Crafter & Ors and Crafter & Ors
[2012] FamCAFC 199
•4 December 2012
FAMILY COURT OF AUSTRALIA
| CRAFTER AND ORS & CRAFTER AND ORS | [2012] FamCAFC 199 |
| FAMILY LAW – APPEAL – TRUSTS – Where in considering whether there was an express trust or resulting trust it was asserted the trial Judge did not expressly set out what was required for such a trust to be established – The trial Judge did consider what was required for the existence of an express trust and counsel on appeal conceded a resulting trust could not exist – Where the trial Judge found there was no express trust or constructive trust – The evidence supports the finding that there was no express trust and the finding that there was no constructive trust was open to the trial Judge. FAMILY LAW – APPEAL – OTHER FINDINGS – Where the trial Judge made other findings which were challenged – The findings made by the trial Judge were open to him on the evidence. |
| Family Law Act 1975 (Cth) s 78 Real Property Act 1886 (SA) s 71(e) |
| Bahr v Nicholay [No 2] (1988) 164 CLR 604 Byrnes v Kendle (2011) 243 CLR 253 Devries v Australian National Railways Commission (1993) 177 CLR 472 Kauter v Hilton (1953) 90 CLR 86 Nelson v Nelson (1995) 184 CLR 538 SSHontestroom v SS Sagaporack [1927] AC 37 Trident General Insurance Co Limited v McNiece Bros Proprietary Limited (1988) 165 CLR 107 |
| FIRST APPELLANT: | M Crafter (by her personal representatives) |
| SECOND APPELLANT: | W Crafter |
| THIRD APPELLANT: | D Pty Ltd |
| FOURTH APPELLANT: | PJ Crafter |
| FIRST RESPONDENT: | PA Crafter |
| SECOND RESPONDENT: | B Crafter |
| THIRD RESPONDENT: | N Pty Ltd |
| FILE NUMBER: | ADC | 142 | of | 2007 |
| APPEAL NUMBER: | SOA | 27 | of | 2011 |
| DATE DELIVERED: | 4 December 2012 |
| PLACE DELIVERED: | Perth |
| PLACE HEARD: | Adelaide |
| JUDGMENT OF: | Bryant CJ, Finn & Thackray JJ |
| HEARING DATE: | 14 & 15 May 2012 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 3 March 2011 |
| LOWER COURT MNC: | [2011] FamCA 122 |
REPRESENTATION
| COUNSEL FOR THE APPELLANTS: | Mr Stevens |
| SOLICITOR FOR THE APPELLANTS: | Stokes Legal |
| COUNSEL FOR THE FIRST RESPONDENT: | Mr Tredrea |
| SOLICITOR FOR THE FIRST RESPONDENT: | Jo-Anne N Milen and Associates |
| COUNSEL FOR THE SECOND RESPONDENT: | No appearance |
| SOLICITOR FOR THE SECOND RESPONDENT: | Lindleys Solicitors |
| COUNSEL FOR THE THIRD RESPONDENT: | No appearance |
| SOLICITOR FOR THE THIRD RESPONDENT: | Lindleys Solicitors |
Orders
The appeal be dismissed.
The second, third and fourth appellants pay the first respondent’s costs of and incidental to the appeal as agreed and in default of agreement, as assessed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Crafter & Crafter has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT ADELAIDE |
Appeal Number: SOA 27 of 2011
File Number: ADC 142 of 2007
| M Crafter (by her personal representatives) |
First Appellant
And
| W Crafter |
Second Appellant
And
| D Pty Ltd |
Third Appellant
And
| PJ Crafter |
Fourth Appellant
And
| PA Crafter |
First Respondent
And
| B Crafter |
Second Respondent
And
| N Pty Ltd |
Third Respondent
REASONS FOR JUDGMENT
Introduction
This appeal arises out of transactions that occurred during a financial crisis experienced by an Adelaide family more than 20 years ago.
The transactions ensured various assets were retained by members of the family, but it is now claimed that those members of the family who hold the legal title to the assets do so as trustees for other members of the family.
The dismissal of these claims has led to this appeal.
The trial and the outcome
The contested claims emerged during proceedings between B Crafter (“the husband”) and PA Crafter (“the wife”) who were married in 1986 and separated in June 2006.
The issues between the husband and wife were settled at the start of the trial on the basis that their assets (whatever their composition) would be divided 52:48 in the wife’s favour.
The trial Judge, Murphy J, was then left to determine the claims made by the husband’s family and counterclaims by the husband and wife against the husband’s family concerning ownership of what were called “the contentious assets”. Although resolution of the claims would have an impact on the size of the asset pool, the husband and wife nevertheless agreed that the 52:48 division would still apply.
The matter proceeded to trial in August 2010, and judgment was delivered on 3 March 2011. Murphy J held that the legal titles to the contentious assets reflected their beneficial ownership. The property held in the names of the husband and the wife (and by a corporation found to be controlled by them named N Pty Ltd) was therefore divided in accordance with their earlier agreement.
The outcome of his Honour’s ruling was that the wife received two blocks at G held in the joint names of the husband and wife, and the husband received a property at MM held in the name of N Pty Ltd in which the husband and wife are the directors and only shareholders.
The parties to the appeal
The husband, the wife and their company N Pty Ltd do not challenge the trial Judge’s determination in relation to the contentious assets. The only appeal is this appeal which is by members of the husband’s family and a corporation they control.
The first appellant, M Crafter, is the husband’s mother (now deceased). The second and fourth appellants, W Crafter and PJ Crafter, are the husband’s brothers. The third appellant is D Pty Ltd.
The wife is the first respondent in the appeal. The husband is the second respondent. The third respondent is N Pty Ltd. Neither the husband nor N Pty Ltd sought to be heard on the appeal.
The husband’s father, J Crafter, is not a party to the appeal in his own right, nor was he a party at the time of trial. However, he and PJ Crafter, in their capacity as the executors of the Will of M Crafter, were substituted for the first appellant by our order.
We will refer to the parties by their family position, rather than by name, save where it is necessary to distinguish between the husband’s brothers.
The corporate parties
Our reasons will be more easily understood if we record here some details about the two corporations that are parties to the appeal.
N Pty Ltd was formed in 1989. As at 8 June 1989, the directors were Mr K and Mr L. On 8 April 1990, they were replaced by the husband and Mr T (a friend of the husband’s father). The husband’s father was company secretary from 8 June 1989 until the wife assumed that role on 31 December 1991, when she also replaced Mr T as a director. (Reasons 174; AB 178, 247).
N Pty Ltd is the registered owner of one of the contentious assets, but has never traded, and has never produced any accounts. The husband and wife were the sole shareholders and directors at the time of trial. One of the matters in contention in the appeal is the trial Judge’s finding that N Pty Ltd is “plainly under the control” of the husband and the wife. (Reasons 13, 125, 213).
D Pty Ltd was formed in November 1999. Trading under the name of Crafter & Co, it operates the furnishings business that featured prominently in the litigation. The shares are held by the husband’s brothers. (Reasons 213, 241).
The contentious assets
The contentious assets originally comprised:
Property 1 and Property 2, G – these blocks are now held in the names of the husband and the wife, but before the financial crisis they were held by a company controlled by the husband’s parents.
Property 1 at MM – now held by N Pty Ltd, but held by the husband’s parents before the financial crisis. This is the property from which the furnishings business operates. Although the trial Judge referred to “the husband and wife” living rent free in part of the premises, it is not in doubt that he was referring to the husband’s parents, who have lived there since their home was sold during the financial crisis. (Transcript, 9 August 2010, p 283).
D Pty Ltd – this entity did not exist at the time of the financial crisis. At that time, the business now operated by D Pty Ltd was owned by a company controlled by the husband’s parents.
Two blocks at B (also sometimes referred to as “L”) – one block is held in PJ Crafter’s name and the other in W Crafter’s. These were not assets of the Crafter family prior to the financial crisis.
At the time of trial, the contentious assets had the following agreed values:
·Property at G - $570,000
·Property at MM - $485,000
·D Pty Ltd - $270,000
·PJ Crafter’s block at B- $120,000
·W Crafter’s block at B - $90,000.
D Pty Ltd can now be regarded as not forming part of the contentious assets, given the absence of a cross-appeal against the orders dismissing the claims of the husband and the wife concerning the furnishings business.
The B blocks remain contentious only to the extent that the appellants seek to discharge Order 3, which is the order by which the trial Judge dismissed applications seeking declarations in relation to those blocks. The Notice of Appeal did not formally seek any relief in relation to the B blocks, but counsel for the appellants acknowledged that if his primary argument succeeded, it would follow that orders would need to be made to ensure that the legal title to the blocks reflected what the appellants claim is the true beneficial ownership. (Appeal transcript p 5, 6).
The origin of the dispute – the financial crisis
This appeal has its origin in the financial crisis we mentioned earlier. Before giving the full chronology of events, we will first describe how the crisis arose.
The husband’s parents had operated the furnishings business for many years before the crisis. The trial Judge found that all members of the family had been involved in the business “to varying degrees and from time to time”. However, the husband and wife were not dependent upon that business because the husband had his own cleaning business, which provided a source of income. (Reasons 1, 44).
The husband’s father, who had his own accountancy practice, decided to branch out into other areas. Together with one of his clients, he became involved in the development of land at G and, importantly, decided also to purchase a business engaged in the manufacture and sale of farm equipment. (Reasons 2).
The farm equipment business was acquired in 1987, the year after the husband and wife married. It was operated by Business 5 Pty Ltd, in which the husband’s parents were the shareholders. Some of the funds borrowed to acquire the business were secured over the S home of the husband’s parents. The husband and wife also lent the husband’s parents $65,000 to assist with the purchase of the business. (Reasons 3, 38, 131; AB 172).
Business 5 Pty Ltd quickly ran into financial difficulty and needed a large injection of funds. This was achieved by borrowing $525,000 from Financier 1, repayable within six to twelve months, and at 22% interest per annum. (Reasons 3, 39; AB 173, 216).
Members of the husband’s family and associated entities signed the Financier 1 loan agreement in February 1988, as did the husband and wife. W Crafter was not a party to the loan. The associated guarantees exposed not only the assets of the husband’s parents, but also those of the husband and his brother PJ Crafter, and their spouses. Amongst the assets at risk were the furnishings business, the business premises at MM (and the adjoining property) and land at G, all of which were owned by the husband’s parents or by corporations they controlled.
The Financier 1 loan did not resolve the problems. Business 5 Pty Ltd defaulted on its obligations to other creditors and was placed into liquidation in November 1988, leaving insufficient funds to repay the Financier 1 loan. (AB 171, 173, 1135).
The transactions undertaken to deal with this calamity have led to this appeal, nearly 25 years later.
Chronology of relevant transactions
The following chronology is drawn from unchallenged findings, supplemented by what we apprehend to be uncontentious evidence. Where we rely upon evidence, rather than a finding, we give an Appeal Book (AB) reference.
In 1975, the husband’s parents established Business 1 Pty Ltd, of which they were the only shareholders and directors. This corporation conducted the furnishings business from a workshop at Property 1 MM, which was owned by the husband’s parents, as was the adjoining property at Property 8 MM. (Reasons 35, 122).
In 1975, the husband’s parents established Business 3 Pty Ltd and Business 4 Pty Ltd ([it was] later renamed Business 4 Pty Ltd). Nothing turns on the fact that the trial Judge recorded that these were formed in 1978, rather than 1975, as shown by the ASIC extract. (Reasons 36; AB 191, 195).
Nor does anything turn on inconsistencies in some findings about land acquired at G in the 1970s, following the formation of Business 2 Pty Ltd. (Reasons 36, 122, 124). It is sufficient to record that the two blocks at G, now forming part of the contentious assets, appear not to have been acquired by Business 2 Pty Ltd, but rather by Business 4 Pty Ltd. (AB 170). The husband’s parents did have an interest in other land at G, which was held by Business 2 Pty Ltd, but as trustee of a unit trust, in which a third party also held an interest. (AB 169).
In 1978, the husband’s parents established The Crafter Family Trust (with Business 1 Pty Ltd as trustee). (Reasons 36; AB 964).
In 1981, the husband acquired two blocks at Property 1 and Property 2, in V. The former matrimonial home of the husband and wife was erected on one, while the other block was sold in 1996. (AB 116, 117, 1048, 1053).
The husband commenced his own cleaning business in 1985, the year before the husband and wife were married.
In 1987, the husband’s parents purchased the farm equipment business via Business 5 Pty Ltd, which then encountered the financial problems earlier described.
On 11 February 1988, the Financier 1 loan agreement was executed. Business 5 Pty Ltd, Business 2 Pty Ltd, Business 4 Pty Ltd, Business 3 Pty Ltd and Business 1 Pty Ltd were parties, along with the husband’s parents, the husband and the wife and PJ Crafter and his wife. Each individual gave a guarantee, as did the corporations, save for Business 5 Pty Ltd. (Reasons 39; AB 173, 204, 211 et seq).
The trial Judge recorded that at the time they guaranteed the loan, the husband and wife were operating their cleaning business, and also owned the Property 1 and Property 2 at V, each of which “it seems, [were] either mortgage free or had minimal borrowings secured on them”. They had also purchased land at Property 3, V, which the wife said was encumbrance free at the time of the financial crisis. Although the evidence about PJ Crafter’s position was unclear, it appears he was working in the furnishings business, and that he and his wife also owned a house, subject to a mortgage, and “had some borrowing capacity”. (Reasons 40, 41, 123; AB 1021).
The other brother, W Crafter, was only about 20 at the time; had no assets; and therefore did not guarantee the loan. He said he had no knowledge of the arrangements relating to the loan, and had only learned details from others. When asked why he claimed to have a beneficial interest in the G property, W Crafter’s response was that “in 1988 or 1989 or 1990” his father spoke to him about a plan “to get everyone out of trouble” with respect to the Financier 1 debt. He also said he had not had a conversation with the husband “with a commercial or business theme” since 1990. (Reasons 42, 43).
On 8 November 1988, a liquidator was appointed to Business 5 Pty Ltd, apparently at the request of one of its suppliers. On the following day, a receiver manager was appointed to Business 1 Pty Ltd, which was then operating the carpet business, and the same receivers were also appointed to the corporations developing the G land. These appointments were apparently made by Financier 1. The receivers remained in place until March 1991. The Business 5 Pty Ltd liquidation was completed in August 1991. (Reasons 39, 191; but see also AB 174, 184, 200).
As the trial Judge found, there was no cogent evidence of how much was received from the sale of the Business 5 Pty Ltd assets. His Honour noted the husband’s father’s claim that he was not informed of the amount, although he believed it fell “well short” of what was needed to satisfy Financier 1. The trial Judge further recorded that no-one else had provided any evidence about the quantum of the shortfall, thus making it impossible to determine to what extent the assets of the guarantors of the Financier 1 loan were “put in jeopardy”. (Reasons 194, 195).
Although the receivers elected to continue to run the furnishings business, they later decided to effect its closure contemporaneously with the sale of its assets. The husband’s father said that the receivers decided that these assets had to be sold to repay the Financier 1 debt, which “had been accumulating interest and had grown significantly”. Attempts to raise funds by selling the G and MM properties had seemingly failed. (Reasons 47; AB 175, 225, 226).
The husband’s father said that he had approached a finance broker (“Mr K”) for advice about how to repay Financier 1. He claimed that Mr K “came up with a proposal which he put in writing in an undated letter addressed to me”. The husband’s father conceded in cross-examination that he had himself typed this unsigned letter (JDC-11), but maintained it had been given to him in draft by Mr K. (Reasons 152, 165; AB 176).
Whatever its origins, the letter was said by the husband’s father “to evidence the overall plan or endeavour and which can, then, be seen to be the foundation for all the transactions which follow it”. Counsel for the appellants asserted that all aspects of the plan described in the letter were carried out (save that the G land was placed in the names of both the husband and the wife). Given its importance, we set out JDC-11 in full. (Reasons 150):
Mr J. Crafter, [Sender’s address]
[Address]
Dear [J Crafter],
I have been able to arrange the following to assist you to pay out [Financier 1].
1. Sell [G house] and adjoining
land to [Mr Q] for $140,000
Take over two blocks of land at
[L] at $45,000 each 90,000
50,000
Finance for [W Crafter] and [PJ Crafter]
on both blocks 60,000 110,000
2. Sell [house at S] and
Block to [Mr Q] for $360,000
Less Owing 265,000 95,000
Take over block of land for Construction – Finance application to [Financier 2] in N Pty Ltd name - $95,000 is nett to [Financier 1].
3.Refinance 50 acres at [G] through State Bank in [the husband’s] name – nett to [Financier 1] 150,000
4.[Financier 3] Loan on Workshop at [Properties 1 and 2 at MM],
– Solicitors have been instructed
and loan to settle in short term
Nett to [Financier 1] 90,000
5. Sell Workshop for $400,000
(purchasing Company name unknown yet
but a separate identity to the [Crafter’s]
Less Owing280,000
Nett to contribute to [Financier 1] 120,000
$565,000
I would expect items 1 & 4 to settle in the coming week which will give $200,000 to Cash Resources. The State Bank have indicated that they will be able to settle also next week but expect it to be early the following week – this will generate a further $150,000 to them.
You will have to get Cash Resources to agree to this scenario and I suggest that you and I see them on late Monday or early Tuesday morning.
Yours faithfully
The husband’s father claimed in his oral testimony that the plan outlined in this document was the subject of a discussion at a meeting chaired by Mr K at “about the end of April 1990”, at which the husband and the wife were present. The trial Judge did not accept this, and in doing so noted the “extraordinary” explanation from counsel for not having put the meeting to the wife in cross-examination, namely that instructions had only been received about the alleged meeting after she was cross-examined. (Reasons 160, 161, 162).
On 12 April 1990, the assets and stock of the furnishings business were sold by Business 1 Pty Ltd to W Crafter for $20,000. The contract was prepared by the receivers’ solicitors. The contract recorded that W Crafter was acquiring only the “Assets and the Stock”, and was “not purchasing any goodwill whatsoever, nor is he purchasing a business”. It went on to record that W Crafter had advised the vendor that he was purchasing the assets “with a view to commencing a [furnishings] business forthwith after settlement being effected pursuant to this Agreement”. (AB 153, 225, 228, 229).
It was common ground that W Crafter had no assets and had not been actively involved in the running of the business. On the same day as the acquisition of the business assets, another document (JDC-8) was created by the husband’s father, which he described as being “a further agreement…in respect of the provision of finance to [W Crafter] for the purpose of purchasing the business assets of [Business 1 Pty Ltd] … ”. The husband’s father said the reason the agreement was made was because “[the husband] came to me and said that he and [the wife] wanted something in writing stating that they had provided $15,000.00 finance towards the purchase price of the assets”. (Reasons 171, 225).
Although the contract of sale had been quite specific in saying that W Crafter was acquiring only the assets and stock, and was not acquiring a business or any goodwill, JDC-8 was expressed as follows. (AB241):
PURCHASE OF BUSINESS PLANT AND STOCK OF [FURNISHINGS] BUSINESS OF [BUSINESS 1 PTY LTD] BY [W CRAFTER].
12th April 1990.
The purchase of the [furnishings] business by [W Crafter] from [the receivers] for $20,000-00 has been settled today.
The purchase was effective in the name of [W Crafter] on behalf of [the husband] of [Property 1, V].
The Monies used to purchase the business were as follows-:
Loan monies from the following:-
[The husband and the wife]
Of [Property 1, V]…
for the sum of $15,002-50
[The husband’s mother]
Of [Property 2]
[MM] …for the sum of $5,003-50
$20,006-00
The Amount paid to [the receivers] was $20,000-00
together with cost of Bank cheques (2) 6-00
$20,006-00[indistinct]
It is Hereby agreed that the business registered to trade as “[Crafter] & Co” is the property of [the husband] and held in trust by [W Crafter] until such time as [the husband] is in a position to rightfully claim the business assets as his.
Signed and Sealed this day
[W CRAFTER]
[THE HUSBAND]
[THE HUSBAND’S MOTHER]
The trial Judge drew attention to the “extremely surprising” fact that the husband had, in his affidavit, claimed not to know anything about the evidence given by his father about this arrangement, and the “equally curious and surprising” fact that he had said “not a word about the [furnishings] business, JDC8 or the events of April 1990 surrounding it”. (Reasons 235).
His Honour also recorded at paragraph 240 that:
In his affidavit [W Crafter] says nothing of JDC8. Nor does he depose to any understanding that the business was subject to any trust or like interest … He does not explain how a young man with no assets and little income effected the purchase; certainly no loan is mentioned.
His Honour was not correct in making some of these observations since W Crafter did say in his affidavit that he had borrowed the money required to purchase the assets. He also attached a copy of JDC-8 to his affidavit. However, it was true that W Crafter said nothing by way of explanation about the trust mentioned, or how he ever proposed to repay the loans. (Reasons 240; AB 126, 152).
The trial Judge also drew attention to a passage of transcript in which the husband’s father said the intention was that W Crafter would hold the business for the husband, who would, in turn, hold it on trust for the rest of the family. His Honour also noted PJ Crafter’s evidence that he was not aware of JDC-8 and had only been briefed about it “after it had been done”. (Reasons 238, 247).
On 12 April 1990, the same day he acquired the business assets, W Crafter became the owner of the (new) name, “Crafter & Co”, under which the business was thereafter operated. Counsel for the wife submitted to us that this was further evidence of the fact that no weight could be placed on documents created by the husband’s father, since W Crafter was not carrying on the business at the time, yet the document said he was. (Reasons 125; AB 155; Transcript, 10 August 2010, p 372; Appeal transcript p 138; but see AB 127,128).
On or about 18 May 1990, the husband’s parents sold Property 1 and Property 2, MM to N Pty Ltd. The stated price was $420,000. There were “incidentals” of $17,459. These were for rates and taxes, stamp duty and fees. The husband’s father believed that the husband and wife paid these. (Reasons 175; AB 177, 252).
Although the purchase price was nominally $420,000, only $280,000 was paid at settlement, all of which was borrowed from Financier 3. The balance of $140,000 was recorded on the settlement statement as “carried by Vendor unsecured”. It is unclear what amount, if any, was paid to Financier 1. As the trial Judge observed, JDC-11 appeared to record an existing liability of $280,000 relating to the properties. If that was so, then there would have been no funds to pay to Financier 1. However, the husband’s father said the proceeds were paid to the receivers, which if true no doubt meant the monies did find their way to Financier 1. (Reasons 169, 175; Transcript, 6 August 2010, p 226).
The wife acknowledged that the sale price had been determined by reference to a valuation of $420,000 obtained in late 1989. However, she said this valuation was a sham. It is noted that the valuation had been relied upon by N Pty Ltd in persuading Financer 3 to advance the $280,000. No demand was ever made by the husband’s parents for payment of the $140,000. Nor were we directed to any evidence to suggest that this entitlement was disclosed by the husband’s father when he became bankrupt. (Reasons 176).
Although the trial Judge found that the application made by N Pty Ltd for the $280,000 loan was dated 4 December 1989, this appears to be the date of the letter by which Financier 3 advised N Pty Ltd that the application had been “conditionally approved”. Surprisingly, however, the date shown next to the signatures of those who accepted the terms was 30 October 1989. (AB 253, 255).
The husband and wife (and HH Pty Ltd which was operated by Mr T) were the guarantors of the Financier 3 loan, notwithstanding the husband and wife had yet to be appointed as directors of N Pty Ltd. No guarantee was provided by Mr L who, along with Mr T, was the director of N Pty Ltd at the time. According to the husband’s father, HH Pty Ltd later went into liquidation and Mr T ceased to be a director of N Pty Ltd. (AB 178, 178, 247).
On 8 June 1990, the receivers of Business 4 Pty Ltd sold the two blocks in G to the husband and wife for $160,000. The purchase was financed by a $150,000 loan obtained by the husband and wife from Financier 4, together with $10,000 advanced by the husband’s mother. The proceeds of the Financier 4 loan were paid at settlement, but the $10,000 balance was not paid by the husband’s mother until after the receivers made demand after settlement. (Reasons 48, 125, 186; AB 178, 304, 1088).
At around this time, the husband’s brothers each became the registered proprietor of a block at B. The former owner of these two blocks (a land broker) “swapped” them for real estate at G that, until then, had been owned by Business 1 Pty Ltd. The land broker paid a further $20,000 to complete the deal. PJ Crafter then borrowed $45,000, and W Crafter $25,000, from Financier 5, using the blocks as security. These two amounts, along with the $20,000, were paid to Financier 1. The husband’s father claimed that the husband’s mother had obtained funds from the furnishings business and from her mother and aunt to repay the Financier 5 loans “by about the late 1990s”. (Reasons 48 125, 178, 180, 182; Appeal transcript p 50).
On the hearing of the appeal, it was explained that the way this land “swap” had been advantageous was because the values of the B blocks had been “inflated” to enable the husband’s brothers to borrow a larger amount than they would otherwise have been able to borrow. We were further candidly informed by the appellants’ counsel that if we looked at the names of the parties involved we would see what “we in Adelaide call the usual suspects when it comes to doing unusual transactions”. (Appeal transcript p 10, 11).
The husband’s father claimed in oral evidence-in-chief that, in about 1994 or 1995, the husband came to him saying that the wife wanted to “get paid for the money that she has put into the business”. In the course of his testimony, a number of documents were produced, relating to quantification of claims made by the husband and wife against the husband’s parents. We refer to these at this point in the chronology because it turned out that all the documents tendered were dated 8 July 1990, and because it is apparent his Honour did not accept the relevant discussions took place in 1994 or 1995. (Reasons 198, 199, 209).
One of the documents was described by the trial Judge as “a scrap of paper…which contains pencil notations of figures and showing a total of $43,504.28” (Exhibit R3). The husband’s father said this was the amount of the husband and wife’s claim at the time. (Reasons 199, 200).
Another of the documents dated 8 July 1990 was a memo (Exhibit R1) from the husband’s father to the husband in the following terms (the format replicates the original):
Memo:
To [the husband] 8 July 1990
…
Further to my telephone call last night I agree that we should determine the monies owing to you and [the wife] now so that we all know where we are heading.
I think we have pretty well sorted out the [farm equipment] contribution at $43,000 to $45,000 and assuming that all mainly came from you the position would be as follows:-
[Husband] [Wife] Total
1. [Business 5] $45,000 details & dates to be confirmed by you $45,000.00
for the purpose of interest calculation2. 30/6/88 ([Business 5] P/L) $20,000.00 $20,000.00
12/4/90 [Crafter] & Co $14,000.00 $14,000.00
28/6/90 [Financier 3] $22,154.29 $22,154.29
a/c workroom [N] P/L $56,154.29$2551.00
3. 6/11/88 [Business 5] P/L 7/6/90 6364.09 RLB $2551.00
$1639.63 8/6/90 230.00 production
7/4/89 [Business 7] Rent 8/6/90 82.00 $1639.63
12/6/90 575.00 SD
22/10/89 $2778.67 [Financier 6] 7191.09 $2778.67
12/4/90 $1000.00 [Crafter] & Co $1000.00
22/5/90 $1575.00 [G] loan fees $1575.00
7/6/90 $7191.09 $7191.09
29/6/90 $1602.12= Int 337.57 BC $1602.12
$119,491.80
--------------------------------------PAGE BREAK-----------------------------------------[Husband] [Wife] Total
B/Fwd $63,337.57 $56,154.29 $119,491.80
Plus LSL to 12/4/90 owing to [Business 1] P/L
AHP to 12/4/90 owing to [Business 1] P/LLSL to 13/4/90
30/6/90 owing to [Business 1] P/L
AHP to 13/4/90
30/6/90 owing to [Business 1] P/LPlus Superannuation
Payout at time taken out of Fund – owing by [JD Crafter]
To be advised by H.H or National MutualPlus Interest?? To be calculated
If you don’t agree with any of the above please let me know otherwise I will take it as read.- My sincere thanks to you and [the wife] both for your support
Dad
The trial Judge made these observations about Exhibit R1:
201.Exhibit R1 … lists expenditure – apparently including some, at least, of the expenditure claimed by the wife just referred to – and gives a total of $119,000 added to which, it is acknowledged, should be other items, but the amounts of which are not specified … Save to thank the husband and wife “for their support”, there is no mention as to how any monies said to be owing are related to the transactions [concerning the contentious assets], all of which, it will be noted were very much live at the time.
202.The wife refers to Exhibit R1 in her affidavit and says that it acknowledges that about $65,000 was owed to the husband and wife in respect of their investment in [Business 5 Pty Ltd] (i.e. the [farm equipment] business), $15,000 being in respect of monies paid by them for the acquisition of the [furnishings] business and the balance being a list [of] other amounts said to have been paid by she and the husband in respect of the [furnishings] business.
On 8 July 1990, the husband’s father sent another memo to the husband (Exhibit R2). Rather than reproducing it, we will set out his Honour’s observations about this document:
203.A further handwritten document, which became Exhibit R2, is also written by [the husband’s father] and dated the same day. It is also styled “Memo To” and addressed to “[the husband]”. It commences “Regarding the profitability of the workroom I see the position as follows …” . The document, then, relates to a business which, it will be recalled, had, according to JDC8, been transferred to [W Crafter] less than three months previously and which, according to JDC8, was being held by [W Crafter] “in trust” for the husband until he could “rightfully claim the business assets as his”.
204.In light of the claim for joint endeavour, the following extract from Exhibit R2 should be noted:
3. The business will show a true loss at 30/6/90 once all of [the factors earlier referred to] have been brought to account. However, this was the desired plan at 30/6/90 – cash flow wise the business contributes over a 12 month period x$ – time will tell how much exactly.
An alternative is to close down the workroom now which puts 5 people out of a job – if the family decide to do this as a whole then [the husband’s mother] and I will have to decide what we intend to do in that regard without the rest of the family. I would have to raise the necessary cash to repay the loan …
205.I do not propose to quote the “memo” in its entirety, but the general tenor of it is of a man very much in control of what would, or would not, be done financially to a business in respect of which he himself had previously authored a document purporting to evidence its transfer to someone else who was, in turn, holding it “in trust” for someone else.
206.The document lists three things said to constitute the “current position” and refers to “commission on real estate trade deals with [Mr A] or [Mr K]” which, [the husband’s father] says in the document, he “rates as 50% [likely] because nothing definite is on the table at the present time” but then goes on to list 5 projects or deals which “are in the pipeline”. [The husband’s father] goes on:
Now if nothing else happens to the workroom business as far as an increase in business is concerned I would then put some of the developmental income into the [furnishings] side to eat up the loss to [Financier 3] as far as the interest is concerned.
207.In looking at whether the events of 1990 are a joint endeavour and, if so, contributions that might have been made to it, I consider it noteworthy that Exhibit R2 says:
I have tried to change both [PJ Crafter] and [W Crafter] in their ways as far as work is concerned and as you know it can be ok for a few days then back to what it was – the alternative is to dispense with their services or close or correct the situation either of the courses will cost me personally the same amount of money or more and I have chosen over the last few years to concentrate on the income side to offset the other.
If we change it to payment for hours worked even you would have some difficulty with your full weeks work when reps etc are taken out. So I have left things as they are.
In conclusion I don’t see a major problem with the workroom my main concern is to get things moving all round to improve our position to get the loans repaid.
208.Whilst it might be argued that at least some of the statements made in this relatively contemporaneous document are redolent of joint plan or endeavour, I think them much more redolent of a man who will be bankrupt within about six months and who has purportedly divested himself (and corporations which he controlled) of assets, but who is, nevertheless, asserting, or seeking to assert, control over those very same assets.
In addition to these matters mentioned by the trial Judge, we think it also worth noting that Exhibit R2 contains a notation, “Rent?? $70,000PA”. This was included with a series of figures dealing with “the profitability of the workroom”. In the context, it appears to us that this could only relate to the MM premises at which the business workroom was located.
On 8 May 1991, N Pty Ltd sold Property 2, MM to unrelated parties for $185,000. The wife implied this had to be done because the business had been having difficulty in meeting the mortgage payments. The net proceeds of $177,500 were used to reduce the mortgage balance. The business continued to be run from the adjoining premises. (Reasons 124,125, 177; AB 260).
On 10 May 1991, a new business name, “Business 6”, was registered in the name of the husband’s father. The registration was transferred to the name of the husband’s brother, PJ Crafter, on 31 May 1991. (Reasons 125; AB 349, 351).
In January 1991, the husband’s father was made bankrupt. He was unable to recall the date of the judgment grounding the sequestration order, but as the trial Judge noted, it clearly had to be prior to January 1991. (Reasons 49, 192).
On 20 September 1991, the husband’s father was imprisoned for fraudulent conversion. The complainants were relatives of the wife. There was no evidence of when the complaint was made, but as his Honour pointed out, it must have been well prior to the conviction. The trial Judge also noted there was no evidence of the amount misappropriated, or how the funds were used, including whether they “found their way into attempts to retrieve the situation with [Financier 1]”. The wife said the misappropriation represented the “life savings” of her relatives. (Reasons 50, 51; AB 181, 1016).
On 27 February 1998, Business 1 Pty Ltd, Business 2 Pty Ltd, Business 3 Pty Ltd and Business 4 Pty Ltd were all dissolved. Business 5 Pty Ltd was dissolved the following year. (AB 183, 187, 191, 195, 199).
Although not recorded in his Honour’s reasons, the husband’s father claimed that, on 7 July 1998, he had repaid the $15,000 the husband and wife had advanced to assist W Crafter to acquire the business assets – i.e. more than eight years after the advance, and without interest. The husband’s father also claimed that the $15,000 came from Business 7, which was the business said to be owned by PJ Crafter.
The husband’s father produced a Business 6 bank statement showing that a cheque for $15,000 was cashed at this time. (AB 175, 244). The husband’s mother claimed she accompanied the husband and the wife to the bank when the cheque was cashed, but the husband and wife both denied this. The trial Judge accepted the wife’s evidence in preference to that of the husband’s mother. (Reasons 188).
Although rejecting her evidence about the trip to the bank, the trial Judge accepted that at around this time, namely on 16 July 2008 and 30 July 2008, the husband’s mother had paid two amounts of $7,000 each in reduction of the G mortgage. (Reasons 188). Although it could be surmised that the source of this money was the $15,000 drawn on the Business 7 accounts on 7 July 2008, no finding was made about this.
We pause to note that we can see no prejudice to the appellants arising out of the failure of the trial Judge to mention the assertion that these funds represented repayment of the $15,000 advanced by the husband and wife to W Crafter to assist him to acquire the assets of the business. This is because the claims of both the husband and the wife to have an interest in the business were rejected, and his Honour did not find that the $15,000 remained owing.
There was controversy about who paid the rest of the mortgage payments on G. The wife rejected the assertion of the husband’s mother that she and the furnishings business had met these payments, although the wife accepted that the husband’s mother had met some costs such as “grass slashing and the like”. The trial Judge accepted the wife’s evidence. (Reasons 188).
We should note that the husband’s evidence was that “As a result of discussions between my parents and the wife and me, we agreed that … repayment of borrowings in relation to [G] would be made by the wife and me … ”. Finally, we should note that the husband’s father accepted that the husband and wife had made all the mortgage payments on G for the first five years. (Reasons 188; AB 119; Transcript, 6 August 2010, p 231).
On 12 July 1999, at least according to Minutes produced by the husband’s father, a meeting occurred at which there was discussion of entitlements of the husband and the wife (Exhibit R4). These read as follows (our emphasis):
Minutes of discussion Re [the husband] & [the wife] with [Mr Z] on 12/7/99 at 8.30 P.M.
1. [The husband] put up $15K of the $25K = 60%.
2. [The husband] should therefore collect 60% of $1.0m [Mr Z] allotted through [a business] by the issue of 10 ord shares
= $600K plus a contribution that I was going to make for putting up their house and guarantee of loans etc
House
$60K
paid
[G]
$160K
paid
Land
Workroom
$180K
400K
= $1.0m
3. In addition the sum of $119,491.80 being amounts paid to 30/6/90.
Rental mortgage
4. In addition the sum of $50,000 being amount towards Rental House of [Property 1, V].
5. In addition further calculations of amounts paid out by [the husband and the wife] since 30/6/90.
The trial Judge did not reproduce this document in his reasons, but noted that the wife denied that the amounts said to have been “paid” had, in fact, been paid. His Honour also described as “significant” the portions of the document that we have highlighted. (Reasons 211).
On 15 November 1999, nine years after W Crafter had acquired the assets of the furnishings business, D Pty Ltd was incorporated. Three of the ten shares were issued to W Crafter, and the remainder to PJ Crafter. This was done notwithstanding that W Crafter’s evidence was that he has “ceased employment altogether” in the business in 1997 and thereafter received no income from it. (Reasons 241, 244; AB 129, 158, 159).
On 1 June 2000, D Pty Ltd became the registered owner of the business names “Business 7” and “Crafter & Co”, and has thereafter operated the business. (Reasons 125; AB 155, 351).
On 13 October 2000, there was said to have been a meeting between the husband and the wife and the husband’s father, following which minutes were prepared (Exhibit R5). The Minutes read as follows (the emphasis is ours, and we should also record we have made our own transcription of the original document as the typed copy provided to us contained many errors):
Friday 13th October 2000. Meeting [the husband] & [the wife] at [Property 1, MM] at 11:30 AM.
Present [the husband, the wife, and the husband’s father].
1. Discussed the concerns that [PJ Crafter] owns everything including workroom and property. This came about through discussions between the grandchildren.
2. Discussed any benefit that either [PJ Crafter] or [W Crafter] may have received in the past. – None present – [the wife and the husband] happy with that conclusion.
3.Discussed my role with [Mr G] & [Mr Z] – explained purpose of what we were doing.
4. [The wife] to itemise list of expenditure that she has over the years paid out on my behalf. Appears some anomalies may have occurred here.
5. Advised that the no 1 priority is to pay off all loans as monies are made available for that purpose through [Mr Z] and we expect a one-off payment to deal with this. All waiting on [Mr Z] now to arrange for funds to become free and available.
6. [The husband’s father] to work with [the wife] to finalise claim.
7. Meeting concluded 12:30 PM. 1 Hrs duration.
Signed as a true and correct record of what was discussed at the meeting [the husband’s father] 14/10/2000. 8.06 AM
Notes -need to prepare list for inclusion with information for solicitors.
need to establish sums paid by [the husband’s mother] in the early years of the [G] loan with [Financier 4].
The trial Judge did not reproduce these Minutes in full and merely noted the passages we have highlighted. (Reasons 212). Counsel for the appellants acknowledged that the Minutes had not been put to the wife in cross-examination. (Appeal transcript p 63).
At some point after this meeting, the wife gave the husband’s father what he described as “an itemised account” of monies said to be owing to the wife and the husband, totalling $592,454 (Exhibit R6). Counsel for the appellants told us there had been “some considerable conjecture” whether this document had been created in about 1995 or in 2000; however, he submitted that it represented a further instance of the wife attempting to calculate how much would be repayable in the event there was a reconveyance of the contentious assets. He conceded that if it were found that the contentious assets were held on trust, then the husband and wife would be entitled to reimbursement for expenditure they had incurred whilst holding the property. It was submitted that Exhibit R6 was an attempt to work out what that amount would be. (Appeal transcript p 63).
Notwithstanding these meetings, and notwithstanding the quantification of the claims of the husband and wife, “there things stood”, as his Honour observed, until the husband and wife separated some six years later. (Reasons 214).
The “shifting sands”
Before setting out the positions agitated at trial, it will be helpful to understand what Murphy J meant when he referred to the “shifting sands” of the appellants’ claims. Counsel for the wife seized on this description of the appellants’ case by enquiring how his Honour could have been wrong in rejecting their claims, when they themselves could not “give a clear and consistent account” of the trust they claimed existed over the contentious assets. (Appeal transcript p 125).
In order to appreciate the force in this proposition we must set out the history of the proceedings.
The wife commenced proceedings by application filed 11 January 2007. The only respondent named was the husband. The wife sought no orders directed expressly to the contentious assets; however, she included the G and MM properties amongst her assets in her financial statement. She did not mention any interest in D Pty Ltd.
The husband’s response was filed on 1 February 2007. He sought no orders referring to the contentious assets but, in his financial statement, qualified his ownership of the G and MM properties by saying:
such assets are held on behalf of the parents of [the husband] or subject to claims by such parents and therefore…the value of the entitlement(s) of [the husband and/or the wife] is uncertain and possibly nil and should be deducted from the above total …
One week after the husband filed his response, caveats were registered against the G and MM properties. The joint caveators were W Crafter and D Pty Ltd (“the caveators”). PJ Crafter signed the caveats, but only in his capacity as a director of D Pty Ltd.
The caveators’ claimed interest in the G blocks was expressed in these terms (our emphasis added):
to be beneficially entitled to an estate and interest in some at present indefinable share in the land above described having contributed to the maintenance and improvement of the said land. (AB 162, 163).
The caveators’ claimed interest in MM was expressed in these terms (our emphasis added):
to be beneficially entitled to an estate and interest in some at present indefinable share in the land above described having contributed to the acquisition of the said land. (AB 164).
On 5 September 2007, the wife filed an amended application by which she named the husband’s mother, W Crafter and D Pty Ltd as respondents. This document sought the same relief as originally claimed, but went on to seek:
2.A declaration that the husband and the wife are the beneficial owners absolutely of all property, the subject of the within proceedings.
The amended application also sought orders for the withdrawal of all the caveats. It is not clear why this relief was sought against the husband’s mother, as well as against the caveators, as she had not lodged a caveat, nor did she hold any office in D Pty Ltd. (AB 158 et seq).
On 27 November 2007, the husband’s mother, W Crafter and D Pty Ltd filed their response, in which they sought the dismissal of the wife’s amended application, with costs.
On 4 July 2008, the wife filed a document formally styled as a “Further Amended Application in a Case”, although clearly intended to be an amended application for final orders. In addition to the relief sought in her earlier amended application, the wife sought:
2.A declaration that the husband and wife are the beneficial owners of 75% of the [furnishings] business trading as [D] Pty Ltd and that such asset forms part of the matrimonial pool of assets for distribution between the husband and wife.
On 20 October 2008, the wife filed a further amended application in which she sought different orders/declarations relating to the beneficial interest she claimed she and the husband held in D Pty Ltd and the furnishings business.
On 3 November 2008, the husband’s mother, W Crafter and D Pty Ltd filed an amended response in which they sought declarations that they were “entitled to legal ownership” of the G and MM properties, as well as a declaration that they “have an interest in the former matrimonial home owned by the Husband and Wife”. In addition to seeking the transfer to them of the interest of the husband and the wife in MM and G, they also sought payment “of the sum of $166,772.67 to [D] Pty Ltd in respect of monies paid by [the appellants] for and on behalf of the husband and wife”.
On 18 November 2008, the husband filed an amended response, by which he sought:
·that the G properties be sold and the proceeds divided, after allowance for capital gains tax, in proportions 60 per cent to the husband and 40 per cent to the wife;
·a declaration that N Pty Ltd holds its interest in MM on trust for the husband’s mother, W Crafter and D Pty Ltd; and
·that the husband and the wife transfer to the husband’s mother, W Crafter and D Pty Ltd their shares in N Pty Ltd, or their interest in the MM property, subject to an indemnity.
It will be observed that neither the husband’s father nor his brother PJ Crafter had been joined as a party at this point. However, we were informed that, at one stage, the father was made a party. We have been unable to locate any document by which this was done; however, we have located an Application in a Case filed, on 19 January 2009, by the solicitors representing the husband’s mother, W Crafter and D Pty Ltd, in which an order was sought that the father be removed as a respondent and that PJ Crafter be joined as one.
On 21 January 2009, the husband’s mother, both his brothers and D Pty Ltd filed an amended response in which they sought similar relief to that previously sought in relation to MM and G. However, on this occasion, as an alternative, they sought an order for:
repayment by the husband and wife to [the appellants] of all monies paid by [the appellants] paid for and on behalf of the husband and the wife in respect of the [MM] and [G] properties, together with payment of all monies owed and still outstanding to [the appellants] in respect of the said properties.
In lieu of the relief previously sought for payment of $166,772.67 to D Pty Ltd, an order was sought, in favour of unnamed recipients, for “payment of the sum of $166,001.20 being monies paid by the [appellants] for and on behalf of the Husband and the Wife”.
On 18 December 2009, the husband filed another amended response. The relief differed from that proposed previously in that declarations were sought pursuant to s 78 of the Family Law Act 1975 (Cth) that:
· one of the G blocks (Property 1), the MM property, D Pty Ltd and both of the B blocks are held on trust for the husband’s mother, the husband’s father, the husband’s two brothers and the husband himself as tenants in common in equal shares;
· the other G block (Property 2) is held by the husband and the wife jointly, free from any claim or entitlement of other family members.
In the alternative, declarations were sought by the husband as follows:
2.7.1 [The two G blocks], [MM], the [furnishings] business and the [B] land are held on trust for the benefit of [the husband’s mother], [the husband’s father], [PJ Crafter], [W Crafter] and [the husband] in equal shares;
2.7.2 The husband and wife are entitled as joint tenants to be paid by [the husband’s mother], [the husband’s father], [PJ Crafter] and [W Crafter] such sum as shall be determined by this Honourable Court to do equity between: -
2.7.2.1the husband and wife on one hand and [the husband’s mother], [the husband’s father] [PJ Crafter], and [W Crafter] on the other in respect to the payments made by the husband and wife in respect of [the two G blocks] and; further that
2.7.2.2 such sum when so ascertained and made payable by [the husband’s mother], [the husband’s father], [PJ Crafter] and [W Crafter] be charged upon the whole of [the G blocks], [MM], [D] Pty Ltd and the [B] land.
We should here note that the husband had already filed, on 12 January 2009, an affidavit setting out his case, in which no reference was made to him having any interest in the B blocks or the furnishings business.
On 26 February 2010, the husband’s mother, two brothers and D Pty Ltd filed yet another amended response. By this time, N Pty Ltd had been joined as a respondent. The relief sought was as follows:
· A declaration that the husband’s mother, two brothers and the husband are the beneficial owners of the MM property (and a consequential order for transfer or a payment in lieu).
· A declaration that the husband’s mother, two brothers and the husband are the beneficial owners of both the G blocks (and a consequential order for transfer or a payment in lieu).
· The husband and wife pay to the husband’s mother, two brothers and D Pty Ltd $166,001.20, being monies paid by them for and on behalf of the husband and the wife plus interest.
· In the alternative to all of the above, that the husband, wife and N Pty Ltd pay to the husband’s mother, two brothers and D Pty Ltd all monies paid by them for and on behalf of the husband and the wife in respect of MM and G, together with payment of all monies owed and still outstanding to them in respect of the properties plus interest.
· A declaration that W Crafter is the legal and beneficial owner of three of the ten shares issued in D Pty Ltd together with the associated businesses of Crafter and Co and Business 7 and a declaration that PJ Crafter is the legal and beneficial owner of the other seven shares.
· A declaration that W Crafter is the sole legal and beneficial owner of one of the blocks at B.
· A declaration that PJ Crafter is the sole legal and beneficial owner of the other block at B.
This document made no mention of the earlier claim for a declaration in relation to the matrimonial home of the husband and wife.
On 26 July 2010, the husband’s mother, two brothers and D Pty Ltd filed a Case Outline in which they maintained that they, together with the husband, were the beneficial owners of MM and G. The Case Outline explained that the effect of the proposed orders was that only 25 per cent of the net value of MM and G formed part of the assets of the husband and wife. The Case Outline sought the dismissal of the applications of both the husband and the wife for declarations relating to D Pty Ltd and the husband’s application relating to B.
The husband’s family changed their position again at trial when they conceded the husband’s (belated) claim to an interest in the B blocks. This came only in the opening address of their counsel. (Transcript, 5 August 2010, p 116). This position was asserted in evidence for the first time in the cross-examination of the husband’s father, who was the first witness for the appellants. (Transcript, 6 August 2010, p 232).
It will therefore be seen that it was only at trial, some four years after the separation of the husband and wife, that the appellants finally settled on the position they now maintain in this appeal.
It will also be seen that the trust for which the appellants contend differs from that contended for by the husband. The husband claims to have only a 20 per cent interest, whereas the appellants say he has a 25 per cent interest; however, the husband has a different position on what constitutes the trust property. His primary position is that only one of the G blocks is subject to the trust, and he also says D Pty Ltd is within the trust.
It will also be noted that at no time did the wife claim that she or the husband held any interest in the B blocks. Thus Order 3 made by the trial Judge was incorrect, to the extent it suggested the wife had joined with the husband in seeking a declaration in relation to those blocks.
Counsel for the wife initially asserted that the appellants’ position changed yet again during the course of the appeal. (Appeal transcript p 122). However, that proposition was based on what was no more than a minor infelicity in the formulation of Grounds 1 and 2, which need not detain us.
The final position of the parties at trial
The trial Judge recorded the parties’ final positions about the effect of the arrangements made during the financial crisis in these terms:
58.The husband argues that interests in property acquired by he and the wife (either in their own names or through the company, [N] Pty Ltd) in exchange for money provided by he and the wife were part of an overall plan in which other family members were also involved.
59.The purpose, or terms, of the “overall plan or arrangement” need to be examined more carefully below, but for present purposes it can be said that such an alleged plan was to provide sufficient funds to satisfy a major creditor, [Financier 1], thereby discharging not only a loan agreement with [Financer 1] but, more importantly, also discharging personal guarantees given by the husband and [PJ Crafter] and their respective wives. The effect of satisfying that creditor was, then, it is said, to save the family business from failure (thereby preserving [M Crafter’s] long-held business and, also, employment for family members) and to prevent foreclosure on the husband and wife’s property (and the property of [PJ Crafter] and his wife) pursuant to the personal guarantees.
60.The equitable claim by the third parties is more expansive. First, it is said that:
The foundation of the claim in this action is that there was an express intention on behalf of the transferor/settler (i.e. [the husband’s parents]), that by transferring property owned or controlled by them that the transferees would become a trustee of the property. The intention is to also be inferred from the mutual benefit and obligations arising from the restructure and refinance in 1990.
61. Secondly, it is argued that:
This action is concerned with [the fact that] the transferors of the [G] and [MM] properties did not intend to transfer the beneficial interest to the transferee. In default [of] the Court making a finding that there was an express trust the facts give rise to a resulting trust ….
62.The third, and it seems alternative, basis for [the appellants’] claims is that:
The foundation for the claim by [the appellants] is that by reason of the facts and circumstances and the common intention of the parties in 1990 and ongoing financial contribution by [the appellants] that it is equitable that the Court should “construct” a trust of the properties for the common benefit of all the parties.
63. The fourth, and further alternative basis for such a trust is that:
… it would be “unjust, inequitable and unconscionable to retain the benefit of the [G] and [MM] properties including accrued capital value in circumstances were (sic) [the appellants] have contributed to the discharge of liabilities to [Financier 1], and have paid and continued to pay the costs of ownership”.
64.The written submissions go on to articulate, again as an alternative, a claim for equitable charge which is said to be “…a fall back position in the event that the principal equitable relief is not granted”.
65.The wife contends that property was acquired, in effect, pursuant to ordinary commercial transactions, albeit that they were intra-familial and notwithstanding that they were poorly or informally documented, or not documented at all. For example, she argues that the purchase of a property at [MM] (where the [furnishings] business’s workshop was, and is, situated) occurred at its commercial value (as assessed by a valuer) and was acquired because no other purchaser could be found.
The orders the subject of this appeal
The wife was successful in resisting the claims made by the husband’s family in relation to the G blocks (which she kept as part of her settlement) and the MM premises (which the husband kept as part of his settlement).
The applications seeking declarations in relation to D Pty Ltd and the B blocks were dismissed. The ownership of the carpet business and the B properties was thus left undisturbed.
The orders that are the subject of this appeal are:
· Order 2 – by which the appellants’ application for declarations in relation to N Pty Ltd (and hence the MM property) and the G blocks was dismissed;
· Order 3 – by which the husband’s application for a declaration in relation to the B blocks was dismissed; and
· Order 4 – by which declarations were made that the husband and wife hold the title to the G blocks and their shares in N Pty Ltd to the exclusion of any right, title, claim or interest by the appellants.
The grounds of appeal
The appellants’ original Summary of Argument stated, when outlining “The Principal Issue on Appeal”, that the trial Judge “identified the relevant principles of law but misdirected himself as to their application”.
The concession that his Honour had identified the relevant legal principles was conspicuous by its absence when counsel restated the “principal issue” in his “Further Submissions” dealing with just Ground 10. Nevertheless, we do not apprehend there to be any challenge to his Honour’s statement of the law.
The gravamen of the complaints was captured well in the following extract from the appellants’ Further Submissions:
2.2. The Appellants submit the Learned Trial Judge failed to make conclusions consistent with his findings of fact that [the husband’s father] was involved in an attempt to preserve assets from creditors, purportedly divested himself of assets but nevertheless asserted control over the assets by receiving complete compliance from his wife and three sons and expected to receive the same compliance over the same assets when the danger had passed.
2.3. The Learned Trial Judge should have found that the contentious property was the subject of an express trust for [the husband’s mother], [two brothers], and [the husband] being the parties nominated by [the husband’s father] as the beneficiaries.
2.4. In the alternative the Learned Trial Judge should have found that if the requirements for an express trust failed then his findings gave rise to grounds for an recognising an ‘institutional constructive trust’ of the contentious property.
Ground 10 was said to be the “primary point of appeal”. This ground asserts error by the trial Judge in failing to find there was an express trust, or in the alternative a constructive trust. Although the merit in this ground expressly depends upon findings made by the trial Judge, we will begin our discussion by dealing with other grounds which seek to attack his credibility findings. Those findings, which are highly prejudicial to the appellants’ case, permeate his Honour’s reasons. If there is merit in the attack on the credibility findings, we will have to allow the appeal.
Grounds 8 and 9 – Credibility findings relating to the husband’s father
By Ground 8 it was alleged that:
The learned trial judge erred in making findings as to the credibility of [the husband’s father] based on matters which were irrelevant to the trial issues including:
8.1 Speculation that the Court had not been told the full story…
8.2The source of funds used by [the husband’s mother] to make payments…
Although not immediately apparent, Ground 9 is also an attack on the credit findings concerning the husband’s father. This ground asserts that:
The learned trial judge erred by taking into account extraneous evidence concerning monies received by [the husband’s mother].
It will be understood that this ground is directed to the credibility of the husband’s father when it is appreciated that his Honour used the allegedly “extraneous evidence” for only one purpose, namely to undermine the husband’s father’s credit. The linkage between the two grounds will also be appreciated when it is understood that the “extraneous evidence” mentioned in Ground 9 relates to the “source of funds” mentioned in Ground 8.
The trial Judge considered his assessment of credibility to be of “crucial” importance. But the credit of the husband’s father was of particular importance, for the reasons his Honour explained. In summary, as was claimed by the appellants’ counsel, it was only the husband’s father who “possessed a single knowledge” of the transactions and who could therefore “connect the dots”. The centrality of his role was emphasised by his Honour’s finding that the husband’s father is “a domineering and autocratic presence in the family”.
The trial Judge’s damning assessment of the credibility of the husband’s father included this remark under the heading, “Veracity and Credibility”:
98.I also have the very distinct impression that the Court has not been told “the full story” surrounding the 1990 transactions at the centre of these proceedings, and that significant later “reconstruction” has occurred. Each of those impressions was reinforced, not least, by rather startling evidence wholly omitted from [the husband’s father’s] affidavits and which emerged in the witness box …
Other elements of the evidence of the husband’s father were described by his Honour as “intriguing” and “surprising”. (Reasons 118; 165).
Having found that he could not accept the father’s evidence concerning the meeting said to have been held at about the end of April 1990, where JDC-11 (i.e. the letter claimed to have been sent by Mr K) was allegedly discussed, his Honour went on to say:
163.It will, I think, already be obvious, that I treat much, if not all, of the evidence of [the husband’s father] with great circumspection. I do not regard him generally as a witness of truth. I repeat that I am left with the very strong impression that this Court is not being told “the whole story” surrounding the transactions at the centre of these proceedings.
In considering the attack on these findings, it is unnecessary to set out all the allegedly “extraneous evidence” to which Grounds 8 and 9 relate. It is sufficient to record that:
· a crucial element of the appellants’ case was that the husband’s mother had provided substantial funds to meet mortgage payments on the loans obtained by the husband and PJ Crafter, the proceeds of which had apparently been put toward the discharge of the Financier 1 debt;
· it was put to the husband’s father in cross-examination that the mother’s “ability to satisfy the mortgages was largely as a result of her maintaining an involvement in the [furnishings] business”;
· in responding to this proposition, the husband’s father came up, for the first time, with an explanation of his wife having borrowed, from third parties, $100,000 in 1995 and a further $140,000 in 2000;
· the husband’s father said there were no documents evidencing these alleged loans; there was no interest; no repayments had ever been made; and no call had ever been made for repayment; but the arrangements had something to do with a program “that involves the United States Federal Reserve, the United States Security Exchange Commission”;
· neither the husband’s father, nor the husband’s mother, had said anything about such borrowings in their affidavits, notwithstanding that the mother had set out in detail the sources of funds she had used to make the payments on the mortgages, right down to an “an anonymous gift of $1000”;
· under cross-examination, the husband’s mother said she had no recollection of receiving the $100,000 her husband said she had received in 1995; and the balance of her evidence did little or nothing to corroborate the suggestion that another substantial sum had been borrowed from the same source. (Reasons 112, 114, 182, 183; Transcript, 6 August 2010 p 172, 175; Transcript, 9 August 2010, p 291, 292).
The trial Judge described the husband’s father’s evidence on this topic as “bizarre”, and we consider it was open to him to form this view. (Reasons 183). Even if the source of the funds was not directly relevant to the outcome, the fact the husband’s father volunteered what was found to be a fanciful story is something properly taken into account in assessing the husband’s father’s evidence on matters that were relevant. Indeed, even the appellants’ counsel accepted in his submissions before us that the evidence could be used in assessing credibility, although he argued it should only have been used “sparingly”. (Appeal transcript p 39).
In any event, we do not accept that the evidence given on this issue was irrelevant or “extraneous”. In our view, it was relevant whether funds contributed by the husband’s mother came from the business, rather than from external borrowings. After all, the business had been able to continue as a result of the husband and the wife advancing 75 per cent of the funds needed to purchase the assets required to continue its operation. Importantly, the husband and wife were also both asserting at trial they had an interest in the business.
Furthermore, although the corporation owned by the husband and wife owned the premises from which the business was conducted, the husband and wife received no rent. Given the reliance the appellants placed on the claimed unconscionability of the arrangements, we consider it would be most relevant to know whether the funds used to meet the mortgage payments came from the business or from some other source.
We should also observe that we were not taken to any part of the transcript in which counsel for the appellants objected to questions relating to this issue on the grounds of relevance. Furthermore, on any reading of the reasons, his Honour’s refusal to accept the husband’s father as a truthful witness was based on many factors other than his rejection of the “bizarre” evidence.
We also do not accept that his Honour merely “speculated” when expressing his doubt that he had been told the “full story”. In our view, it was open to his Honour to reason that he may not have been given “the full story”. Indeed the “story” kept changing as our discussion of the “shifting sands” made clear.
Although not properly raised in the grounds of appeal, counsel for the appellants also claimed that the trial Judge made unfair criticisms of the failure of the husband’s family to provide a detailed account of what had transpired at the time of the critical transactions. It was submitted that:
these events which occurred back in 1990 were such that it was beyond the ability of any witness to accurately recall in precise detail in a manner normally required of I said, he said and evolved by way of generalisations from all the parties. His Honour is quick to criticise the fact that [the husband’s father] was unable to give particularised evidence of conversations, but equally the wife conceded that there were no documents because it was a family arrangement and that she also couldn’t particularise conversations. There were understandings… (Appeal transcript p 30).
A number of observations can be made about these propositions.
First, the appellants carried the onus of establishing their case. If they elected to leave the legal title to the contentious assets undisturbed for more than 20 years, preferring instead to rely on “trust”, then they can scarcely complain if their case fails for want of adequate evidence.
Secondly, whilst it may well be that the wife’s case was equally deficient, that did not work a reversal of the onus of proof. Furthermore, it should be remembered that the wife’s case also failed where she advocated a position contrary to that revealed by the legal title, even in relation to the furnishings business where one of the appellants had executed a document acknowledging he held it on some form of trust for the husband.
Thirdly, vague assertions of “understandings” must carry little weight where that understanding is not shared by the one witness whose testimony on the crucial issues was largely accepted – namely the wife. (Reasons 145).
Fourthly, whilst preferring the wife’s evidence on the crucial issues, his Honour did recognise the weaknesses in her testimony. Thus, she was not excluded from his Honour’s assessment that:
90.…The task of arriving at conclusions about those matters is made all the harder, as I find, by needing to unravel the extent to which present assertions as to past intentions and conduct are influenced by what is now perceived by the parties to be (as they see it) the potential legal or other consequences of findings about those intentions.
Further, the wife was expressly included in his Honour’s assessment that the evidence of the parties was influenced by “animosity, provoked by an opposite assertion as to entitlement”. Similarly, the wife was included when his Honour found that “the evidence of all parties (and [the husband’s father]) was tainted, in some cases very significantly”, by the various factors to which his Honour referred. (Reasons 92, 95).
The trial Judge had many advantages we do not enjoy in arriving at his assessment of credibility (SSHontestroom v SS Sagaporack [1927] AC 37 at 47; Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479). We are not satisfied there is any basis for us to interfere with what we consider to be a thorough and cogent examination of that important topic.
Accordingly, we find no merit in these grounds.
Ground 1 – Failure to give proper consideration to trust claims
Before turning to consider Ground 10, which is the primary focus of the appeal, it will be useful to discuss Ground 1, by which it is asserted that the trial Judge erred in failing to give any or proper consideration to the proposition that an express trust, or in the alternative a resulting trust, existed in favour of the appellants in relation to the contentious assets.
Although it had originally been argued there was some basis for finding a resulting trust, counsel for the appellants conceded that a resulting trust cannot arise from payments made in relation to a property after the date of its acquisition. (Appeal transcript p 86, 100). Here, the entire purchase price of G and MM was met from loans obtained by the husband and the wife (or N Pty Ltd) from unrelated parties save for:
· $10,000 advanced by the husband’s mother after the date of settlement of the G blocks which could not give rise to a resulting trust even had it been paid at settlement, since the presumption would be of advancement, not resulting trust (Nelson v Nelson (1995) 184 CLR 538).
· $140,000 “vendor finance” provided at the time of transfer of the MM properties – which having been thus styled as a loan could not give rise to a resulting trust.
In these circumstances it is entirely unsurprising that the trial Judge did not give any consideration to the possible existence of a resulting trust.
Nor do we consider there is any merit in the proposition that the trial Judge failed to give proper consideration to the existence of an express trust. The trial Judge correctly recorded, at paragraph 60, the assertion made on behalf of the appellants that the express trust argument constituted the “foundation” of their claim. He referred to it again, albeit more obliquely, at paragraph 99.
We accept that the greater part of his Honour’s reasons was directed at aspects of the appellants’ claim other than the express trust. In particular, he gave much consideration to the existence of a “joint endeavour” and a “Muschinski v Dodds constructive trust”. It is abundantly clear his Honour considered this was the aspect of the case that warranted closest consideration.
However, his Honour did not overlook the express trust argument. In fact, we consider that much of his discussion about the factual disputes, and his consideration of credibility, can be seen as directed to that issue. True it is that nowhere in his reasons did his Honour discuss what needs to be established to prove an express trust, but the legal principles are not in doubt. Indeed, we note that the appellants’ counsel described the “three certainties” required to establish an express trust as being “axiomatic” – or in other words, self-evident.
Furthermore, we observe that in his exposition of the law relating to constructive trusts, his Honour cited authority drawing attention to the differences between express trusts and constructive trusts, and in particular the necessity in the former case to establish “the objectively ascertained intention of a settlor”. (Reasons 77, 78).
His Honour recorded at paragraph 88, that the evidence “does not permit of ready findings in respect of intention”. His ultimate finding about an express trust can then be seen, albeit near the end of the reasons, and only after discussing other equitable claims, in the following paragraphs:
274.It will, I think, be plain from what I have already said that I consider the evidence reveals no basis for concluding that the requisite intention to create a trust (actual or inferred) exists in this case.
275.Such intention as is apparent from the evidence of [the husband’s father], who, plainly I find, was the driving force behind the disposition of the assets owned by him, [the husband’s mother] and the entities they controlled, does not point to any express intention as submitted that “transferees would become a trustee of the property”. The findings pertaining to JDC8 are a good example, but only one such example.
Counsel for the appellants properly conceded before us that the trial Judge, in paragraph 274, was dealing with the proposition that there was an express trust. (Appeal transcript p 27, 28). We are thus satisfied that his Honour dealt with that claim. The real issue is whether the conclusion he reached was open on the evidence, which brings us to the crucial ground of appeal.
Ground 10 – Failure to find an express or constructive trust
Ground 10 asserts that:
by reason of the findings made in Paragraphs 96, 255 to 263 the learned trial judge erred in that he failed to find that there was no intention to pass a beneficial interest in the contentious property to [the wife] and [the husband] and that there was an express trust or in the alternative a constructive trust of the contentious property in favour of [the husband and the appellants].
It was argued that in light of the findings in the paragraphs mentioned, his Honour had to find in favour of the appellants. Given their importance, we will recite those paragraphs in full, although some have already been set out above. We will also recite paragraphs 145, 205 and 208, on which the appellants’ counsel relied in argument. However, it is also important that we provide context by reciting paragraph 97 and those paragraphs preceding paragraph 255 (emphasis in original):
96.The evidence reveals [the husband’s father] as a domineering and autocratic presence in the family; the evidence of [the husband’s mother] hinted strongly at that and a letter from the solicitors for the Respondents to Mr [C] [an accountant instructed by the appellants to prepare a report for use in the proceedings] states: “you should note in so far as the parties to the proceedings are concerned that [the husband’s father] is integral to events”. The evidence is that he was the instigator, planner and director of events. The wife said, and I accept, that the husband’s inability to “stand up to his father” was a source of considerable stress and friction within the marriage. Although [the husband’s mother] was the joint owner of some property, and, with [the husband’s father], a director and shareholder of a company owning other property, when asked whether, looking back now, there was enough money to pay out [Financier 1] she replied, “I don’t think so. But I’m not the one to ask”.
97.I perceived the husband to have been in the past very much prone to competing compulsions directed by, on the one hand, the wife and, on the other, his father … I think he is still subject to the latter. He agreed in the witness box with my suggestion that he was “between a rock and a hard place” – his wife urging him to recover monies advanced to the family and “the family” – and [his father] in particular – requiring loyalty to their asserted joint purposes.
…
145.I consider [the wife’s] knowledge was very much limited to a broad general perception that [the husband’s father] was involved in an attempt to preserve assets from creditors (and [Financier 1] specifically) and that she and the husband might somehow be involved in that.
…
205.I do not propose to quote the “memo” [Exhibit R2] in its entirety, but the general tenor of it is of a man very much in control of what would, or would not, be done financially to a business in respect of which he himself had previously authored a document purporting to evidence its transfer to someone else who was, in turn, holding it “in trust” for someone else.
…
208.Whilst it might be argued that at least some of the statements made in this relatively contemporaneous document [Exhibit R2] are redolent of joint plan or endeavour, I think them much more redolent of a man who will be bankrupt within about six months and who has purportedly divested himself (and corporations which he controlled) of assets, but who is, nevertheless, asserting, or seeking to assert, control over those very same assets.
…
249.As I have earlier said, I do not consider there was any joint endeavour at the time that [PJ Crafter] and his wife and the husband and wife made investments of, respectively, approximately $60,000 and $100,000 in [Business 5] (i.e. the [farm equipment] business). Family members providing funds to other family members for business or investment purposes is not uncommon and, as the wife makes clear and I accept, the husband and wife had invested in [the husband’s father’s] business schemes in the past. The same applies to the provision of security when financial difficulties were encountered.
250.The hint of a broader asserted joint endeavour is given in the submission (given as a purported deposition) from [PJ Crafter] earlier quoted:
Without the joint effort of all members of the family in providing security, continuing to operate businesses, obtaining finance and becoming directors of companies and repaying debt and other expenses, the asset pool of the family would not have been able to be retained and the individual assets owned by members of the family would not have been the same as they are today. It is only as family that we were strong enough to financially deal with [Financier 1] [and] the subsequent aftermath. Had it been left to individuals under their own personal guarantees the outcome today would have been significantly different. The outcome produced the best result in respect of asset retention for all parties concerned.
251.The opening part of the statement refers, (or might potentially refer), to a joint endeavour with multiple components that, inferentially, contains at least some retrospective and prospective elements – that is, elements of a joint endeavour that would have continued but for its termination as a result of the need for a property settlement between the husband and wife.
252.But, inherent in the statement is a problem for it as a foundation for equitable relief of the type sought; the joint endeavour has not failed. As the statement makes clear, any such joint endeavour as existed has achieved its purpose. It hasn’t failed, it has succeeded. The “outcome” has been, it is said, markedly better than if the joint endeavour had not succeeded and the “outcome” (reflected, it might be said, in a number of different legal interests) was, to use the words used in the “submission” “the best result in respect of asset retention for all concerned”.
253.Put another way, the joint endeavour was to band together to eliminate the [Financier 1] debt; to remove assets from [the husband’s parents], in circumstances where their corporation was the principal debtor and where [the husband’s father] had his own looming personal financial issues and to eliminate as a result, the potential for guarantees to be called. The aims of that joint endeavour were all achieved.
254.But, in truth, and in any event, I do not consider that there was a “joint endeavour” in the sense used in the authorities to which reference has been made.
255.I consider that while there was indeed a plan to place assets beyond the reach of a significant creditor and liquidator and, subsequently, [the husband’s father’s] trustee in bankruptcy and while, indeed, part of that plan would also prevent a call on the guarantees, it was a plan conceived, orchestrated and carried into effect by [the husband’s father] or on his instructions. I consider that [the husband’s father] expected to receive, and did in fact receive, complete compliance with his wishes, and acquiescence in his plan, from his wife and three sons.
256.But, crucially, it was also part of [the husband’s father’s] plan that he would plan, conceive, orchestrate and carry into effect what was to become of those very same assets once “the danger had passed” and, again, in respect of that plan, he would receive precisely the same compliance and acquiescence from his wife and sons in carrying that into effect.
257.The evidence generally, including [the husband’s father’s] own evidence, points, in my view, directly to that conclusion.
258.What I regard as the “shifting sands” of the nature and scope of any asserted joint endeavour as revealed by the evidence can be seen by reference to the differences in the evidence of [the husband’s father] and the husband centred around paragraph 44 of [the husband’s father’s] affidavit and JDC8. [The husband’s father] construced [sic] a document (JDC8) purporting to create a beneficial interest in a business in favour of the husband only to, subsequently, suggest an alternative interest which the document does not refer to, only to, subsequently, orchestrate the amalgamation of that business into a shareholding in a company that completely eliminates, purportedly, the very same beneficial interest.
259.I do not accept [the husband’s father’s] evidence that the wife was kept abreast of discussions and the original “plan”; I think that is highly likely to be true of his sons as well. Indeed, [the husband’s brothers] [PJ Crafter] and [W Crafter] each hint at that in giving evidence of their knowledge of particular parts of the “plan”.
260.In paragraph 44 of his affidavit earlier quoted, [the husband’s father] refers to the “understanding”, which apparently came about as a result of “discussions”, that, despite the transfer of legal title in land at [MM] and [G] (transactions approved by the liquidator or receiver and manager), he nevertheless retained – in a manner, or via a method, not explained – the ability to dictate to the husband (a legal title holder but who did not own [G] solely and who was but one director and shareholder of the company that owned [MM]) to whom the husband would, at an unspecified future time, transfer the properties.
261.In eschewing the use of legal formality in recording what was, or was not, agreed, [the husband’s father] nevertheless produced documents which purport to have some form of legal effect (JDC8) or which purport to record (at least part of) an overall plan and proposed transactions (JDC11). Yet, no document to which all joint venturers were party purports to record (even if informally) precisely what was the joint endeavour or plan, or its scope. Such documents as do exist in respect of the intra-familial activities were conceived and created by [the husband’s father] and, on his evidence can, at least in respect of JDC8, be disregarded at will.
262.I consider that the wife’s attempts, from as early as July 1990, to establish an amount owing to her and the husband is likely to be indicative of a perception on her part entirely consistent with my finding – i.e. that the husband (and his brothers) would acquiesce in whatever [the husband’s father] might decide (or dictate) in respect of assets.
263.I should say for the sake of completeness that, even if I concluded that there was a joint endeavour, I would not in any event be persuaded that the beneficial interests should be equal as among the asserted beneficiaries. Equity’s intervention should be to the extent that unconscionability is eliminated. If that is to be the construction of a trust, a result of equality can be displaced “if one party is able to show that the contributions, both financial and non-financial, to that asset should not be regarded as equal” (West v Mead, above, per Campbell J).
His Honour then went on to say:
132.Later, when the business began experiencing difficulties, family members have used means at their disposal to assist in a business which was owned (in effect) by their mother and father. They assisted by offering security and, by reason of their joint and several liability under personal guarantees, put their assets in jeopardy to the extent that [Business 5 Pty Ltd] (a) defaulted and (b) was unable from its own resources to meet the debt. So much is the stuff of ordinary family life; it is not, of itself, indicative of any joint endeavour or any common intention as those expressions are understood in the relevant legal sense.
In our view, the trial Judge was right to emphasise that the original financial crisis occurred in a business owned and controlled by the husband’s parents.
His Honour continued his discussion by saying:
147.It will have been observed that underlying the submissions made on behalf the husband and the other respondents is reference to “family assets”. The references assume, as it seems to me, that assets can be identified as such and that a plan to preserve them might more readily be divined as a result. Whilst it is, as it seems to me, true that, like most families, there was a general intention on the part of [the husband’s parents] to preserve their acquired wealth “for the family” (and, not incidentally, for their continued income), and while it is also true that one of [the parents’] assets has provided work, and therefore income, for members for the family from time to time, it is by no means apparent to me that the assets once owned by [the husband’s parents], or their corporate vehicles, should attract such a description as if what was being dealt with was a particular, or separately identifiable, category of property or as if title held by family members to property was irrelevant. I consider the evidence points to the opposite conclusion.
148.The fact is that, at the time of the transactions, property was owned by [the husband’s parents] and their companies, and quite separate property was owned by the husband (and wife) and [PJ Crafter] (and his wife). There is no evidence, security for [Financier 1] apart, that their properties were “pooled” or otherwise used for family purposes or that they did not otherwise each completely enjoy all the fruits (and bear all the burdens) of legal title. So, too, it should be remembered that, at the time, [W Crafter] owned nothing.
149.No steps had ever been taken (whether at the time relevant parties became guarantors for the [Financier 1] loan or before or after) to recognise in any formal way any interest, which, it is said, the said familial financial inter-relationships produced (or would or should produce)…
It will be seen from these paragraphs and from other parts of the trial Judge’s reasons we have recited earlier, in particular paragraphs 252 to 254, that his Honour did not accept that the appellants had established a constructive trust of what we might call the Muschinski v Dodds variety. Although the appellants complained that the trial Judge did not consider any type of constructive trust other than one based on Muschinski v Dodds, the only alternative they advanced was directed toward the existence of a form of constructive trust which arises where an express trust had failed for “technical reasons”. However, his Honour’s failure to find an express trust was not based on “technical reasons” but on the absence of evidence of an express trust. Furthermore, the other findings made by the trial Judge make clear that the assertion by the wife of beneficial ownership of the properties was not unconscionable or contrary to any equitable principle.
Nothing advanced by the appellants has demonstrated error in the conclusion of his Honour that there was no basis for equity to intervene in disturbing the legal title that had stood for more than 20 years.
There is therefore no merit in this ground.
Ground 2 – Failure to find a constructive trust
It is unnecessary to consider this ground since it merely duplicates part of the complaint in Ground 10.
Ground 3 – Control of N Pty Ltd
The finding attacked by this ground was that in paragraph 13 of the reasons, where his Honour recorded not only that N Pty Ltd would “abide the order of the Court”, but that the “evidence plainly reveals that [[N] Pty Ltd] is under the complete control of a party or parties to the marriage”.
It was, of course, not disputed that the husband and wife are the directors and shareholders of N Pty Ltd, and that “in that sense they are the legal owners of the shares and have apparent control of the company and its assets”. (Appellant’s Summary of Argument, para 16.3). The issue was whether the husband and wife held the shares beneficially for others.
Counsel for the appellants submitted there were “numerous indicators that neither the Husband or Wife exercised control over [N] Pty Ltd since its incorporation”. Reference was made to evidence which was said to show not only that the husband’s father had arranged the purchase of N Pty Ltd (as the trial Judge found), but that it did not have separate account books, that all transactions were undertaken through D Pty Ltd, that the wife did not participate in the day-to-day affairs of N Pty Ltd and that the husband’s father controlled the company.
We note no reference was made by the appellants to the fact that the husband’s father acknowledged the husband had met the costs associated with the acquisition of N Pty Ltd (affidavit of the husband’s father filed 19 January 2009 [55]). (AB 179). In any event, the fact the purchase of the company was arranged by the husband’s father seems of little consequence when the shares were later assigned to the husband and wife after they had personally guaranteed the large loan obtained to acquire the only property the company ever owned.
It is also important to record that N Pty Ltd was engaged in no business dealings save for holding the MM properties, one of which was sold soon after acquisition. The remaining property was not developed. Therefore the only activity in which N Pty Ltd could have been engaged would have been the payment of the mortgage and other outgoings and the collection of rents. But there were no rents. And the outgoings, including the mortgage, were paid by the furnishings business in lieu of rent (at least according to the wife). In our view, what little the husband’s father might have done in relation to N Pty Ltd does not demonstrate that the trial Judge erred in finding that N Pty Ltd “is under the complete control of a party or parties to the marriage”.
Finally, we should observe that the ASIC records reveal that the shares held by the husband and the wife in N Pty Ltd were held by them beneficially. As the husband’s father claims he did all of the bookwork, it would not be unreasonable to infer that he lodged the documents at ASIC that recorded that the registered owners of the shares held the beneficial interest. (AB 248).
We therefore find no merit in this ground.
Ground 4 - Differentiating between “domestic” and “non-domestic” relationships
By this ground it was asserted that the trial Judge “erred in differentiating between ‘domestic’ and ‘non domestic’ relationships in assessing evidence in support of joint endeavours. (paragraphs 81 – 84)”.
We will refer below to what we see as the salient paragraphs of the reasons, but to provide context we will first set out what his Honour said much earlier in his reasons after referring to the contentious transactions:
6.A lack of legal formality (to one degree or another) attends the arrangements just referred to. While intra-familial relationships that have commercial elements are (relatively) harmonious – or, at least, provide no catalyst for specific action by the constituent members – a lack of legal formality usually creates few practical difficulties. The corollary is that, when disharmony intrudes, the same lack of formality provokes complexities in ascertaining how such relationships and transactions should properly be viewed.
7.Frequently, the “matrimonial partnership” is an integral part of the familial commercial enterprise or context, even if its precise role, and the parameters of that involvement, are neither spelled out nor specifically addressed. The breakdown of the “matrimonial partnership”, and the consequent need for the examination of a just and equitable settlement of property between the parties to that relationship, can create many evidentiary and legal difficulties for this court. This is such a case.
…
81.It is not insignificant that the recognition of equitable interests of the type explained in Baumgartner and Muschinski has predominantly occurred within the context of the breakdown of domestic or “de facto” relationships (although it is not confined to those circumstances – see, eg, Carson v Wood (1994) 34 NSWLR 9).
82.In a domestic situation, the “common intention” or “joint endeavour” can exist without necessarily having found specific expression; it is based on, or derives from, a commitment to, and hopes for, a joint future. In “non-domestic” – and particularly in purely commercial – circumstances, the joint plan or endeavour can be expected to be less nebulous; greater clarity of intention can generally be expected.
The trial Judge gave what the appellants’ counsel described as a “limited explanation for … assuming that the relationship between the extended members of the [Crafter] family was a non-domestic relationship”. In the relevant paragraph his Honour said:
83.If legal interests or title are to be “defeated by”, or made subject to, the demands of equity, the asserted foundation for equitable intervention should be clearly evident from evidence before the Court. That is all the more so, in my view, when it is said that the relevant interest should be construed from commonality of intention, or purpose or endeavour, and even more so when the relationship/s at its heart are of a type that, in the usual course of events, may not be potentially redolent of it.
The conclusion that counsel for the appellants drew from the paragraphs we have recited was that his Honour adopted “a different evidentiary requirement” for “non-domestic relationships”. It was argued that he had assumed that the relationship between the members of the husband’s family was “non-domestic” and that he “consistently applies a higher evidentiary expectation and requirement” to that type of relationship. It was further submitted that:
In his examination of the topic of joint plan or endeavour between the members of the extended … family the Learned Trial Judge continually placed an emphasis on the lack of documentary evidence as would be expected in or redolent of a “non-domestic” or commercial relationship.
In considering these propositions we think it important also to have regard to what his Honour said later in his reasons, namely:
100.It should, then, be expected that the affidavit material relied upon would deal with those matters (and perhaps others) with as much precision as possible. If precision was not possible (whether because of the failure of memory by reason of the passing of the years, the absence, loss or misplacement of documents or records or otherwise) those omissions and their reasons might also be expected to be explained. The affidavit evidence here is in sharp contrast to those expectations.
Furthermore, his Honour also said:
108.It is in my view notorious (s 140 Evidence Act 1995 (Cth)) that families can be involved with each other in a number of different ways that have commercial elements but where the overt manifestations of that will include documentation of varying degrees of formality and efficacy. Of course, families (particularly if relatively harmonious at the time) also frequently eschew completely legal formality. A lack of legal formality can, of course, make the forensic task much more difficult but its absence or extent can also of itself be forensically significant. The law provides for the means of effecting intentions and arrangements (both inter vivos and upon death) and affords protections which flow accordingly. A failure to take advantage of either does not necessarily mean the law will provide a remedy – at least not of the type sought here. The words of Macrossan CJ earlier cited are apposite: if it were otherwise “…ordinary categories of legal ownership could not be more than provisional”.
But his Honour then most importantly went on to say:
109.Where, as here, (even lay) attempts have been made, at least in part, to record transactions and/or intentions, the absence of any (lay) document signed or acknowledged by all parties to the joint endeavour from which an overall joint plan or endeavour – or commonality of intention – might be discerned is, of itself, significant. That is all the more so where, as here, the respective positions of each of the asserted joint endeavourers can be seen to be quite different in terms of their age, the degree of involvement in family activities and their income and asset bases. Further, as will be seen, the sole document that might, of itself, be seen to record (in part) the alleged joint endeavour (Exhibit JDC11) arises in circumstances which I regard as highly unusual.
110.The intentions of the parties surrounding the transactions at the centre of these proceedings, and the events preceding and succeeding those transactions, as revealed by the affidavit or oral evidence of the parties and such documents as are in evidence, remain clouded and uncertain. Assertions of “understandings” between the parties abound but factual depositions about who said what to whom and who did what and when are much more difficult to discern.
Later his Honour said:
133.I consider it significant that, at a time when formal legal documentation accompanied the loan and guarantee, no such documentation – whether formal or informal – purports to record any common intention or joint venture between some or all of the family members that had the loan and guarantee as a component.
Many propositions were advanced by counsel for the appellants under the rubric of Ground 4, but those propositions seemed to exceed the bounds of the ground itself. In our view, there is no basis for the central complaint that his Honour, in some way, required a “higher level of evidentiary proof” than was required or would have been applied in the event that he had treated the arrangements between family members as “domestic”.
His Honour did no more than to express a view, which seems to us correct, that outside of obvious “domestic” arrangements such as a defacto marriage, and particularly in matters that are “purely commercial”, it would normally be expected that a joint plan or endeavour would be “less nebulous [and that] greater clarity of intention can generally be expected”. (Reasons 82).
We do not read his Honour as saying that a party involved in an arrangement which is not entirely “domestic” carries any greater burden of proof. But, in our view, his Honour was quite justified in drawing attention to the fact that whilst on occasions, in this family, “lay attempts” had been made to record transactions and/or intentions, the absence of such documentation might be seen as being “significant”. Thus, for example, JDC-8 is a document to which the husband, one of his brothers and his mother were parties, and was entered into around the same time as the other crucial transactions. That document represents a clear effort made by the husband’s family to record when an asset was being held in trust. The absence of similar documentation in relation to transactions entered into the same time was logically therefore “significant”.
While for the reasons given we find no merit in this ground, we accept that the trial Judge’s references to “domestic” and “non-domestic” relationships were potentially confusing. We respectfully suggest that it was unnecessary for his Honour to have said more than he did in paragraphs 110 and 133.
Ground 5 - Sufficiency of evidence of intention
By this ground it was asserted that the trial Judge erred “in finding that there was no or adequate evidence of intention of a joint plan or endeavour on behalf of the parties”.
This complaint is tied up with complaints in other grounds already discussed, notably Ground 10 by which it was claimed inter alia that his Honour erred in failing to find that there was a constructive trust. The ground does not require separate treatment.
Ground 6 – Undue reliance placed on absence of documentation
By this ground it is asserted that his Honour erred “in placing undue reliance on the lack of documentation in non domestic relationships”.
This ground has been dealt with by what we have said in rejecting Ground 4.
Ground 7 – Deficiencies in the report of the accountant
By this ground it is asserted that:
The learned trial judge erred in finding that the expert report of Mr [C] did not accurately and reliably identify the source of payments and the contributions made by the parties to the contentious property (Paragraphs 111, 214 – 223, 264, 266, 278).
The witness referred to in this ground was an accountant who the appellants engaged, albeit only after commencement of these proceedings, to “tabulate and total a series of claims” made by them against the husband and the wife. In his first report, Mr C identified claims totalling $760,157.60 made up of 668 payments in relation to four properties, namely the former home of the husband and wife; their investment property at V; the MM property and the G blocks. (Reasons 214).
The trial Judge recorded that:
215.Of the 668 claims 432 were “supported by a loan agreement, cheque butt or deposit slip” (totalling $545,607) and for 181 of those 432 “only the date or reference number could be verified to the supporting documentation” and “in these instances discrepancies were noted between the value claimed and the value specified on the supporting documentation … ”. Mr [C] makes it clear that he was asked to assume that the claims supported by either a loan agreement, cheque butt or deposit slip were paid by the relevant entities and related to the corresponding properties which he then tabulates. The report indicates that “$214,550.11 of claims could not be verified to supporting documentation” and “$176,138.34 of supporting documentation could not be verified to the claim”.
216.No claim, either of the type there tabulated and calculated, or at all, had, I gather, ever been made (or calculation done) until the commencement of these proceedings. No documentation in evidence suggests any document generated at any time made any such claim by [the husband’s parents] or any [of the other appellants] prior to Mr [C’s] work.
217.Mr [C] was instructed to make a number of assumptions and the figures he produces need to be seen in that context. A good example is his references to a “loan agreement”, which figures in both the report and as part of the figures produced by him. As he made clear in his oral evidence, he was instructed to assume the existence of that loan agreement but he was not provided with any other information (or indeed documents) to suggest its existence. It was put to Mr [C] that he was told where the money had come from and his job was to check that. He agreed.
218.The wife is prepared to rely upon the report of Mr [C] to the extent of accepting that [D] Pty Ltd (and its predecessor components [Crafter] & Co and [Business 6]) have “apparently paid the amount of $283,389.91 to the benefit of the husband and wife (and the husband and wife’s company, [N Pty Ltd])” relying upon the report of Mr [C]. However a number of what might be called “counterclaims” are referred to. Principal among them is that [D Pty Ltd] occupies the [MM] property rent-free and pays nothing other than outgoings. So, too, no rent is payable by the husband and wife who use a portion of the premises as a home.
219.Counsel for the husband rightly submits that there has been no calculation done, or evidence lead [sic], as to what a commercial rental might be. As a result, it is submitted, and I accept, there is no basis upon which “any proportionality between the rent that may have been charged and the payment of other outgoings in respect of the property by [the husband’s mother] or others” can be arrived at. I also accept that it is not possible to find that there was an understanding that “unpaid rent would be a quid pro quo for the payment of various other expenses by [the husband’s mother]”.
220.It is submitted by the husband that “there were attempts as to try to identify the contributions made by the husband and/or wife towards this rescue in respect to both contributions made at the time of the rescue and following in relation to the servicing of various liabilities … these attempts appear to have taken place since 1990 and remain unresolved as at the date of hearing”. To that it might be added that other “reckonings” have been attempted, by [the husband’s mother], the other [appellants] (and [the husband’s father]) and by the agency of Mr [C] as earlier referred to.
221.In my view the evidence is not such so as to enable the Court to arrive at any conclusion as to what might be a proper “account” of the monies paid or contributed by the respective parties, or to arrive at a comparison of how any cash directly contributed might compare to other “benefits” received by one or more of the parties to the action (or [the husband’s father]).
222.Certainly the evidence does not permit a calculation so as to contemplate an equitable charge (even if the remedy were otherwise available in the circumstance of this case).
In light of these findings, his Honour went on to find that Mr C’s evidence was “of little utility” and amounted, “in effect, to an attempt at an “ex post facto audit” based on self-serving data and assumptions”. (Reasons 266).
This finding echoed what his Honour had said earlier in his reasons (our emphasis added):
111.So, too, while there are assertions and counter-assertions about who paid (or repaid) what amounts to whom, the task of discerning who paid, or didn’t pay what, or of ascertaining what contributions were made by whom, and who did, or did not, receive benefits, is almost impossible to discern with any degree of accuracy or reliability. Those comments are reflected in a part of the evidence from Mr [C] [who] agreed in the witness box that the purpose of his report was to identify that payments had been made and, when asked by [counsel for the husband] whether the purpose of the report was to identify the sources of payments, Mr [C] replied that he had “tried to work it out” but that generally he was “given that information”.
Apart from money payments made, there was also the question of indirect contributions made in relation to the contentious assets. In dealing with that issue his Honour found:
271.Yet, here, too, the picture is incapable, in my view, of precise definition. Although it is plain that [W Crafter] paid no monies toward acquisition, it is by no means clear what indirect contributions (which may be recognised – see Baumgartner) were made by him or anyone else, how any such contributions might compare to those made by the husband or [PJ Crafter]; how they compare to indirect contributions made by others; to what extent [Business 6] reflects in the asset base or profitability of [D Pty Ltd] and the like.
In dealing with the question of whether there was a basis for imposing an equitable charge, his Honour said:
278.The “fallback position” of [the appellants] (equitable charge) is in my view dependant [sic] upon findings as to amounts contributed but not reflected otherwise in legal interests and depends upon the capacity to make findings as to the relevant specific amount/s applicable to specific property. Again, it will be clear that I consider I am unable to make any such findings with any sense of confidence.
Nothing to which we were taken satisfied us that his Honour erred in any way in making these findings concerning the utility of Mr C’s report. The report was only as good as the information provided. Apart from the deficiencies on the face of the material, as identified by the trial Judge, there remained the problem that the material had been provided by witnesses whose veracity had been successfully impugned.
There is accordingly no merit in this ground.
Grounds 11 and 12 – Equitable charge and equitable adjustment
We will consider these grounds together, as both are met by the same answer.
Ground 12 asserts that:
The learned trial judge erred in not granting to [the appellants] an equitable charge over the contentious property for moneys paid by [the appellants] with respect to the contentious property (Paragraphs 222, 278).
His Honour disposed of the equitable charge proposition in paragraph 278 which, we have recited already in dealing with Ground 7. It will be seen from that paragraph that the success of Ground 12 depends upon the outcome of the complaint made in Ground 7. Given our rejection of Ground 7, the same fate befalls this ground.
For completeness, we record that the wife did not dispute that the appellants (or at least D Pty Ltd) had made significant payments in relation to MM. But the husband’s parents and D Pty Ltd occupied those premises without ever paying rent. The wife’s case was that the contributions made by the husband’s family were made pursuant to “a clear understanding between members of the family that the outgoings would be paid by [D] Pty Ltd in exchange for its occupation of the premises”. (Exhibit H1 (affidavit of wife filed 23 January 2008)).
His Honour specifically found that this part of the wife’s evidence was truthful. (Reasons 143, 145) Furthermore, the husband’s mother conceded that the payments of the mortgage and rates on MM were “roughly equivalent” to paying rent for the same premises. (Transcript, 9 August 2010, p 283).
By Ground 11 it is asserted that:
11.The learned trial judge erred in not making an equitable adjustment for moneys paid by [the Appellants] with respect to the contentious property as detailed in the Independent Expert Report including:
11. 1The sum of $140,000.000 vendor finance provided to [N] Pty Ltd by the [husband’s mother] upon the purchase of the the [sic] [MM] property (Paragraphs 175, 176,)
11.2 Ongoing costs of ownership of the [G] land.
This complaint too must fail because of what we have said in rejecting Ground 7. Furthermore, if there was any substance in the appellants’ proposition relating to the vendor finance, this would sound not in equity but in contract. No demand had ever been made for repayment of that amount in the 16 years between the date of purchase of MM and the separation of the husband and the wife. (Reasons 176).
We have earlier recorded that the wife asserted that the vendor finance referred to in Ground 11 was a “sham”. This proposition can be better understood in light of the acknowledgement by the husband’s father that the $280,000 actually paid for the MM properties is what they would have been worth at a mortgagee sale at the time. The husband’s father said the valuer had “brought the value down, that’s why we … could only get $280,000 … there was no other means of getting the other 140,000”. (Transcript, 6 August 2010, p 226 and 229).
Finally, we observe that the wife’s proposition that the price of the MM properties was inflated stands to be considered in light of the concession made by counsel for the appellants on appeal that the value of the B blocks was deliberately inflated in the swap made for the G property. (Appeal transcript p 10).
Conclusion and costs
As we have found no merit in any of the grounds, the appeal will be dismissed.
The appellants’ counsel accepted that costs of the appeal would usually follow the event, “subject to what might be contained in the reasons for judgment…” (Appeal transcript p 189).
Counsel for the wife submitted that if the appeal was dismissed, costs should be awarded against the “second, third and fourth appellants” namely the husband’s brothers and D Pty Ltd. (Appeal transcript p 188).
No reasons were given by the wife’s counsel for not seeking costs against the first appellant, however we assume it is because she is now deceased. We have some difficulty with that, given the first appellant remained a party to the appeal, albeit others were substituted for her as executors of her Will.
In any event, we accept there is a strong basis for an order for costs, since the appeal has been entirely unsuccessful. We propose to make an order for costs against the second, third and fourth appellants, since there is no application for costs against the first appellant.
I certify that the preceding two hundred and forty three (243) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 4 December 2012.
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