Donnelly, M.C. v Hedrlin, H

Re: MAX CHRISTOPHER DONNELLY
And: HELENE HEDRLIN
No. N B448 of 1983
FED No. 665
Bankruptcy - Trust

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Hill J.(1)

CATCHWORDS

Bankruptcy - Transfer of bankrupt's interest in two properties to wife without consideration - whether interests owned beneficially by bankrupt or held as trustee - whether wife aware of service of bankruptcy notice before transfer - whether transfers voidable settlements or fraudulent dispositions.

Trust - Intention to create a trust - effect of subsequent dealings inconsistent with notion of trust - whether enforceable trust by oral agreement - use of Statute of Frauds as an instrument of fraud - doctrine of Rochefoucauld v Boustead discussed.

Bankruptcy Act 1966 (Cth): ss.120, 121.

Conveyancing Act 1919 (NSW): s.23C.

HEARING

SYDNEY

#DATE 30:10:1991

Counsel and Solicitors for applicant: J. Sexton instructed by

Tillyard and Callanan

Counsel and Solicitors for respondent: H.A. Coonan instructed by

Photios and Vouroudis

ORDER

The transfer by the bankrupt to the respondent of the bankrupt's interest in land comprised in Certificate of Title Volume 13103 Folio 199 situated in Hume Avenue, Wentworth Falls in the State of New South Wales, (the Wentworth Falls property) by way of Transfer T70736 dated 10 March 1982 be set aside.

(1) The applicant as Trustee of the property of the bankrupt is the

beneficial owner of a one-half interest as tenant in common in the Wentworth Falls property.

(2) The respondent is the beneficial owner of the one-half interest

transferred to her by the bankrupt in land comprised in Certificate of Title Identifier 4/255879 (formerly comprised in Certificate of Title Volume 13622 Folio 107) situated at 213 Commonwealth Street, Surry Hills in the State of New South Wales.

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

JUDGE1

Mr Donnelly, ("the trustee"), the trustee of the estate of Mr Joseph Hedrlin, ("the bankrupt") a bankrupt, who has now been discharged from his bankruptcy, applies to the court to set aside two transfers made by the bankrupt in 1982 in favour of his wife. The first of these transfers which is dated 10 March 1982, was a transfer of all the interest of the bankrupt in a property situated in Hume Avenue, Wentworth Falls, being the land contained in Certificate of Title Volume 13103 Folio 199 ("the Wentworth Falls property"). The second was a transfer dated 23 April 1982 of all the interest of the bankrupt in a property situated at 213 Commonwealth Street, Surry Hills, being the land currently contained in Certificate of Title Identifier 4/255879 (formerly contained in Certificate of Title Volume 13622 Folio 107) ("the Surry Hills property"). The bankrupt continues to reside in the Surry Hills property with his wife.

Mr Hedrlin became a bankrupt by virtue of a sequestration order made on 18 May 1983 on the petition of the Proprietors of Strata Plan No 3670. The petition was based upon the bankrupt's failure to comply with a bankruptcy notice which was issued on 20 November 1981 and served upon the bankrupt on 3 December 1981. The bankruptcy notice, in turn, was based upon a judgment of the Supreme Court of New South Wales which took effect on 3 April 1981. That judgment was the culmination, it would seem, of a long running dispute between the bankrupt and his former neighbours in respect of the payment of maintenance levies in relation to a home unit at 15/7 Loftus Street, Ashfield, owned by the bankrupt and his wife as joint tenants. That dispute began around 1975 and became an obsession with the bankrupt. The judgment debt, on which the bankruptcy notice was founded, was only $1,553.44. However, as a result of subsequent litigation, the amount necessary to ensure payment of the debts of proving creditors and the costs of administration has grown considerably, and is out of all proportion to the amount of the initial judgment debt.
The trustee's case was simple. He relied upon the form of the transfers (each was expressed to be for consideration), the timing of the transfers made shortly after the service of the bankruptcy notice, and answers given by Mrs Hedrlin in the course of an examination of her under s.81 of the Bankruptcy Act 1966 (Cth) ("the Act"). When asked in respect of each transfer whether she had paid to her husband any money, Mrs Hedrlin answered that she had not. Accordingly, the trustee relied upon ss.120 and 121 of the Act to set aside the transfers either as settlements or as fraudulent dispositions.
Mrs Hedrlin, on the other hand, advanced a case which if accepted would lead to the conclusion that she and her husband, who in each case had acquired the respective properties as joint tenants, held the Wentworth Falls property as trustees for their son Peter and that Mr Hedrlin held his interest in the Surry Hills property as trustee for Mrs Hedrlin absolutely. In the alternative it was submitted that each property was held by them prior to the transfers in question as joint tenants for themselves as tenants in common in shares such that the interest of Mr Hedrlin was nominal.
Background
Mr and Mrs Hedrlin arrived in Australia in 1969 with their two children, Robert, then aged 14 and Peter, then aged 9, having escaped from Czechoslovakia. Their English was poor.
Until 1975 Mr Hedrlin conducted a business involving the manufacture and sale of kangaroo fur items. In 1975 the United States government banned the import of kangaroo skin products and as a result the local kangaroo skin souvenir industry suffered a sharp downturn. In the result, Mr Hedrlin from around that time earned little.
Around the same time Mrs Hedrlin commenced a business of making and selling belts and accessories under the business name "Helene Products" which she registered in that year. That business appears to have been relatively successful, and it would seem that from around 1975 Mrs Hedrlin became virtually the sole provider for the family. She had, however, even before that time, earned money from jobs she had obtained as well as from assisting her husband in his business, which, so income tax returns of that period suggest, was carried on by them in partnership.
The purchase of the Ashfield home unit
A home unit at Ashfield, which became the family home for some time, was purchased by Mr and Mrs Hedrlin in about December 1973, with the assistance of mortgage finance. It was accepted by Mrs Hedrlin that this property was jointly owned by her husband and herself beneficially. According to Mrs Hedrlin, in 1976 she came to an agreement with her husband who was not, she said, paying his fair share of household expenses, that she would pay his share of household expenses and that Mr Hedrlin would pay her share of the mortgage over the Ashfield property and related expenses. According to her evidence, this arrangement continued until the Ashfield property was sold in August 1978. However, it is said that Mr Hedrlin was not able to keep his side of the bargain. According to Mrs Hedrlin he asked her to lend him the money to make the mortgage and other payments which he had agreed to make and agreed at her request to pay her back, at the latest by the time the Ashfield property was sold. As Mrs Hedrlin's case does not depend upon this arrangement it is unnecessary to make any finding as to whether or not such an agreement was arrived at.
The purchase of the Woolgoolga property
In 1974 Mr and Mrs Hedrlin purchased as joint tenants a property at Woolgoolga. According to Mrs Hedrlin that property was purchased "for our two sons". She gave no evidence of any conversation with her husband to this effect; nor did the bankrupt give any evidence concerning this purchase. Ultimately the trustee transferred one half of this property into his name, in circumstances that gave rise to litigation that was ultimately settled. Although the circumstances of that settlement were the subject of evidence before me, ultimately no submissions were made with respect to that evidence and I have accordingly treated the question of the terms of that settlement as irrelevant.
It seems that later Robert got a job and Mr and Mrs Hedrlin agreed that Robert should own the property thereafter as "an investment for his future". It is said that he thereafter took over the payments. As the ownership of this property is not the subject of the present proceedings it is inappropriate to make any findings as to its ownership. Suffice it to say that if the Woolgoolga property were held in trust for the two sons, the arrangement would, if effective as regards Peter, have been a flagrant breach of trust, even if Peter, then 16, had, as Mrs Hedrlin deposed, consented to it. Further, having regard to the provisions of s.23C of the Conveyancing Act 1919 (NSW) it is difficult to see how the arrangement could be effective. The significance of these events is the light which they may shed on the subsequent purchase of the Wentworth Falls property.
The purchase of the Wentworth Falls Property
According to Mrs Hedrlin's evidence, she and her husband had a conversation with Peter on his 16th birthday on 11 May 1976. In that conversation she says that she told Peter that if he promised to work hard at school and go to university she and her husband would try to support him and would purchase for him a property of his own to replace the Woolgoolga property which Robert was then paying for. A similar version of that conversation is given by Peter, save that it makes no reference to the investment replacing his interest in the Woolgoolga property and a somewhat truncated version of it was deposed to by the bankrupt.
The purchase price for the Wentworth Falls property was $12,500, and a deposit of $1,250 was paid by Mrs Hedrlin by a cheque drawn by her on her Helene Products cheque account. The balance of the purchase money was funded on mortgage to Finance Corporation of Australia Ltd ("FCA"). In that mortgage, the terms of which were not in evidence, both Mr and Mrs Hedrlin were joint borrowers. The FCA mortgage was refinanced in February 1980. At that time it would seem $10,281.85 was still owing to FCA (hence it may be assumed that some repayments of principal were involved). Further, it would seem that moneys had been borrowed as well on some form of security from Avco Financial Services in the sum of $2,850, and that that company, it may be inferred, had lodged a caveat upon the property. Hence on the refinancing, which was carried out through a solicitor, Mr Sindler, these amounts were paid out, registration of the discharge of the mortgage to FCA was effected as was a withdrawal of caveat. The new mortgage was in the amount of $15,000, which after payment of costs and expenses and the repayment of the amounts owed, left a balance of $1,198.47 which was paid out by Mr Sindler by a trust account cheque.
Between 1977 and 1980, according to Mrs Hedrlin, the bankrupt was spending more than he was earning. I have no reason to doubt this on the evidence. It may well be that the Avco advance arose in this way. According to Mrs Hedrlin, in this time, the payments for the Wentworth Falls property all came ultimately from her money. I say ultimately because, according to her evidence, she acceded to a request made by her husband that she advance to him moneys on terms that the money ultimately be used to pay for the Wentworth Falls property. It is more probable than not that some moneys of the bankrupt (including in this expression moneys if any which were advanced to him by Mrs Hedrlin in this way) went into the Wentworth Falls property. I should say that Mrs Hedrlin did not ultimately claim as a creditor in the bankruptcy. Whether Mrs Hedrlin made loans or gifts to her husband need not be decided for the purpose of this case.
According to Mrs Hedrlin's evidence her husband arranged the refinancing of the Wentworth Falls property directly with Mr Sindler, and without her initial consent. The new mortgage so arranged was for a term of two years with interest only being payable in the meantime. She says that she was presented with the documents for signature and signed only upon receiving a promise from her husband that:

"the money you pocketed from the refinancing is treated by you as an advance towards Peter's property, and that you get work and pay every last cent of it towards Peter's property."

According to Mrs Hedrlin, the bankrupt made this promise. Evidence to similar effect was given by the bankrupt.
Peter Hedrlin also gave evidence of this conversation. According to his version of the conversation, the bankrupt told Mrs Hedrlin that she had to sign the documents because he had already spent the money. Peter allegedly expressed his disgust at the time.
I can not accept the evidence of this conversation, at least in these terms. If the conversation occurred before documents were signed, as both Mrs Hedrlin and Peter depose, the balance in Mr Sindler's trust account had not then been received by the bankrupt. In other words, at that stage Mrs Hedrlin could have refused to proceed with the transaction, subject perhaps, to incurring her husband's displeasure.
Again, this evidence discloses, in the event that there was intended to be a trust in respect of the Wentworth Falls property in favour of Peter, a gross breach of trust, as indeed does the Avco transaction. There was no suggestion that Peter, who by this time must have been about 20 years old, consented to it, although if I accept Peter's evidence it is clear that he was aware of what had happened.
According to Mrs Hedrlin, from 1980 she stopped advancing money to the bankrupt for the making of payments on the Wentworth Falls property. She says that thereafter the interest payments to the mortgagee were paid by her, although she says that Peter had given her "several thousand dollars" towards the payments she had made on the property. A schedule of payments indicates that most, at least, of these payments between 1980 and 1982 were by cheque from Mrs Hedrlin's bank account. Some payments she says were made in cash, this said to have been at the request of Mr Sindler. Why interest payments on a mortgage should be required to be paid to the mortgagee's solicitor partly by cheque and partly by cash is beyond my comprehension. However, the matter was not explored in evidence. I have, notwithstanding, little doubt that most at least of the payments in this time were made by Mrs Hedrlin.
The mortgage on the refinancing fell due for repayment in February 1982. Mr Sindler wrote a letter on 4 December 1981 to Mr and Mrs Hedrlin, seeking to ascertain whether the loan was to be repaid or the term extended and requesting that they telephone him after receipt of the letter. In the event, the transfer between the bankrupt and his wife intervened, and the loan was ultimately discharged and a new mortgage granted by Mrs Hedrlin to the same mortgagee. The mortgage was ultimately paid out by Mrs Hedrlin in 1984 from moneys in her account.
The purchase of the Surry Hills Property
By late 1977 relations between Mrs Hedrlin and her husband had, she says, deteriorated, in part at least, as a result of his obsession with the strata title dispute. I have no reason to doubt this evidence. Mrs Hedrlin says that accordingly she went looking for a house of her own in which to move, in January 1978, locating the Surry Hills Property.
She says that she approached her bank manager, at the Commonwealth Bank at Haberfield, for a loan to enable her to complete the purchase. The purchase price was $35,000 and she had, so she said, only $12,000 available. According to her evidence, the bank manager refused to give her a housing loan on her own account, despite the fact that she revealed to him that her husband had no money, that she was supporting him and that she did not want to have him involved. It was necessary for the husband to be "included in the transaction". Peter deposes to a conversation with his mother (not objected to), around this time when she told him of the bank manager's attitude. Given the hearsay nature of this evidence I would place little weight upon it, notwithstanding its admission into evidence.
Mr Hedrlin deposes that his wife requested him to come with her to the bank to sign the papers, having told him of the manager's attitude. He deposes to a conversation, in the terms deposed to rather unlikely, (particularly since from my observations of him in the witness box and indeed in the court room itself, he is inclined to be somewhat aggressive) as follows:

"Mrs Hedrlin: "If you want to move with Peter and me, you can use the bedroom upstairs at the back." Mr Hedrlin: "O.K..I will come with you. I will do what they want if it will help you get your loan. Thank you for your offer to let me use the back room."

Contracts for the purchase of the Surry Hills property were exchanged in January or February 1978. The deposit of $3,500 was paid by a cheque drawn by Mrs Hedrlin on her cheque account. The funds for this cheque had been withdrawn from a building society account with the NSW Permanent Building Society which Mrs Hedrlin referred to in her affidavit as her own account. In fact the account had apparently been opened some considerable time before in her name as trustee for her son Peter. She said that the account had been opened by her son and used by her to deposit child endowment payments in the past. That it had been opened at least at the request of her son may be accepted. That she had no understanding of the concept of trust may also be accepted.
The evidence disclosed that the account had as at November in the previous year a balance of some twenty dollars and that approximately $7,000 had been deposited to it in that month, with a further $3,000 being deposited in December 1977 from Mrs Hedrlin's cheque account with the Commonwealth Trading Bank.
Moneys on account of stamp duty and costs were paid out of the same building society account and the amount of $7,000, necessary to fund the difference between the purchase price (less deposit) and the amount borrowed from the Commonwealth Bank to complete the purchase ($25,000), was withdrawn from the building society account and transferred to a Commonwealth Savings Bank Home Savings Account. This account had been opened by Mr and Mrs Hedrlin shortly after their arrival in Australia. According to Mrs Hedrlin's evidence it had been used by her as her "private personal account" since 1970 and she was the only signatory to this account from that year.
I am satisfied on the evidence that with the exception of the first repayment of the loan to the Commonwealth Savings Bank and perhaps a minor amount which came from Robert, all repayments of the Commonwealth Bank loan were made by Mrs Hedrlin from her own cheque account. Some amounts were paid in cash, but I have no reason to doubt that these amounts were paid as well by Mrs Hedrlin. That does not mean that I accept in its absoluteness her statement that:

"I have paid every cent of the deposit, initial purchase amount, loan repayments, insurance, Council rates, water rates, gas, electricity, statutory and legal fees, repairs and maintenance, and all other expenditure related to the property at 213 Commonwealth Street Surry Hills out of my own monies earnt through my own hard work."

To understand the situation, it is necessary to turn to the events surrounding the sale of the Ashfield unit.
The sale of the Ashfield unit

The Ashfield property was sold in 1978, the same year as the Surry Hills property was purchased. The evidence does not say when the property was put up for sale or when a contract was entered into. Settlement took place on 9 August 1978. It would seem that before that date the Hedrlin's had moved into the Surry Hills property, initially as licensees or tenants at a nominal fee.
The sale price was $43,500 which after the deposit paid to the agent left $39,150 prior to adjustments and costs. According to the accounting given by Mr Sindler's firm who acted on the sale, the sum of $8,801.46 was left after various amounts had been deducted from the sale proceeds. Of the amounts deducted, one amount of $559.00 related to the costs still outstanding to Mr Sindler on the purchase of the Surry Hills property. Other amounts deducted included unpaid maintenance levies and costs related to the bankrupt's dispute with the body corporate.
According to Mrs Hedrlin's evidence, her husband picked up the cheque from Mr Sindler and the deposit, said by her to have been $4,350 (it clearly would have been less than that for the agent would have deducted from the deposit the amount of his commission) and banked the total to the credit of his account. On 14 August 1978, according to Mrs Hedrlin, her husband then gave her two cheques drawn by him on his account. One was in the sum of $3,500 which she banked to the credit of the building society account (the amount just happened to coincide with the amount which had been withdrawn from that account shortly before to pay the deposit and was mathematically one half of the $7,000 needed to fund the gap between the deposit and the purchase price (less moneys borrowed)). The second was in the amount of $270.00 which Mrs Hedrlin used to pay the first repayment amount to the Commonwealth Bank on the mortgage.
Mrs Hedrlin explains the $270 as brought about by the "chaos" of moving and a change in her account to the ANZ Bank as a protest against the refusal of the Commonwealth bank to lend moneys to her in her own name. She says:

"The money from the settlement of the sale of the Ashfield flat had come through 4 days before, and Joseph Hedrlin had banked it all in his account, so I asked him to write me a cheque for $270.00 for my part of the proceeds."

There would seem no doubt that she was entitled to at least $3770 as her share of the proceeds of the sale of the Ashfield property and that her husband kept more than he was legally entitled to.
The circumstances of the transfer from the bankrupt to Mrs Hedrlin
It will be recalled that Mr Sindler had written to Mr and Mrs Hedrlin on the topic of the extension of the mortgage on the Wentworth Falls property. According to Mrs Hedrlin she went to see Mr Sindler to discuss with him her matrimonial situation. She had, so she says, discussed with him the possibility of her divorcing her husband between 1980 and 1982. Mr Sindler was of Czechoslovakian descent and spoke Czech. Before seeing Mr Sindler in early 1982 she had, so she says, determined to transfer the Wentworth Falls property to herself and transfer the loan into her own name. In an affidavit sworn on the day before the ultimate hearing (the matter had been listed for hearing many months earlier, but that hearing had been aborted) she deposed that she had decided not to transfer the property into the name of her son Peter who was still at that time at university and living at home. She says that she asked him whether he wanted to have the property transferred to him and that he had replied that he was quite happy for her to "mind it for me". A virtually identical version of this conversation is deposed to by Peter, also in an affidavit sworn the day before the ultimate hearing.
According to Mrs Hedrlin's evidence she then went to see Mr Sindler and asked him to arrange an extension of the mortgage on the Wentworth Falls property and to arrange to transfer it and the loan into her name. She says that she also instructed him at the same time to see what could be done to transfer the Surry Hills loan and property into her name. The mortgagee of the Wentworth Falls property was agreeable to this course. However, the Bank, which was the mortgagee of the Surry Hills property, while having no objection to the transfer, insisted that Mr Hedrlin remain liable on the mortgage.
Mrs Hedrlin deposes that she sought advice from Mr Sindler as to the manner in which these transfers should be carried out. He, according to her evidence, advised that there were two means only to carry out the transaction, by means of a gift or by means of a sale. She says that he advised that if the transaction were carried out as a sale the stamp duty would be higher but the process would be easier and quicker. He recommended that the transaction be carried out as a sale. He is reported to have said:

"There is no other way. In any case, because you have paid for all the mortgages up to now, and you will take over sole responsibility for the Wentworth Falls mortgage and indemnify your husband for the Surry Hills loan, you have in effect bought the properties from your husband by making the payments he was legally obliged to do."

I have difficulty about a great deal of this evidence. I should perhaps say at the outset of these comments that Mr Sindler swore an affidavit in which he said that he had no recollection of the transaction. Given the lapse of time this is not surprising. He was not cross-examined.
The version of events given by Mrs Hedrlin suggests that she went to see Mr Sindler on her own account. If she really wanted to discuss divorce matters, it is unlikely that she would have discussed her visit to Mr Sindler with her husband, particularly as she says she kept her divorce intentions secret from her husband. It will be recalled that Mr Sindler had written to Mr and Mrs Hedrlin on 4 December 1981 on the subject of the renewal of the mortgage then repayable in February 1982. It would seem that following the receipt of that letter, Mr Hedrlin contacted Mr Sindler some time before 11 December 1981. Following that contact Mr Sindler wrote to Mrs Hedrlin a letter which said, inter alia:

"We refer to our recent communication with Mr Hedrlin, and understand from him that you wish to purchase his interest in this property. The property is at present held by you and him as joint tenants. We shall be pleased if you will telephone us after receipt of this letter to confirm your instructions. It is understood that if you proceed with the purchase of your husband's interest in the property, and if you decide to have the term extended, Mrs Valenta will have to approve the sale of the interest to you. We can see no reason why Mrs Valenta would not approve the transfer."

From this letter, it seems clear that the proposal for transfer was one discussed between Mr Hedrlin and his wife and that the concept of transfer did not originate with Mr Sindler, but rather out of the discussions between husband and wife. It may well have been that Mr Sindler discussed with Mr Hedrlin the stamp duty question and advised sale rather than gift, and that in turn Mr Hedrlin relayed that advice to his wife. This would account for the somewhat peculiar version of Mr Sindler's advice. In fact, as at February 1981, stamp duty was payable on conveyances for less than a full consideration in money or moneys worth at the higher gift duty rates then provided for by the sixth schedule to the Stamp Duties Act 1920. Hence a transfer by way of gift, or for that matter to a beneficiary under a trust not evidenced by a duly stamped trust deed, attracted considerably more stamp duty than a transfer on sale for a full consideration in money or moneys worth. On the other hand a transfer upon the change of a trustee attracted only nominal duty, provided of course, that it was possible to demonstrate the existence of a trust. It must be assumed that Mr Sindler would have given advice consistent with the then law. The amendments abolishing the higher gift duty rates came into effect on 31 December 1981 (see Act No. 161, 1980, s.4 and Sch 2(1)).
When faced with the letter from Mr Sindler and under cross-examination about it, Mrs Hedrlin suggested that Mr Sindler was not "accurate at his letters." In other words, she suggested that Mr Sindler had made a mistake in the first paragraph of the letter quoted above. I do not accept this explanation. I think that it is more probable than not that the question of transferring the properties into the name of Mrs Hedrlin arose in conversations between Mrs Hedrlin and her husband. While I do not doubt that Mrs Hedrlin had, from time to time, considered divorcing her husband and may well have discussed that matter with Mr Sindler on other occasions, I do not believe Mrs Hedrlin when she says that she went to see Mr Sindler on the matter of divorce in early 1981. I prefer to rely upon Mr Sindler's letter as accurately recording the fact of a conversation between the bankrupt and Mr Sindler when Mr Sindler was told by the bankrupt that there was to be, between husband and wife, a transfer having the purported form of a sale of the bankrupt's interest in the two properties and would find that Mrs Hedrlin went to see Mr Sindler in early 1981 to give effect to a previous decision.
It was put to Mrs Hedrlin that the arrangement to transfer the interest in the two properties came about as a result of the service of the bankruptcy notice upon her husband. This was denied by Mrs Hedrlin, who claimed to have had no knowledge of this matter. Mrs Hedrlin admitted that she was aware that her husband was carrying on a dispute with the home unit body corporate. Given the obsession which the bankrupt had about this matter she could hardly not have been aware of this. She agreed that the bankrupt was going to court all the time in connection with that dispute but said that he had not told her anything about what happened in court, notwithstanding that he talked to everyone about the dispute with the result that he had already alienated their friends. Later she agreed that he had told her about the court proceedings but that she took no notice of what he said.
I accept that Mrs Hedrlin may well have sought, as she said in evidence, to persuade her husband to bring the dispute to an end, but I find it to be more probable than not that she was aware of the service upon her husband of the bankruptcy notice and that the arrangements thereafter entered into for the transfer of the bankrupt's interest in the two properties came about as a result of that awareness.
Credit of the witnesses
It was submitted on behalf of the trustee that I should not accept the evidence of Mrs Hedrlin, so far as it was relevant to her case, for a number of reasons.
Counsel drew my attention to the close similarity in the affidavit evidence of Mrs Hedrlin, Peter and the bankrupt as to the significant conversations. This similarity was explained, not, it was submitted, by each being an accurate version of the conversation, but rather because the evidence of each was orchestrated by Mr Peter Hedrlin. It was accepted by Mr Peter Hedrlin that he had been responsible for the preparation of the affidavits, in that he had translated into English what his parents had said to him in Czech. I think that it is clear that his involvement in the preparation of the evidence was a great deal more than the passive role which he admitted. It was certainly obvious that without the aid of the affidavit Mrs Hedrlin had some difficulty in placing events in chronological sequence and some difficulty in remembering conversations. Having regard to the lapse of time involved, this is hardly surprising. What is surprising, is the detailed recall which the affidavits suggested.
I should say that the present case is a good illustration of one where, credit being a substantial element in the case, the evidence should have been given orally, rather than on affidavit.
Next, reference was made to Mrs Hedrlin's public examination and the answers given by her as to there being no consideration for the transfers. She explained her remarks by reference to the strain she was under at the time. I would not place too much reliance upon the answers at the public examination because a close reading of them shows that in other parts of the examination Mrs Hedrlin did assert that Peter was the beneficial owner of the Wentworth Falls property and that she was the beneficial owner of the Surry Hills property. It is true that what is there said was hardly an adequate detailed explanation of the situation, but at least it cannot be said that the case advanced before me was not foreshadowed in the public examination.
Next, it was said that Mrs Hedrlin's denial of knowledge of the service of the bankruptcy notice was not credible. I agree with this submission, particularly having regard to the surrounding circumstances which give some support to this fact.
Then, it was submitted that the effect of her evidence had been that she had financed the whole of the Surry Hills purchase, when it was clear, so it was said, that some of the payment had come from the sale proceeds of the Ashfield unit. I would not, however, regard this as a matter affecting Mrs Hedrlin's credit, for it is clear that she would have been entitled, as I have already explained, to the moneys in fact used as part of her half share in that property.
Finally, reference was made to the evidence concerning the visit to Mr Sindler which I have discussed above.
I have had the opportunity of observing Mrs Hedrlin in the witness box under cross-examination. I formed the impression that she was a woman of some strength and that in giving her evidence she was fighting a battle to save, for herself and her family, assets which, I accept, she had, at least since 1975, largely financed in one way or the other. She was adamant in the evidence she gave that she had always intended that the Surry Hills property was hers, and in that respect I was impressed by her apparent sincerity, and I accept her evidence that it was always her intention that that property be hers to the exclusion of her husband and that her husband's joining in the transaction arose solely out of the requirements of her bankers.
As I have indicated during the course of this judgment, there is much in Mrs Hedrlin's evidence that is hard to accept. I am of the view that in many respects she was prepared to give evidence, even if it was not completely truthful, to advance the case which she passionately believed in. Thus I do not accept her evidence that she was unaware of the service of the bankruptcy notice, nor do I accept her evidence of the conversations to which she deposed between her husband and herself concerning advances that she claims to have made to her husband, and the financial arrangements between them. I think that the truth of the matter is that moneys earned by either Mr or Mrs Hedrlin formed a pool of funds available for the support of the family and for investment.
I formed the view from observing him in the witness box that Mr Hedrlin would, if necessary, be prepared to give evidence to advance his case, irrespective of where the truth lay. I would reject his evidence, so far as it went to the conversations with his wife on financial matters.
I had the opportunity of observing Mr Peter Hedrlin in the witness box. He is clearly an intelligent man and was, I am sure, well aware of the matters that were necessary to be proved to ensure the success of his mother's case. He had clearly orchestrated the evidence of his father and mother to ensure consistency, even when some of the evidence of conversations strained credulity. I have no doubt that his parents on or around his sixteenth birthday did show him the Wentworth Falls property and that there was some conversation directed to ensuring that he would stay at school and if possible study at university. It is quite probable that there was some discussion that the Wentworth Falls property would some day be his. I do not accept his evidence of a conversation with his mother in early 1982 when Mrs Hedrlin is supposed to have asked him whether she should put the Wentworth Falls property in his name and he had politely declined, indicating that he was content that she "keep minding it" for him. I think that this is a reconstruction and results from an appreciation on his part that the transfer of this property into the name of his mother, when it is said that the property was his, and he was already over the age of 21, was a weakness in the case.
Conclusions in relation to the Wentworth Falls property
It is trite law that the existence of a trust will depend upon intention: Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 at 181. Thus if, after a consideration of all relevant circumstances it appears that there was no intention of creating a trust, the court will not impose a trust contrary to the intention of the person or persons alleged to have created it. In determining the issue of intention it will not matter that the persons alleged to have created the trust were, like the Hedrlins, ignorant of the law of trusts, nor will it matter that they did not use the word "trust" provided their words and actions suffice to show that their intention was to create that which in law would amount to a trust: Jacobs' "Law of Trusts in Australia" fifth ed. 1986 at 72, Dipple v Corles (1853) 11 Hare 183 at 184, 68 ER 1239 at 1240.
Evidence of acts inconsistent with an intention to create a trust will be admissible and relevant in evaluating the issue of intention, in contradistinction to self serving evidence of statements of intention made at a date later than it is alleged the trust was created: cf. Williams v Lloyd (1933-4) 50 CLR 341 at 370 per Dixon J.
In the normal case, where a finding of intention may depend upon evidence of conversations not seriously in dispute, the court will determine whether the requisite intention to create a trust exists by construing the words used. In the present case it was admitted by Mrs Hedrlin that the words deposed to be hers in her affidavit were not really an English translation of words which she had used, but at best were an attempt to give the "sense" of what was said. In my mind the evidence of conversations at the time of acquisition of the Wentworth Falls property is not inconsistent with a claim that there existed at that time a present intention on the part of Mr and Mrs Hedrlin to acquire that property as trustee for Peter. However, against that evidence must be weighed evidence of the surrounding circumstances and acts of Mr and Mrs Hedrlin which are inconsistent with the notion of a trust relationship. This is particularly so having regard to the reservations which I have expressed in regard to the evidence of the witnesses in this case.
First, there is the evidence concerning the Woolgoolga land, which it would seem husband and wife originally determined to acquire for the two sons using language not greatly different from that said to have been used by them when acquiring the Wentworth Falls property for Peter. Yet they felt no difficulty in changing their minds about ownership of the property when it suited them, cutting out Peter and treating the property as being for Robert only.
Second, there is the evidence as to their subsequent dealings with respect to the property, in borrowing against it and in refinancing it in such a way as to appropriate some of the amounts reborrowed against an increased value to themselves. So to act is, of course, inconsistent with the intention necessary to found a trust, unless I am to accept that they acted in breach of trust.

Third, there is the fact that instead of transferring the property to Peter as the beneficiary then over twenty one, the property was transferred to Mrs Hedrlin. As I have already indicated I reject the evidence of a discussion about the matter with Peter as improbable.
For these reasons, I find that it is more probable than not that the common intention of the bankrupt and his wife was similar to the intention with which they acquired the Woolgoolga property, that is to say that they had a present intention that some time in the future and provided it was not needed for some other family purpose, the Wentworth Falls property would be Peter's. However, they did not intend in so doing to create a present trust in favour of Peter, whether absolutely, or at some time in the future in succession to some interest that they intended to create in themselves. Rather, they regarded themselves as free to deal with that property as their own in disregard of Peter's interests if so to do was expedient.
Having regard to these findings, the evidence as to Mrs Hedrlin's contributions to the purchase of the Wentworth Falls property, such as it is, is irrelevant. Both Mr and Mrs Hedrlin were jointly liable on the mortgage with which the property was financed. Both, in fact, contributed, even if the ultimate source of the greater part of the contributions was Mrs Hedrlin. Even if I were to accept the evidence of Mrs Hedrlin as to the conversations as to financial matters between her husband and herself, and even if I were to accept further, which I do not, that those conversations were intended to create a contractual relationship between husband and wife, all they establish is that Mrs Hedrlin lent to her husband the moneys necessary to finance his contribution to the house. Such evidence would not establish, indeed it would negate the existence of a common intention that at the time the property was purchased, or indeed at any time relevant thereafter, husband and wife would share in the property in proportion to their contributions to the purchase price of the property; cf Calverley v Green (1984) 155 CLR 242 at 268-9 per Deane J.; Muschinski v Dodds (1984) 160 CLR 583 at 595 per Gibbs C.J., at 611-612 per Deane J., with whom Mason J. agreed, at 608 per Brennan J., with whom Dawson J. agreed, albeit in dissent. The present case is not one, such as in Muschinski v Dodds, where there was a failure of a joint venture.
It was submitted by counsel for Mrs Hedrlin that even if I were to find that no trust existed at the time of acquisition, but rather the intention was to hold the Wentworth Falls property beneficially, then notwithstanding s.23C of the Conveyancing Act 1919 (NSW) I should find that an enforceable trust could arise subsequently by oral agreement of the parties.
Support for this submission relied upon comments made by Professor Ford in "Principles of the Law of Trusts" 2nd ed., 1990, at 988 (para 2120) where the learned author was said to have suggested that a later agreement between the parties might still be sheltered from the Statute of Frauds. The passage cited makes no such suggestion in referring to Bloch v Bloch (1981) 55 ALJR 701. In fact, Professor Ford treats the proposition that the quantum of interest under a resulting trust may be determined by oral agreement between the parties as doubtful.
In Bloch v Bloch, properties were purchased in the name of the defendant pursuant to an arrangement that they would share pro rata to their contributions. Later it was agreed between the parties that they would share on the basis of one third, two thirds. The circumstances at the time of acquisition did not yield with sufficient certainty the expression of an intention to create an express trust. However, the facts were such as to create a resulting trust in proportion to the contributions to purchase price. Because the trust was a resulting trust, it was for the trial judge to determine on the evidence the precise extent of the beneficial interest. The conversation as to the agreement to share one third, two thirds, was admissible as establishing a consensus between the parties as to this issue. The conversation, however, did not create a new trust relationship where none before existed; it served as evidence to define an existing trust relationship. The case does not support the submission sought to be made.
Once the conclusion is drawn that as at the time of the transfer to Mrs Hedrlin the half interest transferred was the property beneficially of Mr Hedrlin, and once it is found, as I have, that at the time of the transfer Mrs Hedrlin was aware of the service upon her husband of the bankruptcy notice and that the transfer was entered into for that reason, it must follow that the transaction is to be set aside under s.121 as a fraudulent disposition. The disposition was not one made for valuable consideration; the form of a sale for consideration was arrived at as a device to overcome a stamp duty difficulty, but there was no intention of the parties that there should be consideration and the sale was a sham. The rationalisation of consideration provided in a letter from Mr Sindler is just that. In any event, in the circumstances of this case, I would find that Mrs Hedrlin was a person who acted other than in good faith, as those words are understood in the cases: cf Grellman v P.T. Garuda Indonesia (1991) 101 ALR 135 at 143.
The Surry Hills Property
The position with the Surry Hills property is somewhat different. There was, as I have found, a common intention on the part of Mrs Hedrlin and the bankrupt at the time of purchase that the property would be Mrs Hedrlin's beneficially. She wished to make herself secure, not unsurprisingly given her husband's propensity for engaging in disputes with the body corporate while they owned the Ashfield property, his tendency to spend more than he earned, the growing estrangement which undoubtedly existed between husband and wife (although not to the point that Mrs Hedrlin wished to separate, at least geographically, from her husband) and the fact that she was to be the one to fund the purchase. Mr Hedrlin's signature was necessary on the transfer and mortgage because of the attitude of the bank. But that of itself does not require the finding that he was intended to be the beneficial owner of half of the property.
The respondent relied upon the well-known case of Rochefoucauld v Boustead (1897) 1 Ch 196, where it was held that where property is acquired by a person who has the intention of acquiring it as trustee for another, that person will not later be heard to deny the existence of the trust, notwithstanding that there was no writing evidencing the trust. In such a case, to permit the acquirer to rely upon the Statute of Frauds would be to permit that statute to be used as an instrument of fraud. As Brennan J. said in Bloch v Bloch (supra) at 706:

"The principle is that `the Statute of Frauds does not prevent the proof of a fraud; and that it is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land himself' (per Lindley L.J. in Rochefoucauld v Boustead ...) Whatever be the classification of the trust which binds the person entrusted with the legal title to property, his repudiation of the terms upon which he was entrusted with that property `is a fraudulent use of another's confidence, and the Statute is not intended to cover fraud'..."

So it was said that here there was an intention to create a trust in favour of Mrs Hedrlin which existed from the outset and that accordingly the bankrupt held his interest in the property for her.
The applicant submitted, however, that even if I were to find the requisite intention, no trust in favour of Mrs Hedrlin arose having regard to the provisions of s.23C of the Conveyancing Act 1919 (NSW). In so far as I understand the argument it proceeds first upon the basis that while s.23C excepts from its operation implied, constructive or resulting trusts, it does not exempt express trusts, which, if of real property, therefore, to be valid have to be evidenced in writing. So, it is said, the trust here being an express trust and not a constructive trust requires, unless the doctrine of Rochefoucauld v Boustead operates, to be in writing. However, it is said that the doctrine of Rochefoucauld v Boustead does not avail the respondent here, because the present is not a case where the putative trustee (the bankrupt) is acting in fraud against the cestui que trust. Indeed, the bankrupt is not a party to the proceedings at all. It is not he that is denying the existence of the trust, but his trustee in bankruptcy is so doing. There being no proceedings involving the use of the Statute of Frauds as an instrument of fraud, the equitable title is not to be found in the respondent, and the consequence is that the legal and equitable title remain in the bankrupt. It was put, in the alternative, that it was only unconscientious for a trustee to rely upon the Statute where the beneficiary or some third party had acted in some detrimental way in reliance upon or by reference to the oral trust.
Each argument has a number of difficulties. Although the trust in Rochefoucauld v Boustead was referred to in that case as an express trust, there has not been uniform agreement as to whether such a trust should be treated as an express trust or as a constructive or implied trust and therefore outside the ambit of the Statute. See Jacobs: "Law of Trusts in Australia" fifth ed. 1986 at 105 and cases at note 26. However, I agree, with respect, with the learned authors that the better view is to treat such a trust as an express trust. But, even if this be accepted, the argument proceeds upon a premise, as was acknowledged by counsel for the respondent, that the doctrine of Rochefoucauld v Boustead may only be invoked by a beneficiary in proceedings between the trustee and cestui que trust involving a fraudulent denial of the rights of the beneficiary and not in proceedings between the beneficiary and third parties such as the trustee in bankruptcy is said to be, where no fraud on the part of the third party is involved.
In my view this premise involves what Deane J. referred to in Muschinski v Dodds (supra) at 613 as the tendency to "polarize the discussion by reference to the competing rallying points of `remedy' and `institution'". As his Honour points out, by reference to the constructive trust, but the same is in my opinion true of the express trust where Rochefoucauld v Boustead could be invoked, equity may be seen to have granted a remedy to prevent a legal owner from using his common law rights to defeat the intention which underlay his acquisition. However, it can rightly be described as an "institution" in that there is no need for a curial declaration or order before it will be recognised. Just as the constructive trust has its origin in the remedies granted by a court of equity, but may be relied upon to prove an equitable interest in proceedings involving third parties, so too the Rochefoucauld v Boustead trust may be relied upon in bankruptcy proceedings.
A similar argument was raised in the case of MacFarlane v Commissioner of Taxation (1986) 13 FCR 356. While in MacFarlane the Commissioner did not seek to rely upon the Statute of Frauds what is there said is, in my view, equally applicable to the present case. In rejecting the submission that an equitable interest did not exist because no relief in equity had been granted, or even sought by the cestui que trust, Beaumont J., with whose judgment on this point, Fisher and Burchett JJ. agreed said (at 368):

"Since equity will regard as done that which ought to be done, the existence of equitable interests does not depend upon the making of a curial order granting equitable relief, even in the case of a constructive trust: see Muschinski v Dodds, (supra), per Deane J. at 65. The position is a fortiori in the cases of express and resulting trusts, where the kind of relief granted by the court of equity is more uniform than in the case of a constructive trust."

The alternative submission was that the doctrine in Rochefoucauld v Boustead did not apply and no decision had held that it applied in a case where an owner of property had transferred that property to a person without knowledge that the transferee had orally declared that it would be held in trust for a beneficiary, the beneficiary having made no contribution or suffered any detriment. This formulation fits ill with the actual facts in Rochefoucauld v Boustead itself, in that the vendor of the property was presumably ignorant of the trust and that the beneficiary had not, in fact, contributed moneys nor in fact, suffered any detriment. It is true that the beneficiary in that case had, prior to the acquisition, agreed to repay the trustee the amount which the latter was to expend, but the case is formulated as one of fraud in which this fact was not suggested as relevant. In any event, in that part of the case as concerns the Surry Hills property, if detriment to or contribution of the beneficiary be required Mrs Hedrlin did rely upon the trust relationship and contribute her funds to the purchase.
Accordingly, I find that the Surry Hills property was held by the bankrupt and his wife as joint tenants in trust for the wife, so that when the bankrupt transferred his interest, he did not deal with the equitable estate in the land which remained with his wife. Clearly both ss.120 and 121 of the Act are concerned with beneficial dispositions of property which, had that property remained in the hands of the bankrupt, would have become property of the bankrupt available to creditors. They are not concerned with transactions which amount to no more than a transfer of the property to the person beneficially entitled.
Conclusion
In the result I would set aside the transfer by the bankrupt of his interest in the Wentworth Falls property and declare that the applicant as trustee of the property of the bankrupt is the beneficial owner of a one-half interest as tenant in common in that property. I would further declare that the respondent is the beneficial owner of the one-half interest transferred to her by the bankrupt in the Surry Hills Property. As each party has been successful in respect of one property only, I would make no order as to costs.

[1991] FCA 665

30 OCTOBER 1991