Lay v Pech

Case •

[2018] NSWSC 460

•

19 April 2018

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Lay v Pech [2018] NSWSC 460
Hearing dates: 7-8 March 2017 and 8-9 March 2018
Decision date: 19 April 2018
Jurisdiction:Equity
Before: Robb J
Decision:

The plaintiffs are to prepare short minutes of order, through discussion with the legal representatives for the defendant, to give effect to these reasons for judgment.

Catchwords:

EQUITY – Equitable interests in property – Nature of equitable interests – whether the first plaintiff has an equitable interest in the property

 

EQUITY – Trusts and trustees – Declaration of trust – whether the equity in the property was held on trust for the first plaintiff

  EQUITY – Defences – Illegality – whether the illegality had an immediate and necessary relation to the equities sued for
Legislation Cited: Social Security Act 1991 (Cth)
Social Security (Administration) Act 1999 (Cth)
Cases Cited: Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) (2003) 214 CLR 514; [2003] HCA 25
Middleton v O'Neill (1943) 43 SR (NSW) 178
Harry Goudias Pty Ltd v Akakios (2007) 97 SASR 93; [2007] SASC 81
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
REW08 Projects Pty Ltd v PNC Lifestyle Investments Pty Ltd [2017] NSWCA 269
Dering v Earl of Winchelsea (1787) 1 Cox Eq 318; 29 ER 1184
Nelson v Nelson (1995) 184 CLR 538; [1995] HCA 25
Category:Principal judgment
Parties: Lyna Lay (First Plaintiff)
Muy Kong Tai (Second Plaintiff)
Poly Pech (Defendant)
Representation:

Counsel:
Mr J Lo Schiavo (Plaintiffs)
Ms I J King (Defendant)

  Solicitors:
Alliance Compensation & Litigation Lawyers (Plaintiffs)
Woolf Associates (Defendant)
File Number(s): 2015/00369362

Judgment

Introduction

  1. The first plaintiff, Lyna Lay, is the mother of the defendant, Poly Pech. For much of the time material to these proceedings the second plaintiff, Muy Kong Tai, was in a relationship with Ms Lay. The parties are members of the Cambodian community in Australia.

  2. This case concerns the ownership of the residential property known as 14 Prout Street, Cabramatta, in this State (the Property).

  3. Ms Lay commenced these proceedings when she filed her summons on 16 December 2015. Mr Tai became a party when an amended summons was filed in court on 10 June 2016 and Mr Tai was named as second plaintiff. The amended summons seeks the following substantive relief:

2.   A Declaration that the First Plaintiff has an equitable interest in the property.

3.   That the Property known as 14 Prout Street, Cabramatta, NSW 2166 (Register Folio: B/398680) is held on Trust by the Defendant for the Second Plaintiff.

4.   That the Defendant be ordered to transfer the Property known as 14 Prout Street, Cabramatta, NSW 2166 (Register Folio: B/398680) to be transferred (sic) to the Second Plaintiff (Mr Muy Kong Tai).

5.   The Defendant repay all monies withdraw (sic) from his account that were paid for the benefit of the Mortgage forthwith.

  1. Strictly, the issues raised by these proceedings warranted an order that the matter proceed on pleadings, but no such order has been made. The parties have been content to conduct the case on the basis of the issues that they wished to raise, both in respect of the plaintiffs’ claim and that made by the defendant, the latter of which would ordinarily have been raised by cross claim.

The parties’ cases

  1. The Property was purchased in the name of Mr Tai for a price of $348,000 under a contract that was completed on 10 May 2010. The plaintiffs’ case is that Ms Lay contributed $20,000 towards the deposit of $34,800, and although the Property was purchased in the name of Mr Tai, it was purchased for Ms Lay to be her home and the home of her three children, which included Mr Pech and her two younger daughters. For most of the period that the title to the Property was in Mr Tai’s name, he and Ms Lay were in a relationship which the latter described in her initial affidavit as a de facto one. Mr Tai is a sheet metal worker by trade, and has at all relevant times worked as a fly-in-fly-out worker for Bechtel Corporation, which has had the result that he has spent most of his time in Queensland. It was Mr Tai’s practice to stay at the Property and live with Ms Lay when he was not working in Queensland. The plaintiffs’ case was not specific as to whether the circumstances in which Mr Tai acquired the property had the result that he held the title to the Property on trust for Ms Lay. That uncertainty in the plaintiffs’ case does not matter as the Court has not been called upon to decide whether or not Mr Tai held the title to the Property on trust for Ms Lay.

  2. Mr Pech’s case is that, since the title to the Property was acquired on 10 May 2010, Mr Tai has held that title on trust for Mr Pech. Mr Pech says that he provided the money for the deposit in cash to Ms Lay, and she gave that money to Mr Tai so that the deposit could be paid. The acquisition of the Property was financed by a mortgage given to Westpac Banking Corporation by Mr Tai for an amount of $313,200. Mr Pech’s case is that this interest only loan was serviced with cash that he gave to Ms Lay that she paid into Mr Tai’s Westpac account. Mr Pech said that to the extent Mr Tai also paid money into his account, the purpose of those payments was not to meet the monthly interest obligation, but it was to provide for the living expenses of Ms Lay and her children.

  3. The plaintiffs’ case is that, at some time in 2014, Mr Tai advised Ms Lay of his intention to amicably end their relationship, and that the plaintiffs jointly decided that the Property should be transferred into the name of Ms Lay, as it had always been intended as a home for her and her children to reside in. Upon investigation, however, it became apparent that, because Ms Lay was dependent on Centrelink payments for her income, she would not be able to obtain a mortgage to refinance the Westpac mortgage that was in Mr Tai’s name. Ms Lay asked Mr Tai to transfer the title to the Property into the names of her three children, and they agreed that the transfer would completely discharge any claim that Ms Lay had against Mr Tai by way of a property settlement in relation to the ending of their relationship. It was then realised that the Property could not be transferred into the names of Ms Lay’s daughters, as they were then both minors. The plaintiffs say that they then agreed with Mr Pech that Mr Tai would transfer the title to the Property into the name of Mr Pech alone, who would obtain a loan to pay out Mr Tai’s Westpac loan, as Mr Pech was an adult and was in employment. A valuation of the Property was obtained by Mr Tai which gave a value of $550,000. The price that was agreed was $565,000. Mr Tai would not require that the difference between the agreed price and the amount necessary to repay the Westpac loan be paid to Mr Tai, as the ‘equity’ in the Property would be given to Ms Lay as the property settlement between the parties. In accordance with the Khmer custom whereby an eldest child had a duty to provide for the child’s mother, Mr Pech would hold the title to the Property on trust for Ms Lay, and he would pay the interest payments on the mortgage for the benefit of his mother.

  4. The plaintiffs’ case is that Mr Tai transferred the Property to Mr Pech on 24 March 2015, in settlement of a contract for the sale of land that was entered into between the two men in February 2015.

  5. Some payments were made out of Mr Pech’s bank account for interest on the new mortgage for a couple of months, but in about July 2015 he and his partner, now his wife, moved out of the Property, and since that time he has not made any payments of interest. Those payments have been continued to be made by Mr Tai, although it was not his original expectation that it would be necessary for him to make those payments. Ms Lay makes some contributions to the mortgage when she can, but her income is not sufficient to enable her to make substantial contributions towards repayment of the interest on the mortgage. It is not in dispute that Mr Pech has not made any payments towards the mortgage since he ceased to live at the Property. (I will consider in more detail below the evidence concerning who deposited money into Mr Pech’s bank account to enable mortgage payments to be made).

  6. Mr Pech’s case is that he contracted to buy the Property from Mr Tai, and took out a mortgage for that purpose, on the basis that he would be the beneficial owner of the Property, as he had always been the beneficial owner since it was first acquired in Mr Tai’s name. He says that he remains the beneficial owner notwithstanding that he has not paid any of the mortgage payments since mid-2015, as his mother and sisters have been living in the Property and the monthly interest payments are equivalent to rent.

  7. The plaintiffs also say that on 27 July 2015, Mr Pech withdrew amounts of $15,537 and $1576.49 from the bank account into which Mr Tai had paid money to cover the mortgage, without the consent of the plaintiffs. That money was intended, say the plaintiffs, to be applied by making payments to the mortgagee.

  8. Ms Lay continues to reside at the Property with her two daughters, and Mr Tai continues to assist Ms Lay by paying most of the mortgage payments. Occasionally Mr Tai visits Ms Lay when he is in Sydney, and stays with her for short periods.

The testimonial evidence

  1. Ms Lay and Mr Tai gave their evidence in Khmer through an interpreter. Mr Pech gave his evidence in English. Mr Pech’s wife, Cheongsil Yi, gave evidence in Mandarin through an interpreter.

  2. The testimonial evidence given by the parties and their witnesses was relatively brief, and largely consisted of assertions that supported the parties’ cases. I have not found it an easy matter to make judgments about the relative credibility of the witnesses based upon the manner in which they gave their evidence. As sometimes happens, the process whereby the witness’s evidence is translated gives rise to impediments to the making of a reliable judgment as to the underlying credibility of the witness.

  3. Nonetheless, I formed the view from listening to the way that Mr Tai gave his evidence that he was a credible witness, and that it would be appropriate for the Court to accept his evidence, particularly where that evidence tended to be supported by the objective evidence. Mr Tai has acted honourably in his dealings with Ms Lay, particularly in respect of his preparedness to revert to supporting her with mortgage payments after Mr Pech ceased to do so, when according to his agreement with Ms Lay, he had no further obligations to her. This conduct by Mr Tai increases my confidence that he is a reliable witness. He is obviously partisan, given his continuing affection for Ms Lay and his concern about her well-being, but in financial terms he does not appear to be acting in his own interests, as he has agreed to hold the Property for the benefit of Ms Lay if the Court orders that it be re-transferred to him, in the hope that the time will come when Ms Lay can take the title to the Property in her own name, and relieve Mr Tai from the obligation to continue to pay the mortgage.

  4. Mr Pech is now 33 years of age. He moved to Australia from Cambodia when he was 12 years old. He left school in Year 10 in 2000, and has worked in various jobs since then. For some time he has been working as a dry cleaner for a firm in Redfern known as Anderson Bros. Drycleaners. The proprietor of that business is Thi Lan Le.

  5. Mr Pech said in his evidence that in about 2010 he had a conversation with Ms Lay in which his mother told him that she had found the Property and she wanted to buy it, but she could not afford to do so, because her Centrelink income was not enough to enable her to borrow the price. Mr Pech said that he told Ms Lay that he could pay the deposit, but he also could not buy the house in his name. It was agreed that he would put the house in Mr Tai’s name. Mr Pech said that he could not borrow the price himself because he had a poor credit rating.

  6. As the price for the Property was $348,000, Mr Pech had to find a deposit of $34,800. He said that he borrowed $10,000 from his employer, Ms Thi. Ms Thi gave evidence that she made a loan of that sum to Mr Pech in 2010, as well as two additional loans of $5000 each. Mr Pech said that he had the balance of the deposit in cash. He said he gave the whole of the deposit in cash to Ms Lay for her to give to Mr Tai. He said that Ms Lay paid the stamp duty. The balance of the price for the Property, being about $313,000, was borrowed by Mr Tai from Westpac.

  7. Mr Pech said that after the family moved into the Property, he reached an agreement with Ms Lay in which she would purchase all of the household food and cover household bills, and Mr Pech would pay the mortgage.

  8. The amount of the mortgage was initially, according to Mr Pech, $1500 per month. Mr Pech said that he paid all of the mortgage payments, and for that purpose gave Ms Lay $1500 per month in cash so that she could put it into Mr Tai’s account so that the monthly mortgage payments could be made.

  9. Mr Pech said that after about two years, he and Ms Lay agreed to borrow $40,000 to do some renovations on the house. After the additional money was borrowed, the mortgage payments according to Mr Pech went up to $2000 per month. Mr Pech said that for the next couple of years he gave Ms Lay $2000 in cash each month to put into Mr Tai’s account to make the monthly payments for the new mortgage, which he said was from the Commonwealth Bank.

  10. Mr Pech also said that Ms Lay held a card that gave her access to the bank account of Mr Tai from which the mortgage was paid, and that his mother used the card to make withdrawals from money that Mr Tai paid into the account, in order to purchase goods and services for herself.

  11. Mr Pech said that in early 2015 he found out that his credit rating had improved, because he was issued with a credit card that he had applied for. That led Mr Pech to believe that he could borrow to repay the mortgage taken out by Mr Tai, and have the title to the Property transferred to his own name. He told Ms Lay of his intention, and then organised to borrow $452,000 from Westpac. That would be enough to repay the existing mortgage of about $360,000, and also cover stamp duty and further renovations.

  12. When the title to the Property was transferred to Mr Pech, the old mortgage was repaid, and after the stamp duty was paid an amount of $69,347.43 was paid, according to Mr Pech, to Mr Tai.

  13. Mr Pech said that over a period of some weeks, Mr Tai made several payments into his account in instalments to enable him to pay for renovations to the Property. Mr Pech further said that additional monies were paid out of Mr Tai’s account directly to the builder. The cost of the new renovations, according to Mr Pech, was about $50,000. The building works consisted of an extension to the house, being the addition of a master bedroom and a bigger living room, the concreting of the backyard, and extending the garage as a granny flat. According to Mr Pech, the development application was submitted in the name of Mr Tai.

  14. Mr Pech claimed that he did a lot of the renovation work himself. He painted the interior of the house, he installed the new floorboards, and he painted the exterior of the extension and did some handyman jobs. Mr Pech said that he paid the builder in cash.

  15. A substantial forensic impediment to Mr Pech being able to prove that he made all of the cash payments to Ms Lay that he claims to have made is that there is no objective evidence that any of those payments were made. The PAYG payment summaries produced by Anderson Bros. for Mr Pech show that he was paid gross amounts of $6318, $20,800, illegible, illegible, illegible, $20,800 and $20,800 for the financial years up to 30 June 2016. It is likely that the $6318 was for part of the year, and that the illegible amounts were also $20,800. As $1500 per month gives a total of $18,000 per year, and the monthly payment of $2000 gives $24,000, these amounts of gross income were realistically insufficient to provide Mr Pech with the cash to pay to Ms Lay the amounts of cash that Mr Pech claimed he paid to her.

  16. Mr Pech’s income tax assessments were also in evidence and showed that his taxable income for the years commencing 30 June 2010 was $11,018 (2010), $20,505 (2012), $20,413 (2013), $20,401 (2014) $20,401 (2015) and $20,482 (2016).

  17. In cross-examination, Mr Pech claimed that in fact he earned about $50,000 a year. Mr Pech readily conceded, as the circumstances required him to do, that he filed false tax returns.

  18. It is difficult for the Court to reconcile this discrepancy, as Mr Pech’s employer declared on each PAYG payment summary that the information given in the form was complete and correct. The obvious consequence is that, for the Court to conclude that Mr Pech in fact earned about $50,000 per year, it can only do so on the basis of a finding that Mr Pech consistently lied to the ATO about his income. That is a blemish on Mr Pech’s credibility that the Court cannot ignore.

Analysis of Mr Tai’s bank statements

  1. In matters such as the present, the Court will always look to the objective evidence to provide as sound a basis as possible for the Court to determine which of the parties’ cases should be accepted.

  2. I propose to start by analysing the bank statements for Mr Tai’s Westpac account for the period between May 2010 and June 2013. Those bank statements record transactions for sequential months on Mr Tai’s Rocket Investment Loan Account and his Rocket Deposit Account. The first of those accounts was effectively the mortgage account out of which monthly payments were made to Westpac. The second account was an ordinary deposit account into which monies were paid and withdrawn, and payments made into the mortgage account to fund the mortgage payments.

  3. The parties were agreed that deposits made into the deposit account in Queensland were made by Mr Tai. Deposits made in Sydney, mostly at Cabramatta, were made by Ms Lay. From about December 2012, cash deposits in Queensland generally ceased, and instead electronic transfers described as “DEPOSIT CBA Westpac” were made. It was agreed that these transfers were made by Mr Tai. It was agreed that Ms Lay could make the deposits at places in Sydney because she had a card that enabled her to operate Mr Tai’s account. It was also agreed that most of the withdrawals that took place in Sydney were made by Ms Lay using Mr Tai’s card. It may be that these conventions are not entirely reliable, as Mr Tai spent some time in Sydney and may well have withdrawn some monies from his own account. There are also a small number of transactions recorded in the bank statements that do not appear to fit neatly into the parties’ convention as to how the accounts were operated. On 20 October 2010, $51,189.70 was paid into the account. On 26 October 2010, $30,000, and on 28 October 2010 $20,900 was paid out. I have ignored those payments as they are not explained. There was no cross-examination on the detail of the entries in Mr Tai’s bank statements.

  4. Even if the convention adopted by the parties is only accepted as reflecting an approximation of the significance of the transactions recorded in Mr Tai’s Westpac bank statements, they still throw considerable objective light on the relevant events.

  5. In the following table the entries under the heading “Period” set out the period (from a date in one month to a date in the following month) relevant to each bank statement. The entries under the heading “Queensland” give the monthly total for deposits made in Queensland and electronic transfers. Under the parties’ convention, these payments are assumed to have been made by Mr Tai. The equivalent entries under the heading “NSW” give the total of all deposits made in New South Wales, presumably by Ms Lay. The heading “Diff A” gives the monthly difference between the deposits by Mr Tai and those made by Ms Lay. The heading “Withdrawals” gives the monthly total of withdrawals from the account apparently made by Ms Lay in Sydney. The heading “Diff B” gives the monthly differences between the amounts deposited in Sydney and amounts withdrawn in Sydney, apparently by Ms Lay. As the parties’ convention may not be precisely accurate, and as there is some scope for error in compiling the analysis, I have generally rounded the figures to the nearest $50, or sometimes $25.

Period

Queensland

NSW

Diff A

Withdrawals

Diff B

5-6/10

1700

0

1700

100

(100)

6-7/10

1700

0

1700

100

(100)

7-8/10

1700

1400

300

1100

300

8-9/10

4800

0

4800

1600

(1600)

9-10/10

1200

850

350

200

650

10-11/10

3050

950

2100

1825

(875)

11-12/10

2300

1000

1300

1400

(400)

12-1/11

2950

0

2950

1300

(1300)

1-2/11

500

1900

(1400)

150

1750

2-3/11

1000

1000

0

1000

0

3-4/11

1250

1400

(150)

1100

300

4-5/11

1000

1500

(500)

500

1000

5-6/11

1000

2500

(1500)

950

1550

6-7/11

700

1150

(450)

200

950

7-8/11

2000

1500

500

1400

100

8-9/11

850

2300

(1450)

1300

1000

9-10/11

1800

1500

300

1650

(150)

10-11/11

2450

1500

950

1500

0

11-12/11

1400

1500

(100)

2100

(600)

12-1/12

1800

1500

300

1500

0

1-2/12

4500

1500

3000

2100

(600)

2-3/12

3400

1450

1950

1900

(450)

3-4/12

3650

900

2750

3350

(2450)

4-5/12

2700

1300

1400

2450

(1150)

5-6/12

4600

1150

3450

4000

(2850)

6-7/12

10,650

1400

9250

2100

(700)

7-8/12

2500

0

2500

7500

(7500)

8-9/12

12,000

0

12,000

2800

(2800)

9-10/12

1000

2000

(1000)

3000

(1000)

10-11/12

4200

0

4200

3700

(3700)

11-12/12

3300

1550

1750

4700

(3150)

12-1/13

2200

1000

1200

1050

(50)

1-2/13

3800

0

3800

2900

(2900)

2-3/13

2600

1800

800

2450

(650)

3-4/13

2750

1500

1250

2750

(1250)

4-5/13

3400

2150

1250

2900

(750)

5-6/13

200

0

200

450

(450)

Total

102,600

41,150

61,450

71,075

(29,925)

  1. I have tallied the total amount of mortgage payments made over this 37 month period at $64,183.96. The average monthly payment was therefore $1734.70 (sometimes no payment was deducted in a month, and two payments were deducted in the next month). Monthly payments of about $1700 over the first two years are significantly more than the $1500 per month that Mr Pech claimed was paid.

  2. Looking at the data on an overall basis, the total payments made into the account by Mr Tai of $102,600 were substantially more than the total mortgage payments of about $64,200. The total amount of the NSW payments of $41,150 was substantially less than the total amount of mortgage payments. The average of the NSW payments was about $1112 per month. That is substantially less than the $1500, and then $2000, that Mr Pech said that he gave to his mother in cash per month.

  3. While there were a significant number of deposits in New South Wales of amounts of about $1500, the payments were irregular and on many months either no deposits were paid, or the deposits were less than $1500. There were only eight months when the New South Wales deposits were greater than the Queensland ones. Importantly, the data for the Diff B column shows that in only nine of the months were the deposits in New South Wales greater than the withdrawals, and in two other months they were equal.

  4. The figures support a conclusion that it was the Queensland deposits and electronic transfers that consistently supported the mortgage payments and the New South Wales deposits would not have done so, even setting aside the fact that generally the New South Wales withdrawals were substantially more than the New South Wales deposits.

  5. While the analysis of Mr Tai’s Westpac account does not permit any conclusive judgment to be made, in my view on a strong balance it supports the plaintiffs’ case over that made by Mr Pech. The consistency of the Queensland deposits and transfers suggests that it was Mr Tai whose primary intent was to ensure that the account always had money to cover mortgage payments, plus a bit more to provide assistance to Ms Lay. The New South Wales deposits are not consistent with Ms Lay depositing $1500 or $2000 in cash each month, as the primary source for making mortgage payments. The somewhat irregular deposits and the greater but still irregular withdrawals in New South Wales are consistent with the account being used for day-to-day living purposes.

Consideration

  1. Documents issued by Centrelink show that Ms Lay received a tax exempt payment of $20,654 in 2015 and $21,975 in 2017. Ms Lay also said that she received support payments for her two daughters. As I understand Ms Lay’s evidence in cross-examination, she withdrew $600 from her account every two weeks that related to the support for her daughters. That would give a total of $15,600 per year. I am not confident that the evidence is sufficiently clear to enable a correct finding to be made about Ms Lay’s total income, and whether the two amounts should be added together to derive that total.

  2. As the total amount paid into Mr Tai’s account by Ms Lay over the 37 month period was about $41,150, that gives a total annual deposit of about $13,350. That is significantly less than the total amount of cash of $18,000 or $24,000 that Mr Pech says that he paid to Ms Lay over the period.

  3. Mr Tai’s bank statements for the period from June 2013 to the date when title to the Property was transferred to Mr Pech, 24 March 2015, are not in evidence. There is no reason to believe that the conduct of the parties changed significantly in this period, and no party attempted to prove that it did.

  4. I do not feel able to make any reliable finding about the amount of cash that Mr Pech may have given to Ms Lay over the whole of the period when the Property was registered in Mr Tai’s name. I am not inclined to accept that he gave his mother cash in the full amounts that he claimed. It is likely that he did give his mother some cash at least during the periods when he was living at the Property. Mr Pech may also have given Ms Lay some cash to contribute to the original deposit at the time the Property was first purchased by Mr Tai. I am inclined to prefer the evidence of Ms Lay and Mr Tai that at least the greater part of the deposit was provided by Ms Lay, but I cannot rule out that some of the cash that she had available was given to her by Mr Pech. Mr Tai gave evidence that Ms Lay provided him with $20,000 in cash, and he paid the balance of the deposit. Mr Tai tendered a receipt from the estate agent that appears to confirm that he paid the initial holding deposit of $1000 in cash, and that on 6 May 2010 he deposited $12,000 in cash into a Westpac account.

  5. It is not necessary for the Court to resolve this evidentiary dispute in a precise way, as the real point is that I am comfortably persuaded on the evidence that when the Property was first purchased it was not purchased on the basis that Mr Tai would hold the title on trust for Mr Pech. As I have said above, it is not clear whether Mr Tai held the title beneficially or whether he held it on trust for Ms Lay. I am strongly inclined to think that Ms Lay and Mr Tai did not direct their minds to this legal question in any specific way, and any mutual intention they had that the Property would become the home of Ms Lay and her children was probably only a general one, and not intended by either party to create a formal trust. If it were necessary for the Court to do so, I would have found that Mr Tai was the beneficial owner of the Property. It is not necessary, as Mr Tai has not formally put a case that he was the beneficial owner, and the real issue is to determine what the consequences were of the events in early 2015 that led to the title to the Property being put in Mr Pech’s name.

  6. As I have said above, Mr Tai obtained a valuation of the Property made by All Over Property Valuations Pty Ltd, as at 14 January 2015, of $550,000. The price in the contract for sale was $565,000. According to Mr Pech’s evidence, the amount required to pay out the existing mortgage was about $368,000, and the amount that Mr Pech borrowed from Westpac on the security of the Property was $452,000. The transfer took place on 24 March 2015. Mr Tai’s Commonwealth Bank statements show that, on 26 March 2015, an amount of $69,347.43 was paid into that account. Mr Pech agreed that that amount was the amount left of the money that he borrowed from Westpac, after paying out the prior mortgage, stamp duty and other costs.

  7. Thus, the only amount that Mr Tai received was the balance of the amount borrowed by Mr Pech from Westpac, which amounted to $69,347.43. Mr Tai was not paid the difference between the price of $565,000 and the amount of the Westpac mortgage of $452,000, which is an amount of $113,000.

  8. This, in my view, is the most significant factor in this case. Mr Pech was not required to pay the full price of $565,000, which was supported reasonably closely by a valuation. He was only required to pay to Mr Tai the amount that was left over out of the money that he could borrow from Westpac. I cannot conceive of any reason why Mr Tai would have intended to make a gift of $113,000 to Mr Pech. It is consistent with the plaintiffs’ case that Mr Tai would have wanted to make a gift of that amount to Ms Lay, as part of their arrangement following the end of their relationship.

  9. Furthermore, after the amount of $69,347.43 was paid into Mr Tai’s Commonwealth Bank account a series of transfers were made from that account into Mr Pech’s Westpac account. Payments of $5000 were credited to the Westpac account on 2 April, four payments on 7 April, 13 April and 15 April 2015. Additionally, an amount of $4030 was credited on 17 April 2015. This makes a total of $39,030. Mr Tai’s bank statements suggest that another two payments of $5000 each were made into Mr Pech’s account, but I have not been able to trace those payments into Mr Pech’s statements. It appears from Mr Pech’s bank statements that Mr Tai continued to transfer money to Mr Pech’s account: 26 May ($1000), 28 May ($200), 1 June ($200), 2 June ($1500), 3 June ($1200), 5 June ($200), 10 June ($300), 17 June ($1000), 22 June ($100), 24 June ($1200), 30 June ($1500), 8 July ($500), 13 July ($200) and 16 July ($1500). At about this time, Mr Pech and his partner moved out of the Property, and Mr Pech concedes that from this time all payments into the account to enable mortgage payments to be made were made by Mr Tai.

  10. The significance of these payments, which may be considered in an accounting sense to have been funded at least initially out of the $69,347.43, is the very fact that Mr Tai continued to make payments from his own funds into an account in the name of Mr Pech for the purpose of funding the Property. There is no basis for concluding that Mr Tai intended to make a gift to Mr Pech. These payments are therefore also consistent with the existence of an agreement that Mr Pech would hold the title to the Property, subject to the mortgage, on behalf of Ms Lay.

  11. Also relevant to this conclusion are the circumstances in which arrangements were made for further renovations to the Property. The plaintiffs called the project manager for the renovations, Dao Kounsavat, to give evidence. Mr Kounsavat gave evidence that he is a builder, who in late 2014 or early 2015 was asked by the plaintiffs to project manage and carry out some parts of the renovation of the Property. The total cost of the work was approximately $85,000. The plaintiffs initially paid Mr Kounsavat $15,000 in cash. Two additional payments of $5000 were made out of Mr Tai’s bank account on 24 May and 13 April 2015. Mr Kounsavat said in his affidavit that he received an additional amount of $5000 from Mr Pech’s bank account on 15 April 2015. He conceded in cross-examination that he had received a further $5000 from Mr Pech’s bank account on 17 June 2015. Mr Kounsavat also gave evidence that Ms Lay paid the concreter, Durable Concreting, $13,500 for the concrete slab.

  12. An analysis of Mr Pech’s Westpac bank statements shows that the source of Mr Pech’s two payments of $5000 to Mr Kounsavat was the money paid into the account by Mr Tai, as it appears that after withdrawals are taken into account in respect of payments into the account that may possibly not have been made by Mr Tai, the payments to Mr Kounsavat were made out of Mr Tai’s money.

  13. Again, the fact that the plaintiffs initiated the new renovations, and substantially paid for those renovations, supports the conclusion that the arrangement between the parties was that one of the plaintiffs, rather than Mr Pech, would be the beneficial owner of the Property.

  14. In cross-examination, Mr Kounsavat responded to a question as to whether Mr Pech helped him by doing work on a Sunday by saying that Mr Kounsavat only worked Monday to Friday. Mr Kounsavat conceded that he did not know who painted the house or installed the floorboards. He said that Mr Pech helped for maybe one or two hours installing the crossbeam. Mr Kounsavat did not receive any cash from Mr Pech.

  15. It will be remembered from above that Mr Pech claimed that he did a lot of the work required for the renovations himself, and that he paid Mr Kounsavat in cash. Mr Kounsavat’s evidence causes me to conclude that at the least Mr Pech has exaggerated his responsibility for, and participation in, the renovations.

Conclusion on beneficial ownership

  1. I conclude that when the title to the Property was transferred into Mr Pech’s name, it was the intention of all parties, as agreed orally between them, that Mr Pech would hold the ‘equity’ in the property on trust for Ms Lay. There was also an oral agreement that Mr Pech would pay the mortgage payments until Ms Lay’s circumstances changed, and she became able to finance the transfer of the title to the Property into her name. In fact, Mr Pech did not make any substantial payments towards the mortgage, although he may have given Ms Lay some amounts of cash for the short number of months before he and his partner moved out of the Property. In fact, the mortgage payments were substantially made by Mr Tai.

The illegality defence

  1. Mr Pech raised a defence that, even if the evidence otherwise satisfied the Court that he held the Property on trust for Ms Lay or Mr Tai, the Court should decline to make a declaration to that effect, or to make any consequential orders for the transfer of the title to the Property, because of certain illegal conduct that Mr Pech alleged his mother had engaged in. The issue may not be entirely clear, but as I understand the submissions as finally made on behalf of Mr Pech (as disclosed in his written submissions on illegality), the defence was put on the basis of illegal conduct rather than unclean hands.

  2. I have already mentioned above that this matter has proceeded upon the basis of the plaintiffs' amended summons, and no cross claim has been filed by Mr Pech. Accordingly, the issues in the case have not been pleaded at all. That has been an unfortunate course, but particularly so in relation to Mr Pech’s illegality defence.

  3. As a general principle, illegality must be pleaded clearly, specifically, and with detailed particulars: see for example Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) (2003) 214 CLR 514 at 534; [2003] HCA 25; Middleton v O'Neill (1943) 43 SR (NSW) 178 at 183-5; and Harry Goudias Pty Ltd v Akakios (2007) 97 SASR 93 at 99-100; [2007] SASC 81 at [26]. In the last-mentioned case, Gray J (Doyle CJ and David J agreeing) said (citations omitted):

[26] The finding of illegality cannot be sustained. The defendant did not plead the defence of illegality with adequate particularity and specificity.

…

[29] A party seeking to raise illegality should do so with particularity. Allegations of illegality and fraud must be pleaded clearly, specifically and with detailed particulars.

  1. In the present case, it appears that Mr Pech’s illegality defence emerged substantially at the hearing, from his pre-trial written opening, the submissions made on his behalf, and his final written submissions on this issue.

  2. That is a particularly unsatisfactory course in this case, because both of the plaintiffs have limited English and, as I have noted above, it was necessary for them to give their evidence through an interpreter. To my observation, as it often does, that process inhibited the ability of the plaintiffs to give their evidence with clarity. The matter was not aided by the fact that it became apparent during the hearing that the plaintiffs' affidavits had mostly been prepared in English without the benefit of formal interpretation. That had the result that the Court could not be confident that the English words used by the plaintiffs in their affidavits precisely conveyed the meanings intended by the plaintiffs.

  3. In my view that is a significant matter given that the test in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 must be satisfied before a finding of illegality could be warranted.

  4. Mr Pech went so far as to submit that, if his defence of illegality was not accepted by the Court, the Court should not grant the relief sought by the plaintiffs without imposing a condition that Ms Lay first make a disclosure to Centrelink, and then pay whatever amounts are required by Centrelink to remedy the consequences of her unlawful conduct. While that may be a proper course for the Court to take in an appropriate case, it may be observed that this was a very aggressive submission for Mr Pech to make against his mother.

  5. For the reasons that follow, I reject Mr Pech’s defence based upon illegality, and will make appropriate orders as sought by the plaintiffs without imposing a condition of the form sought by Mr Pech.

  6. It is necessary first to identify the conduct relied upon by Mr Pech as having given rise to the illegality.

  7. That conduct consisted of the completion and delivery to Centrelink by Ms Lay of a Claim for Disability Support Pension or Sickness Allowance dated 23 September 2009, in which Ms Lay represented that she did not have a partner, and did not disclose Mr Tai as being her partner. Further, Ms Lay did not subsequently advise Centrelink that Mr Tai was her partner. Ms Lay also provided information to Centrelink on 15 June 2010, 8 October 2014, 5 October 2015 and 14 October 2015 on a form described as a Rent Certificate, in which she claimed that she had been living at the Property since 27 May 2010, that the landlord of the property was Mr Tai (with an address in Queensland), and that Ms Lay had been paying to Mr Tai sums of rent between $300 per week and $480 per week. The Court is asked to infer, as is probably the case, that Ms Lay received what is called Rent Assistance under Chapter 3, Part 3.7 of the Social Security Act 1991 (Cth) as a result of delivering these forms to Centrelink.

  8. As I understand it, Mr Pech alleged that the conduct was illegal on the basis that Ms Lay ought to have disclosed her relationship with Mr Tai as being one that would have justified the Secretary of the Department of Social Services in forming the opinion that Ms Lay was a “member of a couple” for the purposes of s 4 of the Social Security Act, with the consequence that, under s 547D, Mr Tai’s assets would have been included for administrative purposes within Ms Lay’s assets, with the result that, for the purposes of s 1046, Mr Tai’s income would have been included when determining the rate of disability support pension for Ms Lay. Mr Pech also alleged that Ms Lay’s entitlement to Rent Assistance under s 1070B of the Social Security Act would have been determined on the basis that she was a member of a couple or (if she was in reality the beneficial owner of the Property) on the basis that she was a homeowner. This would have reduced or negated Ms Lay’s entitlement to receive Rent Assistance. Mr Pech submitted that Ms Lay’s conduct involved the commission of offences under Division 2 of Part 6 of the Social Security (Administration) Act 1999 (Cth), or s 135.2 of the Commonwealth Criminal Code, for which ordinarily custodial sentences should be imposed.

  1. These allegations call for a number of responses.

  2. First, Mr Pech did not submit that the title to the Property was initially put into Mr Tai's name, or subsequently put into Mr Pech’s name, in order to provide a foundation for Ms Lay to obtain benefits from Centrelink by misleading Centrelink about her true position. Such a submission could not in any event be sustained. The evidence of the plaintiffs was that the property was initially purchased in Mr Tai's name, because Ms Lay's income was insufficient to give her any hope of borrowing the balance of the purchase price in her own name. Later, after the relationship between the plaintiffs changed, the decision was made that the title to the Property would be transferred to Mr Pech, because he was the only one of Ms Lay's children who was an adult, and in receipt of income. That explanation by the plaintiffs of the reason why the title to the Property was dealt with as it was was not challenged by Mr Pech.

  3. Consequently, whether or not Ms Lay misled Centrelink in some way in connection with her receipt of income or rent support, had nothing to do with the reason why Mr Pech ultimately was made the registered proprietor of the Property.

  4. In any event, it is not clear that Ms Lay has claimed in these proceedings that she was strictly the beneficial owner of the Property during the period that Mr Tai was its registered proprietor. It is clear that it was the plaintiff's case that the Property was bought in order to be the home of Ms Lay and her children, but I am not satisfied that the evidence establishes that there was an actual intention that Mr Tai hold the Property on trust for Ms Lay (even putting aside any question that may have arisen concerning the validity of such a trust in the absence of any sufficient writing recording its creation). Both plaintiffs said in evidence that Mr Tai initially purchased the Property in his name, with the assistance of Ms Lay in respect of $20,000 as part of the deposit, with the intention that it would be Ms Lay’s home, but that is a far cry from the plaintiffs forming an intention that Ms Lay would actually be the beneficial owner of the Property. Accordingly, I am not satisfied that any conduct on Ms Lay's part that was inconsistent with her being the beneficial owner of the Property would necessarily be misleading.

  5. Further, although it may be that in these proceedings Ms Lay makes a claim that the Property should be held on trust for her, until judgment is given that claim will not be made out. Given the manner in which the hearing was conducted, I would hesitate to make any positive finding that Ms Lay has acted in a misleading way by not referring to herself as the owner of the Property during the period when Mr Pech has been the registered proprietor of the Property and has claimed to be the beneficial owner of it.

  6. It is true that both plaintiffs described their relationship as being a "de facto" one during most of the period when Mr Tai was the registered proprietor of the Property. That expression was used in the affidavits that they prepared in the English language. While it may be the case that the plaintiffs were in what the law would consider to be a de facto relationship, the evidence does not clearly support that conclusion. Plainly, the plaintiffs were in a close relationship that subsisted for over 10 years. The fact that Mr Tai bought the Property primarily for the benefit of Ms Lay, that he paid most of the interest payments on the mortgage, and that he subsidised her living expenses, is evidence that tends to support the existence of a de facto relationship. However, although the plaintiffs accepted that Mr Tai lived with Ms Lay when he was in Sydney, a very strong impression is gained from a close analysis of Mr Tai's bank statements, for the period in which those statements are available, that Mr Tai spent a very high proportion of his time in Queensland. Month after month the bank statements show the making of weekly payments into the account from places in Queensland.

  7. Ms Lay claimed that her relationship with Mr Tai was really one of boyfriend and girlfriend. The real point is, however, that in my view the precise basis of the alleged illegality was not exposed during the hearing, and was not examined with the precision that was necessary before the Court could comfortably make a finding that Ms Lay had engaged in illegal conduct. Ultimately, that would depend upon the precise issues that arise under the Social Security legislation, and not the simple question of whether, at relevant times, the plaintiffs were in a de facto or some lesser relationship.

  8. Even if it be assumed that Ms Lay filled out applications to Centrelink for rent support on the basis that she was renting the Property from Mr Tai during the period that he was its registered proprietor, and even though (as strongly appears to be the case) for most of that period Mr Tai was subsidising Ms Lay's living expenses, that is not in my view conduct that has any relevance to the circumstances in which the title to the Property was transferred into the name of Mr Pech.

  9. Further, if Ms Lay did mislead Centrelink in a way that caused her to receive disability payments to which she was not in entitled, any misrepresentations concerning her income did not have any relevant connection with the issue of who was the beneficial owner of the Property.

  10. However, the ultimate reason why I reject Mr Pech’s defence is that the alleged illegality did not have an "immediate and necessary relation" to the beneficial ownership of the Property, or the entitlement of the plaintiffs to the relief that they claim, within the principle in Dering v Earl of Winchelsea (1787) 1 Cox Eq 318 at 319; 29 ER 1184 at 1185. Accordingly, even if the illegality alleged had been established, it would not have justified the Court in declining the relief sought by the plaintiffs. There would not have been the necessary nexus between the illegality and the equities sued for.

  11. This requirement is sufficiently established by the decision of the High Court in Nelson v Nelson (1995) 184 CLR 538; [1995] HCA 25 per Dawson J at 581, Toohey J at 587 and McHugh J at 611 to 613. See also the decision of the Court of Appeal in REW08 Projects Pty Ltd v PNC Lifestyle Investments Pty Ltd (above).

  12. In my view it is not necessary to analyse the authorities that considered the question of when the presence of illegality will justify the refusal of the relief sought, because in this case, not only is the illegality not sufficiently established, but also it has no real connection at all with the beneficial ownership of the Property, and in particular the circumstances in which the title to the property was placed into the name of Mr Pech.

Orders concerning beneficial ownership

  1. I am therefore satisfied that the plaintiffs have established their entitlement to the relief claimed in relation to the beneficial ownership of the Property. I understand that the plaintiffs seek an order that Mr Pech transfer the title to the Property to Mr Tai. As I understand it, that course is proposed because no order for the transfer of the property could be performed until such time as Mr Tai has been able to secure a new mortgage to pay out the mortgage that is presently secured on the Property in Mr Pech's name.

  2. The best course will be for the Court to give to the plaintiffs an opportunity to consider these reasons for judgment, and to propose appropriate short minutes of order to deal with the issue of the title to the Property.

Unauthorised payments

  1. I am also satisfied that the plaintiffs have made out their case, on the balance of probabilities, that Mr Pech was not authorised to make the deductions of $15,537 and $1576.49 that he made from his own account on 27 July 2015, immediately before he and his partner moved out of the Property. An analysis of the Westpac bank statements for the account shows that almost all of the deposits that were made into the account were made by Mr Tai. There were various descriptions of those payments by Mr Tai, but as I understand it, Mr Pech did not assert that he paid any monies into the account by electronic transfer. In fact, Mr Pech did not claim that he deposited any monies into the account by cash deposit, but rather he said that he gave cash to Ms Lay for that purpose. There are ATM deposits at Cabramatta of $1000 on 2 April 2015, $1000 on 18 May 2015, $500 on 8 June 2015 and $400 on 23 June 2015, making a total of $2900. However, cash withdrawals were also made at Cabramatta. On my analysis of Mr Pech’s bank statements, 16 cash withdrawals of $1000 each were made between 13 April and 16 July 2015, and a further total of $3220 was withdrawn in eight further transactions of different amounts. That makes a total of $19,220. In carrying out this analysis I have ignored a number of other withdrawals that were not made in cash at Cabramatta.

  2. The evidence justifies a conclusion that, even if Mr Pech provided some amounts of cash to Ms Lay after the transfer of the Property to his name, the total amounts that were paid into Mr Pech’s account were relatively small in total, and were substantially outweighed by the payments that were withdrawn in cash. I am satisfied that the Court should accept the evidence of the plaintiffs that, by July 2015, the balance in the account was represented by deposits made by Mr Tai, and that Mr Pech had no authority to withdraw any money from the account to use for his own purposes. Accordingly, Mr Pech is obliged to repay that money to Mr Tai, with interest.

Costs

  1. In addition, Mr Pech should be ordered to pay to the plaintiffs the costs of these proceedings.

  2. The plaintiffs should prepare short minutes of order to give effect to these reasons for judgment, including as I have said above, appropriate orders concerning the beneficial ownership of the Property, and the transfer of title to the property in conjunction with the refinancing of the present mortgage. The short minutes should be discussed with the legal representatives of Mr Pech. If agreement can be reached, I will make appropriate orders in chambers. If not, the matter can be relisted by approaching my associate. It would be desirable if final orders could be made within 14 days.

**********

Decision last updated: 23 April 2018

Actions
Download as PDF Download as Word Document
Cases Citing This Decision

5

Maroubra Road Developments Pty Ltd v Afyouni [2019] NSWSC 1639
Lay v Pech (No 3) [2019] NSWSC 91
Lay v Pech (No 2) [2018] NSWSC 1449