Chester, L. v Chester, H.D

Re: LEAH CHESTER
And: HELEN DORA CHESTER; MERCANTILE CREDITS LIMITED
and MAX CHRISTOPHER DONNELLY (AS TRUSTEE OF THE BANKRUPT ESTATE OF HELEN DORA
CHESTER)
No. W1769 of 1989
FED No. 172
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Hill J.(1)

CATCHWORDS

Bankruptcy - ownership of motor vehicle - whether applicant had legal and equitable ownership of motor vehicle - whether bankrupt had legal title to motor vehicle - whether bankrupt held motor vehicle on resulting or express trust for applicant - whether sufficient evidence to establish beneficial ownership by applicant.

Traffic Act 1909 (NSW)

Bankruptcy Act 1966

HEARING

SYDNEY

#DATE 20:4:1990

Counsel and Solicitors Mr M Cashion instructed by
for Applicant: Messrs Makinson and d'Apice

Counsel and Solicitors Mr D Flaherty instructed by
for Respondent: Mr N J Sullivan

ORDER

The applicant join each of the following parties as respondents in these proceedings:

(a) the trustee of the estate of Jerome Chester;

(b) Jerome Chester;

(c) Mr Kent;

(d) Mr Ling;

(e) Adoni Holdings Pty Limited

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This application concerns a motor car, a 1989 Audi Sedan registration number PKC 055 ("the car"). The records of the Roads and Traffic Authority of New South Wales show that it is registered under the provisions of the Traffic Act 1909 (NSW) in the name of the bankrupt, Helen Dora Chester who is the mother of the applicant's husband, Jerome Maxwell Chester, and thus the applicant's mother-in-law. Jerome Chester is also a bankrupt having become so on 18 October 1988.

The car is at present in the custody of the third respondent, Mr Max Donnelly, the trustee of the bankrupt estate of Mrs Helen Dora Chester (hereafter referred to as "the bankrupt") as a result of an order made ex parte by Foster J on 27 June 1989 pursuant to the provisions of s.50 of the Bankruptcy Act 1966 prior to the making of a sequestration order against the bankrupt on 8 November 1989.
The applicant claims inter alia two declarations: First, a declaration that the car is not within the meaning of s.116 of the Act property divisible amongst the creditors of the bankrupt and second, a declaration that the car is the applicant's property. She seeks an additional order that the car and relevant registration papers be delivered to her.
The applicant's case is that legal and beneficial ownership of the car resides in her but that if the bankrupt be the legal owner of the car she holds it as trustee for the applicant absolutely either:
(a) under a resulting trust for the applicant who paid

the purchase price for the car; or

(b) under an express trust which came into force at the

time the car was purchased.

It is said that it was at all times contemplated by the bankrupt that the car would not belong to her beneficially but that it would belong to the applicant with the result that the bankrupt was bound in equity to hold the car upon trust for her daughter-in-law: cf Rochefoucauld v. Boustead (1897) 1 Ch 196.
The applicant bears the onus of proof so that she must prove, on the balance of probabilities, depending on which way the case is put either:

* that she is both the legal and equitable owner of the car; or * that the bankrupt is the legal owner of the car but that the purchase price of the car was paid for by the applicant; * that at the time of purchase the bankrupt declared that she held the car for the applicant; or * that it was the bankrupt's intention that the car be purchased in trust for the applicant.

According to the applicant's evidence, she and her children were subjected to harassment from parents of children who went to Moriah College in Sydney where the applicant's children went to school. That harassment, it was suggested, was brought about by the bankruptcy of the applicant's husband. She sought advice, she said, from an accountant, Mr Selinger, as to how to avoid further problems having regard to her intention to purchase a new car. The accountant suggested she put the car into her mother-in-law's name. Presumably it was thought that it was not the fact that the applicant as the wife of a bankrupt was driving a luxury car that would cause adverse comment among the parents at the school but rather that the car was registered in the applicant's name. Whether the desired result was achieved is not clear. At the date of hearing the children no longer attended the school but this, as will be seen, could well be the result of non-payment of school fees rather than as a result of continued harassment of the applicant.
According to the applicant's evidence she withdrew an amount of money from her savings account with the National Australia Bank at Double Bay on 17 April 1989 and used it to pay the deposit on the car. There was a withdrawal from her account of $2,000 on that day so that prima facie the deposit was paid by the applicant from her moneys. The deposit was $1,000, the car cost (including on road expenses) $44,845, leaving a balance after payment of the deposit of $43,845. The applicant traded in a Magna car for which she received a trade-in allowance of $12,545 and handed to the vendor a bank cheque for $31,300. The bank cheque was purchased from the proceeds of a withdrawal made by the applicant of $240,822.85 from the applicant's savings account on 19 May 1989.
Registration papers were prepared and signed in the name of the bankrupt who signed a proposal form for comprehensive insurance with the NRMA. Thereafter the car was treated, like the Magna before it, as the family car of the applicant. The car was never in the possession of the bankrupt; the bankrupt never drove it or paid for the running cost of it. These, so the applicant alleged, were paid for by the applicant from her own funds. The applicant, so she said, generally drove the car, although she did not deny that her husband also drove it and it was possible that the bankrupt was at times a passenger in it.
There were tendered in evidence two declarations of trust both dated 7 July 1989 (after the s.50 order made by Foster J) and signed by the bankrupt declaring that she held the car in trust for the applicant. The terms of each were identical. Each stated that at the time of taking delivery of the car the intention of the bankrupt was that the applicant was to be the beneficial owner of the car.
If the evidence of the bankrupt and the applicant be accepted then there is no doubt that the beneficial ownership of the car resided in the applicant and the car was not the property of the bankrupt divisible among her creditors. Both the bankrupt and the applicant gave evidence and were cross-examined at length, particularly on matters going to credit and it is the task of the court to determine, in the light of this cross-examination whether the applicant has, on the balance of probabilities, established her case. Before discussing the issues that were raised in cross-examination as to the credit of each of the bankrupt and the applicant, it is convenient to deal with the applicant's initial submission that she and not the bankrupt was the legal owner of the car.
Was the applicant the legal owner of the car?
On the objective facts it is difficult to conclude that the applicant had the legal ownership of the car wherever the beneficial ownership might have resided. It is true that the applicant ordered the car. The order form initially left the name of the purchaser blank. Later, apparently, the bankrupt's name was completed as the purchaser. It would seem that the agreement between the applicant and the vendor of the car, Chatswood Classic Cars, was that title to the car would pass to the bankrupt. This is consistent with registration of the car being effected in the name of the bankrupt and with the car being insured in the name of the bankrupt.
The applicant's submission is also inconsistent with, what appears to have been the clear intention of both the bankrupt and the applicant, that the legal title to the car be in the bankrupt rather than in the applicant for the reasons which I have already indicated.
The bankrupt signed a proposal form with the NRMA Insurance bearing the date 10 June 1989. That proposal shows the bankrupt as the owner of the car having bought it from Chatswood Classic Cars on 19 May. It incidentally also shows that the bankrupt claimed to have held an insurance policy with NRMA over the Magna sedan car that was traded in, that policy having been held for three years and having expired on 8 September 1988. It shows further that Jerome Chester was a person who would drive the car more than twelve times in a year.
I find accordingly that the legal title to the car has, from the time of its purchase, resided in the bankrupt. That leaves for decision the question of the equitable ownership of the car.
The evidence of the bankrupt
The evidence of the bankrupt was quite unsatisfactory. Having observed her carefully in the witness box during cross-examination I am satisfied that she was not telling the truth in all respects. She failed to answer questions put to her, volunteering in response answers that she perceived would assist the case of the applicant. For example, in reply to a question whether she had ridden in the car from time to time, she replied that she had never driven the car nor been associated with anything to do with the car. In response to a question whether Jerome Chester drove the car, she replied in the negative adding, "It is Leah's car." She seemed reluctant to answer questions directly. When asked whether she had signed the registration papers to have the car registered in her name, she replied: "Probably", although it was obvious from the documentary evidence that she had. When asked whether she knew the car was insured in her name she responded: "Well it was all done by the advice of the accountant". It might be mentioned here that the question of whether the car be put in the bankrupt's name occurred, in accordance with the accountant's evidence, in the course of a casual conversation which he at least would not have described as "advice".
The bankrupt expressed a general lack of memory in respect of many matters. She is no longer young and it may well be that her recall is no longer as good as it may have been but I am not convinced that her memory was as defective as she sought to imply. Two related matters raised in her evidence call for comment. Both relate to the question of the two declarations of trust and also to the discrepancy between her evidence before me and that given in the public examination.
Before me the bankrupt deposed that she went once only to the premises of Chatswood Classic Cars, "then I went out and I did not go inside the place. I went for a walk." In her public examination, when cross-examined about one of the two declarations of trust, she said that her daughter-in-law had given it to her to sign "at the Classic Motors place". She said that it was signed at Chatswood. One of the two declarations of trust had originally been dated 29 May 1989 but that date had been crossed out and the document had been redated 7 July 1989. When reminded of the date 7 July 1989, the bankrupt expressed difficulty in remembering. She said in her public examination in response to a question how often she went to Chatswood that she did not go very often. She then however reiterated that in 1989 she had been once only.
When the matter of the declarations of trust arose before me, the bankrupt expressed herself as being unable to remember much about signing either one of them. She said that her daughter-in-law must have been present. It should now be mentioned that the two declarations differed in two respects. One of them, as I have already indicated, had the date changed. The other one bore without change the date 7 July 1989. On the version which bore an imprint of stamp duty the witness to the bankrupt's signature was a Mr Lincoln, a barrister and solicitor practising in Victoria who is apparently a friend and business partner of the applicant. On the version which is unstamped the witness to the bankrupt's signature was Mr B McDermott, the applicant's solicitor. Both Mr McDermott and Mr Lincoln were present in court but neither gave evidence of the circumstances surrounding the execution of the documents. It may be inferred that their evidence would not have assisted the applicant's case. Stamp duty on the one copy of the declaration of trust is noted as having been paid on 17 July 1989. It is likely that the documents were signed by the bankrupt without having been witnessed in duplicate and that at different times the two persons to whose names I have referred subscribed their names as witnesses albeit that they were not present when the bankrupt in fact signed the document.
Counsel for the applicant in these circumstances properly disavowed reliance upon the declarations or either of them in support of the applicant's case. Their significance, however, is the role they play in the issues of credit in the case.
Although the bankrupt's evidence was, in the respects I have mentioned, unsatisfactory, I believe her to the extent that she did not intend to become the beneficial owner of the car. I have more difficulty in accepting that she intended to hold the car for her daughter-in-law rather than for her son. She clearly signed whatever documents were put before her by her son and daughter-in-law and did so for her children. It would however in the light of the difficulties with her evidence be unsafe to rely upon any statement by her of her intention that she was to hold the car in trust for the applicant.
The evidence of the applicant
According to the applicant's evidence, the source of funds in her banking account from which the deposit and balance of purchase price (excluding trade-in) were derived, arose from the sale of shares by her in a company called Ridaview Pty Limited in May 1989 to an arm's length purchaser, Walker Corporation. The precise amount received from Walker Corporation was not explored in evidence but the applicant asserted that it was over $300,000. Her bank account shows a deposit of $302,407.36 on 5 May 1989, her previous balance being then $10.18. It may be assumed that this is the amount received from Walker Corporation.
The circumstances in which this large amount of money was received by the applicant are curious. It would seem that her husband was a land developer. A company, Adoni Holdings Pty Limited appears to have been incorporated some time in 1986. The applicant and her husband were shareholders and directors of this company, the applicant becoming a director on 12 August 1986. The applicant held 99 shares in that company and her husband one. The evidence did not explore the question whether the applicant had paid for her shares or whether she was the beneficial owner of them. It is not possible to determine on the evidence before me whether in particular in respect of all or any of the 99 shares held by the applicant, that she held them in trust for her husband, Jerome.
Jerome Chester was the clear guiding mind of Adoni Holdings Pty Limited. He negotiated for it in respect of certain land in Albury-Wodonga with the Albury-Wodonga Development Corporation for development of that land as a retirement village. Ridaview Pty Limited was a shelf company acquired sometime in 1988. As at 21 September 1988 it had no assets and did not trade. The applicant was appointed a director of Ridaview Pty Limited on 21 October 1988 and it may be inferred that on or around that date she became a shareholder with 98 shares. On 24 October 1988 it appears that the Albury-Wodonga Corporation through its solicitors alleged a breach of a deed that had been entered into on or about 15 April 1988 between the Corporation and Adoni Holdings Pty Limited and Jerome Chester. That deed was not in evidence. Notice was given by the solicitors of rescission of the deed between Adoni Holdings Pty Limited and the Albury-Wodonga Development Corporation effective on 21 October 1988.
According to the applicant's evidence, she was approached by unspecified persons in Albury to take over a development in that city, that development being the same development in respect of which Adoni Holdings Pty Limited had been involved. Jerome Chester had no interest, it was said, in Ridaview Pty Limited. The result of these approaches and negotiations which the applicant in her evidence implied were all her doing, was that Ridaview Pty Limited entered into an agreement with the Albury-Wodonga Corporation to build the retirement village in place of Adoni Holdings Pty Limited. Precisely when this happened is not clear. What is however clear is that Ridaview Pty Limited obtained without any consideration payable to Adoni Holdings Pty Limited the rights which Adoni Holdings Pty Limited had possessed prior to the rescission and that these rights were sufficiently valuable to support a purchase price of $300,000 for the shares in Ridaview Pty Limited on 5 May 1989. On that date a deed was executed between Adoni Holdings Pty Limited and Ridaview Pty Limited under the common seal of both attested to by the applicant as director of both companies and the bankrupt as secretary of both companies whereby Adoni Holdings Pty Limited purported to release Ridaview Pty Limited from any claims which Adoni Holdings Pty Limited might have against Ridaview Pty Limited. Presumably this referred to any claims arising out of Ridaview Pty Limited taking the place of Adoni Holdings Pty Limited.
Since Jerome Chester, then a bankrupt, was the holder of at least one share in Adoni Holdings Pty Limited it may be assumed that the shareholders of Adoni Holdings Pty Limited did ratify what on its face could be an abuse of fiduciary duty in ensuring that the benefit of a valuable contract or potential opportunity for Adoni Holdings Pty Limited passed to Ridaview Pty Limited and for the personal benefit, by way of sale of shares, of the applicant. If the applicant were not the beneficial owner of the shares in Adoni Holdings Pty Limited a question could well arise as to whether she held the proceeds of the sale of shares of Ridaview Pty Limited as a constructive trustee either for Adoni Holdings Pty Limited or for the bankrupt estate of her husband. Since all appropriate parties are not before the court it is inappropriate to embark upon a legal analysis of the consequences of this transaction. Suffice it to say that it displays, upon the face of it, an obvious intention on the part of the applicant to appropriate to herself with the aid of her mother-in-law a profit that might well have belonged to her husband and to the detriment of the creditors of the bankrupt estate of her husband.
Neither Adoni Holdings Pty Limited nor the trustee of Jerome Chester's bankrupt estate were parties to the present application. In these circumstances it is inappropriate to find at this stage of the proceedings whether the moneys deposited into the applicant's account as a result of the sale of the shares in Ridaview Pty Limited were her moneys beneficially or whether they were held in trust for someone else.
The trade-in of the Magna car
It will be recalled that the purchase price of the Audi car was funded in part by a trade-in of a Magna car. The story behind this car, revealed only through cross-examination, was also somewhat extraordinary.
The car, at the time of trade-in, was three to four years old. It had for three to four years been in the possession of either the applicant or her husband and was used as the family car. It was first registered in the name of a Mr Warwick Kent who, the applicant said, allowed the applicant and her husband to use it during the whole three to four years free of charge. Mr Kent did not give evidence and again it can be assumed from his unexplained failure so to do that his evidence would not have assisted the applicant's case.

No particular reason was given for Mr Kent's benevolence save that he was a friend. The applicant said in evidence that a previous motor vehicle used by herself and her husband had been involved in an accident and that the loan of the car had originated at this time. In the course of his examination under s.81 in the bankrupt estate of his mother, Jerome Chester (who also did not give evidence in the present proceedings) said that the Magna car was a gift purchased by Mr Kent and provided to Jerome Chester "for as long as he wanted it" in return for "some favours" provided by Jerome Chester to Mr Kent "many years ago". Photocopies of documents lodged with the Department of Motor Transport show that in the application for initial registration of the Magna car Jerome Chester had signed as registered owner declaring as to the private use of the car. Subsequent renewals appear to have been signed by a signature "W C Kent". The state of the evidence is such that I am unable to conclude whether at the time of trade-in the car belonged to Jerome Chester or whether it belonged to Mr Kent, assuming there is such a person. Neither are parties to the present proceedings so that again it would be inappropriate to make a finding on this question.
According to the applicant's evidence she contacted Mr Kent around the time of trade-in. She said that Mr Kent had had nothing but trouble with the Magna (it hardly seems on the evidence that he had ever driven it) and that he had agreed to a trade-in on the basis that she pay out the finance company (Custom Credit) the money then owing on it. There is no evidence as to the form of security which the finance company had. The evidence tendered before me makes it clear that the finance company was paid out the sum of $12,363.45, being slightly less than the amount of trade-in allowed by Chatswood Classic Motors. The money to pay out the finance company came from the savings bank account of the applicant. Whether the applicant had authority to trade in the Magna car depends upon whether it was owned by Jerome Chester or Mr Kent or whether either of them had some interest in it. The applicant has not satisfied me on the balance of probabilities that the Magna car belonged to Mr Kent, if such a person existed, rather than to her husband. It follows, to that extent, that she has not satisfied me that the Audi Sedan car was purchased from her own funds.
The costs of running the car
After using her savings account to pay the moneys to the finance company and to Classic Motors for the purchase price of the car and repaying a loan said to have arisen in respect of the Ridaview Pty Limited shares in the sum of approximately $210,000, the applicant had approximately $32,000 in her account. The insurance with the NRMA was apparently paid on 10 June 1989. The savings account of the applicant does not show a withdrawal of this precise amount although the applicant withdrew $600 on 8 June 1989 and $2,000 on 9 June 1989 and it is possible that the latter withdrawal included the payment of the insurance premium.
According to the applicant's evidence neither she nor her husband had any source of income upon which to live. She was paying at that time or thereafter some $600 per week rent for a unit, amounts either for school fees or in reduction of a debt for school fees and general living expenses. She was, she said, until the car was seized by the respondent on 29 August 1989, paying for the running expenses of the car. The bankrupt was living on a pension and was being assisted by her daughters and could not have contributed to the upkeep of the car. Under cross-examination it became clear that other funds were being used to support the applicant.
The applicant gave evidence that loans had been made to her. She was for a while unable to recall the name of the lender. She said he was a friend. After the luncheon adjournment the applicant recalled the name of the lender as being a Mr Noel Ling although she could not recall his personal as against his business address, the latter being stated to be "Broadway". The quantum of the loan she could not recall but she expressed the view that it was between $30,000 and $40,000. The loan was taken out she said at the end 1989 and was not given in one amount. She would, she said, ring Mr Ling up and he would write out a cheque as required for rent and the like. There was no security, no tally kept by her of the amount of the loan and she believed no documentation of it. Mr Ling did not give evidence.
On the second day of hearing the applicant produced some papers showing a deposit of $50,000 on 15 August 1989 which was said also to be a loan from Mr Ling. She then denied the evidence she gave on the first day of hearing that she had rung up Mr Ling for money as the occasion required. The evidence ultimately left unexplained how the applicant had been able to pay rent of $2,400 per month, living expenses and the like. She also gave evidence of money having been deposited to her account by a Mr John Hood, another friend from Surfers Paradise, whether as a gift or loan was unclear. That deposit was made long after the events in question in February 1990. Other evidence indicated that a company, Hagari Pty Limited of which the applicant is a director and shareholder had funded an overseas trip for her husband and herself, that company having been so it was said, put into funds by three shareholders including Mr Lincoln just prior to the overseas trip.
The applicant's credit
In addition to cross-examination directed to the matters discussed above, the applicant was cross-examined in respect of an affidavit she had made in connection with an application made by her to the Local Court at Castlereagh Street Sydney for payment of a judgment obtained by Moriah War Memorial College Association of $8,446 by instalments. The judgment related, it would seem, to unpaid school fees for her children at that college. It would seem that at least by 18 September 1989 the applicant had taken her children from the school.
In the affidavit which was sworn on 22 September 1989 the applicant disclosed her bank balances as at that date as $8,865, the figure in the thousands place appears to have been altered although it is impossible to determine the figure initially written. From her passbook account the balance as at 22 September 1989 stood at $16,865.63 as a result of a cash deposit of $13,000 made on 21 September 1989. A cheque of $180 was deposited on 26 September and withdrawals were made thereafter as follows:

26.09.1989 - $500 27.09.1989 - $3,000 29.09.1989 - $500 4.10.1989 - $700 5.10.1989 - $2,600 6.10.1989 - $700 10.10.1989 - $1,000

As at 10 October 1989 the balance in the account stood at $8,045.63.

Explaining the discrepancy, the applicant indicated that she had originally written $3,865 in the application to the Local Court and that she had taken over $18,000 from the account between the 15th and 18th September in regard to a transaction that she said her husband had contemplated concerning jewellery. Her husband is alleged to have said that he returned $5,000 when actually he had replaced the whole $13,000. Five thousand dollars was returned to her, she said, by her husband in cash.
There was also some evidence of loans said to have been made by the applicant to Mr Lincoln, the barrister from Melbourne, whom one would not have thought would be in need of cash from the applicant having regard to their relative financial situations and repayments of that amount.
I have, by now, narrated sufficient of the cross-examination to explain the view I take of the credit of the applicant. I observed her carefully in the witness box throughout the proceedings. Having regard to her demeanour when answering questions and the unsatisfactory answers given by her I would be unable to accept any evidence she gave unless it was corroborated by others. I do not believe that she was telling the truth. Rather I believe that she sought to present a case which concealed rather than revealed the true facts concerning many of the matters upon which she was cross-examined.
The applicant had not apparently prepared or lodged income tax returns for some years. In evidence she suggested that Mr Selinger was her accountant and that he had the current year's returns in hand. Mr Selinger, who gave evidence, said he was a friend of the applicant but that he had never performed accounting services for her. He was unaware of the bankruptcy of Jerome Chester. He had in 1989 been asked to prepare a profit and loss account for Ridaview Pty Limited and had done so. The books of Adoni Holdings Pty Limited had been given to him but he had done no work upon them. They had subsequently been taken from him. The only conversation he had had with the applicant on financial matters was three years before when he was asked to act as accountant for the applicant, apart from being told of the Ridaview Pty Limited share sale. He had had a number of conversations about financial matters with Jerome Chester over the three period. I accept Mr Selinger's evidence without reservation.
Conclusions
Although I have no doubt that the legal ownership in the car resides in the bankrupt I am unable to determine on the evidence before me where the beneficial ownership of it lies. I do not accept the evidence of either the bankrupt or the applicant as to their common intention and am left in the air both as to the ownership of the Magna car, the trade-in of which realised some $12,500, and as to the beneficial ownership of the funds in the applicant's bank account from which payment for the Audi car was made.
Although I am inclined to make a declaration that the Audi car is not property divisible amongst the bankrupt's creditors, that leaves the respondent trustee in the position of having custody of the car but being uncertain as to its ownership. It is the duty of the Court to determine, so far as is possible, all issues in dispute between the parties arising out of the car. In the absence however of parties who might be interested in the car it is clearly inappropriate to express a view as to its beneficial ownership. It suffices at this stage to say that the applicant has not satisfied me on the balance of probabilities that she is the beneficial owner, although I leave at this stage open the possibility that she may have an equitable interest in the car less than full beneficial ownership.
In these circumstances it seems appropriate to direct that there be joined to the proceedings those parties who might conceivably have, on the evidence, an interest in the car so that they may be ultimately bound by any order that I make. The relevant parties would seem to me to be:-
(a) the trustee of the estate of Jerome Chester;
(b) Jerome Chester;
(c) Mr Kent (if he exists);
(d) Mr Ling (if he exists);
(e) Adoni Holdings Pty Limited.
Since these parties are all said to be known by the applicant I would direct that the applicant join each of them as respondents and at this stage I will stand the matter over until a date to be fixed with counsel for directions as to the further disposition of the case.

[1990] FCA 172

20 APRIL 1990