Davis & Peterson
[2023] FedCFamC1A 13
Federal Circuit and Family Court of Australia
(DIVISION 1) APPELLATE JURISDICTION
Davis & Peterson [2023] FedCFamC1A 13
Appeal from: Peterson & Davis (No 3) [2022] FedCFamC1F 650 Appeal number(s): NAA 214 of 2022 File number(s): PAC 1208 of 2016 Judgment of: TREE, CHRISTIE & SCHONELL JJ Date of judgment: 17 February 2023 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Where the appellants contended error by the primary judge in finding that the appellants did not discharge the onus of proof to establish a trust – Where the appellants submitted that there were a series of incontrovertible facts which could only point to the fact that the properties were held on trust by the first and second respondents – Where the primary judge made credit findings against the appellants and various witnesses in the appellants’ case – Where the primary judge did not consider these incontrovertible facts in his reasons – Whether the primary judge erred in his findings that the appellants were dishonest or complicit in deceiving the Commonwealth Bank of Australia and/or the Australian Taxation Office – Where these findings were not available to the primary judge and consequently the primary judge erred in refusing to grant equitable relief – Appeal allowed – Re-exercise of decision – Where it was found that a trust arrangement was the only logical and plausible conclusion consistent with the incontrovertible facts – Costs ordered in favour of the appellants in a fixed sum. Legislation: Environmental Planning and Assessment Act 1979 (NSW) s 10.7
Family Law Act1975 (Cth) s 117
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 35
Real Property Act 1900 (NSW)
Cases cited: Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49
CDJ v VAJ (1998) 197 CLR 172; [1998] HCA 67
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186; [2006] NSWCA 187
Khalif & Khalif [2021] FamCAFC 123
Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11
Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78
Silvia (Trustee) v Williams [2018] FCAFC 194
Number of paragraphs: 76 Date of hearing: 31 January 2023 Place: Heard in Sydney, delivered in Cairns Counsel for the Appellants: Mr Cook SC with Mr Ng Solicitor for the Appellants: McEvoy Legal Counsel for the First Respondent: Mr Mathews Solicitor for the First Respondent: Williamson & Learmouth The Second Respondent: Litigant in Person Counsel for the Third Respondent: Mr Marshall SC with Mr Eardley and Ms Blake Solicitor for the Third Respondent: Mercantile Legal Pty Ltd ORDERS
NAA 214 of 2022
PAC 1208 of 2016FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MR B DAVIS
First Appellant
MS DAVIS
Second Appellant
AND: MS PETERSON
First Respondent
MR DAVIS
Second Respondent
MR CUSSON
Third Respondent
order made by:
TREE, CHRISTIE & SCHONELL JJ
DATE OF ORDER:
17 FEBRUARY 2023
THE COURT ORDERS THAT:
1.The appeal is allowed.
2.The second respondent’s oral application to adduce further evidence is dismissed.
3.Orders 2, 3, 4, 5, 7, 8, 9, 10 and 14 made 31 August 2022 are discharged.
4.The Court declares that the land comprised in folio identifiers … and … and known as 1 and 2 N Street, D Town (“the properties”) are held on trust by the second and third respondents (following the vesting of the first respondent’s interest in the properties in the third respondent), in favour of the appellants as joint tenants.
5.The first, second and third respondents take such steps as are necessary to forthwith transfer the properties to the appellants subject to the conditions that:
(a)The appellants pay any costs, including any duties, arising out of the transfer of the properties to them; and
(b)The appellants obtain a discharge of any mortgage over the properties in the names of the first and second respondents.
6.The first and third respondents within 42 days pay the appellants’ costs of the appeal, fixed in the sum of $98,683.51 in the proportion as to 25 per cent to the first respondent and 75 per cent to the third respondent.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Davis & Peterson has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
TREE, CHRISTIE & SCHONELL JJ:
By Notice of Appeal filed 26 September 2022, Mr B Davis (“the first appellant”) and Ms Davis (“the second appellant”) (collectively “the appellants”) appeal the primary judge’s refusal to make declarations that two properties in D Town New South Wales (“the properties”) were held on trust for them by their son Mr Davis (“the second respondent”) and his former de facto partner Ms Peterson (“the first respondent”).
The first respondent and the first respondent’s trustee in bankruptcy (“the third respondent”) opposed the appeal.
The second respondent, while represented before the primary judge, appeared for himself on the appeal. He supported the position of the appellants, but sought leave to rely on an affidavit annexing various documents that he contended were relevant to matters raised by the appeal. Leave was opposed by the third respondent.
For reasons that will become apparent, we are persuaded that error has been established, and hence the appeal will be allowed.
Background
The first and second respondents commenced a de facto relationship in or about March 1999.
In 2001 and 2003, the appellants purchased the properties. It was not controversial that until November 2008, the appellants were the legal and beneficial owners of the properties. Prior to November 2008, the properties were rented out by the appellants and at times one was used by the appellants as a holiday home.
In 2006, the appellants found themselves in financial difficulties. In January 2007, the appellants refinanced a loan over the properties with a financier for a period of twelve months repayable on 17 January 2008. The appellants subsequently failed to repay the loan on the due date which triggered default interest of 14.25 per cent. In April 2008, the financier commenced proceedings in the Supreme Court of New South Wales for possession of the properties.
In April 2008, the appellants submitted through a broker, who became a witness in the appellants’ case, an application for refinance with another financier. The appellants received a conditional approval at an interest rate of 11.19 per cent. The appellants did not pursue the conditional approval any further.
The appellants contended (supported by the second respondent) that an agreement was then reached at their solicitor’s office where they would transfer the properties to the first and second respondents who would borrow funds to pay out their loan. At some future point in time, when requested, they would then transfer the properties back to the appellants. Pending that event, the appellants would receive the rent on the properties and pay the mortgage instalments on the loan and all other expenses in relation to the properties.
The first and second respondents subsequently obtained a loan from the Commonwealth Bank of Australia (“the CBA”) at an interest rate of around 8.5 per cent. The properties were transferred to them on 31 October 2008 with the CBA loan discharging the appellants’ loan.
The following were not controversial:
(1)Valuations of the properties undertaken in 2008 valued the properties at $825,000.
(2)The transfers recorded the consideration for the properties to be $830,000.
(3)The first and second respondents only borrowed approximately $686,000 from the CBA. This amount was applied in discharge of the appellants’ loan as to approximately $671,000 and the balance to part pay stamp duty on the transfer.
(4)The difference between the consideration on the transfer and the amount borrowed was not paid to the appellants.
(5)The appellants paid the balance of the stamp duty.
(6)Following the transfer, the appellants continued to use the properties as they had before the transfer, namely receiving the rent and meeting the shortfall between the rent and the loan payments to the CBA as well as meeting all of the maintenance and other outgoings on the properties.
(7)The outgoings on the properties exceeded any rent received.
(8)The appellants continued to use the properties as a holiday home.
(9)The first and second respondents made no loan payments nor met any of the outgoings on the properties.
The first and second respondents separated on 15 March 2010.
In late 2011, the first respondent was made bankrupt on her own petition. The third respondent trustee was appointed on 2 February 2012. She was discharged from her bankruptcy in late October 2014.
On 17 March 2016, the first respondent commenced proceedings for financial adjustment against the second respondent. The appellants were joined as parties on 15 November 2016.
Before the primary judge, the appellants contended that the incontrovertible facts established that the first and second respondents held the properties on either a bare trust, in the alternative, a common intention constructive trust and in the further alternative, a remedial constructive trust for the appellants. Their position was supported by the second respondent but opposed by the first and third respondents.
Over the course of his extensive reasons, the primary judge examined at length the evidence of each of the parties and the various witnesses. His Honour concluded that the appellants had failed to discharge the onus of proof to establish that the properties were held by the first and second respondents on trust. That conclusion was informed in large measure by his findings in relation to credibility and by what he also described as the “implausibility” of the trust arrangement. In relation to credibility, he found the first appellant to be an unreliable witness and described the second respondent’s evidence as evidence he was not prepared to act on unless it was supported objectively. The primary judge drew inferences adverse to the second appellant in circumstances where she was not called to give evidence.
In relation to other witnesses called in the appellants’ case, the primary judge observed that the finance broker, who was otherwise a reliable witness, had no recollection of the events that took place in the solicitor’s office. The evidence of the solicitor who acted for all four parties’ was found to be tainted, infected and contaminated such that little weight could be placed upon it. The primary judge drew adverse inferences against the appellants from the failure to tender the file of the solicitor and described the evidence of the conveyancing clerk to have been given “through the prism of an ‘understanding’ that had been affected by the passing of time, her later experiences with the Davis family and the other conversations she has had, particularly in the course of her involvement in these proceedings” (at [258]).
These findings together, with his view of the implausibility of the trust arrangement and the existence of various documents which were said to be inconsistent with a trust, led the primary judge to conclude that the appellants had not discharged the onus to establish their case, and hence he dismissed their claim.
The Notice of Appeal broadly contends error by the primary judge in finding against the weight of the evidence that there was not an express trust or alternatively, a common intention constructive trust or in the further alternative, a remedial constructive trust (Grounds 1, 2 and 3). It also contended error in the primary judge’s factual findings and application of “unclean hands” as a basis for a refusal to recognise a remedial constructive trust (Grounds 4 and 5).
Application to adduce further evidence
The second respondent sought leave to rely upon an affidavit annexing various documents including Centrelink income statements. He contended that these documents were relevant to aspects of the findings by the primary judge in so far as they related to aspects of his evidence. The affidavit stated:
3. This evidence is extracted from the subpoenaed documents from … already before the court.
(As per the original)
Section 35(b) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (“the FCFCOA Act”) provides that this Court may in its discretion receive further evidence. The High Court in CDJ v VAJ (1998) 197 CLR 172 (“CDJ v VAJ”) laid down clear guidelines that are to apply to the reception of further evidence on appeal, particularly at [104], [108], [109], [111] and [113]–[116]. In particular, the plurality said:
108.When regard is had to Pt X and its place in the scheme established by the Act, it is apparent that the common law rules which govern the admission of fresh evidence in the common law courts cannot exhaustively define the scope of the discretion. The discretion is more ample than the principles applicable in common law proceedings and applied in Wollongong Corporation. That, of course, does not mean that the discretion reposed in the Full Court by s 93A(2) is unfettered, a point recognised by the Full Court in In the Marriage of Abdo. Although the discretion to admit further evidence is not attended by any express words of limitation, the subject-matter, scope and purpose of the appeal provisions in Pt X of the Act and the issues involved in each appeal will point to the considerations which are or are not extraneous to the exercise of the power.
109. One consideration in construing s 93A(2) is its remedial nature. Its principal purpose is to give to the Full Court a discretionary power to admit further evidence where that evidence, if accepted, would demonstrate that the order under appeal is erroneous. The power exists to facilitate the avoidance of errors which cannot be otherwise remedied by the application of the conventional appellate procedures. A further, but in practice subsidiary, purpose is to give the Full Court a discretion to admit further evidence to buttress the findings already made.
…
111.… Nevertheless, it is highly unlikely that Parliament in conferring jurisdiction on the Full Court to hear appeals intended that s 93A(2) should be construed in a way that would have the practical effect of obliterating the distinction between original and appellate jurisdiction. Nor can the availability of further evidence relevant to the issues in the appeal be treated as equivalent to a ground of appeal, proof of which prima facie entitles the appellant to a new trial. The power to admit the further evidence exists to serve the demands of justice. Ordinarily, where it is alleged that the admission of new evidence requires a new trial, justice will not be served unless the Full Court is satisfied that the further evidence would have produced a different result if it had been available at the trial. Without that condition being satisfied, it could seldom, if ever, be in the interests of justice to deprive the respondent of the benefit of the orders made by the trial judge and put that person to the expense, inconvenience and worry of a new trial.
…
113. In any event, we cannot accept that the discretion to receive further evidence is so wide that the Full Court can admit further evidence merely because it is useful. Such a criterion is inconsistent both with the nature of the appellate jurisdiction exercised by that Court and with the perceived purposes of s 93A(2).
(Footnotes omitted) (Emphasis in original)
The further evidence sought to be adduced by the second respondent does not meet the requirements identified by the High Court. It cannot pass without noting that while the second respondent before us was unrepresented, before the primary judge he was represented by both solicitor and counsel. It is unexplained why this evidence was not adduced before the primary judge in circumstances where it was clearly available at the time of the trial. We are not satisfied that any of the evidence has application to the issues raised by the appeal. Leave to adduce the evidence will be refused.
The appeal
The Notice of Appeal was unnecessarily verbose, even tortuous, in that whilst contending only five grounds, each had numerous sub-parts. The Summary of Argument did not assist in making transparent the argument in support.
Mercifully, the appeal was conducted with greater focus. The appellants’ argument presented Grounds 1, 2 and 3 and their various sub-parts cumulatively and then addressed Grounds 4 and 5 together. Each of the respondents followed a similar course. We will address the grounds in the same order.
Grounds 1, 2 and 3
The appellants submitted that the case at trial, as governed by the Points of Claim and subsequently shaped by the affidavits and oral evidence, presented for consideration by the primary judge a binary outcome. On the one hand was the case as presented by the appellants and the second respondent that he and the first respondent held the properties on trust for the appellants. Alternatively, the case as presented by the first respondent and adopted by the third respondent that she and the second respondent had purchased the properties for valuable consideration. The appellants further submitted that despite the plethora of evidence adduced in the case and the ready acceptance that different witnesses gave differing accounts of the same event, there remained a series of what were described as incontrovertible facts.
The appellants’ submission was that those incontrovertible facts lead inexorably to only one outcome, namely that the first and second respondents held the properties on trust for the appellants. Presented in that fashion, those incontrovertible facts were said to be sufficient to discharge the onus of proof that fell upon the appellants and consequently the primary judge was in error in finding otherwise.
The appellants further submitted that irrespective of the primary judge’s findings about credit, dishonest conduct and inferences flowing from the failure to call various persons (many of which findings the appellants contended were erroneous), the incontrovertible facts remained and commanded of only one outcome. Despite arguing at some length that various findings made by the primary judge were not open, the appellants’ senior counsel conceded that if we found the incontrovertible facts then it was unnecessary to consider the other sub-grounds addressing what were also said to be error.
It was not in issue that the primary judge accurately stated the relevant legal principles. The appellants’ Summary of Argument recorded:
5.As his Honour observed (J [314]) by reference to Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178, an express trust requires an intention on the part of the relevant parties to create a trust, where all the relevant circumstances must be examined in order to determine whether such an intention existed: see also Kauter v Hilton (1953) 90 CLR 86 at 100. Moreover, no special words are necessary to create a trust, such that, unless there is something in the circumstances of a case to indicate otherwise, a person who has received, as and for the beneficial property of another, something which he or she is to hold, apply or account specifically for that other person’s benefit, is a trustee: Registrar, Accident Compensation Tribunal v Federal Commissioner of Taxation (1993) 178 CLR 145 at 165-166.
Nor was it controversial that as recorded by the primary judge, a common intention constructive trust will be recognised where the common intention of the parties demonstrates that it was intended that the appellants would have a beneficial interest in the properties and have acted to their detriment in reliance upon such intention. The establishment of a common intention is a question of fact that may arise from express agreement or will be inferred from conduct (Silvia (Trustee) v Williams [2018] FCAFC 194). Such intention is usually formed at the time of the transaction and may be established by the party claiming the beneficial interest having acted to their detriment (Khalif & Khalif [2021] FamCAFC 123). If established, it would be unconscionable for the other parties to deny the common intention.
Alternatively, as the primary judge correctly observed in relation to a remedial constructive trust:
378.The construction of a trust by way of the principles identified in Muschinski v Dodds, can be raised by operation of law without reference to the intention of the parties concerned, and may be contrary to the desires and intentions of the constructive trustee. Hence the inquiry is not solely to the actual or presumed intentions to the parties, but as to whether, according to the principles of equity, it would be a fraud for the party in question to deny the trust. As confirmed by the High Court in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 108):
…when property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.
379. The High Court in Muschinski v Dodds cautioned that:
In assessing whether or to what extent such an assertion or retention of legal entitlement by Mr Dodds would constitute unconscionable conduct, one is not left at large to indulge random notions of what is fair and just as a matter of abstract morality. Notions of what is fair and just are relevant but only in the confined context of determining whether conduct should, by reference to legitimate processes of legal reasoning, be characterized as unconscionable for the purposes of a specific principle of equity whose rationale and operation is to prevent wrongful and undue advantage being taken by one party of a benefit derived at the expense of the other party in the special circumstances of the unforeseen and premature collapse of a joint relationship or endeavour.
The appellants submitted the incontrovertible facts to be:
(1)The arrangement that gave rise to the transfers of the properties was one that occurred between family members;
(2)The transfer of the properties was not occasioned by a contract for sale;
(3)The appellants were in a dire financial position;
(4)The purpose of the transfer of the properties was to prevent the appellants losing the properties;
(5)There were no negotiations or discussions about a purchase price;
(6)The consideration as recorded in the Real Property Act 1900 (NSW) (“Real Property Act”) transfers was inserted by the conveyancer and not at the request or direction of any party to the transfer;
(7)With the exception of the stamp duty for one of the properties being sourced from the loan, all costs of the transfer, mortgage payments, outgoings and expenses referrable to the properties were paid after the transfer by the appellants;
(8)All of the benefits of ownership of the properties including the retention of rental income were retained after transfer by the appellants;
(9)One of the two legal owners of the properties (being the second respondent) accepted that the appellants were the beneficial owners;
(10)Some eight days after the transfer of the properties by the appellants, they instructed the same conveyancer who had effected the transfers to prepare contracts for sale of one of the properties and obtain s 149 (now s 10.7) certificates under the Environmental Planning and Assessment Act 1979 (NSW) for inclusion in those contracts; and
(11)That between 31 October 2018 and the commencement of these proceedings, the first respondent never acted in a way consistent with her being the beneficial owner of the properties, and the second respondent never has at any time so acted.
It was submitted by the appellants, without demur from each of the respondents, that these incontrovertible facts were established before the primary judge and yet not considered in his reasons.
In relation to the alternative contention that the first and second respondents purchased the properties, senior counsel for the appellants contended that the only party who promoted the idea of a sale was the first respondent. In support of his submissions, he referenced the primary judge’s findings that she was an “inconsistent witness” (at [305]) and consequentially unreliable.
Senior counsel for the appellants pointed to the complete absence of any evidence in the first respondent’s affidavit to establish a purchase of the properties. Rather, her affidavit demonstrated that she and the second respondent had done no more than take a mere transfer of the properties; they had not effected a purchase. The appellants relied upon the first respondent’s admission in cross-examination that she had never asked what the “purchase price” of the properties was. The appellants submitted that there was no evidence of a Contract for Sale and Purchase of Land and that the use of a Real Property Act transfer did not evidence a purchase; it being the only method by which a transfer of land can occur short of a transmission application following death. There were no monies paid by the first and second respondents other than the monies obtained under the mortgage and there was no subsequent dealing by them with the properties consistent with ownership. Put simply, the appellants say there was no evidence to support the idea of a purchase.
Senior counsel for the appellants also addressed briefly the idea that there had been a gift of equity in the properties to the first and second respondents. The idea of a gift was addressed obliquely by the primary judge. Senior counsel submitted correctly that no party had suggested that the properties or part of the equity were gifted nor did the primary judge make any such finding. He submitted that the idea of a gift of equity of approximately $200,000 in light of the dire financial circumstances of the appellants was illogical.
Senior counsel for the third respondent in his submissions in reply addressed the list of incontrovertible facts identified by senior counsel for the appellants. He took no issue with their characterisation as incontrovertible other than to observe in relation to number four that it was the first respondent’s case that the transfer was effected to save the properties for “the family” and in relation to number nine that the primary judge found the second respondent to be an unreliable witness.
Senior counsel for the third respondent submitted that notwithstanding the incontrovertible facts, this Court should not interfere with the primary judge’s findings as to credit. Such findings included that the first appellant and second respondent were found to be unreliable, the second appellant was not called to give evidence and that the inferences drawn by the primary judge were open. He submitted that the other witnesses called by the appellants to support the findings of a trust either gave no direct evidence of a trust, were found to be unreliable or alternatively, their evidence was found by the primary judge to be influenced by the effluxion of time, by re-telling or by subconscious support for that party such that the primary judge could place no weight on their evidence. In summary, he submitted that the incontrovertible facts were not sufficient to overcome the credit findings and as such the decision of the primary judge should stand.
Counsel for the first respondent took no issue with the incontrovertible facts, did not engage with the appellants’ submissions as to the absence of evidence supporting a purchase and the illogicality of a gift of $200,000, and otherwise supported the submissions advanced by the third respondent. The second respondent made no submissions other than to support the case of the appellants.
The judgment makes clear that the primary judge was not satisfied that the appellants had discharged the onus of proof to establish a trust. Such conclusion was based primarily on credit findings but also upon adverse inferences drawn from the failure to call witnesses, documents that were said to be inconsistent with a trust, the absence of documents evidencing a trust and what was said to be the implausibility of a trust arrangement. The appellants took issue with each of these findings.
Whilst it is true that appellants who seek to overturn credit findings face a heavy task, it is not an insurmountable one.
In Fox v Percy (2003) 214 CLR 118 (“Fox v Percy”), the plurality observed in the following terms:
28. Over more than a century, this Court, and courts like it, have given instruction on how to resolve the dichotomy between the foregoing appellate obligations and appellate restraint. From time to time, by reference to considerations particular to each case, different emphasis appears in such reasons. However, the mere fact that a trial judge necessarily reached a conclusion favouring the witnesses of one party over those of another does not, and cannot, prevent the performance by a court of appeal of the functions imposed on it by statute. In particular cases incontrovertible facts or uncontested testimony will demonstrate that the trial judge’s conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings.
29. That this is so is demonstrated in several recent decisions of this Court. In some, quite rare, cases, although the facts fall short of being “incontrovertible”, an appellate conclusion may be reached that the decision at trial is “glaringly improbable” or “contrary to compelling inferences” in the case. In such circumstances, the appellate court is not relieved of its statutory functions by the fact that the trial judge has, expressly or implicitly, reached a conclusion influenced by an opinion concerning the credibility of witnesses. In such a case, making all due allowances for the advantages available to the trial judge, the appellate court must “not shrink from giving effect to” its own conclusion. Finality in litigation is highly desirable. Litigation beyond a trial is costly and usually upsetting. But in every appeal by way of rehearing, a judgment of the appellate court is required both on the facts and the law. It is not forbidden (nor in the face of the statutory requirement could it be) by ritual incantation about witness credibility, nor by judicial reference to the desirability of finality in litigation or reminders of the general advantages of the trial over the appellate process.
…
31. Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical.
(Footnotes omitted) (Emphasis added)
Justice of Appeal Ipp sitting in the plurality in Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186 observed:
11. Stern sentinels have long barred the gateway to appellate success against findings of fact substantially dependent on demeanour and credibility. These formidable guardians are the line of cases epitomised by Devries v Australian National Railways Commission (1993) 177 CLR 472 and Abalos v Australian Postal Commission (1990) 171 CLR 167. The opening of the portals is dependent on passwords that, in practice, are rarely invoked successfully. These are: “the trial judge’s failure to use or palpable misuse of his or her advantage,” or the judge making findings “inconsistent with incontrovertible facts,” or acting on “glaringly improbable evidence,” or making findings “contrary to compelling inferences”. There are signs, however, that entry to the citadel can now more easily be achieved.
…
27. These problems and doubts about demeanour findings explain why trial judges are expected to weigh their impressions as to demeanour carefully against the probabilities and to examine whether the disputed evidence is consistent with the incontrovertible facts, facts that are not in dispute and other relevant evidence in the case. Of course, demeanour may trump the probabilities, but it should be apparent from the judge’s reasons that the probabilities and consistency with other relevant evidence have properly been taken into account.
As these and other like authorities make clear, despite the significance of credibility findings and the importance of finality in litigation, appellant intervention is permissible (indeed mandatory) if the incontrovertible facts make apparent that the primary judge’s determination is in error.
We accept the submissions of the appellants’ senior counsel that there was no evidence that the first and second respondents purchased the properties. There was no contract to purchase, no discussion of a purchase price nor any payment of monies being the difference between the sum borrowed and value of the properties or the sum stated in the transfers. It was illogical that persons in the dire financial predicament facing the appellants would gift approximately $200,000 to one of their three sons and the first respondent. A purchase by the first and second respondents is inconsistent with the appellants paying the balance of the stamp duty on the transfer. Following the transfers, the first and second respondents did not assume occupation, receive the rent or make a payment towards any loan payments or the outgoings. There was no evidence that the first and second respondents ever acted consistently with the acquisition of a beneficial interest. Further, the evidence of a purchase was inconsistent with the representations made by the first respondent to an officer of the third respondent (albeit denied by her in her evidence) where she said the properties were held on trust for the appellants. There was a complete absence of any evidence of the first and second respondents doing any act consistent with a beneficial interest in the properties. Their entire conduct was consistent with that of a bare trustee.
In those circumstances there was only one other alternative available on the incontrovertible facts, that of a trust.
The incontrovertible facts demonstrated that the appellants acted at all times consistently with the retention of a beneficial interest in the properties. Prior to the transfers, they had rented out the properties and at times used one as a holiday home. They receipted all rent and paid all outgoings including mortgage payments. Following the transfers, they continued to use the properties in exactly the same manner as they had done prior to transfer. They received all the rent and paid all the outgoings including loan payments. They continued to use one of the properties as a holiday home. Shortly after the transfer of the properties, the appellants gave instructions to prepare contracts to sell one of the properties albeit that the sale did not proceed. They instructed solicitors to prepare leases in their names as landlords. These are acts consistent with retention of a beneficial interest. It was incontrovertible that the appellants acted to their detriment by meeting all of the outgoings which vastly exceeded the benefit of any rent received.
We are satisfied that the primary judge, notwithstanding the at times irreconcilable morass of evidence before him, including the credibility issues, did not deal with the incontrovertible facts. In failing to do so the primary judge erred. The common intention inferred from the conduct of the parties evidenced by the incontrovertible facts, irrespective of the credibility of the parties, led inescapably to only one conclusion, namely that the properties were held by the first and second respondents on trust for the appellants.
A trust arrangement was not implausible, rather it was the only logical and plausible conclusion consistent with the incontrovertible facts. The incontrovertible facts are sufficient to establish a common intention trust or in the alternative to justify the imposition of a remedial constructive trust of the kind identified by their Honours in Muschinski v Dodds (1985) 160 CLR 583.
Accordingly, we are satisfied that the primary judge’s conclusion, contrary to the incontrovertible facts in the Fox v Percy sense, is erroneous and cannot stand.
Senior counsel for the appellants also challenged the primary judge’s conclusion that a number of contemporaneous documents did not support the finding of a trust. In relation to three of the five categories of documents, we are satisfied that the primary judge’s conclusion was erroneous.
The primary judge referred to the loan approval documents and concluded that the loan approval with an interest rate of approximately 11 per cent meant the appellants “had no immediate need to enter into the alleged trust arrangement” (at [348(a)]). As senior counsel for the appellants submitted, the evidence was that the loan approval was not final but rather conditional subject to the provision of further information. Further, the primary judge’s conclusion that the appellants had no need to enter into a trust arrangement because they had loan approval at a certain interest rate ignored the unchallenged evidence of the finance broker Mr L who recorded in his affidavit:
9. On 30 April 2008 I was able to obtain a conditional approval for the refinance of both of [the properties] through HH Finance, however the variable interest rate on that loan would have been 11.19% and interest rates were increasing at that time. This loan was not taken up as it would have placed [the appellants] in financial hardship. All other lenders that could be considered had similar or higher rates of interest.
(Affidavit of Mr L filed 9 November 2018)
The primary judge did not address this evidence in reaching his conclusion.
The primary judge also referred to the CBA loan application recording that it made no mention of a trust, and that the inclusion of the words gift – equity family “conveyed a clear and unequivocal explanation of the transactions”, finding that the inferences to be drawn from the document “are wholly inconsistent with the existence of a trust” (at [348(b)]). We accept senior counsel for the appellants’ submission that the loan application form contained a series of boxes to be ticked. The form did not have a category referencing a trust; a ready explanation for the absence of the word ‘trust’. We also accept the submission of the appellants’ that the primary judge’s findings in relation to the words gift – equity family on the form are irreconcilable with the affidavit evidence of Mr L where he said.
23. I refer to the documents produced by the Commonwealth Bank under Subpoena that are annexed to [the first respondent’s] Affidavit of 20 July 2018. On the handwritten application which is annexed to the Affidavit and stamped at the bottom with the number ‘92’, under the heading ‘gift’ I have written the words ‘family equity’ with the amount of ‘$200,000’. This was an oversight by me and should have been placed under the heading ‘other’. On the bank’s computer generated version of the document which is annexed to the Affidavit and stamped at the bottom with the number ‘57’ this has been corrected and the family equity amount has been moved to the ‘other’ heading. …
(Affidavit of Mr L filed 9 November 2018)
The explanation as found by the primary judge is irreconcilable with the evidence of Mr L, whom the primary judge described as a witness who “made a genuine attempt to be accurate in his evidence” (at [219]).
The primary judge also drew inferences from the Real Property Act transfers, finding that:
348. …
(a)[sic]… On their face those documents record the [appellants’] transfer of their whole interest in [the properties] for consideration. No contrary inference could be drawn from the transfers, they do not represent an ongoing beneficial interest being held by the [appellants]. …
The primary judge does not deal with the submission of senior counsel at trial to the following effect:
[SENIOR COUNSEL FOR THE APPELLANTS]: Now, your Honour raised some questions about – and perhaps I read too much into your Honour’s expressions from time to time, but your Honour had some uncomfortableness, I think, in relation to why the consideration was put in at stamp duty – for stamp duty purposes and – rather than some reference or something, to the creation of a trust now. Your Honour, could I give your Honour an extract from the Land Titling Law and Practice in New South Wales textbook? And obviously your Honour will go through it in due course, but the reason I give your Honour this is to point out to your Honour that one of the consequences of section 82 of the Real Property Act is that there can be nothing registered in the register concerning anyone holding property on trust. There’s a general prohibition of that. So one cannot put a transferor or transferee as holding property in trust.
(Transcript 3 June 2022, p.450 lines 29–39)
A like submission was made to us. It was not suggested by any of the respondents’ counsel that a Real Property Act transfer could record a trust arrangement. We accept the submission of the appellants that the conclusions drawn by the primary judge in relation to various documents were erroneous.
In view of the success of the substantive aspects of Grounds 1, 2 and 3, it is unnecessary for the disposition of this appeal for this Court to determine the sub-grounds that remain. Consistent with the objects of the FCFCOA Act calling for the quick resolution of disputes and the efficient delivery of justice, in the interests of judicial economy the remaining sub-parts in Grounds 1, 2 and 3 will not be addressed (Boensch v Pascoe (2019) 268 CLR 593).
It does, however, remain necessary to deal with the primary judge’s alternative findings that are addressed in Grounds 4 and 5.
Grounds 4 and 5
The primary judge observed under the rubric of “unclean hands” that in the event that he were wrong in finding that the appellants had not made out their case then, as the appellants were “aware of and complicit” in the first and second respondents’ deception (at [391]), they consequentially were “disentitled from their claim in equity by reason of their own unconscionability” (at [386]). The deception was said to be the false representations made by the first and second respondents in the CBA loan application by way of a significant overstatement of their income and the failure by the appellants to disclose the income they received from the properties to the Australian Taxation Office (“the ATO”) if it were the case that they were in fact the beneficial owners.
The primary judge specifically found:
391. I am satisfied and have found that the [appellants] in encouraging the [first and second respondent] to apply for finance with the Commonwealth Bank and facilitating the transaction by way of their request and introduction of the [first and second respondent] to Mr L and Ms K, were aware of and complicit in the [first and second respondents’] deception of the Commonwealth Bank. As recorded I did not accept the [first appellant’s] rehearsed and unreliable evidence that he had “nothing to do” with the loan application. To my mind it is not important whether the [appellants] were aware of the precise details of the deceit. The transfer of [the properties] (on their case) was their project. That enterprise was a joint one. In those circumstances, I find that the dishonest conduct of the [first and second respondent] to the Commonwealth Bank is to be attributed to the [appellants].
392.… To prove their case as to the equitable ownership of [the properties] would require the [appellants] to prove their own fraudulent conduct: that is, to convey to the Commonwealth Bank and the Australian Taxation Office that [the properties] were wholly the property of the [first and second respondent] when in fact they were not. This deceitful scheme was the whole basis of their case. I find that the [appellants’] dishonest conduct in this sense has immediate and necessary relation to their equity sued for (see Gascoigne v Gascoigne [1918] 1 K.B. 223 at [226]; Kettles and Gas Appliances Ltd v Anthony Hordern and Sons Ltd (1934) 35 SR (NSW) 108).
393. I find that the disentitling conduct of each of the [first respondent], [second respondent] and [appellants] amounts to dishonesty, being (in this case) both a moral and legal depravity. I am satisfied and find that equity would not assist the [appellants] and the [second respondent] in obtaining relief by reason of their own dishonesty and fraud.
The appellants contend error on the part of the primary judge in relation to these findings and in particular, the finding that the appellants were aware of the first and second respondent’s deception of the CBA or the alternate finding of the primary judge that “[t]o my mind it is not important whether the [appellants] were aware of the precise details of the deceit” (at [391]).
The affidavit of the first appellant recorded that he was present with the second appellant at a meeting where he observed the second respondent fill out a CBA loan application. In cross-examination, he said he could not recall who said what while the loan application was being filled out. When cross-examined he admitted he was present but said he had nothing to do with filling out the application. He was asked various questions about the content of the loan application and consistently answered to the effect that he had nothing to do with filling out the document and could not explain why it contained certain information. When shown the loan application he was asked by senior counsel for the third respondent “[h]ave you ever seen this document [being a reference to the loan application] before I’ve shown it to you today?” and responded “No” (Transcript 1 June 2022, p.272 line 38). He was not challenged or cross-examined on his answer. It was not ever put to him that his evidence was untruthful or that he was being dishonest.
There was no evidence before the primary judge that the first appellant knew what representations had been made by the first and second respondents in the loan application. There was no evidence before the primary judge that the first appellant knew what the second respondent’s income was or that he had overstated it. At no time during the cross-examination of the first appellant was it put to him that he had taken part in a scheme to deceive the CBA.
As the second appellant led no evidence and consequentially was not cross-examined, the extent of her knowledge of the content of the loan application could only be gleaned from what others said. Like the first appellant, there was no evidence before the primary judge that the second appellant knew what representations had been made by the first and second respondents in the CBA loan application.
Unless the primary judge had evidence that established the appellants had actual or constructive knowledge of the content of the CBA loan application, then the question of whether its contents were accurate or not does not arise. The evidence fell short of establishing that the appellants had actual or constructive knowledge of the content of the application. Neither a concern about the creditworthiness of the witness in the case of the first appellant nor an absence of evidence in the case of the second appellant can be used to establish as a positive fact that either witness knew of the representations to the bank.
In relation to any deception of the ATO, the evidence, such as it was, established that the mortgage payments and outgoings exceeded any rental income generated from the properties. It was not established before the primary judge that the properties generated any net income. The evidence was that the first appellant had retired in 2004 and had not lodged any tax returns since 2008. In the absence of the establishment of any net income generated from the properties together with the evidence that the first appellant had not lodged a tax return, there could be no foundation for a proposition that the first appellant had deceived the ATO. At no time during the cross-examination of the first appellant was it put to him that he had deceived the ATO. In any event, the trust, being a separate entity, would have been obliged to lodge its own tax return, rather than the relevant information being included in the appellants’ returns.
It is one thing for a judge to determine for a variety of reasons that a party or witness’s evidence is unreliable and no weight can be attached to it. It is quite another to attribute dishonesty or criminality.
In Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361, Heydon, Crennan and Bell JJ observed:
75.… In the absence of any challenge from the cross-examiner to the frankness and completeness of the plaintiff’s evidence, it was incumbent on the trial judge, if his conclusion that the plaintiff had not been frank and complete was to play a role in his decision adverse to the plaintiff, to make the challenge himself. Perhaps the criticism in the judgment did not occur to the trial judge until after the plaintiff had left the box, or until after the hearing had concluded and before the judge’s reserved judgment was given. It remained necessary either to recall the plaintiff or to have no regard to that aspect of the plaintiff’s evidence.
76.The first respondent repeatedly stressed the trial judge’s finding under discussion, and sought to render it immune from appellate examination by calling it “demeanour based”. But when the above difficulties were raised with counsel for the first respondent in this Court, he raised no strong defence of what happened, and fell back on the different point that the plaintiff’s evidence was so scant and meagre as to leave, fatally, an unfilled gap. He described the plaintiff’s case as having exhibited a “failure of proof”, and he said there was “a lacuna in his evidence”, as distinct from the plaintiff being the victim of “an inference adverse to him, drawn by the trial judge or by the Court of Appeal”. It must be accepted that the trial judge put the matter in the alternative, but the primary conclusion reached is the adverse inference described above.
We are not satisfied that the primary judge’s findings that the appellants were dishonest or were complicit in a deception of the CBA or the ATO were available on the evidence or open as a matter of procedural fairness. Consequentially, a refusal to grant equitable relief for the reasons advanced by the primary judge was attended by error.
In view of this finding, it is unnecessary for us to consider those parts of Grounds 4 and 5 that assert error by the primary judge in application of the equitable defence of unclean hands.
Conclusion
For the above reasons, we are satisfied that the appellants have established error on the part of the primary judge in finding that the appellants had not discharged the onus of proof. We are also satisfied that the primary judge erred in his finding that the appellants’ conduct was such as to disentitle them to equitable relief. For those reasons the appeal must be allowed.
Remitter or re-determination
A question that arises is whether the matter be remitted for a further hearing or whether this Court makes such order as in all the circumstances it thinks fit.
The appellants and the first and second respondents invited the Court to not remit the matter for rehearing. The third respondent asked that the Court remit the matter but advanced no submissions as to why in all the circumstances it was appropriate to do so, other than they might get an opportunity to cross-examine the witnesses who were not called before the primary judge.
We are cognisant that these parties have been litigating in this Court for over six years. The legal costs of all parties were recorded by the primary judge at in excess of $1.5 million. The costs incurred in the appeal are in addition to that extraordinary sum. In circumstances where the primary judge found the net equity in the properties to be approximately $2 million, it is readily apparent that any sense of proportionality was lost a long time ago. Given the incontrovertible facts and for the reasons given above, we are satisfied that consistent with the objects of the FCFCOA Act, it is proper that, to the extent that we can, we bring the litigation to an end.
Accordingly, for the reasons referred to earlier, we will make orders substantially as sought by the appellants in the Notice of Appeal. No submission was put by any of the respondents as to the inappropriateness of the orders sought by the appellants in the event that we re-determined the matter.
Costs
In circumstances where the appeal was successful, the appellants sought that costs be borne in the proportions as to 25 per cent by the first respondent and 75 per cent by the third respondent. The third respondent did not oppose a costs order in that proportion nor did they challenge the reasonableness of the claimed quantum. The first respondent opposed the costs order, contending impecuniosity, but did not challenge the percentage contribution or quantum.
Impecuniosity is not a basis for the refusal to make a costs order. In circumstances where the appeal has succeeded and the first and third respondents unsuccessfully opposed the appeal, we are satisfied that consistent with s 117 of the Family Law Act1975 (Cth) these are circumstances that justify the making of a costs order in the quantum and the proportions proposed.
We will make orders accordingly.
I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Tree, Christie & Schonell. Associate:
Dated: 17 February 2023
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