Hyhonie Holdings Pty Ltd v Leroy
[2004] NSWCA 72
•18 March 2004
CITATION: Hyhonie Holdings Pty. Ltd. & Anor. v. Leroy & Anor. [2004] NSWCA 72 HEARING DATE(S): 9 March 2004 JUDGMENT DATE:
18 March 2004JUDGMENT OF: Mason P at 1; Handley JA at 2; Hodgson JA at 3 DECISION: Appeal dismissed with costs. CATCHWORDS: TRUSTS - Creation - By declaration of trust - Intention to create trust - Onus of proof - Sufficiency of evidence - EVIDENCE - Intention to create trust - Evidence of making of declaration of trust - No evidence of circumstances and no direct evidence of intention - No relevant cross-examination - Whether primary judge in error in not finding intention proved. LEGISLATION CITED: Conveyancing Act 1919 s.23C CASES CITED: Abalos v. Australian Postal Commission (1990) 171 CLR 167
Associated Alloys Pty. Ltd. v. CAN 001 452 106 Pty. Ltd. (2000) 202 CLR 588
Browne v. Dunn (1893) 6 The Reports 6
Commercial Union Assurance Co. of Australia Ltd. v. Ferrcom Pty. Ltd. (1991) 22 NSWLR 389
Lamshed, In Re [1970] SASR 224
T. Choithram Internation SA v. Pagarani [2000] 1 WLR 1PARTIES :
Hyhonie Holdings Pty. Ltd. - 1st appellant
Liela Marie Yazbek - 2nd appellant
Paul Leroy as trustee of the bankrupt estate of Robert Lewis Yazbek - 1st respondent
Robert Lewis Yazbek - 2nd respondentFILE NUMBER(S): CA 40627/03 COUNSEL: Mr. R.J. Powell SC with Mr. J. Potts for appellants
Mr. B. Connell for 1st respondent
No appearance for 2nd respondentSOLICITORS: Bowring Stone, Sydney for appellants
Clinch Neville Long, Sydney for respondents
LOWER COURTJURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): ED 2663/03 LOWER COURT
JUDICIAL OFFICER :Young CJ in Eq.
CA 40627/03
ED 2663/03Thursday 18 March 2004MASON P
HANDLEY JA
HODGSON JA
1 MASON P: I agree with Hodgson JA.
2 HANDLEY JA: I agree with Hodgson JA.
3 HODGSON JA: The second respondent (Mr. Yazbek) became bankrupt on 11 June 2002 on presentation of his debtor’s petition, and the first respondent (Mr. Leroy) became his trustee in bankruptcy.
4 On 6 March 2003, the first appellant (Hyhonie) and the second appellant (Leila Yazbek) filed a summons in the Equity Division of this Court seeking a declaration that 1,000 shares in Aldora Holdings Pty. Limited (Aldora) in the name of Mr. Yazbek were held on trust for the Robert Yazbek Family Trust (the Trust), and consequential relief.
5 On 11 July 2003, Young CJ in Eq. made orders dismissing the proceedings and ordering Hyhonie and Leila Yazbek to pay Mr. Leroy’s costs. Hyhonie and Leila Yazbek appeal to this Court from that decision.
- CIRCUMSTANCES
6 The case concerns the effect of a document bearing date 14 March 1997, signed by Mr. Yazbek and witnessed by Anthony Alexandrou, in the following terms:
THIS DECLARATION OF TRUST is made by Robert Lewis Yazbek of 28 Liguria Street, South Coogee in the state of New South Wales
WHEREAS
1. I am the holder of one thousand (1,000) ordinary shares, in the Company known as Aldora Holdings Pty Limited, (A.C.N. 077 577 550) and having its registered office at Level 8, 55 Grafton Street, Bondi Junction, in the State of New South Wales.
2. Monies used by me for the acquisition of the shares in the Company aforesaid were provided by The Robert Yazbek Family Trust of Level 8, 55 Grafton Street, Bondi Junction, NSW, and not by me personally.
3. At the request of and by arrangement with the current trustee of the Robert Yazbek Family Trust, being a company by the name of Hyhonie Holdings Pty Ltd (ACN: 075 076 345) I have personally become a shareholder of the Company aforesaid.
4. I am at all times acting and have at all material times acted as Nominee and Trustee only for the Robert Yazbek Family Trust as herein set out.
NOW I the said Robert Lewis Yazbek DECLARE that:
• I hold now, and at all material times have held, and will hold the benefit of the shares in the Company aforesaid for and on behalf of the Robert Yazbek Family Trust and not otherwise;
• The profits and receipts arising therefrom shall be, and are, held by me on trust for and not otherwise, subject at all times to the Robert Yazbek Family Trust indemnifying and holding me indemnified against loss (if any) thereby incurred.
IN WITNESS THEREOF I the said Robert Lewis Yazbek have hereunto set my hand this fourteenth day of March 1997.
SIGNED SEALED AND DELIVERED:
By the said
In the presence of:
The document bears a stamp indicating that New South Wales duty on the document was paid on 28 February 2001.
7 The appellants’ contention before the primary judge and before this Court is that this document was effective according to its terms; while Mr. Leroy’s contention is that, for various reasons, the document is ineffective. To understand the basis of the rival submissions, it is necessary to recount a history of relevant events.
8 The Trust was established by a Deed of Settlement dated 26 August 1996. This Deed named Hyhonie as Trustee, and recorded payment by the settlor to Hyhonie of the sum of $10 to be held on the trusts set out in the Deed.
9 Hyhonie had been incorporated on 1 August 1996, and it was purchased as a shelf company by Mr. Yazbek or persons associated with him on about 21 August 1996. At all material times until his bankruptcy, Mr. Yazbek was the sole shareholder and sole director of Hyhone, and also one of the beneficiaries of the Trust.
10 Aldora was incorporated on 20 February 1997, and was acquired by persons associated with Mr. Yazbek later that month. It subsequently became entitled to shares in a company called Doncaster Developments (NSW) Pty. Limited (Doncaster) which was itself interested in property development.
11 According to a Form 207 Notification of Allotment of Shares, dated 14 March 1997, on that day Aldora allotted 1,005 ordinary shares of $1 each, for cash, paid to $1, of which 1,000 were allotted to Mr. Yazbek and five to Mr. Yazbek’s father Malek Yazbek. According to a Form 304 Notification of Change of Office Holders, dated 14 March 1997, on that day Mr. Yazbek and his father were appointed directors of Aldora.
12 The document relied on by the appellants as a declaration of trust bears the same date, namely 14 March 1997. The witness to Mr. Yazbek’s signature, Mr. Alexandrou, was then accountant for Yazbek interests, and he remained so until December 2000, when he was replaced by Peter White. Both Mr. Yazbek and Mr. Alexandrou gave evidence for the appellants before the primary judge, but neither of them offered any evidence as to the circumstances of the signing of the document, and Mr. Yazbek said nothing about his intention when he signed the document. His evidence on that matter was simply that he “made the declaration”. There is no evidence as to what happened to the document after it was signed, until it was discovered by Mr. White in a box of documents collected from Mr. Alexandrou in February 2001.
13 The income tax return for the Trust for the year ended 30 June 1997 was prepared by Mr. Alexandrou on the instructions of Mr. Yazbek. The balance sheet showed current assets as the $10 contributed by the settlor, non-current assets of $852.00 comprising preliminary expenses, and current liabilities of $852.00 being a loan from Mr. Yazbek. This figure was the figure in a bill from the solicitors for Hyhonie for professional costs concerning the Deed of Settlement.
14 Similar figures appear in the income tax return for the Trust for the year ended 30 June 1998, also prepared by Mr. Alexandrou on the instructions of Mr. Yazbek, except that the loan from Mr. Yazbek had been increased by $80.00, and further non-current assets were noted being shares in two companies amounting to $30.00 and $50.00 respectively.
15 There were substantial differences in the accounts and income tax return for the Trust for the year ended 30 June 1999, also prepared by Mr. Alexandrou on instructions from Mr. Yazbek; but although there is reference in them to a loan to Aldora of $22,700.00, there is no reference to any shares in Aldora.
16 The Annual Return of a Company for Aldora for 1997 signed by Mr. Yazbek, under a declaration of correctness, and dated 27 November 1997, records the members’ names and addresses; and in relation to the question of whether a member was beneficial owner of shares, answered yes in relation both to Mr. Yazbek’s 1,000 shares and his father’s five shares. The same appears in the Annual Return for Aldora for 1998, dated 1 September 1999; and for 1999, dated 16 January 2000 (although on this document there appears no handwritten signature, the document having been electronically lodged by Mr. Alexandrou).
17 On 10 July 1978, Mr. Yazbek as director on Hyhonie signed a direction requiring Mr. Alexandrou to transfer to Hyhonie certain shares held by Mr. Alexandrou in trust for Hyhonie. There is no similar document, or any transfer to Hyhonie, concerning the subject shares in Aldora.
18 Evidence was led of discussions in 2000 and 2001 involving Mr. Yazbek, in which it was said that Mr. Yazbek made offers of securing his own liabilities by a charge over his shares in Aldora. This was denied by Mr. Yazbek, and this conflict in the evidence was not resolved by the primary judge, although he expressly said he did not reject the evidence of the person who gave evidence of these conversations.
19 As mentioned earlier, Mr. White discovered the document the subject of these proceedings in February 2001. On 14 February 2001, he sent an email to a co-employee in the following terms:
FYI when preparing the 2000 year accounts for the Robert Yazbek Family Trust we have discovered that the previous accountant has left out the shares that the trust holds in the company 'Aldora Holdings Pty Ltd'. These were never brought to account in the trust.
This will also affect the annual return of Aldora Holdings Pty Ltd in that the 1000 shares held by Robert Yazbek are in fact held on behalf of the Family Trust (ie not beneficially).
All good fun.I've asked David to set up the companies within CRS. The 1000 shares will need to be input as being held by Robert Yazbek (ie the legal owner) with the Robert Yazbek Family Trust as the beneficial owner.
20 Mr. White caused the document to be stamped on 28 February 2001. He gave evidence that before doing so, he asked Mr. Yazbek “Will I stamp it?” to which Mr. Yazbek replied “Whatever, ok”. However, subject to certain matters I will come to, nothing was done to recognise or give effect to this trust until at least May 2002.
21 Aldora’s Annual Return for 2001, signed by Mr. Yazbek on 31 August 2001, still showed Mr. Yazbek’s shares in Aldora as beneficially owned.
22 The accounts for the Trust for the years ended 30 June 2000 and 30 June 2001, produced at about the end of May 2002, still do not record beneficial ownership of Aldora shares. However, they do record the holding of 195 Doncaster shares: this apparently represented the shares in Doncaster held by Aldora, although Mr. Yazbek only held 1,000 of the 1,005 shares in Aldora, the other five shares being owned by his father, and being shares as to which no trust in favour of Hyhonie is suggested. The accounts for the year ended 30 June 2001 showed that the Trust owed Mr. Yazbek $439,053.94.
23 As mentioned earlier, Mr. Yazbek became bankrupt on his own petition on 11 June 2002. In connection with that petition, Mr. Yazbek prepared a Statement of Affairs, and he made a declaration on 6 June 2002 that the particulars set out in this Statement of Affairs were correct. In that statement, in the part referring to Aldora, he asserted that he had owned 1,000 shares in the company, and sold them to Leila Yazbek on 23 May 2002 for $1,000.00; and in relation to Hyhonie, he asserted that he had not transferred any asset to that company in the last five years.
24 On 4 July 2002, Aldora’s Annual Return for 2000 was re-lodged after requisition. As re-lodged, it contained a handwritten alteration to the effect that Mr. Yazbek’s shares in it were not owned beneficially. The document itself bears a date 28 March 2002, but Mr. Yazbek admitted that the change could have been made later; and in view of the contents of the Statement of Affairs, the inference that it was made later is a strong one.
25 No notification was ever given to Aldora that the shares were not beneficially owned by Mr. Yazbek, although cl.23.9 of Aldora’s Articles of Association require this to be done if the shares were not held beneficially.
26 No document was put into evidence, apart from the document dated 14 March 1997 itself, coming into existence prior to the end of May 2002, to suggest that the trust purportedly declared by that document was ever carried into effect, apart from some documents referred to in submissions for the appellants, to which I will come.
DECISION OF PRIMARY JUDGE
27 The primary judge held that the trust purportedly declared on 14 March 1997 never come into existence, or else was incompletely constituted. He inclined to the first, apparently on the basis that the intention to create a trust was not proved; but alternatively, he was not satisfied that any intention to create a trust was carried into execution. The primary judge did not explore the question whether the transaction was abandoned, or a sham.
28 The primary judge rejected an argument of the appellants’ Counsel that Mr. Yazbek was not cross-examined on certain matters, so that Mr. Leroy was precluded by Browne v. Dunn (1893) 6 The Reports 6 from submitting that there was no intention to create a trust.
29 The primary judge also held that, if Hyhonie was otherwise entitled to relief, and if it owed $439,053.94 to Mr. Yazbek as stated in its most recent accounts, it had to do equity by paying this debt before being given relief.
GROUNDS OF APPEAL
30 The grounds of appeal relied on by the appellants are sufficiently indicated by the submissions set out below.
31 Mr. Leroy has put on a Notice of Contention. Having regard to the decision I have come to in relation to the grounds of appeal, it is not necessary to refer to this in any detail.
SUBMISSIONS
32 Mr. Powell SC for the appellants submitted that, in so far as the primary judge adopted submissions of Mr. Connell, Counsel for Mr. Leroy, that the trust was revocable and revoked by immediate abandonment, he was incorrect. The only way to have a revocable trust was to have a power to revoke reserved, and here there was nothing to support such reservation.
33 In so far as the primary judge found that there was no intention to create a trust, or to bring it into effect, Mr. Powell submitted the primary judge was in error in this respect also.
34 First, Mr. Powell submitted, that to make such a finding, the primary judge would need to have found that the document was a sham; and he expressly did not find this to be the case.
35 Second, Mr. Powell submitted that, in circumstances where a declaration of trust had been signed, there was an onus on Mr. Leroy to bring strong evidence rebutting an intention to create a trust, and this was not discharged: see In Re Lamshed [1970] SASR 224 at 239.
36 Third, Mr. Powell submitted that the existence of an intention to create a trust was positively supported. The declaration was made in the presence of Mr. Yazbek’s accountant, and witnessed by him. Mr. Yazbek gave instructions for the document to be stamped in February 2001. Hyhonie paid two cheques for expenses of the development undertaken by Doncaster. Mr. Yazbek is shown as attending a directors meeting of Doncaster on 17 August 1999 as a representative of Hyhonie. The 2000 and 2001 accounts of the Trust show the Doncaster shares as assets of the Trust.
37 Fourth, he submitted, the primary judge was in error in summarily dismissing the third and fourth of the matters in the previous paragraph, and giving no reasons for doing so; and in simply ignoring the fifth of those matters.
38 Fifth, Mr. Powell submitted that the primary judge was in error in finding that the words “All good fun” in Mr. White’s email of February 2001 indicated that a smokescreen was being created.
39 Finally, he submitted, the primary judge was in error in finding there was no intention to create a trust, when this proposition had never been put in cross-examination to Mr. Yazbek.
DECISION
40 I would first note, before dealing with the issues that have been argued, that this case was never put on the basis that the subjective intention of Mr. Yazbek was irrelevant because the document took effect as a deed: it would seem that if it had taken effect as a deed, Mr. Yazbek would be conclusively bound by what he stated in the deed that he was effecting, undertaking or permitting (see Halsbury’s Laws of England (4th Ed.) Vol.12 [1353]). The document was executed as a deed, but it would not take effect as a deed unless delivered. For a deed to be delivered, the party whose deed the document is expressed to be must, by words or conduct, expressly or impliedly, acknowledge his intention to be immediately and unconditionally bound by the provisions contained in it (Halsbury’s Laws of England (4th Ed.) Vol.12 [1329]). The words “signed, sealed and delivered” on the document is evidence of delivery, but not conclusive evidence.
41 Accordingly, if the appellants had relied on this document as a deed, this would have squarely raised the question of whether or not the deed had been delivered, and if so, whether or not it had been delivered in escrow (see Halsbury’s Laws of England (4th Ed.) Vol.12 [1333]-[1334]). These questions involve very similar questions of fact to the questions which were disputed, namely whether it was shown that Mr. Yazbek had an intention to create a trust there and then. There is every reason to think that the same result would be reached.
42 In order to create a trust of shares, no writing is necessary: s.23C of the Conveyancing Act 1919 relevantly applies only to real property or to disposition of an existing equitable interest. What would be necessary in this case is an express declaration of trust, intended to be final and binding on the trustee.
43 I accept the statement of the position made by Bray CJ in Lamshed at 239:
- It is clear law that despite the unambiguous words of the declaration the trust apparently created by them can be rebutted by evidence of a contrary intention (Commissioner of Stamp Duties (Qld) v. Jolliffe (1920) 28 CLR 178). But the onus is on those who seek to prove such an intention and strong evidence is required for the purpose (In Re Steele [1925] SASR 272). Many cases were cited to me where this had been done successfully. In some of these cases the depositor was alive and gave evidence of his own intention and was believed (Jolliffe’s case; Starr v. Starr [1935] SASR 263). In other cases when the depositor was deceased there was evidence of specific declarations made by him during his life time (Winter v. Grady (1921) SR(NSW) 686 at 691), though sometimes these related to the interest only and the trust stood as to the principal (Kauter v. Hilton (1953) 90 CLR 86; Re Armstrong (Deceased) [1960] VR 202 at 206). And in some cases the trust was held to be rebutted after the death of the depositor by evidence entirely or largely circumstantial (In Re Appleby’s Estate (1930) 25 TasLR 126; Re McGuire, Deceased (1937) 41 WALR 120; Teasdale v. Webb (1940) 57 WN(NSW) 151; Abbot v. Miles (unreported, Supreme Court of South Australia, Napier, CJ, 12 May 1952); Jeffrey v. Miles (unreported, Supreme Court of South Australia, Mayo J, 10 December 1952).
44 That quotation related particularly to declarations of trust concerning a bank account, but in general terms it applies to declarations of trust generally. It is consistent with the later High Court decision of Associated Alloys Pty. Limited v. ACN 001 452 106 Pty. Limited (2000) 202 CLR 588. I note also that the Privy Council decision in T. Choithram International SA v. Pagarani [2000] 1 WLR 1 depended on a finding by the Privy Council that the donor in that case had an intention to make an immediate and absolute gift.
45 I accept that the signing of the declaration, and having it witnessed, is some evidence of the required intention, and that there was an onus on Mr. Leroy to rebut that intention. However, this onus on Mr. Leroy was an evidentiary onus, and the ultimate onus remained on the appellants to prove the creation of a trust. The existence of this ultimate onus had some significance in this case, where there was substantial evidence tending to rebut an intention to create a trust.
46 The substantial evidence against an intention to create a trust in this case was the passage of over five years, when (with small exceptions) all documents that were created by Mr. Yazbek, and/or Mr. Alexandrou or Mr. White on Mr. Yazbek’s instructions, relating to the Trust and Aldora, were inconsistent with the existence of a trust, and consistent only with beneficial ownership of the shares by Mr. Yazbek.
47 The first document created after 14 March 1997 was apparently the Trust income tax return for the year ended 30 June 1997, which plainly showed the assets of the Trust as not including any interest in the Aldora shares. The same applied to the income tax returns for the years ending 30 June 1998 and 30 June 1999. The income tax return for the year ended 14 March 1997 was also strong evidence that the recital in the document of 14 March 1997 to the effect that the shares had been paid for by the Trust was false: there is a plain inference from the Aldora documents that $1,000.00 had been paid for the shares, and no such amount, or anything like it, had been subscribed to or lent to the Trust in the year ending 30 June 1997.
48 I have also referred to assertions in the annual returns of Aldora, up to the return lodged in July 2002, declared to be true by Mr. Yazbek, that his 1,000 shares in Aldora were owned beneficially.
49 As late as 6 June 2002, Mr. Yazbek declared to be true that he had owned 1,000 shares in Aldora, and had sold them to Leila Yazbek on 23 May 2002 for $1,000.00.
50 Against that background, in my opinion the indications relied on by Mr. Powell that the shares were held on trust were trivial. The cheques paid by Hyhonie for the Doncaster development could equally have been loans, and in fact loans from Hyhonie to Aldora approximating the amounts of these cheques were recorded. The existence of just one minute recording Mr. Yazbek as attending one meeting as a representative of Hyhonie was in my opinion de minimis. The 2000 and 2001 accounts of the Trust were not prepared until just before Mr. Yazbek’s bankruptcy. The instructions given to stamp the document in February 2001 were given in off-hand terms, and led to nothing until May 2002.
51 In my opinion, the evidence tending to rebut the existence of an intention to create a trust was strong evidence. Mr. Yazbek gave evidence in the case for the appellants, and in the face of the strong evidence tending to rebut an intention to create a trust, one would have expected Mr. Yazbek to give direct evidence of his intention and of the circumstances of the creation of the trust and an explanation of its non-implementation, if any of this evidence would have assisted the appellants’ case. Similarly, Mr. Alexandrou gave evidence for the appellants, and if evidence from him concerning the circumstances and the non-implementation would have assisted the appellants’ case, one would have expected that evidence to have been given.
52 The fact that this evidence was not given by Mr. Yazbek or Mr. Alexandrou means that the primary judge’s non-satisfaction of the existence of an intention to create a trust then and there does not depend on credit findings, so the appellants do not face the difficulty discussed in Abalos v. Australian Postal Commission (1990) 171 CLR 167. However, it also means that it was and is open to the Court to draw the inference that direct evidence of Mr. Yazbek’s intention and of the circumstances of signing would not have assisted the appellants: see Commercial Union Assurance Co. of Australia Limited v. Ferrcom Pty. Limited (1991) 22 NSWLR 389 at 418-9.
53 The primary judge apparently did not rely on that inference; but it is a line of reasoning that gives further support to the primary judge’s rejection of the appellants’ submission based on Browne v. Dunn.
54 In my opinion, the appellants cannot rely on Browne v. Dunn in this respect. Mr. Leroy accepted that the document had been signed and witnessed on the day, as stated in evidence by Mr. Yazbek and Mr. Alexandrou; but by tendering the material I have referred to, he plainly put in issue whether Mr. Yazbek had the intention then and there to create an immediate and absolute trust of these shares. Where Mr. Yazbek led no direct evidence as to what his intention was, and where neither Mr. Yazbek nor Mr. Alexandrou led evidence of the circumstances of the signing or of any explanation for the non-implementation, there was no need for Mr. Leroy to cross-examine such evidence into existence.
55 Turning to Mr. Powell’s particular submissions, there was in my opinion no need for the primary judge to find a sham. The expression “sham” suggests some kind of pretence being put up. Here, there is just a document signed and witnessed and then simply left with other papers, not acted on, and never shown to anyone else. In my opinion, those circumstances strongly suggest a lack of intention to give effect to the document, in a way that does not merit the description “sham”.
56 As for the onus on Mr. Leroy referred to in Lamshed, in my opinion Mr. Leroy’s evidentiary onus was plainly discharged. In my opinion, the primary judge was not in error in so far as he found that the ultimate onus on the appellants to show an intention to create a trust was not discharged.
57 Turning to Mr. Powell’s submissions concerning evidence in support of the existence of the requisite intention, my opinion is, as discussed above, that the objective evidence against the existence of the relevant intention vastly outweighed the objective evidence tending to support its existence. Because of the relatively trivial nature of the evidence supporting an intention to create a trust, the reasons given by the primary judge in relation to that matter were in my opinion adequate.
58 As regards the words “All good fun”, I accept that the inference drawn by the primary judge was questionable, and also that it should not have been drawn when the matter was not squarely put to Mr. White. However, the error involved in this matter is very minor, and does not in my opinion vitiate the reasoning of the primary judge.
59 Finally, I have already adequately dealt with the Browne v. Dunn submission.
60 For those reasons, in my opinion there was no error in the primary judge’s view that the appellants had not established that there was, at the time of the signing of the document of 14 March 1997, or at any relevant time thereafter, an intention to create a trust. I would for myself have come to the same decision, particularly having regard to the principles stated in Ferrcom. There is no need to consider the question of revocability, the question of whether the appellants would be required to do equity, or issues raised by the Notice of Contention.
CONCLUSION
61 For those reasons, in my opinion the appeal should be dismissed with costs.
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