Idrizovska v Saliu

[2015] NSWSC 1642

Supreme Court

New South Wales

Medium Neutral Citation:	Idrizovska v Saliu [2015] NSWSC 1642
Hearing dates:	10 March, 30 October and 5 December 2014, 2, 3 and 4 November 2015
Date of orders:	18 November 2015
Decision date:	04 November 2015
Jurisdiction:	Equity
Before:	Pembroke J
Decision:	See paragraphs [30] and [31]
Catchwords:	CONSTRUCTIVE TRUST – dishonesty – no intention to retain beneficial interest
Cases Cited:	Briginshaw v Briginshaw (1938) 60 CLR 336 Paragon Finance PLC v D B Thakerar & Co [1999] 1 All ER 400
Category:	Principal judgment
Parties:	Mevlude Idrizovska –plaintiff Afrim Saliu – first defendant Steven McAneny – second defendant
Representation:	Counsel: S Blount – for the plaintiff R Lee – for the first defendant No appearance for the second defendant   Solicitors: Kylie Maxwell Solicitors – for the plaintiff Hills Legal Group – for the first defendant Sparke Helmore – for the second defendant
File Number(s):	2012/270835

Judgment

Introduction

1. The plaintiff is an elderly lady who came to Australia about 40 years ago from Macedonia. She is now in her late seventies. She completed four years of schooling, speaks very little English and only speaks Albanian and Macedonian. In 1958 she married Kenan Idrizovski who was at one stage the first plaintiff in these proceedings. His claim was dismissed on 4 February 2015 and orders were made permitting the second plaintiff to amend the statement of claim and proceed in her own right as the sole plaintiff.

2. The plaintiff has never worked in Australia. About a year after she arrived she purchased, as joint tenant with her husband, a property at 8 Baldwin Street, Erskineville. This property was, and remained, her only significant asset. The plaintiff has two daughters, Anna and Tina. The first defendant is the eldest son of Anna.

3. Since about 1997 the plaintiff has been estranged from her husband and they have lived separately. The plaintiff left the family home at Erskineville and resided with her daughter Tina in Wollongong. Mr Idrizovski remained in the Erskineville property until it was sold.

The Mortgages

4. On 30 June 2000 the plaintiff and her husband signed a joint mortgage over the property to secure a loan of $250,000 to assist their daughter Anna and Anna's husband Eric. On 9 January 2002 that loan was refinanced and increased to $450,000. The plaintiff’s signature on that mortgage was forged. On 14 July 2005 the loan amount of $450,000 was refinanced and secured by a further mortgage. The plaintiff's signature on that mortgage was also forged.

5. On 17 September 2009 the property was transferred to the first defendant. The plaintiff's signature on that transfer was forged. She did not receive the benefit of any of the loans secured by the mortgages over the property other than the mortgage signed by her on 30 June 2000. She did not know or approve or consent to the other transactions. She did not receive the benefit of the transfer to the first defendant, except to the extent that moneys were paid to discharge the mortgage for $450,000, which had paid out the earlier genuine mortgage loan of $250,000.

6. After about 8 June 2010, no further payments were made to service the loan secured over the property. In June 2012, the mortgagee took possession. In October 2012 it sold the property for $1,520,000. The surplus from the sale was paid into court. As at 3 November 2015, the surplus in court was $739,291.50.

Transfer to First Defendant

7. The transfer of the property on 17 September 2009 from the plaintiff and her husband to the first defendant was a fraudulent transaction. I have already mentioned that the plaintiff's signature on the transfer was forged. There were other unusual features of the transfer.

1. The consideration was stated to be $740,000. This was below the market value of $850,000. But the evidence did not satisfy me in any event that any such amount was actually paid. It was, I think, an arbitrary figure. The amount necessary to pay out the outgoing mortgagee, Australia and New Zealand Banking Group, was approximately $582,000. This was the amount owing in respect of the original loan of $450,000 together with accrued interest.

2. The first defendant himself provided no moneys from his own funds. He conceded that he made no personal financial contribution to the acquisition of the property in his name. The National Australia Bank, the incoming mortgagee, provided only $532,000 through its division known as Homeside Lending. $14,000 was provided as a first homeowner's grant and further sums of $5,000, $10,000 and $21,000 were also provided.

3. Mr McAneny, a solicitor who acted on the transaction and who was originally named as the second defendant in the proceedings, said that he did not know where those moneys, which were paid into his trust account, came from. The first defendant also said that he did not know where those moneys came from. The evidence at the hearing suggested that at least the sum of $21,000 was paid by Saliu Transport Pty Limited. The point however is that there was no evidence of whether or how the balance of the stated consideration of $740,000 was paid. I infer that it was not.

8. The first defendant was the only witness called in his case. Neither his mother Anna, his sister Edita, nor his father Eric gave evidence. I was told there were extant criminal proceedings involving some or all of these family members. Given the uncontested evidence of forgery, I am not surprised.

9. The first defendant's case is that he bought the property as an investment; that as far as he was concerned at the time the transfer was genuine, and that he, not the plaintiff and her husband, are entitled to the net surplus of approximately $739,000 that has been paid into court. He feigns ignorance, at the time of the transfer, of any wrongdoing by any member of his family or any forgery of the plaintiff's signature.

Credibility

10. I have carefully considered the first defendant's evidence in the context of the contemporaneous facts and the probabilities. I have reached the conclusion, regrettably, that I should not accept the evidence of the first defendant. Indeed, I am comfortably satisfied that it is appropriate to make such a finding: Briginshaw v Briginshaw (1938) 60 CLR 336 at 362-3.

11. I was not impressed by the first defendant as a witness. He was far more intelligent than he sought to convey; he followed the evidence closely; interjected non-responsively when he thought it was in his interest to did so; and was obviously acutely aware of the issues. He was, I should add, frequently smug. His evidence was unpersuasive. His demeanour troubled me. I do not think he was doing his best to give honest evidence. In fact I formed the view that he was prepared to say almost anything that he thought might advance his case. The contemporaneous objective facts add weight to my conclusion that I should not accept the first defendant's evidence:

1. The first defendant contended that he ‘bought’ the property as an investment but he was really in no financial position to buy anything. He contributed nothing, unless you include the first homeowner's grant. And there was no evidence of any financial capacity on his part to do so – no evidence of income and no evidence of assets or savings.

2. At the time, he was about 31 years of age and was engaged in a transport haulage business with his younger sister. There was no evidence of the prosperity of that business. I infer that it was a modest business and probably unprofitable. The first defendant certainly conceded that it was in trouble after 2009 but blamed Tina's family for its difficulties. Far from being the unintelligent and unknowing person that he attempted to portray, the first defendant was better educated than, I suspect, the previous generation of his family.

3. As I said, he was the eldest son. He completed secondary schooling and obtained his higher school certificate. He was articulate in the witness box and, in my assessment, clever. By 2009 he and his sister Edita were the sole shareholders and directors of the company known as Saliu Transport Pty Limited, to which I have already referred. Edita is four years younger than the first defendant. I reject the first defendant's evidence that his younger sister, who did not give evidence, made the decisions in relation to the company. They collaborated together and jointly made decisions about the business, affairs and operation of the company. He was not just ‘covered in grease’ as he unpersuasively protested.

12. There were other factors that have influenced my conclusion.

1. I have already referred to the additional sums of $5,000, $10,000 and $21,000 that were paid towards the discharge of mortgage of the outgoing mortgagee, in addition to the loan funds of $532,000 from the National Australia Bank. Curiously, the defendant said he knew nothing about those smaller sums including the sum of $21,000.

2. On the issue of whether he lived in the family home with his parents and sister, especially in 2009, the first defendant was evasive in the witness box. The issue appeared to be one to which he was sensitive. I am at least satisfied that he mostly lived with his parents, including in 2009.

3. After the first defendant ‘bought’ the property, nothing much changed. His grandfather continued to live there as he had done before the transfer. The defendant said he lived there ‘a couple of times, I think’, but it is clear that his principal residence remained his parents' home. He said he paid some outgoings on the property such as rates but there was no evidence of what payments he made, if any.

4. From the date of the transfer to the first defendant and the loan of $532,000 from the National Australia Bank, only six repayment instalments were paid and the loan went quickly into default. The defendant blamed unspecified personal and financial problems but it is clear that he never had the capacity to service the loan let alone purchase the property.

No Beneficial Interest

13. Counsel for the plaintiff described the acquisition of the property by the first defendant as a ‘scam’. It was certainly artificial. It was not a genuine purchase by the first defendant. The first defendant well knew, in my opinion, that he became the registered proprietor nominally, solely to enable more moneys to be raised on the security of the property for the benefit of his mother's family. He did not intend or expect to have the beneficial interest in the property. He intended to hold the beneficial interest for the registered proprietors.

14. I accept the evidence of Mr McAneny that in 2012 he had a conversation with the first defendant in which he explained that, after the mortgagee sale ‘the balance will go to you as the registered proprietor, although they are your grandfather's funds’. (emphasis added) Mr McAneny referred to ‘your grandfathers funds’ loosely, and perhaps a little chauvinistically. He was not intending to distinguish between husband and wife, both of whom he knew were the former joint registered proprietors. The first defendant accepted Mr McAneny’s statement and did not question it. There was no attempt in his affidavit (subsequent to that of Mr McAneny) to deny or contradict that conversation. Mr McAneny was clearly a witness of truth who endeavoured to assist the court. There was no submission to the contrary.

15. In the witness box, the first defendant was alert to the significance of the conversation with Mr McAneny and clearly sought to qualify or improve the natural inference from it. He even contended, inconsistently with his primary case, that he took Mr McAneny’s statement literally so as to exclude the plaintiff. His primary case was, of course, that he alone was the beneficial owner of the property and of the moneys paid into court.

16. I doubt that it matters, but if it does, I reject the first defendant's evidence that he did not know that the plaintiff was one of the registered proprietors. But in the circumstances, his denial of the interest of the former registered proprietors, whether or not he had actual knowledge of their precise identity, is a species of equitable fraud.

Failure to Act Honestly

17. I have also reached the conclusion that the first defendant acquired title to the property in circumstances where he should be taken to have been implicated in the fraud on the plaintiff. He did not behave reasonably as an honest person in his position would have done. Even if he did not have actual knowledge of the forgery, he turned a blind eye to the likelihood of fraud. A reasonable person in the position of the first defendant who acted honestly would not have agreed to the transfer without making any inquiries.

18. The first defendant's inability to afford the purchase or the loan; the circumstances surrounding the transaction; his lack of knowledge of the source of purchase moneys, other than the National Australia Bank loan of $532,000; the fact that the transfer was not an arms' length transaction; the age, lack of education and vulnerability of both his grandparents; the arbitrary figure for the ‘consideration’ specified in the transfer; and the transparent artificiality of the transaction as a whole, all combine to implicate the first defendant in the fraud in equity. If he was ignorant of the true facts, it was because, in my judgment, he deliberately chose to remain ignorant. If he was cavalier and unquestioning, it was because he deliberately chose to be cavalier and unquestioning, suspecting that inquiry might have revealed wrongdoing. His conduct was wilful. At the very least it was reckless.

19. The first defendant was not an innocent dupe in connection with the transfer of the property to him. He was not then, and is not now, unintelligent. He was, and is, astute and close to his family. I do not accept the unstated premise of his defence that his mother, sister or possibly his father deliberately concealed the true facts from him. Even if they did, the first defendant should have known better. He was put on enquiry and dishonestly closed his eyes. In the words of Millet LJ in Paragon Finance PLC v D B Thakerar & Co [1999] 1 All ER 400 at 409, the first defendant is a person ‘sufficiently implicated in the fraud’:

Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally, although I think unfortunately, described as a constructive trustee and said to be liable to account as constructive trustee.

Relief and Remedies

20. That brings me to the question of relief. As I mentioned, the amended statement of claim names two defendants. The first defendant is the son of Anna. The second defendant is Mr McAneny, the solicitor who acted in certain respects in relation to the various transactions. The claim against the second defendant was dismissed following a mediation and settlement. It was quite different to the claim against the first defendant, which is a trust claim.

21. The relief specified in the amended statement of claim against the first defendant is as follows:

1. A declaration that the first defendant held the first plaintiff's share of the property as constructive trustee.

2. A declaration that the first defendant holds the second plaintiff's share of the money paid to him in respect of the sale of the property on constructive trust.

3. An order that the first defendant account to the second plaintiff for her interest in the money paid to him in respect of the sale of the property.

22. In the alternative, but not in addition, there is an unparticularised claim against the first defendant for damages or equitable compensation. The nature of the trust claim against the first defendant is apparent from the pleading. After reciting the alleged facts, paragraph [18] states:

In the circumstances, the first defendant held the second plaintiff's share in the property on constructive trust.

23. Paragraph [19] states:

Further, or in the alternative, the first defendant held the second plaintiff's share in the property on constructive trust.

24. Paragraph ]20] states:

The second plaintiff's share in the property can be traced into surplus remaining after the sale of the property by the mortgagee in possession in December 2012.

25. The plaintiff received $200,000 in settlement of her claim against the second defendant. Her causes of action against him were not trust claims. The primary claim related to Mortgage 8635265S given in January 2002 to Perpetual Trustees Victoria Limited. By this mortgage, the amount secured over the property was increased from $250,000 to $450,000 without the knowledge or consent of the plaintiff. The allegation against the second defendant was that he purported to witness the plaintiff's signature on the mortgage, when it was not her signature. The first defendant was not involved in this transaction, which occurred seven years before the fraudulent transfer to him.

26. By his conduct, the second defendant assumed a duty of care to the plaintiff, which he breached. The plaintiff’s interest in the property was consequently decreased by half of the amount by which the loan secured over the property was increased, and by the subsequent escalation of the amount outstanding to the mortgagee, as the unauthorised loan went increasingly into default and interest compounded. That cause of action, which appears entirely sound, more than accounts for the settlement sum of $200,000.

27. There was also a second cause of action against the second defendant. It was a monetary claim said to arise from his failure to avoid a conflict of duty in connection with the transfer to the first defendant in 2009. This breach of duty is said to have resulted in the ‘second plaintiff's share of the property being transferred for inadequate consideration’. There is no specification of what the loss is from this cause of action, and no evidence as to whether the settlement sum of $200,000 was apportioned between the two causes of action. Nor was there evidence as to whether the sum of $200,000 was inclusive of costs.

28. The second cause of action against the second defendant seems problematic. In any event it does not appear to be a claim for the same loss as is the subject of the trust claim against the first defendant. In the circumstances, I do not think that there is any proper basis for reducing the amount of the plaintiff's claim to the trust property, represented by the moneys held in court, by the amount of the settlement sum paid by the second defendant. They are separate and distinct.

29. Finally, the corollary of my reasons is that the second plaintiff's husband, who was once a party to these proceedings and whose claim was dismissed, is also prima facie the beneficial owner of 50% of the moneys held in court – unless of course he has made some agreement or otherwise acted to relinquish his interest in favour of the first defendant, or any other person. It may be that the orders dismissing his claim operate to bar him from claiming any entitlement to the moneys in court.

30. As he is no longer a party to the proceedings, and is not represented before me, and because I do not know whether he still claims to be entitled to an interest in the moneys held in court, I should make no orders for the time being as to the payment out of the balance of the moneys held in court. However, there should be an order for the immediate payment to the plaintiff of her half share of the moneys in court. She is also entitled to costs.

31. I will make no order as to the balance of the moneys held in court, but would be prepared to do so if the parties wish that to happen and if the consent of Mr Idrizovski is obtained. To allow that to be considered, I propose to direct the parties to bring in short minutes of order.

Decision last updated: 18 November 2015