Khalif & Khalif
[2021] FamCAFC 123
•23 July 2021
Family Court of Australia
Khalif & Khalif [2021] FamCAFC 123
Appeal from:
Khalif & Khalif and Anor [2020] FamCA 39
Appeal number(s):
EAA 16 of 2020
File number(s):
SYC 6144 of 2016
Judgment of:
RYAN, ALDRIDGE & TREE JJ
Date of judgment:
23 July 2021
Catchwords:
FAMILY LAW – APPEAL – PROPERTY – Appeal against a declaration of beneficial interest in property – Procedural fairness – Pleadings – Whether the wife departed from her pleadings – Common intention constructive trust – Express agreement – Evidence of intention –Equity will not tolerate fraudulent reliance on statute – Adequacy of reasons – Mistake of fact – Where mistaken findings were immaterial – Where primary judge was entitled to impose a remedy based on the appellant’s and the husband’s common intention – Appeal dismissed – Costs ordered in a fixed sum.
FAMILY LAW – APPEAL – NOTICE OF CONTENTION – Where the notice of contention claimed similar relief to claim made then abandoned at trial – Leave refused to rely upon notice.
Legislation:
Bankruptcy Act 1966 (Cth) s 58
Conveyancing Act 1919 (NSW) ss 23C, 23E
Family Law Act 1975 (Cth) Pt VIII
Cases cited:
Bannister v Bannister [1948] 2 All ER 133
Bennett and Bennett (1991) FLC 92-191; [1990] FamCA 148
Bloch v Bloch (1981) 180 CLR 390; [1981] HCA 56
Cadd v Cadd (1909) 9 CLR 171; [1909] HCA 59
Calverley v Green (1984) 155 CLR 242; [1984] HCA 81
Dare v Pulham (1982) 148 CLR 658; [1982] HCA 70
Gabini & Gabini [2014] FamCAFC 18
Gissing v Gissing [1971] AC 886
Hohol v Hohol (1980) FLC 90-824; [1981] VR 221
Malsbury v Malsbury [1982] 1 NSWLR 226
Murtagh v Murtagh [2013] NSWSC 926
Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78
Parsons v McBain (2001) 192 ALR 772; [2001] FCA 376
Rasmussen v Rasmussen [1995] 1 VR 613
Rochefoucald v Boustead (1897) 1 Ch 196
Silvia (Trustee) v Williams [2018] FCAFC 194
Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278; [2006] HCA 6
Wade v Wade [2009] WASC 118
Whisprun Pty Ltd v Dixon (2003) 200 ALR 447; [2003] HCA 48
J. D. Heydon, M. J. Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8th edition, 2016)
Division:
Appeal Division
Number of paragraphs:
75
Date of hearing:
12 November 2020
Place:
Sydney
Counsel for the Appellant:
Mr Coleman SC with Ms Sproston
Solicitor for the Appellant:
Aquila Lawyers
Counsel for the First Respondent:
Mr Ford with Mr Frances
Solicitor for the First Respondent:
Jordan Djundja Lawyers
The Second Respondent:
No Appearance
ORDERS
EAA 16 of 2020
SYC 6144 of 2016
APPEAL DIVISION OF THE FAMILY COURT OF AUSTRALIA
BETWEEN:
MR B KHALIF
Appellant
AND:
MS KHALIF
First Respondent
MR KHALIF
Second Respondent
order made by:
RYAN, ALDRIDGE & TREE JJ
DATE OF ORDER:
23 july 2021
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellant pay the first respondent’s costs in the amount of $14,614 within twenty- eight (28) days.
Note: The form of the order is subject to the entry in the Court’s records.
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 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Khalif & Khalif has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
RYAN, ALDRIDGE & TREE JJ:
Introduction
By Amended Notice of Appeal filed on 9 June 2020, Mr B Khalif (“the appellant”) appeals from a declaration and various ancillary orders made in relation to a property at C Street, Suburb D (“the property”) of which he is the sole registered proprietor. The appellant completed the purchase of the property on 14 May 2009 following which, the appellant’s brother, Mr Khalif (“the husband”), Ms Khalif (“the wife”) (collectively “the spouse parties”) and their children moved in and it became their family home. After the spouse parties separated in 2016, a dispute arose between the wife, on the one hand and the husband and the appellant on the other, as to the property’s ownership. Thus the wife commenced proceedings against the husband under Pt VIII of the Family Law Act 1975 (Cth) (“the Act”) for a property settlement. The appellant was joined as a party. The question of whether or not the husband had an interest in the property and it thus formed part of the property available for distribution between the spouse parties was determined as a discrete issue.
According to the wife, the appellant and the husband entered into an agreement whereby the property would be acquired in the appellant’s name but the husband would be its beneficial owner. The primary judge determined that there was such an agreement, and the appellant held title to the property by way of a common intention constructive trust, on trust for the husband and that he and the husband held shares in it proportionate to their respective contributions towards the initial acquisition costs (as the husband reimbursed the appellant over time). The unreliable, and in many respects, inconsistent evidence adduced by the appellant and the husband as to their financial dealings and transactions concerning the property complicated the quantification of their respective shares in the property [240]–[241]. The primary judge was satisfied that in accordance with their agreement, the husband paid the appellant $892,500. This equated to 61.5 per cent of the property’s acquisition costs and the husband’s interest was declared accordingly [242]. So as to give effect to this declaration, the appellant was ordered to transfer that legal interest to the husband as a tenant in common (Order 2). Furthermore, encumbrances to which the appellant is a party, were to be rearranged so that the husband’s interest in the property was unencumbered (Orders 3 and 4).
The primary judge found that in the alternative, and irrespective of the appellant’s intention, the appellant led the husband to believe that there was an agreement between them to this effect and, having regard to the payments made by the husband to the appellant, a constructive trust should otherwise be imposed [236].
Although the husband was a party to the proceedings in the Court below, he did not retain legal representation for the trial and did not fully participate in it. Rather, he gave evidence in the appellant’s case. So that it is clear, the husband participated in the trial to the extent sought by him. It should be observed that after the wife commenced proceedings, on the application of the Australian Taxation Office (“the ATO”), the husband became bankrupt. However, the trustee of the husband’s bankrupt estate did not apply to be joined as a party to the proceedings and the constraints on the husband’s ability to participate in the trial reflected in ss 79(11)–(13) of the Act did not apply.
It is understood that the husband’s bankruptcy expired in July 2020. The wife asserts that the agreement which was the basis for the common understanding of the husband and the appellant was made in 2009. If that is so, the trust arose from that date. Accordingly, when the husband became a bankrupt his beneficial interest in the property vested in his trustee in bankruptcy (s 58 of the Bankruptcy Act 1966 (Cth)). The potential for the wife’s property settlement application to affect the husband’s creditors is obvious, and thus, as part of the suite of orders, the husband was ordered to immediately give the trial reasons and orders to his trustee. It is inferred that he did. Furthermore, the Appeal Registrar sent copies of the procedural orders made in the appeal to the husband to two email addresses the husband provided in documents filed by him. It is thus apparent that the husband is aware of the appeal. Neither the husband nor the husband’s trustee has challenged the orders and neither sought to participate in the appeal. It is inferred that each is content to abide the outcome.
The wife seeks to uphold the trial judgment; if necessary on the basis of a Notice of Contention she filed on 5 August 2020. The contention being that in the alternative to a common intention constructive trust, the decision can be justified as a Bloch v Bloch (1981) 180 CLR 390 (“Bloch”) style resulting trust. Because at trial the wife abandoned her claim for a resulting trust, she properly seeks leave for permission to reactivate her claim on appeal. On the basis that the wife is bound by the conduct of her case at trial as explained in the majority judgment in Whisprun Pty Ltd v Dixon (2003) 200 ALR 447 at [51] (“Whisprun”), the appellant opposes leave. Yet curiously and inconsistent with this stance, at least in relation to Ground 6, the appellant says he should be permitted to depart from the manner in which he undertook his case below.
Common Intention Constructive Trust
As we will discuss further, the wife asserted there was an express agreement between the appellant and the husband about the terms on which the property would be acquired and its legal and beneficial ownership. Because the word “express” was used, senior counsel for the appellant contended that this meant that the wife asserted an express trust. This contention fails to acknowledge that an express agreement can have wider relevance; for example, as the primary judge concluded, in the establishment of a common intention constructive trust. Nevertheless, there is no controversy in the appeal about the nature of a common intention constructive trust, or that it bears the characteristics identified in the trial reasons. It is thus accepted that a common intention constructive trust is recognised as an alternative to a remedial constructive trust.
As the primary judge correctly identified, the essential elements of a common intention constructive trust are set out in Hohol v Hohol (1980) FLC 90-824 at 75,205:
… 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 Gabini & Gabini [2014] FamCAFC 18 at [60].
Once the trust is established, the interest arising under it will be to the extent that the parties are inferred to have intended (Gissing v Gissing [1971] AC 886 at 908). As to proof of the common intention, this is a question of fact and, as the Full Court of the Federal Court said in Silvia (Trustee) v Williams [2018] FCAFC 194 at [16] “[s]uch proof may be direct by means of express agreement but it may also be implied from conduct. Matters of this kind are evidentiary and do not involve legal principles”.
In Rasmussen v Rasmussen [1995] 1 VR 613, Coldrey J said to similar effect at 615:
… In determining whether there is a common intention that a claimant was to have a beneficial interest in the property the court will look firstly for direct evidence of any express communications between the parties or the making of admissions by them. In addition, the common intention may be inferred from the conduct of the parties, for example, contributions to the cost of the property claimed or its maintenance. Such conduct is also of factual importance in determining whether a claimant has acted to his or her detriment. However, what is to be enforced is an actual intention inferred as a matter of fact…
A common intention constructive trust can be recognised independently and in advance of any court order (Parsons v McBain (2001) 192 ALR 772 (“Parsons”)). In this sense, a common intention constructive trust arises simultaneously with the conduct which gives rise to its imposition (Muschinski v Dodds (1985) 160 CLR 583 at 614 (“Muschinski v Dodds”); Parsons at [13]–[14]).
On the other hand, as Deane J explained in Muschinski v Dodds, a remedial constructive trust is not concerned with the intention of the parties to the transaction. Cited at [25] of the trial reasons, in Muschinski v Dodds (at 620) Deane J explained that:
… 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 this latter setting the inquiry is not as to the actual or presumed intentions of the parties and the focus is on whether, according to the principles of equity, it would be a fraud for the person in question to deny the trust.
Background Facts
In September 2002, the appellant purchased a property at L Street, Suburb M (“L Street”) as the matrimonial home for the husband and the wife [108]. Not long afterwards the spouse parties moved into L Street where they lived until they moved into the subject property. The appellant did not adduce evidence about the financial arrangements that ostensibly existed between himself and the husband in respect of the spouse parties’ occupation of L Street [110]. This was significant because the appellant and the husband gave evidence of sizable payments the husband (or on his behalf) paid to the appellant or entities owned and controlled by the appellant, yet the distinction between those made in relation to L Street compared to the property was not clarified [136].
Nonetheless, the appellant and spouse parties cooperated in the sale of L Street, in relation to which the appellant received the net proceeds of sale in the amount of $190,000 [133].
The primary judge made damning findings about the integrity of the appellant’s and the husband’s evidence, including in relation to dealings with the property. When regard is had to the trial transcript and the primary judge’s analysis of the evidence, it is easy to understand why these go unchallenged in the appeal. For example, in relation to the appellant:
• he asserted that the payments received from the husband were rent and acknowledged they were thus assessable income for taxation purposes, but he did not declare the income [42], [229] and [230],
• according to the appellant he did not declare the payments as rent because he did not believe the property was an investment property, which was against representations he made to the bank in obtaining the loan [144],
• the appellant’s evidence that he did not believe the property was an investment property because he believed it was his residence was inconsistent with his representations made to the bank in obtaining the loan [144], [183] and with his place of residence indicated on immigration travel documents [187],
• the appellant gave inconsistent evidence as to where he kept $1 million in cash at the time of the acquisition of the property; initially asserting it was in different physical locations and then saying it was kept in bank accounts [45],
• the appellant relied upon a letter and a schedule of payments prepared by his accountants during NSW Civil and Administrative Tribunal (“NCAT”) proceedings, without informing the presiding member that the document was prepared by his accountant upon the appellant’s specific instruction as to what it should say and how the payments should be accounted for [46], [170] and [171],
• the appellant did not present himself as a creditor in the husband’s bankruptcy proceedings, notwithstanding the significant amount of money he said the husband owed [47] and [162], and
• the appellant made the property uninhabitable for the wife and children to live in only months after he had given an undertaking to the Federal Circuit Court that he would not take any step to exclude the wife from the property [49], [102] and [103].
As to findings in relation to the husband, these included:
• the husband claimed in his company’s financial records prepared for taxation purposes that he paid rates, land tax, repairs and maintenance despite the company owning no buildings or real estate,
• the husband’s company’s financial records were unexplained and unreliable [54], and
• the husband deposed under oath that the appellant made his own arrangements with the real estate agent to sign the contract to purchase the property and that it had nothing to do with him, yet it was the husband who witnessed the appellant’s signature on the contract [55] and [117].
In any event, the wife’s evidence concerning the acquisition of the property was accepted [119]. Not only because she was not challenged through cross-examination, but she gave reliable evidence and the real estate agent who managed the sale of the property (and others) corroborated aspects of her evidence and gave a version of events inconsistent with evidence given by the appellant and the husband [118]–[119]. Thus, stated broadly, the primary judge was satisfied that the spouse parties located the property and, having agreed they would buy it, the wife negotiated the purchase price [115].
The wife was not privy to most of the financial arrangements between the appellant and the husband [34]. Of significance in the appeal (Ground 4) are findings that, on the same day that the spouse parties inspected the property, the wife heard the husband say to the appellant:
125. …
I am looking at buying [the property] 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 appellant]? 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.
Furthermore, that at the time of purchase, the husband said to the wife words to the effect:
128. …
[The appellant] 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 appellant’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 appellant] as tax deductions and claim that they are payments for rent because my business operates out of the garage…
The appellant exchanged contracts to purchase the property on 5 March 2009 at a price of $1,362,500 [72]. Related transaction costs increased the total cost of acquisition to $1,449,948 [139] in relation to which the appellant borrowed the total sum from V Bank [141]. Upon settlement, the spouse parties and their children moved into the property which they treated “as their own home” [178]. From when the spouse parties entered into occupation, they paid all council, water rates and utilities in respect of the property [79].
Thereafter, the spouse parties undertook significant improvements to the property [192]–[193]. Contrary to evidence the husband gave in related proceedings at NCAT and evidence given by the appellant that he reimbursed the husband in cash, the primary judge did not accept that the appellant reimbursed these costs [199]–[200].
It was uncontroversial that the appellant and the husband moved significant amounts of money, including cash, between them [158] and [161]. Because these transactions took place before and after the property was acquired, considerable effort was spent trying to establish the nature of the transactions and whether at the time the property was acquired the husband owed the appellant “hundreds of thousands” [154]. The point being that if the husband was indebted to the appellant as alleged, their evidence that payments the husband made to the appellant after the property was acquired were rent or connected with pre-existing loans or other loans and had nothing to do with the property might be accepted.
Some of the transactions were reflected in bank statements and/or company records, but others were not. For example, the transactions identified at [159]–[161] of the trial reasons identify $600,000 in cash payments, including a lump sum of $250,000 in April 2014, which the appellant said he gave the husband. However, none of these transfers was paid from or deposited into a financial institution and there were no other records of the payments.
According to the husband, when he became a bankrupt, he owed the appellant $800,000 [162]. Yet, the appellant did not make a claim against the husband’s bankrupt estate and he was not recorded as a creditor [162]. Furthermore, the appellant gave evidence that during the period of the husband’s bankruptcy, the husband reduced the amount outstanding by about $225,000 without either of them explaining how the husband had access to this amount or could permissibly give it to the appellant [163]. These matters influenced his Honour’s determination that he was not satisfied that when the property was acquired, the husband was indebted to the appellant [154] and [176].
When the spouse parties moved into the property, a company of which the husband was the sole director and shareholder and through which he conducted a security business, called J Pty Ltd commenced paying $4,000 per week to N Pty Ltd of which the appellant was the sole director and shareholder [78]. Just shy of 12 months after completion of the purchase of the property, J Pty Ltd reduced its weekly payment to N Pty Ltd to $2,500 [82]. N Pty Ltd’s financial records (at least for 2013) did not disclose income received from J Pty Ltd [225].
Large sums of money were also transferred from X Pty Ltd as Trustee for the Khalif Family Trust (another company controlled by the appellant) and J Pty Ltd. Trial Exhibit 19 showed that between February 2008 and April 2012, $340,000 was transferred from X Pty Ltd’s accounts to J Pty Ltd. According to the appellant this was a foil to the contention that the weekly payments made to N Pty Ltd related solely to the property. However, when the evidence concerning the significant movement of cash between the husband and the appellant was taken into account, this evidence was unpersuasive of the point [176].
By 10 May 2010, the amount outstanding to V Bank in relation to the property had been reduced to $946,349 [83]. As at 14 November 2011, the amount outstanding to V Bank had reduced to $10,732 [85]. At some stage the loan was fully repaid and in 2013 the V Bank mortgage was formally discharged [86]. There was no evidence as to the source of funds used by the appellant to pay the mortgage [205].
However, the appellant then offered the property as security for borrowings of approximately $1,000,000 concerned with and secured against one of his commercial entities. Property owned by that entity was then unencumbered [86].
According to the appellant, the husband’s weekly payments made through J Pty Ltd continued for some two years after the V Bank mortgage was discharged (until 6 August 2015 [87]) which was further proof that the weekly payments had nothing to do with the mortgage obtained to purchase the property [206]. This submission was rejected [207].
Turning then to the payments by J Pty Ltd to N Pty Ltd from when the property was purchased until 6 August 2015, it was uncontroversial that the recorded payments amounted to $922,500 [166]. Of the total sum, $392,500 was categorised as rent and the balance of $530,000 related to personal payments [166]. In relation to this total amount, $30,000 reflected repayment of an advance from the appellant to the husband at Christmas 2009 [173]. The primary judge said of these transactions:
227. 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 appellant] gave evidence that he did not treat the receipt of those payments as rent.
228. 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.
…
235. Based upon the findings that I have made, I conclude that:
…
c) Because the [appellant and husband] 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 [the appellant] 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 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 [the appellant] referrable to [the 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;
…
After the husband moved out of the property, on 26 May 2016 the appellant served notice on the wife, in effect, requiring her to give up possession. When she failed to comply, he commenced proceedings against her in NCAT for non-payment of rent and possession of the property and, on 8 December 2016, NCAT ordered that she vacate [93] and [96].
In the meantime, the wife commenced proceedings under the Act in the Federal Circuit Court of Australia. With those proceedings underway, J Pty Ltd went into liquidation (November 2016) and, in July 2017, the husband was made bankrupt [95] and [99]. After the wife successfully appealed the order that she vacate the property, in breach of undertakings given to the Federal Circuit Court, the appellant took steps to ensure that the wife and the spouse parties’ children would nonetheless vacate; which they did [103]. Further orders were made which had the effect of restraining the appellant from selling or otherwise encumbering the property pending completion of the proceedings [104].
The grounds of appeal
The appellant presents six grounds of appeal, which assert that the primary judge erred:
• in finding a constructive trust existed when it was not pleaded by the wife in her Points of Claim (Ground 1);
• by allowing the wife to rely on a constructive trust when it was not pleaded and thus the appellant was denied procedural fairness (Ground 2);
• in failing to give adequate reasons for two specific conclusions (Ground 3);
• in making findings that were not open on the evidence as follows:
I. the finding that the appellant did not give evidence that the husband had not said to him what the wife asserts she heard as set out at [127] of the trial reasons (Ground 4(I));
II. the finding that the conversation at paragraph 14 of the wife’s affidavit was not denied by the husband as set out at [129] of the trial reasons (Ground 4(II));
• in the alternative to Ground 4, in using those findings to conclude that the wife’s version was to be accepted (Ground 5); and
• in calculating the husband’s beneficial interest in the property at 61.5 per cent (Ground 6).
The Points of Claim
Grounds 1 and 2 were argued together and for convenience, we will adopt the same approach.
It is the appellant’s contention that the wife’s case presented at trial was governed by her Points of Claim filed on 5 March 2018 in which she pled an express oral agreement/trust, or in the alternative a resulting trust and she did not plead the existence of a constructive trust. It follows that it was not open to determine the wife’s claim on the basis of a constructive trust, of whatever type. Furthermore, that if it is established that the wife was permitted to change the nature of her claim in closing addresses the appellant was denied procedural fairness. In particular, that forensic decisions made by the appellant on the case as pleaded, for example not to cross-examine the wife, might have been made differently had the appellant known more issues than pled were in play.
Before the Points of Claim are set out, it needs to be understood that before the proceedings were transferred to the Family Court, a judge ordered that the wife file and serve such a document. However, neither the appellant nor the husband was ordered to file Points of Defence and neither of them did. Without Points of Defence the issues in dispute were not identified. Plainly it was intended that the wife gives the other parties the elements of her case, however inexplicably the direction did not enable the full purpose of pleadings and particulars as discussed in Dare v Pulham (1982) 148 CLR 658 to be achieved. Furthermore, Points of Claim are generally concerned with the facts and do not necessarily address contentions of law. The significance of these matters is that the wife’s Points of Claim set out her case as far as she was required by the order but notice of the case to be met by each of the parties was reflected in a wider suite of documents which included the affidavits filed and their case outlines.
The Points of Claim are Exhibit 8 of the trial record. For present purposes, it is not necessary to recite the entire document and sufficient to record that the wife made the following claim:
…
5. In or around 2009, [the husband] on the one hand and [the appellant] on the other hand agreed to purchase a property in the name of the [the appellant].
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 appellant] would purchase [the property] for $1,300,000.00 and the property would be registered in [the appellant’s] name;
b. The property would be beneficially owned by [the husband];
c. That [the appellant] would take out a loan to purchase the property which would be secured by way of mortgage over the property;
d. [The husband] would make payments towards the loan;
e. [The wife] and [the husband] 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 appellant] purchased [the property] for the sum of $1,362,500 (“the property”).
9. In or around 2009, [the appellant] entered into a loan agreement (“the loan”) with [V Bank] pursuant to which:-
a. [The appellant] would obtain finance to purchase of the property.
b. The Loan was secured by a mortgage over the property.
10. [The appellant] was registered on the title of the property, as the 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 appellant’s] obligations to pay the loan used to finance the purchase of the property.
…
16. The legal title to the property remains vested in [the appellant] who refuses to convey any interest to [the husband] and refuses to acknowledge [the husband’s] beneficial interest in it.
17. In the alternative, by reason of the contributions made by [J Pty Ltd], the [sic] and [the husband] to the property, [the appellant] holds the property on resulting trust for [the husband] to the extent of his contributions to the property.
18. [The wife] claims:-
a. A declaration that [the appellant] holds the property on trust for the [the husband].
(As per the original)
Contrary to the appellant’s submission that the wife’s Points of Claim did not assert a constructive trust, the primary judge said:
16. …The trust that is relied upon is pleaded as one arising from the common intention and common understanding between the brothers. The [appellant] was on sufficient notice that the wife was asserting the existence of a constructive trust. As senior counsel for [the appellant] 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.
17. 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.
(As per the original)
Properly understood, the wife’s Points of Claim plainly asserted the facts required to establish, inter alia, a common intention constructive trust. As to intention, paragraphs 5, 6, 7 and 11 assert that the appellant’s and the husband’s common intention would be established by proof of an express agreement between them. The point being, that fact could be established without her needing to establish intention from conduct. She did not qualify “express” as asserting the establishment of an “express trust” and, as subsequent exchanges identify, those who appeared for the wife understood the statutory requirement for express trusts in relation to land to be in writing (s 23C(1)(b) of the Conveyancing Act1919 (NSW) (“the Conveyancing Act”)) and believed that an assertion of an express trust which failed to comply with the formalities of writing could not succeed. We will return to this issue and the failure of those who appeared at trial to appreciate the statutory exceptions to this provision and that equity will not tolerate fraudulent reliance on statute. However, at this juncture it is sufficient to say that the submission that the wife presented her case as an express trust and did not plead a common intention constructive trust or a constructive trust should be rejected.
The appellant’s case outline presented at trial shows that the appellant well understood the factual matters that the wife sought to establish and the relief ultimately sought by her. Senior counsel skilfully sought to reframe the wife’s claim and said of it, “[s]he has neither properly pleaded a type of trust or in fact discharged her evidentiary onus in respect of an express trust, an implied resulting trust nor even a constructive trust” (Appellant’s Summary Submissions dated 19 November 2018, paragraph 28). Senior counsel went on to explain why the primary judge should not find an express trust (paragraph 29), a resulting trust (paragraphs 30–49) or a constructive trust (paragraphs 56–61). Consideration of that document demonstrates that before the trial started, the appellant was acutely aware that the wife sought to establish a common intention between the appellant and the husband as reflected in their express agreement and that the appellant needed to address the various types of trusts, which he did.
In the event, neither counsel made opening addresses and relevantly, senior counsel for the wife did not limit the wife’s case to an express or a resulting trust and, as mentioned earlier relied on authorities concerning constructive trusts.
However, having earlier said of express trusts “[f]or there to exist an express trust, the agreement must be in writing. See 23C(1)(b) of the Conveyancing Act 1919 (NSW). There is no written agreement here” (Appellant’s Summary Submissions dated 19 November 2018, paragraph 29) and, inconsistent with the wife’s Points of Claim and the evidence, in closing addresses, senior counsel for the appellant said:
[SENIOR COUNSEL FOR THE APPELLANT]: …A constructive trust is not pleaded in my friend’s points of claim. It’s all founded on an express trust, a resulting trust, and, in my submission, that – he hasn’t made out either. If it’s a constructive trust, then my friend needs to address you on different things and put, in some respects, different evidence about those things. So we say, in any event, there’s no constructive trust if one is to be contended for, but that’s all we have to say, your Honour.
(Transcript 21 November 2018, p.187 lines 12–17)
In response, senior counsel who then appeared for the wife said:
[SENIOR COUNSEL FOR THE WIFE]: Thank you. At point 2.5 on the first page, with respect to my friend, we agree, principally, with his submissions in relation to the basis upon which the wife would need to succeed, and we contend that that has been established by the evidence. And, in those circumstances, whilst the points of claim deal with an express trust, my comment to your Honour consistent with Baumgartner and that line of authorities if the court then uses the evidence and a constructive trust is the remedy by which the matter proceeds…
…
[SENIOR COUNSEL FOR THE WIFE]: Has your Honour gone to the points of claim?
HIS HONOUR: Yes.
[SENIOR COUNSEL FOR THE WIFE]: Yes. The contention in terms of the particular - - -
HIS HONOUR: I mean, you agree that you can’t contend for an express trust because of the Conveyancing Act.
[SENIOR COUNSEL FOR THE WIFE]: Correct.
HIS HONOUR: Right.
[SENIOR COUNSEL FOR THE WIFE]: So my understanding of the line of authority from the High Court in Baumgartner, and Calverley v Green, and that sort of territory, is that the court can take the evidence that comes before it in respect of an argument alleging a trust, and the remedy by which that is completed is called a constructive trust.
HIS HONOUR: Or an equitable charge.
[SENIOR COUNSEL FOR THE WIFE]: Or an equitable - - -
HIS HONOUR: That hasn’t been a feature of this case.
[SENIOR COUNSEL FOR THE WIFE]: no it hasn’t.
(Transcript 21 November 2018, p.187 line 40 to p.188 line 27)
At paragraph 2.5 of the appellant’s Further Submissions tendered on 21 November 2018, the appellant posited that:
2.5 For the wife to succeed she must establish the following:
(a) That in or around 2009 an express agreement was reached between [the husband] and [the appellant], namely that:
(i) [the appellant] would buy [the property];
(ii) The agreement included an express term between them as to
beneficial ownership;
(iii) [the appellant] would borrow money to purchase the property by way of loan; and
(iv) [the husband] would make payments towards the loan, (“the Agreement”)
(Appellant’s Further Submissions tendered 21 November 2018) (Emphasis omitted)
If these facts were established, the wife would have established a common intention constructive trust.
The statement of the law as to express trusts propounded by the appellant’s senior counsel was incomplete and wrong. The exchanges set out above demonstrate that the participants held the mistaken view that s 23C(1)(b) of the Conveyancing Act was an insurmountable obstacle to the wife being able to establish an express trust. However, it is uncontroversial in the appeal that given the primary judge’s findings meant there had been part performance of the express agreement, by the application of s 23E of the Conveyancing Act, the provision was avoided. It is also accepted, as it must be, that the statutory prescription that express trusts of land are unenforceable without writing could have been overcome by the principle that equity will not allow statute to be used as an instrument of fraud (Rochefoucald v Boustead [1897] 1 Ch 196 at 206; Cadd v Cadd (1909) 9 CLR 171 at 187; Malsbury v Malsbury [1982] 1 NSWLR 226). These trusts have been described as constructive trusts (see Bannister v Bannister [1948] 2 All ER 133) albeit, the authors of Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8th edition, 2016) J D Heydon and M J Leeming argue at [1306] that “the better view is that the removal of fraudulent reliance on the statute clears the way to show an express trust as what was intended” (See also Wade v Wade [2009] WASC 118 at [84]). Which of these views might eventually prevail was not raised in the appeal and nothing more need be said about it.
Senior counsel for the wife’s remarks about her case as set out in her Points of Claim were inapt and do not post eventum change the case that she had, in fact, presented. Given their timing in the closing moments of the trial, they can have played no role in how the appellant perceived or conducted his case and do not establish that it was only in closing addresses that the appellant first learned that the wife also asserted a constructive trust.
Grounds 1 and 2 have not been established.
Are the reasons adequate?
By Ground 3, the appellant asserts that the primary judge failed to give reasons for two specific findings, namely: for rejecting the appellant’s will as evidence of the appellant’s intention and, for concluding that the money paid to the appellant was wholly in furtherance of the equitable beneficiary arrangement. The authorities with respect to adequacy of reasons are well known (Bennett and Bennett (1991) FLC 92-191). The question as to adequacy depends upon the circumstance of the case. A judge's reasons will be inadequate if this Court is unable to discern from those reasons the foundation for the ultimate decision or if it appears that justice has not been seen to be done.
As the appellant correctly asserts, he executed his will on 28 October 2014 which was well before the spouse parties separated. Relevantly, by cl 4 of the appellant’s will, the husband was given the right of first refusal to purchase the property. The appellant’s contention at trial and in the appeal is that the will is powerful evidence of his state of mind at that time. In other words, that as far as the appellant was concerned, he and not the husband was the beneficial owner of the property. Notably, the appellant does not challenge the finding that the appellant’s estate would take the property subject to the husband’s interest in it [211]. Rather, that point is avoided and the gravamen of the challenge is that the primary judge failed “to provide any reason reconciling [the right of first refusal to purchase the property] and conclusion with his ultimate findings that the [a]ppellant intended that the [h]usband was the beneficial owner of the property” (Appellant’s Summary of Argument filed 9 June 2020, paragraph 32). The unchallenged finding mentioned just now provides the reconciliation that the appellant asserts is lacking.
Otherwise, in relation to the will as evidence of the appellant’s state of mind and thus intention, the primary judge, in meticulous detail analysed evidence called by the appellant, which resulted in his evidence being found unreliable. This included the financial records in relation to companies controlled by him and a ledger he had his accountants prepare for the NCAT proceedings which ostensibly recorded rental income received by the appellant. However, the appellant failed to disclose to NCAT that the document was prepared in accordance with his specific instructions as to what it should say [46]. There are other examples of documents created by the appellant long after the property was acquired which purport to corroborate an arrangement between the appellant and the husband to the effect that the husband was the appellant’s tenant. None of these documents were persuasive and, although the primary judge does not expressly say so, it is likely that cl 4 of the will was viewed in the same manner.
If there was any doubt that the primary judge was entitled to, in effect, disregard this evidence, it will be recalled that it is the appellant’s intention when the agreement was made at acquisition which is relevant, not some five years later. As the High Court held in Calverley v Green (1984) 155 CLR 242, in such circumstances, the task of determining intention is undertaken by drawing upon evidence of the acts and declarations before and at the time of purchase or so immediately after it as to constitute part of the transaction. Subsequent declarations could be received in evidence only if against interest. True it is that evidence of facts as to subsequent dealings and of surrounding circumstances of the transaction may be received (Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278 at [65]), however, the will having been received into evidence without objection it was not persuasive of the appellant’s intentions years earlier.
Turning then to the second aspect of the reasons challenge, the focus here is on monies paid by the husband or on his behalf to the appellant, particularly the $892,500 recorded in Exhibit 19. The assertion being that the finding at [235(d)] of the trial reasons (which is set out at [32]) of these reasons) failed to take into account that Exhibit 19 provided an objective record which supported the appellant’s argument that there were transfers of cash between him and the husband consistent with what they said was the rental arrangement and the appellant’s financial support of the husband and his business.
Paragraph 235(d) of the trial reasons constitutes part of the primary judge’s answer to the wife’s claim that there was a trust in favour of the husband. As has already been established, the evidence was considered in close detail and notably, the findings as to the lack of integrity in the evidence given by the appellant and the husband are unchallenged. The onus of establishing the nature and extent of the cash transactions reposed in the appellant. Unfortunately for him, the lack of documentary proof for the transactions, unreliable financial records (for example, the failure to record rental income) and the appellant’s failure to prove as a creditor in the husband’s bankruptcy, individually and collectively stood in the way of the appellant’s (and the husband’s) evidence as to the reasons for these transfers of cash being accepted as proof of the point.
Error as asserted by Ground 3 has not been established.
Conversations evidencing the express agreement
Grounds 4 and 5 focus on findings that evidence by the wife as to conversations, on the one hand she overheard between the appellant and the husband and on the other, as between her and the husband when the property was acquired were unchallenged. These conversations are an important component of what the wife said was the express agreement between the appellant and the husband as to their respective beneficial and legal interests in the property. In relation to the conversation overheard by the wife, the primary judge observed that although the husband denied the conversation, the appellant “did not give evidence that [the husband] had not said to him what the wife asserts she heard” [127]. The wife concedes that the appellant, in his affidavit dated 30 October 2018, denied the conversation. It is accepted that the finding to the contrary was not available.
In relation to the conversation that the wife said she had with the husband, the primary judge said of the appellant that he “did not seek to lead any evidence from the husband about this conversation and accordingly, this conversation was not denied by the husband” [129]. Again, the wife concedes that the husband, in his affidavit filed on 31 October 2018, denied having any discussions with the wife of the type alleged and that this finding misstates the evidence.
However, the question to be answered is whether the primary judge’s mistaken belief that these conversations went unchallenged is material. For two reasons it is not. The first arises from the important qualification at [130] of the trial reasons where, immediately after the mistaken findings, the primary judge continued with the words “in any event” and went onto accept the wife’s evidence about them. It can be seen that at [130], the primary judge contemplated how this evidence should be evaluated, on the assumption that the appellant and the husband denied the conversation. The lack of integrity in their evidence, which was amply documented in the trial reasons, weighed against the acceptance of disputed evidence unless there was objective evidence [51], which in this instance there was not.
Secondly, it is not without significance that the wife was not cross-examined about these conversations (or at all) and the primary judge was satisfied her evidence was reliable [38]. The general reliability of the wife’s evidence meant that even if the appellant and the husband denied her version of these events, absent objective evidence, the wife’s evidence was accepted.
Error as alleged by Grounds 4 and 5 has not been demonstrated.
Quantifying the husband’s beneficial interest
By Ground 6, the appellant contends that the primary judge erred in determining that the appellant held 61.5 per cent of an unencumbered beneficial interest on trust for the husband. In particular that the primary judge erred by:
• declaring that the appellant held [the property] on trust for [the husband], in the quantum assessed, or at all;
• failing to declare that the [husband] was entitled to equitable compensation, the payment of which was charged upon [the property], and;
• failing to make directions with respect to the filing of evidence to enable the assessment of equitable compensation.
The propositions advanced in the second and third dot points were not raised at trial and, as the appellant properly concedes, he requires leave in order to raise these issues now. In agitating for leave the appellant persists with the unsustainable claim that the wife succeeded on a basis which was not pleaded by her and proffers no explanation for why these issues were not raised at trial, which after all, is the appropriate venue. In our view, to permit the appellant to proceed in this fashion would unfairly obliterate the distinction between the exercise of original and appellate jurisdiction. Contrary to the submission that it would be in the public interest to grant leave, for the reasons given in Whisprun at [51], to do so would undermine confidence in appellate courts. But even if leave was given, these two contentions could only succeed if the appellant had successfully challenged the findings as to the agreement between the appellant and the husband and established that the finding as to a common intention constructive trust was not open. This is because, as already mentioned, once the trust is established, the interests under it will be as the parties intended.
In advancing this ground, the appellant concedes that it was “open to the trial Judge to find that [the husband] had paid [the appellant] $892,500 between 2009 and 2015, pursuant to ‘the arrangement’ between them” (Appellant’s Summary of Argument filed 9 June 2020, paragraph 62). Reference to ‘the arrangement’ is to the finding at [235(a)] of the trial reasons, that “the husband would become the beneficial owner of [the property] and that it would be the matrimonial home in which the husband, wife and their children would reside”. The submission continued that, at most, this supported a finding that it would be unconscionable to allow the appellant to successfully assert that the husband had no equitable entitlement with respect to the property. The appellant continues and argues that the primary judge may have permissibly imposed a constructive trust without finding that there was a common intention to create an equitable estate or interest in favour of the husband.
According to the appellant, the primary judge:
(a) failed to consider the matters relevant to the imposition of a constructive trust in the circumstances found by him to have existed from time to time;
(b) failed to reveal adequately or at all why he so found;
(c) appears to base his finding on a finding that there had been a mutual intention to create an equitable estate or interests; and
(d) appeared to base his finding on an estoppel, notwithstanding his express finding that there was no estoppel.
Although in this portion of the trial reasons, including headings, the primary judge speaks of conclusions concerning a constructive trust, it is clear from the context the primary judge is in fact determining the existence of a common intention constructive trust and, in the alternative a constructive trust of the type described by Deane J in Muschinksi v Dodds. It is the conclusion reached as to the common intention constructive trust that then drives the conclusion as to the respective interests. That decision is well explained. Furthermore, the relevant findings are not limited to [235(a)] and the trial reasons should be considered as a whole. To the extent that these submission suggest differently, the submission should not be accepted.
As paragraph 61 of the appellant’s Summary of Argument seeks to achieve, it ignores those findings made concerning the appellant’s and the husband’s common intention in relation to the property. The submission that the wife, by withdrawing her claim of an express trust should have been seen as also withdrawing her assertions as to the conversations she overheard and had with the husband when the property was acquired is rejected. The exchanges between senior counsel and the primary judge which preceded the withdrawal have already been set out and make it clear that the withdrawal was based on a misunderstanding of the law. Indeed, there is nothing in the exchanges which supports the notion that the wife withdrew her evidence and contention of an express agreement between the appellant and the husband.
Given the lack of any submission from any quarter that an appropriate equitable remedy falling short of imposing the trust might be given [238], the primary judge was entitled to impose a remedy based on the appellant’s and the husband’s common intention. That is, from its acquisition the appellant held title to the property on trust for the husband and that he and the husband held shares in it proportionate to their respective contributions towards the initial acquisition costs. In relation to the husband, his contributions were as he reimbursed the appellant over time.
Thus, based on the express agreement reflected in the conversations and the inference drawn that the agreement required the husband to pay the appellant an amount equivalent to the acquisition costs [235(c)], the primary judge calculated the husband’s interest as follows:
241. I disregard any amount that the [appellant] 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 [appellant] also made passing reference to “improvements” made by him to [the 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.
242. Based on the evidence I have, the raw mathematics are that after the acquisition of [the property], the husband paid the [appellant] the sum of $892,500 pursuant to their arrangement. The acquisition costs of [the property] were in the sum of $1,450,000. That is, the husband paid to the [appellant], over time, an amount equivalent to 61.5 per cent of the acquisition costs. I find the [appellant] holds 61.5 per cent of an unencumbered beneficial interest in [the property] on trust for the husband.
It follows that the appellant’s contention that the primary judge should have made directions to measure the appellant’s beneficial interest in the property will not succeed. Simply put, the appellant had ample opportunity to present evidence and make submissions on the point but failed to do so. Counsel for the appellant relied heavily on Murtagh v Murtagh [2013] NSWSC 926 (“Murtagh”) at [69]–[100] for the procedure to be applied when determining the relative interests of parties such as these. However, as Murtagh at [84] makes clear, the analysis will be subject to any express agreement about these matters. Moreover, in Murtagh, the judge said:
99. As to the proof of each party's contributions, in Cetojevic v Cetejovic [2006] NSWSC 431 when considering whether there was a resulting trust, Campbell J, said, at [36]:
“In coming to that conclusion, I bear in mind that in an exercise such as this precise accounting is often not to be expected, and that sometimes a broad brush estimate needs to be made to ensure that the onus of proof does not itself become an instrument of injustice. However, it is still necessary for the tribunal of fact to be in a position of being persuaded that, at the least, a certain amount of contributions were made by one particular party, and to be satisfied as to how those contributions relate to the contributions made by the other party.”
Consistent with these principles, the judge in Murtagh at [172] adopted what was described as “a broad brush and holistic approach”, to the calculation of those parties’ interests. It should be noticed that the judge was able to do this by reference to evidence adduced at trial and the case was not adjourned in the manner the appellant says should have occurred here.
Ground 6 has not been established.
Notice of Contention
Because the appellant has failed to establish error, the wife’s application for leave to rely on her Notice of Contention does not require consideration. However, had it been necessary for us to determine her application, it would have been refused. At trial, the wife propounded a claim in the alternative for a resulting trust. Although the asserted resulting trust differed from Bloch, the nature of the relief sought was the same and the argument sufficiently connected to this claim for a resulting trust. It would make a mockery of the trial process to permit the wife to resurrect the issue now.
Conclusion and costs
The appeal will be dismissed. In this event, the wife sought her costs of the appeal in the amount of $14,614. The appellant agreed that an order for costs could be made against him in the amount sought. This concession is well made and, the appellant’s lack of success in the appeal justifies the order sought.
I certify that the preceding seventy-five (75) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Ryan, Aldridge and Tree.
Associate:
Dated: 23 July 2021
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