 2015. He put to them that he flew out to Nauru on 9 March 2015. Luke compared that withdrawal to a deposit in the Cekos’ Beyond Bank account on 10 March 2015 of $2,000. When so confronted, Michael said:
Luke, if that’s – obviously, it looks – Because I ticked it – actually my wife and I put an asterisk next to that saying we didn’t but then looking at that it shows that there is 2,000. Luke, can I just ask one thing? Why didn’t you put this –
Michael also initially denied many withdrawals he had made using Luke’s BankSA card which had been highlighted by Luke. Only after Luke took Michael to numerous examples of withdrawals from his BankSA account and contemporaneous, or close to contemporaneous, deposits into the Cekos’ Beyond Bank account did Michael accept that he made those withdrawals.
The Cekos had disputed on the marked up statements that they had made a withdrawal of $2,000 on 23 April 2015. However, on the following day, 24 April 2015, $1000 was paid into their Beyond Bank account. The following is the exchange between Luke and his father on those transactions:
MR L. CEKO:Is it fair to say that half of that cash in hand was then deposited in your Beyond Bank?
MR M. CEKO: We might say yes. It’s fair to say, yes.
The Cekos accepted that they had wrongly disputed an amount of $4,720 withdrawn from Luke’s account on 19 June 2015, when it was obviously used to pay for the build at the Morgan property before the primary CBA loan became available. They agreed that Luke should be reimbursed that amount.
There are further examples of the pattern of withdrawals from Luke’s BankSA account and deposits into the Cekos’ Beyond Bank account. A withdrawal of $3,000 was made on 17 June 2015 and $2,2000 deposited into the Beyond Bank account on 18 June 2015, followed by a $2,200 cash withdrawal on 26 June 2015 and a deposit of $1,000 into the Beyond Bank account on 29 June 2015. On 24 July 2015, $2,500 was withdrawn from Luke’s BankSA account, which had been denied on the marked up statements, but a deposit of $1,200 was made into the Beyond Bank account on 27 July 2015. Michael again acknowledged ‘That should have been another tick’.
On 4 September 2015, $6,000 was withdrawn from Luke’s Bank SA account and on 4 September 2015, $2,000 was deposited into the Beyond Bank account. Michael accepted that the transactions may have been connected.
On 22 September 2015, $5,500 was withdrawn from Luke’s Bank SA account and on 23 September 2015, $2,500 was paid into their Beyond Bank account. Michael again accepted, ‘Yes, that should be a tick as well’.
Cosette said that she would ask Michael from time to time if there was money in the account. Cosette testified that she accepted Michael’s assurance that there was money in their account to mean that the Centrelink payments had accumulated.
The Cekos had accepted on the marked up statements that on 12 November 2015 they withdrew $500 from Luke’s BankSA account. On the same day they deposited $500 into their Beyond Bank account. Again, on 16 November 2015 there was a $500 withdrawal from Luke’s BankSA account using the giro system from a post office.
When Luke again asked why money was withdrawn from his account and deposited into the Cekos’ account. Michael responded:
I don’t know why, but I did it and there must have been a reason but, I, like you said, I can’t remember.
Luke asked Michael to try and remember what the expenses he might have had at that time were but he could not.
Michael withdrew $500 from a BankSA ATM at Newton on 12 November 2015 and the same amount again on 13 November 2015. He withdrew $500 from that account at the Waikerie Post Office on 16 November 2015, another $500 from the Waikerie ATM on 23 November 2015 and yet another $500 from the Newton ATM on 25 November 2015. On 12 December 2015 $400 was withdrawn from an ATM, $500 from the Waikerie Post Office on 14 December 2015, $100 from the Morgan Post Office on 15 December 2015 and another $500 was withdrawn from the Morgan Post Office on 22 December 2015. Michael could not recall how he spent the money which was withdrawn. As we shall see, in the same period, substantial amounts were withdrawn from the building account. The Cekos deposited $1000 into their Beyond Bank account on 22 December 2015. After checking their bank balance, they deposited another $500 on the same day. The withdrawal and deposits show that the Cekos were not only withdrawing money because they were caught short but were using Luke’s money to maintain a positive balance and buffer in the Beyond Bank account.
Luke also gave evidence of a pattern in his parents’ withdrawals in which the larger withdrawals were made soon after his paydays. A series of transactions in January 2017 by Michael and Cosette using Luke’s BankSA card is instructive in that respect. Over the Christmas period, Luke’s BankSA account balance had reduced to $113.23 by 6 January 2017. On 7 January 2017, Michael and Cosette made a small purchase at the Glynde Hardware Store. On 9 and 10 January 2017, almost $50 was withdrawn from the hotel at Morgan. That left the account balance at $17.54. On 13 January 2017, Luke’s wages in the sum of $7,100 were paid into the account. On 14 January 2017, whilst Luke was still in Nauru, Michael and Cosette withdrew $500, an additional $500 was withdrawn on 16 January 2017, and a further sum of $300 on 17 January 2017. That pattern of withdrawals is indicative of Michael and Cosette knowing Luke’s account balance from ATM receipts or the ATM display screen, and increasing or reducing their withdrawals according to the available funds. Cosette testified that Luke would tell her when his pay was coming in. She claimed that she was not clever enough to check the balance. Luke denied that he informed his mother of his paydays. The pattern of withdrawals strongly suggests that the Cekos were monitoring the bank balance.
Cosette testified that a total amount of $1,300 which was withdrawn between 14 and 17 January 2017 was used to pay bills. When Luke put to Cosette that in 2017 he was paying most of the bills by electronic transfer, Cosette claimed that she could not recall how those funds were spent.
Michael was asked to comment on Luke’s statement of claim which alleged that his parents had withdrawn some $39,000 between 2014 and 2017 using his BankSA card. Michael replied ‘I cannot believe that we took out $39,000 and there is no evidence to show that we did take the money out’. When Michael was asked how much he and his wife had withdrawn for their own purposes, he responded:
I honestly, at this point in time I don’t know, I’d have to sit down and go through and work out, well, say for example I know that there were say two lots of council rates for Morgan, they were about $1,100, another one for $1,100, there would have been a couple of electricity bills, petrol would have been part of it because we used to take Margarita everywhere and we went and took her to the Russian Club and places, just drop her off, shopping. I honestly could not put a figure on it your Honour’.
Michael’s response fails to account at all for the large cash advances in 2014, and withdrawals in 2015, when Luke was making online payments for many of the outgoings.
Michael agreed that it was their understanding that the building account would be used only for the building of the home on the Morgan property.
Luke put to Michael certain withdrawals of between $20 to $200 from the building account in December 2015 when funds were available. Michael accepted that withdrawals were made from the post office at Morgan on 9 December 2015 for day-to-day living expenses. He explained that he used the building account for that purpose because notice was required to withdraw his superannuation funds so he would use the building account in the interim. Michael also suggested that he might not have had Luke’s card with him. Michael agreed that he did not repay the amounts he had withdrawn from the building account after he had received his superannuation payment.
Luke’s BankSA account statement shows withdrawals made by Michael within days of the withdrawal at Morgan. On 12 December 2015 $400 was also withdrawn from a Redi ATM at Athelstone. A further withdrawal was made from the Waikerie Post Office using the giro system on 14 December 2015, and another $100 on 15 December 2015. There was a further withdrawal from the Morgan Post Office of $500 on 22 December 2015.
Luke put to her that he had received a discount and had paid only $500 for it, which was about the same price that Michael paid for a conventional suit which he bought for their wedding. Luke withdrew $2,400 from his BankSA account to pay for his Bollywood outfit and other wedding expenses. Luke also testified that the amount of $2,000 paid into his BankSA account on 6 March 2017 was received from his grandmother.
Unexplained Spending
A large question hangs over how the large sums of money received by the Cekos were spent. Cosette denied that their lifestyle was not a budget lifestyle. She then added that she thought they lived a lifestyle that was less than other people they knew. When Luke put to Cosette that the TVSN purchases alone totalled approximately $827 per month, she responded ‘I hadn’t realised it was that much, Luke, but if I paid that, I must have saved a hell of a lot’.
Michael acknowledged that he visited pokies venues for entertainment but that the most he and Cosette would put in the pokies on a visit was $10 or $20 each.
Conclusions on Credibility
Luke gave his testimony in a careful and measured way. He often took time to ensure that his testimony accurately recounted events and transactions. On occasions he sought permission to check his documentary records. He frankly admitted to having second thoughts about whether his relationship with Margarita would work even though it was probably personally embarrassing for him to do so.
By and large his evidence, and his questioning, was directed towards relevant facts. He appeared reluctant to make disparaging remarks about his parents over their heavy use of his bank account, choosing instead to forensically examine the transactions and to ask them to account for how the funds had been spent.
By contrast I was left completely unimpressed by the demeanour of Cosette and Michael. They were apt to make broad, general and inaccurate statements. Their expressions and reactions to difficult questions appeared to be strained if not feigned.
The texts sent by Cosette and the evidence she gave in the course of the trial manifested a deep seated hostility to Margarita.
The most striking features of the Cekos’ defence case were the following:
1.their expressly stated position that they would not admit that any withdrawal, or other transaction with any of the accounts, was for their benefit unless there was objective evidence independently linking them to it;
2.their late disclosure of the Beyond Bank account statements which disproved their earlier testimony about statements of their pension and their denials that they had received the benefit of the transactions in the marked up bank statements.
It is simply not credible that Michael and Cosette had forgotten that so much of the money withdrawn from Luke’s BankSA account was deposited into their Beyond Bank account. The Beyond Bank account statements directly contradicted their earlier accounts that they accessed Luke’s BankSA account for utilities only, that they made small transactions for their personal living expenses, and that they used the account only to benefit Margarita. The full picture disclosed by the Beyond Bank account statements was that the cash they received and the card payments of personal expenses which they made over a period of about four years exceeded $100,000.
It was never contemplated that the building account would be available to support the Cekos’ personal spending. Yet it is plain that the withdrawals in December 2016, and from 2016 after the build was completed, were made for that purpose. After initially insisting that all money in that account was spent on the building of the home on the Morgan property, Michael eventually admitted as much. The Cekos’ credit was much diminished by their slowness to accept as much, when on Luke’s calculations, which I accept, approximately $8,000 was withdrawn for that purpose. It is not credible that Michael and Cosette could have forgotten their reliance on that account having regard to the amounts withdrawn, the frequency and pattern of the withdrawals and the period over which they resorted to it.
Michael’s evidence that Luke’s card was given to him to make purchases for Margarita when he was given the card in the year before she came to Australia, and the unravelling of his denials of the extent of his use of Luke’s BankSA account, leaves him with very little credibility.
The Cekos’ credit is further diminished by the absence of any meaningful account of how they spent the money withdrawn from Luke’s BankSA account. In the face of Cosette’s and Michael’s denial of extravagant spending on day‑to‑day living, consumer purchases or gambling, I cannot positively find how they spent that money. However, the size, nature and frequency of withdrawals from Luke’s BankSA account and the building account demonstrate a spending habit, whether by compulsion or choice, which is indicative of a strong undisclosed motive for the withdrawals. So too does the borrowing of money from Cosette’s brother and from Lucy Ceko’s funeral account.
Michael’s failure to satisfactorily explain the apparent doubling up of payments on the building of the home on the Morgan property mentioned in paragraphs [108]-[122] also leaves me with great doubts about his credibility. So, too, does the extent of his embrace of the cash payment system, and, in particular, the difference between the amount of the fourth progress claim made by Wayne Gant and the payment and purpose for the payment noted by Michael on that invoice.
On other incidental matters, Cosette’s testimony that she paid Luke $5,000 from a draw down of the Cekos’ last $8,000 in the superannuation fund for his wedding was plainly false. She maintained that evidence in the face of both Luke’s denial and the absence of any indication in the Beyond Bank account statements of any such transactions. Only late in the piece did Cosette suggest that a miscellany of small gifts might have totalled $5,000. The falsity and disingenuity of her answers give good reason to reject her evidence whenever it is not independently supported.
Cosette deliberately exaggerated the cost of Luke’s suit and the cost of Margarita’s immigration arrangement. Her evidence about the visit to the cosmetic store was calculated to put Margarita in a bad light as was her suggestion that Margarita had misrepresented her marital status. Her evidence and questions on those matters demonstrates her willingness to make baseless and disparaging allegations which she hoped would weaken Luke’s case against her.
The explanations of both Michael and Cosette on why Margarita might have misunderstood things about her in the Athelstone home are fanciful. They, too, reflect badly on their credit.
I accept the evidence of Luke. I reject the evidence of Michael and Cosette unless it is supported by independent evidence.
Loan or Gift
Luke also tendered several text message conversations between him and Cosette in which she asked him for money. I set out immediately below some extracts from those text messages because they provide some objective context to the advances Luke made:
3 May 2015 at 4:58 pm
Cosette: run out of money lol x
Cosette: wait for u here x
Cosette: im fuckin lonely need more money x
Luke: Sorry missed all those messages mummo lol
(errors in original)
10 July 2017 at 9:51 pm
Cosette: Thank you Luke for money appreciated busy Day also u and m will be happy to know they are coming back on the 29th July so probably home 1st August
(errors in original)
11 July 2017 at 5:51 pm
Cosette: Luke no money ok love thank God for till money dad mowing done toilets no call.
(errors in original)
19 July 2017 at 11:23 pm
Cosette: Great to know that’s finally paid still answering calls can’t believe it could you please put some money into. Our account to cover monthly.bills.would appreciate thanks love just seen message different busy day thank you very much
(errors in original)
11 November 2017 at 3.45 pm
Cosette: We are totally indebted to you for all u have given and will always be its so sad u are doing it now begrudgingly it will be for the best when the house is sold we can go our separate ways and we will probably see more of u then than now i could not stand to see your face when you saw me that sunday and be lectured as you did ever again i was totally lost as u…
(errors in original)
2 January 2018 at 9:36 pm
Cosette: Hope all is good luke know u dread messages from me and this is not a good one with all of dads physios and my specialist appmts plus bills have less than 100 in. Bank could u.please put 1000 in bank as have used super will completely understand how u will feel getting this have cancelled appmts for 5th will come home after 10th and will.shortly after than have to go to.wallaroo to.get van as havent paid as yet there keep safe and happy
…
Luke: What I really need mum And Dad is a commitment that you will pay me back once Athelstone is sold. I’m doing fine
…
Luke: So the situation is a worry because if it takes a year to sell this place…still pay all these bills. I think dad needs to start getting his inner salesman going – sell jet ski, small caravan, boat
Cosette: Thanks Luke have already tried to sell all the above locally one interested by unfortunately van too big of course will have agreement and sign then can look as your way of saving
….
Luke: So can I have confirmation in this message Mum and dad that the thousand dollars I send through will be paid back (sic) when Athelstone house is sold
….
5 January 2018 at 6:04 pm
Cosette: Thank you luke money came thru today lucky there had been monthlys come out or would have been minus dad has diary and registered it as requested hope little holiday going well. will see noel about van when we come home
(errors in original, emphasis added)
The underlined words of the last text, objectively understood, are an assurance that the money advanced will be repaid and that a note to that effect has been made. Luke testified that the last text message was not the only occasion on which he was assured that he would be repaid. He gave evidence that his parents would sometimes say that the money Luke had given to them had been ‘logged’ in a ‘diary’. Michael gave evidence that he never kept a diary of money that Luke had lent him and that he had no knowledge of texts to that effect passing between Luke and Cosette.
Cosette claimed that her response to Luke’s question was only in respect of the $1,000 which was about to be advanced. Cosette was asked why she made a reference to registering it in a diary if it was so limited. She replied, ‘I think I was just trying to keep him quiet … I hate to say it’.
Cosette agreed that the response that the loan had been registered in the diary might reasonably have been understood by Luke as confirmation that the $1,000 would be paid back on the sale of the Athelstone home. Cosette also said she could understand why he would think that. She agreed that she wanted him to understand what she wrote in that way.
Cosette agreed that by using the word ‘registered’ she was trying ‘make it sound official’.
The inference which I draw from Cosette’s answer is that over and above the objective meaning of the words, which bind the Cekos in contract, Cosette knew that Luke had an expectation that all of the money advanced would be repaid and told him what he wanted to hear even though she had no intention to repay him.
Luke’s evidence was that the arrangement with his parents was that they would repay him the cash advances and withdrawals when they received Stan Pech’s inheritance. The Cekos, however, maintained that the money was a gift and that Luke was helping his parents in a time of need because of the way he was brought up.
When it was put to Michael that he had told Luke that the amounts advanced to his parents would be repaid when they came into an inheritance from Stan Pech, Michael responded:
That is not true, we did never, ever mention Stan’s inheritance, as a fact I believe that Stan would have outlived us, he did not take any medication whatsoever, and it was the day before my wife’s birthday he was at our place and we were basically having a talk with him and we basically said that he would outlive all of us and he actually even said to his priest at the local church, that he was hoping to live to 105 to outlive his oldest brother. So that is how fit he was.
Michael gave, as an example of his conversations requesting financial assistance from Luke, the following:
I would have said to Luke “our electricity bill has come, our gas bill has come”, we were only getting $600 a fortnight between my wife and myself because we had the two properties and Centrelink then revalued our loan, so we only got $600 between us and Luke was aware of that and that’s when I asked him and Luke said “yes, Dad, I will give you my credit card and you can use it to pay those bills”.
When asked whether anything was said as to whether it was by way of loan or gift, Michael responded:
Luke just gave it to us, your Honour, as if it was a gift.
Michael said that he was grateful and acknowledged his son’s generosity but he never told his son that he would repay it.
When asked to comment on his recollection of how substantial the ‘gifts’ were, Michael responded that he would have to refer to the bank statements.
I accept the evidence of Luke that Michael and Cosette promised to repay the cash they received and the use of his BankSA card to make personal purchases on the receipt of an inheritance from Stan Pech or the sale of the Athelstone home. However, the objective bystander would not have understood the general language used to extend to the payment of utilities and outgoings on the Athelstone home and the Morgan property in which Luke resided at first, alone with his parents and then, with Margarita. Having regard to that joint occupation and to the payment of board by Luke before he commenced employment in Nauru, the conversations, objectively construed, could not be found to so extend. Similarly, the Morgan property was enjoyed by Luke and his parents. Any request by Luke to obtain a contribution to those outgoings could only be founded on family honour and not contract.
However, it is inherently improbable that Luke would have intended to extend to his parents an unlimited cash facility free of any obligation to repay. It is equally improbable, in the objective circumstances, that Cosette and Michael would so understand the agreement. The reasonable bystander, having regard to those contextual improbabilities, would find that there was a contractual loan agreement. Pursuant to that agreement the advances became due and payable on the receipt of Stan Pech’s inheritance or the sale of the Athelstone home, whichever was earlier. I accept Luke’s evidence and the calculations he submitted as to the cash amounts which were handed over by him or transferred electronically, and the payments on personal expenses made by his parents using his card. I find, therefore, that the amount of $126,662.22 became due and payable on 31 March 2019.
Moreover, a further agreement was made when Luke advanced his parents a further sum of $1,000 on the condition of an undertaking which was given to repay the earlier advance.
Sale of the Athelstone Home
From March 2019 Luke paid only 20 per cent of the repayments on the CBA loans. He later placed a caveat on the Athelstone home.
The Cekos decided to sell the Athelstone home. The Cekos gave evidence that a real estate agent told them that they could not sell the house while Luke maintained the caveat. For that reason they approached the Berri branch of the CBA. They testified that they were advised to voluntarily surrender the Athelstone home to the Bank which would then sell it pursuant to its mortgage and distribute the balance after repayment of the loan for which it held a mortgage over the Morgan property. The Athelstone home was sold in 2020.
Settlement on the sale of the Athelstone home took place on 14 September 2020. The net proceeds of sale to be apportioned between Luke and his parents were $587,033.42. The CBA took $373,580.14 to discharge the primary and secondary loans which were secured by a mortgage on the Athelstone home. The resulting gross surplus was $213,453.28. After other costs were deducted, Luke received 20 per cent of the net proceeds - $39,519.93.
Luke took the position that the proportion of the equity that he was paid after the sale of the Athelstone home should be deducted from the money he lent his parents. Michael put the position that Luke’s proceeds from the sale of the Athelstone home should be deducted from the total of the loan payments he had made. Michael accepted that he should pay Luke the remainder.
A Proprietary Estoppel Over the Morgan property
In Giumelli v Giumelli[3] the plurality (Gleeson CJ, McHugh, Gummow and Callinan JJ) said:
[3] Giumelli v Giumelli (1999) 196 CLR 101.
1This is an appeal from the Full Court of the Supreme Court of Western Australia. The Full Court (Rowland, Franklyn and Ipp JJ) allowed an appeal by the present respondent from a judgment entered by a judge of that Court (Nicholson J) and dismissed a cross-appeal by the present appellants. The Full Court granted a declaration that the appellants hold the whole of the land comprised in Certificate of Title Vol 1400 Folio 628 (the Dwellingup property) upon trust and that, since May 1986, they have held the Dwellingup property upon trust to convey to the respondent what is presently an unsubdivided portion thereof, identified as “the promised lot”. The appellants were ordered to do all things reasonably necessary to subdivide the Dwellingup property so as to create the promised lot, including the obtaining of State Planning Commission approval. The order of the Full Court further provided:
“that in the event that subdivision cannot be effected or State Planning Commission approval cannot be obtained or in the event that for some other reason the Promised Lot cannot be conveyed to [the respondent, he] be at liberty to apply to a single Judge of this Honourable Court.”
Constructive trust and estoppel
2In submissions to this Court, the term “constructive trust” was used to identify the nature of the equitable remedy granted by the Full Court. Care is required in the use of the term “constructive” in this context. Professor Scott has pointed out:
“It is sometimes said that when there are sufficient grounds for imposing a constructive trust, the court ‘constructs a trust’. The expression is, of course, absurd. The word ‘constructive’ is derived from the verb ‘construe’, not from the verb ‘construct’ … The court construes the circumstances in the sense that it explains or interprets them; it does not construct them.”
The relief granted by the Full Court involved a trust that was “constructive” in that way. The Full Court so interpreted the circumstances as obliging the appellants, in good conscience, not to retain their beneficial interest in the whole of the Dwellingup property and as requiring them to answer the respondent's equity by bringing about a subdivision of the promised lot and conveying the title to it The equity of the respondent was seen by the Full Court as sufficiently strong as not only to prevent the appellants from insisting upon their strict legal rights but also, in respect of the promised lot, to convey it to the respondent.
3A constructive trust of this nature is a remedial response to the claim to equitable intervention made out by the plaintiff. It obliges the holder of the legal title to surrender the property in question, thereby bringing about a determination of the rights and titles of the parties.
In Delaforce v Simpson-Cook,[4] Handley AJA (with whose reasons Allsop P and Giles JA agreed) identified the underlying principle of what he described as an estoppel by encouragement as follows:
The proprietary estoppel upheld by the Judge was an estoppel by encouragement. Such an estoppel comes into existence when an owner of a property has encouraged another to alter his or her position in the expectation of obtaining a proprietary interest and that other, in reliance on the expectation created or encouraged by the property owner, has changed his or her position to their detriment. If these matters are established equity may compel the owner to give effect to that expectation in whole or in part.
[4] Delaforce v Simpson-Cook (2010) 78 NSWLR 483 at [21].
In Delaforce v Simpson-Cook[5] Allsop P (with whose reasons Giles JA agreed) dealt with the fashioning of an appropriate remedy as follows:
[3]I agree in particular with Handley AJA that the reasons of Gleeson CJ, McHugh J, Gummow J and Callinan J in Giumelli v Giumelli (1999) 196 CLR 101 appear to remove as a governing principle in the relief to be granted in equitable or proprietary estoppel cases the notion of enforcement or vindication only of the “minimum equity”: see Giumelli (at [40]–[48]). That, of course, does not make irrelevant matters that can assuage the detriment brought about by the resiling from the representation or encouragement by the party concerned. It does mean, however, that relief in such cases is not to be measured by weighing detriment too minutely in order that it be converted into some equivalent of cash or kind, as if one were measuring the consideration for a commercial bargain. Equity will look at all the relevant circumstances that touch upon the conscionability (or not) of resiling from the encouragement or representation previously made, including the nature and character of the detriment, how it can be cured, its proportionality to the terms and character of the encouragement or representation and the conformity with good conscience of keeping a party to any relevant representation or promise made, even if not contractual in character. Equity has always had a place in keeping parties to representations or promises: see for example, Burrowes v Lock (1805) 10 Ves Jr 470; 32 ER 927; Horn v Cole 51 NH 287; 12 Am Rep 111 (1868); S W Symons (ed), J N Pomeroy, A Treatise on Equity Jurisprudence 5th ed, Vol 3 (1941) San Francisco, Bancrof-Whitney at 179–188 [802]–[803]; R Meagher, J Heydon and M Leeming, Meagher, Gummow and Lehane's Equity: Doctrine and Remedies 4th ed (2002) Sydney, Butterworth LexisNexis at 556–560 [17–065]–[17–070] and 567–568 [17–110].
[4]Proportionality of the claimed interest or remedy to the prejudice or detriment is undeniably a relevant consideration, and sometimes of considerable importance. It should not, however, be transformed into a necessary constitutive element of a cause of action to be pleaded or proved by the party seeking relief. To do so would elevate one consideration above others, and in particular above the importance of making good an expectation by encouragement or representation: Plimmer v The Mayor, Councillors and Citizens of the City of Wellington (1884) LR 9 App Cas 699 at 713–714; Riches v Hogben [1985] 2 Qd R 292; Giumelli (at [10] and [35]). It would tend to equate the analysis to one requiring that the party encouraged receive no more than it can prove that it suffered in detriment. This would see the equity become one of compensation for proved equivalent detriment. The equity is a broader one based on the just and conscionable satisfaction in appropriate fashion of the equity arising from the expectation created in another by encouragement or representation. As Handley AJA says, the role of proportionality is better understood, in a doctrine dealing with the legitimacy or otherwise of resiling from an encouragement or representation that has created an expectation, as assisting in an assessment whether what is claimed or contemplated to be granted is disproportionate or unjust in all the circumstances.
[5]The importance of keeping a party to a representation or encouragement previously made is all the stronger where, as here, the encouragement or representation has been relied upon by a party to abandon a course of conduct that could possibly have led to a different outcome. This can be described in the language of loss of a chance that is not fanciful or unrealistic, or in the language of proceeding thereafter on the basis of a new or changed convention or conventional basis. Such expression of the matter is not different to how Dixon J put the matter in Grundt v Great Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641 at 674–675. For instance, if, as here, in reliance upon a representation or encouragement, a court case is abandoned and the representation or encouragement is later sought to be resiled from, the party to who the representation or encouragement was made and in whom the expectation was raised is left in the position not only of the loss of the entitlement to pursue his or her rights in the case in the past, but also is likely to be in the position of being unable to demonstrate what would, or even may, have happened in the case, it being an alternative, complex and now hypothetical body of human conduct. That the party encouraged cannot show that he or she would have been better off in the posited alternative reality is not fatal to the making out of the estoppel. Indeed, the inability to prove such things reveals a central aspect of the detriment: being left, now, in that position. Of course, if it is self-evident or can be clearly demonstrated that the case was fanciful or otherwise doomed to fail, there may be no real detriment; but that was not the case here. The respondent gave up her right to propound her case in the Family Court on the faith of the deceased's representation. It was not self-evident, or otherwise clearly demonstrated, that she could not have been successful in securing her rights to the subject property after the death of the deceased.
[5] Delaforce v Simpson-Cook (2010) 78 NSWLR 483.
In Rodda v Ian Rodda Pty Ltd[6] Nicholson J summarised the relevant principles as follows:
[6] Rodda v Ian Rodda Pty Ltd [2015] SASC 95 at [90]-[91].
In Sullivan v Sullivan and in Delaforce v Simpson-Cook Handley AJA discussed in some detail a number of principles which govern the granting of relief in an estoppel by encouragement case. The summary of principles, as set out in Sullivan, has been approved in a number of authorities and, in my view, nothing said by the High Court including in the later decision of Sidhu is contrary to or inconsistent with that formulation of principles. In what follows, I provide a truncated summary of the principles, as identified by Handley AJA, omitting his Honour’s discussion and referenced to authority:
(i) A proprietary estoppel by encouragement may be established where the conduct of the party estoppel did not define the expectation. Although, the quality of the assurances which given rise to the expectations may influence the issue of reliance and the question of reliance and detriment are often intertwined.
(ii) The detrimental reliance that supports the estoppel need not constitute, in any sense, a consideration moving to the party bound. It is a unilateral element to the estoppel and not the price paid for it.
(iii) Relief depends very much on the facts: the circumstances of each case will determine the way in which the equity can be satisfied.
(iv) Since Giumelli, it is not the law in Australia that the Court is to look for the minimum equity to do justice to the plaintiff.
(v) Relief may be moulded to recognise practical considerations such as the need for a clean break.
(vi) The court must also take into account the impact of its orders on third parties and any hardship or injustice they would suffer.
(vii) Relief may be refused or reduced if the plaintiff’s equity has been diminished by later events.
(viii) Subsequent events may also enlarge the plaintiff’s equity.
(ix) Relief may also be limited where the enforcement of the plaintiff’s expectation would be out of all proportion to the detriment; this is particularly so where the expectation was not defined and the court had a broader discretion. (This notion is amplified in the next full paragraph).
(x) The courts should, prima facie, enforce a reasonable expectation which the party bound created or encouraged. In Giumelli the plurality judgment quoted, with approval, Deane J in Commonwealth v Verwayen.
Prima facie, the operation of an estoppel by conduct is to preclude departure from the presumed state of affair. It is only where relief framed on the basis of that assumed state of affairs would be inequitably harsh, that some lesser form of relief should be awarded.
The plurality judgment continued.
The prima facie entitlement to which [Deane J] had referred would be qualified if that relief would “exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party”; an appropriate qualification might be a requirement that the party relying upon the estoppel do equity.
…
The joint judgment continued:
The prima facie entitlement to which his Honour had referred would be qualified if that relief “would exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party”.
See also Flinn v Flinn [1993] 3 VR 712 CA, 749.
In Sledmore v Dalby (1996) 72 P & CR 196 CA, 203 Roch LJ, delivering the principal judgment, approved the statement in Snell’s Equity 29th ed p 576 derived from Griffiths v Williams (1978) 248 EG 947, 949 per Reginald Goff LJ, and In re Basham [1986] 1 WLR 1498, 1510 per Nugee QC:
The extent of the equity is to have made good, so far as may fairly be done between parties, the expectations of A which O has encouraged.
“Sledmore v Dalby was followed in Mobil Oil Australia Ltd v Welcome International Pty Ltd (1998) 81 FCR 475, 517-8.
In Jennings v Rice [2003] 1 P & CR 100 CA, 114 Robert Walker LJ said:
‘… there is a category of case in which the benefactor and the claimant have reached a mutual understanding which is in reasonably clear terms but does not amount to a contract. … In such a case the Court’s natural response is to fulfil the claimant’s expectations. But if a claimant’s expectations are uncertain, or extravagant, or out of all proportion to the detriment which the claimant has suffered, the Court can and should recognise that the claimant’s equity should be satisfied in another (and generally more limited) way.
(Emphasis supplied; footnotes omitted)
It is common ground that Michael and Cosette encouraged Luke to accept the obligation as a co-borrower with them on a loan which would enable a home to be built on the Morgan property. At the time, Luke saw his high income from his employment on Nauru as a ‘golden opportunity’ to invest in real estate. He intended to purchase an apartment or townhouse. He had already looked at a city property. I find that he would have purchased such a property had he not been persuaded to join his parents in building the house on the Morgan property.
Luke’s arrangement with his parents was based on a misplaced trust which was swept aside by his parents’ hostility to Margarita. His decision to join his parents as co-borrower worked to his detriment in that his legal liability to service the loan was not balanced by a legal right to, and equity in, real estate. In those circumstances, it would be unconscionable of Michael and Cosette to insist on the legal interest they hold in the Morgan property to deny Luke’s expectation that he would share in capital appreciation in the Morgan property over the period in which he bore the responsibility to service the CBA loans.
It was unconscionable to deny Luke his interest in the Morgan property by excluding him from it because of the escalating hostility of Luke’s parents. Luke’s exclusion had been foreshadowed by Cosette’s declaration that Luke would not receive anything from either the Athelstone home or the Morgan property whilst he remained with Margarita.
The joint venture between Luke and his parents in respect of the Morgan property finally came to an end when the primary and secondary CBA loans were paid from the proceeds of the sale of the Athelstone home in September 2020.
The valuers, Tanner Hardwick, gave a range for the market value of the Morgan property on 1 January 2015 of between $300,000 and $340,000 and adopted the average of $320,000 as the value of the Morgan property. Michael’s shack costs book records the payments made for both the build and furniture. I find that the building costs are no more than $330,000 because:
·about $8,300 was spent on furniture;
·the possibility of doubling up and the unreliability of Michael’s accounting for the building costs; and
·money expended for Melanie’s wedding.
If building costs of $330,000 are added to the value of the undeveloped Morgan property, the cost base of the joint venture, is $650,000. Even though the Tanner Hardwick valuation of the Morgan property, after the build was completed, as of 1 January 2016 was $625,000, the market value range given by Tanner Hardwick as of July 2021 was $900,000 to $950,000. The comparable sales on which they relied occurred between February and July 2021. Working back from that valuation as of July 2021, I would adopt the value as at September 2020 of $900,000.
The capital appreciation of the Morgan property in that time was, therefore, $250,000. If Luke had not joined his parents as a co-borrower, the purchase of an apartment or townhouse may have been delayed until he amassed a deposit or found a guarantor but the capital appreciation is likely to have continued after September 2020.
In any event, Luke’s claim in equity does not depend on an ascertainment of loss similar to an assessment of damages in a common law action. The just and conscionable satisfaction of the equity arising from the expectation encouraged by Luke’s parents is to make an order for equitable compensation in effect treating Luke as if he held a joint equitable interest in the Morgan property with his parents from 2015 which he then assigned to them at its market value when the CBA loans were paid out. After deducting the net proceeds from the sale of the Athelstone home received by Luke ($39,519.93), I will make an order for equitable compensation in the sum of $85,480.07.
I find that it would be disproportionate to allow Luke an ongoing equitable interest. To do so would allow Luke to enjoy the increase in property value after the CBA loans for which he was responsible were repaid. Moreover, the relationship between Luke and his parents has been severed. The making of an order for equitable compensation will minimise disputation.
Conclusion
I order that Michael and Cosette pay Luke equitable compensation in the sum of $85,480.07 to satisfy the proprietary estoppel arising from the circumstances of their encouragement of Luke to join them as a co-borrower on the CBA loans. I enter judgment for Luke on his debt claim in the sum of $126,662.27.
I will hear from the parties on pre-judgment interest on that amount.
0
5
0