Herbert v Dennis
[2025] TASSC 16
•27 March 2025
[2025] TASSC 16
| COURT: | SUPREME COURT OF TASMANIA |
| CITATION: | Herbert v Dennis & Anor [2025] TASSC 16 |
| PARTIES: | HERBERT, Lisa Jayne as administrator of the estate of Neil Maxwell Herbert, deceased |
| v | |
| DENNIS, Daryl John | |
| DENNIS, Vanessa | |
| FILE NO: | 393/2012 |
| DELIVERED ON: | 27 March 2025 |
| DELIVERED AT: | Launceston |
| HEARING DATE/S: | 11, 12 and 13 March 2025 |
| JUDGMENT OF: | Pearce J |
| CATCHWORDS: |
Equity – Trusts and trustees – Implied trusts – Constructive trusts – Common intention – Transfer of title to property at undervalue to avoid mortgagee sale – Trust not established
Aust Dig Equity [1316]
REPRESENTATION:
Counsel:
Plaintiff: A Wells Defendants: G O'Rafferty
Solicitors:
Plaintiff: Terracall and Associates Defendants: Bishops
| Judgment Number: | [2025] TASSC 16 |
| Number of paragraphs: | 88 |
Serial No 16/2025 File No 393/2012
LISA JAYNE HERBERT as administrator of the estate of
Neil Maxwell Herbert, deceased v DARYL JOHN DENNIS and VANESSA DENNIS
| REASONS FOR JUDGMENT | PEARCE J 27 MARCH 2025 |
1 This action concerns a dispute about the beneficial ownership of the house and land at 20 William Street, Perth in northern Tasmania. The property is comprised in three titles, folios of the register volume 54184, folios 2, 3 and 4. Prior to 2002 the property was owned by the plaintiff's parents, Neil and Shirley Herbert, both of whom are now deceased. For reasons which will be explained, the plaintiff's name was also on the titles. In 2002 the titles were transferred to the defendants. They became, and remain, registered proprietors. In this action, the plaintiff claims that the circumstances of the transfer were such that the defendants held the property subject to a common intention constructive trust in favour of her late father, Neil Herbert. The plaintiff seeks a declaration of the trust and an order that the property now be transferred back to her in her capacity as administrator of her father's estate.
2 For the following reasons a constructive trust is not established and the plaintiff's claim fails.
The background circumstances
3 Some of the background circumstances are agreed and can be relatively shortly stated. Mr Herbert and Mrs Herbert purchased the property as their home in 1966. The plaintiff is their only child. The land was subsequently made subject to the Land Titles Act 1980 and divided into three titles, each of which was registered in the names of Mr and Mrs Herbert as joint tenants.
4 Mr Herbert was a textile worker but retired in about 1996. In 1995 Mrs Herbert purchased a business. However, by 1999, the business was in financial difficulty. To enable them to pay the business debts Mr and Mrs Herbert borrowed money from Island Mortgage Fund Pty Ltd. The loan was secured by a registered mortgage. At the time, the plaintiff was employed as a support worker. According to the plaintiff, a finance broker advised that her income would help "secure the loan", and so it became necessary for her to be a party to the mortgage and for her name to be on the title. Accordingly, Mr and Mrs Herbert executed and registered a transfer of the title to themselves jointly as to two undivided one third shares, and the plaintiff as to one third share as tenant in common. The consideration expressed in the transfer was $34,000, although the evidence establishes that no such sum was actually paid.
5 The money borrowed under the mortgage was used to pay Mrs Herbert's business debts, but the repayments were not maintained and, by August 2002, the mortgage loan was in default. The mortgagee was then owed about $55,000 and had given notice of its intention to take possession. On 12 May 2002 the government valuation of the property was $105,000 and the market value was $115,000.
6 Mr Herbert approached the first defendant, Mr Dennis, for advice and assistance. Mr Herbert showed Mr Dennis the letter he had from Island Mortgage Fund Pty Ltd demanding possession of the property. The evidence about what transpired at that time between Mr Herbert and Mr Dennis is disputed. However, it is common ground that , as a result of the exchanges between Mr Herbert and Mr Dennis, the following occurred:
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(a) Mr and Mrs Herbert and the plaintiff entered into a contract in writing to sell the property to the defendants for $55,600. The contract was in the standard form, except no deposit was payable, completion was to take place on or before 14 days from the date of the contract which was otherwise unconditional; (b) a legal practitioner, Grant Tucker, acted for all parties to the transaction; (c) Mr and Mrs Herbert and the defendant executed a transfer of the titles to the defendants in their capacity as trustees of the DJ and VM Dennis Family Trust. The consideration expressed in the transfer was $55,600; (d) the defendants funded the purchase with funds borrowed from the ANZ Bank. The funds derived from a residential investment loan of $60,000 secured by a mortgage registered over all three titles; (e) the contract was completed on 29 August 2002. The amount which the defendants paid at completion was $59,939.37 which included rates and land tax adjusted as between the vendors and the purchasers in the usual way and all of the legal costs of the transfer, including stamp duty and other out of pocket expenses. The defendants also paid the legal costs and out of pockets incurred by Mr and Mrs Herbert and the plaintiff; (f) the transfer was registered and the defendants became registered proprietors of the titles subject to the registered mortgage to the ANZ Bank. 7 Following completion of the contract, Mr and Mrs Herbert continued to occupy the property.
| The claim |
8 The plaintiff's claim is that the transaction just described, although in the form of an apparent sale, was not intended to transfer beneficial ownership of the property to the defendants. In short summary, the plaintiff contends that the parties' common intention was that:
(a) the defendants would lend $55,600 (the statement of claim pleads $55,000) to Mr Herbert, repayable by fortnightly instalments of $220; (b) the transfer of the titles would secure the loan to the defendants; (c) the defendants would re-transfer the property to Mr and Mrs Herbert and the plaintiff upon repayment of the loan sum "plus costs and expenses"; (d) the defendants would allow Mr and Mrs Herbert and the plaintiff to continue to live in the property in the meantime on condition that Mr Herbert would pay the rates, duties and outgoings associated with the property. 9 I will return in more detail to the pleadings in the action, but the substance of the plaintiff's contention is that on completion of the transaction, the defendants held the property on a constructive trust arising from their common intention, the terms of which were that Mr and Mrs Herbert and the plaintiff retained beneficial ownership of the property subject to their obligation to repay the "loan sum". The plaintiff does not claim to have been, at the time, beneficially interested in the property herself. She regarded the property as belonging to her parents. However, she asserts that they acted to their detriment by transferring the titles to the property to the defendants for substantially less than the market value.
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10 The position of the defendants is that the transaction resulted in transfer of beneficial ownership of the property to them and they deny any agreement, understanding or circumstance sufficient to give rise to a trust or any other equitable obligation to transfer the property back to the plaintiff on payment of any sum. The defendants' case is that Mr and Mrs Herbert sold the property to them and the Herbert's continued occupation of the property, following the transfer, was pursuant to a tenancy agreement.
The evidence
11 Mrs Herbert died on 2 July 2010. Mr Herbert died on 7 April 2013. Thus, the evidence in support of the plaintiff's case is confined to the documentary exhibits, the agreed facts and the evidence of the plaintiff. The plaintiff relies on what she claims is direct evidence of the intention of Mr Dennis and Mr Herbert at the time, but also on evidence of how the parties conducted themselves after the transfer as indicating their true intention at the time.
12 The plaintiff was able to give some evidence of the events leading up to the transfer. However, because the transaction resulted almost entirely from exchanges between her father and Mr Dennis, her evidence was limited. Because Mr Herbert was unavailable to give evidence, the hearsay rule did not apply to the plaintiff's evidence of previous representations made to her by her father during his life: Evidence Act 2001, s 63.
13 According to the plaintiff, her parents were very attached to their home in Perth. Her father loved to tinker in the garden. She had noticed, by 2002 and probably earlier, that her mother was showing early signs of dementia. In hindsight, she said, this may have contributed to the financial problems of the business. She said her mother was in "complete denial", had not given her father all of the information about the difficulty the business was in and, when things became difficult, her father was "overwhelmed". At the time, the plaintiff lived with her two children in a rented property in Evandale. She regarded the house at Perth to be her parents' home and decisions about it were for them to make. She became aware of the threats of foreclosure and said that her father was "very upset". Her father told her about the letter from the mortgagee demanding possession of the house.
14 For reasons the plaintiff did not then fully understand, her mother suggested to her father that he approach Mr Dennis. Mr Dennis was not a close friend or relative. The plaintiff's understanding was that Mr Dennis was an acquaintance of her parents, a former pupil of Mrs Herbert when she was a primary school teacher and known by Mrs Herbert to have been "successful" in business. None of the exchanges which then occurred between Mr Herbert and Mr Dennis are in writing. The plaintiff was not present when Mr Herbert first spoke to Mr Dennis. In her evidence she said:
"I believe from my understanding from my father that John agreed to loan the money
to cover what was owed – the $55,600."
15 The plaintiff also gave evidence that Mr Dennis took her and her parents to look at alternative housing, but "mum and dad didn't want to leave, they were desperate to keep the property that they had." The plaintiff was asked what her father had said to her about the agreement with Mr Dennis and she answered:
"That John would lend the money and when we paid the – when the money was paid back, the property would be returned to us or to mum and dad – to us in, obviously with some compensation going to John."
16 What was lent, she said, was the "money to cover what was owed with the other financial institution." Her father told her that he was "very pleased that they weren't going to effectively lose the house and they could stay there".
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17 According to the plaintiff, about two weeks after the conversation with her father, Mr Dennis brought a document to her house in Evandale for her to sign. She said he told her that he was "lending money to mum and dad to cover the loan" and produced some "paperwork." She could see that "mum and dad had signed it already so I signed it as well". She thought it was to "secure the loan". According to the plaintiff, she "heard nothing" about a sale of the property and that was something her father "never mentioned to me either".
18 In cross-examination the plaintiff accepted that she did not really know how many times her father, or her mother, met with Mr Dennis prior to the transfer. She agreed that the document she signed must have been the transfer which resulted in the transfer of the titles, although she claimed to have not understood that to have been its effect at the time and thought it was a "loan agreement". She was shown a letter from the solicitor, Mr Tucker, addressed to her parents and to her in 2002 but could not recall seeing it, although she agreed that it was possible she had. She thought that the arrangement between her father and Mr Dennis, that the house would come back to her parents, was referred to by her father as a "gentleman's agreement".
19 Mr Dennis and his wife also lived in Perth but were not close acquaintances of Mr and Mrs Herbert. By 2002 Mr Dennis was in his early 40's. Mrs Herbert had taught him in primary school but their only contact since then had been in passing when he and his wife collected children from the same kindergarten as was attended by the plaintiff's children. He did not know the plaintiff.
20 Mr Dennis's evidence about his exchanges with Mr Herbert differed substantially from the account given by the plaintiff. He said his first meeting was in 2002 when Mr Herbert knocked on the door of his home and asked for advice. Mr Herbert was alone, and showed him a letter from a lender which gave notice that he had not made the required payments under his mortgage and the locks to his house were going to be changed on "a particular date" in six to eight weeks. Mr Dennis suggested to Mr Herbert that he seek legal advice.
21 About two weeks later Mr Herbert knocked on his door again. On this occasion Mrs Herbert was with him. Again Mr Herbert asked for advice about the letter and again Mr Dennis suggested legal advice and the possibility of refinancing through a different "lending institute (sic)". Mr Dennis's evidence was that during this discussion Mr Herbert asked him whether he could lend them money. He said he answered "no I could not", adding now that at that time, he had "no ability to lend Neil any money".
22 According to Mr Dennis's evidence, the next time Mr Herbert approached him was "closer to the time of them being locked out of their house". Again Mrs Herbert was present. On this occasion Mr Herbert suggested that there may be some possibility that a family member may purchase the property. Mr Dennis told Mr Herbert that this "sounded like it would provide them an opportunity to clear their loan and get them back into another property at Perth so that they could just keep on living". Again he advised them to seek advice.
23 On the fourth occasion they met, Mr Herbert was with Mrs Herbert and also the plaintiff. Again they knocked on his door. It was four or five days after the previous discussion and, according to Mr Dennis, it was "getting to the point where it's starting to get very important that they try to settle this problem". The possibility of a purchase by a family member still existed and Mr Dennis suggested that they look at other houses which they could afford to buy. He took them to inspect a house in Youl Street, Perth and discussed other properties which were then on the market.
24 Mr Dennis's evidence was that his next meeting with Mr Herbert occurred when, another four or five days later, Mr Herbert came to his home again, this time alone and visibly upset. Mr Herbert told him that the family member who was going to purchase the house had pulled out and he was worried that he and his wife were going to be removed from the property. Mr Herbert then asked
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whether he would "buy the house off him so he could at least have the opportunity to clear his debt." Mr Dennis said he told Mr Herbert that he was unsure, but was open to "exploring the opportunity". When asked by his counsel why he was willing to consider buying this property from a person he did not really know, Mr Dennis's answer, in substance, was that he was motivated by two factors. Firstly, by a wish to help someone who he could see was "in a bit of strife". He thought that "at least then they could live in the house" and not be "kicked out on the street". However, Mr Dennis said that he was also motivated by the chance to "get an investment property that I could add to my portfolio and at some stage I could sell it and make some money."
25 Mr Dennis's evidence was that he "must have" had one further meeting with Mr Herbert in which Mr Herbert "reiterated that I could purchase the property". By then Mr Dennis had spoken to someone at his bank, the ANZ, had agreed that he could borrow money secured over the property, and so he had an understanding of how much he "could offer Neil". According to Mr Dennis, the price was suggested by Mr Herbert and he did not, at that stage, know what amount was outstanding under the mortgage.
26 According to Mr Dennis, after the agreement was struck he told Mr Herbert that he would see his solicitor and "legal documents will be drawn up." He told Mr Herbert that he intended to use Grant Tucker as his solicitor for the transaction. Mr Dennis suggested to Mr Herbert that he could talk to Mr Tucker who could give him some advice about "who he could see to transfer the property".
27 Mr Dennis was also asked about whether there was any discussion with Mr and Mrs Herbert about them staying in the house. He answered:
"One of the critical things that was very evident with any discussion that I had had with Neil, about the selling of the property, was simply that if I was to purchase the property, they could stay in the property because Shirley could not deal with a move. Unfortunately she felt, I believe, that Shirley felt safe in the house that she knew and if she was to move into another house then potentially she wouldn't feel safe."
28 Mr Dennis's evidence continued:
"And tell me about that discussion, about them staying in the house?.....Neil, at that time, had asked could he stay in the house. I said, 'Yes, you can but you will need to pay rent.'
And what did he say?.....He agreed that he would pay rent."
29 According to Mr Dennis, there was no discussion about how much the rent would be until after the transfer of titles had taken place.
30 Mr Dennis denied ever having gone to the plaintiff's home to have her sign a document. He strongly denied ever having told her that he had agreed to lend her parents $55,000 and rejected the suggestion as "absolutely and totally incorrect".
The solicitor's file
31 Following his discussions with Mr Herbert, Mr Dennis engaged Grant Tucker to act for him. Mr Tucker was also engaged by Mr and Mrs Herbert and the plaintiff to act for them in the transaction. How Mr Tucker came to be engaged by the Herberts was not further explained. Mr Tucker was not called by either party to give evidence. His file has long since been destroyed but some correspondence from it remains. The bundle of agreed documents (included in evidence as a single exhibit) include letters from Mr Tucker to both parties to the transaction.
32 On 14 August 2002 Mr Tucker wrote separately to Mr and Mrs Dennis and to Mr and Mrs Herbert and the plaintiff enclosing a copy of the contract he had prepared. Both letters asked that they
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read through the document to "satisfy yourselves that you are happy with the contents" and, if so, to sign the contract in the presence of an independent witness. No contract is in evidence in this action, I infer because no-one retained a copy of it and the original has been destroyed. What it provided for however, is explained by Mr Tuckers' letters. The purchase price was $55,600 and no deposit was payable. Settlement was to take place on or before 14 days from execution of the contract. In the letter to Mr and Mrs Dennis, Mr Tucker noted that they were obtaining finance from the ANZ Bank. His letter included the following paragraph:
"I note the Herberts are going to remain in the property after settlement and you will
draw up a residential tenancy agreement."
33 Mr Tucker's letter to Mr and Mrs Herbert and the plaintiff dated 14 August 2022 noted that their title was held under mortgage and that a discharge would be sought at settlement.
34 On 19 August 2002 Mr Tucker wrote to Mr and Mrs Herbert and the plaintiff indicating that he was going to try to settle the transaction on 30 August 2022 and enclosed a transfer and requisitions on title. The transferors stated on the transfer are Neil Maxwell Herbert, Shirley Joy Herbert and Lisa Jayne Herbert and the consideration expressed is $55,600. Mr Tucker asked that the transfer be signed in the presence of an independent witness and returned to him. The transfer required the signature of Mr and Mrs Herbert and the plaintiff as registered proprietors. His letter also explained that requisitions were questions which the purchasers "are entitled to ask" and requested that his draft answers be checked and, if approved, signed and returned to him.
35 Mr Tucker wrote to Mr and Mrs Dennis again on 20 August 2002 enclosing the result of the Northern Midlands Council searches. Mr Tucker's next letter to Mr and Mrs Dennis is dated 21 August 2002. It conveyed to them details about rates payable on the property and included this paragraph:
"Rates on the property to the 30th June 2003 are $1,021.98. I telephoned the Council and as you will see the Herberts are entitled to pension remission on rates so therefore this years rates are $714.98. The total amount outstanding is $1,287.48. I note from our conversation today that you will be attending to payment of all the rates/arrears and water charges on the property direct with Mr Herbert in relation to this. The normal procedure in relation to water charges is that you read the water meter at the property prior to settlement so that we can obtain a credit from the vendor if excess water is applicable but in this case as you will be paying for all of this, this will not apply."
36 What is to be taken from this passage is that Mr Dennis must have instructed Mr Tucker that he had spoken to Mr Herbert about payment for rates, including arrears, and Mr Dennis had made arrangements for payment directly with Mr Herbert. The same letter from Mr Tucker to Mr and Mrs Dennis raises the issue of the discharge of Mr and Mrs Herbert's mortgage:
"I have this day spoken to Hunt and Hunt and they have advised that as at the 23rd of August the payout figure is $55,642.36 with a daily rate of interest of $19.21. Hunt and Hunt's fees will be $330.00."
37 Mr Tucker also noted that Mr Dennis had instructed him to include the Herbert's costs in the sum that he was required to pay at settlement to complete the transaction.
38 Further inferences can be drawn from this letter. Mr and Mrs Dennis had agreed to pay all the costs of the transfer, including the costs included by Mr and Mrs Dennis and the costs of discharging their mortgage. The overwhelming inference to be drawn from the information in the letter is that the purchase price bore a direct relationship to the amount required to discharge Mr and Mrs Herbert's mortgage. The prospect that it may have been the same, at least almost the same, by coincidence is so implausible that it may be rejected.
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39 By letter dated 28 August 2022 Mr Tucker informed Mr and Mrs Dennis that the amount required from them to settle the purchase on 30 August 2002 was $60,187.68. That sum was made up as the purchase price of $55,600.00 plus the costs and out of pockets of both the purchasers and the vendors totalling $3,055.20, plus the council rates and arrears to 30 June 2003 of $1,287.48 and land tax to 30 June 2003 of $245.00. Mr Tucker added:
"We also raise the possibility that when the title is sent to the Land Titles Office for registration into your names they may question the stamp duty payable. It has come to our attention that when the State Revenue Office see a difference in the purchase price to the government valuation they require a competent valuer to value the property and provide that to our office."
40 Mr Tucker also indicated that he had yet to receive the signed transfer from the Herberts and asked Mr Dennis to collect it from them and return it to Mr Tucker's office. It was suggested by the plaintiff that this may have been when Mr Dennis picked up the transfer and took it to her to sign, though he denied that was so.
41 In fact, settlement occurred a day early. By letter dated 29 August 2002 to Mr and Mrs Dennis, Mr Tucker confirmed that settlement had, in fact, taken place on that day. The precise amount paid by Mr and Mrs Dennis as purchasers was $59,939.37. Although it would not usually have been a matter of concern to them as purchasers, Mr Tucker advised Mr and Mrs Dennis in the settlement letter that the amount required to discharge the mortgage over the property was $55,351.69.
42 A copy of the discharge of the Island Mortgage Fund Pty Ltd mortgage, the executed transfer and the mortgage to the ANZ are all in evidence. Following settlement the documents were all dated, stamped and registered.
Post settlement conduct
43 If the plaintiff's case is to be accepted, the circumstances which led to the transfer resulted, at the time of the transfer, in Mr and Mrs Dennis' title to the property being impressed from that time with a trust in the claimed terms. However, the conduct of the parties following the transfer may shed light on what were, at the time of the transfer, their respective true intentions. The plaintiff had some knowledge of these events because, in 2003, she moved from Evandale and, with her children, began living with her parents in Perth.
44 Mr and Mrs Dennis had opened a Residential Investment Loan Account with the ANZ Bank and, on 30 August 2002, it records a drawdown of their loan in the sum of $60,000. Thereafter, interest was debited against the account monthly. Fortnightly transfers were made directly from their cheque account to the credit of the loan account, initially in the sum of $210.00.
45 The bank records of Mr and Mrs Herbert show that they began making payments, in the form of direct debits from their account to Mr and Mrs Dennis's cheque account, of $220.00 per fortnight. The first payment was made on 13 September 2002 and payments continued until 3 October 2008 when the amount became $260.00. Payments of that increased amount continued until 23 June 2010. The plaintiff characterises those payments as "loan payments".
46 According to Mr Dennis, the payments made by Mr Herbert were for rent. His evidence was that it was only after the property had been transferred to him and his wife that he talked to Mr Herbert about the amount of rent which was to be paid. He said he asked for a weekly rent of $150.00 so that "we could cover off on some costs", but Mr Herbert said that he could not afford that amount and it "didn't happen." No written rental agreement was prepared. On Mr Dennis's account however, "a little bit further down the track", Mr Herbert told him that because he was a pensioner he could get rental assistance from Centrelink but he needed to produce a "rental agreement". Mr Dennis said that
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he produced a document and gave it to Mr Herbert but it was "never signed and returned to me". Instead, Mr Herbert later brought him a Centrelink document to complete and sign. Mr Dennis's evidence was that the document required that he state the address, the amount of rent and the term of the lease, so when he first filled it out, and for the next couple of times that form was brought to him, he specified that the term was for three months. Later, he changed it to twelve months because he knew that "Neil's intention was that he was able to rent the property until he … moved on or moved
out."
47 The evidence also establishes that, following the transfer, Mr and Mrs Herbert made payments for rates, water, insurance and land tax. The evidence about these payments is less clear, but there is correspondence from Mr and Mrs Dennis to Mr Herbert which establishes that their expectation was that Mr Herbert would make such payments. In the normal course, expenses of that nature are paid by the owner of a property, not a tenant. In this case, however, Mr Dennis's evidence was that he expected Mr Herbert to pay because, in effect, the amount of the rent he was paying was not enough to cover the outgoings on the property.
48 For the years 2003/2004 and following, Mr and Mrs Dennis sent the Land Tax Assessments and Instalment Notices addressed to them to Mr Herbert with a request that he pay them. The same applied to insurance. For example, on 3 September 2004 Mrs Dennis sent Mr Herbert a copy of the invoice for the insurance on the property in the sum of $275.00 which Mr Dennis had paid with a request that he be reimbursed. The same situation applied to rates payable to the Northern Midlands Council and for water use. As examples, the land tax for 2006/2007 was $1,576.20 and the rates for 2008/2009 were $1,143.83. The evidence suggested that some were paid by Mr Herbert direct to the various utilities and some were payments reimbursing Mr Dennis. According to the plaintiff, these payments made by her parents were "probably cash".
49 One letter from Mr Dennis should be mentioned. On 3 August 2006 he wrote to Mr Dennis
indicating:
"As you may be aware, interest rates have gone up for the second time this year and it appears prominent (sic) that there will be another increase in November this year. Therefor you will have to increase your fortnightly payments to cover this increase. The last interest rate rise added approx. $13.00 per month to the repayments that we make to the bank. They estimate that the next interest rate rise will be the same and therefor an increase of $25 to $30 per month is needed to ensure a positive balance in the account."
50 The same letter seeks reimbursement from Mr Herbert of $310 for house insurance which had been paid by Mr Dennis.
51 The total amounts paid by Mr and Mrs Herbert for rates, land tax and home insurance between 2002 and about 2009 cannot be established with certainty. However, the preponderance of the evidence suggests that Mr Herbert paid most of those expenses during that period.
52 Mr Dennis's tax returns included rental property statements for a number of investment properties owned by him and his wife. From the time of the transfer each tax return included a rental property schedule for William Street, Perth. The fortnightly payments of $220 made by Mr Herbert were declared as rental income. Expenses incurred in respect to the property were detailed. The schedule distributed the net rental income (or loss) equally between Mr Dennis and Mrs Dennis. The 2003 return included insurance and interest on loans as expenses. The 2004 return included rates, interest and a small amount for repairs and maintenance, but not insurance or land tax. The 2005 return included insurance and interest but not rates or land tax and no sum was claimed for repairs and maintenance. The 2006 return included insurance, interest and land tax. The 2007 and 2008 returns included rates, insurance, land tax and interest.
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The dispute emerges
53 The plaintiff's evidence was that Mr and Mrs Herbert stopped making payments of rates, insurance and land tax in about 2008 because Mr Dennis stopped bringing the notices of those expenses to her parents. She said that by then the relationship had "soured a little bit". She said that, in about 2008, her father asked Mr Dennis about "purchasing the house back". Her father told her that he had asked Mr Dennis "how much it would cost to buy the house back with some compensation to Mr Dennis", and that Mr Dennis had responded that "effectively, the house was his." That was something she had not heard before. Her parents, she said, had said nothing to her about a tenancy agreement, only that there had been a loan. Someone suggested that they seek legal advice.
54 Although not mentioned by the plaintiff, there is other evidence of Mr Herbert's approach to Mr Dennis in 2009. Mr Dennis's evidence was that Mr Herbert told him that he believed that he would have the funds available to buy the property back and asked how much he would have to pay. Mr Dennis said that he did not know how much money Mr Herbert had, but suggested that he would be prepared to "facilitate the sale of the property back", if he were paid the amount outstanding on his mortgage, and the cost of title release and "our outgoing bills that we had paid over the years". He was also concerned about the possibility that he may incur a capital gains tax liability. At the same time, he said, he also thought that there might be another way to "make some money out of it" by retaining one of the three titles which faced onto Frederick Street. Mr Dennis then prepared and hand delivered to Mr Herbert a letter dated 19 August 2009 with a proposal. In short summary, the proposal was that he would sell the property back to Mr Herbert in return for payment of the amount then outstanding under the mortgage, the total costs which had been incurred by him and his wife in the initial purchase, the costs associated with the transfer back, the amount which they had spent in the meantime on water, insurance, rates and land tax (although that sum "could be negotiable"), and that he retain the "block on Frederick Street". Mr Dennis listed in the letter the matters he suggested were to be taken into account as "loss of use of monies during this time", "loss of interest on this money", "tax implications", "capital gains tax that will now need to be paid" and "associated costs of reselling the property".
55 Mr Dennis's proposal apparently did not meet with Mr Herbert's approval because what next occurred was that Mr and Mrs Dennis received a letter dated 26 October 2009 from solicitors Zeeman Kable and Page on behalf of Mr Herbert. In part, the letter asserted that the transfers were "not a bona fide sale and purchase but the mere provision to you of security for certain moneys you lent to Mr Herbert and/or Mrs Herbert." The letter indicated that Mr Herbert was "now in a position to repay to you all monies lent and/or advanced by you to Mr Herbert and/or Mr Herbert and Mrs Herbert or to or for their benefit" and claimed that the amount outstanding was the amount required to repay the ANZ Bank under the mortgage, reimbursement of any money paid by the defendants for rates and water charges, repayment of the stamp duty paid on the transfer and an "allowance for interest".
56 On 22 October 2009, four days before the letter was sent by Zeeman Kable and Page to Mr and Mrs Dennis, that firm registered a caveat over the titles to the William Street property claiming on behalf of Neil Herbert an estate or interest in the property:
"… in fee simple by virtue of being entitled thereto as beneficial owner, transfer C399014 being by way of security only for the repayment of monies advanced and lent by Darryl John Dennis and Vanessa Margaret Dennis to or for the benefit of the caveator and Shirley Gay Herbert (his wife)"
57 The first substantive response to the letter of 26 October 2009 was a letter dated 30 April 2010 written by Grant Tucker on behalf of Mr and Mrs Dennis to Zeeman Kable and Page. The letter stated that"
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"my clients remain ready and willing to transfer the William Street property to your
clients on the basis of a payment of $113,040.70 comprising :
(a) $60,187.68 as the amount paid by Mr and Mrs Dennis at completion on 28 August 2002; (b) $9,868.75 for miscellaneous expenses such as rates, water charges, land tax and insurances; (c) $7,500.00 as estimated capital gains tax liability; (d) $3,360.87 for additional accounts which were detailed; (e) $31,123.40 as interest on the ANZ loan calculated as the total payments of $41,989.51 less actual repayment of Principal of $10,866.11; and (f) $1,000 as an estimate of the costs in relation to the transfer back."
58 A response was sent by Zeeman Kable and Page on 7 July 2010 which suggested that the amount claimed had failed to take into account "some 156 payments of $220 and 45 payments of $260, a total of some $46,020.00 made by our client to or for your client's credit or benefit." Mr Tucker replied by letter of 19 July 2010 indicating that his clients had not failed to take the payments referred to into account and "[i]n any event, such payments are more in the way of rental that anything else", and "[t]here was no agreement that these rent payments made by your client would come off any subsequent purchase price." According to the letter:
"Insofar as my client is concerned, your clients have been given a reasonable offer to
purchase the property, very much under valuation."
59 It is to be recalled that Mrs Herbert died on 2 July 2010. By letter dated 29 July 2010, Zeeman Kable and Page wrote back asserting that the payments made by Mr Herbert were "loan repayments" and that a failure to transfer the property back on receipt of "monies now properly and lawfully remaining owing to our client within fourteen days would result in the institution of legal proceedings."
60 Proceedings were not immediately commenced. Mr Herbert commenced an action against the defendants by writ filed almost two years later on 23 May 2012. Mr Herbert died on 7 April 2013, leaving a will which made the plaintiff his sole beneficiary. On 25 July 2015 she was granted letters of administration of the estate with the Will annexed. The plaintiff had been living in the property since 2003 and has remained in the property ever since. I infer that the regular payments made by her parents into Mr and Mrs Dennis's bank account, whether they are to be characterised as loan repayments or rent, ceased when the dispute arose.
The pleadings and the relief claimed
61 The plaintiff's claim is pleaded in a further amended statement of claim dated 23 October 2023. It first pleads a cause of action based on a loan agreement and claims specific enforcement of the agreement. The pleading asserts an agreement, partly oral and partly in writing, the terms of which were that the defendants lent $55,000 to Mr Herbert, together with the costs and expenses associated with the transfer of the property, repayable by fortnightly instalments of $220, and that the transfer signed by Mr and Mrs Herbert and the plaintiff was "provision of security" for the loan sum. The statement of claim also pleads that the property was conveyed to the defendants on either a constructive trust or a resulting trust "in circumstances where they collectively retained the beneficial interest in the property until the loan sum was repaid."
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62 The cause of action based on a loan agreement, and the assertion of a resulting trust, were abandoned by the plaintiff. The sole cause of action is that based on a constructive trust arising from the asserted facts. The plaintiff seeks a declaration of trust based on a common intention constructive trust. Counsel for the plaintiff made opening submissions both orally and in writing. In the written opening, the relief claimed is:
"that there be an order for a declaration of trust concerning the plaintiff's equitable
interest in the property in the following terms:
(a) subject to the plaintiff paying the defendants the sum of $9,580.00 there be a declaration that the first and second defendants hold the property by way of a constructive trust on behalf of the plaintiff absolutely; (b) there be an order that the defendants take all reasonable steps to transfer the plaintiff's interest in the property to the plaintiff free from any encumbrance."
63 In his closing address, counsel for the plaintiff explained how the sum of $9,580 was calculated. He asserted that the payments made from Mr and Mrs Herbert's account to Mr and Mrs Dennis between 13 September 2002 and 23 June 2010 of $220, and later $260, totalled $46,020. They had, therefore, contributed that sum to the loan of $55,600, leaving a balance of $9,580. He submitted that "subject to that sum being paid", the declaration can be made that the defendants hold the property "by way of constructive trust for the plaintiff absolutely". The submission made no mention of the term of the claimed agreement as pleaded in the statement of claim to pay that sum "plus costs and expenses". The reason may be that the plaintiff claims that all of the relevant costs and expenses, rates, land tax and insurance, were already paid by Mr Herbert. However, it is notable that the claim is substantially different to the position advanced by Mr Herbert through his solicitor in 2009.
64 There has been debate about the doctrinal origins of the common intention constructive trust and the distinction, if any, between such a trust and proprietary estoppel[1]. However, recent decisions of intermediate appellate courts have recognised the existence of a trust of that character. Nathan v Williams[2] is a 2020 decision of the Queensland Court of Appeal. Brown J, with whom Sofronoff P and Phillipedes JA agreed, referred to the decisions of the Full Federal Court in Parsons v McBain[3] and of Derrington J in Staatz v Berry (No 3)[4] and applied the principles stated in Imam Ali Islamic Centre v Imam Ali Islamic Centre Inc[5] at [402]. In Imam, McMillan J concluded that a common intention constructive trust will arise where there is an actual or inferred common intention of the parties as to their beneficial interest in a property, there has been detrimental reliance on that common intention by the claimant, and it would be an equitable fraud on the claimant to deny his or her interest in the property. His Honour explained that the onus of proving such a trust lies on the party asserting the beneficial interest against the legal owner, and continued at [403]:
[1]Refer in particular the judgment of Leeming J in Bijkerk Investments Pty Ltd v Bikic [2020] NSWSC 1336 at [116]
[2] [2020] QCA 138[3] (2001) FCR 120[4] (2019) 138 ASCR 231[5] [2018] VSC 413"403 The parties' intentions can be found or inferred from the party's contemporaneous words and conduct, also having regard to the surrounding circumstances and context in which they were uttered or performed. The relevant intention may arise after the property has been acquired. The
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intention to be established need not designate a specific share of the property;
it is sufficient that the claimant should have a beneficial interest.404 The cases considering this form of constructive trust have commonly concerned persons in a domestic relationship, but the principle can be applied to disputes between parties to a commercial relationship.
405 A common intention constructive trust creates substantive rights and is not merely a remedy that arises when a court makes a declaration to that effect. The trust will generally take effect from the moment at which the conduct giving rise to its imposition occurs. The interest created may, however, be deferred in accordance with principles governing priority between competing equitable interests.
406 There is considerable doctrinal debate on how a common intention constructive trust should be appropriately characterised. Some say it is more appropriately characterised as an express trust because it is based upon the parties' intentions. Others say it is more accurately characterised as an aspect of equitable estoppel. The classification of this form of trust as a constructive trust admittedly does not sit comfortably with the observation of Deane J in Muschinski v Dodds that constructive trusts differ from other forms of trust in that they arise regardless of intention.[95] It has nonetheless been observed that '[t]here is ample authority that a constructive trust may be based on the common intention of the parties'. Despite the evident taxonomical confusion, it appears from the authorities that a common intention constructive trust has a role to play distinct, albeit not always mutually exclusive, from a joint endeavour constructive trust and a constructive trust arising from equitable estoppel. The common intention constructive trust will enter centre stage where the formalities for a contract or express written trust are not satisfied, and the other paths are either not pleaded or are not satisfied." (Citations omitted)
65 The adoption of the expressions of principle in Imam by the Queensland Court of Appeal in Nathan v Williams was apparently approved in 2023 by the Court of Appeal in Victoria in Dolan v Dolan[6]. The existence of a common intention constructive trust was also recognised in 2023 by the New South Wales Court of Appeal in Galati v Deans & Ors.[7] In that case, White JA, with whom McFarlane JA agreed, stated[8] that a trust of that nature arises where the parties have agreed, or it was their common intention, that a claimant should have an interest in property owned by the other and the claimant has acted to his or her detriment on the basis of that agreement or common intention. The third member of the court in Galati, Basten AJA referred to the doubts expressed by Leeming JA in Bijkerk Investments v Bikic which were also noted by the New South Wales Court of Appeal in Koprivnjak v Koprivnjak[9], but approved the statement of White J in Shepherd v Doolan, that the existence of an agreement or "common intention" referrable to the beneficial enjoyment of the property is one to be determined on the evidence.
[6] [2023] VSCA 136 at 95[7] [2023] NSWCA 13[8] At [53][9] [2023] NSWCA 2
66 For proprietary estoppel, to establish detrimental reliance it is necessary to establish that the plaintiffs would not have transferred the property to Mr and Mrs Dennis in the absence of a belief that they would retain beneficial ownership of the property, subject to the terms of the trust[10]. Conduct may be both the evidence from which an intention that the plaintiff have a beneficial interest can be inferred, and the act of detrimental reliance[11]. In Koprivnjak[12], the Court of Appeal approved the
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correctness of the statement of legal principles relevant to a common intention constructive trust by Ward CJ (in Eq) in Bassett v Cameron[13], which included that a less stringent test applies to the requirement of detriment once the common intention has been established.
Is a common intention established?
[10] Kramer v Stone [2024] HCA 48 per Gageler CJ, Gordon, Edelman and Beech-Jones JJ at [39], Sidhu v Van Dyke
[11] Shepherd v Doolan & Ors; Shepherd v Doolan & Anor; Est. Doolan [2005] NSWSC 42 per White J at [40].
67 I accept as correct the submission of counsel for the plaintiff that the determinative issue in this case is whether the plaintiff has established that, in fact, Mr Herbert and Mr Dennis shared a common intention that, following the transfer, Mr Herbert would retain beneficial ownership of the property. In these reasons I have repeatedly referred to Mr Herbert in the singular. The evidence establishes to my satisfaction that although he and his wife and the plaintiff were registered proprietors of the property, Mr Herbert spoke, and had authority to speak, for all of them in his discussions and dealings with Mr Dennis. The evidence of Mr Herbert's contemporaneous statements of intention prior to the transfer of the William Street property is confined to the hearsay evidence of the plaintiff. That evidence is to be approached with considerable caution. The plaintiff had little or no direct involvement with any of the conversations her father had with Mr Dennis. Her evidence, both of what she heard herself and what she was told by her father, was vague and uncertain. She was present at only one of the meetings with Mr Dennis and her recollection of what was said in her presence was poor. Her evidence about what was said by her father and Mr Dennis otherwise consists only of what her father told her. Her evidence of what Mr Dennis is alleged to have said to her father is second hand hearsay. The evidence was not objected to but can be given little weight. She maintained that Mr Dennis told her of the existence of a loan agreement, and was firm in her evidence that her father had told her of a "gentleman's agreement", but she was obviously mistaken about the nature of the transfer document she signed. She took no interest in the correspondence from Mr Tucker, which was addressed not only to her parents but to her. Her father was, at the relevant time, under considerable financial pressure and at imminent risk of losing the property. His wife was in poor health and was showing signs of dementia. When cross-examined, the plaintiff accepted that there was a risk that her father and mother did not really know what they were doing at the time. She accepted that her father was overwhelmed by the financial difficulties that were being faced by her parents in 2002 and that they desperately wanted to prevent the bank from foreclosing on their property. Nevertheless, counsel for the plaintiff submitted that the intention that Mr and Mrs Herbert and the plaintiff retain beneficial ownership of the property after the transfer to the defendants, is confirmed by other evidence. He correctly submitted that the first and most obvious fact which may support the existence of a trust is the purchase price for the property. It was only about half what is now agreed to have been the value of the property at the time, and coincided very closely to the amount required to discharge the mortgage, which was in default. The plaintiff submits that it is inherently unlikely that Mr Herbert would have agreed to transfer the property to Mr and Mrs Dennis for so much less than its true value unless there had been a promise from Mr Dennis that the property would be transferred back when the loan moneys were repaid. The plaintiff contends that the transfer was a "sham" and "a fabrication", to secure the loan agreement and not to effect a bona fide purchase.
68 I think that there are also reasons to be cautious about the evidence of Mr Dennis some of which, I would conclude, is coloured by the passage of time and perceptions of self-interest. For example, I doubt his evidence denying knowledge of the true value of the property prior to the agreement of the "purchase price". He gave what I regard is conflicting evidence about whether he was informed by the bank of its own valuation of the property before agreeing on a contract price with Mr Herbert. During his evidence-in-chief the following exchange occurred:
"What did you say and what did he say?.....Neil had, once again, reiterated the fact could I purchase the property. I had had a conversation with my bank. My bank had valued the property and then they had agreed that I could borrow the money.
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And you say the money, but– . …..We hadn't discussed a figure but they'd given me an indication of the value of the property.
Mm hm. …..And because of the amount of money that the house was valued at, I had an understanding of how much we could – I could offer Neil.
And how much was it valued at, did the bank say?.....The bank at that particular time had valued the property somewhere between 110 and $120,000.
Okay, now, in this conversation with Mr Herbert in your house, at that time, what else did you discuss?.....Sorry?
What else happened during the conversation?.....Oh no, Neil had said that, okay, that all sounds positive, will you buy the house, and he asked whether I would be prepared to pay $55,000 for the property.
Did he mention why that number?.....No, not at that particular time, no.
And what did you say?.....Because I knew what the bank had valued the property at, and that was well and truly within the amount of money that we could borrow, I said yes I can manage that.
And then what did he say?.....He agreed to sell the property to us".
69 Later, in cross-examination, it was suggested to Mr Dennis that he knew that he would be purchasing the property for an amount much less that its value. He agreed that he knew that the price was less than its value, but then claimed that he did not know by how much. He denied that he had been told by the bank of the amount of its valuation prior to signing the contract. He said he was not given that information until "after", and did not know the government valuation until he got the first rates notice. However, I do not see any sensible way of reading the passage just set out from his evidence-in-chief other than that he intended to convey that he had been told by a representative of the bank that the value was somewhere between $110,000 and $120,000 and that, as a result, he knew that the amount which Mr Herbert had asked for, $55,000, was "well and truly within the amount of money that we could borrow". I also have reservations about his evidence that the purchase price was agreed without him having any knowledge of the sum required to discharge Mr Herbert's mortgage.
70 The plaintiff contends that it is inherently implausible that Mr Herbert, even if unsophisticated in property matters, would have agreed to sell the property for a price so much less than the actual value, thereby giving away thousands of dollars, in return only for an unwritten and insecure tenancy agreement of uncertain length. That is particularly so, the plaintiff argues, when there was no close family relationship or friendship or other apparent reason to confer such a benefit on the defendants. Moreover, the settlement statement sent by Mr Tucker to Mr and Mrs Dennis on 30 August 2002 specified the purchase price not as $55,600 but as $55,351.69, the precise amount required to discharge the mortgage to Island Mortgage Pty Ltd. The plaintiff contends that payment of that precise sum and the continued long term occupation of the property by Mr and Mrs Herbert is more consistent with the loan and agreement to transfer back which the plaintiff now asserts. As to the character of the payments made by Mr Dennis following the transfer, counsel for the plaintiff criticised Mr Dennis's evidence that these were payments of rent rather than loan repayments. He argued that Mr Dennis's evidence that he had prepared and signed Centrelink documents concerning rent assistance should be rejected as false when no such documents were produced at trial or even mentioned in any list during the prolonged process of discovery in the action. The plaintiff points out that that rates, land tax and insurance are not expenses generally paid by residential tenants, and the payment of such expenses by Mr Herbert, and Mr and Mrs Dennis's request that he pay them, supports the existence of a common intention that he remained the true owner. The plaintiff also points to the relative absence of evidence that Mr Dennis undertook repairs and maintenance as a true landlord
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would commonly be expected to undertake, and a failure to claim for repairs and maintenance in his
tax returns.71 Even taking these matters into account, I am quite unable to accept the plaintiff's submission that the evidence establishes a common intention that Mr Dennis would transfer the property back to Mr and Mrs Herbert on payment of a loan sum of $55,600 without any obligation to pay interest on the loan or other expenses associated with the acquisition and ownership to the property. That Mr Dennis shared such an intention defies logic and reason. The plaintiff argues that it would be an equitable fraud on the claimant to deny her interest in the property after payment of the loan sum. However, in my view, the converse is true. A declaration of a trust in those terms would be wholly unjust to the defendants. The amount Mr and Mrs Dennis paid at completion on 29 August 2002 was $59,939.37, already well in excess of the contended loan sum. The amount included not only their costs and outgoings, including stamp duty and rates and arrears, but also Mr and Mrs Herbert's costs and the fees on the discharge of their mortgage. Even at that time, it is unlikely that Mr Dennis intended to be so financially generous to persons he hardly knew. In addition, Mr and Mrs Dennis assumed the obligation of paying interest on the loan they secured to purchase the property. Between 2002, and the time Mr Herbert approached Mr Dennis asking to "buy the property back" in about 2009, Mr and Mrs Dennis had been paying interest on their mortgage for at least six years, as well as incurring other costs on the property during that period. I think it also likely correct that a transfer back would have had other tax implications for them. The scenario that Mr Dennis would have agreed to an arrangement to advance $55,600 to persons he had no real personal relationship with intending that he would, at some unspecified future time possibly years later, transfer the property back on payment of the same amount having at completion already expended well in excess of that sum, paid interest on the borrowed money and allowed Mr and Mrs Herbert to occupy the property rent free, is so implausible that it may be rejected as reasonably possible.
72 In my view, on all of the evidence, Mr Dennis's account is more likely. Despite the reservations I have expressed about some aspects of his evidence, I think that the description given by Mr Dennis in his evidence about the series of meetings he had with Mr Herbert had the ring of truth. It is beyond doubt that by the time a contract for sale was signed, Mr Herbert was in desperate financial difficulty. By the time of the final discussions with Mr Dennis foreclosure was imminent. It was possible that Mr Herbert could have sold the property on the open market but he had made no attempt to do so. The possibility of a sale to a family member had fallen through. A sale to anyone else would have meant that it was unlikely that he and his wife could have stayed in the house. He was very attached to the house and, as the plaintiff concedes, Mrs Herbert was showing signs of early dementia and moving would have been difficult for her. In his evidence Mr Dennis said:
"…I believe our family was always on an understanding that if you could help someone you would try and do it to the best of your ability. I could see right at this moment that someone that I had as a grade four teacher – I could see these people were in a bit of strife and I mean I could see that back then as well from when – the first meeting. But now they was in certainly a real difficult spot that they're about to be locked out of their own home. It was concerning in the fact that you've got two senior citizens that have come to me for help and I could see that their only avenue, if I could possibly do that, would be to purchase the house. At least then they could live in the house but that also they wasn't going to be kicked out on the street."
73 According to Mr Dennis, Mr Herbert's primary objective was to be able to stay in the house. In his evidence Mr Dennis said :
"One of the critical things that was very evident with any discussion that I had had with Neil, about the selling of the property, was simply that if I was to purchase the property, they could stay in the property because Shirley could not deal with a move. Unfortunately she felt, I believe, that Shirley felt safe in the house that she knew and if she was to move into another house then potentially she wouldn't feel safe."
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74 When asked what was then discussed about them staying in the house, Mr Dennis added that Mr Herbert, "asked if he could stay in the house". Mr Dennis said he replied "Yes, you can, but you will need to pay rent" and Mr Herbert agreed.
75 At the same time, according to Mr Dennis, he could see the opportunity to obtain an investment property which he could, at some stage, sell and make some money. Mr Dennis's evidence that he intended that Mr and Mrs Herbert could stay in the property as tenants was confirmed by his instruction to Mr Tucker, who recorded in his letter to Mr and Mrs Dennis, dated 14 August 2002, that "you will draw up a residential tenancy agreement". From the time of transfer, Mr Dennis's tax returns
are consistent with him treating the property as an investment owned by him.
76 As to the terms of the contract, the absence of a deposit and the short completion time were equally consistent with the need to move quickly to satisfy the claims of the mortgagee. Mr Dennis's payment of Mr and Mrs Herbert's costs of the transaction was consistent with an intent to facilitate the transfer when their financial position was poor. None of the correspondence to or from Mr Tucker, either with Mr and Mrs Dennis or the Herberts, contains any hint of a loan agreement or an arrangement for Mr and Mrs Herbert to retain beneficial ownership. On its face, the correspondence reflects a largely standard conveyancing transaction, including requisitions on the title which would hardly be necessary if the transaction were a sham. As I have already pointed out, Mr Tucker was not called to give evidence. There is nothing in the correspondence, nor any other evidence, that Mr Herbert or his wife or the plaintiff questioned, or sought advice, about the nature of the transaction which, on the face of the documents, resulted in transfer of ownership to the defendants. That may have been so because Mr Herbert relied on the "gentleman's agreement" the plaintiff said her father told her about. It is possible that Mr Tucker was retained only to attend to the transfer and the discharge of the existing mortgage and not to give other advice or record some other intention, but the fact remains that there is nothing written in any document which expresses an intention other than that the transaction was a transfer of title in the usual sense.
77 I think it entirely possible that there may have been discussions between Mr Dennis and Mrs Herbert that Mr Dennis would consider selling the property back to Mr and Mrs Herbert if and when they were ever in a position to purchase it. However, that possibility falls substantially short of establishing an equitable obligation to transfer the titles back on the terms suggested by the plaintiff. Mr and Mrs Dennis's agreement to allow Mr and Mrs Herbert to remain in the property for an extended period, while consistent with the plaintiff's contention that they considered themselves beneficial owners, was also consistent with the defendant's case that they were permitted to remain because Mr and Mrs Dennis wanted to help them. Counsel for the plaintiff submitted that a rental of only $220 per fortnight, when Mr and Mrs Dennis were paying $210 per fortnight to the ANZ Bank, was inconsistent with a genuine tenancy ignores the other benefit to be gained by Mr and Mrs Dennis through ownership obtained at a highly favourable price and through further increase in the capital value. I do not consider that Mr and Mrs Dennis's requests for payment of rates, land tax and insurance is necessarily inconsistent with a lease. Mr Dennis presented to me as a forthright and experienced business man, but a person who would not hesitate to insist on payment of such expenses if he thought that Mr Herbert was not paying enough rent.
78 My assessment of Mr Dennis's approach to ownership of the property is also consistent with the evidence of his response to Mr Herbert's approach in 2009. At that time he did, in fact, indicate a willingness to transfer the property back, but on conditions that he and his wife be repaid all the money they had expended, including interest, accompanied by a chance to take some financial benefit from the transaction by retaining one of the titles which could be separated from the house.
79 Mr Dennis's response in 2009 leads me to consider an alternative case based on a common intention different to that advanced by the plaintiff, that Mr and Mrs Dennis held the property as security for a loan but otherwise keeping Mr and Mrs Dennis indemnified or reimbursed, not only for
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the loan amount but also for any expense incurred in the acquisition or ownership of the house. A trust substantially of that nature was found to have been established by Philip McMurdo J in Donaghue v Donaghue and Anor [2015] QSC 54.
80 In that case, Mr Donaghue had lived in a house near Brisbane since 1999. In 2012 registered ownership was transferred to his daughter and her de facto partner pursuant to a contract of sale for $380,000. All parties appreciated that this was very much less that the true value which was, at the time of the trial in 2015, worth $950,000. The house was transferred when Mr Donaghue was in financial difficulty and was facing eviction by the mortgagee which had a judgment for recovery of possession. He had been trying to sell the house but was concerned that a sale by the bank would be something of a fire sale. The defendants financed the purchase of the property with a loan of $400,000 from the Commonwealth Bank. The contract price was not paid in full and the balance of the loan was credited to the defendants. Following the transfer, Mr Donaghue made the payments of $650 per week to the Commonwealth Bank with the result that he paid not only the interest on the loan but also more than $31,000 towards the principal. He also made some payments for rates and other expenses for the property. The defendants paid nothing towards the mortgage debt although they paid some other expenses associated with the house, albeit not payments Mr Donaghue had requested them to make.
81 Mr Donaghue's case was that he asked his daughter to borrow and lend to him an amount to discharge his existing mortgage on the understanding that upon repayment of the loan by the CBA, the house would be reconveyed to him. The defendant's case was that the transaction was simply a sale at a heavily discounted price and the payments made by her father were rent.
82 As in this case, McMurdo J found the difference between the purchase price and the value of the property to have been an important factor. His Honour also found it significant that the loan was used to discharge Mr Donaghue's mortgagee in the sum of $368,786.15 but that the balance of the loan was credited to the defendants and the contract sum was never paid in full.
83 After reviewing the evidence in that case, McMurdo J, at [61] of his Honour's reasons, found that the mutual intention was as Mr Donaghue contended: he was to pay all expenses of outgoings, including mortgage payments, and the defendants were to borrow effectively for his benefit as long as they were fully reimbursed. The house would not belong to the defendants beneficially, but instead it would be held by them until the debt to the CBA was discharged whether by another refinancing or from the proceeds of sale. His Honour found the mutual intention that the transaction would cost the defendants nothing but they would have no financial benefit from it. In that expectation Mr Donaghue transferred the house to them and it would be a "species of equitable fraud" for the defendants to insist upon their apparently absolute title to the house.
84 In his final submissions, counsel for the plaintiff relied strongly on the decision in Donaghue as being "on all fours" with this case. However, although there are some similarities, the differences are readily apparent and important. As should already be clear, the nature of the trust found to have been intended in Donaghue is quite different than the trust which the plaintiff claims was intended here. In this action, the plaintiff does not assert an intention common to Mr Dennis and Mr Herbert that Mr and Mrs Dennis would be fully reimbursed for the costs incurred in the acquisition and ownership of the property. I reject the submission that Mr Dennis would have intended an arrangement which would have resulted in a very substantial cost to him and his wife, potentially over many years, as would have been so on the plaintiff's case.
85 Nevertheless, I have considered whether the evidence in this case establishes a common intention more akin to that found in Donaghue. I am not satisfied that it does. In contrast to the circumstances of Donaghue, the evidence falls short of establishing a common intention to hold the property on trust even if full reimbursement was contemplated. The circumstances in which Mr and Mrs Herbert found themselves at the time of the transfer, combined with what I am satisfied was an
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overwhelming wish to stay in the property, suggest that there was no reasonable prospect that in the foreseeable future Mr Herbert would ever have been able to fully reimburse Mr and Mrs Dennis in the manner contemplated in Donaghue. It was not likely in Mr Herbert's contemplation at the time. He was not considering a sale. There was no reasonable prospect of refinance. His overwhelming motivation was to keep possession and so I am satisfied that he was prepared to sell at the price agreed to achieve his primary aim. I accept that it was a price far below the true value, but it was more likely than not that Mr Herbert was prepared to grab at any opportunity he could see available to him to stay in the property, and the gentleman's agreement he told his daughter about was Mr Dennis's agreement to allow him to remain in occupation. Mr Dennis's conduct is consistent with that scenario. Again, I think it likely that there was a discussion about whether Mr Dennis might sell the property back to him if he were ever able to pay Mr Dennis back, but a discussion about that opportunity fell short of impressing Mr and Mrs Dennis's ownership with a trust such that it would be an equitable fraud to later insist on their title.
86 I would decline to make the declaration of trust sought by the plaintiff.
87 Although not determinative of the action, Mr Dennis gave unchallenged evidence that the plaintiff paid some rent on the property during the year or so after her father's death but, since then, has occupied the property without paying rent or any other expenses. It is now almost 13 years since Mr Herbert died. For all of that time the defendants have paid interest on their mortgage to the ANZ Bank and all of the rates, land tax and insurance on the property. There is no evidence that the plaintiff has capacity to satisfy a trust in the nature of the trust established in Donaghue, either at the time of her father's death or at present. It was not the subject of argument, nor pleaded in the defence, but I would express some hesitation in principle in the declaration of a trust in circumstances which make it unlikely in the extreme that the terms could have been, or could now be, performed by the plaintiff either personally or in her capacity as administrator of her father's estate.
Conclusion and orders
88 The plaintiff's claim for a declaration of trust fails. I will make such orders as may be necessary for the removal of the caveat dated 22 October 2009, registered number C939951, and any other consequential orders.
referring to a series of academic articles including G E Dal Pont, "Equity's Chameleon – Unmasking the Constructive Trust" (1997) 16 Australian Bar Review 47. Refer also to the comments of the Court of Appeal of the Supreme Court of Victoria in Zekry v Zekry [2020] VSCA 336 at [76] and the decision of the Court of Appeal of the Supreme Court of Queensland in Nathan v Williams [2020] QCA 138 at [12], footnoting Dal Pont in "Equity and Trusts in Australia", Thomson Reuters 7th edition at [38.220].
[2014] HCA 19; 251 CLR 505 per Gageler J at [91].
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