Kyriakou v Saba
[2000] VSC 318
•14 August 2000
| SUPREME COURT OF VICTORIA |
| COMMERCIAL AND EQUITY DIVISION |
| Not Restricted |
No. 8295 of 1998
| HELEN KYRIAKOU | Firstnamed Plaintiff |
| and | |
| KYRI KYRIAKOU | Secondnamed Plaintiff |
| v | |
| SID SABA | Defendant |
---
JUDGE: | Balmford, J. | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8, 9, 13, 14, 20, 21, 29 June & 17 July 2000 | |
DATE OF JUDGMENT: | 14 August 2000 | |
CASE MAY BE CITED AS: | Kyriakou v Saba | |
MEDIA NEUTRAL CITATION: | [2000] VSC 318 | |
---
Trusts – Defendant purchased a house for the plaintiffs and the plaintiffs’ family to live in – Whether the defendant created an express trust over the property in favour of the firstnamed plaintiff – Whether a constructive trust over the property was established in favour of the firstnamed or secondnamed plaintiff on the basis of amounts contributed by the secondnamed plaintiff and his wife to the purchase of the property and improvements thereto.
Equity – Secondnamed defendant bankrupt from August 1994 to November 1997 – Monthly payments to the defendant and expenditure on improvements to the property made during this period of bankruptcy – Whether secondnamed plaintiff’s breach of his obligations to his trustee in bankruptcy and to his creditors meant that he did not come to the Court with clean hands.
Bankruptcy Act 1966; s 58, 139U
Property Law Act 1958; s 53(1)(b)
Baumgartner v Baumgartner (1987) 164 CLR 137
Dering v Earl of Winchelsea (1787) 1 Cox Eq 318
Duchess of Argyll v Duke of Argyll [1967] Ch 302
Jones v Dunkel (1959) 101 CLR 298
Kettles & Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108
Meyers v Casey (1913) 17 CLR 90
Muschinski v Dodds (1985) 160 CLR 583
Organ v Sandwell [1921] VLR 622
The Leather Cloth Company Ltd v The American Cloth Company Ltd (1865) 11 HLC 523
---
APPEARANCES: | Counsel | Solicitors |
For the Plaintiffs | Mr PJ Hayes | Tasiopoulos Lambros & Co |
| For the Defendant | Dr J Bleechmore | Clarkson & Socio |
______________________________
No. 5250 of 1999
| SID SABA | Plaintiff |
| v | |
| KYRI KYRIAKOU | Firstnamed Defendant |
| and | |
| ANNA KYRIAKOU | Secondnamed Defendant |
JUDGE: | Balmford, J. | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8, 9, 13, 14, 20, 21, 29 June & 17 July 2000 | |
DATE OF JUDGMENT: | 14 August 2000 | |
CASE MAY BE CITED AS: | Saba v Kyriakou | |
MEDIA NEUTRAL CITATION: | [2000] VSC 318 | |
---
Landlord and Tenant – Claim for arrears of rent and order for possession – Whether payments made by the defendant to the plaintiff were in the nature of rent or payments towards the purchase of the property.
---
APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Dr J Bleechmore | Clarkson & Socio |
| For the Defendants | Mr PJ Hayes | Tasiopoulos Lambros & Co |
HER HONOUR:
Introduction
Proceeding number 8295 of 1998 was initiated by a writ issued by the first-named plaintiff on 24 December 1998. Although by that date she was married, and she used her married name when giving evidence, the writ was issued in her maiden name, and I shall continue to refer to her as “Miss Kyriakou”. The secondnamed plaintiff, (“Mr Kyriakou”) the father of Miss Kyriakou, was added to the proceeding by an amendment to the statement of claim made on the second last day of the hearing. The plaintiffs claim:
§A declaration that the defendant (“Mr Saba”) holds the property known as 24 Cavendish Street Deer Park (“the property”) on trust for Miss Kyriakou;
§An order requiring Mr Saba to transfer title to the property to Miss Kyriakou;
§A declaration that Miss Kyriakou, or alternatively Mr Kyriakou, has an equitable interest in the property equal to certain amounts contributed to the purchase of and improvements to the property.
§Alternatively, equitable compensation.
The Certificate of Title shows the property to be situated in Cavendish Drive, not Cavendish Street, but nothing turns on that.
Proceeding number 5250 of 1999 is brought by Mr Saba by writ issued on 29 April 1999 against the parents of Miss Kyriakou (“Mr and Mrs Kyriakou”), claiming rental for the property at $1125 per month from December 1996. On 25 October 1998 Mr Saba issued a notice to Mr and Mrs Kyriakou to vacate the property on or before 15 November 1998. The statement of claim was amended at the outset of the proceeding to include a claim for an order that Mr Saba have possession of the property.
There are significant issues of fact in this case, but it would appear that the matters set out in this and the following five paragraphs are not in dispute. Mr Kyriakou has for a number of years been engaged in the business of furniture manufacture. On 14 January 1991 a company named Excel Craft (Victoria) Pty Ltd (“Excel Craft”) was incorporated. This company operates the furniture manufacture business and is effectively owned by the Brokenshire and Kyriakou families.
Mr Kyriakou and Mr Saba met in 1985-6 when Mr Kyriakou sold Mr Saba some furniture for use in a restaurant business. The families became friends. Mr Kyriakou described the friendship in stronger terms than Mr Saba, but it is not in issue that Mr Kyriakou is godfather to a child of Mr Saba and that at some unstated date Mr and Mrs Kyriakou travelled to Lebanon for the christening of that child.
On 9 November 1993 a company called Excel Enterprise Pty Ltd (“Excel Enterprise”) was incorporated to import furniture from Malaysia for sale in Australia. Enterprise had a paid up capital of $100 in $1 shares, of which Mr Kyriakou held one share and Mr Saba held 99 shares. The assets and liabilities of Excel Craft were acquired by Excel Enterprise on 8 May 1995. This acquisition was referred to throughout as “the merger”.
In 1993 the Kyriakou family were living in a house in Amelia Avenue, Deer Park, for which they were paying rent of $664 per month. A decision was made that a house would be purchased by Mr Saba for the Kyriakous to live in. The property was selected, apparently by Mrs Kyriakou. A deposit of $4,000 was paid to the vendor’s agent and a receipt issued to Mrs Kyriakou on 19 November 1993. The Form 18 issued by the agent on the same date showed the purchaser as “Anna Kyriakou and/or nominee”. Mrs Kyriakou introduced Mr Saba to Mr Karavias, who she said had been the Kyriakous’ solicitor since “probably” 1991, and Mr Karavias acted for Mr Saba on the purchase. The purchase was completed by Mr Saba, who paid the balance of purchase money to the vendor and became, and continues to be, the registered proprietor of the property.
Settlement took place on 17 December 1993, and the Kyriakous moved into the house after settlement and continue to live there. From December 1993 to October 1996 Mr and Mrs Kyriakou paid Mr Saba amounts of $1,125 per month. They paid another $3,000 in May 1997. They have spent a substantial amount of money on improvements to the property, including the addition of a room, the total amount claimed to have been spent being $93,850. The fact of expenditure on improvements, but not the amount, is common ground. Mr Kyriakou was bankrupt from 25 August 1994 to 24 November 1997. The property was mortgaged to the ANZ Bank on 27 April 1994. The mortgage is expressed to secure loans to the mortgagor and/or “the customer”, “the customer” being defined therein as Excel Enterprise. The mortgage was discharged on 31 October 1996.
In late 1996 or early 1997 an application was made by Mr Kyriakou to the National Australia Bank for a home loan to enable the property to be acquired for approximately $120,000. Mr Arcadiou of the National Australia Bank, who gave evidence from his recollection of the application, a search for the file having been unsuccessful, said that the application was processed and approved, but not proceeded with, and that it was for a home loan and not a business loan.
The claim of an express trust
The first claim of the plaintiffs relies on an express trust over the property having been created by Mr Saba in favour of Miss Kyriakou. Miss Kyriakou was born in September 1975 and is now 24 years old. In 1996 she completed a degree in business (personnel and industrial relations) from RMIT University and has been in employment since then. She married in July 1998 and is now Mrs Theofanos. She lives with her husband in a house which he owns. She has three younger siblings who still live with their parents. She deposed that she understood that Mr Saba was to “provide funds for the purchase of the property on my behalf” and that this was associated with business arrangements between her father and Mr Saba. She and her father both deposed that in 1993 her parents had expressed to her a desire to provide for her future. I note that this was at a time when her parents themselves were living in rented accommodation, and in the year before her father’s bankruptcy. It appears from Mr Kyriakou’s evidence that his previous residence, which he had owned, had been sold by the mortgagee in the exercise of its power of sale. In those circumstances, a family might be thought to have more serious financial concerns than the future of an eighteen year old daughter who has since demonstrated the ability to complete a degree and obtain continuous employment, which ability must already have been apparent to her parents. Nothing was said in evidence by any witness about any desire of Mr and Mrs Kyriakou to provide for the future of their three younger children.
Miss Kyriakou said that she did not contribute to the improvements or make any other payments in respect of the property. The improvements were made because the family required more room. She said that she knew that Mr Saba was helping with the purchase, but did not know whether he paid for the property or not. She did not know about the application for a home loan. She said that at the time when the house was bought her parents intended it to be her house, but since she and her husband now have a house the intention has changed, and the property is not her house but is the family home. She did not refer to any occasion when she had heard Mr Saba say that he was holding the property on her behalf or that he was proposing to do so.
Mrs Kyriakou deposed:
the understanding was that the property would belong to us and ultimately would be transferred into either my name or my daughter Helen’s name. I expressed this to Saba on numerous occasions. Prior to the settlement I gave instructions to Danny Karavias to prepare the transfer noting Saba as the transferee based on the discussions relating to the assistance which was provided to my family by him.
There is no evidence in that passage, or elsewhere in the evidence of Mrs Kyriakou, of any statement by Mr Saba which would amount to evidence of an express declaration of trust in favour of Miss Kyriakou.
Mr Kyriakou deposed that in about December 1993 he and Mr Saba had agreed, in the context of certain business arrangements, that Mr Saba would hold the property on trust for Miss Kyriakou. He deposed that when the property was mortgaged to the ANZ Bank in April 1994 he consented to the mortgage on her behalf. I note that at that date she would have been 18 years old and it was not suggested that her father held a power of attorney. If her consent had been needed, it would have been for her, not for him, to give that consent. He deposed that in about October 1996 he had asked Mr Saba to transfer the property to Miss Kyriakou, but Mr Saba had refused to do so. He believed at that time that the instalments he had paid to Mr Saba were sufficient to pay off the balance of the purchase price of the property, and if there was any amount owing to Mr Saba it would be very small. In the letter referred to in paragraph 43 below he said:
As you will recall, the house was purchased in your name but on behalf of Helen, and you were merely holding it on Helen’s behalf.
I note that at page 172 of the transcript Mr Kyriakou speaks of the intention that the property would be “transferred to my name” and at page 185 says “ . . . the house was. . . mine, or my daughter’s”.
Mr Brokenshire deposed on 19 March 1999 that he was a director of Excel Craft and Excel Enterprise. Searches of Excel Craft dated 23 February 1999 and of Excel Enterprise dated 1 February 1999 confirm his position as director of those companies, although it appears from the search that Excel Craft changed its name on 30 June 1995 to K.B.H. Pty Ltd. However, nothing turns on this. Mr Brokenshire worked for Mr Kyriakou in the furniture manufacture business before becoming a director of Excel Craft on its formation, and gives his occupation as “production manager”. It is to be assumed that he is the production manager of the furniture manufacturing business. He deposed that Mr Kyriakou had told him in numerous discussions from about November 1993 that the property ”had been purchased in the defendant’s name however it had always been understood that the house would belong to the Kyriakou family.” He had attended a meeting of Excel Enterprise at which Mr Saba confirmed that the property was to be released from the mortgage to the ANZ Bank so that it could be transferred to Miss Kyriakou as had been previously agreed. Mr Saba said that he had never told Mr Brokenshire that the property was held on trust for Miss Kyriakou or for the Kyriakou family.
Mrs Stephanides deposed that she commenced working for Excel Craft in or about January 1994 and “eventually the business became known as” Excel Enterprise. She deposed that Mr Saba had said to her on numerous occasions that the property was in his name but was held on trust for the Kyriakou family. Mr Saba denied this in cross-examination and said that he had never discussed the issue at all with Mrs Stephanides.
There is no evidence in writing of any express trust. Section 53(1)(b) of the Property Law Act 1958, derived from the Statute of Frauds of 1677, reads:
(b)a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;
However, if I were, on the basis of other evidence, to find the express trust proved, equity, as Dr Bleechmore, for Mr Saba, carefully conceded, would not permit Mr Saba to rely on the absence of writing so as to deny its existence. (See Organ v Sandwell [1921] VLR 622.) But, without bringing the Statute of Frauds into play, the absence of writing is simply the absence of evidence which might support the claim of Miss Kyriakou. (In the context of the Statute of Frauds, there is no suggestion made that Miss Kyriakou had in any way acted so as to change her position on the faith that a trust existed so as to bring into play the doctrine of part performance, if indeed that doctrine remains relevant.)
Mr Karavias, who was acting for Mr Saba on the purchase, had been the solicitor for the Kyriakous since 1991 (see paragraph 6 above). It is unlikely that if he had been instructed that it was intended by Mr Saba to hold the property on trust for Miss Kyriakou, Mr Karavias would not have advised both Miss Kyriakou and Mr Saba of the desirability of Mr Saba’s executing a formal declaration of trust in favour of Miss Kyriakou, and of her lodging a caveat on the title to the property to protect her interest. The purchase was completed in December 1993 and no such caveat was lodged until October 1998. If Mr Saba did intend to hold the property for Miss Kyriakou, I can see no reason why he would not have executed a declaration of trust at the time of the purchase, if he had been advised to do so. Mrs Kyriakou said that she did not tell Mr Karavias about the proposed trust for her daughter, but assumed that he knew of it. Mr Kyriakou said that he did not tell Mr Karavias about the proposed trust at the time of the purchase, although he had told him at some other time but could not remember when it was. He said that he could not remember Mr Karavias suggesting that Mr Kyriakou take any formal steps to protect his daughter’s interest, and had he been given any such advice he would not, in any case, have acted on it. This last seems improbable, coming from an experienced businessman.
The caveat lodged in October 1998 is signed by Miss Kyriakou personally, and her name appears as the person lodging the caveat. It does not bear the name of any solicitor. The claim does not rely on an express trust, but is a claim for an estate in fee simple “as the beneficial owner of the property pursuant to a constructive trust”. There is no basis in which I could find that it was lodged by Mr Karavias.
Exhibit 2 is a Notice of Acquisition of an Interest in Land pursuant to the Land Tax Act 1958 purporting to record a sale of the property from Mr Saba to Miss Kyriakou for a consideration of $125,000, in respect of which possession is said to have been given on 12 November 1996. This document may have been prepared in anticipation of the transfer which was apparently contemplated when the home loan was approved by the National Australia Bank. It is not suggested by any other evidence that any such sale took place. The present relevance of the Notice of Acquisition is that it is signed by Mr Karavias as solicitor for both parties, indicating his position at that date as solicitor for Miss Kyriakou. Mr Kyriakou said in evidence that Mr Karavias was still the solicitor for the Kyriakou family. The Court file indicates that Mr Karavias was acting for Miss Kyriakou at the commencement of these proceedings, but did not continue, no doubt because he had previously acted for Mr Saba.
Mr Karavias was not called by the plaintiffs to give evidence, and no reason was given for the failure to call him. On the basis of Jones v Dunkel (1959) 101 CLR 298, the Court can conclude from that that his evidence would not have assisted Miss Kyriakou’s case, and that it makes the evidence of Mr Saba that there was no express trust in favour of Miss Kyriakou more readily acceptable. I accept the submission of Dr Bleechmore that the Court can infer that if called, Mr Karavias would have said that he was not instructed that there was any agreement that Mr Saba hold the property on trust for Miss Kyriakou.
The claim of Mr Saba is that he allowed Mr and Mrs Kyriakou to reside on the property as tenants at a monthly rental of $1125, payment of which was made up until October 1996, with one later payment of $3,000 in May 1997. In cross-examination he denied repeatedly that he had agreed with Mr Kyriakou to hold the property on trust for Miss Kyriakou or for the Kyriakou family.
The only direct evidence of the existence of an agreement for an express trust in favour of Miss Kyriakou is that of Mr Kyriakou set out in paragraph 12 above and that of his business associates Mrs Stephanides and Mr Brokenshire. Given the uncertainty of the evidence of Mr Kyriakou on the subject, the generally unsatisfactory nature of his evidence on the other issues in the case, and the matters set out in paragraphs 9 to 20 above, I cannot find, on the balance of probabilities, that the property was held by Mr Saba on an express trust for Miss Kyriakou. Her claim accordingly fails.
I note that the claim of an express trust in favour of Miss Kyriakou was largely abandoned in the final address of counsel for the plaintiffs. In his oral submissions he indicated briefly that it would be unconscionable for Mr Saba to rely on the Statute of Frauds, which Dr Bleechmore had already conceded was not available to his client, as appears from paragraph 15 above. In a brief written passage on the point he submitted that the claim was in accordance with an agreement alleged by “the plaintiff”, and that to allow the defendant to have the benefit of that agreement without granting “the plaintiff” a remedy would be contrary to the maxims “Equity will not suffer a wrong to be without a remedy” and “Equity looks to intent rather than form”.
The expression “the plaintiff” in respect of the express trust, must refer only to Miss Kyriakou, and there is no evidence of any “agreement” with her on which that submission could be based. As to the first of the maxims relied upon, it is sufficient to note that the learned authors of Meagher, Gummow & Lehane, Equity Doctrines and Remedies (3rd edition) state at p 71:
This is a somewhat misleading maxim unless it is realised that it is of purely historical importance.
As to the second maxim, they state at p 93:
However, it would be wholly erroneous to imagine that equitable partiality for intention over form knows no bounds. There is no general equitable jurisdiction to construe contracts so as to effectuate the actual intention of the parties if it is clear that the parties agreed on the form of the contract.
Neither of those maxims leads me to vary the conclusion set out in paragraph 21 above.
The claim of a constructive trust
The alternative claim of the plaintiffs is that there is established a constructive trust in favour of Miss Kyriakou or Mr Kyriakou on the basis of amounts contributed by Mr and Mrs Kyriakou to the purchase of the property and the improvements thereto, on the principles established in Baumgartner v Baumgartner (1987) 164 CLR 137. In that case the parties had lived in a de facto relationship for some years, during which time they pooled their incomes. They acquired a house in the name of the man, which he later asserted was his sole property. The High Court, following Muschinski v Dodds (1985) 160 CLR 583, held that the man held the house on trust for the parties in the proportions in which they had contributed their earnings to its acquisition (and with other adjustments not here relevant). The Court found that the assertion of the man that the house was his to the exclusion of any interest of the woman constituted unconscionable conduct which attracted the intervention of equity and the imposition of a constructive trust.
The majority of the High Court, Mason CJ, Wilson and Deane JJ, said at 147-8 that in Muschinski v Dodds:
Deane J (with whom Mason J agreed) reached [a similar] result by applying the general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them.
His Honour said (17):
“. . . the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do. . .”
It is significant that the plaintiffs are seeking a remedy in equity. Dr Bleechmore submitted that Mr Kyriakou did not come to equity with clean hands. Mr Kyriakou was bankrupt between 25 August 1994 and 24 November 1997. He claims to have contributed $37,125 directly towards the purchase price of the property by payments to Mr Saba. That figure (although not the reason for the payment) is common ground as is the fact that it was made up of more or less regular monthly instalments of $1125 paid between January 1994 and October 1996 and one payment of $3,000 in May 1997. Thus all payments made after August 1994, totalling some $32,250, being the greater part of the total of $37,125 , were made during the period of bankruptcy.
In the statement of claim Mr Kyriakou claims to have spent $93,850 on improvements to the property. In cross-examination he said that the improvements were carried out between 1994 and mid-1998. He had not included the costs of his own labour in the claim. A list of payments made, headed “Schedule of Works Renovations and Improvements Carried out on Property” (“the schedule”) was provided by him to the valuer who prepared a valuation of the property which was obtained for the purposes of this proceeding. The payments there listed total $103,774.20. The difference between that amount and $93,850 was not explained. In what follows, I am assuming, without deciding, the accuracy of the schedule. A number of individual payments are listed, for some of which receipts are produced. They can be classified into payments for which a precise date, either inside or outside the period of bankruptcy, is evidenced by a receipt; payments which can be allocated, because of their association with other, dated payments, notably those listed under the heading “extension”, to either inside or outside that period; and payments which cannot be so allocated. A rough calculation produces the following result:
Outside bankruptcy Inside bankruptcy
Dated $17,000 $19,500
Undated
Allocated $56,500
Unallocated $3,000
$20,000 $76,000
Some of the tradesmen who gave evidence indicated that they had worked on the property between specific times. The amounts which they are said to have been paid are included in the above calculations:
Mr Christoforou, an electrician, who deposed that he had worked on the property between 1994 and 1998 and had been paid $5000. In his oral evidence he said that he was working on and off there for two or three years.
Mr Teggeris, a carpenter, who deposed that he had worked on the property from in or about April 1994 to in or about July 1998 and had been paid $5000.
Mr Seferler, a handyman, who deposed that he had worked on the property from in or about 1994 to 1998 and had been paid $11,500. In his oral evidence he said that he worked on and off over four to five years at the property.
Thus, assuming the accuracy of the schedule, even if an allowance is made for work done by those tradesmen outside the period of bankruptcy, the greater part of the total amount of the payments on which the claim is based, including both those said to be instalments of purchase money and those said to have been paid towards the improvements, can be taken to have been paid during the period of Mr Kyriakou’s bankruptcy.
Payroll records before the Court indicated that as at 17 March 1997 Mr and Mrs Kyriakou were being paid wages by Excel Enterprise at the total rate of $29,744 per annum. Mr Kyriakou agreed in cross-examination that he had no other source of income at that time. He said that he had not been asked by his trustee in bankruptcy to remit any part of that income to his creditors, so that it was available for the support of him and his family. He said that he was enabled to make the payments related to the house by gifts from his wife’s family, and an inheritance which his wife had received. However, he was uncertain about the amounts involved, there was no reference in his affidavits to any of those receipts, and I did not find his evidence on that subject to be convincing. He agreed that most of the payments to tradesmen had been made in cash and this was supported by the evidence of the tradesmen already referred to.
Section 58 of the Bankruptcy Act 1966 provides that where a debtor becomes a bankrupt, the property of the bankrupt vests forthwith in the trustee and after–acquired property of the bankrupt vests in the trustee as soon as it is acquired. Section 139U of that Act requires a bankrupt, at prescribed intervals, to give a statement to his trustee of all income derived by him during the period of his bankruptcy. The maximum penalty for failure to comply with section 139U is imprisonment for six months.
The expenditure referred to above must have been made out of income or property of some kind. If Mr Kyriakou had received any gifts from his wife’s family or from his wife, they would have been either “property” for the purposes of section 58 or “income” for the purposes of section 139U. When he was asked whether he had kept his trustee in bankruptcy informed of another transaction related to this proceeding, he refused to answer the question on the ground that it might incriminate him. In discussion, Dr Bleechmore made it clear that he would be submitting that Mr Kyriakou did not come to the Court with clean hands, and that he did not propose to waste the time of the Court in asking questions which would be objected to on the ground of self-incrimination. It was open to counsel for Mr Kyriakou to raise in re-examination the question of disclosure to the trustee in bankruptcy of the resources from which the payments in question were made, and he did not do so. Whatever property Mr Kyriakou owned on 25 August 1994, and whatever property was acquired by him after that date and before 24 November 1997, vested in his trustee in bankruptcy on 25 August 1994 or on the later date when it was acquired. Thus the resources used by him during that period for the purposes of the payments to Mr Saba and the payment for the improvements to the house were not his to use. I can infer from the circumstances which I have described that the receipt of those resources was not notified to his trustee in bankruptcy.
Lord Chief Baron Eyre said in Dering v Earl of Winchelsea (1787) 1 Cox Eq 318 at 319:
. . . a man must come into a Court of Equity with clean hands; but when this is said, it does not mean a general depravity; it must have an immediate and necessary relation to the equity sued for. . .
Similarly, Ungoed-Thomas J said in Duchess of Argyll v Duke of Argyll [1967] Ch 302 at 332:
A person coming to Equity for relief – and this is equitable relief which the plaintiff seeks – must come with clean hands; but the cleanliness required is to be judged in relation to the relief which is sought.
Isaacs J in Meyers v Casey (1913) 17 CLR 90 at 124followed Dering v Earl of Winchelsea and described the case before him as:
. . . altogether different from the cases where the right relied on, and which the Court of equity is asked to protect or assist, is itself to some extent brought into existence or induced by some illegal or unconscionable conduct of the plaintiff, so that protection for what he claims involves protection for his own wrong. No Court of equity will aid a man to derive advantage from his own wrong, and this is really the meaning of the maxim.
In Kettles & Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108, Long Innes J found in a case of innocent passing off, where the plaintiff’s only remedy was equitable, that although the plaintiff had made out a prima facie case for relief, that right might be lost by misrepresentation on the plaintiff’s part of any material fact calculated to deceive the public, which would bring into operation the maxim that he who comes to equity must come with clean hands. Thus deception of the public, although not of the other party, was sufficient to activate the maxim. His Honour relied on the passage from the speech of Lord Cranworth in The Leather Cloth Company Ltd v The American Cloth Company Ltd (1865) 11 HLC 523 at 542, where His Lordship said:
Nobody doubts that a trader may be guilty of such misrepresentations with respect to his goods, as to amount to a fraud upon the public, and to disentitle him on that ground, as against a rival trader, to the relief in a court of equity which he might otherwise claim. . . . The general rule seems to be that the mis-statement of any material fact calculated to deceive the public, will be sufficient for the purpose.
In the present case, the unclean hands are said to derive from the inferred breach, described above, of Mr Kyriakou’s obligations to his trustee and through the trustee, to his creditors, rather than from a breach of his obligations to Mr Saba, against whom his claim is made, or a fraud on the public. However, that breach of obligations to his creditors has “an immediate and necessary relation to the equity sued for” (Dering v Earl of Winchelsea) in that he relies on payments made with moneys not his own and not notified to his trustee as founding an equitable interest in the property. I am satisfied that for Mr Kyriakou to establish his equitable claim to a constructive trust in his favour over the property would be for him to “derive advantage from his own wrong” (Meyers v Casey) and thus he cannot maintain that claim. Counsel for the Kyriakous made no submissions in response to the strongly worded submission of Dr Bleechmore on this point. I find that the claim of Mr Kyriakou cannot succeed in equity and accordingly that claim fails. That being so, it is not necessary for me to consider further the basis upon which the case is put, and I do not do so.
The matters which have led me to find that no express trust was created in favour of Miss Kyriakou operate also against her in respect of her claim of a constructive trust. Furthermore, she did not make any payment towards the $37,125 paid to Mr Saba, or towards the moneys expended on the improvements, which could ground a constructive trust. Her claim accordingly fails.
The claim of Mr Saba
There was in late 1993, when Mr Kyriakou was in financial difficulties, an agreement made between Mr Kyriakou and Mr Saba that Mr Saba would purchase a house in which the Kyriakous would live. As to the agreement, so much and little more is common ground. The amount of the purchase price is uncertain and is not necessary for me to determine, but it was at least $120,000. Mr Kyriakou deposed that it was $120,000. Mr Saba deposed that he believed it to have been $135,000. Mr Katselis, the vendor to Mr Saba, refused to give evidence as to the amount on the ground that it might incriminate him, presumably with reference to the Stamps Act 1958. The associated costs were $930, and allowing for rate adjustments Mr Saba paid $120,383.09 by cheque to Mr Karavias to complete the settlement. A deposit of $4000 had already been paid by Mrs Kyriakou, and Mr Saba deposes to his belief that that amount must have been refunded to her, so that the amount of $4,000 was included in the settlement payment.
Mr Saba’s case is that the property was acquired by him for two purposes. The first was to provide a home for the Kyriakou family, for which they would pay him rent. The rent was calculated to give him a ten per cent return on his investment in the property. Mr Saba was to invest in a business to be linked with the existing business of Mr Kyriakou, and, as the second purpose of the acquisition, the property would be mortgaged as security for funds to be invested in that business. This was later done (see paragraph 7 above). Mr Saba deposed that he had been advised not to inject capital directly into the business, but to buy a house for investment purposes and raise money on the security of the house for the business venture. He agreed when it was put to him in cross-examination that in this way he received a tax benefit which he would not have received if the money had been put straight into the business. Mr Saba showed the moneys received from Mr Kyriakou in his tax returns as rent from an investment property. As has been said, he claims arrears of rent and an order for possession.
Mr Kyriakou says that the agreement was first, that Mr Saba would buy the property and pay the associated costs. The next part of the agreement was that in return for $90,000 of the amount paid, Mr Saba would receive a 20% interest in a business of Mr Kyriakou’s. The Kyriakou family would live in the property and would pay to Mr Saba the difference between the purchase price, plus expenses, and $90,000, being some $34,000, in monthly instalments of approximately $1,000 per month. When all payments were made the property would be transferred to Miss Kyriakou. I have already dealt with the claim that the property was to be held by Mr Saba on trust for Miss Kyriakou and I say no more about that. Mr Kyriakou says that he ceased making payments to Mr Saba when he considered that the amount due had been paid.
There are a number of matters in evidence which would tend to support Mr Saba’s account of the agreement and the events which followed rather than that of Mr Kyriakou. Mr Kyriakou left to his wife the actual making of the monthly payments to Mr Saba. Both Mr and Mrs Kyriakou said that neither of them had calculated what was the precise amount owing. Both said that in October 1996 they felt that the amount paid was close to the balance which had been owing. Mrs Kyriakou, however, deposes that they had formed the view early in 1996 that their payments had already exceeded the amount owing. It will be remembered that throughout 1996 Mr Kyriakou was bankrupt. Leaving on one side the other implications of that circumstance, it might have been thought that if he was, as he claims, paying off a capital amount advanced to him by Mr Saba, he would have been concerned to ensure that he paid no more than was actually due.
Mr Kyriakou’s evidence as to what had been agreed in connection with the acquisition by Mr Saba of an interest in his business is inconsistent. His original claim, as appears in his initial statement of claim, in his defence to the proceeding brought by Mr Saba and in his first affidavit, was that Mr Saba was to acquire from him a 20% interest in Excel Enterprise. However, at the relevant time, late in 1993, Mr Saba owned 99% of the shares in Excel Enterprise and Mr Kyriakou (through a company which he controlled) one share only, so that it could not have been possible for Mr Kyriakou to carry out such an agreement. Mr Saba pointed this out in his answering affidavit. It was then put in Mr Kyriakou’s second affidavit, although without amendment of the statement of claim, and without qualification of either affidavit before the Court, that the agreement was for the transfer of a 20% interest in Excel Craft. In cross-examination, Mr Kyriakou was adamant that this was the arrangement and that Mr Saba had his shares in Excel Craft before the merger in May 1995 (see paragraph 5 above). He was, however, uncertain as to whether what he transferred was 20% of the shares in the company or 20% of what he owned in the company, which was 35 out of a total of 110 units. There is, in any case, no objective evidence of the carrying out of any such agreement. It is not necessary to analyse the extensive and conflicting evidence relating to the merger, and to Mr Saba’s involvement in the business of Excel Enterprise, to find the evidence of Mr Kyriakou on the terms of the agreement made in November 1993 to be unsatisfactory, in that it is so internally inconsistent that no conclusion can be drawn from it.
Mr Saba was overseas from mid-1994 to January 1999, although he returned from time to time. He gave his cousin, Michael Saba, a power of attorney, and Michael Saba attended to his affairs in his absence. There were conversations between Michael Saba and Mr Kyriakou, the content of which is in dispute. Mr Kyriakou says that they related to the paying off of the amount owing to Mr Saba on the house; Michael Saba says that they were about arrears of rent which he was seeking to recover from Mr Kyriakou, and that Mr Kyriakou said that the rent was too high. In about March 1997 Mr Kyriakou had told him that he would be buying the property and was obtaining a loan from the National Australia Bank through Mr Arcadiou.
Michael Saba wrote to Mr Kyriakou on 9 July 1997 and 3 August 1998 claiming arrears of rent at the rate of $1125 per month and referring to telephone conversations on the subject. Mr Kyriakou responded by a letter to Mr Saba on 12 October 1998 which in part read as follows:
As you will recall, the house was purchased in your name but on behalf of Helen, and you were merely holding it on Helen’s behalf. You know very well that it was always intended that we occupy the house and payments would be made to pay off the purchase price as agreed. At no time did we ever discuss or agree that I would pay rent, as the payments I am making is paying off the house.
As per my calculations, I believe there is approximately $72,500 owing and when I receive confirmation of all this I will:
1.Continue to make payments to pay off the house or;
2.Arrange to pay you out completely, but at that point you have to transfer the house to Helen as originally agreed.
This letter is quite inconsistent with Mr Kyriakou’s claim in these proceedings that he had paid all that was owing to Mr Saba by October 1996, or Mrs Kyriacou’s evidence that they considered that they had paid off all that was owing by early that year. This inconsistency was put to Mr Kyriakou in cross-examination, but his efforts to explain it were confused and unconvincing. Further, he was asked why, if he had considered he had paid all that was owing by October 1996 (as to which see paragraph 12 above) he paid a further $3,000 in May 1997. He said that he could not remember the reason for this payment. He gave no evidence of any discussion as to the payment of interest on what he claims to be the amount outstanding on a loan; his assumption seems to have been that the payments were of capital only. His evidence as to the use which he proposed to make of the loan from the National Australia Bank was so confused as to be incomprehensible.
There are other matters, however, which tend to which support Mr Kyriakou’s account of the arrangement. The monthly instalments were almost twice what he had previously paid in rent for the house in Amelia Avenue (see paragraph 6 above) and it might be thought that he would not, particularly in view of his financial position at the time, (see paragraph 9 above) have undertaken that commitment unless the instalments were to be applied to purchasing a house rather than renting. Miss and Mrs Kyriakou said that before the improvements the house in Cavendish Drive was smaller than the house in Amelia Avenue, but Mr Saba said in evidence that this was not so. It is not necessary for me to make a finding on this point and I do not do so.
The strongest argument against the claim of Mr Saba is the improbability of a tenant’s carrying out improvements involving an extension to the tenanted property. As to this, Mr Saba says that Mr Kyriakou asked for his permission before making the extension, and knew that he had no objection to the Kyriakous’ purchasing the house in due course, and that the amount spent on the property was not as great as is claimed by them.
The evidence as to the transactions between the parties is by no means clear. Neither side is entirely convincing. There was much evidence and argument to which I have not found it necessary to refer. However, I am satisfied, on the balance of probabilities, that the agreement in relation to the purchase of the property was as it is described by Mr Saba, and not as it is described by Mr Kyriakou. It is not in issue that the monthly payments of $1125, which I find to be rent, ceased in October 1996, save for the additional payment of $3000 in March 1997. No challenge was made to the validity or effectiveness of the notice to vacate. Accordingly, I find the claim of Mr Saba proved.
It is appropriate that both matters be adjourned for the making of further submissions as to the orders to be made as a result of the findings set out above.
0
3
0