Khalif & Khalif
[2020] FamCA 39
•31 January 2020
FAMILY COURT OF AUSTRALIA
| KHALIF & KHALIF AND ANOR | [2020] FamCA 39 |
| FAMILY LAW – PROPERTY – Where the wife seeks a declaration that the husband’s brother holds the former matrimonial home by way of constructive trust for the husband – Where the Court makes adverse credit findings against the husband and his brother – Where the evidence is sufficient to establish a common intention constructive trust – In the alternative, the evidence is sufficient to establish a constructive trust irrespective of the intention of the husband’s brother – Where the husband’s beneficial interest is declared to be 61.5 per cent of the value of the property on an unencumbered basis. |
| Conveyancing Act 1919 (NSW) s 23C Family Law Act 1975 (Cth) Family Law Rules 2004 (Cth) r 13.07 |
| Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566; [1998] HCA 59 Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59 Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 Browne v Dunn (1893) 6 R. 67; [1893] 1 WLUK 44 Calverley v Green (1984) 155 CLR 242; [1984] HCA 81 Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39 Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 Higgins v Wingfield [1987] VR 689 Hohol v Hohol (1980) FLC 90-824; [1981] VR 221 at 225 John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 Khalif v Khalif [2017] NSWCATAP 123 Muschinski v Dodds (1985) 160 CLR 583 |
| APPLICANT: | Ms Khalif |
| RESPONDENT: | Mr Khalif |
| 2ND RESPONDENT: | Mr B Khalif |
| FILE NUMBER: | SYC | 6144 | of | 2016 |
| DATE DELIVERED: | 31 January 2020 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Watts J |
| HEARING DATE: | 19 – 21 November 2018 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Lloyd SC |
| SOLICITOR FOR THE APPLICANT: | Jordan Djundja Lawyers |
| COUNSEL FOR THE 2ND RESPONDENT: | Mr Robinson SC |
| SOLICITOR FOR THE 2ND RESPONDENT: | Aquila Lawyers Pty Ltd |
Orders
The 2nd respondent is declared to hold 61.5 per cent of the beneficial interest in C Street, Suburb D (“the C Street property”) in trust for the husband.
The 2nd respondent is to do all things and sign all necessary documents to transfer to the husband, as a tenant in common, 61.5 per cent of the legal interest in the C Street property.
The 2nd respondent is to do all things and sign all necessary documents to discharge any mortgage or encumbrance on the C Street property so that any mortgages or encumbrances secured on the C Street property do not exceed 38.5 per cent of the value of the C Street property.
The 2nd respondent indemnify the husband in relation to any mortgage or borrowing secured against the C Street property.
That the husband forthwith give his Trustee in Bankruptcy notice of these orders and a copy of these Reasons.
The matter be relisted on 12 February 2020 at 9 am for further directions in relation to the wife’s claim pursuant to s 79 of the Family Law Act 1975 (Cth). I shall also on that date entertain any application, if made, that I recuse myself from further hearing the substantive proceedings between the husband and wife both in relation to financial and parenting issues.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Khalif & Khalif and Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 6144 of 2016
| Ms Khalif |
Applicant
And
| Ali Khalif |
Respondent
And
Mr B Khalif
2nd Respondent
REASONS FOR JUDGMENT
Introduction
In the context of proceedings in which Ms Khalif (“the wife”) seeks a property settlement order against Mr Khalif (“the husband”) pursuant to the provisions of s 79 of the Family Law Act 1975 (Cth) (“the Act”), the wife also seeks a declaration that the husband’s brother, Mr B Khalif (“the 2nd respondent”) (collectively, “the brothers”), holds the former matrimonial home at C Street, Suburb D (“the C Street property”) by way of constructive trust for the husband and consequential orders against the 2nd respondent.
The wife claims that the C Street property was acquired by the 2nd respondent as a constructive trustee for the husband under an arrangement reached between them.
The husband is an undischarged bankrupt. If the wife is successful in her claim, an asset will be added to the husband’s bankrupt estate and the husband’s trustee would need to be invited to participate as a party to the wife’s application for a property settlement order.
The C Street property is registered in the 2nd respondent’s name. The 2nd respondent arranged finance in order to acquire the C Street property. All additional monies expended to acquire the C Street property were provided by the 2nd respondent or entities that he treats as his own.
Between 15 May 2009 and 6 August 2015, the husband organised payments to the 2nd respondent totalling $922,500. The 2nd respondent claims that these payments have nothing to do with an arrangement between him and his brother connected with the ownership of the C Street property. The 2nd respondent and the husband assert that $392,500 related to rent of the C Street property and $530,000 related to “personal payments”.
How has the wife formulated the claim against the 2nd respondent?
The wife was not privy to most of the financial arrangements which were made between the husband and his brother.
By the conclusion of the hearing, senior counsel for the wife made clear that the remedy the wife sought was a declaration that the 2nd respondent held the C Street property by way of constructive trust for the husband.
Senior counsel for the 2nd respondent pointed out in his Summary Submissions (Exhibit 15) that the wife’s case against the 2nd respondent underwent a number of changes during its formulation.
In her initial application filed on 23 September 2016, the wife sought a declaration that the 2nd respondent holds his right, title and interest in the C Street property upon trust for the husband, without specifying what type of trust was alleged.
The wife also sought consequential orders that the 2nd respondent convey the C Street property to her and that the husband and the 2nd respondent jointly and severally discharge any financial encumbrance secured on the C Street property.
On 31 May 2018, I made a notation that the wife’s claim was based upon a document entitled “Points of Claim for the Applicant” (“Points of Claim”) which had been marked as Exhibit 8. I have set out the text of that document in full at Schedule 1. At the time that notation was made, the wife had filed most of the evidence upon which she sought to rely.
Part of the Points of Claim assert:
5.In or around 2009, the First Respondent on the one hand and the Second Respondent on the other hand agreed to purchase a property in the name of the Second Respondent.
Particulars
The agreement was oral and was constituted by a conversation between the parties, the substance of which is outlined in paragraph 18 of her affidavit sworn on 20 September 2016
6.There were express terms of the agreement as follows:-
a. The Second Respondent would purchase [the C Street property] for $1,300,000.00 and the property would be registered in the Second Respondent’s name;
b. The property would be beneficially owned by the First Respondent;
c. That the Second Respondent would take out a loan to purchase the property which would be secured by way of mortgage over the property;
d. The First Respondent would make payments towards the loan;
e. The Applicant and First Respondent would live in the property as husband and wife.
7.It was the common intention and common understanding of the parties to the effect of the agreement and its terms as set out in paragraph 6 above. (“the common intention”)
…
17. In the alternative, by reason of the contributions made by 7 Star, the [sic] and the First Respondent to the property, the Second Respondent holds the property on resulting trust for the First Respondent to the extent of his contributions to the property.
18.The applicant claims:-
a. A declaration that the Second Respondent holds the property on trust for the First Respondent.
The terms of the oral agreement referred to in paragraph 5 of the Points of Claim are set out at paragraph 18[1] of the wife’s affidavit sworn 20 September 2016 and were of a conversation between the brothers where the wife says she heard the husband say to the 2nd respondent the following:
I am looking at buying a property at Suburb D we need to crunch the numbers, I can more than afford the house, but I’m not declaring how much the business or I am making. Based on the amount of money that I am declaring I would never manage to obtain a loan. I am also concerned of any liability to the ATO. Can we put the house in your name [the 2nd respondent]? That way my house would be protected, I can’t have a $1.3 million home registered in my name that my wife and I have just decided to purchase.
[1] The wife did not actually read paragraph 18 of her affidavit of 20 September 2016 (filed 23 September 2016) but it is not controversial that the text of paragraph 18 of that affidavit is identical to the text of part of paragraph 7 of the wife’s affidavit filed 30 September 2016 (which the wife did read in these proceedings).
During final submissions, senior counsel for the wife made it clear that given that there was no written document between the 2nd respondent and the husband to which the wife could point, the provisions of s 23C(1)(b) of the Conveyancing Act 1919 (NSW) (“the Conveyancing Act”) applied. That section does not affect the creation or operation of a resulting or a constructive trust (s 23C(2)).
Nor was it controversial that the 2nd respondent arranged for the financing of the acquisition of the C Street property and the husband owed no obligation to the financial institution that provided that financing to the 2nd respondent. In those circumstances, senior counsel for the wife abandoned the alternate assertion in paragraph 17 of the Points of Claim that a presumption of a resulting trust arose (Calverley v Green (1984) 155 CLR 242).
Senior counsel for the 2nd respondent submitted firstly, a constructive trust was not pleaded in the Points of Claim and secondly, if it was the case that the wife sought to rely upon a constructive trust, then the wife needed to address “different things” and “put, in some respect, different evidence about those things”. In relation to the second submission, it is not apparent to me what the 2nd respondent meant and absent any clue as to what it means, I do not intend to attempt to guess. In relation to the first submission, the Points of Claim do not assert that there was any document in existence that would satisfy the requirements of s 23C(1)(b) of the Conveyancing Act. The trust that is relied upon is pleaded as one arising from the common intention and common understanding between the brothers. The 2nd respondent was on sufficient notice that the wife was asserting the existence of a constructive trust. As senior counsel for the 2nd respondent acknowledged, the only cases cited by senior counsel for the wife in his case outline were Muschinski v Dodds (1985) 160 CLR 583 (“Muschinski v Dodds”); Baumgartner v Baumgartner (1987) 164 CLR 137 “Baumgartner”); and Giumelli v Giumelli (1999) 196 CLR 101 (“Giumelli”); all seminal High Court cases concerning constructive trusts.
Whilst the Points of Claim only assert a constructive trust based on a common intention or understanding, a constructive trust can also arise out of the enquiry as to what appropriate equitable remedy is available on the facts of the case, irrespective of intention.
Senior counsel for the wife specifically acknowledged that the wife had not sought, in the alternative, any equitable charge on the property. Nor did she more generally, in the alternative, seek any other equitable relief, and in particular, a remedy of equitable proprietary estoppel.
Documents relied upon
The documents relied upon by the wife are set out in Schedule 2. The 2nd respondent did not cross examine the wife or any witnesses in the wife’s case apart from Mr K (who was a real estate agent involved in the listing and purchasing of the C Street property and the selling of the first matrimonial home of the husband and wife being a property at L Street, Suburb M (“the L Street property”)).
The documents relied upon by the 2nd respondent are set out in Schedule 3.
Law in relation to constructive trusts and lesser equitable remedies
A constructive trust
The wife’s primary claim is based upon the assertion of a common intention constructive trust, although her claim is not confined to only that type of constructive trust.
In Hohol v Hohol (1980) FLC 90-824 at 225, O’Bryan J described the essential elements of a common intention constructive trust as follows:
… first, that the parties formed a common intention as to the ownership of the beneficial interest. This will usually be formed at the time of the transaction and may be inferred as a matter of fact from the words or conduct of the parties. Secondly, that the party claiming a beneficial interest must show that he, or she, has acted to his, or her, detriment. Thirdly, that it would be a fraud on the claimant for the other party to assert that the claimant had no beneficial interest in the property…
See also Higgins v Wingfield [1987] VR 689.
As mentioned above, the wife more generally relies upon Muschinski v Dodds and Baumgartner.
The notion of a constructive trust, as espoused by Deane J in Muschinski v Dodds at 613-616, is primarily remedial. His Honour pointed out, however, that a constructive trust shares some of the institutionalised features of express and resulting trusts, namely, the “staple ingredients” of subject matter, trustee, beneficiary and personal obligation attached to the property and said at 614:
… the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.
Deane J again makes it clear at page 620 that a constructive trust can be imposed in the absence of intention stating:
… 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 so to do…
In Baumgartner, Mason CJ, Wilson and Deane JJ endorsed that proposition, stating at 147:
… the foundation for the imposition of a constructive trust in situations of the kind mentioned is that a refusal to recognize the existence of the equitable interest amounts to unconscionable conduct and that the trust is imposed as a remedy to circumvent that unconscionable conduct.
Finally, it is appropriate to observe that Deane J in Muschinski v Dodds emphasised at 615:
The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles.
Lesser equitable remedies
The remedy of equitable proprietary estoppel can arise as a result of a finding that a party had an “expectation interest” (where the object of the remedy is to put the party in as good as position as they would have been had the other party performed the promise) or a “reliance interest” (where a party has acted to their detriment relying upon the promise).
In Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 at [42], the High Court remarked:
An equitable remedy which falls short of the imposition of a trust may assist in avoiding a result whereby the plaintiff gains a beneficial proprietary interest which gives an unfair priority over other equally deserving creditors of the defendant.
(Footnotes omitted)
In Commonwealth v Verwayen (1990) 170 CLR 394, Deane J said at 443:
… Prima facie, the operation of an estoppel by conduct is to preclude departure from the assumed state of affairs. It is only where relief framed on the basis of that assumed state of affairs would be inequitably harsh, that some lesser form of relief should be awarded.
That passage was later referred to with approval by the High Court in Giumelli at [42]. Further in Giumelli at [10], Gleeson CJ, McHugh, Gummow and Callinan JJ said:
… Before a constructive trust is imposed, the court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust.
(Footnotes omitted)
In Bofinger v Kingsway Group Ltd (2009) 239 CLR 269, the High Court noted at [47]:
… the term “constructive trust” may be used not with respect to the creation or recognition of a proprietary interest but to identify the imposition of a personal liability to account upon a defaulting fiduciary.
The Court also emphasised in that case the importance attached by equity to the fashioning of the particular remedy to meet the nature of the case (at [91]).
Finally, in John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, the High Court said at [128] - [129]:
128.A constructive trust ought not to be imposed if there are other orders capable of doing full justice…
129.… One point made in the Giumelli v Giumelli line of cases is that care must be taken to avoid granting equitable relief which goes beyond the necessities of the case. Another point in those cases is that third party interests must be borne in mind in deciding whether a constructive trust should be granted. That line of cases does not permit a constructive trust to be declared in a manner injurious to third parties merely because the plaintiff has no other useful remedy against a defendant.
Credit
Wife
The wife was not cross examined. Given the findings I have made in respect of the credibility of the 2nd respondent and the husband (which I discuss below), I generally accept the wife’s evidence when it is in conflict with the evidence of the 2nd respondent and the husband, except in circumstances where the wife has conceded that her initial understanding was not accurate. As indicated, the wife was not privy to most of the financial arrangements between the brothers and as discussed below, I accept that the discovery of documents by the 2nd respondent was not timely or fulsome.
At paragraph 24 of the wife’s affidavit filed on 23 September 2016, she asserted that the proceeds of sale of the L Street property of $200,000 (it was actually about $190,000) were paid in 2009 “towards reducing the home loan for the [C Street] property”. The accounts created in respect to the borrowings for C Street were a commercial loan numbered 100-147921-2 and a home loan numbered 100-147924-6. It is now an uncontested fact that most of the $190,000 was taken by the 2nd respondent and placed into a different commercial loan account. This error does not impact upon the wife’s credit. The wife simply did not know what the arrangements were in relation to the net proceeds of sale of the L Street property.
The wife gave evidence that the husband paid to the 2nd respondent the sum of $12,000 per month for the first two years after the acquisition of the C Street property, totalling approximately $288,000. Thereafter, the husband paid $2,500 per week for at least 260 weeks (five years) totalling approximately $650,000. She said the regular repayments total $938,000.
However, it is not disputed that a more accurate accounting for monies electronically transferred by the husband through J Pty Ltd to the 2nd respondent through N Pty Ltd is contained in a schedule prepared by the 2nd respondent’s accountants (“the schedule”) which is annexed to his trial affidavit. That schedule recorded that the amount paid to the 2nd respondent by the husband totalled $922,500. The fact that the wife’s calculations were slightly inaccurate does not impinge upon the credibility of her evidence.
Overall, I accept the wife’s evidence as being reliable.
Mr K
I discuss Mr K’s evidence below. I formed the view that Mr K gave his evidence to the best of his memory and in a straightforward manner. Given the general difficulty I have with the evidence of the 2nd respondent and the husband, as discussed below, I accept Mr K’s evidence when it conflicts with their evidence.
The 2nd respondent
The wife challenged the credibility of the 2nd respondent’s evidence. For the reasons I now discuss, I find that the 2nd respondent’s evidence lacked credibility.
Senior counsel for the 2nd respondent submitted that, whilst specific findings in respect of the 2nd respondent’s credit might be made, a general finding in respect of credit should not. I reject that submission. For reasons which I shall discuss, I consider that the 2nd respondent’s credit has been significantly compromised.
It is central to the 2nd respondent’s case that he received rental income from the C Street property between 2009 and 2015. The 2nd respondent did not declare any of that income to the ATO as being assessable, commenting that “they were rent, I just didn’t declare them.” This, if it was true, is an admission of deliberate dishonesty. The 2nd respondent conceded in cross examination that, if his version as to how the payments by the husband to him were to be categorised was accepted, then the payments were assessable income. This concession also underlines the disingenuous nature of the original evidence given by the 2nd respondent to the effect that he didn’t declare the income because he didn’t consider the property to be an investment property. As discussed below, the 2nd respondent is an astute and successful business person and has shown a very good acumen for making money. I do not believe the 2nd respondent’s sworn evidence that he didn’t declare the “rent” from the C Street property as income over a period of about six years because he did not consider C Street was an “investment property”.
Connected to the failure to declare what the 2nd respondent said was “rent”, is the assertion by the 2nd respondent that he didn’t treat the C Street property as an investment property because he considered it his residence. I set out below my findings about the untruthfulness of the assertions by the 2nd respondent as to the C Street property being his residential address since 2012.
The 2nd respondent gave oral evidence that monies, including significant amounts of cash which were given to the husband from his company N Pty Ltd did not form part of any of the financial accounting by the company and that it came out of the company in a way that was not accounted for in the company’s books. He said it was not a payment by way of dividend from the company which he then lent to his brother nor was it a loan that he took from the company. If that was how cash payments to his brother were treated, it does not sit easily with the assertion by the 2nd respondent that he declared to the ATO all cash received by the businesses. The 2nd respondent claimed that he had paid out the mortgage on the C Street property because he wasn’t claiming it as an investment property. I infer that that is an assertion that the interest on this facility was not claimed as an expense on the books of the company but I was not provided any corroboration for that assertion nor was the point further explored.
Also, as discussed above, there have been significant movements of physical cash between the brothers over the years. In the context of keeping physical cash, on the first day of his cross examination, the 2nd respondent volunteered that there was about $1 million in cash that he held at different locations. He said that he kept his cash at his parents’ home and at the businesses in which he owned. He said, however, that he did not, at any stage, keep cash at the C Street property. On the second day of his cross examination and in re-examination, the 2nd respondent changed his evidence and asserted that the $1 million in cash was not all kept by him at his parents’ home or his businesses but was substantially kept in accounts with financial institutions ($800,000 out of the $1,000,000). I was not taken to any financial records which would substantiate his changed evidence about the cash that he held in financial institutions at the time of the acquisition of the C Street property. When asked about the inconsistency in his evidence, the 2nd respondent told me that I “should have been more specific”. I found his evidence on the second day in respect of this matter disingenuous.
As further discussed below, the 2nd respondent used a letter written and the schedule prepared by his accountants, O Firm dated 17 October 2016 (See pages 43 to 54 of the 2nd respondent’s trial affidavit) during the NCAT hearing, without informing the presiding member that the document was prepared by the accountants upon specific instruction by the 2nd respondent as to what it should say.
The 2nd respondent did not present himself as a creditor in his brother’s bankruptcy, notwithstanding the significant amount of money he says his brother still owes him, saying that that was a matter for his brother and not for him.
I am unable to accept the 2nd respondent’s very precise evidence about what is currently owed to him by the husband in circumstances where he didn’t identify or couldn’t recall how much the husband actually paid him in cash.
The 2nd respondent somewhat reluctantly conceded that he had given an undertaking to Judge Harper (as he then was) that he would not take any step to exclude the wife from the C Street property. The 2nd respondent also somewhat reluctantly conceded that within some months of giving that undertaking, he authorised third parties as part of “renovations” to remove the toilets from the property. I find that the 2nd respondent made the C Street property uninhabitable for the wife and the children and I reject his evidence on his oath that he did not “exclude” them from the C Street property.
Senior counsel for the wife made reference during final submissions to the circumstances in which the 2nd respondent excluded the wife from the C Street property. The wife’s more detailed assertions in that regard are dealt with in my interim judgment of 28 May 2018. The circumstances of the wife’s exclusion from the home were, however, not the subject of any evidence before me in the final hearing and I do not take them into account, apart from those referred to in the preceding paragraph.
I do not accept the 2nd respondent’s evidence where it conflicts with the evidence presented in the wife’s case unless I conclude there is objective evidence which allows me to do so.
The husband
The wife also challenged the credibility of the husband.
The husband claimed in records for J Pty Ltd prepared for taxation purposes, that he paid rates and land tax, and repairs and maintenance, notwithstanding, that the company owned no buildings or real estate. The husband has not indicated how those claims were made. The wife gave evidence that the husband had told her that “I will claim the payments to [the 2nd respondent] as rent for [the C Street property]”. I accept that the husband claimed substantial deductions to which he was not entitled.
Relevant parts of the husband’s company’s financial records are unexplained. I find that they are unreliable.
The husband deposed on his oath in his trial affidavit that “My brother made his own arrangements with the real estate agent to sign the contract for sale [of the C Street property]. This had nothing to do with me”. This was clearly false. The husband witnessed his brother’s signature on the contract.
I have no confidence that I can rely upon the husband’s evidence. I am not prepared to accept the husband’s evidence where it conflicts with the evidence in the wife’s case, unless I conclude there is objective evidence which allows me to do so.
The 2nd respondent’s obligation of disclosure
I also take into account that the 2nd respondent, as mentioned above, conceded that there was an absence of record keeping between the 2nd respondent and the husband in the context of the 2nd respondent’s assertion that payments made between them related to pre-existing debts.
Both the husband and the 2nd respondent were cross examined in relation to requests of them to produce documents and their lack of production of those documents. It was submitted by the 2nd respondent that these questions were put in the abstract and the wife did not adduce the written requests for documents nor establish that they were properly served or were from a period of time whereby it was possible to produce.
However, at paragraphs 12 and 13 of the wife’s affidavit filed on 25 August 2017, she referred to letters sent to the 2nd respondent dated 31 October 2016 and 18 August 2017. Those letters requested an extensive set of documents relevant to the purchase and sale of the L Street property and the purchase of the C Street property and sought, amongst other things, personal tax returns of the 2nd respondent and financial statements (including profit/loss and balance sheet statements) and documents prepared for the ATO and the OSR spanning a five year period. The wife gave evidence that at the date of swearing that affidavit (24 August 2017), there had been no response to those requests for disclosure.
Some documents were produced by the 2nd respondent shortly before the hearing commenced and some between the first two days of proceedings whilst the 2nd respondent gave oral evidence.
The 2nd respondent submitted that the obligation of disclosure assumes less significance for him as he is a third party who is resisting a claim for equitable relief as distinct from a party to proceedings under s 79 of the Act. I accept that the proceedings between the 2nd respondent and the wife are proceedings relying upon associated jurisdiction and are adversarial in their nature. Rules of Court made under s 123 of the Act do not strictly apply including Rules, which encapsulates case law, requiring full and frank disclosure (for example, r 13.07 of the Family Law Rules 2004 (Cth)) are not strictly applicable. However, the duty to discover relevant documents remains.
I find that the 2nd respondent did not produce relevant documents to the wife in a timely manner and on balance, there are likely to be documents in the control of the 2nd respondent which were not produced at all.
Brief Background
The husband was born in 1974.
The wife was born in 1976.
The 2nd respondent is younger than the husband but I am unaware of his date of birth.
On 15 September 2002, the 2nd respondent became the registered proprietor of the L Street property.
In 2002, the husband and wife participated in an Islamic marriage and in 2003, celebrated their wedding reception.
In late 2002 (on the wife’s case) or in February 2003 (on the 2nd respondent’s case) (nothing turns on that difference), the husband and wife occupied the L Street property as their first home.
In 2006, the first child of the husband and wife was born.
In 2008, the second child of the husband and wife was born.
In 2009, the husband and wife inspected the C Street property.
On 5 March 2009, contracts were exchanged nominating the 2nd respondent as purchaser of the C Street property at a price of $1,362,500.
By May 2009, the L Street property was listed for sale.
On 14 May 2009, the 2nd respondent negotiated a loan facility for $1,450,000 with V Bank (“the loan facility”) which funded the acquisition of the C Street property.
On 14 May 2009, the 2nd respondent took out an insurance policy with P Insurance for the C Street property.
On 14 May 2009, the settlement of the purchase of the C Street property was completed. The husband and wife vacated the L Street property and picked up the keys from the selling agent and moved into the C Street property.
At some time in the first half of 2009 and before 15 May 2009, the 2nd respondent and the husband entered into “an arrangement”.
From 15 May 2009, the husband’s company J Pty Ltd commenced to pay the 2nd respondent’s company, N Pty Ltd a sum of $4,000 each week.
From 15 May 2009, the husband and wife commenced to pay all council, water rates and utilities in respect of the C Street property.
From 15 May 2009 until March 2016, the husband and wife paid for renovations and improvements to the C Street property and planned a “modernisation” of the property. The 2nd respondent contends that all payments for renovations and improvements were reimbursed by him to the husband.
On 1 September 2009, the sale of the L Street property was settled at a sale price of $695,000.
On 9 April 2010, the payment from the account of the husband’s company to the account of the 2nd respondent’s company reduced from $4,000 to $2,500 per week.
By 15 May 2010, the loan facility on the C Street property had been reduced to $946,349.
On 8 February 2011, the third child of the husband and wife was born.
By 14 November 2011, the loan facility on the C Street property had reduced to $10,732.
In 2013, the loan facility on the C Street property was formally discharged although that facility had been paid out at an earlier time. The 2nd respondent subsequently moved debt of about $1 million that was associated with his business at Suburb Q to be secured against the C Street property. That left the Suburb Q asset unencumbered.
On 6 August 2015, the 2nd respondent says that he received the last payment from the husband of $2,500 each week. He also says (but I do not accept) that at that date he told the husband that he needed to make arrangements to vacate the property.
In April 2016, the parties separated under the one roof.
On 15 May 2016, the husband left the C Street property and ceased to reside there.
On 16 May 2016, the 2nd respondent asserts that he became aware that the husband had moved out of the C Street property.
On 26 May 2016, the 2nd respondent served a “Landlord’s Termination Notice to Tenant” addressed to the husband and wife (as the tenants of the property) upon the wife.
In June 2016, the husband was formally excluded from the occupancy of the C Street property by an Apprehended Domestic Violence Order.
On 7 September 2016, the 2nd respondent commenced proceedings in the NSW Civil and Administrative Tribunal (“NCAT”) against the wife for non-payment of rent and possession of the C Street property.
On 23 September 2016, the wife commenced proceedings in the Federal Circuit Court of Australia under the Act and amongst other orders, sought a declaration in respect of the beneficial ownership of the C Street property. This included an application for an anti-suit injunction in respect of the NCAT proceedings.
In November 2016, according to the husband’s oral evidence, the company J Pty Ltd went into liquidation owing $912,000. The husband says that the reason the company was audited was because when the wife was diagnosed with breast cancer the company “fell behind administratively”
On 8 December 2016, the hearing of the 2nd respondent’s application against the wife by NCAT took place and NCAT declared that there was a rental agreement in respect of the C Street property and ordered that the wife vacate the C Street property.
On 5 January 2017, the wife appealed NCAT’s decision.
On 26 May 2017, an appeal panel set aside the NCAT decision on the basis that the member did not set out adequate reasons. The matter was remitted for rehearing. The 2nd respondent subsequently discontinued the NCAT proceedings.
In July 2017, the husband became bankrupt and expects to be discharged from his bankruptcy in July 2020. The husband gave oral evidence that he went into bankruptcy owing only $90,000 personally.
On 4 August 2017, the wife’s application for an anti-suit injunction was withdrawn given that the 2nd respondent had discontinued the NCAT proceedings. The wife was awarded $2,000 in costs which the 2nd respondent has not yet paid the wife.
On 14 December 2017, the wife filed an Application in a Case in which she sought, amongst other orders, exclusive occupancy of the C Street property pending further order.
On 15 December 2017, Judge Harper (as he then was) finalised the wife’s application for exclusive occupancy when the 2nd respondent gave an undertaking to the Court which Judge Harper noted in the following terms:
A.The second respondent has proffered an undertaking to the [wife] that he will take no step to exclude the [wife] from the occupation of [the C Street property], such undertaking having been made up to 12 March 2018.
On 4 March 2018, the 2nd respondent took steps to ensure that the wife and the children of the husband and wife could no longer reside in the C Street property.
On 12 March 2018, an order was made transferring the proceedings to the Family Court of Australia. Judge Harper (as he then was) made the following notations:
A.The second respondent undertakes to not sell or otherwise encumber the [C Street property] until the final determination of these proceedings.
B.The second respondent will provide access to the wife to the [C Street property] for the collection of belongings and personal effects within 21 days of the date of these orders.
On 11 April 2018, ex parte orders were made allowing the wife access to the C Street property to allow her to remove her belongings and the matter was placed in my docket.
On 28 May 2018, reasons for making the ex parte orders of 11 April 2018 were delivered.
On 31 May 2018, the 2nd respondent was restrained, pending further order or until 9 November 2018, from selling, encumbering or in any other way dealing with the C Street property. On the final day of the hearing, the 2nd respondent consented to the continuation of the restraint pending delivery of this judgment.
Discussion
The L Street property
In late 2002, the L Street property was purchased in the name of the 2nd respondent. It was purchased as the matrimonial home for the husband and wife and became their place of residence. Their first two children were born whilst they were there.
The husband had told the wife that he had assisted the 2nd respondent in the purchase of one of his businesses in September 2001 and that at the time of the acquisition of the L Street property the husband said to her words to the effect:
Because we can’t get the loan in our name, this is [the 2nd respondent]’s way of paying me back for all of my help I gave him prior to him purchasing [one of his businesses]. During that time I was driving taxis and giving him the money I earnt.
The 2nd respondent asserted that the overall movement of money between himself and the husband left the husband owing him money at the end of the husband and wife’s occupancy of the L Street property. However, the 2nd respondent did not adduce any evidence about what financial arrangements existed between himself and the husband in respect of the occupancy by the husband and wife of the L Street property.
The decision to buy the C Street property, dealing with the selling agent and signing the contract
The wife asserts that she and the husband found the C Street property and that they liked the house for many reasons including its proximity to the beach.
At paragraph 7 of the wife’s affidavit filed 30 September 2016, she gave the following evidence:
7. In 2009 [the husband] and I attended an open house inspection for [the C Street property]. [The husband] and I had a conversation to the following effect:
I said: “I love the formal sunken lounge with the fireplace and the amount of light that comes through”
He said:“I love the huge swimming pool. We should buy this place. I will need to talk to[ the 2nd respondent]”
The husband’s version of what happened in respect of the decision to purchase the C Street property was as follows:
25.… the [wife] asserts that we attended the open house inspection for [the C Street property] in circumstances where I wanted to purchase the property in the name of my brother for us. I deny the assertions made by the [wife] in paragraph 17 – 21 [of the wife’s affidavit of 23 September 2016]. Our attendance at the open house was specifically on the instruction of my brother.
26. My brother had simply telephoned me and asked as to whether I had the time to inspect a property for him which was only 10 minutes away from L Street as he was working seven days per week. I recall having a conversation with my brother to this effect:
He said:“I found a property online, which is close to you. Can you check it out for me?”
I said:“Yeah, where is it?”
He said:“C Street, I’d go but I can’t get out of work.”
I said:“Yeah, I’ll sort it.”’
27.It was for that reason alone that I attended at the open house inspection. I recall telephoning my brother and getting him to speak to the agent over the phone at the time to make an arrangement to see the property for himself. He then made his own arrangements with the agent to inspect the property. That is the context as to how I came to inspect the property at C Street. I deny the conversation that the [wife] or Mr K assert.
28.My brother made his own arrangements with the real estate agent to sign the contract for sale. This had nothing to do with me. My brother has also made his own arrangements with the bank for this purchase. Again, these arrangements had nothing to do with the [wife] nor myself.
29. The [wife] and I did not travel to R Town and have a discussion with my brother about him purchasing this property in his name. The only discussion that I ever had with the agent was on the open house inspection when my brother had asked me to try and see how flexible the vendor was with the price. I then had a short discussion with the agent and then gave the agent my phone so that he could speak to my brother directly.
30.I deny that my brother purchased this property “on trust” for myself or for anyone else.
The 2nd respondent’s version of the events is in similar terms. At paragraphs 45 and 46 of his trial affidavit, the 2nd respondent alleged that he had a telephone conversation with the agent on the day of an open house for the C Street property as to the flexibility of the vendor in negotiating a purchase price and that on the following week, he attended an open house and negotiated directly with the agent. He asserted that he did not give permission to either the wife or the husband to negotiate with the agent in relation to purchase price and that he negotiated the purchase price directly with the agent. At paragraph 47 of his trial affidavit the 2nd respondent stated:
… I executed the contract on 5 March 2009 and gave the agent my details together with my brother’s details as the contact person to speak to. I simply did this as he resided approximately 10 minutes away from C Street. I signed the contract whilst I was alone and at the agent’s office. I deny that I was in the company of either the [wife] or my brother upon inspection nor the execution of contract.
The wife relied upon the evidence of Mr K who was the real estate agent who listed the C Street property for sale by the vendors and who acted on the sale of the L Street property. In his affidavit filed 8 March 2018, he said that he met the wife at an open house inspection for the C Street property and later realised that he had gone to the same primary school as the wife. His recollection was that the only discussion that he had had about the house, including the price, was with the wife; that he negotiated the price with the vendors; that the only conversation he had about that was with the wife and that it was the wife who told him that the house was to be put into her brother-in-law’s name.
He also said that in respect of the sale of the L Street property, he had conversations with both the wife and the husband in relation to the listing of that property for sale and that, so far as he remembered, it was the wife who showed him through the L Street property.
Senior counsel for the 2nd respondent then attempted to establish in cross examination that Mr K had witnessed the 2nd respondent’s signature on a copy of the contract. I infer that that cross examination was put on instruction from the 2nd respondent and was consistent with the assertion by him that he was alone and at the Mr K’s office at the time that he executed the contract. Mr K was originally shown Exhibit 16 which was the contract of sale for the C Street property signed by the vendors. Senior counsel for the 2nd respondent conceded that propositions put to Mr K could not have been correct and that Exhibit 16 did not corroborate an assertion that the agent witnessed the 2nd respondent’s signature. Exhibit 18 is a copy of the contract signed by the 2nd respondent. As mentioned above, when the husband and 2nd respondent deposed that the 2nd respondent made his own arrangements to sign the contract for sale and this had nothing to do with the husband, that was clearly false, as both the husband and the 2nd respondent conceded it was the husband who had witnessed his brother’s signature on the contract.
In his oral evidence, Mr K was not able to remember any further detail. He had no recollection at any time of meeting or communicating with the 2nd respondent. The 2nd respondent’s version, including that he attended the agent’s office alone to sign the contract as outlined at [114] above, was put to Mr K. He had no memory of what was being asserted by the 2nd respondent and also indicated that he did not remember talking to the 2nd respondent’s lawyers.
I prefer the evidence of Mr K in preference to the evidence of the 2nd respondent where it is in conflict. I find that Mr K dealt with the husband and wife in respect of the acquisition of the C Street property and the price to be paid for the C Street property. I do not accept the husband and the 2nd respondent’s versions about how the C Street property was found and how the interactions with the real estate agent took place, where those versions conflict with that of the wife and Mr K.
The husband’s company’s business – J Pty Ltd
The husband’s company, at all relevant times, conducted the business of providing security services. In the wife’s affidavit prepared for the NCAT proceedings (part of Annexure B referred to in paragraph 3 of the wife’s affidavit filed 28 November 2016), she gave evidence that the husband consistently refused to declare his true income and that of his business, in order to avoid paying tax, stating:
[The husband] is always afraid of the ATO and any other entities that could lay claim to his assets. [The husband] approached [the 2nd respondent] to purchase the [C Street] property in his name so that [the husband] would not have to explain how it is that he was able to purchase the property on the meagre income he declared or face the difficulties of trying to secure the loan.
The wife gave evidence that “purchasers” of the husband’s company in 2011 were $905,321; in 2012 were $702,752; in 2013 were $3,955,155; and in 2014 were $4,654,548.
The wife deposed that she and the husband had many arguments over the years about the husband running his business in a way that involved tax avoidance and paying employees in cash. The wife had a conversation with the husband where she said to him “Aren’t you worried that going to Westpac Suburb S every week and withdrawing tens of thousands of dollars for the last five years at least, that the bank staff may just alert the ATO, so if not for the sake of doing the right thing, for your sake” and the husband responded, “I know all of the staff at Westpac Suburb S and they all know me”.
The husband was audited by the ATO and the Office of State Revenue (“OSR”). Whilst being audited, the wife gave evidence that the husband told her that he was going to pay “these … guys I know $250,000 to provide me with false invoices for every single cash withdrawal from the Company’s account”.
I accept that as a result of the operations of J Pty Ltd, the husband had significant amounts of cash available to him at relevant times.
The husband’s conversation with his brother and the wife’s conversation with her husband about the acquisition of the C Street property
As already set out in [13] above, the wife gave evidence of the words she heard the husband say to the 2nd respondent on the evening of the day she and the husband had first seen the C Street property. Because of its importance, I set out again the effect of the words the wife heard:
I am looking at buying a property at [C Street] we need to crunch the numbers, I can more than afford the house, but I’m not declaring how much the business or I am making. Based on the amount of money that I am declaring I would never manage to obtain a loan. I am also concerned of any liability to the ATO. Can we put the house in your name [the 2nd respondent]? That way my house would be protected, I can’t have a $1.3 million home registered in my name that my wife and I have just decided to purchase.
Senior counsel for the wife originally asserted that this conversation was uncontested. However, senior counsel for the 2nd respondent took the Court to paragraphs 25 to 28 of the husband’s trial affidavit which referred to paragraphs 17 to 21 of the wife’s affidavit of 23 September 2016 (which were not relied upon during the proceedings) and denied their contents. It is not controversial that paragraph 18 of that affidavit is in identical terms to paragraph 7 of the wife’s affidavit of 30 September 2016. I accept, therefore, that the husband had denied that the wife had heard him speaking to his brother using the words attributed to him.
Relevantly, the 2nd respondent did not give evidence that his brother had not said to him what the wife asserts she heard.
Further, the wife gave evidence at paragraph 14 of her affidavit of 14 November 2018, that at that time the husband said to her words to the effect:
[The 2nd respondent] will put the house in his name… We won’t get a home loan from the bank because I’ve underestimated my earnings in my tax return. Also if we ever get sued I want the house protected… It is best to put the house in [the 2nd respondent]’s name and we will pay him the cost of the mortgage as we go… I am also going to claim the payments that we make to [the 2nd respondent] as tax deductions and claim that they are payments for rent because my business operates out of the garage…
Whilst in similar terms to the conversation the wife overheard with his brother, senior counsel for the 2nd respondent did not seek to lead any evidence from the husband about this conversation and accordingly, this conversation was not denied by the husband.
In any event, I accept the wife’s evidence that these conversations occurred.
Deciding to sell the L Street property and the net proceeds of its sale
The wife gave evidence that the decision to sell the L Street property in 2009 was a decision of herself and the husband and that they were not in a position to retain the L Street property after they started making payments in respect of the C Street property. I also note that since the C Street property was to be the new matrimonial home of the husband and wife, the L Street property would cease to be.
Mr U, who was an electrician that carried out work on the C Street property on more than one occasion, gave uncontested evidence that the husband and wife represented to him that they had bought the C Street property and that during the conversation they said “We are going to sell this house [referring to the L Street property] because it’s too small to be able to buy C Street”.
Given that the L Street property was in the 2nd respondent’s name, he signed the contract and his lawyers attended to the conveyancing transaction. The money ended back with him and as already mentioned, the 2nd respondent received the net proceeds upon the sale of the L Street property of about $190,000 ($185,000 + $4,894; see page 135 of the annexures to the 2nd respondent’s trial affidavit).
Senior counsel for the wife initially submitted that part of the arrangement between the brothers in relation to the acquisition of the C Street property was that the 2nd respondent would retain the equity in the L Street property upon its sale. This submission was not elevated to any forceful assertion that a constructive trust should be imposed in respect of the net proceeds of the sale of the L Street property.
In the end, senior counsel for the wife simply relied upon what happened with the L Street property as part of the unclear financial history between the brothers but a history which tendered to buttress the wife’s assertions as to what happened in relation to the C Street property.
Senior counsel for the 2nd respondent submitted that none of the history in relation to the L Street property would assist in finding the indicia of a constructive trust in relation to the C Street property. I do not accept that submission as the 2nd respondent gave no evidence about what payments (if any) were made by his brother to him and whether they were referrable to the occupancy of the L Street property by the husband and wife.
The evidence does not allow me to find, one way or the other, as to whether the receipt of the net proceeds of the sale of the L Street property was part of the ongoing “arrangements” between the brothers associated with the provision of a new residence for the husband and wife and their children.
Funding the acquisition of the C Street property
The 2nd respondent secured a loan arrangement with V Bank for the acquisition of the C Street property.
The acquisition costs were as follows:
Purchase price $1,362,500
Stamp duty $60,448
Legal, mortgage stamp duty and valuation $25,500
Establishment fee $1,500
$1,449,948
As far as I am aware, there was no evidence before me as to what amount was paid to T Lawyers for their professional services in acting on the conveyance of the purchase of the C Street property.
The facility that the 2nd respondent organised with V Bank was in two parts. The initial proposal was that an amount of $1,090,000 be borrowed by way of a home loan repayable by way of principal interest over 30 years. An additional amount of $360,000 was to be borrowed by way of commercial advance over a term of 36 months. A supplementary credit risk facility amendment document dated 13 May 2009 indicated that the final approval may have reduced the home loan facility by $130,000 to $960,000 and increased the commercial advance by $130,000 to an amount of $490,000. The facility was to be interest only until 18 January 2011 and then notional principal and interest over the remaining months in line with existing facilities. This was confirmed by a loan disbursement advice from V Bank dated 15 May 2009.
My attention was not drawn to any evidence that would indicate the interest payable in respect of these borrowings. The credit risk facility amendment document (at page 187 of the annexures to the 2nd respondent’s trial affidavit) referred to summary terms of conditions as “Annexure D” but that part of the document has not been put into evidence. The credit risk facility document would indicate that it was only the home loan that was to be registered on the title of the C Street property.
No financial records were produced that would demonstrate how (if at all) interest on these borrowings was treated for taxation purposes.
Senior counsel for the 2nd respondent highlighted that the 2nd respondent told V Bank that “The house will be used as a home office for a senior executive”. Immediately before that statement, the document recited that “a lease is already negotiated for $[75,000] pa for a term of 5 years.” That converts to a weekly rent of $1,442 and is neither consistent with the assertion by the 2nd respondent that the flat rent throughout the entire relevant period was $1,250 per week nor consistent with a number of statements made by the 2nd respondent on his oath that the reason he did not disclose monies paid by his brother to him in relation to the occupancy of the property was that he did not consider it a property that he bought for “investment”. The document also referred to the proposal to include a “new commercial advance $1,250k to assist the purchase of residential investment property at [C Street]” and that the “Client has exchanged contracts on a residential house at [C Street] for investment. Contract amount $1,362.5”. Any representations that the purchase was “for investment” was again inconsistent with the 2nd respondent’s assertions at this hearing. On the face of the V Bank Credit Risk facility document, it does not seem that the 2nd respondent disclosed to the lender that the purpose of the borrowing was to acquire a property which was to be the new matrimonial home for the husband, wife and their children. Unless I refer to them because they seem to be uncontroversial, I do not place any significant weight on statements the 2nd respondent may have made to V Bank to obtain funding for the acquisition of the C Street property.
Home insurance
Senior counsel for the 2nd respondent referred to the house insurance taken out by the 2nd respondent upon the acquisition of the C Street property as a classic example of an owner protecting his asset and asserted that it was a significant contemporaneous document. P insurance recorded on that document that the home was “occupied by tenants – landlord insuring building… is used for residential purposes and is not used for business, trade or profession”. Senior counsel for the 2nd respondent submitted that the business record “says what it means”. That is, the home was occupied by tenants. Tenants being those that rent.
I take judicial notice of the fact that it is a usual requirement of any lending by any financial institution on residential property that the property be insured.
Further, Exhibit 20 (at tab 2), indicated that the 2nd respondent paid for $50,000 worth of content insurance for the L Street property in March 2004 in circumstances where he owned no contents in the home as all of the contents were owned by the husband and the wife. The premium he paid was $31.4 per annum, so it is not a weighty consideration.
The 2nd respondent suggested that some weight should be given to the fact that the alleged equitable owner of the C Street property did not take out any building insurance and that the fact that it was required by the bank as part of its loan approval is neither here nor there. I do not accept that submission. This is an insurance policy required by the bank and is, in part, consistent with representations made by the 2nd respondent to V Bank when making the application for finance.
However, I do note that the statement that the property will be used for “residential purposes” and was not for “business, trade or profession” is inconsistent with what the 2nd respondent seems to have told V Bank, namely, “the house will be used as a home office for senior executive”.
Letter from the 2nd respondent’s lawyers dated 14 May 2009 and the 2nd respondent’s response by email on 18 May 2009
Senior counsel for the 2nd respondent referred to a letter written by T Lawyers to the 2nd respondent dated 14 May 2009 (the day before the settlement of the acquisition of the C Street property) as a significant document. It is a letter which provided a number of the usual advices to a purchaser of a new property. The parts of particular relevance are as follows:
… We will notify you once the matter is completed so that you may arrange to collect the Keys to the property from the agent’s office. Following discussions with you today, we have advised the agent that you have decided to have [the husband and the wife], the tenants, arrange for the collection of the keys.
…
As previously discussed with you, as these premises are to be leased to your brother you should also discuss with the insurance company the purchase of Landlord’s insurance. It may be the case that one policy may suffice, although you need to ensure that you disclose the fact that these premises are tenanted. We understand that you will attend to this immediately.
We understand that at present there is no formal lease agreement between yourself and the abovenamed tenants. To this extent, we suggest that you consider approaching a local agent to draw a lease. Our office is also happy to assist in the drawing up of the lease and advising you.
On 18 May 2009, the 2nd respondent replied to his lawyers (at page 217 of the annexures to the 2nd respondent’s trial affidavit) in the following terms:
Got your letter re settlement. Thanks for everything. Don’t worry re lease as me and my bro have private arrangement as he owes me money for his debts over time but might think about it later
During final submissions, senior counsel for the 2nd respondent categorised the email as saying “we don’t need to document it in a rental lease. I will deal with this with my brother”. It is clear that there was never a formal lease. As discussed in submissions, however, the email does not talk about a tenancy arrangement but rather a “private arrangement”.
I accept that the letter to T Lawyers dated 18 May 2009 is a contemporaneous statement by the 2nd respondent that at that time, in his view, his brother owed him money. It is silent as to how much it was asserted was owed at that time and there is no indication as to what were the terms of the private arrangement.
The 2nd respondent asserted in his oral evidence that the arrangement with his brother was “a very informal arrangement”. The 2nd respondent also said (and so far as I know, for the first time), that prior to the acquisition of the C Street property he had advanced $400,000 to his brother and there were “hundreds of thousands” outstanding. I am unable to accept the credibility of that evidence given the other evidence and findings I have made about the cash transactions taking place between the brothers. I’m unable to make any finding that any amount was actually owing by the husband to his brother at the date of the acquisition of the C Street property.
The movement of monies between the brothers
The evidence about the movement of money between the brothers consisted of the schedule (as referred to above) which the 2nd respondent had prepared to tender in the NCAT hearing, some financial records produced on the eve of the hearing, cross-examination in the 2nd respondent’s case and oral evidence, particularly, as to what the 2nd respondent said he remembered in relation to cash transfers.
As referred to above, it is unclear how inter-entity movements of monies between J Pty Ltd and N Pty Ltd have been treated on the books of those companies. The 2nd respondent feigned to assert that he was not aware of the ordinary obligations of directors under company laws to properly account for monies received. I do not accept his assertion that he had a lack of understanding of these obligations. As mentioned above, the 2nd respondent is a highly successful entrepreneur. He holds interests in businesses, which according to a credit risk assessment obtained in respect of the loan facility on the C Street property in May 2009, have a total value (which he shares with various partners) of $15,381,000 ($8,530,000 + $2,566,000 + $4,285,000) The credit risk assessment also provides a statement of the 2nd respondent’s assets and liabilities at the time of the application for finance and is in the following terms:
Assets $21,750,000
Liabilities $11,410,000
Surplus $10,340,000
At the time of the acquisition of the C Street property, the assets recorded in the credit risk assessment comprised of the 2nd respondent’s interest in two businesses, a medical centre and business premises, two residential properties and cash of $1,000,000. Liabilities were V Bank loans totalling $10,060,000 and a loan from ANZ of $450,000.
It is the 2nd respondent’s case that he advanced significant amounts of money to the husband to “bankroll” him for the purposes of continuing his security business. The 2nd respondent agreed that there was little point in reading the financial statements of his companies to try and work out what the position was in relation to transfers of funds between the brothers.
The 2nd respondent alleged that the husband, at various periods of time, owed him significant sums of money, which included over $700,000 in cash. The 2nd respondent volunteered that he had actually given the husband $250,000 in cash in one instance. The 2nd respondent said his cash came from his “revenue streams” from businesses. In respect of the cash provided to the husband, the 2nd respondent, whilst placing his hand over his heart, said that he kept no written records of them. He kept it “in his mind. On my person”. The 2nd respondent gave oral evidence as to his memory of cash advances to his brother totalling $600,000, the details of which were as follows:
a)April 2009 - $50,000;
b)November 2010 - $50,000;
c)December 2010 - $50,000;
d)December 2011 - $60,000;
e)November 2013 - $70,000;
f)February 2014 - $70,000; and
g)April 2014 - $250,000.
The 2nd respondent agreed that this was the first occasion in which he had given this evidence. It had not been given in the NCAT proceedings and was not detailed in his trial affidavit.
The husband gave evidence that none of the cash which his brother gave him from time to time, was ever placed into any account with any financial institution. The husband indicated he kept no records at all of the monies provided to him by his brother and he relied entirely upon his brother to keep a track on those matters. He said that the only reason the 2nd respondent ever provided money to him was in order to assist him in the cash flow of his security business. The husband said that the last amount he borrowed from his brother was in April 2014.
Notwithstanding the fact that the 2nd respondent asserted that his brother owed him a large amount of money, the 2nd respondent was not a creditor in his brother’s bankruptcy. The husband agreed that he met his Trustee in Bankruptcy and that he told the Trustee who he owed money to. The husband asserted that he told his Trustee that he owed his brother $800,000 and that the Trustee had told him that he could not include that debt as he had no documentation to support it. The husband indicated that the figure of $800,000 that he purported to owe at that time was told to him by his brother.
In his oral evidence, the 2nd respondent asserted that the figure that the husband currently owed him was $574,500. There was no explanation as to how about $225,000 might have been paid by the husband to the 2nd respondent during his bankruptcy.
The 2nd respondent accepted that the husband made repayments to him in cash over time but the 2nd respondent was unable to give an exact figure or even guess at a figure, notwithstanding the precision with which he gave evidence in respect of cash advances he made to his brother. He asserted that any cash that his brother paid him was prior to the acquisition of the C Street property (namely, the period between 2000 and 2008). I am unable to put any weight upon that evidence.
There is no corroborative evidence in respect of the cash transactions made between the brothers and their respective companies. I am unable to make any specific or general finding as to what movements of monies took place between the brothers, in either direction, during the relevant period apart from those which I find specifically relate to the husband’s acquisition of a beneficial interest in the C Street property.
The schedule of payments
As mentioned above, during the NCAT proceedings, the 2nd respondent tendered in evidence a schedule that he had caused his accountants O Firm to prepare. It is not controversial that the schedule accurately records transfers to N Pty Ltd between May 2009 and 6 August 2015 totalling $922,500. The document asserts that of the $922,500 in payments, $392,500 related to rent and $530,000 related to “personal repayments”.
All the rent payments are stated to be $1,250 each week. Senior counsel for the wife submitted that the payments made by the husband and wife to the 2nd respondent outlined in the schedule were more than would be required to rent the C Street property. The wife adduced in evidence a letter from Raine and Horne dated September 2016 (Annexure E1 of her affidavit filed 23 September 2016), which indicated that a reasonable range of rent for the property was somewhere between $1,000 and $1,200 per week. If the upper range was $1,200 in September 2016, senior counsel for the wife invited judicial notice to be taken for the fact that rent increased in the Sydney region from 2009 to 2016. That is an ambiguous argument and I am not able to accept it.
The letter from O Firm is addressed to NCAT and is in the following terms:
We confirm that we are the accountants for the [2nd respondent].
[The 2nd respondent] tasked our firm with preparing the Rental Ledger spreadsheet for N Pty Ltd. The information relied upon was all the available N Pty Ltd bank statements from the period 1st March 2009 to 31st August 2015. The bank statements were supplied by ANZ.
We confirm that the last payment received from [J Pty Ltd] was on the 6th of August 2015.
In respect of these documents, during the NCAT hearing, the 2nd respondent gave the following sworn testimony:
[COUNSEL]: Right. And in order to assert the bona fides of the arrangement between your brother and yourself, you have attached in your affidavit from B&M Finance a set of rent receipts ledger that were obtained from your books and… (not transcribable) … and was that fairly set out …
[2ND RESPONDENT]:Yes, my accountants prepared the ledger using all of the bank statements from N Pty Ltd for the entire period, yes.
(Transcript of proceedings before NCAT on 8 December 2016, page 18, lines 3 to 8)
The 2nd respondent then gave the following evidence:
[COUNSEL]: In respect of this letter it was prepared from bank statements, is that correct?
[2ND RESPONDENT]: All of the N Pty Ltd bank statements were given to - were requested from ANZ and were given to my accountant, and the spreadsheet was prepared off all the bank statements and the letter from the accountant confirms that.
[COUNSEL]: But you don't produce to this Tribunal those bank statements, do you?
[2ND RESPONDENT]: When did you request them? I have never - that document you produced today I just saw that today.
…
[THE 2ND RESPONDENT]: I actually deliberately prepared that by my accountant for your benefit so that you could see that all of the information that you would obviously need to confirm that the rental payments were going into the account - I just did that to help you so that you could have…
[MEMBER]: So you made it?
[THE 2ND RESPONDENT]: Yeah.
(Transcript of proceedings before NCAT on 8 December 2016, page 29, lines 26 to 49)
It is a fair categorisation to say that the 2nd respondent represented to NCAT that it was his accountants that had prepared this information for the purposes of the NCAT proceedings.
Apart from the calculation of the total payment on the document prepared by O Firm and provided to NCAT under cover of the letter dated 17 October 2016, it is of little evidentiary value. It is a hearsay document prepared for the purposes of those proceedings. The 2nd respondent had instructed them to prepare a schedule of the relevant banking records dividing each payment as $1,250 per week rent and the balance as “personal repayments”.
Further, at page 42 of the NCAT transcript, the husband gave the following evidence:
I paid rent. I paid him what I earnt back as much as I could from what I owe him. The rent is rent, the money I owed him is money I owed to him.
Senior counsel for the 2nd respondent submitted that it was relevant that the brothers had told a consistent story since 2016 but I place little weight on that submission.
There is one amount on the schedule which is unlike any other. It is an amount of $42,000 paid by the husband on 8 January 2010. The schedule nominated that $1,250 of that payment was for rent, whilst $40,750 was for the husband’s personal debt. There was some exploration in cross examination as to whether or not this might have related to some reimbursement of stamp duty in respect of the acquisition of the C Street property. The 2nd respondent denied that assertion. There is no foundation for finding that that was the basis for the payment. The settlement of the sale of the C Street property took place in May 2009 and stamp duty would have been paid prior to settlement. The 2nd respondent said that he had lent his brother $30,000 by way of direct transfer and two lots of $6,000 by way of cash payments and that that $42,000 which had been lent to his brother over the Christmas period in 2009 was the reason that his brother paid the amount of $42,000 in early January. The husband gave evidence that was consistent with that version, saying that he didn’t want to be in a position to not be able to pay security staff over the Christmas/New Year period. Exhibit 19 contains a Westpac Statement which shows a deposit from the 2nd respondent of $30,000 dated 23 December 2009. I accept that the payment of $42,000 on 8 January 2010 was a repayment, in part, of the $30,000 that the husband had received from the 2nd respondent on 23 December 2009 but I make no such finding in relation to the balance amount of $12,000.
Exhibit 19
The 2nd respondent relied heavily on the evidence in Exhibit 19 which showed transfers of monies from X Pty Ltd as Trustee for the Khalif Family Trust (an entity controlled by the 2nd respondent) between February 2008 and April 2012 to the husband’s company J Pty Ltd. The details of the amounts credited to J Pty Ltd’s account were as follows:
8 February 2008 $20,000
14 February 2008 $20,000
30 May 2008 $180,000
1 June 2009 $50,000
23 December 2009 $30,000 (The note entered by the 2nd respondent in his banking records is that that was a payment direct to the husband and relates to the discussion in the previous paragraph)
3 April 2012 $40,000
Total$340,000
Senior counsel for the 2nd respondent asserted that the evidence in Exhibit 19 was “a fatal flaw” in the wife’s case and submitted that these payments by the 2nd respondent to the husband made it unsafe to conclude that aforementioned weekly payments were only in respect of the C Street property and not personal debt as described in the schedule. If this document was evidence of all the movement of monies between the brothers, it would establish that the husband owed the 2nd respondent $220,000 at the date of the acquisition of the C Street property.
The first observation to make is that even on the 2nd respondent’s case, these transfers did not include movements one way or another of transfers of cash between the brothers and/or their entities. Senior counsel for the 2nd respondent accepted that the movement of money between the brothers involved a significant movement of cash each way, not just movements of money by way of bank transfers. I am unable to conclude what, if anything, the husband owed the 2nd respondent at the date of the acquisition of the C Street property.
Secondly, these monies came from an entity controlled by the 2nd respondent, other than between J Pty Ltd and N Pty Ltd. That is only noted in the context that the 2nd respondent sought to make a point (as discussed below) that transactions were between entities and not between the brothers themselves.
The husband and wife treating the C Street property as their own
After the husband and wife moved into the C Street property they treated it as their own home.
Mr Y is the wife’s brother-in-law and his evidence was not the subject of challenge. He gave evidence that he had a conversation with the husband on one occasion where the husband said to him words to the effect:
We bought this house from an old couple [referring to the C Street property]. They had looked after the house and they had spent a ridiculous amount of money, about $50,000 to upgrade the pool before they sold it to us.
He recalled another conversation he had with the husband where the husband compared the purchase price of the C Street property with another comparable sale at the time, commenting to the effect that he had obtained a good deal.
Further, he remembered a conversation with the husband where the husband said to him:
Man look at this we have got this big house and everything, all for nothing no one comes over. Man I think sometimes I should just sell this house and sell the business and move overseas.
Mr Z gave evidence that he worked as a labourer in the installation of the staircase at the C Street property. Whilst he was at the property he took all instructions from the husband and wife. He said that during conversations with the husband, he always held out to him that the C Street property belonged to himself and the wife. He said that he has met the 2nd respondent on a few occasions but that the 2nd respondent had never asserted that the C Street property belonged to him.
The 2nd respondent’s assertion that the C Street property was his residence whilst maintaining that his brother paid him full rent for the property
The 2nd respondent asserted that he considered the C Street property to be his residence. That assertion sits uneasily with representations the 2nd respondent made to V Bank upon which he otherwise sought to rely.
The 2nd respondent, in the affidavit of 20 July 2017 (which he prepared in respect of the NCAT proceedings), deposed that he and his family moved overseas in 2012 and kept the C Street property “for us in Sydney when we return”. At paragraph 14 and 15 of that affidavit he stated:
14.I have always been in possession of a key to [the C Street property] and have never required consent from anyone to enter this property. Since 2012 I have returned to Sydney on at least four occasions per year to manage my businesses… To that extent, I would predominately reside in my property at Suburb D when conducting business in Sydney. On occasions where I would be required to oversee the management of the Dapto store I would reside with my parents in Suburb CC…
15. [C Street] is a property that I have reside in on and off since I purchased it and as such I cannot claim it as an investment property.
However, earlier at paragraph 3 of that affidavit, he said “I purchased [the C Street] property … as my investment”.
I note that the 2nd respondent then annexed his 2016 vehicle registration certificate and a copy of his wife’s bank statement from late 2013 which both list the C Street property as their home address.
However, the 2nd respondent was tested about what residential address he had indicated on documents with the Immigration Department associated with his international travel. He confirmed that every time he had entered the country, prior to 24 February 2018, he had recorded his principal place of residence as being his mother and father’s address at BB Street, Suburb CC (“the BB property”) and said that this was because it was his primary place of business. The 2nd respondent then feigned to not understand the question as to why on Immigration Department records he changed his residential address to the C Street property in February 2018. After prompting, the 2nd respondent said that he hadn’t told the Immigration Department about the C Street property being his residential address because he was waiting to get occupancy of it and was waiting for some time to get his premises back as the wife would not vacate it. When asked why he had identified the BB property as his address in his trial affidavit, he said that it was because currently the C Street property was under renovations and those renovations were not completed yet. I note that these were the renovations which the 2nd respondent asserted he commenced in March 2018 when he removed the toilets from the property prior to the wife leaving the premises. When pressed, the 2nd respondent said they were now almost completed.
The 2nd respondent cited 2013 as an example of when he and his family lived in the C Street property. The husband gave oral evidence that when the 2nd respondent came to Australia, which was approximately two to three times a year, he would stay with them at the C Street property. He said that 2013 was the last time the 2nd respondent visited and his family stayed for about a month. However, he also stated that during this time the wife and the 2nd respondent’s wife went with the children away on a holiday whilst both brothers were working.
I formed the view that he was not telling the truth about his assertions as to how he treated the C Street property as his residential address during the period when the husband and wife lived there. The 2nd respondent’s evidence about this matter is quite contradictory.
Also, the 2nd respondent gave inconsistent evidence about the C Street property currently being his residential address. When the 2nd respondent commenced his oral evidence he gave the C Street property as his address and confirmed that his family and he had the C Street property as their place of residence. When tested, the 2nd respondent said it was only himself living at the property, correcting his earlier answer by saying that his family lived overseas at the time of the hearing. When pressed as to who currently ordinarily lives in the house, the 2nd respondent conceded that nobody did as “it was being renovated”.
Senior counsel for the 2nd respondent submitted that how often the 2nd respondent visited or stayed in the C Street property was largely irrelevant to a determination of who has a beneficial interest in the property. I find that it is of some relevance, when taken with other evidence, to make a finding that the C Street property, at the time of its acquisition, was intended to be the matrimonial home of the husband and wife in which they and their children would live. I conclude that the 2nd respondent’s occupancy of the C Street property was minimal during this period. The evidence was otherwise vague about the time the 2nd respondent had spent in the C Street property. I find that the 2nd respondent rarely stayed at the C Street property during the period it was occupied by the husband and wife.
Renovations, improvements and repairs to the C Street property
The wife gave expansive details in relation to some of the improvements that were carried out to the C Street property at paragraphs 8 to 11 of her affidavit filed 25 August 2017 including that:
a)In 2012, curtains and window furnishings were added;
b)In 2013, a new oven and gas cooktop was installed;
c)In June 2013, the ensuite was enhanced and new bathroom fixtures were purchased;
d)In March 2016, plans were drawn and a quote was obtained in relation to replacing the kitchen; and
e)On 25 March 2016, a zodiac chlorinator was purchased for the pool which was maintained on a monthly basis.
The wife also gave evidence that she arranged for the installation, repair and renovation of the staircase, pool fence, garage driveway and door and Crimesafe doors and window. At paragraphs 10 and 11 of her affidavit filed 25 August 2017 she stated that the 2nd respondent “did not pay for nor was he consulted in regard to any of the above works or purchases mentioned” and that “either myself or [the husband] would provide instructions, direct quotations and plans with service providers, attend appointments and organised payment”.
As mentioned above, Mr Y was involved in installing glass balustrading to the staircase in the C Street property. He said the request came to him from the husband and the husband asked him to speak to the wife to see what she wanted and then let him know how much it would cost. He gave evidence that he designed the balustrading for the staircase with the wife, although there was some subsequent negotiation between the husband and wife to the overall design of the staircase.
On another occasion, Mr Y had a conversation with the husband where the husband indicated that he had made arrangements for the tiling of the driveway in a way that would withstand cars going over them. He also gave evidence that he discussed with the husband various options to improve the lighting on the swimming pool on the C Street property.
Mr U was an electrician who carried out work on the C Street property on more than one occasion. He received instructions to do so from the husband. He did not speak to the 2nd respondent.
The 2nd respondent relied upon the following extract of the transcript from the NCAT proceedings which is in the following terms:
[COUNSEL]: And as the time has gone on have you paid any outgoings and repairs and such from moneys that have been paid by way of rent by - for the property?
[THE 2ND RESPONDENT]: Yes, we would settle - settle between ourselves any - any expenditure.
At page 61 of the NCAT transcript, the husband gave evidence that he paid for repairs and maintenance on the C Street property and his brother kept a record and reimbursed him. None of those records have been produced in evidence by the 2nd respondent.
The 2nd respondent gave evidence that there were no records in relation to him reimbursing his brother for expenses on the C Street property because they were made in cash from time to time and there was, accordingly, no physical record that it happened. He said the husband didn’t show the 2nd respondent any receipts for the expenses and he claimed no deductions for this cash expenditure in his tax returns.
I find that the 2nd respondent was not consulted about any of the works or purchases mentioned. I do not accept that there was a reimbursement by the 2nd respondent in respect of the amount of money paid by the husband during the marriage on renovations and improvements to the C Street property absent any corroborative evidence.
The husband’s reference to paying a mortgage (Exhibits 24 and 25)
Exhibits 24 and 25 are text messages the husband accepted he sent to the wife and three handwritten notes which the husband accepted were authored by him. The text messages and written notes include the following references:
a)“$2,500 mortgage a week”;
b)“Mortgage → $2500 pwk”;
c)“$35000 mortgage”;
d)“Mortgage $2500 → $130000”; and
e)“$2500 house”.
One handwritten note is entitled “WHERE MY MONEY GOES!!! WHERE DOES YOURS!”
The husband was asked about these documents in cross examination and claimed that when he referred to a mortgage, that was just the way he referred to the monies he owed his brother, being half payment for rent and half payment in respect of outstanding debt. He further explained that his reference to “our home” was just a reference to the house he was living in, pointing out, that people don’t say “come over to “my rental property””.
I do not accept that the husband used the word “mortgage” in the documents in Exhibits 24 and 25 in the sense that he asserted. None of the entries makes reference to any part of those payments being a repayment of a debt to the 2nd respondent.
The discharge of the loan facility on the C Street property and use of the 2nd respondent of the C Street property for security for borrowings
The 2nd respondent paid out the loans arranged to acquire the C Street property between 2009 and 2011. The actual mortgage securing the loans was removed in 2013. There was no evidence as to the source of funds that the 2nd respondent used to pay down the loan facility. Senior counsel for the 2nd respondent submitted that that was consistent with the 2nd respondent’s assertions in the V Bank credit risk assessment that he had $1 million in cash during that period. It was uncontested that the husband made regular payments to the 2nd respondent but not payments that would have been sufficient to discharge the facility in that period.
Senior counsel for the 2nd respondent made the submission that given that the husband continued to make payments to the 2nd respondent, even after the loan facility on the C Street property was extinguished, the payments made could not have had anything to do with the mortgage used to acquire the property. I do not accept that submission. The arrangement between the brothers in 2009 was not conditional upon how the 2nd respondent subsequently chose to organise the funding of his business activities.
It was not controversial that the 2nd respondent used the C Street property subsequently as security for other financing arrangements. I do not know all the precise terms of “the arrangement” between the brothers but I infer that part of the arrangement accommodated the 2nd respondent using the property as security for other ventures whilst the husband was making the repayments.
The 2nd respondent’s Will (Exhibit 22)
Exhibit 22 is a will executed by the 2nd respondent on 28 October 2014 (which was about a year and a half before the husband and wife separated in April 2016).
The relevant paragraph of the will is in the following terms:
4. My executors shall hold my estate both real and personal of whatsoever nature or kind and wheresoever situated on trust and to be dealt with in the following matter:
…
vi)To sell and convert into money so as to form part of my whole estate and distributed in accordance with the provisions contained in this my will, the property that I own at the time of my death known as C Street, Suburb D NSW (Folio …) at proper valuation as determined by a registered and qualified valuer, to my brother MR KHALIF who shall have the right of first refusal on such purchase, however if he does not survive me or does not wish to purchase the property at proper valuation, then it is to be sold at market value on the open market;
There are a number of other paragraphs in the will that give a right of first refusal to other people which I infer include various partners of the 2nd respondent’s business businesses.
I accept on its face that giving the husband the first right of refusal to buy the C Street property was an assertion of ownership by the 2nd respondent in his will. There is no doubt about the legal ownership of the property. I accept that the will does not contain any acknowledgement by the 2nd respondent of any equitable interest held by his brother in the property. The 2nd respondent’s estate, however, would take the C Street property subject to any equitable claim the husband had in it.
Browne & Dunn (1983) 6 R.67
Senior counsel for the 2nd respondent submitted that the wife gave no evidence which would bind the 2nd respondent to the existence of any trust or that it was his intention to acquire the C Street property on behalf of his brother. It was asserted that it was never put to the 2nd respondent during cross examination that he had such an intention. The 2nd respondent further submitted that the wife did not suggest to the 2nd respondent that he did not “bank roll” J Pty Ltd over a long period.
The matter proceeded on the basis that the wife in her Points of Claim asserted a common intention constructive trust. Each party filed written evidence. It was clear the wife’s case put in issue the intention asserted by the 2nd respondent and that the repayments referred to in the schedule were referrable to outstanding monies owed by the husband to the 2nd respondent. The 2nd respondent was not unfairly deprived of an opportunity to meet the case brought by the wife nor is the wife precluded from asserting that the payments in the schedule were neither payments for rent nor repayments of debt.
Other business records
Senior counsel for the 2nd respondent relied upon a number of other documents which he described as “threads” of objective evidence which I shall briefly discuss.
Letter from the 2nd respondent’s lawyers dated 7 October 2016
Attached to the 2nd respondent’s trial affidavit (at page 23) is a letter written by T Lawyers on the 2nd respondent’s behalf dated 7 October 2016, addressed to NCAT. That letter was clearly prepared for the proceedings in relation to the application for a termination order. The purpose of the letter was apparently to inform the tribunal that no trust existed in relation to the L Street property. The last two paragraphs of the letter read:
We confirm that at the time of completion of the purchase there had not been an acquisition of the property by way of trust.
We confirm that we have not acted on any other written agreements, Deeds or trusts or the creation thereof between [the 2nd respondent and his brother] in relation to the property.
I place no weight on this document.
Letter from the 2nd respondent’s lawyers dated 14 June 2017 (Exhibit 30)
Exhibit 30 is a letter dated 14 June 2017 written by the husband’s accountant and is a hearsay document prepared for the purposes of the NCAT proceedings. The letter is in the following terms:
We are pleased to confirm that [J Pty Ltd] had a registered office and business address at [the C Street property].
The company claimed in 2010 to 2013 income tax returns, rental expense of $375 per week for the use of the Premises at [the C Street property].
In 2014 to 2016 tax returns [J Pty Ltd] claimed rental expenses of $135 per week for the use of .
Above information is retrieved from the queries with client, ASIC records and tax returns for the relevant periods. Suite 1, 2 king Street Rockdale NSW 2216
The letter does not say to whom the rent in relation to the C Street property was being paid nor was any submission made as to what the 2nd respondent’s case was in that regard. It was not the 2nd respondent’s case that the only monies he received by way of “rent” from J Pty Ltd in relation to the C Street property were $375 per week. In addition, there was no obvious connection between the assertions made by the husband’s accountant in this letter and the claim for rent made by the husband’s accountant in the Financial Report of the company for the year ended 30 June 2014 in the sum of $192,775.96 (Exhibit 23). The husband gave oral evidence that he rented no space outside the C Street property. I can place almost no weight on Exhibit 30.
The 2nd respondent’s 2010 tax return
Senior counsel for the 2nd respondent relied upon a claim in relation to the L Street property that the 2nd respondent received rental income of $13,650 in the tax year ending 30 June 2010 (page 25 of the annexures to the 2nd respondent’s trial affidavit). The sale of the L Street property was settled on 1 September 2009. This rent, therefore, related to a period of 2 months and in a period where the husband and wife had already moved to the C Street property in May 2009. It was unclear who it was that the 2nd respondent asserted paid this rent. There was also a claim for two months in respect of interest on the loan in relation to L Street of $19,203. It was unexplained as to how the 2nd respondent claimed that deduction.
Another “thread” referred to by senior counsel for the 2nd respondent was the Capital Gains Tax (“CGT”) schedule contained in the 2010 tax return (page 33 of the annexures to the 2nd respondent’s trial affidavit). That schedule referred to a date of disposal of 31 March 2010. This was inaccurate considering the settlement of the property took place on 1 September 2009.
I was not assisted with any submissions that might explain the CGT schedule. On its face, this schedule only declared one half of the sale price and recorded a capital loss of $224,828. The schedule then discounted that by 50 per cent to produce a “reduce discount capital gain” of $112,414. I am not in a position to make any finding about what, if anything, happened in respect of any payment of CGT in relation to the sale of the L Street property.
I do not place any weight on the 2nd respondent’s 2010 tax return.
I have otherwise already discussed the disposition of the L Street property.
The 2nd respondent’s argument that relevant transactions were between the companies controlled by the brothers rather than between the brothers themselves
Senior counsel for the 2nd respondent argued that even if there was an arrangement, because the payments were between J Pty Ltd and N Pty Ltd, the arrangement was not between the 2nd respondent and the husband. It was submitted that it is of no relevance that both the 2nd respondent and the husband may not have discerned any difference between themselves individually and the entities which they controlled. Further, senior counsel for the 2nd respondent submitted that even if the Court was minded to consider that the payments by J Pty Ltd were in some way a payment commensurate with affording an equitable interest in the C Street property, the benefit could only be sheeted home to J Pty Ltd. It was submitted that J Pty Ltd was in liquidation and that the order sought by the wife would only create assets that would fall to the liquidator for the administration of its estate and for the benefit of its creditors and that that is an application that the wife has not brought and that she has not sought to join the liquidator to the proceedings.
The wife relied upon the financial records of N Pty Ltd for the tax year ending 2013. It was not controversial that the financial records of the 2nd respondent’s company do not disclose any income being received from J Pty Ltd.
More importantly, these submissions made on behalf of the 2nd respondent cannot be sustained in the face of the 2nd respondent’s own evidence. The 2nd respondent agreed that N Pty Ltd was a company controlled by him. He denied that it was N Pty Ltd that advanced money to the husband. The advances via N Pty Ltd were asserted by the 2nd respondent to have been made in his personal capacity. A similar assertion was made by the 2nd respondent in relation to money provided to the husband through X Pty Ltd (another company controlled by the 2nd respondent). In oral evidence, the 2nd respondent confirmed that he did not draw any distinction between payments made by an entity controlled by himself and payments made in his own personal capacity, when it came to lending money to his brother.
It was totally opaque as to how the payments from the J Pty Ltd account to the N Pty Ltd account were treated by the husband. It was unclear as to whether or not J Pty Ltd treated those payments as the payment of rent. The 2nd respondent gave evidence that he did not treat the receipt of those payments as rent.
Given that we do not know the precise terms of “the arrangement” between the brothers, it is unknown as to how, if at all, either of the companies were involved in “the arrangement”. The best inference is that the companies were used as conduits to affect the flow of funds including payments in cash in both directions between the brothers personally.
The 2nd respondent’s assertion that the C Street property was not an investment property
The 2nd respondent asserted that he received rental income from the C Street property between 2009 and 2015 from the husband and wife.
The 2nd respondent did not declare any of that income to the ATO as being assessable and conceded in cross examination that, if the payments he received from the husband and wife were rent, then they were assessable income.
Nor, as already indicated, do I find credible his explanation that he didn’t account for monies received from his brother because he did not consider this was an “investment property”.
I do not accept the respondent’s assertion that monies received by him from his brother in relation to C Street were rent.
Conclusion in respect to the existence of a constructive trust
Submissions were made which put the 2nd respondent’s case on the following alternate bases:
a)First, that there was no evidence that the 2nd respondent ever entered into an arrangement with his brother to create a trust;
b)Secondly, if there was evidence, then the version of the 2nd respondent and his brother should be believed; and
c)Finally, even if I don’t believe the brothers, objective evidence and contemporaneous statements would lead to an acceptance of the 2nd respondent’s case.
I reject all of these submissions.
Based upon the findings that I have made, I conclude that:
a)Arrangements were entered into between the 2nd respondent and the husband with the intent that the husband would become the beneficial owner of the C Street property and that it would be the matrimonial home in which the husband, wife and their children would reside;
b)The husband was to pay monies to the 2nd respondent over time, at a rate as varied by agreement between them from time to time, so that the 2nd respondent was not disadvantaged by the fact that he had financed the acquisition of the C Street property. It seems clear that on 9 April 2010 there was some change in their payment arrangements when the payments went from $4,000 a week to $2,500 a week;
c)Because the respondents have not been frank about the details of their arrangement, it is not possible to know how long it was that the husband was required to make regular repayments or what was the final total of payments he was to make but I infer it was an amount equivalent to the acquisition costs;
d)The schedule sets out the payments made from the husband to the 2nd respondent in the sum of $922,500. I find that all of those payments were made in furtherance of the arrangement that the husband become the equitable beneficiary of the C Street property with one exception, namely, that $30,000 of the $42,000 paid by the husband on 8 January 2010 (see discussion at [173]) should not be included in the calculation of payments made by the husband to the 2nd respondent referrable to the C Street property. I conclude that all other payments in the schedule, totalling a sum of $892,500 ($922,500 - $30,000), have nothing to do with any other arrangements that the brothers may have made over time, including the movement of significant amounts of cash payments between the brothers;
e)The husband acted to his detriment by making substantial repayments to his brother, as detailed in the schedule, based on that common intention that the husband have the beneficial interest in the C Street property;
f)The husband ceased to make payments under the arrangement on 6 August 2015, about eight or nine months before the husband and wife separated and the husband left the matrimonial home;
g)It would be a fraud on the husband for the 2nd respondent to assert that the husband has no beneficial interest in the C Street property;
h)Accordingly, I find that a common intention constructive trust has been established.
Even if I am wrong about that and the 2nd respondent at no time had the intention for the husband to have a beneficial interest in the C Street property, I find he led his brother to believe that that was their intention. In those circumstances, a constructive trust can arise absent the 2nd respondent's intention.
As indicated earlier, the wife has not been privy to the detail of the arrangement between the brothers. As I have now found those arrangements, “equity regards as done that which ought to be done” (the old maxim recited by Deane J in Muschinski v Dodds at page 614).
Before imposing a constructive trust, I need to consider, having regard to the issues in this case, whether there is an appropriate equitable remedy which falls short of the imposition of a trust. The wife confined herself to seeking a constructive trust without addressing the possibility of a lesser remedy being available depending on the facts as found in the case. The 2nd respondent made no submission that, in the event a finding was made that a constructive trust might be construed, it should not be imposed because a lesser form of equitable relief may be available to the husband. Given the way the case was presented on both sides, there is insufficient evidence to make findings that would allow me to reach a conclusion as to the form of any order based on the remedy of equitable proprietary estoppel.
I conclude, on the basis of how this case was presented and argued on both sides, that a constructive trust should be construed. However, given the facts as found, it would not do justice to the 2nd respondent to construe a constructive trust as to the whole of the unencumbered value of the C Street property.
Assessment as to the percentage of the C Street property in respect of which a constructive trust should be imposed
The evidence is not sufficiently precise to do anything other than make a general calculation as to the percentage of the value in the C Street property that should be the subject of an imposition of a constructive trust.
I disregard any amount that the 2nd respondent received by way of proceeds of sale of the L Street property, interest paid on borrowings, the value of occupation or payments on improvements by the husband. The 2nd respondent also made passing reference to “improvements” made by him to the C Street property after the wife was excluded but given the lack of any specific evidence as to whether or not any work improved the value of the property, I do not take the value (if any) of any subsequent work (if any) into account.
Based on the evidence I have, the raw mathematics are that after the acquisition of the C Street property, the husband paid the 2nd respondent the sum of $892,500 pursuant to their arrangement. The acquisition costs of the C Street property were in the sum of $1,450,000. That is, the husband paid to the 2nd respondent, over time, an amount equivalent to 61.5 per cent of the acquisition costs. I find the 2nd respondent holds 61.5 per cent of an unencumbered beneficial interest in the C Street property on trust for the husband.
Orders
Accordingly, an order shall be made that the 2nd respondent is declared to hold 61.5 per cent of the beneficial interest in the C Street property in trust for the husband.
In support of that primary order, consequential orders shall be made that:
a)The 2nd respondent is to do all things and sign all necessary documents to transfer to the husband as a tenant in common, 61.5 per cent of the legal and beneficial interest in the C Street property;
b)The 2nd respondent is to do all things and sign all necessary documents to discharge any mortgage or encumbrance on the C Street property so that any mortgages or encumbrances on the C Street property do not exceed 38.5 per cent of the value of the C Street property; and
c)The 2nd respondent indemnify the husband in relation to any mortgage or borrowing secured against the C Street property.
In addition, directions will be made that the husband forthwith give his Trustee in Bankruptcy notice of these orders and a copy of these Reasons and the matter be relisted for further directions in relation to the wife’s claim pursuant to s 79 of the Act and I will on that date entertain any application, if made, to I recuse myself from further hearing the substantive proceedings between the husband and wife both in relation to financial and parenting issues.
I certify that the preceding two hundred and forty-five (245) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 31 January 2020.
Associate:
Date: 31.1.2020
SCHEDULE 1
The wife’s Points of Claim (Exhibit 8) are in the following terms:
1.The Applicant and First Respondent were married in 2002.
2.The Second Respondent is the brother of the First Respondent.
3.At all material times the First Respondent was the sole director and shareholder of a company known as J Pty Ltd.
4.At all material times the Second Respondent was the sole director and shareholder of a company known as N Pty Ltd.
5.In or around 2009, the First Respondent on the one hand and the Second Respondent on the other hand agreed to purchase a property in the name of the Second Respondent.
Particulars
The agreement was oral and was constituted by a conversation between the parties, the substance of which is outlined in paragraph 18 of her affidavit sworn on 20 September 2016
6.There were express terms of the agreement as follows:-
a. The Second Respondent would purchase the property at Suburb D for $1,300,000.00 and the property would be registered in the Second Respondent’s name;
b. The property would be beneficially owned by the First Respondent;
c. That the Second Respondent would take out a loan to purchase the property which would be secured by way of mortgage over the property;
d. The First Respondent would make payments towards the loan;
e. The Applicant and First Respondent would live in the property as husband and wife.
7.It was the common intention and common understanding of the parties to the effect of the agreement and its terms as set out in paragraph 6 above. (“the common intention”)
8.In or about July or August 2009, the Second Respondent purchased a property situated and known as C Street, Suburb D for the sum of $1,362,500. (“the property”)
9.In or around 2009, the Second Respondent entered into a loan agreement (“the loan”) with V Bank Pty Limited pursuant to which:-
a. The Second Respondent would obtain finance to purchase of the property.
b. The Loan was secured by a mortgage over the property.
10.The Second Respondent was registered on the title of the property, as registered proprietor.
11.Pursuant to the agreement and common intention of the parties, J Pty Ltd commenced making payments to N Pty Ltd into its ANZ Business account, which were made for the purpose of meeting the Second Respondent’s obligations to pay the loan used to finance the purchase of the property.
Particulars
From the date of settlement of the property J Pty Ltd has paid $12,000 per month for 24 months and $2,500 per week for at least 260 weeks. J Pty Ltd has paid a total sum of approximately $1,138,000.00
12.The Applicant and First Respondent lived in the property with their children as husband and wife.
13.The Applicant and First Respondent have paid all utilities and other associated expenses associated with the property
Particulars
The Applicant and Respondent have paid all electricity, water and council rates
14.The First Respondent, the Applicant and others have made financial contributions towards the maintenance and improvement of the property.
Particulars
See paragraph 34 and 139[2] of the Affidavit of the Applicant sworn 20 September 2016
[2] The wife did not actually read paragraph 18 of her affidavit of 20 September 2016 (filed 23 September 2016) but it is not controversial that the text of paragraph 18 of that affidavit is identical to the text of part of paragraph 7 of the wife’s affidavit filed 30 September 2016 (which the wife did read in these proceedings).
15.The Applicant and First Respondent separated living under the same roof from April 2016 until 15 May 2016, when the First Respondent moved out of the property.
16.The legal title to the property remains vested in the Second Respondent who refuses to convey any interest to the First Respondent and refuses to acknowledge the First Respondent’s beneficial interest in it.
17.In the alternative, by reason of the contributions made by J Pty Ltd, the [sic] and the First Respondent to the property, the Second Respondent holds the property on resulting trust for the First Respondent to the extent of his contributions to the property.
18.The applicant claims:-
a. A declaration that the Second Respondent holds the property on trust for the First Respondent.
SCHEDULE 2
The following material, as set out in Exhibit 13, is relied upon by the wife:
a)Affidavit of the wife filed 23 September 2016 from paragraphs 20 – 33;
b)Affidavit of the wife filed 30 September 2016 from paragraphs 5 – 26;
c)Affidavit of the wife filed 28 November 2016 from paragraphs 2 – 4;
d)Affidavit of Mr Z filed 25 August 2017;
e)Affidavit of the wife filed 25 August 2017;
f)Affidavit of the Mr Y filed 25 August 2017;
g)Affidavit of Mr U filed 25 August 2017;
h)Affidavit of Mr K filed 8 March 2018;
Affidavit of the wife filed 14 November 2018; and
j)Documents tendered by the wife during the hearing.
SCHEDULE 3
The following material, as set out in Exhibit 15, is relied upon by the 2nd respondent:
a)Affidavit of the 2nd respondent filed 31 October 2018 (which has annexed to it an affidavit sworn on 20 July 2017 as well as an affidavit sworn on 20 October 2016) (“the 2nd respondent’s trial affidavit”);
b)Affidavit of the husband filed 31 October 2018 (which has annexed to it, the NCAT transcript of oral evidence) (“the husband’s trial affidavit”);
c)Affidavit of the 2nd respondent’s affidavit of 20 July 2017 from the NCAT proceedings which is Annexure A of his trial affidavit (I note that Exhibit 15 refers to this being an affidavit of the husband but no affidavit of the husband of this date prepared for the NCAT proceedings was part of the material prepared to the Court by the 2nd respondent); and
d)Documents tendered by the 2nd respondent during the hearing.
e)In final submissions, senior counsel for the 2nd respondent relied upon submissions provided at the commencement of the hearing (Exhibit 15), written submissions tendered at the conclusion of the evidence (Exhibit 31), submissions by senior counsel for the wife (Exhibit 13) and further oral submissions.
Key Legal Topics
Areas of Law
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Family Law
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Equity & Trusts
Legal Concepts
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Constructive Trust
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Intention
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Remedies
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