Jemmark Pty Ltd v 10 Egan Street Pty Ltd

[2022] NSWSC 865

Supreme Court

New South Wales

Medium Neutral Citation:

Jemmark Pty Ltd v 10 Egan Street Pty Ltd [2022] NSWSC 865

Hearing dates:

31 March; 1 April 2022

Date of orders:

30 June 2022

Decision date:

30 June 2022

Jurisdiction:

Equity

Before:

Parker J

Decision:

See [81]-[82]

Catchwords:

EQUITY – resulting and constructive trusts – defendant incorporated as special purpose vehicle to purchase property for development – purchase completed with external finance and overdraft – plaintiff’s money from another development applied to reduction of overdraft shortly after completion – Bloch v Bloch (1981) 180 CLR 390 – no resulting trust – no common intention constructive trust – plaintiff entitled to equitable proprietary interest by way of failed joint endeavour constructive trust

Legislation Cited:

Statute of Frauds 1677, 29 Car 2, c 3

Cases Cited:

Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495

Baumgartner v Baumgartner (1987) 164 CLR 137

Bijkerk Investments Pty Ltd v Bikic [2020] NSWSC 1336

Bloch v Bloch (1981) 180 CLR 390

Calverley v Green (1984) 155 CLR 242

Muschinski v Dodds (1985) 160 CLR 583

Shepherd v Doolan [2005] NSWSC 42

Woods v McKinlay (No 2) [2021] NSWSC 1510

Zhang v Metcalf [2020] NSWCA 228

Texts Cited:

Campbell, J C, ‘The consequences of rebutting a presumption of advancement’ (2018) 46(3) Australian Bar Review 229

Heydon, J D, Leeming, M J, Turner, P G, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis Butterworths, 5th ed, 2015)

Category:

Principal judgment

Parties:

Jemmark Pty Limited (Plaintiff)
10 Egan Street Pty Limited (Defendant)

Representation:

Counsel:
DA Priestley SC (Plaintiff)
ARR Vincent (Defendant)

Solicitors:
Mayweathers (Plaintiff)
Salim Rutherford (Defendant)

File Number(s):

2022/11886

Publication restriction:

Nil

Judgment

1. These proceedings concern a property at Egan Street, Newtown, in Sydney, owned by the defendant company. The plaintiff company claims an equitable proprietary interest in the property. The case for the plaintiff is that $560,000 of its money was used on the acquisition of the property. Its claim is for an interest by way of resulting trust or constructive trust.

2. The individuals behind the parties to these proceedings are two businessmen and property developers, Mr Joseph Massoud and Mr Terry Younes. The plaintiff, Jemmark Pty Limited (“Jemmark”) is Mr Massoud’s company. Mr Younes is the sole director of the defendant company, 10 Egan Street Pty Limited (“10ESPL”). That company was incorporated as a special purpose vehicle in order to acquire the Newtown property.

Claims for determination

3. Jemmark’s claimed interest in the property is put on three alternative bases. First, Jemmark claims that it contributed approximately fifteen per cent of the purchase price and seeks the recognition of a resulting trust in its favour for an equivalent share of the property. Alternatively, Jemmark seeks an equivalent interest by way of “common intention” constructive trust. In the further alternative, Jemmark seeks the recognition of a “failed joint endeavour” constructive trust, which would result in the sale of the property and a repayment of Jemmark’s contribution.

4. 10ESPL acknowledges that it received the $560,000 in question. But its case is that the payment was a loan and in fact formed part of a larger sum lent to it out of another investment vehicle in which Jemmark had an interest. 10ESPL denies that Jemmark is entitled to any proprietary interest in the property.

Chronology of key facts

5. Mr Younes and Mr Massoud were longstanding friends from university days. Their main venture together was a construction business carried out through a company known as Bay State Construction Pty Limited (“BSC”).

6. BSC was a wholly owned subsidiary of a company called Australian Contracting Group Pty Limited (“ACG”). ACG held the shares in BSC as trustee of a unit trust called the Jemmark Younes Unit Trust. Half the units in the Trust were owned by Mr Massoud through Jemmark. Mr Younes owned the other half through his private company, Younes Group PMC Pty Limited (“Younes Group”). Mr Younes was the sole shareholder and director of ACG, which appears to have no assets outside the Trust.

7. Before the purchase of the Egan Street property, Mr Younes and Mr Massoud had been involved in one previous development project. This involved the acquisition and redevelopment of a building at Darling Point, in Sydney’s eastern suburbs, into luxury apartments. Mr Younes and Mr Massoud held equal minority shares in the venture. The majority interest was held by another Sydney property developer, Mr Rayaud Elayoubi.

8. The Darling Point property was purchased using a special purpose vehicle, called 7 Loftus Road Pty Limited (“7LRPL”). It was the trustee of a unit trust known as the 7 Loftus Road Unit Trust (“7LRUT”). The units in the trust were held as to 69.6 per cent by Mr Elayoubi’s company, APG Capital Pty Limited (“APG”); as to 15.2 per cent by Jemmark; and as to 15.2 per cent by Younes Group. Mr Younes and Mr Massoud were the directors of 7LRPL.

9. The Loftus Road venture began in about 2015. By 2019 construction work had been completed and the sale of the apartments began. Mr Younes turned his mind to taking on another development project and identified the property at Egan Street, which was a former confectionery factory, as a possible site. He had some discussions with Mr Massoud about purchasing it, which I will describe in more detail below.

10. Early in October 2019 Mr Younes arranged for the incorporation of 10ESPL as a wholly owned subsidiary of ACG. He became the sole director of the company.

11. A few days later Mr Younes caused 10ESPL to exchange contracts for the purpose of the Newtown property for $3.5 million. There was a five per cent deposit with the balance of the settlement to occur within six months. The deposit and the other monies required for the purchase of the property and initial development work were provided by BSC and recorded as an inter-company loan from BSC to 10ESPL. Mr Massoud was aware of this.

12. By May the following year, the date for completion was approaching. Mr Younes arranged the finance with National Australia Bank Limited (“NAB”). The bank offered to lend $2.2 million on the purchase.

13. Meanwhile, Mr Younes had been trying to refinance the Loftus Road venture. Originally the development had been funded with a combination of loans from the Bank of Sydney and monies contributed by way of loan by the unit holders, in proportion to their unit holdings. NAB agreed to advance $11 million on the project, replacing the Bank of Sydney as the financier. Apparently, it was a condition of the refinance that Mr Massoud and Mr Younes resign as directors of 7LRPL, and be replaced by Mr Elayoubi as sole director. This happened on 16 April.

14. The refinance settled on 15 May. After paying out the Bank of Sydney and some other creditors, there was about $6 million left over which was available to the unit holders. On 14 May, at Mr Younes’ request, Mr Elayoubi caused $1.125 million to be transferred from 7LRPL’s bank account to the trust account of the solicitors acting on the purchase of the Newtown property. I will refer to the evidence surrounding this transaction in more detail below.

15. It had been intended that the $1.125 million would be used to make up the difference between the amount being advanced by NAB for the purchase of the Egan Street property and the balance of the purchase price payable on settlement. But the money was not in fact used for that purpose. For reasons which are not clear on the evidence, when the purchase settled on 15 May, NAB instead provided the whole of the amount required on settlement. This resulted in 10ESPL’s account being overdrawn by about $1.141 million. About 14 days later, the sum of $1.125 million was transferred back to 7LRPL and then redrawn and paid to 10ESPL to extinguish the overdraft.

16. At the time of the purchase of the Egan Street property, it was tenanted. For several months it seems to have been operated as a boarding house. But in October the local council issued a notice prohibiting those operations as being contrary to the applicable planning permission. This reduced the rental receipts.

17. At around the same time, strains had emerged in the relationship between Mr Massoud and Mr Younes. Those strains were centred on the contracting business, BSC. According to Mr Younes, Mr Massoud also asked to sell the Egan Street property. Mr Massoud denies this and says that he understood that the parties would continue their development ventures together.

18. On 23 December, Mr Younes arranged for the sale of the Egan Street venture to third party purchasers, JE Group (Aust) Pty Limited and AEKC Holdings Pty Limited (“the Purchasers”). This was done by means of an agreement by ACG to sell the shares in 10ESPL to the Purchasers.

19. The main purchase consideration was agreement by the Purchasers to pay to 7LRPL the sum of $1.125 million, which the agreement described as having been a loan to 10ESPL from 7LRPL. This amount did not have to be paid until the venture had been refinanced or the property had been sold. The only actual money which changed hands was the sum of $1,030 which was paid by the Purchasers to ACG on 23 December.

20. It will be recalled that ACG’s shares in 10ESPL were held by it as trustee for the Jemmark Younes Unit Trust. According to Mr Massoud, however, Mr Younes did not tell him about the sale and he only learned of it afterwards.

21. In the first half of 2021 the relationship between Mr Massoud and Mr Younes broke down completely. Mr Massoud was excluded from the management of BSC. In early February Mr Younes disposed of BSC as well, by arranging for ACG to transfer all of its shares in BSC to a third party purchaser. This seems to have left ACG, and the Jemmark Younes Unit Trust, with no assets. Early in November Mr Younes arranged for ACG to be deregistered. The Purchasers have apparently left Mr Younes, as sole director, in control of 10ESPL. The $1.125 million remains unpaid.

22. In August 2021, having found out about the sale of the shares in 10ESPL, Mr Massoud caused a caveat to be placed on the Egan Street property in the name of Jemmark. At the end of December, Mr Younes caused a lapsing notice to be issued. These proceedings were commenced on an urgent basis in mid-January this year.

Summary and analysis of evidence

Documentary evidence

23. The documentary evidence about the purchase begins with a handwritten set of calculations undertaken by Mr Younes in late September or early October 2020. He calculated the total cost of the redevelopment of approximately $8 million with revenue on sale of $10 million after GST, resulting in a profit of $2 million. This could be achieved on an investment (described as “equity) of $2.44 million, if the other monies required to finance the purchase were borrowed externally.

24. Mr Younes sent a photograph of his page of calculations by text on 3 October and the following exchange of messages occurred between him and Mr Massoud (in Arabic, “mabrouk” means congratulations; in another part of the message chain, not reproduced, Mr Younes referred to Mr Massoud as “shriek”, which is Arabic for “partner”):

Mr Younes to Mr Massoud at 11.32am on 3 October 2019

The warehouse conversion. Old lolly factory. I reckon we can get 6 terrace style lofts on it. Just spoke to Savills I can get it now for $3.5m but trying to get delayed settlement.

Mr Massoud to Mr Younes at 11.33am on 3 October 2019

12 months

Mr Younes to Mr Massoud at 11.34am on 3 October 2019

I tried for 9 they didn’t accept

…

Mr Younes to Mr Massoud at 3.49pm on 4 October 2019

$3.5m 6 month delayed settlement. 5% deposit. Mabrouk.

Mr Massoud to Mr Younes at 4.16pm on 4 October 2019

Ok great let’s talk about it. Where you at?

Mr Younes to Mr Massoud at 4.20pm on 4 October 2019

Going through the contract. Setting up a new company to buy it.

Mr Massoud to Mr Younes at 4.20pm on 4 October 2019

Wow! Cheers! Oh yeah with what money, did we win the lottery or something!

Mr Younes to Mr Massoud at 4.22pm on 4 October 2019

Where there’s a Terry there’s a way. 2.5% now 2.5% 1 month and 6 month settle

How to settle we have options but it don’t know yet

Mr Massoud to Mr Younes at 4.36pm on 4 October 2019

That’s great! Let me know how we can achieve afford it and I’m in.

What we really need is a job!

25. On the afternoon of 7 October, the day on which contracts were exchanged on the Egan Street property, the following further messages passed between Mr Younes and Mr Massoud:

Mr Younes:

Mabrouk!

We own Newtown as of today

Mr Massoud:

Ok, congratulations! Speak about that tomorrow!

Tomorrow you’ve got to explain to me where we get the money to settle on this property. I’m actually concerned!

26. About three months after exchange of contracts, Mr Younes sent Mr Massoud an email which contained a spreadsheet setting out financial feasibility calculations for the redevelopment of the Newtown property. The feasibilities contained two options, one redevelopment as a childcare facility and the other as a boarding house.

27. On 12 May 2020 Mr Younes sent Mr Massoud an email giving figures for the NAB refinance of the Loftus Road project (see [13]-[14] above). After setting out payments to the Bank of Sydney and other creditors, the remaining figures were:

APG   70% - $3,137,642.82

Younes 15% - $672,352.03

Massoud 15% - $672,352.03

28. At the end of the email Mr Younes wrote:

Egan Street Newtown settlement $1,150,000.00.

29. On 14 May, Mr Younes sent Mr Elayoubi a bank transfer form in the name of 7LRPL. The email stated:

I filled out the details on the form. Can you please sign and send back to me. Its for the amount I’m transferring direct to my lawyers for my newtown property as previously advised. $1,125,000.

30. On 12 June, Mr Younes sent Mr Massoud a further calculation of the disbursement of the refinancing monies. It included the following figures:

Tranche No. 1	Original figures	Drawdown This Tranche	Transferred	Outstanding
APG Capital Equity	4,196,900.00	3,050,282.17	2,122,201.69	928,080.48
Terry equity	921,885.25	653,631.69	562,500.00	91,131.89
Joe equity	921,885.25	653,631.89	562,500.00	91,131.89

31. On 21 July, Azeem Khambiye, a financial controller who reported to Mr Elayoubi, sent to Mr Massoud and Mr Younes financial statements for 7LRPL for the year ended 30 June 2020. Mr Khambiye asked Mr Massoud to “review progress claim and loan balance with your financials”.

32. The reference to the progress claim was to BSC, which was the builder on the project. I infer that the “loan balance” was a reference to the equity loan accounts. These showed under non-current liabilities a line item called “Beneficiary Loan”. For the year ended 30 June 2019 it amounted to $10,488,919.80. For the year ended 30 June 2020 it had been reduced by $3,613,726.55 to $6,875,193.25. No issue was raised about this by Mr Younes or Mr Massoud.

33. On the same day, the accountant for 10ESPL, Mr Chris Ahal, emailed to Mr Massoud and Mr Younes some bank transaction queries, asking how they should be treated. One of the queries concerned the receipt of $1.125 million on 5 June. Following a discussion with Mr Ahal, Mr Massoud wrote to Mr Younes:

I assume this is the bank f_up you mentioned to me. But how shall we deal with it on the accounts as a loan from Egan from whom.

34. Mr Younes then replied to Mr Ahal and Mr Massoud with his comments on the relevant entries. Against the overdraft debit of $1,140,345.92 he wrote:

Shortfall for settlement – this amount includes the fees and charges as per previous advice that was $1,125 was required for settlement as owners equity.

35. As against the receipt of $1.125 million he wrote:

Owners equity – this was deposited to clear the shortfall from NAB.

36. These instructions were reflected in the financial statements which were prepared by Mr Ahal and dated 26 August 2020. They showed the Egan Street property as a non-current asset with a carrying value of $3,930,629, with non-current liabilities in the form of borrowings in the sum of $2,775,968, resulting in net assets of $1,166,258. Only two borrowings were shown: NAB for $2.2 million and BSC for $575,968. Net assets consisted of “owners equity” of $1,162,750 which would mainly have been accounted for by the $1,125,000 received on 5 June.

37. The effect of these accounting entries is clear. As between 7LRPL on the one hand, and the unit holders of the 7LRUT on the other, the sum of $1,125,000 was treated as a repayment of previous advances from Jemmark and Younes Group, as to $562,500 each. For the purposes of 10ESPL’s accounts, that figure when received was treated not as a loan but as a credit to “owners equity” on the part of Jemmark and Younes Group, in equal shares.

38. The final written communication between Mr Younes and Mr Massoud which is in evidence was an email sent on 24 September 2020. The email was mainly concerned with the cash position of BSC. Among other things, Mr Younes stated that he had modelled the incoming monies to BSC from the Egan Street property “if we offload”.

Witness Evidence

39. Jemmark’s witnesses were Mr Massoud and Mr Ahal. Mr Younes gave evidence for 10ESPL. Mr Ahal was not cross-examined; it is not necessary to say anything more about his evidence, which was uncontentious.

40. Both Mr Massoud and Mr Younes were cross-examined on their affidavits. There was some disagreement between them on some matters of detail about their dealings, but these do not need to be resolved.

41. Mr Younes stated that when he arranged for the $1.125 million to be paid out by 7LRPL, he intended the payment to be a loan to 10ESPL. In particular, he stated that otherwise there would have been adverse tax consequences.

42. It is not easy to identify what any such adverse tax consequences would have been. In fact the repayment was treated in the accounts of 7LRPL, which was sent to Mr Younes for his approval (see [37] above), as a repayment of pre-existing loans by Younes Group and Jemmark. As such they were not taxable. They had no more tax effect than a loan from 7LRPL to 10ESPL would have had.

43. Moreover, as we have seen, the payment of $1.125 million was quite clearly recorded in the books of 10ESPL as an “equity contribution” from Jemmark and Younes Group, rather than a loan from 7LRPL. This was based on Mr Younes’ own description, answering a query from Mr Ahal (see [35] above).

44. In his final affidavit in reply, Mr Younes stated that he should have been more careful in signing the accounts which reflected this treatment of the $1.125 million payment. But I reject the suggestion that the recording of the payment in this way was some sort of mistake. Mr Younes may have been in some doubt as to how to account for the payment but I am satisfied that at the time he did not regard it as a loan from 7LRPL to 10ESPL.

Equitable proprietary interest in Newtown property

45. As already noted, counsel for Jemmark advanced its equitable proprietary claim on three separate bases:

1. a resulting trust;

2. a common intention constructive trust; and

3. a failed joint endeavour constructive trust.

Resulting trust

46. This was the principal contention for Jemmark. Counsel submitted that Jemmark’s share of the “owners’ equity” ($562,500) should be seen as a contribution towards the purchase of the property. Jemmark was thus entitled by way of resulting trust to a share of the property equivalent to its share of the total purchase cost: Calverley v Green (1984) 155 CLR 242 at 246-47, 258-259.

47. Counsel for Jemmark calculated the total purchase cost, including stamp duty and some other expenses, at $3.5 million. The inclusion of some of the other expenses in the total purchase cost may be too favourable to 10ESPL, but counsel for Jemmark was content to proceed on that basis anyway.

48. The apparent difficulty with a resulting trust analysis was that the $1.125 million was only paid to 10ESPL and applied towards the reduction of the mortgage after the purchase of the property had been completed. But counsel for Jemmark submitted that this was not an obstacle to a finding of resulting trust.

46. Counsel for Jemmark relied principally on the High Court decision in Bloch v Bloch (1981) 180 CLR 390. That case concerned property dealings between a son (who was living overseas) and his parents. It was agreed that the son and the parents (jointly) would both contribute to the purchase of a block of flats on the understanding that the parents would receive a share of the “proceeds” of the flats equivalent to the monies they put into the purchase.

47. The purchase was organised by the father, who arranged for the property to be put in the son’s name. The cost was $24,000. The parents contributed $6,600, with the rest of the monies coming from a cash contribution by the son and a bank loan taken out in the name of the son and supported by a mortgage over the property. A few months after the purchase the parents contributed a payment of $1,000 towards reducing the mortgage debt.

48. Later the son and the father agreed that on sale of the property, the parents would receive one-third of the proceeds. The father managed the property for the son, accounting to him for two-thirds of the rental income. Eventually the son sold the property. The parents succeeded in a claim to have the son account to them for a one-third share of the proceeds.

49. The main argument for the son was that the arrangement between the parties was an oral trust for the acquisition of real property, which was unenforceable under the Statute of Frauds 1677, 29 Car 2, c 3 (which was then in force in Queensland). This was rejected by the High Court. The majority decision (Wilson J, with whom Gibbs CJ, Murphy and Aickin JJ agreed) held that there was a resulting trust, which was not caught by the statute. What is significant for present purposes is that the resulting trust decreed was for a one-third share of the property, rather than a lesser share based on a calculation of the amount contributed by the parents at the time of the purchase.

50. I think the first question to be considered is whether the facts of the present case give rise to a resulting trust at all. To explain this, it is necessary to go back to first principles.

51. The archetypal resulting trust arises in a case where there is a gift of property on trust which does not fully dispose of the equitable interest in the property. Often this occurs where different successive interests are created depending on different contingencies, but the express terms of the trust do not deal with all relevant contingencies. Where this happens, the equitable interest, to the extent not disposed of by the express terms of the trust, is presumed to go back to the settlor. Such a trust has been described as an “automatic” resulting trust.

52. This principle extends, or applies by analogy, to cases where a person acquires property but puts the property into someone else’s name. The purchaser is seen as the settlor and the recipient as the trustee in circumstances where the purchaser has not expressly conferred the beneficial interest on the recipient. A resulting trust is presumed under which the beneficial interest in the property is treated as remaining with the purchaser, on the analogy of a settlor under an automatic resulting trust. Such a trust has been labelled a “purchase money resulting trust”. See Campbell, J C, ‘The consequences of rebutting a presumption of advancement’ (2018) 46(3) Australian Bar Review 229-231; Heydon, J D, Leeming, M J, Turner, P G, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis Butterworths, 5^th ed, 2015) at [12-01].

53. The facts of the present case do not fit into this pattern. The purchaser of the property was 10ESPL. In the ordinary way, 10ESPL completed the transaction by borrowing from NAB. The fact that some of the monies were provided by NAB by way of overdraft, no doubt under an arrangement which NAB and 10ESPL considered would be temporary, does not alter the fact that when NAB provided the money, it was doing so as lender to 10ESPL.

54. The transaction was then completed by transferring the property into the name of 10ESPL as purchaser. The provider of the purchase monies and the recipient of the legal title were the same. There was no apparent lacuna in the equitable title to be filled by way of resulting trust.

55. Furthermore, in Calverley v Green, which post-dated Bloch, the High Court apparently laid down that, for the purposes of a resulting trust, the parties’ contributions are determined as at the date of acquisition. Where borrowing is involved, it is the borrowing party who is treated as contributing the borrowed funds. Subsequent repayments of the loan by someone other than the borrower do not affect the beneficial interests under the resulting trust (although it may give that person a claim to contribution, or an account, from the borrower).

56. Counsel for Jemmark observed that Bloch was distinguished, but not overruled, in Calverley. Mason and Brennan JJ (155 CLR at 262-263) explained the decision in Bloch as a case where “the relevant property which the parties intended to acquire was seen to be not the title to land subject to mortgage but the land freed of the mortgage”. When Bloch (which was initially only reported in unauthorised reports) was belatedly reported in the Commonwealth Law Reports, Sir Anthony Mason repeated this explanation of the case in his foreword: 180 CLR at viii. See also the authorities collected by Ward CJ in Eq (as her Honour then was) in Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495 at [191]-[208].

57. In giving this explanation of Bloch, Mason and Brennan JJ cited a passage from Brennan J’s concurring judgment (see 180 CLR at 400). That passage is consistent with the explanation given by their Honours. But the judgment of Wilson J, which represented the Court’s view, did not proceed in that way.

58. Based on the contributions made at the time of purchase, the parents had contributed $6,600. Counsel for the son however apparently accepted that the parents’ contribution had been $7,600 (ie, it included the $1,000 later paid off the mortgage), giving them a 19/60ths share: see 180 CLR at 397-398. The question was about the difference between that share and the one-third share decreed by the trial judge.

59. In addressing this question, Wilson J was careful to proceed on the basis that the resulting trust had come into existence, and the extent of the parents’ trust interest had been fixed, at the date the property was acquired. The amount of that contribution had been a question of fact for determination by the trial judge and it had been open to the judge to “accept” the evidence of the subsequent dealings between the parents and the son which were based on the parents having a one-third share as “establishing a consensus” between the parents and the son on that question. In effect, the evidence operated as an admission on a disputed, or supposedly disputed, question of fact.

60. Further points may be made about the explanation of Bloch offered by Mason and Brennan JJ in Calverley. In the first place, the distinction between purchasing the land subject to a mortgage and purchasing the land free of the mortgage is not easy to understand in a purchase money resulting trust case. If a mortgage is required to finance the purchase of a property, the purchaser’s intention can only be to purchase the land subject to the mortgage. The purchaser might hope, or expect, that it will later be paid off, but how can that affect the purchaser’s rights at the time of acquisition?

61. Furthermore, the whole point of Bloch was that any express agreement between the parties was unenforceable because of the statute. The parents could only be recognised as having a trust interest in the property from the date of its purchase if that interest arose under an implied or constructive trust.

62. In this context, the reference to an intention on the part of “the parties” in what their Honours said is curious. A resulting trust is recognised by the court in the absence of demonstrated intention. And in principle it must be the intention (or absence of demonstrated contrary intention) of the purchaser alone which matters. It is hard to see how the recognition of a resulting trust could depend upon the intention of the recipient. Qualifying the principle that the purchaser-beneficiary’s interest under a purchase money resulting trust is fixed at the time of purchase, by referring to consensual arrangements with the recipient, risks enforcing an oral trust by the back door.

63. As will be seen below, on its facts Bloch might possibly be analysed as a case of a common intention constructive trust, or of a failed joint endeavour constructive trust, or of some sort of hybrid between a trust of such a type and a resulting trust. It may also be relevant that in his judgment in Bloch, Brennan J appeared to call in aid the equitable principle which prevents reliance on the Statute of Frauds where it would be fraudulent to do so: see at 402-3. But in my respectful view there remains room for debate about whether the result in Bloch really can be supported, consistently with resulting trust doctrine, in the matter suggested by Mason and Brennan JJ in Calverley.

64. It is, however, unnecessary to go further into this question for present purposes. Bloch, no less than Calverley, insists that in a resulting trust the trust comes into existence at the date of acquisition of the property. On the facts, I think it would be stretching principle too far to allow a resulting trust to be retrospectively created in favour of Jemmark when Jemmark made no contribution, nor any commitment to make a contribution, at the time the Egan Street property was acquired.

Common intention constructive trust

68. The applicable principle was stated by White J (as his Honour then was) in Shepherd v Doolan [2005] NSWSC 42 at [31] (citations omitted):

One class of case where equity will intervene to prevent the unconscientious denial by the legal owner of another party’s rights, is where the parties agreed, or it was their common intention, that the claimant should have an interest in the property owned by the other, and the claimant acted to his or her detriment on the basis of that agreement or common intention.

69. In Bijkerk Investments Pty Ltd v Bikic [2020] NSWSC 1336 at [111]-[119], Leeming JA, sitting at first instance, observed that there were few actual examples of a common intention constructive trust being recognised in Australia. His Honour referred to academic suggestions that a common intention constructive trust is not a separate institution in Australian law, but rather, where it applies, part of the doctrine of proprietary estoppel. His Honour also suggested that the practical need to recognise such an institution might have been removed by the development of the joint endeavour constructive trust in Muschinski v Dodds (1985) 160 CLR 583 and Baumgartner v Baumgartner (1987) 164 CLR 137 (see below).

70. If the common intention constructive trust doctrine exists independently of proprietary estoppel, it still requires that there have been an actual intention by the parties that the plaintiff would have a specified interest in the land. Counsel for Jemmark submitted that in the present case there was a common intention that Jemmark would have an interest equivalent to a resulting trust interest, namely a share in the property proportionate to Jemmark’s contribution. But is this submission sustained by the evidence?

71. Mr Massoud certainly went along with Jemmark’s $562,500 being paid over to 10ESPL. But at the time he seems to have given no thought to what interest, if any, Jemmark was to have in the property. Nor is there any evidence that Mr Massoud (or Mr Younes for that matter) later treated Jemmark as having a proportional equitable interest. To have done so would have required 10ESPL to account to Jemmark for the relevant share of the rental income and interest payments on the property.

72. In my view, the evidence does not sustain a common intention in the terms for which counsel contended. The common intention constructive trust claim fails.

Joint endeavour constructive trust

73. The equitable principle which gives rise to a joint endeavour constructive trust was authoritatively stated by the High Court in Baumgartner v Baumgartner, quoting an earlier statement by Deane J in Muschinski v Dodds at 620 (citations omitted):

The principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him to do so.

74. This formulation avoids some of the rigidities which govern resulting trusts and common intention constructive trusts (if that institution exists separately). The “joint venture” may include not only the acquisition of the property in question, but also the discharge of any mortgage debt: Zhang v Metcalf [2020] NSWCA 228 at [59]-[60]. It is therefore no obstacle to the operation of the principle in the present case that Jemmark’s contribution post-dated the acquisition of the Egan Street property. The subsequent payment of $562,500 can be seen as a contribution to a broadly defined venture involving the purchase and redevelopment of the property to the parties’ mutual advantage.

75. Furthermore, the doctrine does not require any actual intention as to any particular interest in the property ultimately being held. Indeed, as I described in Woods v McKinlay (No 2) [2021] NSWSC 1510 at [232]-[250], a critical element of the doctrine is that the parties have not agreed on what the consequence will be if their venture breaks down, other than that the other party should not be permitted to enjoy the legal title for itself.

76. On my findings, both Mr Massoud and Mr Younes intended that the monies should be a form of “equity”. This excludes the possibility of a loan. Usually, in the context of a company’s balance sheet, “equity” would be the appropriate description for share capital, but clearly the parties did not intend that the $562,500 each was to give them that sort of corporate interest in 10ESPL. The reference to “equity” can only be understood as some sort of proprietary interest in the Egan Street property, the scope of which however was undefined. As such, it seems to me to fit squarely within the joint endeavour constructive trust doctrine.

77. Nor does the fact that there was no sharing of the income and expenditure from the property tell against the imposition of a joint endeavour constructive trust. The trust only needs to be recognised once there has been a breakdown of the relationship. I would fix that as having occurred on 23 December 2020, the date on which Mr Younes arranged for the sale of the venture to the Purchasers.

78. The terms of the constructive trust will require the property to be sold, with the balance remaining after the repayment of the NAB loan being used to repay the parties’ capital contributions to the joint endeavour, and the residual profit (if any) divided between them: see for example Woods at [262]-[275], where I concluded that the appropriate split was an equal one, but with the parties’ respective contributions being indexed. It will also be necessary to account for the income and expenditure associated with the venture over its lifetime. To the extent that interest payments exceeded revenue, that will require Jemmark to make an allowance in favour of 10ESPL. If income exceeded expenditure then the surplus (less tax) will need to be accounted for by 10ESPL. If the parties cannot agree on the figures there will need to be a formal process for working them out.

79. Finally, there is a question of the parties to the joint endeavour. Again, the flexibility of the doctrine means that the joint endeavour can be characterised in a way which reflects the actual conduct of the parties. This means that, as Jemmark’s money was contributed to paying off the debt on land owned by 10ESPL, Jemmark and 10ESPL are properly regarded as parties to a joint endeavour, notwithstanding that the arrangements form part of a larger understanding which involved Younes Group as well.

80. Having said that, on my reasoning, Younes Group would be entitled, as a result of its contribution of $562,500 to the venture, to rights against 10ESPL equivalent to the rights to which I have found Jemmark to be entitled. Younes Group has not been joined as a party to these proceedings but that need not be an obstacle to 10ESPL now recognising its interest. It would not be too late for Younes Group to be joined for the purpose of participating in the accounting process and making declarations accordingly. I will leave this issue to the parties.

Conclusions and orders

81. I have concluded that Jemmark is entitled to an equitable proprietary interest in the Egan Street property, which arises by way of a failed joint endeavour constructive trust. I will leave it to the parties to bring in short minutes to give effect to my conclusions, and to provide for the necessary accounting or calculations to be carried out. The parties should also try to agree on the costs consequences of my decision. If there is any debate I will hear argument.

82. The orders of the Court are:

1. Adjourn the proceedings to 9:30 am on 14 July 2022 or such other time as may be arranged with my Associate.

2. Direct that the parties confer on the form of orders to be made to give effect to this judgment and to deal with costs, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.

**********

Decision last updated: 30 June 2022