Crouch v Smith
[2004] FMCA 676
•12 November 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CROUCH v SMITH & ANOR | [2004] FMCA 676 |
| BANKRUPTCY – Application for declaration as to ownership of real estate at the time of commencement of bankruptcy –whether property was owned by the bankrupt or by a family property trust. TRUSTS – Trust interest in real property – declaration of trust – formal requirements – resulting trust – use of funds to acquire property. EVIDENCE – Admission against interest in other proceedings – whether giving rise to an estoppel. |
Bankruptcy Act 1966 (Cth), ss.30, 58
Conveyancing Act 1919 (NSW), s.23C
Family Law Act 1975 (Cth)
Federal Magistrates Act 1999 (Cth), s.16
Property Law Act 1974 (Qld), s.11
Gee v Liddell (1866) 35 Beav 621; 55 ER 1038
Leppington Pastoral Company Pty Ltd v Commonwealth of Australia [1997] FCA 299
Morton v Tewart (1842) 2 Y & C Cas Ch at 80; 63 ER 29
Nadia v Public Trustee (WA) (1930) 32 ALR 153
Re Wippell; ex parte Official Receiver; Martin (respondent) (1963) 19 ABC 292
| Applicant: | NICHOLAS JAMES DAVID CROUCH |
| First Respondent: Second Respondent: | TREVOR GREGORY SMITH GARRY ALLAN SMITH |
| File No: | SZ1692 of 2004 |
| Delivered on: | 12 November 2004 |
| Delivered at: | Sydney |
| Hearing date: | 21 September 2004 |
| Judgment of: | Driver FM |
REPRESENTATION
| Counsel for the Applicant: | Mr B Skinner |
| Solicitors for the Applicant: | Hugh & Associates |
| Counsel for the Respondent: | Mr M Aldridge, SC |
| Solicitors for the Respondent: | Watson Mangioni |
ORDERS
The Court declares that immediately prior to the acceptance of a debtor’s petition filed with the Official Receiver by Trevor Gregory Smith, the first respondent, the bankrupt was the beneficial owner of the real property known as 28 Donegal Crescent, Sorrento in the State of Queensland having title description Lot 420 DP 194238 in the Queensland Register of Lands (“Sorrento property”).
The Court declares that upon the acceptance of the bankrupt’s debtor’s petition by the Official Receiver, the Sorrento Property vested in the applicant pursuant to s.58 of the Bankruptcy Act 1966 (Cth).
The applicant’s costs of these proceedings are to be paid by the first respondent.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ1692 of 2004
| NICHOLAS JAMES DAVID CROUCH |
Applicant
And
| TREVOR GREGORY SMITH |
First Respondent
GARRY ALLAN SMITH
In his capacity as trustee of the
TG Smith Family Property Trust
Second Respondent
REASONS FOR JUDGMENT
Introduction and background
The applicant is the trustee in bankruptcy of the estate of the first respondent. The second respondent is the trustee of the T G Smith Family Property Trust. By application filed on 3 June 2004 the applicant trustee seeks a declaration that, immediately prior to the acceptance of a debtor’s petition filed with the Official Receiver by the first respondent, he was the beneficial owner of real property known as 28 Donegal Crescent, Sorrento, Queensland (“the Sorrento property”) and, secondly, a declaration that upon the acceptance of the first respondent’s debtor’s petition by the Official Receiver, the Sorrento property vested in the applicant trustee pursuant to s.58 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). The applicant also seeks costs.
The dispute between the parties is a simple one. The applicant says that the Sorrento property belonged to the first respondent at the time he became bankrupt and, as his property, vested in the trustee upon the commencement of the bankruptcy. The respondents say that the Sorrento property was held in trust for the T G Smith Family Property Trust which they say was established in 1987. The factual issues are complicated by the existence of a second family trust (the Trevor Smith family trust) controlled by a company, Kalamata Pty Ltd, and another company (Goldwhirl Pty Ltd). There were a significant number of financial transactions involving all four entities.
The applicant trustee asserts that there was no declaration of a trust at the time the Sorrento property was purchased in 1990 and neither was there any declaration at the time of the registration of the transfer of the Sorrento property in 1991. On the face of the available documents, the Sorrento property belonged to the first respondent. The applicant trustee asserts that the beneficiaries under the T G Smith Family Property Trust are not properly identified and that the trust is a sham. The applicant trustee asserts that the first public declaration indicating any interest in the Sorrento property by the T G Smith Family Property Trust was in 1995, related to a claim for an exemption of land tax in Queensland. The only extant copy of the trust deed was stamped for duty in 2004. The applicant trustee asserts that the first respondent acted inconsistently with his asserted position in that other property was clearly identified as being held by the property trust whereas there was no disclosure of the property trust holding the Sorrento property until 1995 and no significant record of a trust interest until 2002.
The evidence
The applicant trustee proceeds on the basis of the application and two affidavits by Nicholas James David Crouch made on 2 June 2004 and 29 June 2004. A folder of exhibits (exhibit A1) was exhibited to the first affidavit and a bundle of annexures is attached to the second affidavit. The respondents rely upon an affidavit by Bernard Vincent McGowan made on 14 September 2004 and an affidavit by Trevor Gregory Smith made on 16 September 2004. A folder of documents was exhibited to the affidavit of Mr Smith.
Nicholas James David Crouch
Mr Crouch gave evidence as to his investigations and inquiries concerning the affairs and dealings of the first respondent. His evidence is primarily documentary, as appears in the annexures and exhibits to his affidavits. Included in the documents are documents relating to family law proceedings between the first respondent and his former wife in the Family Court of Australia. Also included is the transcript of an examination of the first respondent under the Bankruptcy Act in 2003.
Mr Crouch was cross-examined on his affidavits. He stated that his source of information concerning the family law proceedings was the solicitor for the first respondent’s former wife. Mr Crouch had access to the solicitor’s file and copied a range of documents from it. Not all of those documents are annexed or exhibited to his affidavits. Mr Aldridge, for the respondents, called for documents still held by Mr Crouch which are not in evidence. Mr Skinner, for the applicant, undertook to produce them.
Bernard Vincent McGowan
Mr McGowan is a practising solicitor in Brisbane. He gave evidence concerning his professional role in the purchase of the Sorrento property. Mr McGowan acted for the first respondent on that purchase.
In cross-examination Mr McGowan stated that he also acted for the first respondent on the sale of a property at Westlake in Queensland that took place in 1989. He stated that the first respondent was the registered owner of the property at Westlake and was the registered owner of the property acquired at Sorrento. He confirmed that his instructions relating to both matters came from the first respondent and the first respondent was shown on his file as his client. He had no recollection of any disclosure to him of an interest in the Sorrento property by the T G Smith Family Property Trust. He also agreed that his file was silent on that subject. Mr McGowan also stated that it was common for a trust holding to be recorded in writing in some way in relation to real property, both before and after 1994 when changes were made to Queensland real property law. Mr McGowan stated that if he had been informed of an interest in the Sorrento property by the family property trust, even if the trust was not to be recorded on the title, he would have given notice to various state agencies of the trust interest.
Mr McGowan stated that he acted for the first respondent in 1996 in relation to the acquisition of another property at Boondall in Queensland where the interest of the family property trust was disclosed. He stated that in relation to that transaction, the trust deed for the family property trust must have been produced to him because it would have had to have been produced to the Land Titles Office to substantiate the existence of the trust before the trust’s interest would be recorded in the title register. He also stated that the trust deed must have been stamped at that time in order for it to have been accepted by the Land Titles Office.
Mr McGowan was shown a copy of the trust deed showing a stamp duty stamp dated 5 February 2004 and duty payable of $1.50. He stated that that stamping came about in 2004 because the original stamped trust deed could not be located and there was a need to produce a stamped copy of the trust deed for the purposes of registering a mortgage. He stated that his office arranged for the stamping of the trust deed in 2004.
Mr McGowan was re-examined briefly and gave evidence as to the difference in conveyancing practice between New South Wales and Queensland. He was asked whether the contract for the purchase of the Sorrento property was prepared by a real estate agent, as was commonly the case in Queensland. He said that it did not appear that an agent was involved in the preparation of that contract as the name an agent did not appear on it.
Trevor Gregory Smith
Mr Smith is the first respondent. He deposes that he was appointed the principal and trustee of the T G Smith Family Property Trust on 3 August 1987 pursuant to a deed of discretionary trust. He deposes that shortly afterwards, he received advice from KPMG to the effect that it was unnecessary for the trust to disclose its interest in a contract for the purpose of real estate where the property would be the principal place of residence of a beneficiary of the trust. Following that advice he adopted the practice of not disclosing in any contract for the purchase of residential real estate in which the trust had an interest.
On 12 June 2002 Mr Smith removed himself as trustee and appointed his brother Gary Allan Smith. He deposes that the trust was specifically established to deal in property but was not a trading entity.
Mr Smith deposes as to information provided to the applicant relating to property dealings of the trust from 1987 to 30 June 2001. He deposes that those dealings related to a property at 11 Timaru Close, Westlake in Brisbane, a series of loans involving the company Goldwhirl and the company Kalamata, the Sorrento property acquired on 13 December 1990, a mortgage over that property granted to Westpac on or about 8 April 1993 and a property at 1968 Sandgate Road, Virginia, in Queensland, acquired by the trust on 10 January 1996. Mr Smith deposes that he acted differently in relation to the Virginia property than he did in relation to the Sorrento and Westlake properties because the Virginia property was a commercial property, not a residential property.
Mr Smith deposes as to the sale of the Sorrento property in December 2002. Settlement occurred on 11 July 2003 with the knowledge and concurrence of the applicant trustee.
Mr Smith deposes that he made incorrect statements in affidavits sworn for the purposes of proceedings under the Family Law Act 1975 (Cth). He deposes that he stated incorrectly in those affidavits that the Sorrento property was his.
Mr Smith deposes that, apart from a farming property at Kyogle, he did not purchase any real estate between 1987 and July 2002 with his own money and he was not the beneficial owner of any real estate in that period.
Mr Smith was cross-examined at length by Mr Skinner. Mr Smith stated that he did not think that he told Mr McGowan about the trust interest in the property at Sorrento. He could not recall telling him about the advice he says he received from KPMG. He was asked about the identities of the beneficiaries under the T G Smith Family Property Trust and had some difficulty identifying them. He stated several times that the trust was a discretionary trust and it was up to the trustee to decide whether to pay a benefit to anyone. He stated that there have been no distributions of income to any beneficiaries under the trust and that it was not the purpose of the trust to receive or distribute income. He stated that he lived in the property at Westlake prior to its sale and he lived in the Sorrento property between the time it was acquired and the time it was sold. He had not considered whether his occupation of the Sorrento property constituted a benefit for the purposes of the trust deed. He could not recall whether he had informed any other beneficiary that they were a beneficiary under the trust. He was asked who knew of the existence of the trust and he stated that the ANZ and Westpac Banks were aware of it. In particular, the trust had held an account at the ANZ Bank since the late 1980s. Mr Smith stated that he believed that the original stamped trust deed would have been sent to the ANZ Bank at the time that account was opened. The Westpac Bank was also aware of the existence of the trust at least from the time of the purchase of the property at Virginia.
Mr Smith was questioned at length concerning borrowings and loans entered into by the property trust. It was apparent from his answers that there was a complex set of dealings involving the two family trusts and Goldwhirl and Kalamata. Mr Smith gave evidence that the property trust ultimately benefited from those transactions.
Mr Smith was asked what benefit flowed from the non disclosure of the trust’s interest in real estate. He stated that the benefit was a capital gains tax advantage. He also stated that the first documentary evidence of a declaration of the trust’s interest in the Sorrento property was the Queensland land tax exemption return appearing as exhibit TGS 17 to his affidavit. Mr Smith stated that the trust did not generally prepare income tax returns as it did not derive income. For the same reason, annual accounts were not generally prepared. A capital gain was derived by the trust on the sale of the Westlake property, which Mr Smith said was “on loaned” to Goldwhirl. There was no distribution to beneficiaries.
Mr Smith was asked about ownership of a Mercedes motor vehicle which formed part of the consideration for the purchase of the Sorrento property. He stated that he believed that the property trust owned it, although he had suggested at his public examination that Kalamata might have owned it. He said that he was not then and was not now sure about the ownership.
Mr Smith was asked about paragraphs 17 and 18 of his affidavit. He stated that the correspondence at TGS 18 show a declared trust interest in the Sorrento property between 1994 and 2002.
Mr Smith was asked if he had served a prison sentence. He answered that he had. He stated that he had been sentenced in the Southport District Court in Queensland in relation to a number of counts of Corporations Act offences[1] in relation to the improper use of Mr Smith’s position on the board of the National Transport Insurance Company. Mr Smith confirmed that he had pleaded guilty. He did not dispute that he had been convicted of an offence involving dishonesty.
[1] There was some dispute as to whether it was seven or 19 counts
Mr Smith was asked further about the very long running family law proceedings between him and his third wife. He stated that the proceedings involved maintenance and property applications. He confirmed that many affidavits had been filed, together with many financial statements, all under oath. He confirmed that in none of those documents had he disclosed that the Sorrento property was owned by the T G Smith Family Property Trust. Mr Smith confirmed what he had said in his public examination to the effect that the affidavits and financial statements had been prepared in a rush. He did not dispute that Registrar Dittman, in the Family Court, had made a factual finding that Mr Smith owned the Sorrento property personally. He confirmed that there was no appeal against that decision. Mr Smith stated that the Family Court adopted a global approach to the assessment of assets and that the precise ownership of the Sorrento property was not particularly important.
Mr Smith was also asked about his ownership of certain chattels. He confirmed evidence he had given at his public examination that his chattels (apparently including furniture at the Sorrento property) were owned by a company called Jobrenco Limited, based in Hong Kong. Mr Smith said that he regarded the ownership as determined by who bought the relevant property. Mr Smith was taken to orders made by the Family Court on 28 February 2000 requiring a billiard table and piano to be sold. He confirmed that he thought that these chattels were owned by Jobrenco rather than him and said that the orders of the Family Court requiring their sale had later been set aside. He said that the billiard table is now in storage and the piano is at the home of a niece.
Mr Smith was asked about evidence he had given at his public examination (transcript, page 224) where he had referred to the company Kalamata being used to “wash funds”. Mr Smith stated that he simply meant that the T G Smith Family Property Trust was the principal shareholder of Kalamata and that Kalamata in turn charged management fees to the trust. Mr Smith was also asked about his references on transcript of the public examination (transcript, page 144) to a “blind trust”. He was asked what he meant. He said that he meant that the existence of the trust was not disclosed. He was asked whether the purpose of the T G Smith Family Property Trust as a “blind trust” was to avoid capital gains tax. He said that was part of the issue. He confirmed that that was the dominant issue in 1987. He denied that he had later sought to avoid Queensland land tax. He said that an answer he had given at his public examination (transcript, page 127) which suggested that he had sought to avoid land tax was probably wrong.
Mr Smith confirmed that his children, his brother and his father were all available to give evidence but had not been called. He confirmed that his documentary records were “in a mess” and that he did not know how many income tax returns had been lodged by the T G Smith Family Property Trust. He confirmed that a return was lodged for the year ended 30 June 1994. He was asked what the source of the income was that was declared by the trust in that return. He said that he thought it might be the capital profit on the sale of the Westlake property. Later, he said that it was probably an interest payment received by the trust from Goldwhirl in relation to the loan funds from the trust to Goldwhirl.
Mr Smith was shown a letter to the Westpac Bank dated 4 April 1996 (exhibit A2) and was asked why the trust was not disclosed in the letter. Mr Smith said that this was a letter relating to a mortgage over the Sorrento property and the mortgage had to reflect what was on the title. He noted in addition that the T G Smith Family Property Trust was listed as a guarantor. He could not recall whether he had revealed the interest of the trust to Cash Resources Australia Pty Ltd in relation to a subsequent loan. Mr Smith was asked about a facilities agreement with Cash Resources Australia Pty Limited (exhibit NC11 to the affidavit of Mr Crouch) and stated that clause 8 appeared to bind the trust whether or not it had been disclosed. Mr Smith was asked whether he agreed that the facilities agreement warranted the disclosure of the trust but that there was no disclosure. He could not recall.
Mr Smith was also asked about his doubt during his public examination as to whether KPMG was the source of the advice he says he was given about non disclosure of a trust interest in real estate. He said that he was confused because the firm had changed its name several times. Mr Smith was asked whether he thought Mr Bell could have assisted if he had given evidence. Mr Smith thought that doubtful. Finally, Mr Smith said that he did not think that he told his brother that the T G Smith Family Property Trust deed had been stamped.
The applicant’s evidence was completed by the tendering of the extant T G Smith Family Property Trust income tax return, the correspondence with Westpac about the mortgage, the decision of Registrar Dittman, orders made by the Family Court on 28 March 2000 and the original of the 1993 deed between Mr Holyman, Mr Smith and Goldwhirl concerning the refinancing of the purchase of the Sorrento property.
In re-examination Mr Smith confirmed that he thought that the 1994 trust income tax return showed interest income from the loan to Goldwhirl. He confirmed that the Westlake property had been sold in 1989 and the capital profit loaned to Goldwhirl by the trust. He said that the interest had been paid by journal entry.
Submissions
Both Mr Skinner and Mr Aldridge presented a written outline of submissions. In oral submissions Mr Skinner drew attention to the fact that Mr Smith had claimed in evidence that the T G Smith Family Property Trust was not a trading trust and received no income but the income tax return (exhibit A1) showed income. Mr Skinner submits that it is impossible to reconcile the various extant accounts for the various entities involved. He submits that Mr Bell could possibly have explained these records, but he had not been called. Mr Skinner submits that at the time the Sorrento property was purchased, part of the deposit was a Mercedes motor vehicle which Mr Smith warranted was his property. Conversely, in his affidavit Mr Smith says that the motor vehicle was owned by Kalamata. Mr Skinner submits that Mr Smith is not a witness of truth and that no weight should be placed upon his evidence. He submits that there has been no declaration of trust as required by s.11(1)(b) of the Property Law Act1974 (Qld) (“the Property Law Act”). In particular, he submits that the land tax exemption return made in 1995 does not satisfy the requirements of the section because the beneficiaries are not identified. Further, Mr Skinner submits that the trust was simply mentioned at that point as part of a scheme to avoid tax. Mr Skinner further submits that the finding of fact made by the Family Court as to the ownership of the Sorrento property gives rise to an issue estoppel. Further, Mr Smith acted inconsistently with the T G Smith Family Property Trust deed in deriving a personal benefit from trust property. He submits that the trust is a sham. He submits that Mr Smith has a reputation for dishonesty and that his evidence in relation to ownership of chattels does not make sense. The alleged advice from KPMG cannot be corroborated.
Mr Aldridge submits that the proceedings instituted by the trustee in bankruptcy have not been properly constituted. He submits that the trustee needed to do more than simply seek a declaration because nothing flowed from the declaration sought. All of the funds from the sale of the Sorrento property had been dispersed to secured creditors. Nothing remained. If the trustee was seeking to be subrogated to the rights of others in consequence of the declaration sought then the persons against whom rights were to be exercised should have been joined as parties to these proceedings. Secondly, Mr Aldridge submits that the existence of the T G Smith Family Property Trust is clear. He further submits that the interest of the trust in the Sorrento property is clear from at least 1995. He submits that if Mr Smith’s evidence were all rejected the documentary evidence would nevertheless support a conclusion that the T G Smith Family Property Trust owned the Sorrento property prior to the bankruptcy. He submits that the documentary evidence is explicable and corroborates the transactions asserted by Mr Smith in his affidavit. He submits that there was no point in calling Mr Bell because the extant accounts are reconstructions because of the unavailability of original accounts. He submits that, based upon the documents, either the T G Smith Family Property Trust owned the Sorrento property prior to the bankruptcy or had the benefit of a resulting trust over the property. He submits that there was no point in disclosing the trust’s interest in the family law proceedings because the Family Court dealt with property controlled by Mr Smith as well as property owned by him. In the circumstances, there could be no issue estoppel. He submits that there was no point in calling Mr Smith’s brother to give evidence as he could not usefully add to the evidence of Mr Smith.
Mr Smith seeks a declaration that the Sorrento property was owned by the T G Smith Family Property Trust prior to Mr Smith’s bankruptcy. In any event, he submits that the declaration sought by the trustee in bankruptcy should not be granted. He seeks an order for costs in addition.
Mr Skinner in reply accepted that the Westlake property was purchased by the T G Smith Family Property Trust and that the trust was entitled to the proceeds of the sale. However, he submits that the documents showing loans of various amounts to Goldwhirl are inexplicable. The loan was $600,000 in 1993 and over $1 million in 1995 but reduced to $440,000 in 1996. He submits that on the face of the documents the lender was not the trust, but Mr Smith personally. He submits that the funds borrowed by Goldwhirl from Westpac may have gone to Mr Smith rather than the trust.
Mr Skinner submits that the simple declaration sought is all that is required in the proceedings as the Court is a court of equity and that equity would give rights of subrogation without further litigation being required. He further submits that the declaration of personal ownership of the Sorrento property made by Mr Smith in the family law proceedings should be taken to be an admission against interest with all the consequences that flow from that.
Reasoning
The first issue is one of jurisdiction. The application simply seeks a declaration for the purposes of determining the rights of the trustee in bankruptcy over the Sorrento property for the purposes of s.58 of the Bankruptcy Act. Section 30 of the Bankruptcy Act confers wide powers on the Court as a court in bankruptcy. It was decided some 40 years ago that a court of bankruptcy has jurisdiction in a case which concerns the extent of the assets which form part of a bankrupt’s estate[2]. However, where the issues involved in an application have already been raised in another court, the Court can, in its discretion, decline jurisdiction. In Wippell the Court declined to grant relief due to the risk that issues would be litigated twice with potentially different results.
[2] Re Wippell; ex parte Official Receiver; Martin (respondent) (1963) 19 ABC 292
In the present case there have already been proceedings in the Family Court in which Registrar Dittman, in a judgment delivered on 12 November 1999, appeared to make a factual finding[3] that the Sorrento property was owned by Mr Smith. However, the finding was a finding related to a period of cohabitation for the purposes of determining an application for spousal maintenance. What the registrar relevantly said was:
Although the parties’ evidence is slightly at variance, it is clear that they travelled together in Europe and consequently in about November 1997 resumed cohabitation together in the former matrimonial home owned by the husband at Sorrento on the Gold Coast.
[3] at paragraph 5
At paragraph 42 of his decision the registrar said relevantly:
The husband’s affidavit filed on 19 October 1999 also refers to items of property that are owned by him personally, namely:
(a)his home and contents at Sorrento on the Gold Coast;
(b)a farming property at Kyogle;
(c)a 1998 Porsche Boxer motor vehicle.
Mr Smith had declared personal assets of around $1.6 million and company assets of $17.2 million. He also declared income of $961 per week from Kalamata in the form of directors fees. Kalamata also provided a BMW motor vehicle for his use. While these findings by the Family Court have some probative value, I have decided that the finding of the Family Court as to the ownership of the Sorrento property does not and should not prevent this Court from determining the issue for the purposes of the Bankruptcy Act.
I reject Mr Aldridge’s submission that the proceedings instituted by the trustee in bankruptcy have not been properly constituted. First, this Court is a court of equity as well as of law. I accept Mr Skinner’s submission that it is open to the Court to grant relief sufficient to confer rights of subrogation. Secondly, if there were any remaining doubt, in my view, s.16 of the Federal Magistrates Act 1999 (Cth) provides a complete answer to Mr Aldridge’s submission.
The simple issue for me to decide is whether the Sorrento property was held by Mr Smith in trust for the T G Smith Family Property Trust prior to Mr Smith becoming bankrupt. In resolving that issue some useful guidance is provided by the learned authors of Jacobs’ Law of Trusts in Australia (6th edition) at paragraph 521. The learned authors state:
A trust may be created without communication to the beneficiary. Where a trust is created by the appointment of trustees and the conveyance or transfer of property to them, it is almost certain that there will be found some communication of the intention to create a trust. However, where a person is alleged to have created a trust by declaring himself a trustee of the property, but has not communicated the declaration to any other person, a strong presumption arises that, despite the private use of the language of trust, no firm and irrevocable intention had been formed to create a binding trust by the declaration.
In addition, the learned authors state at paragraphs 623 and 624 that:
If the settlor intends to make himself a trustee, the trust will not be perfectly created, and consequently will not be enforceable, unless the settlor has made an express declaration of trust intended to be final and binding upon him. This rule applies no matter what the nature of the property concerned may be.[4]
The declaration must still be manifested in writing if the trust property is realty…Once a declaration of trust has been made, the absence of consideration does not in any way invalidate it. …The Conveyancing Act 1919 (NSW) s.23C(1)(c) and its equivalents in other states requires that the “disposition” of an equitable interest in either realty or personalty should be in writing.
[4] Gee v Liddell (1866) 35 Beav 621; 55 ER 1038
In the present case, the Sorrento property was apparently purchased as the property of the first respondent, Mr T G Smith. Mr McGowan, who acted for Mr Smith on the purchase, had no knowledge of a trust interest in the property at the time. On the other hand, the banking records in evidence before me establish that the T G Smith Family Property Trust probably existed at the time Mr Smith purchased the Sorrento property. The trust is constituted by a deed and, although the original stamped deed cannot now be located, there is no proper basis for me to conclude that the trust had not been constituted at the time the trust deed was purportedly executed on 3 August 1987.
The only reliable documentary evidence of an asserted trust interest in the Sorrento property is the land tax exemption claim form[5]. That document was created on 6 June 1995 for the purpose of claiming an exemption from Queensland land tax, apparently on the basis that Mr Smith and his then wife used it as their principal place of residence. Mr Smith asserted in the claim form that he made the claim as trustee and that the land owner was himself as trustee for the T G Smith Family Property Trust. I accept Mr Smith’s evidence that it was not necessary for him to qualify for a land tax exemption to make a claim as trustee. The relevant issue was whether the property was his principal place of residence. However, Mr Smith also admitted in evidence that the trust was created on the advice of his then accountant for purposes that included the minimisation of capital gains tax. No other purpose is apparent from the evidence. I find that that was the dominant purpose for its creation. Mr Smith presents as an astute and calculating person who organised his affairs so that he could enjoy benefits personally that were provided by the trusts and companies he controlled, while liabilities fell on the trusts and companies rather than himself. At the time the land tax exemption claim was made there was a risk that there might be a liability for land tax. It was apparent from Mr Smith’s evidence that he has conducted his affairs consistently in order to either minimise or avoid taxation obligations. It would be consistent with that purpose for Mr Smith to have asserted that he held the land on trust for the T G Smith Family Property Trust in the land tax exemption claim form in order to seek to ensure that, if the exemption were not granted, the resultant land tax liability would fall on the trust rather than upon him personally. However, there was no capital gains tax reason for the property to be actually held by the T G Smith Family Property Trust, because it was Mr Smith’s family home. This isolated assertion of a trust interest suggests that it was a sham.
[5] exhibit TGS 17 to the affidavit of Mr Smith
In any event, I accept Mr Skinner’s submission that the land tax exemption claim form does not satisfy the requirements of the Queensland equivalent of the NSW Conveyancing Act. As Mr Skinner notes, the Queensland section (s.11(1)(b) of the Property Law Act) differs from the New South Wales legislation somewhat. It relevantly provides:
A declaration of a trust respecting any land must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person’s will.
The declaration must be by the beneficial owner and, consistently with the general law, must contain the terms of the trust[6]. The land tax exemption claim form does not contain the terms of the trust and does not set out the beneficiaries other than Mr Smith himself.
[6] Morton v Tewart (1842) 2 Y & C Cas Ch at 80; 63 ER 29 at 35
Secondly, Mr Smith acted inconsistently with the existence of a trust interest in the Sorrento property. Mr Smith (while he was trustee between 1997 and 2002) was excluded from benefits under clause 16 of the trust deed. Nevertheless, he lived in the Sorrento property for the entire period that he was the registered title holder. Indeed, apart from his former wife and children who presumably lived in the property for some of the time, Mr Smith was the only person who derived any benefit from the property. There is no reliable evidence that Mr Smith disclosed the asserted trust interest in the property to any of the other beneficiaries under the trust deed.
Further, Mr Smith asserted that the Sorrento property was his own in affidavits and property declarations filed in the proceedings between him and his former wife in the Family Court. I do not accept Mr Skinner’s submission that that evidence gives rise to an estoppel on the basis of Mr Smith making that admission against interest. It was not in his interest to claim the Sorrento property as his own in the maintenance proceedings. However, this does not mean that there was a formal admission of a contested matter of the kind that can occur in a pleading in litigation. Rather, it was in the category of an informal admission against interest. As such, it is simply an item of evidence to be considered with all of the other evidence before me: Leppington Pastoral Company Pty Ltd v Commonwealth of Australia [1997] FCA 299.
The asserted interest of the T G Smith Family Property Trust in the Sorrento property was not disclosed to the vendor of the property or to a subsequent mortgagee (Westpac) or to another lender (Cash Resources Australia Pty Limited). Mr Smith also acted inconsistently in relation to other properties by failing to declare an interest of the T G Smith Family Property Trust. Mr Smith sought to explain that inconsistent approach by reference to the fact that the Sorrento property was residential, whereas other property was commercial. I do not accept that explanation, especially in relation to the Westlake property, which was a residential property in which the trust had a clear interest, although not disclosed on the title deed.
I find that, on the balance of probabilities, Mr Smith purchased the Sorrento property on his own behalf and held it on his own behalf, not as trustee of the T G Smith Family Property Trust.
Mr Aldridge submits that even if it could not be established that the Sorrento property was acquired on behalf of the T G Smith Family Property Trust, there was a resulting trust in favour of the T G Smith Family Property Trust because the funds of the trust were used to acquire the property [7]. I reject that submission. It relies upon financial records that are all recent recreations, apparently with the assistance of a Mr Bob Bell, Mr Smith’s accountant, who was not called to give evidence. In addition, Mr Smith’s oral evidence in relation to those accounts and his financial dealings generally was most unimpressive. His evidence was inconsistent and unpersuasive. He had great difficulty recalling what transactions were entered into and why. He initially asserted that the T G Smith Family Property Trust existed purely to hold property and did not derive any income. He later asserted, in relation to the sole income tax return of the trust, that the trust derived substantial income in the form of interest on moneys loaned by the trust. I gained the strong impression that the T G Smith Family Property Trust existed to serve Mr Smith’s interests as a kind of genie, to be summoned from the bottle when convenient and to be dismissed to invisibility when no longer required. My poor impression of Mr Smith’s evidence concerning the financial records of the trust was reinforced by his unsatisfactory evidence in respect of the ownership of personal chattels, which was inconsistent with his evidence at his public examination. Further, Mr Smith admitted that Goldwhirl was used to “wash” funds. He sought to put an innocent interpretation on that expression, but I find that, as its name suggests, Goldwhirl was a money laundering entity. I find that Mr Smith’s oral evidence and the financial records relating to the use of funds by himself, the T G Smith Family Property Trust, Goldwhirl and Kalamata in relation to the Sorrento property are unsatisfactory and lack credibility. At all material times Mr Smith treated the funds employed and the property acquired as his own.
[7] Nadia v Public Trustee (WA) (1930) 32 ALR 153 at 158
I will grant the relief sought by the applicant trustee in bankruptcy. Costs of the proceedings should be borne by Mr Smith personally.
I certify that the preceding fifty-three (53) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 12 November 2004
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