Lopatinsky v Official Trustee in Bankruptcy, in the matter of Lopatinsky

[2003] FCA 1256

FEDERAL COURT OF AUSTRALIA

Lopatinsky v Official Trustee in Bankruptcy, in the matter of Lopatinsky
[2003] FCA 1256

BANKRUPTCY – application to set aside s139ZS notice issued on behalf of official receiver – cross-claim by trustee seeking repayment of an amount transferred to the applicant by the bankrupt – payment to wife by husband on failure of marriage - financial and non-financial contributions to property – whether a constructive trust in operation – where significant difference in contributions.

Bankruptcy Act 1966 (Cth), ss 120, 139ZS

Baumgartner v Baumgartner (1987) 164 CLR 137 referred to
Muschinski v Dodds (1985) 160 CLR 583 referred to
Parij v Parij (1997) 72 SASR 153 referred to

IN THE MATTER OF WLADIMIR LOPATINSKY

MARGARET GRACE LOPATINSKY v OFFICIAL TRUSTEE IN BANKRUPTCY

N 7433 of 2001

MOORE J
6 NOVEMBER 2003
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7433 OF 2001

IN THE MATTER OF WLADIMIR LOPATINSKY

BETWEEN:	MARGARET GRACE LOPATINSKY APPLICANT & CROSS RESPONDENT
AND:	OFFICIAL TRUSTEE IN BANKRUPTCY RESPONDENT & CROSS CLAIMANT
JUDGE:	MOORE J
DATE OF ORDER:	6 NOVEMBER 2003
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.        The cross-claim of the Official Trustee in Bankruptcy be dismissed.

2.The notice given to the applicant under s 139ZQ of the Bankruptcy Act 1966 (Cth) on 8 June 2001 be set aside.

3.        The Official Trustee in Bankruptcy pay the applicant’s costs.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7433 OF 2001

IN THE MATTER OF WLADIMIR LOPATINSKY

BETWEEN:	MARGARET GRACE LOPATINSKY APPLICANT & CROSS RESPONDENT
AND:	OFFICIAL TRUSTEE IN BANKRUPTCY RESPONDENT & CROSS CLAIMANT

JUDGE:	MOORE J
DATE:	6 NOVEMBER 2003
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1. On 26 September 2001, the applicant applied, pursuant to s 139ZS of the Bankruptcy Act 1966 (Cth) (“the Act”), to set aside a notice (“the notice”) served on her on 8 June 2001 by the Official Trustee in Bankruptcy (“the Trustee”). The Trustee is presently administering the estate of Wladimir Lopatinsky (“the bankrupt”) who is the applicant’s ex-husband. The Trustee sought, by way of cross-claim, orders under s 120 of the Act. The factual circumstances in which these issues arose were surveyed in my reasons for judgment given on 11 July 2002: see Lopatinsky v Official Trustee in Bankruptcy, in the matter of Wladimir Lopatinsky (2002) 29 Fam LR 274. I will not repeat findings of fact I then made, but they are findings by reference to which I will decide this application subject to what is said later in these reasons.

2. In giving judgment on 11 July 2002 I made the following orders:

   1.The notice given to the applicant under s 139ZQ on 8 June 2001 be set aside.

   2.        The cross-claim of the respondent be dismissed.

   3.The respondent pay the applicant’s costs.

3. The Trustee appealed against this judgment. The Full Court allowed the appeal in part: see [2003] FCAFC 109. On 30 May 2003 the Full Court made the following orders:

   1.The appeal be allowed in part.

   2.The orders made by the learned primary Judge on 11 July 2002 be set aside.

   3.The matter be remitted to the primary Judge for further hearing in accordance with these reasons. 

   4.There be no order as to the costs of the appeal.

   The judgment of the Full Court

4. In the appeal, the applicant was granted leave to file a notice of contention. The notice sought to address the issue of whether there was a transfer of property within the meaning of s 120.  This matter was not dealt with in my earlier judgment.  The notice of contention was in the following terms:

   The Respondent contends that the decision of Moore J below should be affirmed on the following grounds:

   1.The respondent was entitled, in any event, in the circumstances which occurred to an interest under a resulting trust, or a constructive trust, over the proceeds of the sale of the Peakehurst [sic] Property which was at least as large as the sum which she received from the settlement proceeds of the property; and

   2.The respondent was entitled upon severance of the joint tenancy over the property by its sale to a share in the proceeds in the proportion agreed between her and Mr Lopatinsky.

5. In the result, the applicant did not succeed entirely on her notice of contention.  However the Full Court did address, in part, the interests of the applicant in equity.  Their Honours said (at [113] to [121]):

   The Peakhurst property was purchased with contributions from the parties of the net proceeds of sale of the Kogarah home.  The balance of the purchase price was obtained from moneys advanced on the security of a mortgage on which both Mr and Mrs Lopatinsky were liable.

   In order to determine what, in equity, was Mrs Lopatinsky’s contribution to the purchase of the Peakhurst property, it is necessary to ascertain the extent of her equitable interest in the net proceeds of sale of the Kogarah property.

   Although Mrs Lopatinsky provided the whole of the cash component of the purchase price of the Kogarah property, the balance was also secured on a mortgage on which the husband and wife were liable.  The payments made by Mrs Lopatinsky toward the mortgage instalments on the Kogarah home could not have brought about any alteration in the equitable interests of the parties in that property which they would have had as a consequence of the implication of a resulting trust; see Calverley v Green per Mason and Brennan JJ at 262. 

   However, if Mrs Lopatinsky made disproportionate contributions to the payment of mortgage instalments without intending Mr Lopatinsky to have the benefit of those payments, she may have been entitled to contribution in equity for her share of the payments and a charge to secure her equitable entitlement; see Calverley v Green per Mason and Brennan JJ at 263.

   There was nothing in the evidence which was capable of giving rise to any suggestion that Mrs Lopatinsky intended to make a gift to Mr Lopatinsky of her payment of $17,000 in cash.  Clearly enough, there was no presumption of advancement in favour of her husband.

   Thus, the extent of Mrs Lopatinsky’s equitable interest in the Kogarah home at the time of purchase was the proportion calculated by adding her cash contribution of $17,000 to the contribution obtained from her share of the joint borrowing on Kogarah, ie $22,500 and applying that to the purchase price of $62,000.  Accordingly, her interest was in the order of 64%.

   The position in equity therefore was that Mrs Lopatinsky contributed 64% of the net proceeds of sale of the Kogarah property (ie 64% of $82,000 = approximately $52,500) to the purchase of the Peakhurst property.  To this must be added her share of the sum raised on mortgage when the Peakhurst property was purchased, ie $22,500.  Her contribution to the purchase price of Peakhurst was therefore $75,000.  Applying the principle stated at [107], the title to the Peakhurst property was held on a resulting trust for Mr and Mrs Lopatinsky as tenants in common as to approximately 60% for Mrs Lopatinsky and 40% for her husband.

   It is possible that Mrs Lopatinsky had an additional equitable interest in the Peakhurst property to reflect an equitable entitlement to contribution, supported by a charge, for her payment of $3,500 toward the cost of renovation of the Kogarah home.  This would depend upon whether she made the payment intending Mr Lopatinsky to take the benefit of it.  It seems unlikely that she intended to confer such a benefit on him.

   The precise quantification of Mrs Lopatinsky’s equitable interest in the Peakhurst property arising from the implication of a resulting trust and the application of an equitable charge is not easy to calculate.  This is because the renovations would no doubt have been responsible for some part of the accretion in value of the Kogarah property which was then applied toward the acquisition of the Peakhurst property.  Double counting would have to be avoided.  It is unnecessary to try to do the mathematics.  On any view, the doctrine of resulting trust and the additional equity flowing from the contribution of $3,500 did not give rise to an equitable interest on Mrs Lopatinsky’s part of 81% of the Peakhurst property.  Her interest on this basis was in the order of 60% to 65%.

6. The Full Court then went on to pose in effect, the question that is now raised for consideration.  Their Honours said (at [123] to [129]):

   The question which then arises is whether Mrs Lopatinsky’s 60% to 65% equitable interest in the Peakhurst property is to be increased to an amount of at least 81%.  This could occur in two ways.  First, as we said at [111], she may have been entitled to contribution in equity for her share of the additional mortgage payments.  Second, it may be possible to approach the matter upon the basis that a share of the property in excess of her prima facie legal entitlement of 50% was held on trust for her under a constructive trust.

   On either of these two alternatives, it would be necessary to determine the proportion of the mortgage payments made by Mrs Lopatinsky.  That was not a matter which was pursued at the trial. 

   It is clear on the findings made by his Honour that Mrs Lopatinsky supplied the majority of the household funding.  It is true that His Honour’s finding which we have set out at [59] as to the value of Mrs Lopatinsky’s contribution “to the marriage and the matrimonial property” was directed at the criteria for a property adjustment order under s 79 of the Family Law Act.  It is also true, as his Honour said, that no attempt was made to quantify with precision the value of Mrs Lopatinsky’s contributions whether to the matrimonial property (which would by implication include her contributions to the mortgage payments) or the marriage.

   Nevertheless, it seems to us to follow from his Honour’s findings that it would be open to us to conclude that Mrs Lopatinsky made substantially in excess of 50% of the mortgage payments.  She did so as a matter of necessity because Mrs Lopatinsky was in paid employment for most of the marriage whereas Mr Lopatinsky was not.  She also had a good deal of financial assistance from her parents.  Mr Lopatinsky does not appear to have had any such assistance, and on his Honour’s findings, he had a propensity to squander funds for his sole benefit. 

   However, the difficulty in considering this issue on appeal is that neither his Honour’s findings nor the evidence on this issue is sufficiently clear for us to be able to determine with any degree of precision the percentage of the mortgage payments which Mrs Lopatinsky made.

   All that we can say is that she made a disproportionate share of the payments and that there is nothing to suggest that she carried that burden intending Mr Lopatinsky to have the benefit of it.  Thus, in our opinion, Mrs Lopatinsky had an entitlement in equity to contribution for her share of the mortgage payments in excess of her 50% liability and an equitable charge to secure it. 

   In our view, unless we can be satisfied that Mrs Lopatinsky had an 81% interest in the Peakhurst property by virtue of the imposition of a constructive trust, the appropriate course is to remit the matter to the primary judge for him to determine the question of the precise quantification of Mrs Lopatinsky’s equitable interest.

   The Full Court was not satisfied as to the last matter.  That is, it was not satisfied the applicant had an 81% interest in the Peakhurst property by virtue of the imposition of a constructive trust.

   The further hearing on remitter

7. Following the judgment of the Full Court, there was a further hearing (after Court annexed mediation had not resolved the matter) and further evidence was led by both the applicant and the Trustee.  Having regard to that evidence, I make the following findings which are in addition to, or qualify, the findings made already in the proceedings.

8. It is convenient to commence by considering the Peakhurst property.  It is to be recalled that the Full Court indicated that a calculation could be made leading to a conclusion that the applicant’s equitable interest (as a result of a resulting trust) in the Peakhurst property was in the order of 60% to 65%.  This was based on, inter alia, the applicant’s share of the proceeds of the sale of the Kogarah property arising from her interest in that property which were then used to purchase the Peakhurst property.  In the evidence she gave at the first hearing, the applicant said that the Peakhurst property was purchased for $127,000 using $45,000 borrowed under a mortgage and the proceeds of the sale of the Kogarah property.  The net proceeds of the sale of the Kogarah property were $82,000.  However in her more recent evidence, the applicant said that her parents gave her $12,500 to assist in the purchase of the Peakhurst property and paid $2,935 for the stamp duty.  This later evidence does not sit comfortably with the earlier evidence.  However, this later evidence was not objected to and was not challenged in cross-examination.  Perhaps the answer lies in the applicant having given greater attention to financial matters in her second and more recent affidavit having regard to the judgment of the Full Court.  I accept her more recent evidence. The gift from her parents which formed part of the purchase price represented almost 10% of that price.  It would appear to follow that the equitable interest in the Peakhurst property (as a matter of resulting trust) could probably be put closer to 70% (if not a little more).

9. It is to be recalled that the Peakhurst property was purchased in May 1988.  The import of the evidence the applicant gave at the first hearing was that the bankrupt was then working at Kerr Bros, but in June 1988 (shortly after the purchase) he resigned and commenced working for his father as an import/export agent.  Her more recent evidence was that the bankrupt lost his job with Kerr Bros in about October 1988 and, until March 1991, when the family went to France, the bankrupt was on unemployment benefits.  Again this more recent evidence was not objected to nor challenged by way of cross-examination.  The import of the applicant’s earlier evidence was that the bankrupt commenced working for his father, travelled in the South Pacific incurring considerable expenses and at least by December 1989 (when their third child was born and the applicant stopped performing secretarial work for the business) was showing little commitment to the business and was spending much of his time attending long lunches and drinking.  The import of the applicant’s earlier evidence also was that the bankrupt made little or no money (at least by way of net income) from the business.

10. The applicant’s later evidence was that until the birth of the third child she had been receiving $760 per month from part-time secretarial work, house cleaning and Social Security benefits and after the birth of the third child, only $112 per month family allowance.  Her evidence also was that she and the bankrupt fell behind in mortgage repayments and other household expenses and her parents helped out by giving her money to pay the mortgage and other bills.  The applicant’s mother’s evidence (given at the hearing after the matter was remitted to me by the Full Court) was corroborative of this account, and she said that she and her husband made frequent gifts of money to the applicant to enable her to make mortgage repayments and other expenses.

11. Based on this evidence I find that within months of the purchase the Peakhurst property, the bankrupt ceased to be in regular remunerative employment and took up working for his father, which increasingly was only nominally a job.  His contribution to the household income was from that time negligible and, to the extent that mortgage payments were being met, they were being met initially by the applicant alone and later with assistance from her parents.  It is also probable that from at least October 1988 the bankrupt made no contributions towards the mortgage repayments.  It is also probable that in this period between the purchase of the Peakhurst property and the family travelling to France, the overwhelming preponderance of the non-financial contribution towards the maintenance and support of the home was made by the applicant.

12. When the applicant and the bankrupt were in France together between March 1991 and March 1992, the mortgage payments for the Peakhurst property were satisfied by rental income.  It is to be recalled, however, that this rental income was from a property in which, at the time of its purchase, the applicant had a larger equitable interest than the bankrupt under a resulting trust.

13. The applicant returned to Australia in March 1992 though the bankrupt remained in France.  He returned in August or September 1992.  In the period the applicant was in Australia with her family by herself, she made the mortgage repayments either directly or indirectly with the assistance of her parents.  Also in this period the applicant would have made effectively all non-financial contributions to the maintenance of the family home.  After the bankrupt returned to Australia and until he took up employment with Westpac in October 1993, the bankrupt was on unemployment benefits and the applicant either directly or indirectly continued with the mortgage repayments.  Having regard to his prior and later behaviour, is probable that from his return until October 1993 the bankrupt made little or no non-financial contribution to the maintenance of the family home and that burden fell on the applicant.

14. Between October 1993 and April/May 1995, the bankrupt was in regular remunerative work.  The mortgage repayments were made by him out of a bank account he maintained.  During this period the bankrupt and the applicant increased the mortgage debt by $20,000 to pay for renovations to the Peakhurst property.  However, while the mortgage repayments were made out of the bankrupt’s account, that account was augmented by payments from the applicant.  Again it is probable that during this period the bankrupt made little or no non-financial contribution to the maintenance of the family home and that burden fell on the applicant.

15. The bankrupt ceased working (other than perhaps nominally whilst on workers compensation) with Westpac in April/May 1995.  He then fell into a psychological decline and consumed substantial amounts of alcohol and smoked marijuana on a daily basis.  He either stayed at home or attended the local bowling club.  Again the applicant either directly or indirectly made the mortgage repayments though the mortgage fell into arrears.  Again it is probable that in this period and until the bankrupt and the applicant separated, the bankrupt made little non-financial contribution to the maintenance of the family home.

16. I have little doubt that, in these circumstances, the principle in Baumgartner v Baumgartner (1987) 164 CLR 137 would operate, as the Full Court suggested it might, to erect a constructive trust in relation to the Peakhurst property against the asserted interest of the Trustee when assuming the position of the bankrupt. It was recognised in Baumgartner v Baumgartner (at 150) that contributions both financially or in kind can be called into account. As Deane J noted in the earlier case of Muschinski v Dodds (1985) 160 CLR 583, the indirect contribution of one party can take the form of support, home-making and family care. The applicant provided all of these things in large measure in addition to her financial contribution. As Debelle J noted in Parij v Parij (1997) 72 SASR 153 at 166, substantial and not token regard should be had to the contribution of a partner who is the home maker and care giver. I should note that in that matter, the members of the Full Court identified, by a mechanism involving no particular exactitude, the interest in a constructive trust of the former de facto wife (in property, the legal title of which was vested in the former de facto husband) as one fifth (Cox and Millhouse JJ), on the one hand, and one-third (Debelle J) on the other. In the present case the applicant, with the assistance of her parents, overwhelmingly assumed the role, in relevant respects, as the provider of funds as well as the home maker and care giver.

1. I am confident that the interest which should be attributed to the applicant in the constructive trust just discussed exceeds the 81% identified by the Full Court.  If it was necessary to specify the respective interests under the constructive trust, I would conclude that the interests of the applicant and the bankrupt were 85% and 15% respectively.  It is to be remembered that in the ten-year period May 1988 to October 1998 there was only one period of a little over a year and a half in which the bankrupt was probably making a significant financial contribution (from his income) to the mortgage repayments and for the remainder of that period it was the applicant with the assistance of her parents who met the mortgage repayments (except for the period when the mortgage was met by the rent) though, as noted, the payments did fall into arrears.  It is also to be remembered that in the ten-year period the bankrupt made virtually no non-financial contributions to the maintenance of the family home whereas the applicant made virtually the entire contribution of that character.  During the one and a half year period when the bankrupt was making the mortgage repayments from his income (but supplemented by payments from the applicant) the applicant was providing the domestic support to enable him to earn that income.  It would be appropriate to treat the non-financial contribution of the applicant during that period as at least equal to the financial contribution of the bankrupt.

2. For the above reasons, I will dismiss the application of the Trustee and I will set aside the notice.  There was an issue about what costs order should now be made.  The applicant sought indemnity costs on the basis that an earlier offer of compromise had been rejected.  However less than a month after the offer was made (assuming, for present purposes, it can be treated as an offer to compromise these proceedings), it was withdrawn.  A case has not been made out for an indemnity costs order.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.

Associate:

Dated:            6 November 2003

Counsel for the Applicant:	L Aitkin
Solicitor for the Applicant:	TRB Lawyers
Counsel for the Respondent:	P Walsh
Solicitor for the Respondent:	Sally Nash & Co
Date of Hearing:	9 October 2003
Date of Judgment:	6 November 2003