Charbord Investments Pty Ltd v Isabelle Szwarcbord
[2023] VCC 2141
•23 November 2023
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-21-05601
| CHARBORD INVESTMENTS PTY LTD (ACN 104 932 532) AS TRUSTEE OF CHARBORD FAMILY TRUST & ORS ACCORDING TO THE ATTACHED SCHEDULE | Plaintiff |
| v | |
| ISABELLE SZWARCBORD | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27, 28, 29, 30, and 31 March, 3, 4, 5, 13, 14, 17, 18, and 19 April, 4, 5 and 6 July 2023 | |
DATE OF JUDGMENT: | 23 November 2023 | |
CASE MAY BE CITED AS: | Charbord Investments Pty Ltd & Ors v Isabelle Szwarcbord | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 2141 | |
REASONS FOR JUDGMENT
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Subject:CONTRACTS – GUARANTEE AND INDEMNITY – EQUITY
Catchwords: CONTRACTS – agreement – undue influence – presumption of undue influence – actual undue influence – no undue influence - unconscionable conduct – no special disability - pleaded case – agreement valid
GUARANTEE AND INDEMNITY – security – undue influence – presumption of undue influence – actual undue influence – actual knowledge of undue influence – constructive knowledge of undue influence – unconscionability conduct – general law unconscionability – no unconscionability - statutory unconscionability – section 12CB – no unconscionability
EQUITY – legal interest – beneficial interest – where all funds paid by third party – understanding or arrangement – terms of understanding or arrangement – trusts - constructive trust – common intention constructive trust - intention at the time of transfer – pleaded case – resulting trust – presumption of advancement – intention of the parties
Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth); Evidence Act 2008 (Vic); Property Law Act 1958 (Vic); Statutory Declarations Act 1959 (Cth)
Cases Cited:Anaconda Nickel Ltd v Edensor Nominees Pty Ltd [2004] VSCA 167; Attwood v Small (1838) 6 Cl & Fin 232; Australia and New Zealand Banking Group Limited v Ngo [2022] VSC 713; Axis Bank Limited v Gujarat NRE India Pty Ltd [2020] NSWSC 1711; Bank of New South Wales v Rogers (1941) 65 CLR 42; Blomley v Ryan (1956) 99 CLR 362; Bosanac v Commissioner of Taxation and Another (2005) 405 ALR 424; Bosanac v Federal Commissioner of Taxation (2022) 275 CLR 37; Bridgewater v Leahy (1998) 194 CLR 457; Brown v Brown (1993) 21 NSWLR 582; Callaghan v Callaghan (1995) 64 SASR 396; Calverley v Green (1984) 155 CLR 242; Carantinos v Magafas [2008] NSWCA 304; Commercial Bank of Australia v Amadio (1983) 151 CLR 447; Cong v Shen (No 3) [2021] NSWSC 947; Dearing v Dearing [2009] NSWC 1394; Dolan v Dolan [2023] VSCA 136; Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1; Imam Ali Islamic Centre v Imam Ali Islamic Centre Inc [2018] VSC 413; IMM v The Queen (2016) 257 CLR 300; In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) [2021] NSWSC 966; Johnson v Buttress (1936) 56 CLR 113; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; Kawada v Kawada [2012] FamCA 273; King v Fister [2022] QCA 47; King v Lynpete Australia Pty Ltd [2012] VSC 140; Lin v Lin (No 2) [2022] VSC 542; Louth v Diprose (1992) 175 CLR 621; McIvor v Westpac Banking Corporation [2012] QSC 404; Melbourne Orthopaedic Group Pty Ltd v Stamford Aus-Trade & Press Pty Ltd [2015] VSCA 150; Nagi v Hussein [2020] VSC 401; Nathan v Williams [2020] QCA 138; Nelson v Nelson (1995) 184 CLR 538; NPV W.A Securities Pty Ltd v Interactive Network Services Pty Ltd & Anor [2006] VSC 284; Powell v Powell [2002] WASC 105; Sleboda v Sleboda [2008] NSWCA 122; Smith v Jenkins (1970) 119 CLR 397; Smith v Smith [2007] NTSC 31; Stubbings v Jams 2 Pty Ltd (2022) 399 ALR 409; Thorne v Kennedy (2017) 263 CLR 85; Vadisanis v Vadisanis [2014] FamCAFC 97; Walton Stores (Interstate) Ltd v Maher (1998) 164 CLR 387; Wilton v Farnworth (1948) 76 CLR 646; Yard v Yardoo Pty Ltd [2007] VSCA 35
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr T North KC & Mr E Kelly | CIE Legal |
| For the Defendant | Ms N Obrart | Atticus Lawyers |
| For the Fourth Defendant by Counterclaim | Ms C van Proctor | HWL Ebsworth Lawyers |
HIS HONOUR:
Introduction
1This is an unfortunate case about Unit 2, 4 Trawalla Avenue, Toorak (“Unit 2”). The plaintiffs seek to enforce a charge over Unit 2 and to recover a debt exceeding $4 million allegedly owed by the defendant. The defendant contends that she is the registered proprietor and beneficial owner of the fee simple in Unit 2. She says that she obtained the unit as a result of a gift. To the extent that she signed loan deeds and a mortgage which encumbered the unit and/or created rights in one or more of the plaintiffs and the Australia and New Zealand Banking Group Ltd (“ANZ”), she says that it arose through undue influence and/or unconscionable conduct. The ultimate question is which view of events is correct.
2Because the dispute concerns members of the Szwarcbord family, I will refer to them by their Christian names. In doing so, I intend no disrespect. Rather, the purpose is to avoid confusion and enhance clarity.
Background
3By a contract of sale dated 30 October 2015, Trawalla Developments Pty Ltd (“Trawalla Developments”) sold Unit 2 at its market value of $3,570,000 to Jacob Szwarcbord (“Jacob”) and/or the defendant (“Isabelle”) and/or a nominee purchaser. Jacob is the father of the third plaintiff (“Peter”), the father-in-law of Peter’s wife Marika, and the grandfather of the defendant (“Isabelle”).
4Jacob came to Australia after surviving the holocaust and the second world war. He initially established a painting business but then expanded the business into a building and development company, J & S Szwarcbord Pty Ltd. He led the business for many years. He and his wife, Sigrid, had two children, Peter and his older brother Michael. Michael maintains a financial interest in the property development business but is not involved on a day to day basis.
5Peter’s interest in the business dates from his teenage years. After completing his studies and working for a period in local government, Peter joined the family business full time around 1987. He has undertaken a variety of roles in the business. He has been engaged in design work, has supervised trades on site, provided materials and coordinated trades and building completion. Over time, he has also mastered the financial aspects of the business.
6The business continued in the structure established by Jacob until 2003. Then, with the advice of accountants and following discussions between Jacob and Peter, the structure of the business was re-organised and the name changed.
7Peter is a director, shareholder and controlling mind of several corporate entities engaged in property development work. This group of entities is known collectively as the Szwarcbord Development Group (“the Group”). The Group includes Charbord Investments Pty Ltd (“CI”), Charbord Investments No 6 Pty Ltd (“CI6”), Charbord Constructions Pty Ltd (“Constructions”) and Trawalla Developments. CI and CI6 were trustees of discretionary family trusts, the Charbord Family Trust and the Charbord Family Trust No 6 respectively.
8Isabelle has an older sister Jessica who was born in 1988. She studied law at university but is not admitted to practice.[1] Isabelle was born in September 1992. Between about 2011 and 2019[2] she worked for the Group including Constructions. Like her sister, she is a beneficiary under the Charbord Family Trust and the Charbord Family Trust No 6.
[1]T 650
[2]See Isabelle’s evidence at T666
9The funds to purchase Unit 2 came from three sources: CI, CI6 and the fourth defendant by counterclaim, the ANZ. CI and CI6 contributed money and the ANZ provided loan funds. As part of the security for the provision of loan facilities to the Group, the ANZ took a registered first mortgage over Unit 2 and a guarantee and indemnity from both Peter and Isabelle.
10Trawalla Developments was registered as a company on 24 October 2012. Then on 1 May 2013, Trawalla Developments became the registered proprietor of 4 Trawalla Avenue, Toorak (“the Trawalla Avenue property”). Trawalla Developments is not a party to these proceedings. It is the trustee of the Berbord Investments Unit Trust No. 2 (“the Berbord Trust”). The Berbord Trust is not a party to these proceedings.
11There are a total of 2,520 units in the Berbord Trust. The unit holders are:[3]
· P & M Superannuation Pty Ltd (controlled by Peter and his wife, Marika) who holds 630 units;
· GB Developments Pty Ltd which holds 840 units;
· S.E.M. Superannuation Pty Ltd (controlled by Michael) which holds 630 units;
· Damon Krongold and Janene Krongold who hold 140 units;
· Damon Krongold and Jeanette Krongold who hold 140 units;
· KMH Superannuation Pty Ltd which hold 140 units.
[3]Court book, 308
12The unit holders contributed to the purchase of the Trawalla Avenue property in proportion to their shareholdings. The remaining funds for the purchase were provided by CI, CI6 and the ANZ. CI and the ANZ funded the construction of the units at the Trawalla Avenue property.
13Constructions carried out the building of the units on the Trawalla Avenue property. Constructions built four units and a penthouse. Three of the units and the penthouse were sold to external parties. Each of the units and penthouse was designed by reference to a standard design with alterations possible at the request of the purchasers.
14In October 2015, Trawalla Developments sold Unit 2 to Jacob and/or Isabelle and/or nominee as purchasers for $3,570,000. This was the market value at the time. The purchase price would not be paid until 2017.
15The building development on the Trawalla Avenue property was completed in early 2017. Jacob moved into Unit 2 on 2 March 2017.[4] He lived there until around February 2021.
[4]T 351 - 352
16On 22 March 2017, the nomination power in the contract of sale was exercised in favour of Isabelle. Trawalla Developments transferred Unit 2 to Isabelle in June 2017. Isabelle contributed no funds to the purchase or maintenance of Unit 2. Nor did she pay any of the interest or other monies due to the ANZ in connection with the acquisition of the unit.
17Since July 2021, Isabelle has refused the plaintiffs’ requests that she consent to the sale of Unit 2.
Pleadings
18The pleadings in this case are important in the sense that the plaintiffs emphasised that they came to court to meet the case which Isabelle articulated through her defence and counterclaim in response to the plaintiffs’ allegations. The plaintiffs’ submissions noted in some detail the matters admitted by Isabelle and the limited and specific grounds she relied upon in relation to her claims of a special disability which formed a critical part of her case regarding undue influence and unconscionability.
19The plaintiffs were critical of Isabelle’s conduct of the case and her final submissions insofar as they raised matters which were not relevant on the pleadings or not raised in her opening.[5] I will say more on this later.
[5]Plaintiffs’ revised reply submissions at [2]
Plaintiffs’ claim
20A central claim which the plaintiffs make is that Isabelle is indebted to CI and CI6 because they advanced and/or arranged for the advance of the funds necessary to acquire Unit 2 from Trawalla Developments. They paid the costs and expenses connected with the transfer of Unit 2 into Isabelle’s name. Exhibit PD is a detailed listing of the payments made by the plaintiffs in relation to Unit 2. The payments in green are the acquisition costs, rates, owners corporation fees (and other levies), water, energy, security and maintenance payments. The payments in orange are the interest payments, fees and charges due to the ANZ. The payments are cross-referenced to the parties’ discovery and the location of the relevant document in the court book.
21The plaintiffs contend that the funds paid to Trawalla Developments were advanced:
· pursuant to an agreement, arrangement or understanding, or alternatively a joint relationship or endeavour between Jacob, Peter and Isabelle in 2015 (“the Acquisition Agreement”); and
· in accordance with a loan deed executed on or around 2 July 2018 naming Isabelle as borrower and CI as lender of the principal sum (“the loan deed”).
22In her defence, Isabelle admits important aspects of the claim. She admits that:
· CI and CI6 are incorporated. Peter is a director, shareholder and controlling mind of various companies in the Group;
· she is Peter’s daughter;
· she is a beneficiary under the Charbord Family Trust and Charbord Family Trust No 6;
· she was employed by Constructions and others in the Group between 2015 and 2018;
· Trawalla Developments entered into a contract to sell Unit 2 on 30 October 2015;
· on 9 March 2017, Trawalla Developments obtained an occupancy permit for Unit 2;
· on 22 March 2017, she was nominated as sole purchaser of Unit 2;
· on 26 and 27 April 2017, CI advanced $1.6 million to her ANZ bank account;
· on 1 June 2017, $1,599,900 was paid from her ANZ bank account to Trawalla Developments;
· on 27 June 2017, CI transferred $94,036.60 to Isabelle’s solicitors to pay the stamp duty and registration fees on Unit 2;
· on 27 June 2017, CI paid $1,912.50 to the owners corporation;
· the ANZ provided a letter of offer to CI dated 25 July 2017. The terms provided that Isabelle would give ANZ as security:
§a first registered mortgage over Unit 2;
§a guarantee and indemnity limited to $2,320,500;
· she signed the acceptance of the ANZ letter and signed the mortgage and guarantee and indemnity in favour of the ANZ;
· she became registered as sole proprietor of Unit 2 around 11 August 2017;
· the ANZ registered the mortgage over Unit 2 on 31 August 2017;
· on 2 July 2018, she entered a loan deed with CI as lender and herself as borrower. The loan deed contained the terms alleged in paragraph 20 of the statement of claim;
· on 20 December 2018, ANZ provided a letter of offer to CI to increase the loan facilities by $2,350,000;
· the ANZ letter of offer included terms that Isabelle would provide a mortgage in respect of the facilities and a personal guarantee and indemnity limited to $5 million;
· she signed the acceptance and acknowledgement in the ANZ letter of offer and new guarantee and indemnity;
· on 10 July 2020, the ANZ proposed a letter of variation to CI, increasing its facilities by $2,271,500;
· she signed the acceptance and acknowledgement of the 2020 variation letter from the ANZ;
· by letter dated 21 April 2021, CI notified Isabelle that the lower interest rate under the loan deed was 10% per annum;
· by letter dated 20 August 2021, CI notified Isabelle that the termination date under the loan deed would be 19 September 2021;
· Isabelle did not pay the lender any money on 19 September 2021. She says that she was not liable to make any payment;
· on 29 January 2021, CI lodged a caveat over Unit 2 claiming an interest as chargee under the loan agreement; and
· Isabelle claimed entitlement to the unencumbered benefit of Unit 2 and has refused to consent to the sale of the unit.
23Regarding the Acquisition Agreement[6] alleged by the plaintiffs, Isabelle admitted:
· the execution of the documents which were alleged to be in furtherance of such understanding or joint endeavour;
· the financial transactions alleged to be in furtherance of such understanding or joint endeavour; and
· she executed the ANZ banking documents directed to obtaining some funds.
She denied the Acquisition Agreement itself and that CI and CI6 paid some equity and all the expenses in relation to the acquisition of Unit 2 in reliance upon that agreement. But Isabelle acknowledged that she paid nothing towards the acquisition cost of Unit 2 and made no other payments in relation to Unit 2 (aside from a payment of council rates on 13 October 2021).[7]
[6]In general terms, the plaintiffs allege that the funds were advanced pursuant to an understanding or joint venture between Peter, Jacob and Isabelle whereby the Group would pay the purchase price and outgoings in respect of Unit 2, either Jacob or Isabelle would reside in the property, and as and when required, the designated registered proprietor would consent to the sale of Unit 2, the discharge of any encumbrances and the return of any profits to the Group.
[7]Defendant’s revised closing submissions at [17], [89] and Exhibit DE
24In relation to the loan deed, Isabelle admits:
· signing the loan deed while not admitting she made an agreement with CI whereby that company would provide her a loan facility; and
· the terms of the loan deed and that CI advanced the sum of $1.6 million.
Isabelle’s counterclaim
25In her counterclaim, Isabelle alleges that:
· the loan deed is void in whole or in part because of the undue influence and/or unconscionable conduct of Peter;
· the security documents relevant to obtaining funds from the ANZ, including the mortgage and the guarantees and indemnities dated 2017, 2018 and 2020 are void as against the bank due to unconscionability; and
· Unit 2 was transferred due to the gift intention of Peter and Marika. Thus, they gifted Unit 2 to her. Because Peter was her father, Isabelle also contended for Unit 2 through the presumption of advancement.
26The plaintiffs deny undue influence and unconscionability. They say that when she signed the loan deed, Isabelle was emancipated from her parents and exercised her own free will. They also say that she lacked any special disabilities.
27The plaintiffs deny there was any gift intention and say that there could be no presumption of advancement. Trawalla Developments, which was not a party to the proceeding, owned the Trawalla Avenue property and Unit 2. CI and CI6 were each trustees of a unit trust. Peter did not own Unit 2 or the trust funds and was not in a position to make a gift of either the unit or the trust monies to Isabelle.
28An area of concern during the trial was the defendant raising issues which were not pleaded. For example, early in the trial when Isabelle opened her case, counsel agreed that the only factors which she would rely upon to make good her allegations of undue influence and unconscionable behaviour were the factors pleaded in Isabelle’s defence and counterclaim. This prevented Isabelle from expanding her case and raising new issues without giving notice to the plaintiffs.[8]
[8]T 126
29During the trial and/or in her written closing submissions, Isabelle sought to raise matters even though they did not appear in the amended defence and counterclaim.
30For example, Isabelle alleged that the plaintiffs offended public policy by seeking unlawfully to avoid taxation obligations owing to the State Revenue Office and the Australian Taxation Office. The former concerned the payment of land tax and the latter related to capital gains tax. The thrust of the defendant’s allegations was that the documents filed with the relevant authorities showed that Isabelle was the legal owner of Unit 2. If in fact she were not the beneficial owner, then the owner could be liable for land tax. At present, the issue of beneficial ownership is not resolved.
31If and when Unit 2 is sold, capital gains tax could be payable if the sale price exceeds the cost base and no exemption applies. At present, there is no capital gains tax payable.
32The defendant was insistent in her closing submissions that the court should not countenance, or be party in any way, to illegal conduct whereby a party sought to engage in unlawful tax avoidance. For this reason, she said that the court should not grant any relief to the plaintiffs.
33I make two comments in response to this. First, it is a serious matter to raise allegations of unlawfulness and potentially criminal behaviour in a civil trial. It should only be done with care and on clear notice to the opposing party. In circumstances where:
(a) Isabelle did not explicitly raise the issue on the pleadings in advance of the trial and give the plaintiffs fair notice of the allegation; and
(b) the plaintiffs objected when the matter was raised at the hearing
I will not allow Isabelle to advance this matter in closing submissions.
34A second matter the defendant sought to raise was that the financial statements of CI and CI6 did not show any loan to Isabelle and if they did, those records were not genuine but were “doctored”. The absence of a loan owing by Isabelle to CI and CI6 in their financial statements was said to be significant because it showed that Unit 2 was gifted to Isabelle.
35Again, this allegation of concocted financial records was not pleaded or put to all material witnesses including Peter. Furthermore, there were documents produced to the court which evidenced the actual amounts paid by CI and CI6 into Isabelle’s bank account or to third parties for the purpose of meeting the acquisition costs and expenses connected with the purchase of Unit 2 from Trawalla Developments.
36In the circumstances, I do not propose to treat the issue of the allegedly concocted records as one which is properly before the court and which requires resolution.
37Another matter Isabelle sought to argue was that CI and/or CI6 did not advance $1.6 million to her by way of a loan under the loan deed because the advance date[9] predated the date of entry into the loan deed by about a year and comprised the payment of funds from Trawalla Developments to itself.[10] Peter arranged the transfer of $1.6 million into Isabelle’s ANZ bank account in April 2017. The two sums of $900,000 and $700,000 comprising the $1.6 million came from CI’s bank account at the ANZ. On about 1 June 2017, Peter (who was authorised to operate the account in Isabelle’s name) paid the money into the account of Trawalla Developments.
[9]Court book, 3651. The advance date for the initial sum of $1.6 million is defined in item 1 of the Schedule to the loan deed as 26 and 27 April 2017.
[10] Defendant’s revised closing submissions at [74]
38Isabelle argued that this was a round-robin and did not represent a genuine transfer of funds.
39However, the evidence[11] showed that Trawalla Developments owed money to CI and it repaid this debt. Then CI advanced its own funds into Isabelle’s account. These funds were then used as part of the equity in acquiring Unit 2 from Trawalla Developments.[12]
[11]See plaintiffs’ revised reply submissions at 8(ii); T 365, T 400 and T 476
[12]See [210] – [211] of this judgment
40The terms of the loan deed were such that Isabelle’s obligations as borrower included the initial sum of $1.6 million advanced in 2017.
41A further issue was special condition 8.4(b) of the Schedule to the loan deed. Isabelle sought to argue that, as a matter of fact, she did not seek or obtain legal advice before she signed the loan deed. She said that Peter knew this. In turn, this was said to mean that special condition 8.4(b) was not complied with. This was a term which stated that the provision of the loan facility was subject to four conditions precedent. One such condition was that the borrower obtain independent legal advice in respect of her obligations and completed certificates of independent legal advice be provided to the lender. Hence, Isabelle argued that because the condition was not satisfied, the alleged lender did not advance any funds to Isabelle in accordance with the terms of the loan deed.
42Again, Isabelle did not plead the failure to comply with the condition precedent and the consequential effect upon the loan deed and its enforceability.
43In a case like this, that failure is sufficient to disallow the matter being raised in final address. I note that it also overlooks part of special condition 8.4 to the extent that it gives CI, as the lender, an absolute discretion to waive any condition precedent. This provision was likely intended to protect the interests of the lender. If the lender chooses to advance the funds and take the risk that Isabelle may not seek or obtain independent legal advice, then such conduct implicitly waives the condition.
44In general terms, the main points raised by the pleadings are whether the loan deed between the first plaintiff and Isabelle, and the mortgage and security documents between the ANZ and Isabelle are to be declared void and set aside for undue influence and/or unconscionable conduct or whether they are enforceable. Also relevant is whether the plaintiffs otherwise have an equitable interest in Unit 2.
Preliminary matters
Issues and submissions
45When conducting a trial, I require counsel to confer beforehand and agree upon a list of the issues which they say the court must decide. At the conclusion of the evidence and before final submissions, I ask counsel to revisit the list of issues and to ensure that they are still accurate and relevant. Quite often during a trial, changes occur and matters which were formerly important fall away and new issues emerge. Listing the issues focuses the attention of the court and the parties on what is important. The list also provides the framework for the parties’ closing submissions.
46In the present case, I explained to the parties at the conclusion of the evidence that I wanted them to reconsider the initial list of issues and decide if any modifications were needed. After the parties examined the list and informed me that no changes were required,[13] I explained that their written submissions were to track the list of issues. Thus, on any given issue, I wanted to be able to read what each party said on the point.
[13]I note that Isabelle attempted to update the list of issues but was denied the opportunity by the plaintiffs and ANZ. See T 1244.
47For reasons which were not revealed, the initial submissions filed by the parties did not adhere to the direction regarding their form. Accordingly, I adjourned the date set for oral closing submissions and directed the parties to file revised submissions in the correct form.
48When writing a judgment, it is my practice to focus on the final submissions made by the parties. I operate on the basis that they represent how the party wants to put their case. To that extent, if for example, something is contended in a pleading but there are no submissions on the point, I assume that the pleaded point is not pressed.
Section 128 certificates
49Isabelle sought certificates pursuant to section 128 of the Evidence Act 2008 (Vic) in relation to evidence on the unauthorised credit card transactions and the false swearing of statutory declarations. I issued certificates granting Isabelle privilege against self-incrimination in relation to the evidence she gave about the use (in conjunction with Jeremy) of Peter and Marika’s credit cards without permission.[14] I also issued certificates in relation to the evidence Isabelle gave about the false swearing of statutory declarations in each of 2017,[15] 2018,[16] and 2020.[17] I have had regard to Isabelle’s evidence on each of these points.
[14]T 903
[15]T 944-5
[16]T 950
[17]T 1047
50The issue of privilege against self-incrimination was also raised during Jeremy’s evidence. Of particular concern to Jeremy was the unauthorised use of Peter and Marika’s credit cards, and his pending criminal proceedings in Queensland. I concluded that I would not compel Jeremy to answer questions in relation to the unauthorised credit card transactions because the matter was not one of central significance to this case and, Isabelle’s evidence on this topic was already before the court.[18] Furthermore, I was not satisfied that a section 128 certificate issued in this court would provide sufficient protection to the witness in interstate criminal proceedings. Accordingly, Jeremy was not compelled to give evidence on his pending criminal proceedings in Queensland.[19]
[18]T 1139
[19]T 1139
Credit
51In addressing factual issues which arise in this case, especially regarding undue influence and unconscionable conduct, it is necessary to consider the credibility and/or reliability of the various witnesses in the case.[20]
[20]See the discussion in IMM v The Queen (2016) 257 CLR 300 at [114] regarding credibility and reliability.
52It is well recognised that conclusions about the interplay and relationship between people in dominant and subordinate positions in the context of undue influence and unconscionable conduct depend in large part upon the particular facts of the case. This requires the court’s assessment of the respective parties – their character, intelligence, capacity, nature and credibility. Also important are inferences drawn from this assessment. For this reason, it is said that the trial judge has an immeasurable advantage in appraising and evaluating the parties in court.[21]
[21]Wilton v Farnworth (1948) 76 CLR 646, 654 per Rich J with whom Dixon J agreed; Louth v Diprose (1992) 175 CLR 621 at 639 - 641; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at [144];
Marika
53Marika gave limited evidence but did so in a simple and transparent manner. She answered questions directly. She was sometimes vague about dates but was clear on the sequence of events.
54Isabelle appeared to try to impugn Marika’s veracity by suggesting that she did not engage in any paid work and that Peter was her only source of funds. Marika agreed that, apart from a period of about six months around 1993 when she worked at KPMG because the recession had effectively closed Peter’s business, she had not worked since her daughters were born. She also acknowledged that she and Peter both relied upon the business of the Group to fund their lives. She said that if they separated and divorced, she gathered that there would be a settlement reached between them. If Isabelle wished to argue that Marika could not be relied upon to give truthful evidence because she was reliant upon Peter or the Group for her finances, it should have been put directly to her.
55Marika struck me as saddened by the situation the family now faces. Isabelle’s conduct over a period of years has upset and disappointed Marika. Also, Jessica’s health has been an ongoing issue for the family.
56In my opinion, Marika is an honest and reliable witness and I can be confident in accepting her evidence.
Jessica Szwarcbord
57Like her mother, Jessica also gave limited evidence. She was plainly an intelligent person and has both undergraduate and postgraduate university degrees. She works at a health research institute. She listened closely to the questions asked of her and answered directly. Her evidence was not seriously challenged. In particular, the defendant failed to contradict Jessica’s evidence about Isabelle taking money from Jessica’s bank account without her consent or permission.[22] I am satisfied that Jessica was a truthful witness whose testimony I can accept.
[22]T 652 - 653
Ross Bergamin
58Ross Bergamin gave some evidence about the work history between his family and the Szwarcbord family in undertaking property development work. For over 40 years, Bergamin has been involved in the business of providing concreting and formwork services for high-end residential and commercial developments. He and Peter have been partners in a number of developments where Peter was the builder and Bergamin the subcontractor. He was a director of Trawalla Developments. He confirmed that he and Peter spoke about selling Unit 2 off-the-plan to a member of the Szwarcbord family. As part of this process, they obtained a valuation from CBRE and Bergamin agreed to the sale. Bergamin confirmed also that he never had any discussion with Peter or Isabelle about gifting Unit 2 to Isabelle. I have no difficulty in accepting Bergamin as a witness of truth.
Isabelle
59From my observation of Isabelle in the witness box over a lengthy period, and having regard to other evidence adduced in the case, I consider that Isabelle is not a witness whose evidence can be safely accepted at face value. On the contrary, where there are contested issues of fact, in the absence of some corroborative material, I will usually prefer the other witness. I have reached this conclusion for several reasons.
60Primarily, she does not value honesty or truth. For example, Isabelle had no scruples about, in effect, stealing from her parents by using their credit cards without their permission or without their consent to buy things for herself and/or Jeremy. On one occasion, she bought Jeremy a leather jacket for $8,350 and sandals for herself costing $2,150. This was not an isolated instance of such unauthorised behaviour. Even after Peter and Marika rebuked Isabelle and told her not to engage in such behaviour, she did not do as she was asked.
61Similarly, Isabelle and Jeremy had no hesitation stealing from Peter and Marika in relation to Jacob’s care. Peter formally engaged Isabelle and Jeremy to stay with Jacob from time to time of an evening at Unit 2 to monitor him and to ensure that help was available if he needed it. This was arranged by Peter in part to provide Isabelle and Jeremy with some extra cash to reduce their debts. Isabelle and Jeremy used to create time sheets setting out the time they spent with Jacob. They were paid on an hourly basis. Isabelle and Jeremy knowingly claimed to have worked at certain times when in fact they had driven away from the premises and left Jacob on his own. Their false claim was exposed by the security cameras which recorded their arrival and departure times. A reconciliation of the security data and the time sheets revealed their dishonesty.
62Another example of Isabelle’s dishonesty is the evidence about Isabelle taking money from Jessica’s bank account and saying that Peter gave her permission to do so. Isabelle did not contest Jessica’s evidence about this in any meaningful way. Isabelle simply lied to Jessica about the incident. Isabelle was flippant about the theft and the lie created to cover up the theft.
63In short, I am satisfied that Isabelle is someone who will act dishonestly and lie where necessary in order to protect herself or promote her agenda.
64Secondly, Isabelle did not display a favourable demeanour in the courtroom. She viewed the courtroom as just another forum in which to manipulate people to accept her view of the world. The fact that she is intelligent and articulate assists her. Also useful is her cunning and quick wit in pursuing her own best interests.
65In addition to the above, Isabelle also signed several false statutory declarations. These were created in the context of providing the declarations to the ANZ in connection with security documents signed in 2017, 2018 and 2020.
66The 2017 declaration had two problems. First, in the declaration Isabelle said to the bank that she had received independent legal advice and financial advice regarding the loan and security documents listed in the declaration. These documents evidenced financial accommodation which the ANZ gave to members of the Group. Isabelle’s statement was false because she had received no such advice. Secondly, the statutory declaration purported to have been witnessed by John Button, the pharmacist at the Toorak Village pharmacy. Isabelle said that she never signed a document in front of that witness. Rather, having already signed the document, she would take the completed document to the pharmacy and ask Mr Button to witness the same.
67The situation was identical regarding the statutory declaration made on 21 December 2018 before the pharmacist.[23] Again, Isabelle had not received any legal or financial advice and had signed the declaration before taking it to the witness.
[23]Court book, 3082
68Isabelle claimed that on one occasion, she asked Peter about obtaining independent legal advice but he said “don’t worry, just sign it”.[24] That exchange set the precedent which she followed with subsequent documents. Thus, she said that when he asked her to sign these documents, she did so without reading them.
[24]T 1048
69As noted earlier, I remain sceptical of Isabelle’s evidence especially where she seeks to excuse her conduct or to paint herself in a more favourable light. The point here is that, even assuming Isabelle’s evidence on the issue was accurate, it shows that she is indifferent to the truth of the contents of the document and to the effect which the signed document might have on the recipient.
Jeremy
70Jeremy was not an impressive witness. In a way, he and Isabelle are well matched. Jeremy too is dishonest and has a limited regard for truth.
71Jeremy was charged in 2012 on 61 counts of theft over a period between April 2010 and April 2011. He pleaded guilty at the Melbourne Magistrates’ Court to one count. He was released on an adjourned undertaking without conviction and ordered to pay $1,000 to the court fund and $14,730 as compensation to the party from whom he stole the money. The court also ordered that anabolic steroids found in his possession be forfeited and destroyed.
72Jeremy was an active participant in the shopping which Isabelle undertook, the accumulation of debt by Isabelle and the unauthorised use of Peter and Marika’s credit cards. Similarly, he was also involved in taking money from Peter for acting as Jacob’s carer when he and Isabelle were not physically present at Jacob’s residence. Both Isabelle and Jeremy seem to regard Peter and Marika not so much as parents trying to do their best for their children but as a resource to be plundered.
73Jeremy was loyal to Isabelle and keen to please her. In order for Isabelle to maintain her family name after marriage, he changed his surname from Meehan to Szwarcbord. I consider that Jeremy would say or do whatever he thought necessary or desirable to assist Isabelle. To the extent that he has influence over Isabelle, I do not think that it would be a beneficial influence.
74I would be loathe to accept contested evidence from Jeremy without corroboration.
Peter
75Peter is a successful businessman. He is committed to his family and values family loyalty and the reputation of the family. Generally, I would say that Peter tried to tell the truth as best he recalled it. On occasions, I consider his recollection was mistaken and to that extent, the reliability of his memory was not always accurate. Sometimes, I sensed from his behaviour in the witness box that he was trying to avoid a direct answer to a question. Also, sometimes he said he could not recall some matter which one might have expected that someone in his position should have recalled. However, I acknowledge that Peter was a busy person, very much the driving force in conducting the business of the Group. Overall, he was a credible and fairly reliable witness most of whose evidence I could accept.
Daniel Allison & Associates
76Three people from Daniel Allison & Associates (“DAA”) gave evidence: Jane Clark, Brett Lethborg and Jessica McClelland.
77Ms Clark is a principal of DAA. She began working on the affairs of the Group in about 2008 when she worked at the chartered accounting firm BDO which she joined as a graduate in 1999. She rose to the position of senior manager before moving to DAA in 2010 as an associate principal.
78Ms Clark was an impressive witness who had a good recall of events and answered questions directly and clearly. I accept her as a credible and reliable witness who gave truthful evidence.
79Brett Lethborg was a principal at DAA who has been working on the financial affairs of the Group for about 12 years. He has a holistic role regarding the Group’s affairs which encompasses strategy, consulting, advisory and taxation work.
80Mr Lethborg gave evidence remotely via Zoom because he was overseas on holidays at the time of the trial. Although I consider he was an honest witness who sought to tell the truth, he seemed a little distracted and out of sorts, perhaps due to the time difference between Australia and Europe and the effect of having run a marathon shortly before. More significantly, he was unable to access all the documentation he required to fully explain some of his answers. So, while parts of his evidence were less complete than they might have been, I consider him to be an honest witness.
81Jessica McClelland is an associate principal at DAA. She commenced work at BDO in March 2007 after graduating from university in 2006 with degrees in arts and commerce. She had the greatest day to day involvement with the Group, maintaining various ledgers and attending to much of the basic accounting work which the Group required. She reported to Ms Clark who in turn reported to Mr Lethborg.
82Ms McClelland explained much of the record keeping data. Due to lines of enquiry generated during her evidence and cross-examination, Ms McClelland was asked to search the Group’s accounting records for extra documents and then return to court to answer questions about the documents which she found. This meant that Ms McClelland came to court on four separate days to give evidence. Before the end of this experience, it was apparent that Ms McClelland seemed frustrated with the judicial process and the demands placed upon her. Nonetheless, while parts of her evidence were not altogether clear, she appeared to try and answer questions truthfully to the best of her recollection. It seemed to me that the timespan involved and the nature of the questions she was asked made some questions difficult to answer. I consider she was an honest witness.
David Foran
83The defendant called David Foran from the ANZ to give evidence. He obviously understood his role and work within the institutional property group of the bank. Foran answered the questions directly and without equivocation. I have no hesitation in accepting him as a credible and reliable witness.
Issues
84The parties provided a joint statement of the issues in dispute.
85These are:
Contractual Claim
1.By executing the document titled “Loan Deed” (“loan deed”), naming Isabelle as Borrower and CI as Lender (as admitted), did Isabelle enter into an agreement in which CI agreed to provide a loan facility to Isabelle?
2.If question 1, above, is answered in the affirmative:
a.was the loan deed signed by Isabelle by reason of the presumed or actual undue influence of Peter? If so:
i.is the loan deed voidable and liable to be set side?
ii.Alternatively, is the loan deed voidable in part, in respect of interest and legal and other costs (clauses 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and Item 6 of the schedule?)
b.was the loan deed “procured” by Peter such that the Peter took unconscientious advantage of Isabelle? If so:
i.is the loan deed voidable and liable to be set aside?
3.If each part of question 2, above, is answered in the negative then, by reason of the terms of the loan deed (which are admitted):
a.has Isabelle charged Unit 2 to CI, as security for the Isabelle’s debt or liability, for the payment of the principal sum and Interest or any part thereof?
b.by Isabelle not paying the principal sum and Interest, on 19 September 2021 or at all (as admitted), has there been an Event of Default under the loan deed?
4.If question 3(b), above, is answered in the affirmative, is Isabelle liable to repay to the plaintiffs: the principal sum, Interest, and any other monies payable under the loan deed?
5.If question 4, above, is answered in the affirmative, what is the quantum of Isabelle’s liability to CI as the named party to the loan deed?
Equitable Claims
Loan with, and Security provided to, ANZ by Counterclaim
6.Did the 2017 Letter of Offer extend an offer, to CI6, to increase the Facilities by way of additional loan facilities, including a loan facility in the sum of $2,320,500, for the purpose of assisting with the Group’s property development and investment activities, particularly its principal debtor, CI6 (“Trawalla Loan”)?
7.Did Isabelle accede to the provision, as security for the Facilities, in particular to CI6’s indebtedness to ANZ, a first registered mortgage over Unit 2 and an individual guarantee and indemnity limited to $2,320,500 plus interest, costs, and other amounts:
a.by signing the acceptance and acknowledgement section of the 2017 Letter of Offer from ANZ (as admitted)?
b.by signing the 2017 guarantee and indemnity and the mortgage, each in favour of ANZ (as admitted)?
8.Did Isabelle accede to the provision, as security for the Facilities, in particular to CI6’s indebtedness to ANZ, a first registered mortgage over Unit 2 and an individual guarantee and indemnity limited to $5,000,000 plus interest, costs, and other amounts:
a.by signing the acceptance and acknowledgement section of the 2018 Letter of Offer and the 2020 Letter of Offer from ANZ (as admitted)?
b.by signing the 2018 guarantee and indemnity and the 2020 guarantee and indemnity, each in favour of ANZ (as admitted?)
9.Did the 2020 Letter of Offer discharge the 2017 guarantee and indemnity and the 2018 guarantee and indemnity by operation of law?
10.Has Isabelle sought to bring all parties to the 2017 Letter of Offer, the 2018 Letter of Offer, and the 2020 Letter of Offer as parties, in her counterclaim?
11.Were the mortgage and guarantees and indemnities:
a.signed by Isabelle by reason of the influence of her partner, then husband, Jeremy?
b.signed by Isabelle by reason of the presumed or actual undue influence of Peter? If so:
i.did ANZ have actual or constructive knowledge of such undue influence?
ii.are they voidable and liable to be set aside?
c.“procured” by the unconscientious dealings of ANZ, within the meaning of section 12CD of the ASIC Act, or within the meaning of the common law? If so:
i.are they voidable and liable to be set aside, including pursuant to section 12GM of the ASIC Act, or at law?
12.If (as is admitted by Isabelle) the statutory declarations signed by Isabelle on 28 July 2017, 21 December 2018 and 10 July 2020 (in respect of the 2017 Letter of Offer, the 2017 guarantee and indemnity, the 2018 Letter of Offer, the 2018 guarantee and indemnity, the 2020 Letter of Offer, and the 2020 guarantee and indemnity) contain untrue statements
a.is ANZ entitled to:
i.declaratory relief, that Isabelle made false statutory declarations in support of the 2017 guarantee and indemnity, the 2018 guarantee and indemnity, and the 2020 guarantee and indemnity?
ii.an order that Isabelle indemnify all ANZ’s losses arising from false statutory declarations made by Isabelle, and its costs of this proceeding on a full indemnity basis, pursuant to clause 12.4 of the 2017 guarantee and indemnity, the 2018 guarantee and indemnity, and the 2020 guarantee and indemnity?
b.alternatively, does Isabelle have no liability to ANZ (such that ANZ is not entitled to the relief sought in its counterclaim), by reason of any finding that:
i.each of the 2017 guarantee and indemnity, the 2018 guarantee and indemnity, and the 2020 guarantee and indemnity are void or voidable by reason of undue influence and/or unconscionable conduct (see question 11, above)?
ii.the 2020 Letter of Offer discharged the 2017 guarantee and indemnity and the 2018 guarantee and indemnity (question 9, above)?
Subrogation in Equity
13.With respect to Unit 2:
a.have CI and CI6 paid all expenses, including the Purchase Price, owners corporation fees, council rates, and interest and bank fees relating to the Trawalla Loan?
b.has Isabelle made no contributions to the Purchase Price, interest, fees or other expenses relating to Unit 2?
14.If questions 6, 7(b), 11(b)-(c), 13, above, are answered in the affirmative:
a.would it be unconscionable for Isabelle to deny the proprietary rights and interests of CI and CI6 in Unit 2?
b.has there been a subrogation in equity of Isabelle’s rights and interest in Unit 2?
Common Intention Constructive Trust
15.Did Peter, Jacob and Isabelle enter into an agreement, arrangement or understanding, alternatively a joint relationship or endeavour, to partner in the acquisition of Unit 2, for and on behalf of the Szwarcbord Development Group (“Acquisition Agreement”)?
16.If question 13, above, is answered in the affirmative, were the terms of the Acquisition Agreement as set out in paragraph 7 of the Statement of Claim?
17.If questions 11, 13 and 14, above, are answered in the affirmative:
a.does CI and/or CI6 have an equitable interest in Unit 2? If so:
i.would allowing Isabelle to remain in possession of, and to retain the proceeds of sale in respect of, Unit 2 be unconscionable, alternatively, constitute equitable fraud?
b.is Isabelle estopped from claiming any equitable interest in, or impeding the sale of, Unit 2?
c.does Isabelle hold Unit 2 on constructive trust for CI and/or CI6?
d.by reason of the matters pleaded at paragraphs 96 to 98 of the plaintiffs’ defence to counterclaim, would it be unconscionable and against the interests of equity for any relief, including declaratory relief, to be granted in favour of Isabelle?
“Gift Intention”
18.Did Peter and Marika (not a party) state to Isabelle, in or about March 2016, that they wished and intended to give her Unit 2 as a gift and would pay all costs and expenses associated with Unit 2?
Issue 1: By executing the document titled “Loan Deed” (“loan deed”), naming Isabelle as Borrower and CI as Lender (as admitted), did Isabelle enter into an agreement in which CI agreed to provide a loan facility to Isabelle?
86Isabelle admitted in her defence that she signed the loan deed around July 2018. The deed named CI as the lender and her as the borrower. However, Isabelle did not admit that in so signing the deed, she thereby made an agreement with CI whereby CI agreed to lend her the sum of $1.6 million.
87The loan deed is clear on its terms and Isabelle admitted the terms of the deed. The deed shows that CI advanced amounts of $900,000 and $700,000 respectively on 26 and 27 April 2017. Those advances were made on the terms set out in the loan deed.
88The loan funds were to attract interest. The lender was to advise the borrower of the applicable rate from time to time in writing. The rate was at the absolute discretion of the lender.[25]
[25]See Item 6 of the Schedule to the Loan Agreement. Court book, 3651
89In the closing submissions, both the plaintiffs and Isabelle agreed that this issue should be answered “yes”. Accordingly, I find that the answer to the first issue is “yes”.
Issue 2: If question 1, above, is answered in the affirmative:
(a) was the loan deed signed by Isabelle by reason of the presumed or actual undue influence of Peter? If so:
(i) is the loan deed voidable and liable to be set side?
(ii) alternatively, is the loan deed voidable in part, in respect of interest and legal and other costs (clauses 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and Item 6 of the schedule?)
(b) was the loan deed “procured” by Peter such that the Peter took unconscientious advantage of Isabelle? If so:
(i) is the loan deed voidable and liable to be set aside?
Isabelle’s submissions
90Isabelle contends that issue 2(a) should be answered “yes” because of the presumed or actual undue influence to which she was subjected when signing the loan deed.
91Isabelle began her submissions on this issue by outlining the relevant legal principles about undue influence as recently set out by the High Court in Thorne v Kennedy.[26] In cases where undue influence is alleged, the court must closely examine the facts in each case to see if the party in question acted freely and without influence.
[26](2017) 263 CLR 85
92Isabelle relied broadly on four factual matters to establish the supporting evidentiary framework to justify her submission that she was subjected to undue influence. The matters were: (i) the relationship between Peter and herself; (ii) her personal characteristics; (iii) the nature of the loan deed; and (iv) the circumstances of entry into the loan deed.
(i) The relationship between Peter and Isabelle
93As to the relationship between Peter and Isabelle, Isabelle made reference to a number of matters. She said that Peter was, in effect, her employer between 2011 and 2019 because he was the sole director of Constructions and a co-owner of Medimart. This was important because Isabelle had never worked in anything except a family business.
94Isabelle worked full-time for Constructions from 2011 until around 2019. Isabelle completed and submitted timesheets to Constructions on a weekly basis. The sheets recorded her hours of work. Despite her work for Constructions constituting a full-time job, she received, according to her tax returns, an annual salary of about $5,400. Any income beyond that amount was at the discretion of her father.
95As director of the companies which acted as trustee of the Charbord Family Trust and the Charbord Family Trust No 6, Peter controlled the distributions made by the family trusts to individual family members. Although Isabelle’s tax returns for the years 2011 to 2019 showed that she received substantial distributions from the family trusts, Isabelle did not receive any such distributions into her bank account. The distributions nominally made to Isabelle seemed to be in fact transferred into the loan account of her grandfather Jacob. These transfers resulted from letters of direction instructing that the money be paid to Jacob. The plaintiffs could produce only four written directions of this kind. It appears that the amounts nominated in those directions do not match the amounts set out in Isabelle’s tax returns. The firm of accountants used by the Szwarcbord family and the Group, DAA, prepared Isabelle’s tax returns together with those of the companies in the Group and those of other family members.
96According to Isabelle, Peter controlled her income and her living arrangements to the extent that Isabelle and later, her boyfriend and then husband, Jeremy lived with Peter and Marika in their house or, when Isabelle moved out to rented premises, Peter and Marika paid most, if not all, of the rent.
97Isabelle said that when Peter presented Isabelle with documents to sign at work, she signed them without objection and without questioning their significance. She simply did as Peter asked her. Similarly, when performing the role of bookkeeper for the Group, Isabelle usually did what she was told.
(ii) Isabelle’s personal characteristics
98Isabelle relied upon certain personal characteristics. Having been born in September 1992, Isabelle was 25 when she signed the loan deed. Isabelle says that she was dependent upon Peter financially and that this rendered her emotionally dependent upon him as well. This was said to be evident from several emails which she sent him.
99She said that between early 2016 and late 2017, she attended a psychologist. Her parents paid for this treatment. The primary nature of the problem concerned the propensity of Isabelle (and Jeremy) to spend money which she did not have, especially on expensive luxury goods. They had what might loosely be called a shopping addiction.
(iii) The nature of the loan deed
100Isabelle relied upon the nature and terms of the loan deed which she signed on 2 July 2018. The terms of the deed had some unusual features which Isabelle said could work against her interests.
101First, the lower rate of interest was determined at the absolute discretion of the lender. CI could inform the borrower in writing and the borrower would be bound by whatever rate was specified. This meant that the liability or exposure of the borrower on the loan could be altered significantly as and when CI decided.
102Isabelle was obliged under the loan deed to:
· indemnify the lender for any legal costs incurred in enforcing or attempting to enforce the deed or the securities;
· pay all the lender’s legal costs and disbursements, stamp duty and registration fees on an indemnity basis in relation to the deed and the securities;
· to indemnify the lender in relation to all legal and other costs and disbursements (on a full indemnity basis) which it incurred in relation to the repayment of the principal sum and any interest in the discharge of the securities; and
· to indemnify the lender in relation to all legal and other costs and disbursements arising out of any event of default.
103Secondly, clause 2.1 of the deed provides that, subject to the terms and conditions of the deed, the lender agrees to provide to the borrower a facility to advance the principal sum to the borrower and the borrower agrees to borrow the whole of the principal sum on or after the advance date. The principal sum is the initial amount of $1.6 million and any further amounts drawn down by Isabelle in accordance with special condition 8.1 of the deed, up to a maximum amount of $3,570,000. The advance date is, for the initial sum, 26 and 27 April 2017. In relation to any further sums advanced under special condition 8.1, the advance date is the date the funds are advanced to Isabelle. The practical result of this means that, under the deed, Isabelle agrees to borrow an initial sum of $1.6 million which was advanced more than 12 months before Isabelle even executed the deed.
104Finally, clause 2.3 of the deed specifies that the “Facility” will be available from the advance date and must be repaid in full on the Termination Date. The “Termination Date” for the facility is defined in item 5 of the schedule to the deed to include “any date at the lender’s discretion upon 30 days’ notice”. Hence, the lender determined the Termination Date.
105Isabelle said that she had no need to sign the loan deed when she did. She became the registered proprietor of Unit 2 in August 2017 and signed the mortgage in favour of the ANZ on 28 July 2017. The mortgage was registered on 31 July 2017. Isabelle paid none of the costs and expenses connected with the purchase of Unit 2.
106Isabelle says that she received no corresponding consideration or benefit in return for her signing the loan deed. In the circumstances, Isabelle contends that she assumed a significant obligation or risk in signing the deed. This was underlined by the fact that:
· under clause 5.1 of the loan deed, Isabelle charged all her rights, title and interest in Unit 2 and agreed to execute a second mortgage if required by the lender.
· on the plaintiffs’ case, as at 2 July 2018, an amount of $3,747,954 had already been advanced under the deed. This included the initial loan plus other amounts paid for stamp duty, land titles registration, owners corporation fees, legal fees, council rates and ANZ interest and line fees. This meant that the facility limit set out in item 4 of the schedule to the loan deed was already exceeded by approximately $178,000 at the time Isabelle signed the deed. Although the plaintiffs claim as at 11 October 2021[27] that the total sum of $3,747,954 had been advanced to Isabelle as at the date of the deed, the deed itself refers only to the sum of $1.6 million as having been drawn down at that time.[28]
(iv) Circumstances of entry into the loan deed
[27]Being the date of the annexure. Court book, 3531
[28]Court book, 3654
107Tisher Liner, the firm which acted for Peter and the Group, prepared the loan deed. Isabelle said that Peter did not instruct Tisher Liner to send her a copy of the deed. She said that Peter asked her to sign the loan deed one day at work in the office. She signed on his request. She obtained no independent legal or financial advice before signing.
108Isabelle gave evidence of a conversation with Peter which occurred possibly in 2016. She said that Peter told her that a loan agreement would be drawn up to protect Unit 2. Isabelle would have to sign a loan agreement like Jessica did in relation to Rushall Crescent in order to protect the house, which was registered in her name in the event that she and her then partner split up and he tried to claim an interest in the house. Peter agreed that he had some conversation with Isabelle in which he discussed the need to protect the property.
Plaintiffs’ submissions
109The essence of the plaintiffs’ position was that Isabelle was not subjected to any undue influence. She was emancipated from her parents’ influence and her will was not overborne. The plaintiffs referred to the High Court judgement in Thorne v Kennedy[29] where the court said that the existence of undue influence is proven either by direct evidence of the circumstances of the particular transaction (actual undue influence) or by a presumption (presumed undue influence) that arises by way of “common experience”: [30]
“Common experience gives rise to a presumption that a transaction was not the exercise of a person’s free will if (i) the person is proved to be in a particular relationship, and (ii) the transaction is one, commonly involving a “substantial benefit” to another, which cannot be explained by “ordinary motives”, or “is not readily explicable by the relationship of the parties”.
[29](2017) 263 CLR 85
[30]Ibid at [34]
110The plaintiffs accepted that there is often a presumption of influence when a child confers a benefit upon a parent. However, that presumption is inapplicable or unjustified once the child is emancipated from the control and authority of the parent. The time at which this occurs varies depending upon the circumstances of each particular case. Although it does not have an absolute correlation with the child becoming an adult at law, age is a relevant factor, especially when the child has more experience of the world as a person over the age of 18.
111The plaintiffs contended that the law in Australia is unsettled regarding the question of who has the onus about the parent/child undue influence presumption when the child is in adult. They said that if the onus lay with the adult, then “the older the child the lighter the onus on the parent.”[31]
[31]Dal Pont and Chalmers, Equity and Trusts in Australia (2004, 3rd ed), 206
112The plaintiffs submitted that a range of matters established that Isabelle was emancipated from her parents, and Peter in particular, at the time she executed the loan deed:
· on her own admission, Isabelle was 25 years of age at the time and an adult. Since 1977, the age of majority in Victoria has been 18. At no time in connection with the case has Isabelle claimed that she was a child.
· from January 2015, Isabelle was in a committed long-term relationship with Jeremy Meehan. They met in Canada while the Szwarcbord family was on holiday. Jeremy at the time lived in Geelong. The Szwarcbord family returned to Melbourne a little before Jeremy. When he arrived back in Australia, Isabelle picked him up from the airport and asked her parents if he could stay the night at their home rather than return to Geelong. Thereafter, Jeremy became a fixture in the family. He and Isabelle have lived together ever since. They initially lived with Peter and Marika before moving into rental properties for a period when Isabelle was about 26. They married in February 2019 when Isabelle was 26.
· Isabelle acknowledged that she has no difficulty speaking, reading or understanding English.
· Isabelle successfully completed her year 12 studies and commenced a university degree in banking and finance. She made her own choice as an adult to discontinue that course. Subsequently, she made an independent decision to undertake a short course to prepare a folio for fashion design. Then she decided not to pursue a career in fashion but came to work in the family business. There was no suggestion that she was forced into this choice.
· it was apparent from her time in court giving evidence that Isabelle could read and assimilate documents quickly. She demonstrated this ability on multiple occasions when questioned about documents which she said that she had not previously seen or at least did not recall seeing earlier.
· after joining the family business, Isabelle worked under Peter Mills to learn bookkeeping and administrative skills. She took over the bookkeeping role for the Group from about 2015 to 2017. Then she changed direction to become the design coordinator for the Group.
· as assistant bookkeeper and then bookkeeper for the Group, her roles and responsibilities at the Group included making electronic accounting entries into the MYOB accounting program, invoicing, writing cheques, transferring funds between various bank accounts, providing transaction services, attending meetings with the bank, attending construction/development sites and collecting various items required at the development sites.
· she also assisted Peter at work. Isabelle acted as his assistant and attended construction sites and meetings. This included meetings with the Group’s accountants. She regularly participated and took notes at these meetings. Often, they affected work which she performed for the Group.
· at all relevant times, she understood the concept of a mortgage, guarantee and caveat.[32]
· she knew that Unit 2 was subject to a mortgage in favour of the ANZ bank.
· she independently chose to stop working for the Group and to begin working at the Medimart business in 2019. The Medimart business was initially developed by her uncle Michael. The Group then took a financial interest in the business and opened a Medimart shop in Frankston.
· she independently chose to become a “content creator” at the age of about 27. This involved her ceasing work at Medimart and moving to Queensland with Jeremy to pursue a new career together.
[32]But she said that until the proceedings began, she did not know that she had guaranteed any of the Group’s commercial facilities. See T 694.
113The plaintiffs also addressed the issues of actual undue influence and unconscionability raised by Isabelle.
114The plaintiffs noted that Isabelle’s claims regarding actual undue influence and unconscionable conduct in relation to the loan deed were based on several specific matters which reflected her dependent status or “special disability”:
· her age at the time of executing loan and security documents.
· her emotional dependency on Peter.
· the relative complexity of the loan deed for a person of her age and experience.
· her lack of knowledge about the contents and effect of the loan deed. This arose partly from Peter’s practice of presenting documents to Isabelle for her to sign without explaining the contents to her and/or without suggesting that she read them before signing and partly from Isabelle being accustomed to signing documents on request without knowing their content and effect.
115The plaintiffs made submissions about these matters.
116As to age, the plaintiffs relied upon their prior submissions regarding emancipation.
117In relation to the issue of emotional dependency, they noted that it was not referred to in the defendant’s opening. Also, Isabelle gave no evidence about this issue during her extended time in the witness box. Given that Isabelle was close to Jeremy from January 2015 and they married in February 2019, it was likely that she had notably stronger emotional ties with Jeremy than with her father.
118The loan deed is a formal legal document. Given her natural intelligence, experience of bookkeeping duties for the Group and being involved in the day-to-day operations of the Group, Isabelle ought to have been able to appreciate and understand the essential elements of the loan deed. The plaintiffs referred to various matters in this context – Isabelle was a clearly literate native English speaker; she had sufficient intellect and aptitude to attend university after completing school; from the age of 18, she was a full-time employee of the Group and had several years’ experience with a variety of bookkeeping duties; she understood the general nature of relevant property and finance documentation.
119On the question of Isabelle’s knowledge of the contents and effect of the loan deed, the plaintiffs attacked her credit. They contended that she was an unreliable witness with regard to almost every document she executed in connection with the case. She had trouble remembering the execution of various documents she signed including those relating to the sale of Unit 2 and those relating to obtaining the loan finance from the ANZ in order to purchase Unit 2. They also said that Peter discussed the contents and effect of the loan deed with her.
Analysis
120I will summarise the relevant legal principles before dealing with the main arguments advanced by the parties.
Legal principles
121This issue raises questions about the potential impact of undue influence and unconscionable conduct on the case. The two doctrines are often related but remain conceptually different. The undue influence doctrine is concerned with the quality of the consent or assent by the weaker party.[33] The critical element in deciding whether to grant relief is the impairment of the will of the weaker party.[34] This differs from the focus with unconscionable conduct where the court examines the conduct of the stronger party to assess whether that person is trying to enforce or retain the benefit of a dealing with a person under a special disability in circumstances where it is not consistent with equity and good conscience that the stronger party should do so.[35]
[33]Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 474
[34]Bridgewater v Leahy (1998) 194 CLR 457, 478
[35]Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 474 - 475 (Deane J); Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at [117]
122The term “undue influence” has been used to mean a variety of things including abuse of confidence, misrepresentation and the pressure which constitutes common law duress.[36] However, the pressure which can lead to a conclusion of undue influence need not be illegitimate or improper.[37] In Johnson v Buttress,[38] Dixon J described how undue influence could arise from the conduct of person “A” who influenced person “B” in such a way that B’s actions were not a “free act”.[39] Acts which are not affected by undue influence are acts which represent the free exercise of a person’s will.[40]
[36]Thorne v Kennedy (2017) 263 CLR 85 at [30]
[37]Ibid
[38](1936) 56 CLR 113
[39]Ibid, 134
[40]Bank of New South Wales v Rogers (1941) 65 CLR 42, 61, 85
123Undue influence can be actual or presumed. A party establishes actual undue influence by proving that the impugned transaction occurred in circumstances where there was such an influence over the mind of the party that the person did not engage in a free and independent act.[41]
[41]Powell v Powell [2002] WASC 105 at [121]
124Presumed undue influence can arise in a couple of ways. First, there might exist a relationship between the parties which is recognised at law as giving rise to a presumption of influence. This applies to relationships such as solicitor and client, physician and patient, guardian and ward, parent and child.[42] Gifts and benefits to a parent from a child (but not vice versa) are subject to the presumption.[43]
[42]Johnson v Buttress (1936) 56 CLR 113, 119 per Latham CJ cited in Bridgewater v Leahy (1998) 194 CLR 457, 478
[43]Powell v Powell [2002] WASC 105 at [130] referring to Dixon J in Johnston v Buttress (1936) 56 CLR 113), 134
125Secondly, the presumption can occur when a party proves that he or she reposed complete trust and confidence in the other party to the transaction (the dominant party).
126Where there is a relationship of influence, either presumed or proven, the onus can shift to the dominant person to prove that the impugned transaction resulted from the independent and voluntary act of the claimant party.[44]
[44]Powell v Powell [2002] WASC at [123]
127The presumption will not apply where the child has been emancipated from the control and authority of the parent. Whether and when this has occurred is a question of fact in each particular case. There appears to be some inconsistency in the authorities about who bears the onus of establishing emancipation. In my opinion, the better view is, and the balance of authority supports the proposition that, the parent bears the onus.[45]
[45]Ibid at [131]
128The critical issue to address when dealing with allegations of undue influence is whether, when the weaker party entered into the impugned transaction, that party did so in the exercise of their independent will.[46] Was the capacity of the weaker party impaired such that they were not acting in the free exercise of their independent and voluntary will?[47] Determining whether there was an exercise of independent and voluntary will necessarily involves questions of fact and degree. Accordingly, the court should consider matters such as whether, and to what extent, the weaker party was constrained in assessing alternative courses of action and deciding between them.
[46]Thorne v Kennedy (2017) 263 CLR 85 at [98] per Gordon J
[47]Ibid at [103] per Gordon J
129I will now examine the factual matters which Isabelle relied upon to found her case of undue influence.
(i) The relationship between Peter and Isabelle
130While various matters which Isabelle referred to in the context of her relationship with her father were correct, I consider that her claims to emotional dependence upon him were greatly exaggerated. While there is often a close bond between father and daughter, as the child grows to adulthood, the relationship changes. Isabelle was 22 when she met Jeremy Meehan while on holidays in Canada. After Jeremy returned to Australia in early 2015, he became a fixture in the Szwarcbord household and he and Isabelle have been a couple ever since, marrying in February 2019. While, until the rupture in family relations in January 2021, Isabelle might have been on good terms with her father, I do not accept that she was emotionally dependent upon him. Jeremy is, and has been for years, the primary man in her life.
131I do not ignore that Peter was influential in determining the financial resources available to Isabelle. However, the history of the family relationship up until January 2021 shows that Isabelle was extremely well looked after in a material sense. Indeed, it could be said that she was indulged.
132Also, if Isabelle were emotionally dependent upon Peter (which I do not accept), that was a matter which ought to have been raised with Peter when he gave evidence. It was not.
(ii) Isabelle’s personal characteristics
133Isabelle implies that she was young, needed psychological assistance and was someone whose will might easily be overborne. In my view, this is not an accurate assessment of Isabelle’s character. The question of character is important given that undue influence looks to the quality of assent of the weaker party and not so much the conduct of the stronger party.
134I regard Isabelle as intelligent, selfish and calculating. She was well aware that the family business gave her a comfortable and indulged lifestyle which very few people of her age could otherwise have afforded. She well understood that she derived substantial material and other benefits from the family business.
135Isabelle was well able to, and did, understand the modus operandi used to conduct the family business. This knowledge derived partly from her experience growing up in the family and partly from her experience of working in the family business. There was a reason the family did not remain in one house while she was growing up. She and the family lived in different places because the modus operandi of the family business required that they live in places for a time, and then the property was sold so that the proceeds of sale could be used in another project which the Group was undertaking. Part of the reason for having loan documents between family members and members of the Group was to protect the Group. Peter had explained to Isabelle that the same approach on this point had been taken in relation to the property at 65 Rushall Crescent, Fitzroy North registered in Jessica’s name. To the extent that Isabelle denies knowing this, I reject her evidence.[48]
[48]T 786
136Isabelle appreciated the quid pro quo of the unwritten arrangement which existed between entities within the Group and members of the Szwarcbord family. In theory, there were a couple of potential ways of looking at the arrangement adopted when a property was bought for development and a proposed unit was sold off-the-plan to a family member and registered in the name of that member. On the one hand, the family member was never intended to hold the beneficial interest in the property but was to hold the legal interest only as a trustee or nominee. On the other hand, the family member could hold the beneficial interest but the accepted understanding within the family was that, when the Group decided the property needed to be sold in order to access the proceeds of sale, the family member would simply acquiesce in this endeavour. The evidence suggests that the Group adopted the former approach in conducting its development work.
137When giving evidence at the trial, Isabelle’s intelligence was obvious. She read and understood documents with ease, even those she claimed not to have seen before. She was quick witted and comfortable in the witness box and appeared relaxed in jousting with counsel, even pointing out the occasional mistake or ambiguity in the cross-examiner’s questions. She was not intimidated and was firm in her rejection of the plaintiffs’ case.
138Isabelle presented as someone who is strong-willed, knows her own mind and does what suits her. She is focused on her own best interests – she went to university and then simply stopped when she felt so inclined. She did some work in fashion before joining the family business and remained there for some years. She joined by choice, not compulsion. I infer that she remained there because she enjoyed it.
442These submissions are said to be consistent with the argument that Jacob was accommodated in Unit 2 by Peter with Isabelle’s consent, that Isabelle was not asked to, and did not, pay any expenses related to Unit 2. She submits that, as registered proprietor, she would have been entitled to rent from 2017.
443Isabelle then submits that because the contemporaneous documents do not show that Unit 2 is held on trust, that there could have been no detrimental reliance.
444Finally, Isabelle submits that if the first two requirements of a constructive trust are met, there could be no equitable fraud by Isabelle failing to pay CI and CI6 the monies relating to the transfer and outgoings – in particular, because the transfer occurred according to the design and intention of Peter and the financial statements of CI and CI6 do not show a loan owning.
Illegal purpose
445The alleged illegal purpose has been discussed above in relation to the loan deed. Isabelle’s second submission is that the court will not allow its processes to be used by a litigant to benefit its own illegal conduct. In support of this proposition, Isabelle cites Nelson v Nelson,[206] Carantinos v Magafas,[207] Smith v Jenkins[208] and In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) (“Earth Civil Australia”).[209]
[206](1995) 184 CLR 538, 606 - 614
[207][2008] NSWCA 304 at [62] per Hodgson JA
[208](1970) 119 CLR 397, 414 per Windeyer J
[209][2021] NSWSC 966 at [2720]
446Isabelle quotes a passage from Ward CJ in Eq. from Earth Civil Australia:[210]
“Had I found that a Quistclose trust was created (as the AKA Parties contend), I would have held that it failed due to illegality. I am satisfied that the evidence establishes that, if such a trust was created, then it was created with the purpose of avoiding tax obligations and that this was central to the purpose of the trust (if not, then, as the AKA Parties have noted in their submissions in other contexts, the funds could have simply been directly transferred between the AKA entities without the need to involve Bluemine). I find, similarly to the finding in Holdcroft (see at [30]), that if the AKA trust was indeed created, then it was have been “a vehicle, not of lawful tax minimisation, but of deception and actual tax evasion”. The evidence in the present case leads to this conclusion and does not provide an alternative interpretation of the purpose of such a trust. I would have therefore found, as a matter of public policy, that the trust must fail, as upholding it would involve the court in serious illegal conduct with consequences on other citizens and institutions. In those circumstances it is not necessary to consider the submissions based on unclean hands.”
[210]Ibid at [2686]
447Isabelle submits that the business practice of the Group as relied upon by the plaintiffs is said to avoid land tax and capital gains tax. The practice has been discussed earlier in this judgment. In circumstances where property is held on trust, land tax is payable annually and capital gains tax is payable, if at all, upon sale.
448Isabelle says that the effect of the business practice is that the Group would falsely represent to the State Revenue Office, amongst others, that properties were the principal place of residence of an individual and thereby avoid land tax. Similarly, the Group would represent to the ATO upon sale of a property that the main residence exemption applies when it does not. The business practice is said to be a long-standing practice of the Group to engage in unlawful tax avoidance against both state and federal tax authorities.
449In relation to Unit 2, the State Revenue Office has been notified that Unit 2 is held by Isabelle in fee simple as her principal place of residence. No land tax has been paid since its transfer to Isabelle. If it had been held on trust for CI or CI6, land tax would have been payable by the entity entitled to the benefit of the property.
450Likewise, for a capital gains tax exemption to apply, the claimant needs to be a person and absolutely entitled to the property. The property must be the main residence of the person and the person must reside in the property. If Unit 2 was truly held on trust, then capital gains tax would be payable upon sale. It is contended that if the court declares that the benefit of Unit 2 subsists in CI or CI6 pursuant to a trust or charge, then upon sale, if a profit is made no capital gains tax will be payable.
451Ultimately, Isabelle submits that if the court grants the relief sought by CI or CI6 by way of trust or charge (in line with the loan deed), then those entities will have avoided tax liabilities. The court will have been made party to the plaintiffs’ scheme to engage in unlawful tax avoidance.
Financial statements show no loan
452The discussion of CI’s financial statements has occurred above. Isabelle submits that like the financial statements of CI, the financial statements of CI6 for 2018 do not record a loan being owed to CI6 from any other related entity.[211]
[211]Court book, 3115 - 3122
453There is no basis for the imposition of a constructive trust in favour of either CI or CI6 because equity would not grant relief to parties in respect of monies which are not shown as owing to those parties in their signed financial statements.
Equitable relief is discretionary
454Equitable relief is discretionary and will not come to the aid of a party involved in an illegal purpose. Isabelle stresses that there is no cause for the conscience of the court to be invoked in favour of the plaintiffs because the plaintiffs, corporations controlled by a sophisticated businessman, effected the scheme with intention and the assistance of solicitors.
455If the constructive trust is declared, it will exist from the time of the events in question – therefore, the court is being asked to declare a state of affairs at the time of transfer that Isabelle says are directly opposed to the state affairs as intended by the plaintiffs.
Clean hands
456Isabelle argued the doctrine of clean hands has no applicability to her and therefore issue 17(iv) should be answered in the negative. She says that the plaintiffs have not established any fact demonstrating any unclean hands on her behalf.
457She cited the decision of Davies J in King v Lynpete Australia Pty Ltd,[212] where her Honour quoted from Buchanan JA’s decision in Anaconda Nickel Ltd v Edensor Nominees Pty Ltd.[213] In that case, Buchanan JA referred to Attwood v Small[214] where Loud Brougham said:[215]
“… that general fraudulent conduct signifies nothing; that general dishonesty of purpose signifies nothing; that attempts to overreach go for nothing; that an intention in design to deceive may go for nothing, unless all this dishonesty of purpose, all this fraud, all this intention and design, can be connected with the particular transaction, and not only connected with the particular transaction, but must be made to be the very ground upon which the transaction took place, and must have given rise to this contract.”
Buchanan JA also stated:[216]
“In the present case the equity sued upon arose from the assumption induced in the respondents by Anaconda that it would complete the purchase of the shares. Its promise to do so was not induced by any anterior wrongdoing on the part of the respondents. The variation agreement was directed, not to Anaconda, but to the bondholders. Further, even if the variation agreement was brought into existence with the aim of deceit, in fact no deceit was practised. The unmeritorious conduct now relied upon by Anaconda did not bear the requisite necessary relation to the equity sued for by the respondents to found refusal of relief.”
[212][2012] VSC 140
[213][2004] VSCA 167
[214](1838) 6 Cl & Fin 232
[215][2004] VSCA 167 at [37] citing Attwood v Small (1838) 6 Cl & Fin 232
[216][2004] VSCA 167 at [38]
458Isabelle submitted that there is no necessary nexus between the evidence established at trial and the equitable relief she seeks, namely, a declaration that the loan deed be set aside or that otherwise no monies are owing pursuant to the loan deed and a declaration that the mortgage and guarantees be set aside.
Presumption of advancement
459As part of her counterclaim, Isabelle relied upon the equitable doctrine of the presumption of advancement to combat the creation of a resulting trust. She began by citing relevant legal principles including:
· where a parent buys a property or otherwise provides purchase funds for a property to a child, equity will presume that any purchase of contribution was intended to be a gift such that the legal and equitable estates remain where they lie;[217]
· that the presumption of advancement applies from father to child and the rationale is based in the prima facie likelihood that a beneficial interest is intended in situations to which the presumption has been applied;[218]
· that the question of intention is one of fact and concerns the intention manifested by the person or persons who contributed funds to the property;[219]
· it makes no difference to the operation of the presumption of advancement that the child was an adult at the time the property was acquired;[220]
· it makes no difference that the child has independent means;[221]
· the onus falls on the parent to displace the presumption when it arises in respect of transfers to children;[222]
· to rebut the presumption of a resulting trust, a party must adduce evidence that permits the court to find facts and circumstances that showed an objective intention of the participants to establish a trust;[223]
· the presumption can only be rebutted by the intention at the time of the transfer;[224]
· where a transfer of property from a parent to a child occurs to minimise or circumvent tax obligations, this will be used as evidence against the presumption of a resulting trust by reason that the parent’s objective cannot be achieved without vesting both the legal and beneficial interest in the transferred property in the child;[225]
[217]Nelson v Nelson (1995) 184 CLR 538, 548 – 549, 576, 585 - 586; Calverley v Green (1984) 155 CLR 242, 264 – 265, 267; Brown v Brown (1993) 21 NSWLR 582, 589 - 590
[218]Bosanac v Commissioner of Taxation and Another (2005) 405 ALR 424 per Kiefel CJ and Gleeson J at [14]
[219]Ibid at [32]
[220]Nelson v Nelson (1995) 184 CLR 538, 548 – 549, 576, 585 – 586, 601; Brown v Brown (1993) 21 NSWLR 582; Sleboda v Sleboda [2008] NSWCA 122; Dearing v Dearing [2009] NSWC 1394 at [32]
[221]Nelson v Nelson (1995) 184 CLR 538; Callaghan v Callaghan (1995) 64 SASR 396, 405; Smith v Smith [2007] NTSC 31 at [29]
[222]Melbourne Orthopaedic Group Pty Ltd v Stamford Aus-Trade & Press Pty Ltd [2015] VSCA 150 at [17]; Vadisanis v Vadisanis [2014] FamCAFC 97 at [42] – [43]
[223]Isabelle relies upon Melbourne Orthopaedic Group Pty Ltd v Stamford Aus-Trade & Press Pty Ltd [2015] VSCA 150 at [17] as authority on this point.
[224]Kawada v Kawada [2012] FamCA 273 at [39]
[225]Isabelle cited Yard v Yardoo Pty Ltd [2007] VSCA 35 at [69] and Cong v Shen (No 3) [2021] NSWSC 947 at [1738] to [1739] on this point.
460Ultimately, Isabelle submits that because Peter is her father, the presumption of advancement applies and the presumption has not been rebutted by any objective evidence.
461In response to the plaintiffs’ submissions, Isabelle submitted that the registered proprietor of a property does not need to exercise dominion over a property and that the contemporaneous documents have been ignored by the plaintiffs.
462ANZ made no submissions in relation to issue 17.
Analysis
Issue 17(a)(i)
463The individual consideration of equitable fraud by Isabelle as against the plaintiffs was not considered by the parties in the revised written closing submissions. As previously noted in this judgment, I infer that this means the point is no longer pressed.
Issue 17(b)
464The question of whether Isabelle is estopped from denying the plaintiffs an interest in the property, which was pleaded by the plaintiffs,[226] was largely ignored by both parties in oral address and the revised closing submissions. No submissions were made directly on the point. The plaintiffs did not specify which species of estoppel they contend is relevant.
[226]Statement of claim at [35(e)]
465As no species of estoppel was pleaded or specified, I need not answer this issue. However, I will briefly address what I regard as the most pertinent species of estoppel, equitable estoppel.
466Brennan J’s formulation of the principles of equitable estoppel as stated in Walton Stores (Interstate) Ltd v Maher[227] still stands as a leading formulation of the Australian law:
“it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.”[228]
[227](1998) 164 CLR 387
[228]Ibid, 428 - 429
467It is clear that Peter expected that Isabelle would sell the property and pass the proceeds of sale back to CI and CI6 when required. Also clear is that, because of the Acquisition Agreement, Isabelle was aware of this and knew that Peter was aware of this. Isabelle did not tell Peter at any point before CI6 paid the funds that she did not intend to comply with the Acquisition Agreement.
468CI6 then paid the funds towards the balance of the purchase price in reliance on this expectation and Isabelle was aware of what was occurring.
469If the property is not sold and part of the proceeds returned to CI6, then CI6 will suffer a detriment – namely, the loss of the $1.97 million spent in paying for the purchase of Unit 2.
470Finally, Isabelle has failed to avoid CI6 suffering that detriment by complying with the plaintiffs’ request to sell the property and return the proceeds when asked and in compliance with the Acquisition Agreement.
471Therefore, I find that an equitable estoppel would exist so as to prevent Isabelle from declining to sell the property in accordance with the Acquisition Agreement. In short, Isabelle repudiated the underlying basis of the business practice by insisting that she is the legal and beneficial owner of Unit 2 and was entitled to deal with the property as she alone saw fit.
Issue 17(c)
472McMillan J’s statement of principles[229] applicable to the creation of a common intention constructive trust have been endorsed by the Queensland Court of Appeal[230] and cited by the Victorian Court of Appeal.[231]
[229]See [435] above referring to Imam Ali Islamic Centre v Imam Ali Centre Inc [2018] VSC 413 at [402] – [403]
[230]Nathan v Williams [2020] QCA 138 at [24]
[231]Dolan v Dolan [2023] VSCA 136 at [95]
473The existence of the Acquisition Agreement has provided the necessary intention on behalf of Peter, acting in his capacity as controlling mind of CI and CI6, and Isabelle that the beneficial interest of the property was to lie with the Group.
474The Acquisition Agreement was the basis for the entire arrangement. It was an established practice of the Group and provided the Group, including Isabelle, many benefits. It gave the family a home to live in, gave the development they were working on greater publicity through pre-sales, and provided the scope for tax benefits.
475As I have made clear throughout these reasons, I prefer the evidence of Peter, Marika and others over the evidence of Isabelle. Isabelle’s evidence has been selective and self-serving. Her denial of the business practice, and the existence of the Acquisition Agreement, is no exception.
476The Acquisition Agreement was, until the rupture in relations between Peter and Isabelle, in the process of being executed. The Group had, in effect, provided all funds for the property. CI had transferred to Isabelle the first tranche of the acquisition price and CI6 had paid the second. CI had attended to the administration and related expenses and CI6 had paid the interest on the bank loan needed to satisfy the balance of the property. Isabelle acknowledges that she has, in effect paid nothing towards the property.[232] The status quo, leading up to the transaction, was that it was the intention of the parties that the beneficial interest of the property vested in the Group.
[232]Defendant’s revised closing submissions at [17] and [89]
477The contemporaneous records and documents relied upon by Isabelle do not reveal an alternative intention.
478Much has been made by Isabelle of the visit to the Capitol Grand apartment building in March 2016. A $5,000 deposit was paid.[233] She stated that after this visit, Peter made clear that he thought the price of an apartment in the building was too high and that she should instead take Unit 2.[234]
[233]Third Further Supplementary Court Book, 4938
[234]T 671
479Peter’s recollection of this event contrasts with Isabelle’s account. He stated that he had only been asked to visit the property, that he expressed no interest in its acquisition and was not involved in, and had not authorised,[235] the payment of monies to reserve a property.[236] He said that he had “stepped off an aeroplane from Canada and … [was] asked to go and attend an appointment that [Isabelle and Jeremy] had arranged”.[237]
[235]T 210
[236]T 209
[237]T 341
480Marika described the visit to Capitol Grand as a “non-event” – that all Peter had told Isabelle and Jeremy was that the property was not worth the asking price.[238]
[238]T 629
481I agree that the visit to Capitol Grand was not a significant event. It does not establish any intention on behalf of either party that the beneficial interest of a different property would lie with Isabelle.
482A meeting was held at the offices of DAA on 9 March 2016.[239] The minutes record a plan that, if Jacob’s accommodation in the supported living arrangements did not go ahead, Isabelle would take Unit 2. The evidence of Jane Clark[240] and Jessica McClelland,[241] both of whom attended the meeting and took notes, makes clear that the property was to be placed in Isabelle’s name for the benefit of the family – not as a gift.
[239]Court book, 760
[240]T 484
[241]T 557
483I am not convinced that Isabelle’s adjustments to the internal design of Unit 2 indicate that she was meant to have ownership of the property. At the time these design decisions were made, Isabelle was the design co-ordinator of the Group and the adjustments were only made with Peter’s approval. The changes do not indicate an intention that the unit was to belong legally and beneficially to Isabelle. For what it is worth, many of Isabelle’s alterations were later changed or delayed when Jacob moved into the property and had the unit adjusted to his needs.[242]
[242]T 682
484I am not satisfied that the contemporaneous documents show an intention that CI6 was to have no interest in Unit 2. Although they are largely uniform, outwardly presenting to third parties that Isabelle held the property in fee simple, this was a necessary requirement if the business practice was to succeed in minimising taxes. It is that context in which these documents were prepared. That they do so reinforces the underlying business practice and supports the idea that Isabelle was to pay the funds back to CI6 eventually. I do not find that they sufficiently counter the intention of Peter, as controller of CI6, that when the funds were transferred, CI6 would have a beneficial interest in Unit 2.
485ANZ’s understanding as to the ownership of the property only extends as far as the legal ownership of Unit 2. Ultimately, Isabelle was the registered proprietor. She had the legal interest in the property. When contacting the bank for further lending, the legal position would be the position represented. This does not change the intention between Peter and Isabelle at the point of the transfer.
486Isabelle also argued that there was no evidence that the outgoings were to be paid by Isabelle. I accept this. That the outgoings were paid by CI and CI6 together provides further evidence in support of the Acquisition Agreement and further evidence of the intention of the parties – CI and CI6 acted upon the intention that they had a beneficial interest in the property and paid effectively all related expenses.
487Isabelle also submitted that it is consistent with her case that she did not pay the outgoings because Jacob lived in the property. She says that she would have ordinarily been entitled to approximately $94,000 per year in rent.[243] It is also equally consistent with the plaintiffs’ case that Unit 2’s beneficial ownership was to lie with the Group. Jacob was the founding patriarch of the Group. It makes sense that Peter, as his son and manager for the Group, would provide for Jacob’s expenses.
[243]Defendant’s revised outline of closing submissions at [122]
488This is sufficient evidence for me to infer an intention that the beneficial interest in the property was to lie with the Group – not with Isabelle.
489None of the documents or events that Isabelle has relied upon sufficiently displace the intention as demonstrated from the existence of the Acquisition Agreement that the beneficial interest in Unit 2 was to remain with the Group. CI6 paid a sizable amount towards the property to settle the purchase price, CI maintained all costs related to the property and CI6 paid the interest on the loan. These acts are substantial. This is sufficient evidence to justify a finding that the intent of the parties was that the beneficial interest lie with the Group.
490As is clear from the preceding paragraph, the plaintiffs have detrimentally relied upon the common intention between Isabelle and Peter. Significant funds have been expended by CI and CI6 on the basis that beneficial ownership of Unit 2 would lie with the Group.
491The final requirement outlined by McMillan J was that it would be equitable fraud against the plaintiffs to deny their interest in Unit 2. Because of the above reasons, I find that it would be a fraud against the plaintiffs to deny them the beneficial ownership of the property.
492I find that the criteria for a common intention constructive trust are met.
493It has been established earlier in these reasons that the plaintiffs emphasised that they came to the court to meet the case as pleaded by Isabelle in her defence and counterclaim. Isabelle has not pleaded illegal purpose at any point, and it only arose during the course of the trial. Because it was not pleaded, I will not engage with it in great detail.
494I have addressed the financial statements of CI above.[244] The absence of a loan in the CI6 statements is not determinative. The evidence clearly demonstrates that CI6 paid the balance of the purchase price and that CI and CI6 have in substance paid the remainder of the expenses associated with Unit 2.
[244]See [452] – [453] above
495I find that the discretion reserved to me in equity will be best exercised by aligning the beneficial interest in Unit 2 with the intention of the parties at the time of the transfer.
496The question of equity and discretion is relevant also to the question raised by the documents filed at the State Revenue Office indicating Isabelle is the beneficial owner. As mentioned earlier, the fundamental intent underlying the operation of the Group business and the implementation of the business practice is that the interests of the Group are paramount and the interests of individual family members are subservient. Hence, it was never legitimate for Isabelle to claim the beneficial ownership of Unit 2.
497I accept that the State Revenue Office documents created the impression that Isabelle was the beneficial owner. Plainly in view of my findings, this cannot stand and the plaintiffs must take appropriate steps to rectify the situation. As to capital gains tax, no questions arise until Unit 2 is sold. However, I expect the Group to deal with the taxation authorities on the basis that Isabelle held the property on trust and not beneficially. Notwithstanding these comments regarding the State Revenue Office and the Australian Taxation Office, I do not accept that there is any proper basis to say the business practice is inherently illegitimate or unlawful. That being so it is, in my view, not appropriate to refuse the plaintiffs relief on public policy grounds. Equity is flexible and the interests of justice are best served by granting the plaintiffs relief but requiring them to address these other matters which have arisen during the trial.
498The plaintiffs in their amended reply and defence to counterclaim pleaded that Isabelle did not come to the court with clean hands. However, this was not pressed in the plaintiffs’ oral or revised written closing submissions and I infer that the plaintiffs do not press this point.
499As a final note, it should be made clear that the plaintiffs only pleaded a limited trust relationship between Isabelle and the plaintiffs. In particular, they only addressed the creation of a constructive trust in favour of the plaintiffs over Unit 2. In oral submissions, counsel for the plaintiffs slightly altered the position to include resulting trusts. However, counsel did not address the issue in any detail.[245] Because the creation of a resulting trust is not pleaded by the plaintiffs, nor addressed in the revised written submissions, I will assume that the plaintiffs did not press this issue. Isabelle in her counterclaim and in submissions did press the presumption of advancement. The presumption of advancement only operates to rebut or prevent the presumption of a resulting trust.[246]
[245]T 1411
[246]Bosanac v Federal Commissioner of Taxation (2022) 275 CLR 37 at [15]
500In the circumstances, I will not address in detail the creation or existence of a resulting trust or of the presumption of advancement.
501Briefly, I would say the following. The presumption of a resulting trust arises in favour of a party when that party transfers property into another’s name for no consideration or that party purchases property in the name of another.[247] The equitable interest arises at the moment of transfer.[248] This presumption can be rebutted by the presumption of advancement.[249]
[247]Calverley v Green (1984) 155 CLR 242, 266 - 267
[248]Ibid, 252
[249]Ibid, 266 - 267
502The presumption of advancement applies when the transfer occurs in the context of certain relationships where equity recognises that the benefit to one party was to be at the cost of the other.[250] The relationship of parent and child is one such recognised relationship.
[250]Ibid, 267
503The presumption can be rebutted by evidence of contrary intention from the parties.[251]
[251]Ibid, 269; Bosanac v Federal Commissioner of Taxation (2022) 275 CLR 37 at [13]
504As discussed earlier in these reasons, the existence of the Acquisition Agreement, and Isabelle’s knowledge of the Acquisition Agreement, as well as the broader business practice of the Group, support the conclusion that there was an intention that Isabelle would not receive the beneficial as well as the legal interest in Unit 2.
505When CI6 and CI transferred the funds to effect the purchase of Unit 2, the intention was not that Isabelle would receive a gift of that money. Instead, the funds were transferred to complete the purchase of the property in Isabelle’s name so that she would be the registered proprietor and the Group would receive the corresponding benefits as outlined earlier in these reasons.
506If I had to decide this issue, these reasons would be sufficient for me to find that the necessary intention existed at the time of the transfer to rebut the presumption of advancement. Therefore, I would have found that the property is held on a resulting trust for CI6.
Issue 17(d)
507The plaintiffs did not pursue this issue at trial. Because they are the parties who might benefit from an answer, I shall not further discuss the question.
Conclusion
508For the above reasons, the answers to issue 17 are:
(a)(i) Not applicable
(b) Not applicable
(c) Yes
(d) Not applicable
Issue 18: Did Peter and Marika (not a party) state to Isabelle, in or about March 2016, that they wished and intended to give her Unit 2 as a gift and would pay all costs and expenses associated with Unit 2?
509This issue is resolved by deciding whose evidence to accept.
510Isabelle contends that this issue should be answered yes but gives no reasons for this conclusion. She says that the question “is not relevant to determining the issues in this case”.[252]
[252]Defendant’s revised closing submissions at [157]
511Isabelle alleges[253] that Marika and Peter between August 2014 and February 2016 told her that they wished and intended to buy a property for her and to cover all the costs and expenses associated with the purchase. She also alleges that in March 2016, Marika and Peter said to Isabelle that they wished to give her Unit 2 as a gift and that they would cover all payments for, and costs associated with, that gift.[254]
[253]Amended defence and counterclaim at [9]
[254]Ibid at [10]
512Isabelle later alleged[255] that due to the relationship between Peter and herself, the presumption of advancement operated so that the equitable interest in Unit 2 was the same as the legal title and the funds paid for the purchase of Unit 2 were paid pursuant to the gift intention which Marika and Peter had expressed.
[255]Ibid at [38B]
513Isabelle seeks a declaration against CI, CI6 and Peter that the transfer to her of Unit 2 was by way of gift.
514In her evidence, Isabelle acknowledged that:
· CI and CI6 did not gift her Unit 2;
· Peter did not hold property in his own name and could not gift Unit 2 to her;
· Trawalla Developments and its unit holders did not gift her Unit 2.
515The plaintiffs say the pleaded allegation of gift and presumption of advancement must fail. Peter and Marika deny saying to Isabelle that they would gift her a property. Additionally, Marika was not a party to the litigation and could not be bound.
516The evidence at trial indicated that before Jacob refused to move into a retirement village, the plan was for Isabelle to be able to live at Unit 2 until such time as the Group wished to sell the property in accordance with its usual practice.
517Apart from the fact that I prefer the evidence of her parents about the alleged gift to that of Isabelle, I note that Isabelle said that there was no conversation with her parents about the gift of Unit 2 before March 2016.[256] Also, Isabelle did not say to Jessica, the bank, the accountants or people working at the Trawalla Avenue property that her parents intended that she have Unit 2 as a gift. Between August 2017 and 17 January 2020 neither Isabelle nor Jeremy said to Peter words to the effect of “Where’s our property?” or that Unit 2 was gifted to Isabelle. They made no demand during that time for the return of Unit 2. Indeed, even after Jacob left the unit, Isabelle did not claim it or seek to live in it until the litigation was imminent.
[256]T 824
518To the extent that Isabelle relied upon changing a number of the specifications at Unit 2 as evidence of her receiving Unit 2 as a gift, I observe that, at the time, Isabelle worked for the Group as the design coordinator. She had design responsibilities and was in a position to suggest changes to a unit. Such changes were to be approved by Peter.
519In short, I find that there is no persuasive evidence that Unit 2 was gifted to Isabelle.
Conclusion
520In general terms, I find for the reasons set out that the plaintiffs have succeeded in the major aspects of their claim. Isabelle has failed in her attempt to allege that she is the beneficial owner of Unit 2. She was always aware that Unit 2 was part of the family business and never belonged to her beneficially whether as a gift or otherwise. To the extent that some documents filed with the State Revenue Office suggested that she was the beneficial owner of Unit 2, they were incorrect. The plaintiffs will need to take prompt remedial action to file amended documents with the State Revenue Office or otherwise take such measures as are necessary to regularise the situation concerning the beneficial ownership of Unit 2.
521I direct the parties to confer about the form of final orders and costs in an effort to agree upon orders giving effect to this judgment. If they cannot agree, then by 10.00am on 1 December 2023, each party is to file with my chambers and serve a written submission setting out the final orders sought and the reasons therefor together with any supporting material. The submissions are not to exceed five A4 pages, a minimum 14-point typeface, 1.5 spacing and 40mm margins on either side of the page. Unless I consider it necessary, I propose to determine the question of final orders and costs on the papers without an oral hearing.
SCHEDULE OF PARTIES
BETWEEN
| CHARDBORD INVESTMENTS PTY LTD (ACN 104 932 532) AS TRUSTEE OF CHARBORD FAMILY TRUST | First plaintiff |
| CHARBORD INVESTMENTS NO 6 PTY LTD (ACN 606 069 612) AS TRUSTEE OF CHARBORD FAMILY TRUST NO 6 | Second plaintiff |
| PETER STEVEN SZWARCBORD | Third plaintiff |
| and | |
| ISABELLE SZWARCBORD | Defendant |
| [BY ORIGINAL PROCEEDING] AND | |
| ISABELLE SZWARCBORD | Plaintiff by counterclaim |
| and | |
| CHARDBORD INVESTMENTS PTY LTD (ACN 104 932 532) AS TRUSTEE OF CHARBORD FAMILY TRUST | First defendant by counterclaim |
| CHARBORD INVESTMENTS NO 6 PTY LTD (ACN 606 069 612) AS TRUSTEE OF CHARBORD FAMILY TRUST NO 6 | Second defendant by counterclaim |
| PETER STEVEN SZWARCBORD | Third defendant by counterclaim |
| AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) | Fourth defendant by counterclaim |
[by counterclaim]
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