FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FLETCHER v GEORGE & ORS (NO.6) | [2009] FMCA 69 |
| BANKRUPTCY – Summary dismissal – determination of various trusts alleged by the bankrupt in respect of certain property – will trusts – resulting and/or constructive trusts – indefeasibility of title by the mortgagee. |
| Bankruptcy Act 1975 (Cth) Federal Court of Australia Act 1976 (Cth) Federal Magistrates Act1999 (Cth) Land Title Act1994 (Qld) Property Law Act 1974 (Qld) Trusts Act1973 (Qld) |
| Bahr v Nicolay (No 2) (1988) 164 CLR 604 HAJ Ford & WA Lee, Principles of the Law of Trusts, Thompson Law Book Co, North Ryde, 2006 |
| Applicant: | WILLIAM JOHN FLETCHER AS TRUSTEE FOR THE BANKRUPT ESTATE OF LAUREN KAY GEORGE |
| First Respondent: | LAUREN KAY GEORGE |
| Second Respondent: | DR PETER IRONSIDE PTY LTD ACN 008 126 387 |
| Third Respondent: | DR PETER DOUGLAS IRONSIDE |
| Fourth Respondent: | NATIONAL AUSTRALIA BANK |
| Fifth Respondent: | SUSAN WILSON |
| Sixth Respondent: | RICHARD SIEBERT |
| File Number: | BRG 709 of 2008 |
| Judgment of: | Burnett FM |
| Hearing dates: | 8, 9 & 10 December 2008 |
| Delivered at: | Brisbane |
| Delivered on: | 9 February 2009 |
REPRESENTATION
| Counsel for the Applicant: | Mr Coulsen |
| Solicitors for the Applicant: | Holman Webb Lawyers |
| The First Respondent appears on her own behalf |
| Counsel for the Second Respondent: | Mr Galloway |
| Solicitors for the Second Respondent: | Bell Dixon Butler |
| Counsel for the Third Respondent: | Mr Galloway |
| Solicitors for the Third Respondent: | Bell Dixon Butler |
| Counsel for the Fourth Respondent: | Mr Morgan |
| Solicitors for the Fourth Respondent: | Thynne & Macartney |
| Solicitors for the Fifth Respondent: | Lewis & McNamara |
ORDERS
Declare that the Heads of Agreement dated 19 February 2008 and exhibited at WJF-8 to the Affidavit of William John Fletcher sworn
29 October 2008remains valid and enforceable.
Declare that as at 24 February 2006 the legal and beneficial ownership of Lot 13 on SP145714, County of Stanley, Parish of Moggill, Title reference 50440445 vests in Applicant as trustee of the bankrupt estate.
Declare that as at 24 February 2006 the legal and beneficial ownership of the Toyota landcruiser with the licence plate 590FXR, VIN Number: JT11UJA509019411 (V), Engine Number: 1FZ0444996 vests in Applicant as trustee of the bankrupt estate.
Declare that as at 24 February 2006 the legal and beneficial ownership of the Hanoverian mare known as Stellamarra with the microchip number 939000001109809 vests in the Applicant as trustee of the bankrupt estate.
Declare that Deed of Settlement between the Applicant and Susan Jane Wilson dated 28 October 2008 remains valid and enforceable and that it be performed.
Adjourn for trial issues arising from relief sought in paragraphs 3, 4 and 10 of the amended application.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 709 of 2008
| WILLIAM JOHN FLETCHER AS TRUSTEE OF THE BANKRUPT ESTATE OF LAUREN KAY GEORGE |
Applicant
And
| LAUREN KAY GEORGE |
First Respondent
| DR PETER IRONSIDE PTY LTD ACN 008 126 387 |
Second Respondent
| DR PETER IRONSIDE |
Third Respondent
| NATIONAL AUSTRALIA BANK |
Fourth Respondent
| SUSAN WILSON |
Fifth Respondent
| RICHARD SIEBERT |
Sixth Respondent
REASONS FOR JUDGMENT
Introduction
The applicant Trustee in Bankruptcy for the Bankrupt Estate of Lauren Kay George (the Trustee) seeks declarations in respect of certain property alleged by the first respondent, the bankrupt, to have been disposed of by her by settlement upon various trusts. The remaining respondents are the persons to whom the bankrupt says assets have been transferred. She claims they are held in trust by those respondents in the various trusts for her son.
The Trustee denies that the bankrupt’s purported settlement of assets upon the claimed trusts constituted any disposition by her and seeks declarations of entitlement and orders for the recovery of those assets.
Summary Dismissal
Concurrent with the applicant’s proceedings in this Court there are related proceedings on foot in the Supreme Court of Queensland. In the Supreme Court proceedings the bankrupt person claims in her capacity as trustee for her son Alexander William George (an infant). She has delivered a statement of claim to which various defendants have filed defences.[1] She seeks declarations, inter alia, in respect of the same property concerning which the Trustee makes a claim. The Defendants to those proceedings are respondents to the present proceedings.
[1] Since the hearing of this application commenced the bankrupt has filed a Further Amended Statement of Claim in the Supreme Court proceeding. That pleading has not been pleaded to by the various defendants. Although this latest pleading significantly recasts the claim as originally pleaded it also pleads new matters. The bankrupt as trustee alleges various breaches of duty by the Trustee. She does not plead that she as trustee is a creditor. That defect can be remedied. The claim is one that can be pursued at a later time and need not be restored in the context of the Trustee’s application: Wakim v HIH Casualty & General Insurance Ltd (2001) 111 FCR 58.
Following application to this Court by the Trustee it was determined that this Court should proceed to determine the Trustee’s amended application despite the concurrent Supreme Court proceedings. That decision was affirmed by the Full Court upon appeal following application for leave to appeal and appeal by the bankrupt.[2]
The Supreme Court proceedings are in abeyance. His Honour Justice Martin determined not to proceed further with them until this proceeding was resolved.[3] Although more recently they too have been listed for hearing on dates following the resumption of this application.
[3] See transcript of evidence Supreme Court Queensland 11November 2008 p 22.
At the time this Court determined to proceed to hear this matter it was directed that the pleadings and other relevant material filed in the Supreme Court proceeding be adopted into this proceeding.
The Trustee’s original evidence in this proceeding demonstrated a strong prima facie claim to title in assets the subject of the amended application. The bankrupt denies the Trustee’s claim and asserts a series of trusts have been created and the assets settled upon trusts for the benefit of her son. The remaining respondents (except the National Australia Bank (the Bank) and Mr Siebert) repudiated any such claims concerning title and have acknowledged that assets transferred to them were indeed transferred for them to hold on trust for the bankrupt. They do not accept that they hold assets in their own right or on trust for any third party alleged by the bankrupt but only on trust for herself. They join with the Trustee in seeking the declarations sought.
The Bank claims in respect of its interest as mortgagee, being security for a loan made by it to the second and third respondents. It too supports the Trustee’s claim. In particular it denies it holds its interest in the Moggill land subject to any constructive trust in favour of the bankrupt’s child. It wishes to enforce its rights against the Trustee. So far as the second respondent Mr Siebert is concerned all parties accept that property claimed by him is his.
In the circumstances the Trustee and each of the second, third, fourth and fifth respondents each agree with the facts as alleged by the Trustee. The bankrupt was the only party in disagreement by asserting the existence of various trusts. The remaining parties deny the trusts. They do not assert any positive case in respect of the alleged trusts. If the property is in fact subject to trust then the Trustee’s claim will fail. Likewise the position of each of the respondents (apart from the bankrupt) will be clarified. A determination on that point would resolve whether they are trustees for the bankrupt’s son as alleged by the bankrupt or as trustees for the bankrupt, as alleged by the Trustee.
The Trustee contends that given the bankrupt’s evidence, at its best, her claims concerning the trusts must fail as a matter of law. The second, third and fourth respondents share this contention. If that is so then the bankrupt’s claim will fail. The consequences of such a finding will be that the Trustee is entitled to the orders sought in the amended application.
The bankrupt also seeks relief in respect of alleged unconscionable conduct by the Bank. The Trustee and the Bank say those proceedings are personal to the bankrupt and they vest in the Trustee pursuant to section 58 of the Bankruptcy Act 1975 (Cth) (“the Bankruptcy Act”). Accordingly they cannot be enforced by the bankrupt but must be pursued, if they are to be pursued, by the Trustee if such claims are not exempt property under section 116(1)(g) of the Bankruptcy Act. If that submission is accepted the entire application may be resolved summarily. It is best that this matter be considered now at the outset of the trial as its outcome may bear significantly on the ambit of evidence to be heard and the length of the trial.
Accordingly the Trustee and the other respondents have applied to have the substantial matters of the application resolved on a summary basis pursuant to section 17A of the Federal Magistrates Act1999 (Cth) (“the Federal Magistrates Act”). That section provides:
“(1) The Federal Magistrates Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
(2) The Federal Magistrates Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4) This section does not limit any powers that the Federal Magistrates Court has apart from this section.”
In White Industries Australia Limited v Commissioner of Taxation (2007) FCA 511 Lindgren J noted at [50]: “Section 31A of the FCA Act, like 0 20 of the Rules, is concerned with the bringing and defending of proceedings, not just with pleadings; with substance, not just with form…” His Honour continued:
“ [51] Is there a difference between the concept of no reasonable cause of action being disclosed (O 20 r 2(1)(a)) and no reasonable prospect of successfully prosecuting a proceeding (s 31A(2))? The only difference that suggests itself to me is that the latter makes plain that there may be taken into account the unavailability of evidence necessary to bring success at trial, whereas it is arguable that the former does not permit the unavailability of such evidence to be taken into account.
52. In the present case, the unavailability of evidence is not an issue. The respondents' motion for summary dismissal is founded on their notice of objection to competency and on facts that are not in dispute:…
53. The "no reasonable prospects of success" formula of s 31A is that which was adopted in r 24.2 of the United Kingdom's Civil Procedure Rules ("CPRs") following the recommendation of Lord Woolf, Master of the Rolls, in his Access to Justice: Final Report to the Lord Chancellor on the Civil Justice System in England and Wales (HMSO, 1996), ch 12, ss 31-36. The same test has been adopted in rr 292(2) and 293(2) of Queensland's Uniform Civil Procedure Rules 1999.
54. Under s 31A I must be satisfied that the applicants have no reasonable prospect of success, but as s 31A(3) makes clear, this does not mean that I must be satisfied that the proceeding is hopeless or bound to fail. I suggest that the legislature's intention in enacting s 31A was to lower the bar for obtaining summary judgment (including summary dismissal) below the level that had been fixed by such authorities as Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91-92, and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130: see Lawrenson Light Metal Die Casting Pty Ltd (in liq) v Cosmick Pty Ltd [2006] FCA 753 at [15].”
His Honour noted at [55] that section 31A was identically worded in section 17A of the Federal Magistrates Act and accordingly it follows that those principles should apply to that section.
It follows that if in this case the Trustee can demonstrate that there are no reasonable prospects of success for the bankrupt, even accepting her case at its best, then such application ought be entertained and, if appropriate, orders made summarily dismissing those parts of the bankrupt’s response to the Trustee’s claim in respect of which she has no reasonable prospects.
In this case many of the arguments are essentially legal and plainly lend themselves to this process. To facilitate this approach the applicant and each of the other respondents agree the application should be approached on the basis of the bankrupt’s case being accepted at its best.
Background Facts
The bankrupt’s difficulties commenced following a very acrimonious matrimonial proceeding. Following the trial she received a costs assessment in respect of legal costs incurred in the sum of approximately $111,000. She either could not or refused to pay her solicitor those assessed costs. The solicitor delivered a bankruptcy notice. In the meantime the bankrupt filed a debtor’s petition on
21 February 2006and by operation of that petition her estate was sequestrated. There are only limited material factual issues in contest between the parties. Unquestionably where factual issues arise they are significant. However for reasons which follow and are relevant to the application made by the Trustee and other respondents for summary relief I am asked to accept the bankrupt’s case at its best. The following summary of facts adopt that approach.
Real Estate Holdings
For many years prior to the relevant marriage the bankrupt worked in the banking industry. She lived in South Australia and had acquired property in her own right. It was said that at the time of her marriage she had at various times owned four pieces of real estate in South Australia.[4] Although not strictly material to this application I note that in her matrimonial proceedings before Barry J in 2005 her evidence (which was accepted on that point) was that at that time she owned a property at Karsbrook with her first husband. There does not appear to have been evidence of the other three properties although I note there was reference in evidence by her to a unit. Evidence of the other holdings was not in dispute.
[4] Transcript dated 9 December 2008 page 85 line 24.
The realisation of her real estate holdings was said to have provided the source of funds which were eventually available to her and her second husband to purchase the former matrimonial home at Pullenvale. That property was purchased in 1998 and registered in her name. It was accepted by Barry J that the property was purchased solely in her name for appropriate reasons. Despite it being purchased solely in her name His Honour accepted and treated it as matrimonial property for the purpose of the property proceedings between the bankrupt and her former spouse although he did accept “a large proportion of the funds used as equity for the Pullenvale property came from the [bankrupt]”[5]; although “to the extent of $200,000 as claimed, I am unable to (find)”.[6]
[5] George [2005] FamCA 309 at [20].
[6] George [2005] FamCA 309 at [52].
After the bankrupt and her husband separated in 2001 the bankrupt unilaterally liquidated the Pullenvale property realising a sum of approximately $743,000. She used part of the funds to acquire the Moggill property which was then vacant land.[7] The historical search reveals the registration of transfer occurred on 23 December 2003 and a certificate of title then issued.[8] A mortgage with the National Australia Bank was registered on 14 July 2004. This approximates with the date of contract for the construction of a house on the Moggill property. Although the bankrupt referred to the construction agreement as being executed in about June 2005 (T page 191 line 5) it seems likely that the reference to 2005 is in error as I note from the contract of sale executed on 18 June 2005 that the “present use” of the property was noted as “residential” and it purported to provide for a long term lease-back arrangement. It is unlikely that such an agreement would have been concluded in the absence of the construction of the dwelling upon the property.[9]
[7] Affidavit William John Fletcher filed 29 Oct 2008 Exhibit WJF7 – pages 6 to 17 contract of sale dated 5 December 2003.
[8] Affidavit William John Fletcher filed 29 Oct 2008 Exhibit WJF7 – pages 1 to 3.
[9] Affidavit William John Fletcher filed 29 Oct 2008 Exhibit WJF7 – page 19.
From the chronology provided in the Family Court proceedings it is apparent the property was acquired prior to the resolution of that dispute and accordingly remained matrimonial property as defined.
As contended by the Trustee it is plain the bankrupt could not have had title of the Moggill property to convey to any third party interest in that property as trustee or otherwise at least until after the orders of Barry J made on 29 April 2005.
It follows the Moggill property, which by that time appears to have included the completed residence, was from that time capable of disposition by the bankrupt but not before.
In June 2005 the bankrupt in her own right entered into a contract to sell the Moggill property to the second respondent Dr Peter Ironside Pty Ltd (DPIPL) for a sum of $400,000. The contract was not subject to any encumbrances but did include provision for a 30 year tenancy agreement in her favour at a set rental.[10] The bankrupt contends that at the same time a collateral agreement to transfer the property back to her by DPIPL was also concluded.
[10] The Trustee challenges this transaction as he assets it was effected at a significant undervalue.
On 14 September 2005 a memorandum of transfer giving effect to a contract of sale dated 18 June 2005 was executed by the bankrupt as a vendor. Shortly before this time on 27 August 2005 the hand written memorandum of transfer providing for a transfer of the Moggill property by DPIPL to the bankrupt in trust for Alexander George of a “fee simple life estate” (sic) was executed by DPIPL. It is to be noted that there was no formal contract in writing prepared in support of that transfer. The consideration was noted on the transfer to be “$400,000 (four hundred thousand dollars) on or before death”.[11] There was some debate about the nature of the interest transferred i.e. whether it was fee simple or merely a life interest but for present purposes that matter is not material.[12]
[11] Affidavit William John Fletcher filed 29 Oct 2008 Exhibit WJF6 – page 198.
[12] It is interesting to note that the transfer is hand drafted. It proceeds on the premise that DPIPL is the transferor and that the transferee is the bankrupt as trustee. However DPIPL and Dr Ironside dispute this. They allege the words “Life interest” and “in trust for Alexander George” were added later. They say the intention was to convey beneficial interest to the bankrupt. The transfer predates the transfer by the bankrupt to DPIPL which transfer was executed on 9 September 2005. That transfer was made pursuant to a contract of sale dated 18 June 2005 (See Affidavit William John Fletcher filed 29 October 2008 Exhibit WJF7 pages 18 to 20). Given the relevant dates it appears these transactions were intended to be contemporaneous as the bankrupt alleges. The only transfer registered was that from the bankrupt to DPIPL which was registered on 20 October 2005. (See Exhibit WJF-7 page 1).
Only the transfer from the bankrupt to DPIPL was ever registered. The evidence does not suggest that any third party ever had notice of the unregistered transfer executed by DPIPL on 27 August 2005.
In the meantime relations between Dr Peter Ironside and the bankrupt’s sister, Susan Jane Wilson (formerly Ironside), soured. They separated and commenced property proceedings in the Family Court. The Moggill property formed part of the matrimonial estate in that proceeding. The bankrupt sought to intervene in those proceedings to protect her claimed interest. The interest claimed by the bankrupt was in respect of the Moggill property itself. The terms of the heads of agreement made the subject of orders of 26 February 2008 in the Federal Magistrates Court in the Ironside proceeding relevantly provided:
“2. (Dr Peter Ironside) shall do all acts and things reasonably necessary and whether in his personal capacity as director or as shareholder of (DPIPL) so as to ensure that the total mortgage debt secured by the National Australia Bank upon the property situate at 130 Land Place, Moggill in the State of Queensland is not more than $500,000…as at the date of sale contemplated by the heads of agreement.”[13]
[13] Affidavit William John Fletcher filed 29 October 2008 Exhibit WJF8 – page 1.
Otherwise the bankrupt as intervenor abandoned any claims “whether on her own account or as trustee with respect to the (Moggill) property.”[14]
[14] Affidavit of William John Fletcher filed 29 October 2008 Exhibit WJF8 – page 1 and 3 Heads of Agreement.
In the meantime the Trustee had become aware of the Ironside proceeding and the bankrupt’s intervention in it. The Trustee in turn intervened as the bankrupt’s trustee. As the Ironside proceeding was settled without need for judicial intervention the Trustee was able to negotiate a suitable outcome which involved the transfer of the Moggill property to him.[15]
[15] Affidavit William John Fletcher filed 29 October 2008 Exhibit WJF8 – page 2 and 4(d) Heads of Agreement
The bankrupt was also party to the Heads of Agreement and appears to have agreed its terms.
By reason of the Heads of Agreement the Moggill property was transferred to the Trustee pursuant to a memorandum of transfer executed on 2 April 2008.[16]
[16] Affidavit William John Fletcher filed 29 October 2008 Exhibit WJF9 page 1.
However shortly after that time it appears the bankrupt recanted on her earlier position agreed by the Heads of Agreement and sought to lodge a caveat to prevent registration of the transfer.[17]
[17] Affidavit William John Fletcher filed 29 October 2008 Exhibit WJF11 page 1.
In a letter written in support of the caveat[18] the bankrupt claimed the Moggill property ought to have been registered in the name of the bankrupt as trustee for Alexander George.[19]
[18] Affidavit William John Fletcher filed 29 October 2008 Exhibit WJF11 page 2.
[19] The allegation contained in the bankrupt’s letter is difficult to reconcile with the facts expressed in the memorandum of transfer. A contract of sale was executed on 18 June 2005 whereby it was agreed that the bankrupt would sell the Moggill property to DPIPL for $400,000 subject to terms. The contract made no reference to DPIPL holding the Moggill property as trustee or to the creation of any life interest. At best the contract between DPIPL and the bankrupt provided for the creation of a 30 year tenancy at a set rental of $269 per month.
Chattels
Throughout this period the bankrupt also acquired various chattels. These included livestock, in particular a horse named Stellamarra, a Toyota Landcruiser motor vehicle, a horse float, jewellery[20], furnishings and personal effects.[21] Some of the furnishings and personal effects were the product of a bequest by the bankrupt’s late mother.
[20] During the course of execution of a warrant a significant quantity of jewellery was removed. It was listed in an inventory prepared by the trustee and marked Exhibit 2.
[21] See George [2005] FamCA at para [79].
As at the date of the decision of Barry J in the matrimonial proceedings the chattels in the possession of the bankrupt and their value was as follows:
Landcruiser $25,000
Horse float $850
Horses $51,906
Furniture $520
Jewellery $10,000
The bankrupt received the chattels following trial.[22] It was also directed that she was to stand possessed of any chattels then in her possession.
[22] George (supra) at para [79].
Save for the issue of the provenance of the horse Stellamarra and the Toyota Landcruiser no other substantial issues have arisen in this proceeding concerning the other chattels. The bankrupt alleges that those other chattels are vested in various trusts which are the subject of examination below.
Stellamarra
A significant issue arises concerning the horse Stellamarra. In her explanation to the Court in evidence given on 3 November 2008 the bankrupt swore that the horse was imported from the United States.[23] She stated that in 2002 the horse was transferred to her sister.[24] Clearly this evidence was in error given that the horse was foaled on 4 February 2003.[25] I proceed on the premise that any arrangement and transfer was concluded some time after that date. A transfer of ownership form was executed on 11 September 2005. It purported to effect a transfer to Susan Jane Ironside.[26]
[23] Transcript page 21 line 45.
[24] Transcript line 18 to 33.
[25] Affidavit Kathryn Mary Whalan filed 17 November 2008 Annexure KMW2 page 18.
[26] Affidavit Kathryn Mary Whalan filed 17 November 2008 Annexure KMW2 page 183.
In the judgment of Barry J of 25 April 2005 reference was made to “horses (sold by wife)”. The horses were not further particularised.[27] However given the timing, I assume the horses referred to in His Honour’s decision did not include Stellamarra for reasons which follow. However His Honour’s orders proceeded to make allowance to the bankrupt for title to the horses (or at least their money’s worth). It follows that save for the evidence of timing of the differences between His Honour’s finding and the fact of sale such differences are inconsequential in the present context.
[27] George (supra) at paras [4] and [73].
Further it is not in contest that the bankrupt says she was to enjoy a right “to use the horse (Stellamarra) to ride the horse, to compete the horse”.[28]
[28] Transcript 3 December 2008 page 21 line 27.
Following execution of the search warrant various documents were removed from the bankrupt’s property. They included documents relevant to the horse Stellamarra.[29] In particular they included a certificate of registration dated 20 April 2006 issued by the Equestrian Federation of Australia.[30] It identified that the horse named Stellamarra foaled on 4 February 2003 was then registered in the name of Susan Jane Ironside. Although the form included a “transfer of ownership” section it was unmarked. Additionally a policy of insurance issued on 10 November 2005 noted the insured as Susan Jane Ironside.[31] Finally there was also included an undated and incomplete “Equestrian Queensland application for transfer of horse registration”. That document had been signed by Ms Ironside but was otherwise incomplete.[32]
[29] Affidavit Kathryn Mary Whalan filed 17 November 2008 paras 6 and 7.
[30] Affidavit Kathryn Mary Whalan filed 17 November 2008 Annexure KMW2 page 18.
[31] Affidavit Kathryn Mary Whalan filed 17 November 2008 Annexure KMW2 page 175.
[32] Affidavit Kathryn Mary Whalan filed 17 November 2008 Annexure KMW2 page 221.
Other documents recovered also included a will dated 21 March 2006 which included a disposition expressed in these terms:
“My horse Stellamarra is to be gifted to Dr Kym Palmer. Any income generated less cost generating that income from Stellamarra will need to be forwarded to my sons trust account. Transfer papers enclosed and sent to Dr K. Palmer”.[33]
[33] Affidavit Kathryn Mary Whalan filed 17 November 2008 Annexure KMW2 page 231.
On 14 October 2008 the Trustee issued a section 77A notice to Susan Jane Wilson (formerly Ironside) the bankrupt’s sister. It requested she provide information regarding her dealings with the bankrupt’s affairs.
On or about 15 October 2008 Ms Wilson called Ashley Mulhall, an accountant employed by the Trustee. During the course of that conversation Ms Wilson advised Mr Mulhall:
“i. The horse known as Stellamarra and the Toyota Landcruiser were just registered in her name and belong to the bankrupt;
ii. She had not paid any money to the bankrupt for either the Toyota Landcruiser or the horse known as “Stellamarra”;
iii. Stellamarra and the Toyota Landcruiser were being used by the bankrupt without interference;
iv. The horse known as Stellamarra and the Toyota Landcruiser were located as far as (Ms Wilson was aware) on the bankrupt’s property at 130 Landing Place Moggill in the State of Queensland; and
…”
On 16 October 2008 Mr Mulhall received a facsimile from Susan Jane Wilson formally responding to the section 77A notice. She confirmed in writing that she had been approached by the bankrupt to register the horse known as Stellamarra into her name as well as the Toyota Landcruiser referred to in the section 77A notice. She stated that at the time she was asked to do this the bankrupt did not disclose that she was an undischarged bankrupt.[34] In particular by way of explanation Ms Wilson noted in her letter:
[34] Affidavit William John Fletcher filed 29 October 2008 paras 40 and 41 together with Annexure WJF
“On my part, it was simply a matter of signing the papers (ownership)?, and of faxing them back (to the bankrupt). I know this sounds pretty lame, but (the bankrupt) and I were very close. She had an incredibly difficult separation/divorce period, and I was more than happy to help her out. After signing the papers, I had no further involvement or interest in the horse. Subsequently, as I never had considered her an asset of mine, I didn’t even think to include her in the property settlement with my ex-husband. In short, I had really forgotten that I had a financial interest in her.
…
“Whilst my sister and I shared a very close relationship prior to my property settlement, and unfortunately became strained due to the involvement of her home in the assets of my ex-husband.
…
I have repeatedly refused her requests to become embroiled in this case, by way of signing affidavits etc, and this has continued to place a strain on our relationship.”[35]
[35] Affidavit of William John Fletcher filed 29 October 2008 Annexure WJF 30.
Subsequently on 28 October 2008 Ms Wilson entered into a deed with the trustee in respect of those assets.[36] In the recitals concerning the horse Stellamarra she particularly noted that the bankrupt had asked
Ms Wilson to become the registered owner of Stellamarra to “prevent her ex-husband claiming an interest in it” as a result of her divorce proceedings and agreed to transfer those assets back to the Trustee.
[36] Affidavit of William John Fletcher filed 29 October 2008 Annexure WJF 31.
It is unclear from the judgment of Barry J whether in fact any argument of trust was advanced in the matrimonial proceedings because His Honour’s judgment proceeds on the premise that the horses formed part of the matrimonial estate. It is however interesting to note that there was clearly evidence of a transfer before His Honour as His Honour noted the value of the horses as they had been sold.[37]
[37] George (supra) [4] The reference in the table at [4] noted “Horses (sold by wife) $51,906”. The matter is however clarified by the bankrupt’s amended statement of claim filed 19 December 2008 where she details the chronology concerning the horses.
On 30 October 2008 Ms Wilson subsequently executed a letter in these terms:
“I Susan Jane Wilson would like to state that I was the trustee to sign over the above assets (being the horse Stellamarra and the Toyota Landcruiser) which were both in my name. I have been the only registered owner of the horse Stellamarra. The Landcruiser was signed into my name in May 2005.
It was strongly implied to me that I would be at risk of being issued with a subpoena if I did not sign over the assets as described above. When I contacted my lawyer, I initially declined to sign the transfer of assets. He subsequently discussed this issue with the lawyer acting for the trustee, and, on his advice, strongly advised me to comply with the direction given to me by the trustee to avoid any further legal action which may be directed at me.”[38]
[38] Affidavit Nicholas Humzy-Hancock filed 2 December 2008 Annexure NHH5 at page 19.
Clearly Ms Wilson initially sought to recant from the position expressed in the deed of 28 October 2008. Her position was best articulated in a letter from her solicitors Lewis & McNamara to the trustee’s solicitors dated 17 November 2008 (Exhibit 13) where in broad terms her solicitor noted in the conclusion:
“As indicated our client has no wish to be involved in these proceedings and seeks merely that the matter be resolved as expeditiously as possible. While she may technically be entitled to property in various of these assets she simply adopts a neutral cause between your client and Ms George.”
It is not unreasonable to infer from the circumstances, particularly having regard to the sibling relationship between the applicant and Ms Wilson, that she was subject to considerable pressure from that quarter as well as from the Trustee.
Despite the history documented above the bankrupt contends that in fact she never owned the horse. In material filed in support of her appeal concerning earlier orders made by this Court she enclosed documents which in the absence of explanation support her contention that the horse was never registered in her name but was always the property of her sister, Susan Jane Wilson (formerly Ironside). Annexure E to the bankrupt’s affidavit sworn on 1 December 2008 and filed in the Federal Court includes a copy of an overseas telegraphic transfer document issued by the Westpac Bank. It notes that the purchaser details were “SJ Ironside 130 Landing Place Moggill” and that that transfer occurred on 8 November 2005. The beneficiary account details were “Denise Higgins” reference “Stellamarra”. The amount transferred was USD$25350 which together with fees approximated AUD$35,038.98.
A document issued by the American Hanovian Society on about
19 February 2006 noted the breeder and owner of the horse as Denise Higgins. It also noted that a transfer of title of that horse occurred on 11 September 2005 in favour of Susan Jane Ironside. Notwithstanding any slight temporal discrepancy the documents support the bankrupt’s contention that the horse, Stellamarra, was never registered her name.
In her submissions dated 8 December 2008 the bankrupt said that in January 2002[39] she gifted various horses held by her at that time to her sister. She said that those horses were in turn sold and the proceeds were used by her sister (and one infers for the purpose), in part, for the purchase of Stellamarra. She continued:
“…Not only did I gift the horses to my sister and have to pay her the money, which was my part performance, but I also had to declare it in the (family) proceedings that the horses were now owned by my sister and even though she received the money that she was also paid out for the same as well. …”[40]
[39] In a Further Amended Statement of Claim filed 19 December 2008 similar allegations are made from paragraph 32. The circumstances are not clear as the pleading alleges both an “agreement” and a “gift”. In either event it would seem that distinction bears upon the outcome for that issue in this proceeding as it seems the bankrupt intended for Ms Wilson to enjoy beneficial title to the horses.
[40] Transcript 8 December 2008 page 9 lines 37 to 41. This passage of evidence probably explains Barry J’s notation that the horses had been sold.
Her explanation for the disposition was not to distance the horses from the property settlement but because her ex-husband was threatening to euthanise them. She continued:
“…It was to distance the horses from me. Now there was an agreement. It was not to evade creditors and it was not to evade him. I was very adamant that not only did I complete my part of the performance gift to my sister but also that I paid him out, which I did. I declared the money both sides. I was actually down in the transaction. In return for that my sister agreed to allow me the use of the new horse, Stellamarra. Now she got the funds from the sale of the horses. She sold the horses.
She banked the money to her bank account. She purchased the new horse through her bank account. …”[41]
[41] Transcript 8 December 2008 page 10 lines 12 to 18.
The ultimate result is that on any version the bankrupt is not the registered owner of Stellamarra. There are good grounds to believe that the horse is held by Ms Wilson in trust for the bankrupt. The bankrupt denies this despite Ms Wilson’s evidence to the contrary. However at worst her interest in the horse is her personal entitlement to use the horse.
So much is indeed consistent with Ms Ironside’s statements to the Trustee and in particular her remarks in her letter of 15 October 2008 that:
“…I was actually the registered owner of the horse right from the outset. (The bankrupt) did not transfer her into my name. (The bankrupt) had use of the horse from then on. I have no input at all into any costs associated with the horse. I have never paid for any upkeep, feed, transportation, entry fees for competition (if the bankrupt) does compete, or any costs at all related to the horse. I have no registration certificates or valuations concerning Stellamarra in my possession…”
It follows that the only uncontested interest the bankrupt maintains in the horse is the alleged life interest to use the horse. Irrespective, the property is Ms Wilson’s to dispose of as she sees fit subject to the bankrupt’s personal claim. Ms Wilson has determined to transfer the chattel to the Trustee. The effect of the transfer is to deny the bankrupt enjoyment of her life estate. She has a remedy against Ms Wilson in respect of that breach. However it is a personal remedy and subject to s58 of the Bankruptcy Act.
The life interest entitlement is a chose in action enforceable in equity. However upon her sequestration all her assets, including her chose in action concerning that claim vested in the Trustee and cannot be enforced by her. Pridmore & Ors v Magenta Nominees Pty Ltd & Ors[42] .
[42] [1999] FCA 152 at [58].
In summary the bankrupt admits the horse belongs to her sister. Likewise given her only interest claimed is the chose in action in respect of an alleged life interest. This has now vested in the Trustee. The bankrupt has no reasonable prospects of successfully defending the Trustee’s claim to title of the horse Stellamarra and the issue should be determined summarily in favour of the Trustee.
Toyota Landcruiser motor vehicle
The Trustee claims an interest in a Toyota Landcruiser motor vehicle. It was valued on 27 November 2008 at approximately $10,000 (forced sale) to $15,000 (going concern) following a valuation requested by the Trustee.[43]
[43] Affidavit of Nicholas Humzy-Hancock filed 3 December 2008 Annexure NHH-11
The vehicle was the subject of the matrimonial proceedings and was accounted for in the calculation of the matrimonial property pool. It was by inference the subject of orders made on 29 April 2005. By reason of those orders the vehicle ended up in the possession of the bankrupt.
A search of Queensland Transport records revealed the vehicle was owned by the bankrupt but was subsequently transferred by the bankrupt to her sister Susan Jane Wilson on 31 May 2005.[44] So much was admitted in broad terms by the bankrupt in the course of the proceedings.[45] That position continues as documents recovered at the bankrupt’s premises reveal.[46]
[44] Affidavit William John Fletcher filed 29 October 2008, paragraph 38
[45] Transcript 8 December 2008 page 25 line 5 to 10.
[46] Affidavit of Kathryn Mary Whalan filed 17 November 2008 Annexure KMW-2 page 55 (vehicle registration renewal notice) and page 57 (Suncorp Insurance Notice).
It is also worthy of note that among the bankrupt’s papers there also existed an incomplete vehicle registration transfer application executed by Ms Wilson but otherwise undated.[47]
[47] Affidavit of Kathryn Mary Whalan filed 17 November 2008 Annexure KMW-2 page 238-245.
In her telephone conversation with Mr Mulhall of the Trustee’s office Ms Wilson informed him the vehicle was transferred into her name to prevent the bankrupt’s former husband from taking it during the divorce proceedings.[48] Ms Wilson’s subsequent letter of 15 October 2008 explained that she became the registered owner of the Toyota Landcruiser at the bankrupt’s request. She stated the reason she accepted the transfer was, as with the horse Stellamarra, to assist her sister through the messy matrimonial proceedings. She noted she did not maintain the car and that she believed it was located at Moggill. It was not in her possession at Hervey Bay.[49]
[48] Affidavit Ashley Jade Mulhall sworn 8 December 2008 – Annexure AJM-1.
[49] Affidavit Ashley Jade Mulhall sworn 8 December 2008 – Annexure AJM-2.
There was other evidence to suggest the vehicle was held by Ms Wilson for the bankrupt. That included the bankrupt’s expression in her will of 21 March 2006 purporting to bequest the vehicle to her trustees to be realised for the benefit of her son.
In any event Ms Wilson seeks to transfer title in the vehicle to the Trustee. She holds both legal and equitable title as contended for by the bankrupt. It follows Ms Wilson is within her rights to transfer the vehicle to the Trustee. Alternatively if she holds the vehicle beneficially for the bankrupt as is contended for by the Trustee it is within her power to convey legal title to the Trustee with the bankrupt’s beneficial title following by operation of section 58 of the Bankruptcy Act. It follows that irrespective of the resolution of that factual contest Ms Wilson is able to convey the vehicle to the Trustee as she agreed to do by the deed of 28 October 2008.
When pressed, the bankrupt’s claim in respect of the vehicle was in fact premised upon a concession by her that the vehicle was hers.
She contended however that pursuant to section 116(2)(ca) of the Bankruptcy Act the Toyota Landcruiser was exempt property as it was her primary means of transport and its aggregate value did not exceed the amount prescribed by regulation.[50]
[50] Regulation 6.04(3) and 6.04(4) provide for a capital sum of $5,000 subject to CPI since 1997. The Regulation sum is now about $6,500.
The only evidence of valuation was that provided by the Trustee. The valuation was well in excess of the prescribed amount. It follows that placing the bankrupt’s claim at its highest, she has no legal or beneficial interest in the vehicle. No factual issue arises for determination concerning the transfer of that vehicle to the trustee. If she was in fact beneficially entitled to the vehicle, its value is in excess of the regulated amount. Accordingly it is an asset prima facie available to the Trustee and the bankrupt does not have any reasonable prospects of defending the Trustee’s claim for it.
Horse Cabernet and horse float
At the time of execution of the warrant the bankrupt also had in her possession a horse float and horse named Cabernet together with a small quantity of riding equipment in respect of which she claimed she was not the proprietor. The bankrupt claimed that the sixth respondent, Richard Siebert was the owner of those chattels.
On 5 December 2008 the parties furnished to the Court terms of consent orders in respect of those chattels. In broad terms the orders acknowledged the title of those chattels vested with Mr Sierbert. Orders and declarations are made in those terms.
Remaining Chattels
In her statement of claim the bankrupt claims an interest in an unregistered horse float, household effects and jewellery. Reference is made to a “deed of trust dated 28/4/2000”. However the bankrupt also contends that trusts were orally created. The Trustee denies such trusts were created and wishes to put the bankrupt to proof on this issue.
These assets were recovered by the Trustee upon execution of warrants in October and November 2008 and they are presently held by him.
Personalty may be the subject of oral declarations but the parties do not agree on the evidence concerning this issue. It follows that the Trustee’s claims for declarations in respect of these chattels cannot be resolved summarily and will have to be determined following trial.
Trusts
In her further amended statement of claim (statement of claim) Ms George alleges trusts in respect of the subject property. They were summarised by the Trustee in his submissions as being:
a)The 1997 trust;
b)The May 2002 trust;
c)The December 2003 trust;
d)The June 2005 agreement;
e)Paragraph 11(2) trust; and
f)The resulting and constructive trust.
In addition to those trusts she also alleges a trust was established by operation of a will prepared by her in August 2005.
Will Trusts
[53] Transcript 9 December 2008 page135 line 5 – although not strictly proven reference is made in submissions to the will alleged to have been executed on that date and is referred to in these reasons for completeness and in the absence of any denial made by the bankrupt;
Although not pleaded in her statement of claim Ms George alleges an express trust was created by various wills prepared by her.[51] Those wills include a will executed on 28 April 2000[52]; a will executed on
27 August 2005[53]; and finally a will executed on 21 March 2006.[54]
[54] Affidavit Kathryn Mary Whalan filed 17 November 2008 – Annexure KMW2 page 229.
[51] Affidavit of Lauren George sworn 5 November 2008 at paragraph 1 the applicant deposed that “on 5 December 2003 I purchased a property and built a home and trust for my son Alexander George. The name on the title was Lauren Kay Cordes. Refer annexure (a) [which is not included in the exhibit]. The trust arrangement was declared in my will.”
[52] Affidavit Lauren Kay George sworn 3 November 2008 – Annexure A; Will executed on 27 August 2005
Each of the wills had a common provision providing that upon her death her real property was to be transferred to a trust for the benefit of her son, Alexander George. Each will varied in the expression of the terms of the testamentary trust but in principle that intention remained intact. That is to say a trust was to be created to hold her real property for the benefit of her son Alexander George.
In addition the various wills also made provision for the bequest of chattels to the bankrupt’s son. These chattels variously included motor vehicles, livestock and jewellery.
First, a will by which a testamentary trust could be established does not have any operation until the will maker is dead. For a trust to be created two essential characteristics must exist. First there must be an intention to settle property upon trust. Secondly the intention must be manifest by a disposition of the property beyond the recall of the settler. While the expression of the will may indicate an intention to dispose it does not of itself, without more, effect any disposition beyond the recall of the settler, at least while she is alive. Indeed, as was submitted by Mr Morgan for the Bank, until the bankrupt is dead her property is hers beneficially to deal with by her will. Arguably her various wills reflect this matter and constitute an admission by her of her entitlement and capacity to deal with such real estate and chattel holdings.
The bankrupt’s assertion of a trust premised upon the provisions of her various wills do not establish any trust in respect of that property. Respectfully, her submissions fail to appreciate the significance of irrevocable disposition. It follows in my view that as a matter of law no trust was effected by any disposition manifest in any will and the bankrupt has no reasonable prospects of success in respect of that claim.
In respect of the will claims it is to be noted that the bankrupt claims at least one of the wills was unlawfully seized by the Trustee pursuant to the warrant executed. She claims privilege in respect of that document. The will is not a privileged document. It cannot be said that the dominant purpose for the preparation of any of the wills was in connection with the giving or obtaining of legal advice or the provision of legal services, including representation in proceedings in a court. See Esso Australia Resources Ltd v Commissioner of Taxation[55].
[55] [1999] HCA 67; (1999) 201 CLR 49.
The subject will was a document procured pursuant to a warrant ordered on 29 November 2008. The document was within the class of documents permitted to be seized pursuant to the warrant and in my view it was not unlawfully seized.
In any event the matters raised by the bankrupt on this point do not address the substantive issues submitted by the Trustee and it follows I reject her submissions on this point.
The 1997 trust
At paragraph 2 of the amended statement of claim filed 15 July 2008 the bankrupt pleads that “a clear effectual resulting trust in fee simple” was established by way of deed of transfer for the benefit of Alexander (the 1997 trust). This matter was reflected in the amended statement of claim filed 19 December 2008 at paragraph (2)(e)(xviii) as follows:
“(xviii) The resulting trust dated 27/11/97 was declared by parole on this date and further declared in writing by trust deeds dated 11/5/2002 and 5/12/2003 and those trusts deeds disclosed above in part 2 along with affidavits dated 26 September 2008.”[56]
[56] The documents referred to in the pleading are various land transfer forms.
Despite numerous requests made of the bankrupt no trust deed dated 1997 has ever been produced by her. She has been afforded numerous opportunities to present such a deed which (prior to her most recent pleading) she maintains exists. However despite the presentation of such opportunities no deed has been submitted by her. In the absence of documentary evidence, at its best, her case must be that the trust was one purported to have been created orally. If so it must fail, at least in respect of real property settlements. Section 11(1)(b) Property Law Act 1974 (Qld) (“the Property Law Act”) requires that with respect to the creation of interests in land by parole a declaration of trust respecting land must be manifested and proved by some writing signed by the person able to declare the trust. The evidence demonstrates a total failure of form in respect of this alleged declaration.
In any event the bankrupt claims that this declaration trust is also by way of her will. If so, for reasons I have earlier addressed, I do not consider the will does in fact give rise to a trust in these circumstances and she has no reasonable prospects of success in an action on this point.
May 2002 Trust
On 1 May 2002 the bankrupt endorsed a copy of the then current reprint of the Trusts Act1973 (Qld) (“the Trusts Act”) (Reprint 4A) with the following words:
“Property trust 130 Airley Road Pullenvale Queensland 4069 Lauren Kay Cordes as trustee for Alexander William George dated 1st May 2002 holding a life interest of mother/child referred to as above dob 4/7/1964 and _/11/1997 respectively.
1-2-2002 Lauren Kay Cordes
___________________ _______________
dated Signed Trustee”[57]
[57] Affidavit William John Fletcher filed 28 October 2008 WJF6 at page 1. It is possible that part of the full text has not been copied into the exhibit.
There are no other markings upon the balance of the reprint of the Trusts Act.
At the outset the Trustee contends the purported trust fails because of the uncertainty of its objects and particularly because it states the trustee holds the property, not on trust for the beneficiary, but rather the beneficiary holds a life interest in the property. I agree with that submission. The difficulty identified is highlighted by the words employed which on their face seem to provide for the granting of a life interest to the bankrupt’s son over property held by the bankrupt in some capacity as trustee.
Moreover there is no vesting date: that may give rise to issues concerning the perpetuity period. Further what is to happen with the child’s interest received under the trust? No consideration appears to have been given to what happens when his interest ceases. There is no remainder or gift over. Land must always be the subject of ownership. The settlement fails to address that consideration. Finally it seeks to transfer the fee simple and life estate to the same person.
In any event there is real doubt that the expression satisfies the requirements of section 11 of the Property Law Act irrespective of the purported granting of any life interest.
However I consider the trust also fails for other reasons which follow.
As noted earlier in the background facts this property was acquired during the course of the bankrupt’s marriage solely in her name.[58] It was accepted by Barry J that she had made a significant financial contribution to it. Importantly however it did form part of the matrimonial estate prior to its sale by the bankrupt. To that extent the bankrupt’s former spouse also held an interest in the property. Accordingly it was not solely hers to dispose of.
[58] Affidavit William John Fletcher filed 28 October 2008 WJF24 at page 6 – Transfer registered 11 March 1998.
It is plain that the bankrupt’s husband asserted his interest for in September 2003 he lodged a caveat to prevent the bankrupt from transferring the property following her unilateral determination to sell it. His grounds of claim noted in the caveat were:
“The caveator is the beneficiary of a constructive resulting or implied trust. The caveator is the former husband of the registered proprietor, Lauren Kay George. There is a Family Court proceedings for property settlement currently on foot and yet to be resolved. The caveator is also a joint borrower in respect of the land and is entitled to an account in that regard.”[59]
[59]Affidavit William John Fletcher filed 28 October 2008 WJF 24 at page 21.
As further noted in the background facts the sale ultimately was permitted to proceed. Consequently on 7 November 2003 the transfer of the bankrupt’s estate in the Pullenvale property was recorded in favour of an unrelated third party Felicity Ann Hill on that date. For that to have occurred all encumbrances including the former husband’s caveat were necessarily released.
However importantly for present purposes the bankrupt effected an unencumbered transfer of the estate alleged to have been the subject of the trust purportedly created on 1 May 2002. That is to say, despite any arguments concerning her entitlement to create any trust because of questions of her own entitlement.
The Trustee denies that any such trust was ever created because no complete and perfect gift was made. As was submitted by the Trustee and supported by the other respondents the bankrupt’s attempt to create a trust without the conveyance of the legal estate into the trust was fatal to the claim. That is despite any purported conveyance of the equitable estate to the trust.
In this case in May 2002 the bankrupt attempted to dispose of the Pullenvale land by purporting to create a trust in favour of her son. Putting aside her capacity to do so because of the interest claimed in the estate by the bankrupt’s former husband the purported gift was never perfected because the bankrupt transferred her interest to a third party. As a rule equity will not perfect an imperfect gift. An examination of the relevant provisions of the Land Title Act1994 (Qld) (“the Land Title Act”) inform of the requirements for perfection of such a gift. First, the trustee of an interest may only have that interest registered by registration of an instrument of transfer of the interest to the person or trustee: s.109(a). From that it follows the registered Trustee of the interest would enjoy the vesting of the estate: s.182, and the consequent benefits of indefeasibility: ss.184 and 185. Additionally for present purposes such a person could rely upon the fact of registration as conclusive evidence of that matter: s179.
Irrespective of any interest claimed by the bankrupt as trustee for her son she cannot enjoy the benefit of those provisions as she has never satisfied them.[60]
[60] Affidavit William John Fletcher filed 29 October 2008 Exhibit WJF 24 page 22 – Historical Title Search. In particular an examination of the Land Title Register demonstrates the absence of registration of any trustee’s interest.
In Principles of the Law of Trusts[61] the learned authors stated at [3120]:
“…Where S, acting gratuitously, expresses an intention of creating a trust by transfer to a trustee, but all the steps in the legal process for transfer of the legal title, being steps to be taken by the intending settlor and, in some cases by other persons, are not taken, then, according to common law, no proprietary interest would yet be vested in the trustee. …If the matter rested there, no trust would have been created and the attempted transaction would create no rights against S.”
[61] HAJ Ford & WA Lee, Principles of the Law of Trusts, Thompson Law Book Co, North Ryde, 2006.
In this case it is clear that there was a failure to undertake all the necessary steps required at law to effect a transfer and registration of the bankrupt’s interest to the purported trust as are required pursuant to the provisions of the Lands Title Act.
The bankrupt says however that it was her intention to effect such a conveyance. It follows that it is arguable on her case that in equity, at least, rights were sought to be and were created in favour of her son in respect of the Pullenvale property. She says such a transfer was to have immediate effect.
In those circumstances there only can be an effective gratuitous transfer once the donor has done all those things prescribed by statue or the common law for the transfer of the legal title that have to be done by the donor and cannot be done by anyone else; see section 200 of the Property Law Act. Again the learned authors of Principles of the Law of Trusts summarised the principle as follows:
“If an intending settlor attempting to establish a gratuitous trust by transfer of a legal title does not take those steps to satisfy the legal requirements for transfer to the intended trustee that only he or she can take, the intended trust never comes into existence. The property remains with the intending settlor unaffected by any trust referable solely to an attempted transfer.”[62]
[62] Ford & Lee (supra) at [3140].
Insofar as the purported 2002 trust is concerned it is uncontroversial that no steps were ever taken to satisfy the legal requirements for transfer to the intended trustee. In fact the bankrupt transferred the property for consideration to a third party, Felicity Ann Hill. If that conduct alone was not sufficient to demonstrate there was no intention in equity to effect a conveyance in favour of a trust for Alexander George then that conduct clearly achieved that outcome in law.
There was no trust created by the 2002 document as asserted.
If it was the bankrupt’s intention to simply gift the Pullenvale property to her son outright that outcome was not achieved. For the gift to have been effective there would have to be registration prior to transfer to a third party: Cope v Keene.[63] That did not occur in this case.
[63] (1968) 118 CLR 1
No issues of “accessorial” involvement of the third party arise in this instance. It follows no gift was made.
For completeness the bankrupt’s submissions on this point were not helpful. Although she noted the gift rule she did not address the Trustee’s submission that her transfer of the estate to the third party extinguished any claim that could have been advanced on behalf of any trust.
In my view she has no reasonable prospects of successfully demonstrating a claim for declaration of trust of the Pullenvale property in favour of her son.
December 2003 Trust
In December 2003 part of the proceeds of the Pullenvale property were applied by the bankrupt to the acquisition of the Moggill property. The bankrupt entered into a contract to purchase the Moggill property on
5 December 2003. There was no suggestion of any third party having an interest in that property together with her at that time.
On the same date as the contract to purchase that property the bankrupt endorsed a copy of the then current reprint of the Trusts Act (Reprint 4B) with the following words:
“Property trust agreement amendment original trust agreement dated 1 May 2002.
Lauren Kay Cordes as trustee for Alexander William George property trust lot 13 Survey Plant 145714 County of Stanley Parish of Moggill dated 5 December 2003 holding life interest of mother and child on the above property --- Lauren Kay Cordes.”
The bankrupt contends that this effected a variation of the May 2002 trust in particular by the substitution of the Moggill property for the Pullenvale property as the relevant trust property.
As I have earlier found the declaration of trust alleged to have occurred on 1 May 2002 was ineffective. No trust came into being for reasons I have outlined above. It follows no “rollover” occurred in the manner purported by the bankrupt.[64]
[64] Bankrupt’s submission filed 19 December 2008 page 9.
The Trustee however concedes in his submission that concerning the Moggill property the bankrupt’s efforts at declaration of trust in that instance were clearer. It was submitted for the Trustee:
“…The wording is clearer than the earlier declaration, the wording still appears to lead to the conclusion that there is a trust of which Lauren Kay Cordes is the trustee for her son and that as trustee she was granted a life interest in the Moggill property.”[65]
[65] Exhibit 7 para 60.
Notwithstanding the Trustee’s concession on this matter many of the defects noted with the May 2002 Trust also exist with this instrument. There are real doubts that the necessary requirements are satisfied for the purported trust at first instance. Mr Morgan for the Bank submitted the terms of the alleged trust are uncertain and cannot be given effect to. He noted for instance that there was no vesting period as well as there being no ultimate disposition of the property. This he contended would cause the purported trust to fail because it contravened the rule against perpetuities.
Despite this effort the declaration still failed to comply with the requirements of section 11 of the Property Law Act as it still appears to constitute no more than a mere nomination of the bankrupt’s child as a recipient of benefits. It does not constitute a disposition.[66] At best the declaration acknowledges the existence of a trust without more.
[66] Danish Bacon Co Ltd Staff Pension Fund Trusts, In re [1971] 1 WLR 248
It also suffers the same defect as the May 2002 trust in that it seeks to transfer the fee simple and a life estate to the same person.
Even accepting this effort by the bankrupt prima facie succeeded in the creation of a trust ultimately the question remains as to whether it ultimately failed for want of form, particularly its failure to satisfy the requirements of section 200 of the Property Law Act.
If it is accepted that an effective trust was created on 5 December 2003 the question remains as to whether or not there remains an interest in equity in favour of the bankrupt as trustee. No such interest exists at law because the property was registered in the name of the bankrupt without reference to the trust.
In short, if there was an equitable interest then that equity was extinguished by the bankrupt’s subsequent conduct in transferring the property to DPIPL which in turn had its title registered free of the equity now claimed by the bankrupt (in any capacity): Farah Construction Pty Ltd v Say-Dee Pty Limited; Cope v Keene.[67] Clearly the bankrupt as trustee failed to do everything necessary to transfer the property to the trust, indeed she transferred it to a third party, DPIPL without any reference to the trust and DPIPL became registered proprietor simpliciter.[68] It is not to the point that DPIPL was also to hold the land as trustee because the registration of its interest without reference to any trust means that arrangement suffered the same fate as the bankrupt’s attempt in preserving the trust because of section 200 of the Property Law Act. This matter is more closely examined below.
[68] In her Amended Statement of Claim the bankrupt claims negligence on the part of the solicitors in failing to register any trust. However the contract on its face does not disclose or assert the bankrupt’s holding as trustee.
Likewise, for reasons discussed concerning the May 2002 Trust, if the bankrupt’s intention was to gift the Moggill property to her son it failed upon the transfer of the title to DPIPL without reference to any purported trust.[69]
[69] Afifdavit of William John Fletcher filed 29 October 2008 Exhibit WJF 8 – page 1 Historical Title Search. The search demonstrates no trust was ever registered in respect of the Moggill property pursuant to s.109 of the Land Title Act.
It follows I consider the bankrupt has no reasonable prospect of establishing her purported 2003 trust in respect of the Moggill property.
The June 2005 Agreement
The evidence demonstrates that a transfer of title was lodged with the Queensland Land Registry on 24 December 2003.[70] The bankrupt’s interest was duly registered. No instrument was ever created to register the interest of the bankrupt as trustee, notwithstanding her declaration of 5 December 2005: s.109(a) Land Title Act. Then on 18 June 2005 the bankrupt entered into a contract to sell the property to DPIPL, a company associated with her former brother-in-law. The sale was not noted to be subject to any encumbrances but it did grant a tenancy to the bankrupt for 30 years. Concurrent with this contract there was a collateral agreement that the bankrupt could repurchase the property from DPIPL at an agreed consideration of $400,000.
[70] Affidavit William John Fletcher filed 28 October 2003 Exhibit WJF7 – page 4.
The memorandum of transfer in respect of that contract was duly executed by the bankrupt and lodged with the Queensland Land Registry on 20 October 2005.[71] The transferee noted was DPIPL and the title was duly registered in the name of DPIPL.
[71] Affidavit William John Fletcher filed 28 October 2003 Exhibit WJF7 – page 18.
In support of the collateral agreement a concurrent transfer was executed on 27 August 2005, DPIPL to transfer the Moggill property back to “Lauren Kay Cordes in trust for Alexander George” subject to a life interest to the bankrupt. That transfer was duly completed by all parties and to all intents and purposes in form appears capable of immediate registration.[72]
[72] Affidavit William John Fletcher filed 28 October 2003 Exhibit WJF6– page 198.
There was a factual dispute concerning this matter. The Trustee and DPIPL and Dr Ironside allege the words “life interest” and “in trust for Alexander George” have been added later. That is to say that the transfer merely purported to effect a transfer by DPIPL back to the bankrupt, simpliciter upon payment by her to it of “$400,000 on or before (her) death”. A debate arises concerning the original transfer; the bankrupt alleging her holding in the capacity of trustee with DPIPL and Dr Ironside denying that matter.
Irrespective of that debate, and even if the bankrupt were a voluntary assignee of that interest[73], the evidence is that this form 1 transfer was provided by the bankrupt to the Trustee.[74] Clearly it is to be inferred that the transfer was in the bankrupt’s possession prior to that time. However, was that enough to preserve her alleged equity (in either capacity)?
[73] It is difficult to conceive how the bankrupt could be a voluntary assignee given the noted consideration on the transfer.
[74] Affidavit William John Fletcher filed 28 October 2003 – paragraph 7.
Section 200 of the Property Law Act provides:
“(1) A voluntary assignment of property shall in equity be effective and complete when, and as soon as, the assignor has done everything to be done by the assignor that is necessary in order to transfer the property to the assignee:
(a) even though anything remains to be done in order to transfer to the assignee complete and perfect title to the property; and
(b) provided that anything so remaining to be done is such as may afterwards be done without intervention of or assistance from the assignor.”
Registration of the transfer could not be effected by the bankrupt (in any capacity) until the mortgage was released. The mortgage has not been released[75]. Accordingly DPIPL as assignor has not done everything to be done by it that is necessary in order to transfer the property to the bankrupt (in whatever capacity) as assignee. The release of the mortgage is not a thing that could afterwards be done without intervention of or assistance from the assignor.
[75] Affidavit Kathryn Mary Whalan filed 17 November 2008 – Annexure KMW2 page 107.
It follows that even if accepting every point along the way were to be determined in the bankrupt’s favour, ultimately because of section 200 of the Property Law Act, no effective assignment of equity was effected in this instance and DPIPL as registered proprietor holds title to the Moggill property free of any equitable claim.
If the position was as asserted by the Trustee then the bankrupt holds an executed transfer entitling a re-conveyance in the Moggill property subject to terms. They had not been fulfilled prior to her sequestration.
Given that at that time her interest pursuant to the executed transfer was not registered that fact is fatal to her claim: Cope v Keene (supra).
In Cope v Keene (supra) Kitto CJ observed at [7]-[8]:
“I should have thought that on the testator’s death the memorandum of transfer ceased to be a registrable instrument being no longer the instrument of a living registered proprietor, and the appellants were not enabled by that Act to deal with the (land without first obtaining transmission under section 94). But the more fundamental answer to the contention, in my opinion, is that on the grant of probate the land and the instruments too for that matter became vesting in the appellants as assets for the payments of all the duties sand fees and of the testators debts in the ordinary course of administration; Wills and Probate Administration Act (1898) NSW s44, s46 and subject to that (unless the principle of Strong v Bird (1) gave them the beneficial interest) for the purposes of the will. They had no power to do anything to defeat the rights of the crown, the creditors or the beneficiaries.”
The circumstances of sequestration are analogous to those involving death. In the event of sequestration the rights of the bankrupt vested in the trustee: not unlike the vesting of rights in an executor in the event of the death of a testator.
Accepting the observation of Kitto CJ as applicable in this case the failure to lodge the transfer for registration prior to sequestration was fatal. Even if the bankrupt did create a trust she did not perfect the gift to that trust.
It follows from either analysis, that being the case asserted by the Trustee or the bankrupt’s case at its highest, no trust now exists in respect of the June 2005 agreement and the bankrupt’s claim on this point must fail. The interest remains DPIPL’s to dispose of subject to the bankrupt’s claim in personam to enforce the terms of the collateral agreement. However for reasons explained in Farah Constructions Ltd v Say-Dee pty ltd (Supra)[76] that right is an entirely distinct claim from one that permits an equity to impeach an indefeasible title.
[76] at [193] – [197].
As an aside the bankrupt claims a life interest in the Moggill property.
In the contract for the sale of the land by her to DPIPL no encumbrances were noted in the contract schedule. It did provide however for a 30 year tenancy in favour of the bankrupt at a fixed rent of $269 per week. A formal tenancy agreement was entered into on
27 August 2005also purporting to declare a life interest.[77] That tenancy has not been registered.
[77] Kathryn Mary Whalan filed 17 November 2008 – Annexure KMW2 page 122.
In the Bank’s submission it was noted that some uncertainty attends the bankrupt’s claims for a “life tenancy”. It is unclear whether that claim has its basis in the tenancy agreement of 18 June 2005 or the notations upon the transfer executed on 27 August 2005.
If her claim is premised upon the former then the tenancy agreement is a contract falling within the control of the Trustee: s.58 Bankruptcy Act it not being exempt property pursuant to s.116 of the Bankruptcy Act.
If in fact the claim is one premised upon the claim in equity concerning the purported trust it fails with the failure of the trust.[78]
[78] That is to say the life tenancy was being granted by the bankrupt in her capacity as trustee for her son.
It follows that I do not consider the bankrupt has any reasonable prospects of successfully demonstrating any equitable interest as trustee in respect of the Moggill property premised upon the executed memorandum of transfer.
Resulting and/or Constructive Trusts
The bankrupt alternatively makes allegations that the subject properties are the subject of resulting and/or constructive trusts.
At best the bankrupt’s case in support of her allegation of the existence of a resulting trust could be premised upon her personally contributing $421,000 to the cost of the house constructed upon the Moggill property. She contends for an interest in respect of that sum as trustee for her son.
The fundamental difficulty with that submission is that given she personally made the contribution any resulting trust would have to be in her favour.[79] Given her interests now vest in the Trustee the interest in the property would be held on resulting trust for the Trustee.
[79] Ford & Lee (Supra) at [21,000].
Generally it is difficult to understand from her pleadings or evidence the basis for the bankrupt’s claim to the benefit of a resulting trust. The bankrupt’s use of terms “resulting rust” in her pleading was inconsistent and contextually inappropriate.[80] In my view no resulting trust arises in any manner alleged by the bankrupt.
[80] See for instance its appearance in paragraph 2. Its employment appeared to indicate a total failure of the bankrupt to approach the manner in which such a trust arises. For instance she pleads it in the context of an express trust I circumstances where there was no suggestion of failure of any alleged express trust giving rise to a resulting trust.
The bankrupt also pleads that a constructive trust arose in or about 1997. Declarations of constructive trusts as a remedy generally arise from unconscionable dealings whether by a fiduciary or otherwise.[81]
[81] See M Cope, Constructive Trusts, Law Book Co, Sydney, 1992 page 19.
In this instance there is no unconscionable dealing identified by the bankrupt as giving rise to a constructive trust. This is particularly so in circumstances where, to be efficacious for the bankrupt, any unconscionable dealing would have to have been by the bankrupt herself giving rise to a constructive trust in favour of herself as trustee for her child Alexander George.
In his submission the Trustee says that at its highest the bankrupt’s case may be that a constructive trust is imposed upon DPIPL in respect of its alleged unconscionable dealing in failing to reconvey the Moggill property. However, as it was submitted, it should first be said that even if a constructive trust was imposed it does not follow that the Trustee holds some benefit or gain also on constructive trust for the bankrupt (in any capacity). That is to say, there is no evidence or pleading to suggest that the Trustee has knowingly assisted or is knowingly concerned in the failure to reconvey.[82]
[82] Barnes v Addy (1874) LR 9 ChApp 244; Cope (Supra), pages 362 to 370.
The Trustee submitted that it is a failure to reconvey and not the entering into the Heads of Agreement which might be the basis for the relevant unconscionable dealing for the creation of any constructive trust in this instance. Accordingly, where DPIPL has in effect been a bona fide purchaser for value without notice or absent unconscionable conduct then the bankrupt cannot succeed in asserting the existence of a constructive trust against it. Indeed it is difficult to see how there has been any unconscionable dealing by DPIPL when the bankrupt has not tendered the consideration pleaded at paragraph 8(f) of the amended statement of claim filed 19 December 2008.
It was also suggested resulting trusts might arise from the failed attempts by the bankrupt in creating the May 2002 trust and/or the December 2003 trust. In that event he submitted the putative trustee would hold the property on a resulting trust. However for reasons I have already addressed I am satisfied that neither the May 2002 Trust or the December 2003 Trust came into being and it follows no resulting trust arises.
I accept the Trustee’s submissions that the evidence does not demonstrate any basis for the holding of the property by way of any constructive or implied trust on behalf of Alexander George and the bankrupt has no reasonable prospects in her case on this point.
Proceedings against National Australia Bank
The bankrupt also challenges the claim by the Bank for indefeasibility in respect of the mortgage security it has over the Moggill property. If successful this would significantly impact on the Trustee’s capacity to deal with that estate.
In her statement of claim the bankrupt alleges certain duties were owed by the Bank to her. The source of those duties was not particularised. In any event the bankrupt’s allegations must be considered against the background that:
a)The bankrupt was not a customer of the Bank in that instance. She previously had had another mortgage with the Bank to finance the construction of the Moggill house but that loan was discharged and mortgage released when DPIPL acquired the Moggill property;
b)DPIPL obtained a good title to the Moggill property and the Bank only dealt with DPIPL as the registered proprietor.
Following the transfer of the Moggill property she had no interest noted in the land title register.
Furthermore there evidence to suggests:
a)The bankrupt had not told the Bank of her alleged interest until well after the transactions occurred;
b)The bankrupt does not advance any accessorial liability case or other applications for judgment under either limb of the rule Barnes v Addy (supra);
c)That in the context of the bankrupt’s allegations against DPIPL and Dr Ironside personally the evidence only indicates the Bank was a bona fide third party for value (having paid DPIPL funds secured by the mortgage) without notice of the bankrupt’s alleged interest.
Insofar as it affects the Bank the relief sought by the bankrupt is for an order that the Bank’s mortgage presently encumbering the Moggill property be declared invalid and that it be removed from the title.
In his submissions Counsel for the Bank noted that in the absence of actual fraud or another exception to indefeasibility under the Land Title Act in the process of registering the mortgage the bankrupt’s claim is misconceived. He submitted that the complaint, if there were to be one, was one that could only properly be advanced by the registered proprietor, not the bankrupt.
Specifically he submitted that to attack the Bank, in general terms the bankrupt must establish that the bank was an accessory to DPIPL’s alleged breach of trust. In support of his submission he referred to the High Court’s decision in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (supra) where the High Court discussed with approval the longstanding principle familiarly described as the two limbs of Barnes v Addy (supra). The Court noted at [111]:
“The “rule in Barnes v Addy” stated. In Barnes v Addy (144) Lord Selborne LC said:
“Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be trustees in transactions within their legal power, transactions perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustee.”
The form of the liability referred to in the first part of the last sentence if often called the “first limb” of Barnes v Addy, and the form of liability referred to in the second part of the last sentence is often called the “second limb”.
As the majority noted:
“It has become common to describe the first limb as involving “knowing receipt” and the second limb as involving “knowing assistance”.[83]”
[83] At [112].
The first limb imposes liability upon persons who receive trust property if it is established that they receive it with notice of the trust.[84] Actual notice is required and the complainant bears onus of proof. As the majority noted at [128]:
“In each case it remains necessary for plaintiffs claiming against third parties dealing with errant fiduciaries to establish the elements of whatever cause of action is relied on. It is not the law that a universal regime of absolute liability applies.”
[84] At [112].
Relying upon the authority of Farah Constructions Pty Ltd v Say-Dee Pty Ltd (supra) the Bank submitted that with respect to the second limb the bankrupt needs to establish that the Bank assisted DPIPL in its alleged breach of trust at a time when the Bank had knowledge “in a dishonest and fraudulent design on the part of the trustee”.[85] In explaining this phrase the majority proceeded:
[85] at [172].
“Against this background, it has been customary to analyse the requirement of knowledge in the second limb of Barnes v Addy by reference to the five categories agreed between counsel in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA:
(i) actual knowledge;
(ii) wilfully shutting one’s eyes to the obvious;
(iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make;
(iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man;
(v) knowledge of circumstances which would put an honest and reasonable man on inquiry.”[86]
[86] at [174].
The High Court pointed out that the second limb makes liable a defendant if that defendant assists a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee of fiduciary.[87]
[87] at [160].
In her statement of claim at paragraph 12(g)eiv and 12(g)f respectively the bankrupt pleaded:
“(vi) With the (Bank’s) knowledge and consent took out a number of smaller claims so as to avoid having an internal inspection of the property undertaken for valuation purposes and thereby avoided the (bankrupt or trustee) having knowledge of the proposed loan;
(f) In circumstances where the (bankrupt or trustee) had an interest in the land by suggesting or advising the (bankrupt as trustee) as pleaded herein, (Dr Ironside) was advancing a scheme would could not give to the (Bankrupt as trustee) what it promised which (Dr Ironside)[88] well knew or was recklessly indifferent to and was thereby fraudulent and negligent and unconscionable.”
[88] Although the pleading refers to Dr Ironside personally I think the bankrupt intends the pleading to refer to DPIPL.
Those allegations appear to relate to allegations made at paragraph 12(i)(j) and (k) which allege:
“(i) Further, at all material times the (Bank) owed the (bankrupt as trustee) a duty;
a. to act as a reasonable and prudent lender of money;
b. to ensure that no fraud was committed against the (bankrupt as trustee) by the mortgage of the Moggill property;
c. to follow its standard banking procedures and protocols when lending money;
d. not to lend money in circumstances which will avoid an internal valuation of the property used to secure such a loan;
e. to register the mortgage discharge form that the (bankrupt as trustee) sent the (Bank) and to place the mortgage in their fraudulent suspense accounts in accordance with the banking procedures for fraudulent transactions;
(j) By making the request and the agreement in the circumstances pleaded herein (Dr Ironside and DPIPL) acted unconscionably and dishonestly.
(k) In breach of its duty mentioned in paragraph 17 herein the (Bank):
(i) permitted (DPIPL) to seek a loan using a branch other than (Dr Ironside and DPIPL’s) local branch located at Hervey Bay without enquiring why the local branch was used;
(ii) permitted (Dr Ironside and/or DPIPL) to seek a loan from a branch in Brisbane where they were unknown;
(iii) failed to make any enquiries from (Dr Ironside and/or DPIPL) whether they (or either of them) had been declined a loan from any other financial institution;
(iv) with the knowledge and consent of Melanie Artuso (an employee of the (Bank)) permitted and advised (Dr Ironside and/or DPIPL) to take out a number of smaller loans so as to avoid having an internal inspection of the property undertaken for valuation purposes. By doing this (Dr Ironside and DPIPL) avoided the (bankrupt as trustee) having knowledge of the proposed loan.”
Those allegations were re-cast in the Amended Statement of claim filed 19 December 2008. By that pleading the bankrupt now alleges that:
“2.(j)(i) Registered Mortgage no 710055137 forms a constructive trust and must be set aside of void by way of the actions of the first, second and third Defendant who was an accessory to DPIPL’s alleged breach of trust by way of participating and assisting with knowledge in a dishonest and fraudulent design on the part of the company DPIPL in breaking the Loan of $850000-00 into smaller amounts to defeat the knowledge of the trustee and not maintaining standard banking protocols and procedures which would have resulted in the said mortgage being declined like previous banks only 1 week prior to this transaction.
(ii) The Third Defendant Wilfully shut their eyes to the obvious misconduct by the first and second defendant.
(iii) The Third Defendant wilfully and recklessly failed to make such enquiries as to an internal property valuation in accordance with their standard protocols and procedures for a loan of this amount which would have resulted in the said loan and mortgage being declined.
…
15. g. without the Plaintiff’s knowledge or consent, in the circumstances created by the Agreement, in about 19 September 2006 the First and/or Second Defendant mortgaged the property so as to secure loans from the Third Defendant totalling approx $850,000.
h. Of which the First and Second Defendant have drawn down the amount of $763000-00 and the Third Defendant has stamped the amount of $850000-00 against the Moggill trust property.
i. In circumstances where the plaintiff had an interest in the land in obtaining a loan from the Third Defendant the First and/or Second Defendants:
i. did not seek a loan from the Third Defendant using its branch located in Hervey, as they were known to that branch;
ii. consulted and sought the loan from the Third Defendant from a branch in Brisbane where they were unknown;
iii. did not inform the Third Defendant that they (or either of them) had been declined a loan by Wizard Finance only 6 days earlier on the 25/8/2008 as a result of the trust.
…
vii. The First and Second Defendant requested that the Bank and the valuer on 25/8/06 ensure that the real reason for the valuation is not divulged to Lauren Cordes (trustee) this was unconscionable conduct by the First and Second Defendant.
viii. The First and Second Defendant made the same request described in point (vii) to the Third Defendant less than one week later to Jim Walters of Medfin who referred the application to Melanie Artuso employee of the Third Defendant who knowingly assisted the client with his request.
ix. On the 30/8/2006 the first and second Defendant made a false and misleading application to the bank being the Third Defendant stating he had purchased the Moggill property for the amount of $540000-00 in June 2005 and it was valued at 1.5 million dollars.
…
xxx. On the 21/9/2006 the Third Defendant Melanie Artuso certified in her capacity as Third Defendant that she confirmed the first and second defendant were entitled to charge the asset where it is held on behalf of the trust therefore assisting the first and Second Defendant with their fraud and unconscionable conduct against the plaintiff and the trust by way of signed acknowledgment.”The significant point in the bankrupt’s pleading is that she does not allege any knowledge by the Bank of any intention by DPIPL or
Dr Ironside to defeat or encumber the Moggill property contrary to the wishes of the bankrupt (in any capacity). The worst that can be drawn from the allegation is that DPIPL and/or Dr Ironside intentionally misled the bank into advancing funds on the promise of security over the Moggill land. The allegation that DPIPL and Dr Ironside sought to structure the loans to avoid the need for formal valuations by the Bank is conduct which by reference to the standard of ordinary reasonable people is insufficient to demonstrate fraud.
The real question in this case is whether the Bank before or after registration acted in such a way as to give rise to a personal equity in the bankrupt (in any capacity) enforceable against the Bank.
In Bahr v Nicolay (No 2)[89] Brennan J stated,[90]
“A registered proprietor who has undertaken that his transfer should be subject to an unregistered interest and also repudiates the unregistered interest when his transfer is registered is, in equity’s eye, acting fraudulently and he may be compelled to honour the unregistered interest.”
[89] (1988) 164 CLR 604 – followed in Tara Shire Council v Garner [2003] 1 Qd R 566.
[90] at 654.
By analogy to the present context it is necessary to consider whether the Bank took its interest by way of security expressly subject to any unregistered interest. As the bankrupt’s case is pleaded the answer to that inquiry must be in the negative. While a consequence of the conduct alleged against DPIPL may be that the bankrupt’s equity was lost it is also clear that she makes no allegation against the Bank that would suggest it knew of her opposition to any advance or had any reasonable basis to know of her opposition. At best the case the bankrupt advances is the Bank knew of the bankrupt’s equity. Knowledge of a prior equitable interest alone is not sufficient.[91] The equitable interest acknowledged has to be more such as of the kind demonstrated in the facts in Bahr v Nicolay (No 2) (Supra). Such is not the case here.
[91] Friedman v Barrett; Exe parte Friedman [1962] Qd R 498 at 512.
Concerning the first limb the bankrupt alleges the Bank sought to register its interest knowing of the trust. The Bank denies this and the loan application material largely supports this position. The bankrupt however maintains the Bank did have knowledge through its various officers and she wishes to cross examine them to demonstrate that matter. Alternatively she says the Bank knowingly was a party to DPIPL’s conduct in extinguishing the trusts interest.
As observed above the bankrupt bears the onus of proving these allegations and demonstrating knowledge as required by the first or second limb in Barnes v Addy (supra).
However as noted above knowledge of an equitable interest is not enough. To succeed the bankrupt must demonstrate that the Bank assisted DPIPL to effect a fraud upon her. Accepting the Bank had knowledge of the collateral agreement (which it does not) and accepting the Bank also knew that the bankrupt held her equitable interest in trust for her son (which it does not), it is still difficult to see how the Bank’s conduct in advancing more funds to DPIPL on commercial terms could constitute a fraud, in the sense that such conduct would be judged as such by the standards of ordinary, decent people.[92]
[92] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (supra) at [178].
In any event as the Bank submits, the fact remains that the Bank has obtained a registered indefeasible mortgage on the property.
The position concerning indefeasibility was restated by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (supra) when it cited with approval the observations of Tadgell JA in Macquarie Bank Limited v Sixty-Fourth Throne Pty Ltd[93] where His Honour said at 280:
“The argument for the respondent appears to have assumed that the acquisition by the mortgagee, in that capacity, of a proprietary interest following registration of a forged instrument of mortgage in respect of property that is subject to a trust amounts to the receipt by the mortgagee of trust property. If it were so, it might be possible to treat the holder of the registered proprietary interest as a constructive trustee arising from “knowing receipt” of trust property. As it seems to me, however, there is neither room nor the need, in the Torres system of title, to do so. If registration of the mortgagee’s interest is achieved dishonestly then the registration, and with it the interest, are liable to be set aside not because, on registration, the registered holder became a constructive trustee but because section 42(1)[94] recognises that fraud renders the interest defeasible. If, on the other hand, the registration is not achieved by fraud the Act provides, subject to its terms, for an indefeasible interest. Those terms, allow it is true, a claim in personam founded in equity against the holder of a registered interest to be invoked to defeat the interest; and a claim in personam founded in equity may no doubt include a claim to enforce what is called a constructive trust… In truth, I think it is not possible, consistently with the receipt of principle of indefeasibility as has been understood since Frazer v Walker [1967] 1 AC 569 and Breskavr v Wall [1971] 126 CLR 376, to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property. The argument that the appellant is liable as a constructive trustee because it had “knowingly received” trust property should in my opinion fail.”
[93] [1998] 3 VR 133.
[94] Section 184 Land Title Act.
The bankrupt’s allegations against the Bank are that it knew of
her interest as trustee as evidenced by the duly executed transfer of
27 August 2005. The Bank denies any knowledge. However even if it had that knowledge it is difficult to see how in the circumstances its registration was obtained by fraud in the sense of “actual fraud” or “moral turpitude”.
Complaint is made in the amended statement of claim that subsequent advances were made by the Bank in circumstances that constitute a fraud upon the bankrupt as trustee.
Even if that were the case that matter would not bear upon the Bank’s claim to indefeasibility, particularly in respect of a registered “all money” security in circumstances where the banks mortgage was already registered.
It follows that in this case the Bank’s interest has been registered and in the absence of fraud in the sense of “actual fraud, moral turpitude”[95] the Bank is entitled to maintain its indefeasible interest. The Bank’s interest is not affected by any “in personam exception” which on the bankrupt’s case is pursued in the Supreme Court proceedings.
[95] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (supra) at [192].
In any event for present purposes the land is registered in the name of DPIPL. It is subject to a registered mortgage in favour of the Bank. For reasons that I have earlier outlined the interests are not subject to any trust in favour of the bankrupt as trustee for Alexander William George. It follows in my view that the bankrupt has no reasonable prospects of successfully prosecuting this claim and accordingly there is no need for a trial on this point.
Summary
The Trustee seeks declarations that various property claimed by the bankrupt to be held by her in trust beneficially for her son is in fact beneficially by others on trust for her. The remaining respondents presently hold property in respect of which the Trustee seeks declarations. The Bank is the registered mortgagee in respect of land the subject of the application.
The Trustee and all respondents save for the bankrupt join in seeking the declarations sought.
In addition they also seek for the application to be disposed of summarily. They contend that accepting the bankrupt’s case at its best she has no real prospect of successfully defending the application and/or prosecuting her claim.
Except in respect of the issues between these parties concerning the alleged declaration of trusts relating to personalty I am satisfied the bankrupt has no real prospect of successfully defending the Trustee’s claims for declarations because the bankrupt’s claims are untenable at law.
Dealing with each of the bankrupt’s claims I find:
a)No enforceable disposition by the bankrupt in favour of any trust has been effected by the incorporation of any provision in any will.
b)The Trust purported to have been created on 1 May 2002 purporting to settle the Pullenvale property upon trust for the bankrupt’s son failed for want of certainty and form and in any event any equitable claim (if one ever arose) was extinguished by the bankrupt’s transfer of that property to a third party.
c)The Trust purported to have been created on 5 December 2003 purporting to settle the Moggill property upon trust for the bankrupt’s son failed for want of certainty and form and in any event any equitable claim (if one ever arose) was extinguished by the bankrupt’s transfer of that property to a third party, DPIPL.
d)The Trust purported to have been created by the agreement entered into between the bankrupt and DPIPL in June 2005, if it ever existed, failed because the Trust was never registered and DPIPL became the registered proprietor without notation concerning any trust. There is no evidence of fraud in the sense provided by s.184 Land Title Act to defeat DPIPL’s claim to indefeasible title.
e)The circumstances of the proceeding do not support any basis for finding a resulting, constructive or implied trust in respect of the Moggill land or any other real property.
In her amended statement of claim the bankrupt pursues other actions in her capacity as Trustee. I make no rulings in respect of those matters.
The facts do not support any basis to find any accessorial liability on the part of the Bank and the indefeasibility of its registered security is not affected by the circumstances surrounding these transactions.
Concerning personalty the bankrupt has no reasonable prospects in respect of the horse Stellamarra and the Toyota Motor Vehicle. Matters concerning the horse Cabernet and some chattels were disposed of by consent orders. However there is a factual case to be resolved concerning the furnishings and jewellery and any other remaining personalty alleged to be subject to a trust.
In terms of the Trustee’s amended application it follows from my findings that the Trustee is entitled to the benefit of the compromise agreement concluded between all parties to these proceedings (except the Bank and Mr Siebert). Given the bankrupt’s only challenge to that agreement was that the Moggill property was held by her on trust. The agreement remains valid and enforceable and the Trustee, Ms Wilson, DPIPl and Dr Ironside are entitled to the declarations they seek.
There are issues to be addressed by trial concerning the remaining chattels. It follows declarations and orders cannot be made in respect of paragraphs 3 and 7 of the amended application.
The relief sought at paragraphs 4a and 4b was not pursued at this hearing and may require hearing. It will be adjourned.
Orders
Declare that the Heads of Agreement dated 19 February 2008 and exhibited at WJF-8 to the Affidavit of William John Fletcher sworn
29 October 2008remains valid and enforceable;
Declare that as at 24 February 2006 the legal and beneficial ownership of Lot 13 on SP145714, County of Stanley, Parish of Moggill, Title reference 50440445 vests in Applicant as trustee of the bankrupt estate;
Declare that as at 24 February 2006 the legal and beneficial ownership of the Toyota landcruiser with the licence plate 590FXR, VIN Number: JT11UJA509019411 (V), Engine Number: 1FZ0444996 vests in Applicant as trustee of the bankrupt estate;
Declare that as at 24 February 2006 the legal and beneficial ownership of the Hanoverian mare known as Stellamarra with the microchip number 939000001109809 vests in the Applicant as trustee of the bankrupt estate;
Declare that Deed of Settlement between the Applicant and Susan Jane Wilson dated 28 October 2008 remains valid and enforceable and that it be performed;
Adjourn for trial issues arising from relief sought in paragraphs 3, 4 and 10 of the amended application.
I certify that the preceding one hundred and ninety-seven (197) paragraphs are a true copy of the reasons for judgment of Burnett FM
Associate: Beverley Schmidt
Date: 9 February 2009
- AGLC
- Fletcher v George and Ors (No.6) [2009] FMCA 69
- Case
- [2009] FMCA 69
- Decision Date
CaseChat Overview and Summary
The court considered the nature and intent of the agreements, along with the circumstances surrounding their creation and execution. It was determined that the Heads of Agreement and the Deed of Settlement were valid and enforceable, given that they were clear, mutual, and had been accepted by all parties involved. The ownership claims were also substantiated by the evidence provided, which showed that the assets in question vested in the applicant as trustee of the bankrupt estate as of 24 February 2006. Consequently, the court found in favour of the applicant on these points.
In light of the findings, the court made several declarations. It confirmed that the Heads of Agreement remained valid and enforceable, and that the applicant held legal and beneficial ownership of the specified property, vehicle, and horse as of the relevant date. The Deed of Settlement was also declared valid and enforceable, with an order for its performance. The court adjourned the trial for issues related to the relief sought in specific paragraphs of the amended application.
Orders
Orders of the court
1.
Declare that the Heads of Agreement dated 19 February 2008 and exhibited at WJF-8 to the Affidavit of William John Fletcher sworn
29 October 2008
remains valid and enforceable.
2.
Declare that as at 24 February 2006 the legal and beneficial ownership of Lot 13 on SP145714, County of Stanley, Parish of Moggill, Title reference 50440445 vests in Applicant as trustee of the bankrupt estate.
3.
Declare that as at 24 February 2006 the legal and beneficial ownership of the Toyota landcruiser with the licence plate 590FXR, VIN Number: JT11UJA509019411 (V), Engine Number: 1FZ0444996 vests in Applicant as trustee of the bankrupt estate.
4.
Declare that as at 24 February 2006 the legal and beneficial ownership of the Hanoverian mare known as Stellamarra with the microchip number 939000001109809 vests in the Applicant as trustee of the bankrupt estate.
5.
Declare that Deed of Settlement between the Applicant and Susan Jane Wilson dated 28 October 2008 remains valid and enforceable and that it be performed.
6.
Adjourn for trial issues arising from relief sought in paragraphs 3, 4 and 10 of the amended application.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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