El-Debel v Micheletto (Trustee)
[2021] FCAFC 117
•30 June 2021
FEDERAL COURT OF AUSTRALIA
El-Debel v Micheletto (Trustee) [2021] FCAFC 117
Appeal from: Micheletto (Trustee), in the matter of the El-Debel (Bankrupt) v El-Debel [2020] FCA 1031 File number: NSD 1038 of 2020
NSD 1029 of 2020Judgment of: MARKOVIC, DERRINGTON AND COLVIN JJ Date of judgment: 30 June 2021 Catchwords: BANKRUPTCY AND INSOLVENCY - appeals from decision finding whole or part of interests in properties held on resulting trust for bankrupt - where properties registered in names of parties associated with bankrupt - whether bankrupt provided all or part of purchase price for properties - whether presumption of resulting trust rebutted by evidence of intention of bankrupt to contrary - whether reasoning of primary judge rested upon finding of express oral trust not advanced in hearing - whether interest in property formed part of bankrupt estate of bankrupt's earlier bankruptcy - whether primary judge erred in using content of file note of solicitor as admission by bankrupt's mother of a trust - whether primary judge erred in finding payments of purchase price by companies associated with bankrupt were contributions by bankrupt - whether primary judge reasoned by process of impermissible speculation and conjecture - whether principle in Jones v Dunkel should not be applied where witness subjected to compulsory examination - appeals allowed in part Legislation: Bankruptcy Act 1966 (Cth) s 31
Conveyancing Act 1919 (NSW) s 23C
Cases cited: Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC 93; (2018) 261 FCR 301
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424
Chairman, National Crime Authority v Flack (1998) 86 FCR 17
Donnelly v Edelsten (1994) 49 FCR 384
Fabre v Arenales (1992) 27 NSWLR 437
Fidock v Legal Profession Complaints Committee [2013] WASCA 108
G v H (1994) 181 CLR 387
Jones v Dunkel (1959) 101 CLR 298
Lee v Lee [2019] HCA 28; (2019) 266 CLR 129
Luxton v Vines (1952) 85 CLR 352
Morgan v Babcock & Wilcox Ltd (1929) 43 CLR 163
Payne v Parker [1976] 1 NSWLR 191
RPS v R [2000] HCA 3; (2000) 199 CLR 620
Seltsam Pty Ltd v McGuiness [2000] NSWSCA 29; (2000) 49 NSWLR 262
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 218 Date of hearing: 27-28 May 2021 For NSD 1038 of 2020: Counsel for the Appellants: Mr D Allen Solicitor for the Appellants: Avondale Lawyers Counsel for the Respondents: Mr MR Pesman SC with Mr P Newton Solicitor for the Respondents: ERA Legal For NSD 1029 of 2020: Counsel for the Appellant: Mr M Einfeld QC with Mr D Krochmalik Solicitor for the Appellant: Darby Jones Lawyers Counsel for the Respondents: Mr MR Pesman SC with Mr P Newton Solicitor for the Respondents: ERA Legal ORDERS
NSD 1038 of 2020 BETWEEN: BACHAR EL-DEBEL
First Appellant
FATME EL-DEBEL
Second AppellantRONIA AYAD
Third AppellantAND: FABIAN KANE MICHELETTO IN HIS CAPACITY AS JOINT AND SEVERAL TRUSTEE IN BANKRUPTCY OF THE ESTATE OF BACHAR EL-DEBEL
First Respondent
MICHAEL CARRAFA IN HIS CAPACITY AS JOINT AND SEVERAL TRUSTEE IN BANKRUPTCY OF THE ESTATE OF BACHAR EL-DEBEL
Second Respondent
ORDER MADE BY:
MARKOVIC, DERRINGTON AND COLVIN JJ
DATE OF ORDER:
30 JUNE 2021
THE COURT ORDERS THAT:
1.The appeal be allowed in part.
2.The declarations made by orders 1 and 7 be vacated and in lieu thereof it be ordered that:
1.The property known as 20/71-75 Meredith Street, Bankstown in the State of New South Wales, being the land comprised in folio identifier 20/SP34386 (Bankstown Property) is held in the name of the second respondent (Fatme El-Debel) on resulting trust in favour of Bachar El‑Debel as to a proportion of 80%.
7.Upon the undertaking of the applicants as trustee of the estate of Bachar El-Debel to deal with Jason Bettles as trustee of the previous bankrupt estate of Bachar El-Debel (or any replacement trustee) in respect of any claim to the Bankstown Property, the rights and interests of Bachar El‑Debel specified in declaration 1 are the property of Bachar El-Debel that is vested in the applicants as trustees in bankruptcy in bankruptcy of the estate of Bachar El-Debel or in Jason Bettles as trustee of the previous bankrupt estate of Bachar El-Debel (or any replacement trustee).
7A.There be liberty to the applicants as trustee of the estate of Bachar El‑Debel or Jason Bettles as trustee of the previous bankruptcy of Bachar El-Debel (or any replacement trustee) to determine any issue as between them concerning the vesting of the rights and interests in the Bankstown Property.
7B.The rights and interests of Bachar El-Debel specified in the declarations 2 to 6 are property of Bachar El-Debel vested in the applicants as trustees in bankruptcy of the estate of Bachar El-Debel.
3.The appeal be otherwise dismissed.
4.Within 14 days, the parties do file an agreed minute of orders as to the costs or if agreement is not reached, competing minutes with short written submissions of no more than three pages in support of the costs orders sought.
5.Any issue as to costs orders be determined on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
NSD 1029 of 2020 BETWEEN: FALLOW INVESTMENTS PTY LTD
Appellant
AND: FABIAN KANE MICHELETTO IN HIS CAPACITY AS JOINT AND SEVERAL TRUSTEE IN BANKRUPTCY OF THE ESTATE OF BACHAR EL-DEBEL
First Respondent
MICHAEL CARRAFA IN HIS CAPACITY AS JOINT AND SEVERAL TRUSTEE IN BANKRUPTCY OF THE ESTATE OF BACHAR EL-DEBEL
Second Respondent
ORDER MADE BY:
MARKOVIC, DERRINGTON AND COLVIN JJ
DATE OF ORDER:
30 JUNE 2021
THE COURT ORDERS THAT:
1.The appeal be allowed in part.
2.The declarations made by orders 4 and 5 and orders 12, 13 and 14 be amended by deleting 43% wherever appearing and substituting 38.04% and by deleting 57% wherever appearing and substituting 61.96%.
3.The appeal be otherwise dismissed.
4.Within 14 days, the parties do file an agreed minute of orders as to the costs or if agreement is not reached, competing minutes with short written submissions of no more than three pages in support of the costs orders sought.
5.Any issue as to costs orders be determined on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THE COURT:
A sequestration order was made against the estate of Mr Bachar El-Debel on 1 December 2015. He had been a bankrupt before but was discharged from his earlier bankruptcy on 19 November 2007. In these reasons we will refer to Mr Bachar El-Debel as the bankrupt.
The trustees in bankruptcy of the bankrupt (Trustees) alleged that all or part of the purchase price for four properties registered in the names of parties associated with the bankrupt had been provided by him. On that basis, the Trustees claimed that the whole or part of the interests of those associated parties in the properties were held on resulting trust for the bankrupt. The trustees sought declarations pursuant to s 31(f) of the Bankruptcy Act 1966 (Cth) to the effect that each of the properties formed part of the property that was divisible amongst the creditors of the bankrupt.
The associated parties were Mrs Fatme El-Debel (the bankrupt's mother), Ms Ronia Ayad (who was sometimes referred to by the bankrupt as his wife) and Fallow Investments Pty Ltd (Fallow) (a company with which the bankrupt and his brother Mr Bassam El-Debel were associated).
The claims by the Trustees were upheld: Micheletto (Trustee), in the matter of El-Debel (Bankrupt) v El-Debel [2020] FCA 1031. In determining that the relief sought by the Trustees should be granted, the primary judge made credibility findings against Mrs El-Debel and Mr Bassam El-Debel. Their evidence was not accepted. No other witnesses gave evidence in support of the defence advanced by the respondents to the claims brought by the Trustees. The factual issues were otherwise joined on the documents, including the transcripts of examinations of the bankrupt and Ms Ayad.
Two appeals have been brought against the decision by the primary judge; one by the bankrupt, Mrs El-Debel and Ms Ayad (First Appeal) and the other by Fallow (Second Appeal).
As originally framed, the First Appeal sought to challenge many of the factual findings made by the primary judge. However, in the result, those aspects were not pressed (save possibly in two particular respects) and the appeal was confined to discrete points of law. The Second Appeal did not seek to challenge the credibility findings of the primary judge and accepted many of her Honour's factual findings. The Second Appeal was confined to a challenge to the inferential reasoning process used by the primary judge in upholding the claims by the Trustees concerning the properties registered in the name of Fallow (being two factory units in Peakhurst, a suburb of Sydney).
The relevant principles concerning resulting trusts
The legal reasoning by the primary judge as to the principles to be applied in determining whether property was held on resulting trust was accepted as being correct by all parties to the appeals. For present purposes they may be stated briefly by adopting the key passages from the uncontested formulations of the primary judge at [78], namely:
(1)A presumption of a resulting trust arises where one person provides the purchase price of property which is conveyed into the name of another person.
(2)In deciding whether a presumption of a resulting trust has been rebutted the Court must reach a conclusion on the whole of the evidence.
(3)The presumption of a resulting trust may be rebutted by evidence which manifests an intention to the contrary, but should not give way to slight circumstances.
(4)The extent of the beneficial interest of the parties arising by reason of a resulting trust must be determined when the property was purchased.
(5)It is the intention of the person who provides part of the purchase price that is relevant when considering whether the presumption may be displaced by contrary evidence.
(6)If part of the purchase price is provided by being borrowed on a mortgage, the presumption of a resulting trust is applied by treating the monies raised by the mortgage as a contribution by the person who is liable to repay that money.
The issues before the primary judge
There were two questions to be resolved by the primary judge as to each of the four properties. First, did the bankrupt provide all or part of the purchase price for the property? Second, if so, was there evidence of an intention on the part of the bankrupt at the time of the purchase that was contrary to the presumption?
It is to be emphasised that the first question concerned who provided the funds to purchase the properties. Forensically, the need to identify who provided the relevant purchase monies invites consideration of all the available evidence (including inferences that may be drawn) as to the factual circumstances concerning the source of the funds that were used to pay for the properties.
The fact that the funds used to purchase a property may be shown to have come from a bank account in the name of a particular party (such that the funds, when in the bank account, might be said to have formed part of the property of the holder of the bank account) is not determinative of the first question. It is quite possible that the evidence in a particular case may show that the funds that came from the bank account were not the funds of the holder of the bank account when they subsequently came to be applied to the purchase of the property.
There are many reasons why funds that come from the bank account of one party may not be the funds of that party when applied to the purchase of property. By way of example, the holder of the bank account may owe money to a third party who directs that the debt be discharged by paying part or all of the purchase price of a property. In such a case, the purchase price is provided by the third party who directs where the payment is to be made, not the holder of the bank account. By way of further example, the funds in the bank account may have been contributed to that bank account by a third party in circumstances where the amounts in the bank account are held on a resulting trust which also applies to any property to which those monies are applied. By way of further example, the funds in the bank account may be held on behalf of a third party who directs and controls those funds such that even though the legal ownership of the money is in the hands of the account holder, when the funds are paid out of the account at the direction of the third party to purchase property, it is the third party who is providing the money to purchase the property.
Indeed, there is a vast array of circumstances in which the owner of funds at their source and the provider of those funds for the purchase of particular properties may not be the same person. The examples already given could be multiplied. The point of significance for the present case is that the principles that give rise to a resulting trust do not depend on the identity of the owner of the bank account from which funds were sourced. They depend upon the identity of the provider of the purchase price for the property in which the resulting trust is said to arise. The identity of the provider will depend upon all of the factual circumstances. Evidence as to the bank account where the funds came from to purchase a property is just one fact.
The distinction between the identity of the source of the money and the identity of the provider of the money to purchase a property is significant for both appeals and lies at the heart of the Second Appeal.
The four properties
As has been noted, the Trustees' application concerned four properties. They were referred to as the Bankstown property, the Beverly Hills property and the Peakhurst properties (being two factory units).
At the time of the hearing before the primary judge, the Bankstown property was registered in the name of Mrs El-Debel, the Beverly Hills property was registered in the name of Ms Ayad and the Peakhurst properties were registered in the name of Fallow.
The key findings and reasoning of the primary judge
The Bankstown property
Between January 2004 and 4 May 2015, the Bankstown property was registered in the name of Mrs El-Debel and the bankrupt as tenants in common with Mrs El-Debel holding a 99/100 share and the bankrupt a 1/100 share. On 4 May 2015, Mrs El-Debel became the sole owner of the Bankstown property.
The primary judge reasoned by the following steps concerning the claim made by the Trustees that there was a resulting trust as to the whole of the beneficial interest in the Bankstown property.
First, '[w]hatever the true position about their respective contributions to the purchase price, the starting point', was that the money to purchase the Bankstown property was provided by the bankrupt and Mrs El-Debel and that the money came from cash contributions and from borrowing monies from the Commonwealth Bank to make the purchase: at [144]. Expressed in those terms, at that point in her Honour's reasons, there was no finding as to the particular amounts provided by each of them. This is indicated by the reference to 'the starting point'. The finding should not be read as a definitive conclusion as to who contributed the money for the purchase of the Bankstown property. Given the nature of the principles as to a resulting trust and their operation being dependent upon the identification of who provided the purchase price, it is unlikely that her Honour intended the 'starting point' finding to be her ultimate conclusion on that issue because it did not address the issue of the extent of the contributions made.
The conclusion to the effect that the Bankstown property was beneficially owned by the bankrupt was based to a significant extent on findings to the effect that the loan account from the Commonwealth Bank was operated solely by the bankrupt for his purposes. In particular, it was the bankrupt who paid deposits into the loan account and then drew down on available funds in the loan account: at [157]‑[165].
Next, the primary judge rejected the claim by Mrs El-Debel, Mr Bassam El-Debel and the bankrupt to the effect that the intention was that Mrs El-Debel would have the beneficial interest in the Bankstown property. The evidence given to the effect that, at the time of the initial purchase, it was the intention of the parties that the bankrupt would have a minimal interest because that was required by the Commonwealth Bank and that the bankrupt's interest would be held on trust for his mother was all rejected. All of the evidence as to the intention of the parties was surveyed and it was concluded that the mutual intention of the bankrupt and Mrs El-Debel when they purchased the Bankstown property was that Mrs El-Debel would hold her interest in the property on trust for the bankrupt: at [166].
Amongst the evidence that was considered was a file note taken by a Mr Panopoulos (a legal practitioner with the firm Alphonse & Associates who provided legal services to the bankrupt from time to time (see [115])). Ms Ayad attended at the office of Mr Panopoulos on 9 July 2019 and took files and then destroyed documents from the file: at [127]‑[130]. However, Alphonse & Associates produced electronic copies of its files that included certain file notes relating to the properties the subject of the claims by the Trustees: at [128].
One of the recovered file notes was of a meeting between the bankrupt, Mrs El-Debel and Mr Panopoulos (12 March 2015 File Note). It referred to arrangements to refinance the loan for the Bankstown property. At [153], the primary judge drew attention to the following matters stated in the file note:
She was wants [sic] to pay/give her son $200,000. Seems to be payback for the amount he has contributed to the property. There was a discussion that she held the property in trust for him. Nothing seems to have been evidenced in writing at the time and they can't recall signing any documents like a declaration of trust. Both parties agreed that the $200,000 will be paid/credited to RONIA AYAD (Bachar's wife).
In due course it will be necessary to say something more about the 12 March 2015 File Note because, on the findings of the primary judge, the reference to $200,000 relates to an amount provided for the subsequent purchase of the Beverly Hills property. At this point the primary judge was considering the 12 March 2015 File Note for its significance as to who was intended to be the beneficial owner of the Bankstown property at the time of its purchase. As to the 12 March 2015 File Note, the primary judge found at [155] that:
The file note evidences admissions by the bankrupt and Mrs El-Debel that, at the time of the purchase of the Bankstown property, they each intended that Mrs El-Debel would hold her legal interest in the Bankstown property on trust for the bankrupt.
In the First Appeal, it appears that there is a challenge to the manner in which the content of the 12 March 2015 File Note was used. The contention seems to be to the effect that the primary judge was in error in using the content of the file note as an admission against the bankrupt and Mrs El-Debel when it was not their document.
Finally, her Honour then considered the steps taken by the parties in April 2015 when the bankrupt came to transfer his 1/100 share in the legal interest in the Bankstown property to Mrs El-Debel. As to those steps, her Honour found that they were undertaken as part of efforts by the bankrupt to render invisible his ownership of properties: at [177]. In that regard, the unchallenged finding of her Honour was that the bankrupt had formed a plan to conceal his assets in early 2015, a plan that he shared, at least, with Ms Ayad: at [11].
On that basis, the primary judge concluded that the bankrupt was the sole beneficial owner of the Bankstown property.
The first Peakhurst property
On about 16 May 2011, the bankrupt and his brother Mr Bassam El-Debel entered into a contract to purchase the first Peakhurst property: at [180]. A deposit of $56,000 was paid. The funds came from an account in the name of 3 Phase Pty Ltd (3 Phase).
The company 3 Phase was registered shortly after the bankrupt was discharged from his earlier bankruptcy: at [65]. The bankrupt was the sole shareholder and director of 3 Phase: at [65]. Administrators were appointed to the company on 11 September 2012: at [65].
The administrators reported that 3 Phase was making loan repayments for loans in the name of the bankrupt and that the bankrupt had said that the payment of the loan repayments was part of his employment agreement with the company: at [66]. A liquidator was appointed to wind up 3 Phase on 11 October 2012: at [65].
The case for Fallow was that 3 Phase had provided the monies for the deposit to Fallow as a loan to Fallow. However, Fallow was not incorporated at the time. On that basis the primary judge rejected that evidence: at [183].
Her Honour then found at [184]:
Having regard to the evidence that 3 Phase made payments on behalf of the bankrupt as part of his employment arrangement with 3 Phase, I accept that the deposit of $56,000 paid by 3 Phase on 17 May 2011 was a contribution by the bankrupt to the purchase of the first Peakhurst property. In making this finding, I note that there was no documentation evidencing a loan from 3 Phase to the bankrupt, or from 3 Phase to the bankrupt and [Mr Bassam El-Debel] in connection with the $56,000 deposit.
Fallow challenges the finding to the effect that the deposit was provided by the bankrupt.
The primary judge found that an amount of $78,675.22 that was contributed to the purchase of the first Peakhurst property came by redrawing funds from the loan account for the Bankstown property and, on that basis, came from the bankrupt: at [193]. Fallow also challenges that finding.
Finally, the primary judge found that the loan obtained for the purchase of the first Peakhurst property was most likely contributed by the bankrupt: at [196]‑[198]. Fallow also challenges that finding.
The primary judge then found that the bankrupt intended that Fallow would hold the property on a resulting trust in his favour as to 50%. The primary judge reasoned in the following way in reaching that conclusion (at [201]‑[202]):
In the absence of contemporaneous documentary evidence of a different intention, such as a record of a decision of Fallow to acquire the first Peakhurst property as trustee of the Trust or a decision to borrow funds to acquire the property as trustee of the Trust or a declaration that the first Peakhurst property was held by Fallow as trustee of the Trust, I do not accept that Fallow acquired the property as trustee of the Trust or that the presumed resulting trust is displaced.
This conclusion is consistent with the bankrupt's later development of the plan to take steps in relation to Fallow that would 'make us invisible to anyone searching for my properties'. Again, without submissions from the parties as to the impact of legal professional privilege, I have not taken into account the respondents' failure to call Mr Panopoulos, who acted on the purchase, in reaching this conclusion.
The reference to the plan to 'make us invisible' is to earlier findings by the primary judge to the effect that the bankrupt formed a plan in early 2015 to conceal his assets, a plan that he shared, at least, with Ms Ayad: at [11]. In implementing the plan it was made clear 'that the bankrupt was seeking to change his relationship with Fallow': at [12]. The primary judge inferred from the steps taken to implement the plan that the bankrupt 'sought to conceal his interests in the Peakhurst properties'. The findings concerning the formation of the plan to conceal assets are not challenged.
Fallow claims that the primary judge was in error in finding that the intention of the bankrupt at the time was to retain a 50% interest in the first Peakhurst property. Reliance is placed by Fallow upon the contemporaneous documentation at the time of purchase in 2011.
The second Peakhurst property
The primary judge found that contributions towards the purchase of the second Peakhurst property were made by Mr Bassam El-Debel and the bankrupt with the bankrupt's share being 43%: at [204]‑[209]. These findings are challenged on the basis that they are not supported by the evidence.
As to whether the presumption of a resulting trust was rebutted, the primary judge applied the same reasoning as applied to the first Peakhurst property: at [210]‑[211]. The reasoning is challenged by Fallow on the basis that it is not supported by the evidence.
Rentals from the Peakhurst properties
The primary judge concluded that the resulting trust applied also to rentals that had been earned from the two Peakhurst properties: at [212]. Solely on the basis of the challenge to the findings that there were resulting trusts, Fallow also challenges the conclusion as to the rental income.
The Beverly Hills property
The legal title to the Beverly Hills property was acquired by Ms Ayad on about 30 July 2015: at [213]. As has been noted, Ms Ayad took certain files and destroyed documents in those files. The primary judge found that the legal file for the purchase of the Beverly Hills property and documents relating to that property were some of the destroyed documents: at [127], [214]. However, as has also been noted, the Trustees were able to obtain access to electronic copies of file notes from Alphonse & Associates, the firm of solicitors which acted on the purchase. Four file notes were of particular relevance: at [128]. One file note referred to a telephone call with Mrs El-Debel about the purchase of a property by her son. The primary judge found that the property referred to in the file note was the Beverly Hills property and the son who Mrs El‑Debel said had bought the property was the bankrupt: at [128](4). The primary judge found it to be significant that Ms Ayad had 'destroyed a file note which stated that the bankrupt had bought the Beverly Hills property': at [130].
At the time, Alphonse & Associates held funds in their trust account. Those funds (being almost $200,000) had come from the settlement of a refinancing of the Bankstown property: at [170]‑[173]. As has already been noted, the primary judge found that the intention of the parties was that the Bankstown property would be held solely for the benefit of the bankrupt and that the Bankstown loan account was operated for the benefit of the bankrupt.
The primary judge then found that it was the bankrupt and not Ms Ayad who contributed the funds towards the purchase price for the Beverly Hills property and that the balance of the purchase price was paid with a loan obtained by Ms Ayad: at [220]‑[222]. These findings rest in part upon the contents of the 12 March 2015 File Note which refer to the bankrupt having bought a property at auction and inferences drawn in circumstances where Ms Ayad took steps to destroy the file note: at [220].
On that basis, the primary judge found that 'the starting point' was a resulting trust in favour of the bankrupt to the extent of his contribution being as to 20%: at [223]. Again, this finding should not be taken to indicate a final view as to the funds provided by the bankrupt. Obviously, it would be necessary to form a view as to whether the funds that were borrowed by Ms Ayad were provided by Ms Ayad or by the bankrupt to the purchase price. Ordinarily, a party who incurred the borrowing would be the party who provided the funds for the purchase. The issue was whether Ms Ayad truly incurred the borrowing on her own behalf.
As to the intentions of the bankrupt concerning the Beverly Hills property, the primary judge found that when the loan for the property was arranged, Ms Ayad had no prospect of servicing the loan from her own income and accordingly the money to repay the loan was intended to come from some source other than her income: at [227]. The primary judge then considered the evidence as to the source of funds that had been made into the loan account for the Beverly Hills property after the purchase was made. They were found to total $1,281,630: at [228]. The original loan amount was $1,288,800: at [221]. Of those payments only $177,730 were 'apparently from Ms Ayad': at [229](1). Of those, two payment totalling $136,800 were made at about the time of the purchase: at [234]‑[235]. On that basis, and given the lump sum nature of all such payments, the primary judge inferred that 'the arrangement between the bankrupt and Ms Ayad included that she would have an interest in the Beverly Hills property reflecting her lump sum contributions': at [235]. The payments were found to account for 10% of the property.
Most of the other payments, being nearly $1,100,000 were paid from an account in the name of Jacgab Pty Ltd (Jacgab) and an account in the name of one of the bankrupt's minor child, Jacob El‑Debel: at [228]‑[229].
Then at [230], her Honour found (in an unchallenged finding):
I accept that the pattern of actual payments into the NAB loan account, together with the finding that Ms Ayad did not have any prospect of servicing the loan without assistance when she made it, and the relationships between the bankrupt and Jacgab and Jacob El-Debel (from whom the vast majority of deposits were made), together support an inference that Ms Ayad entered into the loan on the basis that the bankrupt would procure the repayments of the loan and that the loan was entered into by Ms Ayad on his behalf.
This is a significant finding for the purposes of the claim that there was a resulting trust in favour of the bankrupt. It meant that the loan amounts that were paid as part of the purchase price were not provided by Ms Ayad. Rather, they were provided by the bankrupt from the loan funds procured by Ms Ayad on behalf of the bankrupt.
This conclusion is reinforced by the further findings of the primary judge at [233] that:
(1)the evidence of Ms Ayad's roles in various companies suggests that around the time of the purchase of the Beverly Hills property 'Ms Ayad acted as the bankrupt's pawn to conceal his business affairs'; and
(2)the entry by Ms Ayad into the loan to purchase the Beverly Hills property was 'consistent with that role'.
These findings reflected earlier findings by her Honour (to which reference has already been made in these reasons) as to the existence of a plan that the bankrupt formed in early 2015 to conceal his assets, being a plan that he shared at least with Ms Ayad: at [11]. The primary judge found that the plan 'extended to acquiring the Beverly Hills property while concealing his interest in that property by procuring Ms Ayad to hold the legal title to the property': at [16]. These conclusions were supported by the steps taken by Ms Ayad during March 2015 to destroy documents concerning the acquisition of the Beverly Hills property: at [16], [130].
Also, in dealing with the evidence as to Jacgab and TPS Group Services, the primary judge found at [73]‑[74] as follows:
This evidence and Ms Ayad's evidence concerning Jacgab and TPS Group Services strongly suggests that Ms Ayad was pretending to have knowledge of Jacgab and TPS Group Services, when her knowledge was superficial at best. In the light of the other companies and businesses associated with the bankrupt that had the names 'Three Phase Services', 3 Phase and TPS Group, Ms Ayad's claim that she made up the name TPS was a blatant lie, intended to conceal or minimise the connection between the bankrupt and TPS Group Services.
The evidence also suggests that Ms Ayad was co-opted by the bankrupt to accept formal roles in relation to Jacgab and TPS Group Services, without having much or any substantive involvement. As Ms Ayad volunteered twice, her role was 'helping out'. This role is consistent with the trustees' case that Ms Ayad subsequently acquired the legal title to the Beverly Hills property for the bankrupt in order to conceal his beneficial interest.
It is also to be noted that the primary judge had expressed 'no hesitation in drawing any inference adverse to the bankrupt or Ms Ayad that may be available by reason of their respective failures to give evidence': at [125]. This was also an important part of the context in which the findings as to the Beverly Hills property were made by the primary judge.
None of the above findings are challenged.
As has been observed, the findings by the primary judge were to the effect that Ms Ayad was not the borrower. Rather, it was the bankrupt who was the real party to the loan. He was the provider of all of the funds for the purchase. However, on the basis that some lump sum contributions were thereafter made by Ms Ayad, the primary judge inferred that there had been an intention from the outset that Ms Ayad would have an interest in the Beverly Hills property to the extent only of her own contributions (most of the amount of which was contributed soon after the purchase).
On that basis, the primary judge found that Ms Ayad held the Beverly Hills property on a resulting trust in the bankrupt's favour as to 90% of the property (her contributions amounting to 10%).
The appeal grounds in the First Appeal
As has been indicated, most of the appeal grounds in the First Appeal were not pressed on behalf of the appellants in the First Appeal. In addition to the abandonment of factual challenges and all arguments advanced in the written outline of submissions, an argument based upon alleged indefeasibility of interest was also withdrawn. Only the following contentions raised by the appellants in their written submissions in reply remain for consideration:
(1)The primary judge made no finding as to the true position as to the respective contributions of the bankrupt and Mrs El-Debel to the Bankstown property and instead the reasoning of the primary judge rested upon a finding of an express oral trust in favour of the bankrupt, being a claim that was not advanced by the Trustees which may have been met in a different way at the hearing had the claim been put in that manner by the Trustees.
(2)In any event, there could be no finding of an oral trust as the basis for upholding the Trustees' claim because of the terms of s 23C of the Conveyancing Act 1919 (NSW).
(3)Any interest in the Bankstown property was property that formed part of the bankrupt estate of the bankrupt's earlier bankruptcy and the relief sought by the Trustees was confined to declaring their interest in the Bankstown property.
For the appellants in the First Appeal, in addition to the above contentions (and despite the abandonment of the written submissions in support of the First Appeal and reliance only on the written submissions in reply), there was some suggestion in the course of oral submissions that two grounds of appeal raising factual challenges were maintained (being those raised by grounds 1(e), 9(a) and 11(b)). We will refer to these two matters as contentions (4) and (5), being:
(4)The primary judge erred in fact in holding that the 12 March 2015 File Note by Mr Panopoulos was an admission by Mrs El-Debel of a trust.
(5)The primary judge erred in fact in finding that the bankrupt provided $198,569.14 of the purchase price for the Beverly Hills property when the primary judge ought to have found that the money came from Mrs El-Debel.
Like contention (4), contention (5) appeared to be based upon a complaint as to the manner in which the primary judge used the content of the 12 March 2015 File Note in making findings adverse to the appellants in the First Appeal.
Contentions (1) and (2) in the First Appeal
As has been observed, the primary judge did find as a 'starting point' that the contributions to the purchase of the Bankstown Property were made by the bankrupt and Mrs El-Debel without finding the extent of those contributions. It is well to set out the terms of the finding (at [144]):
Whatever the true position about their respective contributions to the purchase price, the starting point is that the Bankstown property was purchased by the bankrupt and Mrs El-Debel as tenants in common on resulting trusts in favour of each of the bankrupt and Mrs El-Debel in accordance with those contributions, comprising Mrs El-Debel's cash contributions (which was either a contribution on her own behalf or a contribution by the bankrupt, who had been loaned the funds by Mrs El-Debel), any cash contribution by the bankrupt and the joint contribution of the loan funds.
Significantly, the finding was expressed in terms that contemplated that any cash contributions by Mrs El-Debel may have been a contribution by the bankrupt. The question whether that was the case was not resolved at this point in the reasons. However, the formulation of this possibility presages a finding as to the extent to which the purchase price was provided by the bankrupt.
The subsequent findings by the primary judge were to the effect that the repayment of the monies that were borrowed from the Commonwealth Bank and the ability to redraw those funds were, respectively, the responsibility of the bankrupt and available for the benefit of the bankrupt. In effect, the principal reason why the conclusion was reached that there was an intention that the interest of Mrs El-Debel be held on trust for the bankrupt was the factual finding that the loan account was operated by and for the benefit of the bankrupt.
In circumstances where Mrs El-Debel claimed that the intention was that the beneficial interest in the Bankstown property was to be held for her benefit, there could be no criticism of the primary judge for considering the actual intentions. In doing so, her Honour was simply addressing the case advanced by Mrs El-Debel as to why any presumption of a resulting trust was rebutted.
The issue is whether, in rejecting the claim that any presumption had been rebutted, her Honour should be found to have upheld the Trustee's claim on the basis that there was an express trust when the only case advanced by the Trustees was of a resulting trust.
As to the nature of the primary judge's ultimate finding concerning the Bankstown property, earlier in the reasons, her Honour expressed the conclusion in the following terms (at [17]):
As explained below, I accept that the bankrupt was the sole beneficial owner of both the Bankstown property and had a 90% beneficial interest in the Beverly Hills property at the commencement of his bankruptcy.
The declaration made by her Honour to give effect to the reasons was in terms that the Bankstown property was held on resulting trust in favour of the bankrupt. This was submitted to be a matter that was not determinative of the basis upon which the Trustees' case had been upheld.
The findings made by the primary judge as to contributions to the Bankstown property were as follows (at [139]‑[143]):
The Bankstown property was purchased for $258,000 of which $206,400 was paid by funds obtained from the Commonwealth Bank of Australia (CBA) by the bankrupt jointly with Mrs El-Debel. The account for the loan was numbered xxxxxxxx2800 (joint Bankstown loan account).
Also at that time, the bankrupt and his mother were named as the joint mortgagors on a first registered mortgage to the CBA over the Bankstown property.
At his public examination, the bankrupt claimed that the money to purchase the property came entirely from his mother.
The trustees ultimately accepted that they could not demonstrate to the contrary, except to the extent that the property was purchased with funds borrowed from the CBA pursuant to a loan obtained jointly by the bankrupt and his mother.
However, in his November 2004 statement of affairs, made by the bankrupt in connection with his 2004 bankruptcy, the bankrupt stated that, on 12 December 2003, his mother had lent him $60,000.00. If the statement is to be believed, it is consistent with a conclusion that funds used to purchase the property apart from the joint Bankstown loan were, in fact, loaned to the bankrupt by Mrs El-Debel and, accordingly, were contributed to the purchase price by the bankrupt. In the statement of affairs, the bankrupt also stated that he had contributed $6,000 to an asset described as 'unit'. In answer to the question 'Who has the asset?', the bankrupt identified his mother. This may be a conflicting piece of evidence concerning the amount of the bankrupt's contribution to the purchase of the Bankstown property.
Earlier, the primary judge had rejected evidence from Mrs El-Debel to the effect that she had given cash gifts to the bankrupt so that he could use the cash to meet the loan commitments for the Bankstown property: at [91]‑[93].
The primary judge also accepted that the Bankstown property was purchased on the initiative of the bankrupt and not on the initiative of Mrs El-Debel as she claimed: at [136]. The Bankstown property was purchased for $258,000 of which $206,400 was paid by funds obtained from the Commonwealth Bank: at [139].
As has been indicated, none of these factual findings were challenged.
By reasoning that the loan account from the Commonwealth Bank was operated by the bankrupt for his own benefit, the primary judge necessarily determined that the loan funds to purchase the Bankstown property had been provided by the bankrupt. So much flows from the findings to the effect that the loan from the Commonwealth Bank was operated by the bankrupt for his own purposes. In doing so, her Honour resolved the uncertainty as to who made the contributions at the outset, at least insofar as it concerned the provision of the funds from the Commonwealth Bank. Her Honour went beyond the earlier 'starting point' and determined that although the borrowing had been in the name of Mrs El-Debel and the bankrupt, the loan account was operated by the bankrupt for his purposes. In the absence of evidence to the contrary it may be readily inferred that the loan account had been operated by the bankrupt for his benefit from the outset. Given the overall reasoning by the primary judge, her Honour should be taken to have made a finding to that effect in granting the declaration that the Bankstown property was held on resulting trust for the bankrupt.
However, with respect, the primary judge was in error in failing to bring to account the finding to the effect that the Trustees could not demonstrate that the funds in addition to the loan amount came from Mrs El-Debel in reaching a conclusion as to who provided the purchase price. To that extent, being as to $51,600 ($258,000 minus $206,400), there was no finding to support the claim of a resulting trust.
As to the provision of $206,400 by the bankrupt, the further finding by the primary judge that the actual intention of the parties was that the Bankstown property was to be held beneficially for Mrs El-Debel may have meant that the resulting trust interest merged with the beneficial interest the subject of an oral trust. However, as was submitted on the appeal, a declaration of trust in land in New South Wales was required to be manifested and proved by some writing signed by a person who is able to declare the trust (in this case Mrs El-Debel): s 23C(1)(b) of the Conveyancing Act. It is be noted that s 23C(1) does not apply so as to affect a resulting trust: s 23C(2).
It follows that the decision of the primary judge concerning the existence of a resulting trust in the Bankstown property was in error, but only to the extent of a one-fifth interest (being $51,600 divided by $258,000) which had not been shown to be provided by the bankrupt. A resulting trust in favour of the bankrupt as the provider of 80% of the purchase price had been established.
It also follows that her Honour's decision as to the relief granted to the Trustees does not rest upon any findings as to the existence of an express trust in favour of the bankrupt.
Contention (4) in the First Appeal
It is convenient to deal at this point with contention (4). It concerns a claim that the primary judge used the 12 March 2015 File Note as an admission against the interest of Mrs El-Debel and that the document could not be used in that manner because it was not the document of Mrs El-Debel.
It must first be noted that the conclusions by the primary judge that have been described in dealing with contentions (1) and (2) do not depend upon the finding by the primary judge that the 12 March 2015 File Note made by Mr Panopoulos evidences an admission that at the time of the purchase of the Bankstown property, the bankrupt and Mrs El-Debel each intended that it would be held on trust for the bankrupt. Therefore, even if the primary judge was in error in making that finding it was not a reason to conclude that the appeal against the declaration of a resulting trust as to the Bankstown property and consequential relief was in error.
In any event, the 12 March 2015 File Note was received into evidence. Its authenticity was not challenged. It appears to be a contemporaneous note taken by a solicitor of a conversation with Mrs El-Debel. The unchallenged finding of the primary judge is that the evidence of Mrs El‑Debel that the file note was not accurate was not accepted: at [154].
Importantly, the file note was not found to itself be an admission. Rather, it was found by the primary judge to evidence admissions made by the bankrupt and Mrs El-Debel that they intended the bankrupt to be the sole beneficial owner of the Bankstown Property: see [148]‑[149], [155]. The file note was evidence that they had admitted in a conversation with the solicitor that the bankrupt was the sole beneficial owner of the Bankstown property. It was not the only evidence of such admissions having been made: see [156]‑[159]. The statement at [148] to the effect that there was an admission 'contained in a solicitor's file note' should be read in the context of the conclusion at [155] that the file note 'evidences' admissions. No error has been demonstrated in the primary judge using the content of the 12 March 2015 File Note to reason in that way to conclude on the evidence as a whole that the bankrupt and Mrs El-Debel both admitted after the purchase of the Bankstown property that it had been purchased for the bankrupt.
Contention (3) in the First Appeal
Contention (3) is to the effect that as the resulting trust as determined was brought into existence in 2004, it was property of the bankrupt at the time of his earlier bankruptcy.
Shortly prior to the hearing of the Trustees' claim a point was raised to the effect that if the Trustees succeeded in demonstrating the existence of a resulting trust then they were not entitled to relief under s 31(f) of the Bankruptcy Act. When the point was raised, a letter in the following terms was sent by lawyers acting for the Trustees to the trustee of the earlier estate of the bankrupt:
We act for … the joint and several trustees of the bankrupt estate of Bachar El-Debel (Bankrupt), being the applicants in the above proceedings [being the proceedings the subject of the present appeals].
You acted as the trustee of the Bankrupt's previous bankrupt estate … (First Bankruptcy). The Bankrupt was discharged by law from the First Bankruptcy on 19 November 2007.
In his statement of affairs lodged in the First Bankruptcy the Bankrupt disclosed a 1/100th legal interest in real property situated at … Bankstown … (Bankstown Property). The Bankrupt's mother, Fatme El-Debel (Mrs El-Debel), was recorded as a registered proprietor of the Bankstown Property in respect to a 99/100th legal interest. The Bankrupt's legal interest was subsequently transferred to Mrs El-Debel in about May 2015.
Given the Bankstown Property was acquired prior to the First Bankruptcy, there may be a need for our clients to deal with you in respect to any interest the Court deems the Bankrupt to have in the Bankstown Property (which may or may not have vested in you as trustee of the estate of the First Bankruptcy). Our clients intend to provide an undertaking to the Court to the effect that they will deal with you in this respect. However, in order to assist our clients, and to alleviate any concerns the Court may have, we are instructed to request that you provide a written acknowledgment that you:
(a)are aware of these proceedings and the relief sought by our clients in respect to the Bankstown Property;
(b)do not wish to appear and be heard in respect to the current application; and
(c)will deal with our clients in respect to any interest of the estate of the First Bankruptcy in the Bankstown Property in accordance with the undertaking to be given to the Court by our clients.
The confirmation that was sought in the letter was given by lawyers acting for the trustee in the bankrupt's earlier bankruptcy. The correspondence was provided to the Court. It appears that the undertaking as indicated was also given. The respondents raised no objection to that course.
Apart from a one line submission raising the issue, no further submissions were advanced to the primary judge to support the claim that the declaratory relief sought by the Trustees could not be granted by reason that any resulting trust was in respect of property that would form part of the estate in the earlier bankruptcy.
In the First Appeal, the Trustees did not seek to challenge the proposition that the resulting trust may be in respect of property in the earlier bankruptcy. Rather, they claimed that the relief granted by the primary judge was appropriate and any issue could be resolved as between the Trustees and the trustee of the earlier bankruptcy. They did so on the basis of a submission that it was by no means clear that property which had not been claimed by the trustee in the earlier bankruptcy and therefore had not been included in any way in the administration (which was concluded before the present bankruptcy) was properly described as property of the earlier bankruptcy.
However, the difficulty with that approach is that the application brought by the Trustees was confined to an application under s 31(f) of the Bankruptcy Act. It confers jurisdiction on this Court to hear and determine, amongst other things, 'applications to declare for or against the title of the trustee to any property'. Therefore, the application brought by the Trustees was to declare for or against the title of those Trustees. In order to succeed in obtaining a declaration under that provision, the Trustees must demonstrate the existence of a resulting trust in favour of the bankrupt for property forming part of the bankruptcy being administered by those Trustees.
Nevertheless, the issue raised by the bankrupt is procedural only. It is apparent from the exchange of correspondence that the trustee of the earlier bankruptcy was content for the Trustees to make any claim to a resulting trust for the Bankstown property on the basis that it was property of one or other of the bankrupt estates. On any view, the point being raised by the bankrupt would not result in a basis for the bankrupt to be able to deny the existence of a resulting trust.
Further, before the primary judge the case was fought substantively as against the Trustees. That is to say, Mrs El-Debel claimed to be entitled to the legal and beneficial interest in the Bankstown property from the time of its purchase. The parties were joined as to that issue and Mrs El-Debel failed in her efforts to refute the existence of a resulting trust. Significantly, they were joined as to that issue in circumstances where the Trustees claimed to be able to obtain relief irrespective of whether it was them or the trustee of the earlier bankruptcy that was entitled to the property the subject of the resulting trust in favour of the bankrupt. There was no suggestion that some other point (other than the matter the subject of contention (3)) could have been raised by the bankrupt in answer to a claim to a resulting trust brought by the trustee of the earlier bankruptcy.
As a matter of procedural formality, the position described in the correspondence could have been effected by the earlier trustee being joined as a respondent on the basis that he was an alternative applicant who did not wish to join in the application and intended to abide the outcome. In effect, that is what occurred. In those circumstances, if the Court was satisfied that there was a resulting trust in favour of either the Trustee or the trustee of the earlier bankruptcy then relief in those terms could be granted because both parties sought relief of that kind and deferred the resolution of the claim as between them. Therefore, contention (3) is answered by re-framing the terms of the declaratory relief in a manner that reflected the possibility of the claim by the trustee of the earlier bankruptcy.
It follows that contention (3) should be upheld to a limited extent and the declaratory relief granted by the primary judge should be amended to reflect the nature of the informal procedure that was adopted to deal with the possibility that any resulting trust was property of the earlier bankruptcy. The declaration of the resulting trust should be expressed to be in favour of the Trustees or the trustee of the earlier bankruptcy and should include the terms of the undertaking proffered by the Trustees as the basis upon which it sought the declaration of a resulting trust in the Bankstown property. Relief in that form would give effect to the nature of the procedure adopted by the primary judge in allowing the issue of any claim by the trustee of the earlier bankruptcy to be dealt with by the undertaking provided by the Trustees.
Contention (5) in the First Appeal
The final contention is one that concerns the Beverly Hills property. It relates to an amount of $198,569.14 which formed part of the purchase price for that property. The unchallenged finding of the primary judge was that the amount was paid from monies paid into the Alphonse & Associates trust account as part of the proceeds of refinancing the loan on the Bankstown property. The refinancing made available funds that were paid into the trust account. Those funds were used to pay the deposit and stamp duty on the purchase of the Beverly Hills property: at [217]‑[219].
Then at [220], the primary judge found:
On the basis of that evidence, I find that the Alphonse trust funds of $198,569.14 were used to purchase the Beverly Hills property. Based on the 12 March 2015 file note, and the bankrupt's sole operation of the joint Bankstown loan account, I find that the Alphonse trust funds belonged to the bankrupt and were a contribution by the bankrupt to the purchase of the Beverly Hills property. That conclusion is consistent with Mrs El-Debel's statement, recorded in the 25 May 2015 file note, that the bankrupt had bought a property at auction. Notwithstanding that the 22 August 2015 letter refers to Ms Ayad's purchase of the Beverly Hills property, in the absence of any evidence explaining the inconsistency between that letter and the 25 May 2015 file note, given the bankrupt's expressed desire to make his ownership of properties 'invisible' and the appointment of a controlling trustee in April 2015 and, finally, the destruction of the 25 May 2015 file note, I consider that the 25 May 2015 file note is more likely to accurately reflect the true intention of the bankrupt (as conveyed to Alphonse & Associates by Mrs El-Debel).
To the extent that the complaint made is that the reasoning used the 12 March 2015 File Note as an admission, for reasons already given, that submission should not be accepted.
Otherwise, the submission advanced as to this finding appeared to be to the effect that on the objective evidence it was Mrs El-Debel who borrowed the money from the Commonwealth Bank when the loan secured by the Bankstown property was refinanced. Therefore, so it was submitted, when those funds which were borrowed by Mrs El-Debel and were used to pay the deposit and the stamp duty they were Mrs El-Debel's funds.
However, the submission ignores the unchallenged factual findings to the effect that the Bankstown loan account was operated for the benefit of the bankrupt and that the proceeds of the refinancing of the Bankstown property when received into the Alphonse & Associates bank account were the funds of the bankrupt. As the primary judge noted, these findings themselves rest upon two aspects of the evidence. First, the inferences that may be drawn based upon the contents of the 12 March 2015 File Note which support other admissions that the Bankstown property was purchased for the bankrupt. Second, the findings as to how the Bankstown loan account was operated. They each provide an independent basis to support the finding that the borrowing against the security of the Bankstown property produced proceeds that were for the benefit of the bankrupt. Error has not been demonstrated in that reasoning.
The submission also fails to deal with the findings by the primary judge at [11]‑[16] which provide substantial support for the conclusion that the borrowed funds when applied to the purchase of the Beverly Hills property were provided by the bankrupt, namely:
I accept that the bankrupt formed a plan to conceal his assets in early 2015. This was a plan that he shared with, at least, Ms Ayad. The plan was reflected in an email sent on 19 March 2015 by the bankrupt to his accountant, Mr Rajani, and copied to Ms Ayad. The email stated:
Sorry for the delay, was waiting on Legal advice on how to proceed
As discussed in the emails below
…
Also as discussed, confirming this will make us invisible to anyone searching for my properties
We will move everything back to my wife once we have completed everything, probably 3 months maximum
…
The 'emails below' make it clear that the bankrupt was seeking to change his relationship with Fallow. At the time, Fallow held the legal title to the Peakhurst properties. I infer that, by the changes (which involved removing the bankrupt as a director and shareholder of Fallow), the bankrupt sought to conceal his interests in the Peakhurst properties.
Surprisingly, in the light of his December 2015 bankruptcy, in September 2015, the bankrupt seemed to have contemplated a return of his assets, writing to Mr Rajani:
I am now in the process of preparing to transfer my interests in Fallow Investments back to myself or my wife.
What do we need to do to start the ball rolling ??
This later email supports the finding that the bankrupt had earlier executed a plan to conceal his 'interests in Fallow Investments'.
Consistent with the trustees' case, the bankrupt took steps, between March and May 2015, to transfer the legal title in the Bankstown property from the bankrupt and Mrs El-Debel to Mrs El-Debel alone. This transaction led to the following immediate consequences:
(1)Arrangements were made with the real estate agent who managed rental of the property to record that the property was now 'in Mrs El-Debel's name', as Ms Ayad put it in her communication to the real estate agent on 5 May 2015. Previously, the bankrupt and Ms Ayad had been identified as the landlord of the property. Rental income from the property, which had been paid into an account opened in the name of a child of the bankrupt as late as 31 March 2015, commenced to be paid into an account opened in the name of Mrs El-Debel.
(2)Loan funds obtained, ostensibly by Mrs El-Debel, were used to refinance the loan previously obtained to purchase the Bankstown property, and to obtain approximately $200,000 which later contributed to the purchase price for the Beverly Hills property.
I also accept that the bankrupt's plan extended to acquiring the Beverly Hills property while concealing his interest in that property by procuring Ms Ayad to hold the legal title to the property. That conclusion is supported by the steps taken during May 2015 to acquire the Beverly Hills property and by Ms Ayad's destruction of documents concerning the acquisition of the property.
The appeal grounds in the Second Appeal
In oral submissions for Fallow, its appeal was said to raise three issues. They were expressed propositionally as follows:
(1)having made primary findings that significant proportions of the purchase price for each of the Peakhurst properties were paid for by companies with which the bankrupt was associated, the primary judge erred in fact in concluding that the payments were contributions by the bankrupt;
(2)the primary judge inferred that the Peakhurst properties were substantially purchased by the bankrupt by a process of impermissible speculation and conjecture rather than by duly reasoned inference from the evidence; and
(3)the primary judge used the bankrupt's absence as a witness as a basis for concluding that the bankrupt funded the Peakhurst properties in circumstances where reasoning in that manner was impermissible.
Fallow disavowed any challenge to the credit findings made by the primary judge or any challenge to any factual finding that turned wholly or partly on impressions of the primary judge.
Proper approach to factual findings on appeal
In order for an appellant to succeed there must be an error of law demonstrated or an error infecting a finding of fact: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 at [20]‑[30] (Allsop J (as the Chief Justice then was), Drummond and Mansfield JJ agreeing); and Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC 93; (2018) 261 FCR 301 at [45]‑[53]. Fallow's appeal alleges factual error by the primary judge. The principles to be applied where factual error is alleged were recently summarised by Bell, Gageler, Nettle and Edelman JJ in Lee v Lee [2019] HCA 28; (2019) 266 CLR 129 at [55] in the following terms:
A court of appeal is bound to conduct a 'real review' of the evidence given at first instance and of the judge's reasons for judgment to determine whether the trial judge has erred in fact or law. Appellate restraint with respect to interference with a trial judge's findings unless they are 'glaringly improbable' or 'contrary to compelling inferences' is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts. Thereafter, 'in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge'.
(footnotes omitted)
The process of inferential reasoning
The primary judge determined the claims by the Trustees by rejecting the evidence of Mrs El‑Debel and Mr Bassam El-Debel and assessing the credibility of the accounts given by Ms Ayad and the bankrupt at their examinations. Otherwise, the primary judge adopted a process of inferential reasoning.
It is well established that there is a distinction to be maintained between inference and conjecture. As was stated in the oft-quoted passage from Luxton v Vines (1952) 85 CLR 352 at 358:
[In a civil case] where direct proof is not available, it is enough if the circumstances appearing in evidence to give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is a mere matter of conjecture.
Nevertheless, it is well to bear in mind the following observation in Seltsam Pty Ltd v McGuiness [2000] NSWSCA 29; (2000) 49 NSWLR 262 at [84]:
It is often difficult to distinguish between permissible inference and conjecture. Characterisation of a reasoning process as one or the other occurs on a continuum in which there is no bright line division. Nevertheless, the distinction exists.
Further, the notion of conjecture is that explained by the High Court in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5 in the terms quoted in Luxton v Vines at 358 as follows:
Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture: see per Lord Robson, Richard Evans & Co Ltd v Astley [1911] AC 674, at 687. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise: cf per Lord Loreburn above, at 678.
Its practical character, was aptly expressed by Brennan and McHugh JJ in G v H (1994) 181 CLR 387 at 390 as follows:
An inference is a tentative or final assent to the existence of a fact which the drawer of the inference bases on the existence of some other fact or facts. The drawing of an inference is an exercise of the ordinary powers of human reason in the light of human experience; it is not affected directly by any rule of law. Legal principle may confine the basic facts in order to exclude irrelevancies and, where proof beyond reasonable doubt is required, the legal standard of proof precludes the drawing of an inference for the purpose of determining an issue in litigation when the basic facts are consistent with an innocent inference.
It is a process that requires the application of general human experience to determine whether the hypothesis that is sought to be proved is a conclusion that can be drawn given the alternatives that reasonably may be suggested and the standard of proof required: Morgan v Babcock & Wilcox Ltd (1929) 43 CLR 163 at 173 (Knox CJ and Dixon J).
As to the burden of proof, the following propositions stated by the primary judge at [76] were not in issue:
The trustees acknowledged that the burden of proof lies upon them to show that the relevant properties vested in them as a result of the bankruptcy: Derek Rowan Andrew as Trustee for Estate of Colin George Ward (Deceased) v Zant Pty Ltd [2004] FCA 1716 (Zant) at [20]. However, where all the facts concerning the transactions by which the four properties were purchased are within the knowledge of one or more of the respondents, a 'very slight degree of proof should be sufficient to shift that burden': Zant at [20], citing Re Trautwein; Richardson v Trautwein (1944) 14 ABC 61 at 75 and Michael v Thompson [1894] VicLawRp 108; (1894) 20 VLR 548 at 552.
Also, Fallow did not dispute the following statement by the primary judge as to the principles to be applied when an available witness was not called to give evidence (at [121]‑[124]):
The unexplained failure by a party to call a witness may, in appropriate circumstances, support an inference that the uncalled evidence would not have assisted the party's case: Jones v Dunkel (1959) 101 CLR 298 at 308 per Kitto J, 312 per Menzies J and 320-321 per Windeyer J.
Further, the failure to call a witness may also permit the court to draw with greater confidence any inference that is unfavourable to the party that failed to call the witness, if that inference is open on the evidence and the uncalled witness appears to be in a position to cast light on whether the inference should be drawn: Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361, 384–385 at [63].
Where the absent witness is a party, an adverse inference may be more readily drawn against that party: Trkulja v Markovic [2015] VSCA 298; (2015) 49 VR 402 (Trkulja) at [94], citing the following passage from Chong v CC Containers Pty Ltd [2015] VSCA 137 at [212]:
In Dilosa v Latec Finance Pty Ltd [No 2], Street J recognised that where the absent witness is a party then considerable importance may well attach to the inference that nothing which the party could say would assist his or her case. As Gleeson CJ said in Azzopardi, the judgments in Weissensteiner recognise that the inference that may be drawn from the silence of a party to civil litigation may be significant. Santow J drew such an inference in ASIC v Adler because the parties who were available and not called had a personal involvement in the transactions in question. Where a party elects not to give evidence 'the court is entitled to be bold'. As Heydon, Crennan and Bell JJ stated in Kuhl v Zurich Financial Services Australia Ltd, the rule has a particular application where it is the party which is the uncalled witness and may permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn.
At [95] and [96] of Trkulja, Kyrou and Kaye JJA and Ginnane AJA said:
Further, where the absent witness or party is the only person capable of giving evidence on a particular issue in dispute, his or her failure to enter the witness box may attain a particular significance. It has been said that, although the silence of one party cannot fill the place of actual evidence on an issue, it may serve to resolve a doubt or an ambiguity, especially where the facts are peculiarly within the knowledge of the silent party. In these circumstances, a failure to call or give evidence may have more than ordinary significance.
However, there are a number of limitations to the application of the rule in Jones v Dunkel. Relevantly for the purposes of this appeal, the rule does not permit an inference that the evidence not called by a party would have been adverse to the party. The rule also does not enable the absence of a witness to make up for any deficiency in a party's evidence. The rule will not support an adverse inference unless the evidence otherwise provides a basis on which that unfavourable inference can be drawn. It has therefore been said that the rule cannot be employed to fill gaps in the evidence, or to convert conjecture and suspicion into inference.
The same approach applies where there is an unexplained failure to tender certain documents: Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1 at [1003]‑[1004] (the detailed summary of the law by Owen J as to the principles to be applied was not disturbed on appeal).
Save for the confined challenge raised by contention (3) in the Second Appeal, the following finding by the primary judge at [125] (to which reference has already been made in part) was not challenged:
In this case, I have no hesitation in drawing any inference adverse to the bankrupt or Ms Ayad that may be available by reason of their respective failures to give evidence. The bankrupt's failure to give evidence permits the court to draw, with greater confidence, the inferences drawn below concerning his beneficial ownership in relation to each of the four properties. Ms Ayad's failure to give evidence permits the Court to draw, with greater confidence, the inference that she holds the Beverly Hills property substantially on trust for the bankrupt.
Contentions (1) and (2) in the Second Appeal
The submissions in support of the Second Appeal dealt first with the source of the funds that were used to purchase each of the properties and then with the evidence as to intention. It was submitted, in effect, that the reasoning of the primary judge went beyond the evidence and was based on inferences that were not open. The challenge attacked the inferences drawn by the primary judge concerning whether the bankrupt provided the funds to purchase the properties (and if so, to what extent). Even if the attack on the findings as to who provided the funds for the purchases was not successful, Fallow maintained that any presumption of a resulting trust had been rebutted by evidence to the effect that it was the intention of the party providing the funds for the purchase that the property be held by Fallow as trustee of the Trust and on the terms of the Trust and not for the benefit of the bankrupt.
The first Peakhurst property
As to the first Peakhurst property, the evidence as to the funds that were used to purchase the property concerned:
(1)a deposit of $56,000;
(2)an amount of $78,675.22 that came from the Bankstown loan account that was used as part of the funds provided at settlement; and
(3)cheques provided at settlement, the largest of which was in the amount of $450,000.
As has been noted, a contract to purchase the first Peakhurst property was initially entered into between the bankrupt and Mr Bassam El-Debel as joint purchasers and the vendor. Subsequently, the contract was cancelled. A new contract was entered into with Fallow as purchaser, acting as trustee of the Fallow Investments Trust (Trust). The Trust was created on around 15 August 2011. Alphonse & Associates acted on the settlement of the purchase. The settlement proceeded as a 'simultaneous rescission, exchange and settlement'.
The deed of rescission provided for the deposit of $56,000 to be repaid to the purchasers (the bankrupt and Mr Bassam El-Debel). However, by letter dated 18 August 2011, Alphonse & Associates confirmed instructions from the bankrupt and Mr Bassam El-Debel that the money paid on the deposit was to be applied as the deposit to the purchase by Fallow as trustee of the Trust.
Significantly, the case advanced for Fallow before the primary judge was that the funds provided at settlement came from Mr Bassam El-Debel and was to the effect that the $450,000 came from him or accounts associated with him and was a loan to Fallow. This evidence was not accepted: at [196]. The finding rejecting that evidence is not challenged.
Findings to the effect that the bankrupt provided the funds for the first Peakhurst property
As to the deposit of $56,000
As to the finding that the deposit that came from the 3 Phase bank account was provided by the bankrupt to purchase the first Peakhurst property, there were sufficient unchallenged findings (including findings rejecting the account given by the respondents to the application before the primary judge) to support an inferential finding to that effect, especially when that evidence is considered in the context of the absence of available evidence from Fallow as to many key matters, namely:
(1)there was no other evidence of any involvement by 3 Phase in the purchase of the first Peakhurst property;
(2)the administrator of 3 Phase reported that Fallow had been making loan repayments for loans in the name of the bankrupt;
(3)there was no evidence from the bankrupt, the sole director and shareholder of 3 Phase and it is to be inferred that he could give no evidence to assist Fallow's case;
(4)there was no evidence that an interest in the first Peakhurst property formed part of the property of 3 Phase as reported in the statement of affairs of Fallow;
(5)Fallow's case was that 3 Phase lent the money to Fallow and that case was rejected (and, as has been noted, the rejection of that aspect of Fallow's case is unchallenged);
(6)there were none of the accounts or records of 3 Phase or Fallow before the primary judge and it is to be inferred that there was nothing in those records that would assist Fallow's case;
(7)there were no documents evidencing Fallow's ownership of any assets, including cash, at the time of the purchase of the first Peakhurst property;
(8)there were no documents evidencing any loan to Fallow in connection with the first Peakhurst property;
(9)the unchallenged finding of the primary judge was that in a letter from Avondale Lawyers, Fallow expressly denied that the bankrupt had ever loaned any money to Fallow;
(10)if Fallow did not provide the deposit, being the unchallenged finding, then the evidence as to the terms of the contract at the time when the deposit was provided indicated that the deposit was provided by the purchasers named in that contract, being the bankrupt and Mr Bassam El-Debel;
(11)as to the credit of Mr Bassam El-Debel, the primary judge found that he was either unable or unwilling to give reliable evidence concerning his affidavit evidence to the effect that there had been alleged loans to Fallow and his evidence in general was rejected as unreliable;
(12)Mr Bassam El-Debel did not claim to have paid part of the deposit. Instead he claimed that a substantial portion of the purchase price for the first Peakhurst property was lent by him to Fallow, an account that was rejected because, amongst other things, he did not provide bank statements or records to verify his claim;
(13)Mr Bassam El-Debel gave evidence to the effect that on 30 September 2014 he told the bankrupt that he (the bankrupt) was out of Fallow which evidence was rejected as not credible;
(14)therefore, all of the evidence given by Mr Bassam El-Debel to the effect that the bankrupt was not involved in Fallow or in providing funds to purchase the first Peakhurst property was rejected;
(15)if Mr Bassam El-Debel had provided part of the deposit monies it is to be expected that he would have bank records in relation to the payment but he produced no such records;
(16)Mr Bassam El-Debel also gave evidence to the effect that a loan of $78,675.21 had been made to Fallow by Mrs El-Debel and that amount was used as part of the purchase price for the first Peakhurst property, an account that was also rejected in findings that are unchallenged;
(17)the amount of $78,675.21 was provided by the bankrupt (see below) providing support for an inference that he provided other parts of the monies used to purchase the first Peakhurst property;
(18)as has been explained, the evidence before the primary judge showed that most of the money used to purchase the Bankstown property and the Beverly Hills property had been provided by the bankrupt even though the properties were registered in the names of Mrs El-Debel and Ms Ayad respectively; and
(19)taking account of the above findings, on all of the evidence, the only person with an interest in paying the deposit and the means to do so was the bankrupt.
Therefore, the challenge to that factual finding as being speculative should be rejected.
For Fallow, there was considerable emphasis placed upon the fact that the deposit funds were originally sourced from the bank account of 3 Phase. Reliance was placed upon the decision in Donnelly v Edelsten (1994) 49 FCR 384. However, that decision concerned a different type of claim. In that instance, the trustee in bankruptcy of the estate of Dr Edelsten claimed that certain companies were conducted as a sham to mask the fact that the assets and businesses of the companies were the property of Dr Edelsten. As the Court there observed: 'Complete control or management of a corporation by a controlling shareholder is a common occurrence in the affairs of proprietary companies. Acts, which on their face may appear to be the personal acts of such a shareholder are, in fact, the acts of a corporation and the liability of the shareholder is limited accordingly': at 390.
The case advanced by the Trustees was not that the funds of 3 Phase were the funds of the bankrupt. Rather, the case was that when the funds came to be provided for the purchase of the first Peakhurst property they were provided by the bankrupt and not by 3 Phase.
As was noted at the outset of these reasons, the fact that the original source of funds was a particular bank account does not mean that if and when those funds are thereafter provided to purchase an asset they retain their character as being owned by the party who operated the bank account. So, the fact that the funds came from the 3 Phase bank account does not mean that when they came to be applied as a deposit to purchase the first Peakhurst property they were funds provided by 3 Phase and not by the bankrupt. Determining who provided the funds required a consideration of all of the evidence. Further, the Trustees did not have to provide direct evidence as to the nature of any dealing between 3 Phase and the bankrupt, such as whether the funds were being reimbursed to the bankrupt or a payment for services rendered or the payment of a dividend or the payment of a salary, in order to succeed in demonstrating that the funds were provided by the bankrupt.
Therefore, in the context of all the other evidence, the question was not whether Fallow had purchased the first Peakhurst property as trustee of the Trust. The question was whether the bankrupt in providing all of the purchase price intended that Fallow would have the beneficial interest free of any claim by the bankrupt to the first Peakhurst property. That is, whether he intended, in effect, to settle that money unconditionally on the Trust such that he would have no claim to any interest in the property at all. His actions in 2015 are only explicable on the basis that, from the outset, he intended to maintain a personal interest in what he described as his property. They are not the actions of a person who intended to settle the property unconditionally on the Trust for the benefit of discretionary beneficiaries who did not include him. The conduct in 2015 indicated that the bankrupt intended the properties held by Fallow to be his property and treated the ownership by Fallow and the existence of the Trust as a way of concealing his interest. On the evidence, he took steps to reinforce the effectiveness of that concealment. He took those steps on the basis that they would be reversed in due course.
The fact that the parties went to the trouble of rescinding the original contract and replacing it with a contract under which Fallow was purchaser and to establish the Trust for the purpose of holding the properties subject to the Trust was not enough, of itself, without evidence from the bankrupt and in circumstances where the evidence of Mr Bassam El-Debel was rejected to rebut the presumption of a resulting trust.
It was open to the primary judge to reason inferentially to the conclusion that the intention of the bankrupt all along had been to use the ownership by Fallow and the Trust to conceal his interest as the person who had contributed all of the purchase price. There was no gap in the evidence. The evidence supported the conclusion reached inferentially by the primary judge.
For those reasons contentions (1) and (2) in the Second Appeal concerning the first Peakhurst property have not been made out.
The second Peakhurst property
As to the second Peakhurst property, the contract to purchase the property was entered into by Fallow about 18 months after settlement under the replacement contract for the first Peakhurst property.
There was no evidence as to the source of the deposit of $40,000: at [205].
Otherwise, the contributions to the purchase price were:
(1)$50,000 from Fallow's bank account;
(2)$183,369.91 from Mr Bassam El-Debel; and
(3)$127,502.07 from TPS Group.
Findings to the effect that the bankrupt provided the funds for the second Peakhurst property
As to the deposit of $40,000
The primary judge inferred that the deposit was contributed in the same proportions as the other contributions. The appropriateness of that approach is best considered after the evidence as to the other contributions is addressed.
As to the $50,000 from Fallow's bank account
The primary judge reasoned that as the first Peakhurst property was held by the bankrupt and Mr Bassam El-Debel in equal shares then, as a matter of law, the resulting trust extended into the rentals received. Quite properly, Fallow did not challenge the legal basis for that reasoning. Rather, it was said that the conclusion as to the first Peakhurst property was challenged. Given our reasons as to that claim, that contention falls away. It was then said that once the rentals were deposited into Fallow's bank account the funds belonged to Fallow. As has already been reasoned it may be accepted that the legal entitlement to the funds was with Fallow. The question is whether those funds, impressed as they were with a resulting trust, were funds that were provided by the beneficiaries of that resulting trust or by Fallow when they were provided as part of the purchase price for the second Peakhurst property. In the absence of any evidence rebutting the presumption of a resulting trust in respect of the rentals, it was correct for the primary judge to treat those funds as being provided by those who were beneficially entitled to them at the time they were provided as part of the purchase price for the second Peakhurst property.
As to the $183,369.91 provided by Mr Bassam El-Debel
There is no challenge to the finding that there was a resulting trust as to the extent of the funds provided by Mr Bassam El-Debel. Significantly, it is not claimed that the funds were lent by Mr Bassam El-Debel to Fallow or that there was an intention on the part of Mr Bassam El‑Debel to settle the amount on the Trust. Ultimately, what is submitted is that because the contract was entered into by Fallow as trustee of the Trust the intention was that Fallow would own the second Peakhurst property as trustee. If that were enough, without more, then it is difficult to see how the presumption could arise, at least in circumstances where the purchaser is a trustee. There is no suggestion that the law operates in a different manner where the purchase is made by a trustee using funds provided by a third party. It follows that there must be something more to demonstrate the intention required to rebut the presumption of a resulting trust. In any event, at the point of the application of the presumption, no submission was advanced for Fallow on appeal to the effect that the funds that came from Mr Bassam El-Debel were to be treated as provided by Fallow.
As to the $127,502.07 from TPS Group
The submission advanced for Fallow was that the primary judge did not expose any process of reasoning as to why the funds were to be treated as contributed by the bankrupt.
The key finding by the primary judge was expressed in the following terms at [208]:
Again, in the absence of any documentation of any loan from Bassam, TPS Group or the bankrupt to Fallow, I conclude that the identified contributions represent contributions by the bankrupt and Bassam to the purchase price of the second Peakhurst property. It is unnecessary to determine the precise arrangement between the bankrupt and TPS Group pursuant to which it provided funds for the bankrupt to contribute to the purchase price.
The key word in this reasoning is 'Again'. The analysis incorporates all that has already been said in dealing with the first Peakhurst property. Significantly, it is not Fallow providing the funds. Therefore, although submissions were advanced in support of the appeal challenging the findings as to the second Peakhurst property that relied upon the decision in Donnelly v Edelsten, for reasons already given those submissions were misconceived. This was not a case in which the issue was whether the funds contributed by Fallow from its own funds to property owned by Fallow should be treated as being held for the bankrupt. There was no dispute that the funds came out of the bank account of TPS Group but were used to purchase a property in the name of Fallow. The question was who provided the funds. Did TPS Group provide them or were they paid to Fallow on the basis that they were to benefit the bankrupt?
As to TPS Group, the primary judge made findings based upon what Ms Ayad said at her public examination. Her Honour firmly rejected the evidence of Ms Ayad that she owned and controlled that company (and the bankrupt was an employee). The finding was that Ms Ayad was co-opted by the bankrupt to accept formal roles in relation to TPS Group without having much or any substantive involvement: at [74]. Further, it was found that Ms Ayad gave evidence that 'strongly suggeste[d]' she was 'pretending to have knowledge' about TPS Group and the part of her evidence as to her involvement with TPS Group was a 'blatant lie' that was 'intended to conceal or minimise the connection between the bankrupt and TPS Group': at [73].
To these matters may be added the findings of the primary judge about the significance of the absence of contemporaneous documents of Fallow. There were no such documents of TPS Group or Fallow that were referred to in support of the appeal. There appears to have been no documents before the primary judge that dealt with the reasons why funds from the bank account of the TPS Group might have been paid as part of the purchase price for the second Peakhurst property in the name of Fallow. These are matters that meant that Jones v Dunkel inferences could be drawn because, on the findings of the primary judge, it was the bankrupt and not Ms Ayad who had the involvement in TPS Group. Yet, the bankrupt did not give evidence.
It was in the above context that the primary judge found that it was unnecessary to determine the precise arrangement between the bankrupt and TPS Group pursuant to which it provided funds for the bankrupt. Significantly, this was preceded by a finding that the contributions that came from the TPS Group bank account 'represent contributions by the bankrupt'. In the absence of any reason as to why TPS Group would be paying the amount and in the context of the evidence that Ms Ayad sought to conceal the involvement of the bankrupt in TPS Group and the evidence concerning the first Peakhurst property there was a proper foundation for that finding. Indeed, the primary judge was correct to say that it did not matter precisely what the reason was that monies might be paid by TPS Group for the benefit of the bankrupt. As has been indicated there may be many reasons why a party may pay an amount from its bank account for the benefit of another such that the funds when applied to the purchase of property were provided by that other party. It was not necessary to reach a conclusion as to the precise reason why that was what had occurred, provided there was a sufficient basis from which to infer that was the case. For reasons that have been given there was a sufficient basis.
Returning to the deposit of $40,000
With due respect to the primary judge, it is difficult to see why a conclusion may be reached that the deposit was provided by the bankrupt and Mr Bassam El-Debel in the same proportions as the amounts they were proved to have provided. There was simply no evidence as to who provided the deposit or where its source may have been. It is quite possible that either of the bankrupt or Mr Bassam El-Debel may have contributed the amount or they may have done so jointly in different proportions to the rest of their contributions. It is possible that someone else, such as Ms Ayad, may have done so.
There is simply insufficient evidence. To that limited extent the complaints raised by Fallow should be accepted.
Alleged rebuttal of the presumption by evidence of intention
The submission advanced as to intention was that the reasoning of the primary judge as to the second Peakhurst property was wrong for the same reasons as submitted as to the first Peakhurst property. For reasons already given, the contentions of Fallow in that regard should not be accepted.
The calculation of the resulting trust interest of the bankrupt
On the evidence, the contributions to the purchase of the second Peakhurst property were (a) $40,000, unknown; (b) $208,369.91 from Mr Bassam El-Debel ($183,369.91 plus half of the rent being $25,000); and (c) $152,502.07 from the bankrupt ($127,502.07 plus half of the rent being $25,000). Therefore, the percentage interest in the second Peakhurst property held on resulting trust for the bankrupt was $152,502.07 divided by the total contributions being $400,871.98 producing a result of 38.04%.
The reasons of the primary judge were to the effect that the resulting trust was as to 43%. The Second Appeal should be allowed to that limited extent.
The resulting trust in respect of rental
As the submissions for Fallow acknowledged, the challenge to the findings of the primary judge as to the resulting trust in respect of rental from the Peakhurst properties turned upon the merits of the contentions as to the resulting trust in respect of the properties. Given the conclusions that have been reached as to those contentions, the appeal in respect of the rental should be upheld as to the second Peakhurst property to the extent that the percentage interest of the resulting trust should be 38.04%, not 43% as determined by the primary judge.
Contention (3) in the Second Appeal
The final contention advanced by Fallow concerns the application of the rule in Jones v Dunkel in circumstances where a party has been required to submit to a compulsory examination concerning matters the subject of subsequent proceedings and the transcript of the examination has been relied upon in those proceedings. The submission advanced was to the effect that in such circumstances a party has had the opportunity, in effect, to adduce evidence from that witness and the rule should not be applied for that reason.
It is to be noted that the unexplained failure of a party to call a particular witness does not give rise to an inference that the uncalled witness would not have assisted the party's case in all circumstances. The particular circumstances may themselves mean that such an inference should not be drawn even though the witness may be available to give evidence. For example, there must be reason to conclude that the witness had enough knowledge to put a 'true complexion on the facts' before the inference will be drawn: Payne v Parker [1976] 1 NSWLR 191 at 202 (Glass JA). Also, an inference may not be drawn where the party who did not call the witness simply has no reason to know what the witness might say: Fabre v Arenales (1992) 27 NSWLR 437 at 449‑450 (Mahoney JA).
The requirement that the failure by a party to call the witness must be unexplained also means that particular circumstances may be advanced by way of explanation.
Therefore, the application of the principle to particular circumstances involves the making of judgments or assessments by the judge hearing the case as to whether a Jones v Dunkel inference should be drawn. The nature of the principle and its logical foundation was explained by Gaudron ACJ, Gummow, Kirby and Hayne JJ in RPS v R [2000] HCA 3; (2000) 199 CLR 620 at [23]‑[26] in the following way (in the course of contrasting the position with that where an accused in a criminal trial does not give evidence):
This mode of reasoning was described by Windeyer J in Jones v Dunkel as 'plain commonsense', and so it is. But it is essential to note its limits. It relates to the drawing of inferences or conclusions from other facts. It is not a mode of reasoning that is concerned, for example, with whether the direct evidence of an eyewitness should be accepted.
…
It is necessary to keep at the forefront of consideration that the mode of reasoning which is described proceeds from the premise that the person who has not given evidence not only could shed light on the subject but also would ordinarily be expected to do so. That premise reflects a view of the kind held by Bentham that 'between delinquency on the one hand, and silence under inquiry on the other, there is a manifest connexion; a connexion too natural not to be constant and inseparable'. This view may now be open to some doubt or challenge, for example, in cases where someone of little confidence or experience is suddenly confronted by an accusation made by a person in authority. It is, however, not necessary to examine in this case whether the premise is an accurate reflection of human behaviour in some or all circumstances.
In a civil trial there will very often be a reasonable expectation that a party would give or call relevant evidence. It will, therefore, be open in such a case to conclude that the failure of a party (or someone in that party's camp) to give evidence leads rationally to an inference that the evidence of that party or witness would not help the party's case and that:
where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference.
(footnotes omitted; original emphasis)
The quoted passage is from the reasons of Menzies J in Jones v Dunkel.
It can be seen that the principle is explained as one that arises in circumstances where there is a reasonable expectation that a party would give or call relevant evidence. Many of the cases are concerned, in effect, with whether there is some particular reason why there is no such reasonable expectation that arises in a particular case. It may be that the fact that a party has submitted to a compulsory examination in which questions were directed to the matters in issue could be advanced as a particular reason why there is no reasonable expectation that the party would again give evidence as to the same matters, the evidence having already been given and tested.
However, the submission advanced for Fallow was that the principle should not be applied in any case where the witness had already been subjected to a compulsory examination. No attempt was made to develop the submission by reference to the particular subject matter of the investigation or the topics addressed at the time of the examination. For example, it was not sought to demonstrate that investigation of facts relevant to claims of the kind ultimately advanced by the Trustees were squarely in view at the time of the examination. Rather, the submission was put in terms that there was no place for the application of the principle in any instance where a witness had been required to submit to an examination and some part of that examination was relied upon by the party seeking to invoke the principle.
In support of the submission, reliance was placed upon the decision in Chairman, National Crime Authority v Flack (1998) 86 FCR 17. In that case, the primary judge had ordered the delivery up of a briefcase of cash that had been seized in the course of executing a search warrant. The order was obtained by the lessee of the house. At the time of the search, the lessee said that she was unaware of the existence of the briefcase. She gave no evidence on the application for delivery up of the briefcase and cash and nor did her son who had been suspected of dealing in narcotics (but against whom no charges had been brought and none were contemplated at the time of the application). An appeal against the order was dismissed by majority.
Heerey J (in the majority) noted that the Chairman of the NCA sought to rely upon the principles in Jones v Dunkel as to the drawing of inferences in circumstances where the lessee who sought the order gave no evidence in support of the application. His Honour referred to the fact that the lessee had been compulsorily examined under statutory powers and the transcript of the examination was tendered before the primary judge. His Honour observed that the propriety of that action 'may be questioned' given the terms of the relevant legislation and the purpose for which the examination power was conferred, and the fact that no consent had been obtained to the use of the transcript in that manner: at 29.
His Honour then said (at 29):
Thus the appellants used in civil proceedings against [the lessee] evidence extracted from her under compulsion of legal powers conferred for a different purpose. In the course of that questioning the NCA could have asked her any questions it wished in relation to the goods in question. The appellants' argument that it should now get some forensic advantage from [the lessee's] declining to submit herself gratuitously to a second examination is not a particularly attractive one.
Given the view that was taken by his Honour as to the propriety of the use of the transcript, the observations are understandable. However, they are not authority for the broad and unqualified proposition that Fallow seeks to advance in support of contention (3). Further, for reasons that have been given, the submission would impose an absolute limitation upon the circumstances in which the principle in Jones v Dunkel should be applied. Any such limitation would be inconsistent with the manner in which the principle is formulated and the manner in which it has been consistently applied. It requires a consideration of the particular circumstances of the case to determine whether it is appropriate to draw the inference that the evidence that might be given by a party with knowledge of the relevant circumstances would not have assisted the case of a particular party.
For those reasons, the contention as advanced is unsupported by authority and should not be accepted.
Conclusion and costs
For the reasons that have been given, each of the two appeals succeeds to a limited extent. Therefore, there should be orders allowing each of the appeals in part and orders varying the final orders of the primary judge to the extent indicated in the course of the reasons. As the respondents have not been wholly successful in opposing the appeals, the parties should have the opportunity to agree orders as to costs and if costs cannot be agreed then for short submissions to be filed and for any issue as to costs orders to be resolved on the papers.
I certify that the preceding two hundred and eighteen (218) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Markovic, Derrington and Colvin. Associate:
Dated: 30 June 2021
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