Commissioner of Taxation v Sarkis
[2003] VSC 349
•15 September 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 8365 of 2001
| COMMISSIONER OF TAXATION | Plaintiff |
| V | |
| FADI SARKIS, CLAUDETTE SARKIS, FAYEZ SARKIS, GRETA SARKIS | Defendants |
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JUDGE: | Smith J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3, 4 and 5 September 2003 | |
DATE OF JUDGMENT: | 15 September 2003 | |
CASE MAY BE CITED AS: | Commissioner of Taxation v Sarkis | |
MEDIUM NEUTRAL CITATION: | [2020] VSC 349 | |
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Equity – declaration of trust of real estate between defendants sought by judgment creditor – incomplete gift – proprietary estoppel – no case submission.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C. Maxwell Q.C. and Ms H. Riley | Australian Government Solicitor |
| For the Defendant | Mr P. J. Hayes | Goldsmiths |
HIS HONOUR:
The proceedings
On 28 September 2001, the plaintiff, the Deputy Commissioner of Taxation obtained judgments against the first and second defendants, Fadi Sarkis and Claudette Sarkis in the sum of $5,334,244.79 together with costs of $1,940.00. That judgments debt remains outstanding.
The plaintiff seeks a declaration that Fadi Sarkis and Claudette Sarkis, the first and second defendants, are the beneficial owners of a residential property at 79 Grantham Street Brunswick the registered proprietors of which are the third and fourth defendants, Fayez Sarkis and Greta Sarkis, the parents of Fadi Sarkis. In other words, it seeks the Court’s declaration that the first and second defendants are the owners in equity of the property.
The issues
The plaintiff alleges that in October 1987, the third and fourth defendants made a verbal gift of the Grantham Street property to the first and second defendants. She also alleges that, commencing in 1993, the first and second defendants expended at least $215,000 on the construction of a new home on the Grantham Street property and that they did so relying on the verbal gift and with the knowledge and approval of the third and fourth defendants.
The plaintiff argues that the situation is one in which a verbal gift has not been completed but that the subsequent conduct of the defendants created an equity which bound the third and fourth defendants to do so. She argues that the result is that the third and fourth defendants hold the Grantham Street property on trust for the first and second defendant.
The defendants raised a number of issues in their defence. At the conclusion of the plaintiff's case, counsel for the defendants submitted that there was no case to answer. He also indicated that his clients did not intend to call evidence. The defendants raised three issues in their no case submission;
(a) whether the plaintiff has standing to seek the above declaration,
(b)whether the questions raised were hypothetical and should not be determined,
(c)whether the circumstances give rise to a constructive trust of the kind alleged by the plaintiff.
The defendants also submitted initially that the requirements of section 53 Property Law Act 1958 were not satisfied. That issue was not pressed.
No case - the standing issue and the hypothetical issue
The defendants’ submissions on the first two issues were interrelated. Their counsel submitted that the plaintiff, in seeking the declaration, was taking a step in the enforcement of the judgment and that this was contrary to section 3 (5) Supreme Court Act 1986. That section provides as follows;
"A judgment in any proceeding must be enforced in accordance with the General Rules of Procedure in Civil Proceedings 1986 and not otherwise."
Counsel for the defendants submitted that this required the plaintiff as judgment creditor to follow procedures such as those set out in Orders 68, 69 and 74 and did not permit the use of the present proceedings.
In support of her case, the plaintiff has filed an affidavit which informs the Court that, should she obtain the declaration sought, she will take proceedings to execute the judgment on the Grantham Street property. The affidavit also identifies three executions options under consideration; having the first and second defendants declared bankrupt and a trustee in bankruptcy appointed, issuing a warrant of seizure and sale under Order 69 or having a receiver appointed under Order 74.
Counsel for the defendants has submitted that, assuming the plaintiff used one of the above options, it would be the trustee in bankruptcy, or the sheriff or the receiver who would bring relevant proceedings and, therefore, have the standing to bring proceedings to enforce the judgment and not the plaintiff. Counsel referred to the novelty of this proceeding and argued that it was for the Court to enforce its own orders not the judgment creditor and that there were good policy reasons for this . He also raised concerns as to whether there may be third party interests. He submitted that in the event of the sheriff attempting to execute the judgment, the issue raised in these proceedings could be dealt with by an interpleader proceeding under Order 12. But counsel submitted that the mechanism afforded to the parties affected by the execution of an order did not allow for the judgment creditor to play an active role in collecting the judgment debt. The Sheriff had the responsibility to take the necessary action. Likewise, it was put that in bankruptcy proceedings there is no active role for the judgments creditor in the collection or recovery of the judgment debt.
As to the interpretation of section 3 (5) Supreme Court Act 1986, am satisfied that it is concerned with the particular procedures for enforcement of judgments, such as warrants, and was concerned to make it clear that what was set out in the Rules was a code of such procedures[1]. It does not in itself prevent other steps using other procedures to be taken either as a preliminary to enforcement or in aid of enforcement by such procedures. If, on the other hand, the present proceeding comes within the concept of enforcing the judgment for the purpose of section 3 (5), it is issued in accordance with the relevant Rules and so complies section 3 (5).
[1]Marriner v Smorgon and another [1989] V. R. 405,501, 508.
The argument advanced by the defendants in support of their construction overstated the important role of the Court and its, and other, officials in enforcing judgments and understated the role of the judgment creditor. It is the latter who decides whether to pursue a judgment or abandon such pursuit. The Courts, and other officials, while having their own duties to perform act to assist the judgment creditor. In the present case, the judgment creditor has taken a novel approach. But it is one which seeks the Court’s assistance. Provided the issues raised in it cannot be re-litigated, the approach taken has the public benefit that if successful, execution will be simplified and, if unsuccessful, execution will not be pursued.
Counsel further submitted that in light of the uncertainty of the course the plaintiff intended to follow to enforce the judgment and the fact, as they alleged, that decisions as to what are the assets on which the judgment will be executed would be decisions for the Trustee, Sheriff or Receiver and not the judgment creditor, ultimately the issue raised in this proceeding was a hypothetical issue and should not be determined. In support of these arguments counsel for the defendants relied among other matters upon Ansett Ground Staff Superannuation Fund Proprietary Limited v Ansett Australia Limited and Others.[2]
[2][2003] VS C 117 (paragraphs 14 to 16 and 21 to 30).
The Ansett case was a much clearer case because of the effect of events that had occurred between the determination of the questions at first instance and the hearing of the appeal. The Court of Appeal, however, cautioned against this Court determining issues that may ultimately need to be considered by a different Court. That possibility exists in this case because the plaintiff has indicated that she may take steps to have the first and second defendants declared bankrupt and seek to recover the amount of the judgment through that process. In that context, however, it seems to me that the critical question is whether an issue estoppel would arise in the present proceedings following a decision on the merits and whether that issue estoppel could be relied upon in each of the alternative execution options identified by the plaintiff and so prevent the defendants re-litigating the question.
It would be more conventional for the question as to the existence of a beneficial interest in the property to be determined in the context of actual execution proceedings whether that context be bankruptcy, a warrant of execution or the pursuit of assets by a receiver. Further, the situation is one where the persons allegedly beneficially entitled apparently do not wish to seek the aid of equity to complete the incomplete gift. Those features, however, while complicating matters, do not create a hypothetical situation when, as here
•the plaintiff through her responsible officer has stated that she intends to execute the judgment if successful in these proceedings by using one of the three identified methods, and
•provided that in each of those alternative procedures, the parties to these proceedings would not be free to re-litigate the question whether the first and second defendants were the beneficial owners of the property.
The answer to this issue depends upon the application of the principle of issue estoppel. That principle may be stated as follows:
"Where a final judicial decision has been pronounced on the merits by an [Australian] judicial tribunal with jurisdiction over the parties and the subject matter, any party to such litigation, as against any other party...is estopped in any subsequent litigation from disputing such decision on the merits, whether it be used as the foundation of action, or as a bar to any claim,...affirmative defence or allegation, provided the party entitled raises the point at the proper time."[3]
[3]Spencer Bower, Turner and Handley, “Res Judicata", 9.
In any bankruptcy proceedings, the trustee in bankruptcy would be the privy of the first and second defendants[4]. Thus as between the trustee in bankruptcy and the defendants, issue estoppel would apply. In the event that the plaintiff can use the warrant of seizure and sale procedure (Order 69), the Sheriff could, in the event that the third and fourth defendants maintained their claim to ownership of the property, cause interpleader proceedings to be commenced in which the present plaintiff and the third and fourth defendants, and, if appropriate, the first and second defendants, would be parties.[5] Issue estoppel would operate between those parties in the event that the plaintiff obtains the declaration sought in these proceedings. If the plaintiff decided to apply for the appointment of a receiver pursuant to Order 74, and the defendants sought to argue that the property was an asset of the third and fourth defendants, the position is less clear. What is clear, however, is that before appointing a receiver, the Court is required by Order 74.02 to have regard to, among other things, the amount likely to be obtained by the receiver. In such an application, by the judgment creditor it would, therefore, be relevant to identify the assets of the first and second defendants and an issue estoppel will operate between the relevant parties so far as the Grantham Street property is concerned.
[4]Bankruptcy Act 1966, s 5, 58; Spencer Bower, Turner and Handley, Res Judicata, 231 and cases there cited.
[5]Williams, Civil Procedure Victoria; 12.08.25.
For these reasons, these proceedings seeking a declaration as to the first and second defendants’ beneficial ownership of the property cannot be dismissed as hypothetical. There is a real question to be tried and the defendants have a true interest in opposing the application.[6]
[6]Ainsworth v Criminal Justice Commission (1992) 175 C. L. R. 564, J N Taylor Holdings Ltd v Bond (1993) 59 SASR 432.
No case – the merits
I turn to the question of whether there is a case to be answered on the merits of the plaintiff's claim for a declaration that the property is beneficially owned by the first and second defendants. In addressing this question, it is necessary first two identify the facts to be considered. Taking the evidence at its highest for the plaintiff, the issue is to be considered on the basis that;
•in 1987, the third and fourth defendants gave the property to the first and second defendants,
•thereafter, for all relevant purposes, the first and second defendants and their family remained in occupation, paying all rates and taxes and other outgoings on the property,
•in late 1993, the first and second defendants borrowed $50,000 on the security of the property for the purpose of rebuilding the house on the property, with the consent of the third and fourth defendants,
•thereafter, the first and second defendants spent at least $ 215,000 rebuilding the house on the property with the knowledge and approval of the third and fourth defendants,
•the gift of the property by the third and fourth defendants to the first and second defendants was not revoked prior to the expenditure of the above monies.
Counsel for the plaintiff have submitted that the above facts constitute a classic example for the application of the principles originally articulated in Dilllwyn v Llewelyn[7] and subsequently approved in cases such as Olsson v Dyson[8] . Counsel submitted that the gift of the property was incomplete at law but regarded as complete in equity because of the substantial expenditure in rebuilding the house on the property by the first and second defendants relying upon the gift and with the knowledge and approval of the registered proprietors.
[7](1862) 45 E.R 1285.
[8](1969) 120 C. L. R. 365, 375-9; Corin v Patton (1990) 169 CLR 540 at 555.
Counsel for the defendants has submitted that on those facts, the first and second defendants would not be entitled to assert an entitlement beyond the value of their contributions to the improvements to the property. He argues that the plaintiff does not seek that result and must therefore fail.
Counsel for the defendants relied on Giumelli v Giumelli[9], and, in particular, the following statement:
"Before a constructive trust is imposed, the Court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which fall short of the imposition of a trust."
[9](1999) 196 C. L. R. 101, 113
Counsel submitted that at most all that was required to do equity was to provide an equitable remedy which would reflect and protect the contributions of the first and second defendants to the improvement of the property. Counsel has suggested that a "Baumgartner[10] trust" was the appropriate remedy.
[10]Baumgartner V. Baumgartner (1987) 164 C. L. R. 137.
A number of categories of cases have emerged in this area of law. In Giumelli v Giumelli[11] , the passage relied upon by counsel for the defendants appears in the discussion of the category of cases identified by the Privy Counsel in Plimmer v Mayor, etc, of Wellington[12] where it was said that the "Court must look at the circumstances in each case to decide in what way the equity can be satisfied". Plimmer was not a case of an incomplete gift. It concerned a situation where the holder of a revocable licence had made improvements at the request of the proprietor. The High Court in Giumelli also identified Baumgartner as another category of case that turned on
[11]above, at what 112 -- 113
[12](1884) 9 App Cas 699 and 714
"the general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstance is in which it was not intended that the other party should enjoy them".[13]
[13]Giumelli, above, 113
Baumgartner also was not a case of an incomplete gift. That latter category was referred to in Giumelli as one where the relief
"was found in an assumption as to the future acquisition of ownership of property which had been induced by representations upon which there had been detrimental reliance by the plaintiff."
The High Court went on to say
"This is a well recognised variety of estoppel as understood in equity and may found relief which requires the taking of active steps by the defendant".
In my view, the present case on the above facts, is clearly in the third category and the first and second defendants would be regarded in equity as the beneficial owners of the property and entitled to orders compelling the third and fourth defendants to transfer legal ownership to them. The third and fourth defendants may properly be said to hold the property on a constructive trust in favour of the first and second defendants, a trust being one that is proprietary in nature[14].
[14]Giumelli, above, 112
Conclusion
For the foregoing reasons the no case submission of the defendants fails. I turn then to the question whether the plaintiff has made out its case.
I have referred above to the facts which are established if the evidence taken at its highest from the plaintiff’s point of view is considered. As it happens, I am also satisfied that those are the facts that should be found in any event. I do not propose to go in detail through the evidence relied upon by the plaintiff. An examination of the documents, aided by the defendants’ answers to interogatories, clearly justifies those findings. If there were any doubt, that evidence should be more readily accepted and relevant inferences more readily drawn because of the failure of the defendants to give evidence and the lack of evidence before me to explain that absence. I note that defence counsel suggested that the third defendant was currently overseas in Lebanon and too ill to travel. No evidence was placed before me, however, to substantiate those instructions.
The defendants rely again on the arguments that were advanced to support the case that there was no case to answer. Those arguments are analysed above and for the reasons I have given, they do not succeed.
The plaintiff is entitled to the declaration sought.
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