McKinlay v Woods

[2024] NSWCA 122

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

McKinlay v Woods [2024] NSWCA 122

Hearing dates:

20 March 2024

Decision date:

24 May 2024

Before:

Leeming JA at [1];
White JA at [146];
Griffiths AJA at [147]

Decision:

1. To the extent necessary, grant leave to appeal.

2. Appeal allowed in part.

3. In respect of the orders made on 28 July 2023, set aside part of order 1 namely, “AND the Plaintiff’s contributions shall be indexed at the rate of %6.46 per annum (compounded) from the date on which those contributions were paid until 9 December 2019”, and order 2.

4. Direct the parties to file and serve, within 21 days of today, agreed short minutes of order or, in default of agreement, proposed short minutes of order and short submissions not exceeding 5 pages in support of the orders for which they contend, with a view to this Court making final orders resolving this appeal on the papers.

5. No order as to the costs of the appeal, with the intention that the parties bear their and her own costs.

Catchwords:

EQUITY – constructive trust – failed joint endeavour – property acquired by one sister and her son using borrowed funds secured by mortgage – purpose of acquiring property was to provide a home for another sister following breakdown of her marriage – sister lived in home, paid outgoings and paid “rent” roughly equivalent to mortgage repayments – sister also paid $160,000 in reduction of principal from proceeds of her divorce settlement – whether primary judge erred in finding that sister and her son held property on constructive trust for themselves and other sister in equal shares after the payment of their respective relevant contributions – whether primary judge erred in assessing the quantum of the parties’ contributions – whether primary judge erred in finding “mutual understanding” that sister had an undefined interest in property – whether primary judge erred in finding son was nominee of his mother – whether primary judge erred in indexing the sister’s capital contribution of $160,000

Legislation Cited:

Supreme Court Act 1970 (NSW), s 101

Uniform Civil Procedure Rules 2005 (NSW), r 36.16

Cases Cited:

Anson v Anson [2004] NSWSC 766

Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11

Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566; [1998] HCA 59

Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59

Bosanac v Federal Commissioner of Taxation (2022) 275 CLR 37; [2022] HCA 34

Calverley v Green (1984) 155 CLR 242; [1984] HCA 81

Galati v Deans [2023] NSWCA 13

Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10

Green v Green (1989) 17 NSWLR 343

Koprivnjak v Koprivnjak [2023] NSWCA 2

Lee v Lee (2019) 266 CLR 129; [2019] HCA 28

Lloyd v Tedesco (2002) 25 WAR 360; [2002] WASCA 63

Morris v Morris [1982] 1 NSWLR 61

Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78

NSW Trustee and Guardian v Togias (2022) 110 NSWLR 86; [2022] NSWCA 225

Shepherd v Doolan [2005] NSWSC 42

Watson v Foxman (1995) 49 NSWLR 315; [1995] NSWCA 497

West v Mead [2003] NSWSC 161; 13 BPR 24,431

Woods v McKinlay (No 2) [2021] NSWSC 1510

Woods v McKinlay (No 3) [2023] NSWSC 489

Zekry v Zekry [2020] VSCA 336

Zhang v Metcalf [2020] NSWCA 228

Category:

Principal judgment

Parties:

Orlene Bernadette McKinlay (First Appellant)
David Matthew McKinlay (Second Appellant)
Antoinette Woods (Respondent)

Representation:

Counsel:
J Horowitz (Appellants)
SJ Stanton (Respondent)

Solicitors:
Beswick Lynch Lawyers (Appellants)
Arch Law (Australia) Pty Ltd (Respondent)

File Number(s):

2023/265769

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity

Citation:

[2021] NSWSC 1510; [2023] NSWSC 489

Date of Decision:

23 November 2021; 28 July 2023

Before:

Parker J

File Number(s):

2019/263271

JUDGMENT

1. LEEMING JA: Ms Orlene Bernadette McKinlay and her son, Mr David Matthew McKinlay, appeal from judgments of the Equity Division of this Court declaring that they held their legal interest in residential land at Evans Road in Telopea in suburban Sydney upon constructive trust for the respondent, Ms Antoinette Woods, and themselves, on the basis of the breakdown of a joint endeavour in accordance with the principles in Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78. Without conveying any informality or disrespect, I shall adopt the style of the parties’ written and oral submissions and refer to the parties as Orlene, David and Antoinette. Orlene and Antoinette are sisters; David is Antoinette’s nephew.

2. The reasons for judgment upholding the constructive trust were delivered in November 2021 after a six day trial in July, September and October of that year: Woods v McKinlay (No 2) [2021] NSWSC 1510. Subsequently the Telopea property was sold, and the way in which Antoinette’s contributions should be indexed was resolved by further judgment delivered in May 2023 after hearings in December 2022 and April 2023: Woods v McKinlay (No 3) [2023] NSWSC 489. Ultimately, orders were made on 28 July 2023, resolving most (but not all) aspects of the parties’ entitlements to the proceeds of sale. To be clear, there was no complaint, nor was there any basis for any complaint, in the delay between trial and ordering final relief. It seems that by no later than the judgment in November 2021 it had become clear that the property would need to be sold, and in any event the parties proceeded thereafter to have the property sold. Settlement took place in August 2022. The parties returned to Court in December 2022, but various errors or omissions in Antoinette’s analysis prevented the matter being determined then.

3. No differently from Muschinski v Dodds and Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59 or many subsequent cases, the litigation is driven by the capital gain realised on the sale of the property. The purchase price in November 2001 was $385,000, which, together with stamp duty of $12,819 and other costs, resulted in a “capital cost” in the order of $400,000. The sale price in August 2022 was $1,408,000. Thus there was a capital gain of slightly more than $1,000,000.

4. By way of overview, almost the entirety of the purchase price was paid with money borrowed by Orlene and David, secured by a mortgage over the Telopea property and also over Orlene’s own home where she lived with her (adult) son. Orlene and David became registered proprietors as joint tenants over the land. The occasion for purchasing the Telopea property was the acrimonious divorce of Antoinette and her husband, at a time when she and her daughters and their pets required a new home and were unable to find suitable rental accommodation. At all times after settlement of the conveyance in 2001 until the land was sold in 2022, Antoinette lived in the Telopea property. Antoinette paid amounts styled by her and Orlene as “rent” which very broadly speaking reflected the cost of servicing the mortgage. Antoinette also paid council rates, water rates, insurance and other outgoings on the property. That continued until around 2019, when the relationship between the parties broke down, leading to this litigation.

5. In December 2002, after receiving funds from her divorce proceedings, Antoinette paid $130,000 to Orlene to repay around one third of the principal owing on the loan. The primary judge also found that Antoinette had made two payments of $15,000 to Orlene in October and December 2002 which were treated as repayments of principal. Those findings were not challenged on appeal. Hence Antoinette’s total repayments of principal were $160,000, all made in a period between 10 and 13 months after the Telopea property was acquired, generally corresponding to the resolution of Antoinette’s dispute with her former husband.

6. Orlene’s and David’s loan permitted redraws, and pursuant to that entitlement Orlene retransferred $15,000 to Antoinette to purchase a car in October 2006. Antoinette’s net repayments of principal (putting to one side the fact that the “rent” sometimes exceeded the interest accumulating on the mortgage debt) were thus $145,000.

7. Ultimately, the primary judge found that Antoinette’s contribution to the repayment of principal was to be indexed, at 6.46% per annum compounding annually. His Honour was able to calculate that rate because by that time the Telopea property had been sold, and the rate applied to Antoinette’s contribution was the same rate at which the property had appreciated (from $385,000 to $1,408,000) over the period. The result was that (simplifying somewhat) when the property was sold, the outstanding loan was paid, then Antoinette received an indexed repayment of her capital contribution, following which the surplus was divided equally.

8. The orders from which Orlene and David appeal recorded that interim distributions of $200,000 to Antoinette on the one hand and Orlene and David on the other hand had been made in early 2023, with the balance of $757,227.26 being held in a trust account. The orders made on 28 July 2023 included the following:

1. Declare that, on and from 9 December 2019, the First and Second Defendants held their legal interest in the land contained in Certificate of Title Folio Identifier 608/36743, being the land known as xx Evans Road, Dundas, in the State of New South Wales (the Property), upon constructive trust (after payment of any debts incurred by them in acquiring or holding the Property) to repay the Plaintiff her contributions to the joint endeavour as defined below, and, as to the residue, for the Plaintiff (on the one hand) and the Defendants (on the other hand) in equal shares.

FOR THE PURPOSES OF THIS DECLARATION:

The Plaintiff’s contributions shall be the payments made by the Plaintiff as follows:

(a) the initial deposit;

(b) improvements to the Property;

(c) the $130,000 paid in December 2022;

(d) the two payments of $15,000 in October and December 2002 less the $15,000 redrawn by the Plaintiff in October 2006; and

(e) Monthly payments towards the home loan.

AND the Defendants are entitled to a credit for:

(f) interest accrued on the loan (financed component only) taken out by the Defendants to purchase the Property; and

(g) expenditure incurred as a result of holding the Property including land tax, income tax and bank charges paid by the Defendants.

AND the Plaintiff is to pay the Defendants, as constructive trustees, an occupation fee fixed by reference to market rent with a credit for rat[e]s and other expenses which she has pai[d] on behalf of the Defendants as constructive trustees.

AND the Plaintiff’s contributions shall be indexed at the rate of [6.46%] per annum (compounded) from the date on which those contributions were paid until 9 December 2019.

2. Within 7 days from the date of this order:

(a) The Sum of $494,016.66 be paid from the trust account of Beswick Lynch Lawyers to Antoinette Woods, representing Ms Woods' indexed capital contribution to the Property.

(b) The sum of $16,522.26 be paid from the trust account of Beswick Lynch Lawyers to Orlene McKinlay and David McKinlay, as reimbursement of costs incurred by them as constructive trustees of the Property.

(c) As to the balance of Sale Proceeds of $246,688.74 [this was to be divided equally between the trust accounts of the parties’ solicitors, with a view to quantifying the outstanding issues of interest, expenses and occupation rent].

9. The materials made available to this Court do not include any analysis of the payment of interest and other expenses as contemplated by paragraphs (f) and (g) of the declaration, or of the occupation rent (indeed, it is possible that those calculations have been deferred pending this appeal). Putting that aspect of the quantification to one side, the effect of the orders is as follows. The net proceeds of sale after repayment of the mortgage debt were some $1,157,000, from which Antoinette’s (indexed) capital contribution of some $494,000 and Orlene’s and David’s capital contribution of some $16,000 were returned. The balance of just under $650,000 was divided equally between Antoinette on the one hand and Orlene and David on the other hand (but subject to adjustment of interest, expenses and occupation rent). As will be seen in the paragraph below, the details do not for present purposes matter, because the only aspect of the working out of the details of the constructive trust of which Orlene and David complain is the indexing which has led to Antoinette’s capital contribution of somewhat more than $145,000 to increase to $494,016.66.

10. Neither side has suggested that any aspect of the orders which remains outstanding means that the decision is interlocutory for the purposes of s 101(2)(e) of the Supreme Court Act 1970 (NSW) and therefore requires leave. Against the possibility that that is so, there should to the extent necessary be a grant of leave.

11. Orlene’s and David’s appeal has three main components. Their primary case is that they are entitled to the entirety of the net proceeds of sale, save that they must repay $145,000 (being the $160,000 paid by Antoinette in October and December 2002 less the $15,000 repaid to her in October 2006). Alternatively, they say that David’s interest in the land is unaffected by any constructive trust, such that he is entitled to the whole of his half of the proceeds of sale. In the further alternative, they disagree with the way in which the primary judge indexed the contributions made by Antoinette to repaying the debt owed by them. However, that is the extent of their disagreement concerning the working out of the respective interests pursuant to the constructive trust. Instead of an indexed contribution of $494,016.66, Orlene and David say that their contributions were approximately equal to those made by Antoinette, so that no indexing is required and the capital surplus should simply be divided equally.

12. There is no written document in evidence setting out the basis upon which the parties agreed. Contemporaneous documents are few. Further, the trial judge who saw all three cross-examined, formed the view that both Orlene and Antoinette were unreliable witnesses, and based most of his findings on the documents. That background has the consequence that the “real review” to be conducted by this Court determining the appeal is less constrained than would be the case if challenged findings were based on, or likely based on, the primary judge’s impressions of the witnesses giving evidence at trial.

13. The largest component of the appellants’ written and oral submissions on the appeal was a challenge to the findings of fact that at the time the property was purchased, there was a “mutual understanding” that Antoinette “had an interest in the property, but that interest was not defined”: at [193]. It was submitted that a “mutual understanding” was insufficient, and further that an undefined interest in the property was also insufficient, to entitle Antoinette to relief in equity. In order to address these grounds of appeal, it will be necessary to summarise the documentary evidence upon which his Honour relied.

14. One final matter should be mentioned by way of overview. The pleadings are an unreliable guide to the issues. Until shortly before the commencement of the trial, Antoinette’s case had been pleaded as one based on either a resulting trust or an estoppel. The former was problematic, having regard to the fact that almost the entirety of the purchase price was from funds borrowed by Orlene and David: see Calverley v Green (1984) 155 CLR 242 at 257; [1984] HCA 81. As much was indicated at a pre-trial hearing by the primary judge, following which amendments were made at the commencement of the trial to rely upon a constructive trust. On one reading of the amended pleadings, they remained tied to an antecedent agreement between the parties. However, as Mr Horowitz, who appeared both at trial and in this Court, acknowledged with commendable candour, whether there was a “joint endeavour” trust in accordance with the principles formulated in Muschinski v Dodds and Baumgartner v Baumgartner, as his Honour found, was in play at trial. To the extent that that is outside the pleadings, this is a case where the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities: Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 287; [1990] HCA 11.

Uncontroversial factual background

15. The following factual matters were uncontroversial.

Acquisition of the Telopea property

16. The loan made to Orlene and David was organised through a mortgage originator, Wizard Mortgage Corporation Ltd, and included the majority of the deposit (save for $926.50 paid by Antoinette) and amounts for stamp duty and other conveyancing expenses. The facility was to be repaid over 30 years, with provision for early repayment and re-draws. In fact the total amount borrowed by Orlene and David was $585,000 with $415,000 being on an interest-only basis for five years. The loan documentation stated that “The purpose of the Loan is to assist you with refinance [of] the CBA home loan 225235003 $170,000 and provide funds to purchase the Investment property at Dundas for $385,000.00”. (The property was close to the border of the suburbs of Telopea and Dundas, and save when quoting documents I shall adopt the usage of the primary judge and refer to Telopea.)

17. The conveyance settled on 30 November 2001. Antoinette moved in on the following day.

18. Prior to settlement, Antoinette had agreed that the vendor would do some work fixing up one of the bathrooms, which included replacing certain tiles. Antoinette wanted different and more expensive tiles, and it was agreed that the vendor would use those tiles and that Antoinette would pay an additional $200 to cover that cost. That occurred. Shortly thereafter, Antoinette had wardrobes, flyscreens and ceiling fans installed at a cost of $2,770, once again paid by her. Thereafter, rates notices addressed to David were forwarded to her to pay. Insurance was treated in the same way.

19. The primary judge also stated that Antoinette had made further improvements and repairs totalling at least $22,100 (including the wardrobes, flyscreens and fans mentioned above) and that Antoinette also claimed that thereafter she had paid rates and other outgoings of $61,728, most of which was accepted by Orlene and David, although they disputed $9,254: at [225]-[226].

Payments of “rent”

20. There were numerous documents in evidence recording the payments thereafter made by Antoinette as “rent”. These included a series of handwritten receipts in 2002 recording monthly rent of $700, a letter dated 2 August 2002 to the child support agency stating she was paying rent of $350 per week and was “in arrears for the last four months due to financial hardship”. There is also a letter dated 30 May 2004, in which Orlene and David wrote by hand that a rent increase was effective from 1 July 2004 and requested that she “continue to pay the rent to the Commonwealth Bank account as per our previous agreement” and which Antoinette signed. Antoinette also signed and sent a letter dated 31 March 2006 to the appellants in the following terms:

Dear Landlord,

This is to confirm that I Ms Antoinette Woods is currently renting the property [XX] Evans Road, Telopea NSW at a monthly rental of $1,200.

I have been renting this property since the 1^st December 2001.

21. There was uncontroversial evidence from Orlene’s accountant that the payments received by her from Antoinette were treated as income and the interest paid on the loan was treated as a deduction. The tax returns had been in evidence at trial but were not included in the appeal books. The Court was told that, at least in some years, the interest payments exceeded the rental income such that Orlene derived a benefit to offset other taxable income. It was also common ground that Antoinette structured her salary so that her employer paid some of her “rent”. In short, both sisters obtained tax benefits from treating the payments as rent.

21. A few months after the Telopea property was acquired, Orlene borrowed $140,000 from her brother Brandon, which was used to reduce the outstanding principal. Brandon was eventually repaid in full, although it occurred irregularly over many years, commencing in May 2003. Brandon gave evidence that he had also paid some of Antoinette’s legal expenses, apparently without her knowledge. He gave evidence that he could not recall ever being told that Orlene would give the title of the property to Antoinette, or being told anything by Antoinette about her owning the property.

22. In October and December 2002, Antoinette also made repayments of the outstanding principal. In December 2002 Antoinette gave Orlene two cheques totalling $130,000 to be paid off the outstanding principal. The cheques came from some $233,000 she received from the settlement of the property dispute with her former husband. There was no dispute at trial about the $130,000, but as noted above, there was a dispute concerning two further payments of $15,000 (cheques 342 and 348) made by Antoinette to Orlene or David in October and December 2022. The primary judge found at [219] that the cheques were paid on account of the loan liability on the Telopea property, and this is no longer controversial.

23. The primary judge summarised Antoinette’s monthly payments at [197]. They started at $700 prior to July 2003 (noting that it was in October and December 2002 that payments totalling $160,000 were made). Thereafter the monthly payments were $1,000 (July 2003- June 2004), $1,200 (July 2004 – March 2007), $1,250 (April 2007 – August 2007), $1,300 (September 2007 – March 2008), $1,500 (April 2008 – July 2008) and $1,550 after August 2008. In addition to the above, his Honour addressed, at considerable length at [198]-[219], relatively minor amounts claimed to have been paid by Antoinette either by way of rent or by way of repayment of capital.

24. Many of the actual payments to reduce the indebtedness of Orlene and David were made from Orlene’s bank account. Save for one point, the details do not matter. That is as well, because the position is moderately complex. In fact there were three separate loan accounts maintained by Wizard, all of which commenced when the property settled, with the second account drawn in the amount of $107,000 and the third in the amount of $308,000 (together these represented the $415,000 borrowed to fund the acquisition of the Telopea property; the first account was used to refinance Orlene’s mortgage over her own home). The way repayments were made on the second and third accounts changed over the years. By way of example, in 2003 and 2004 and 2005 there were regular credits of $1200 into the third account, which was also the account into which Brandon’s $140,000 had been deposited. The result was that the amount outstanding on that account was reduced to less than $70,000, although the redraws to repay Brandon increased it. In 2006, regular credits of $600 were made to this account and on the same days payments of $600 were made to the second account. From 2007, the position changed and amounts calculated by Wizard were credited to both accounts, being withdrawn from Orlene’s bank account.

25. Although the loan documentation provided only for an initial five years of interest-only payments, the primary judge found that in fact the loan repayments were interest-only for the first ten years, then principal and interest for ten months from 1 December 2011 before a further three years of interest-only repayments, with repayments of principal and interest from 28 September 2015: at [195]. There was no dispute about this. However, that does not mean that the repayments over those 13 years were only of principal. Because there had been relatively large repayments of principal by Antoinette and Brandon early in the life of the loans, some of the repayments made when the facility was interest-only nonetheless reduced the outstanding principal.

26. The primary judge recorded that the total “rent” paid by Antoinette to Orlene from December 2001 until the end of June 2021 was $329,000, while monthly payments to Wizard over the same period were $367,719: at [220]. His Honour explained that there was a shortfall of $38,719, but also noted that the regular monthly payments would have included a component of capital.

27. At [224] his Honour recorded that the money attributable to the acquisition of the Telopea property was $402,100, that Antoinette had contributed $145,000 (being $130,000 plus two payments of $15,000 less the $15,000 re-drawn for the purchase of a car), and that the difference was $257,100. His Honour also noted at [224] that the difference between that figure and the amount currently owing, which was $232,322 as a 1 June 2021, “represents a potential capital contribution to the loan by Orlene”, but added that it was not possible to tell in light of the potential for there to have been repayments of principal from the regular “rent” payments.

Documents bearing upon the existence of a constructive trust

29. Save for the reference to an “investment property” in the loan documents (which was not suggested to have any significant bearing), there seem to have been no documents from the time the Telopea property was acquired which shed light on the parties’ intentions.

30. The primary judge placed a deal of emphasis on a letter from Antoinette’s solicitors in the Family Court proceedings dated 15 August 2002 concerning the property dispute with her former husband. Although this was dated some 10 months after the Telopea property was acquired, it was the only roughly contemporaneous document which bore directly upon Antoinette’s intention at the time she was contemplating paying a large amount of money to Orlene. As a confidential communication between Antoinette and her solicitor, there was no reason to doubt that the author was seeking accurately to record Antoinette’s instructions.

31. After dealing with correspondence between the parties (which this Court was told was not in evidence), the letter continued:

We note that Justine of our office has advised the writer that she had a telephone conversation with you last Thursday, pursuant to which you advised her that you would be using the money you received by way of a property settlement to repay your relatives the amounts they paid on your behalf in relation to your legal costs and using the balance to reduce the mortgage secured against the property where you are currently residing, which is registered in the joint names of your sister and her son. When Justine queried why you are not keeping the money in your name or obtaining a part of the said property, you apparently replied that you do not wish your former husband to have a claim against that money.

We wish to advise you as follows in relation to the above conversation you had with Justine:

1. Your husband cannot commence any further proceedings against you in relation to property settlement as orders can only be made under section 79 of the Family Law Act on one occasion.

2. If you are using part of your property settlement to reduce the mortgage secured against the property owned by your sister and her son, you should at the very least, enter into a written agreement with them which sets out your beneficial interest in the property.

3. Your sister and your nephew should give their written consent, as registered proprietors of the said property, to you lodging a caveat against the property, arising out of your beneficial interest in the property.

Please contact the writer if you wish to discuss the above.

32. In around 2004, Orlene proposed redeveloping the Telopea property as a duplex, going so far as to obtain a report on storm-water options from an engineer, Mr Marco Breakenridge. He visited the property, met Antoinette, who said nothing about any ownership or beneficial interest in the property. He produced a report dated 3 June 2005 which commenced:

The owners of the property located at xx Evans Road, Dundas Valley (Orlene and David McKinlay) intend to demolish their existing building and construct a duplex home on the site.

33. Orlene gave evidence that:

I approached a few builders to ask about redeveloping the Property as a duplex so that David and I could sell one and give Antoinette back her $130,000 plus gift her the excess left over from the net proceeds of sale …

34. Some fifteen years later, as Antoinette approached retirement, she wrote to a tax solicitor, Ms Oddo, in October 2016, as follows:

I hope you might be able to offer me some help here.

I am living in a house that my sister and her son purchased in 2001 for $385,000 with the sole intention of helping me find a home for my two daughters and me to live in after my divorce. She mortgaged her own home and I put in a sum of $130,000 that I received as a settlement towards the mortgage a year later. I have paid all the costs towards the mortgage including rates and ongoing maintenance on the property. She has acted as a caretaker of sorts in this situation and the understanding was that I would be the owner of the property later on. We would like to sell the property and I wish to use the money to find a place of my own. There is still a Mortgage owing on it of about $230,000.

Would there be any CGT that is still payable with the sale?

Could the property be transferred to my name?

I do understand that I would have to pay stamp duty if the property is transferred into my name.

As you see this is a complicated issue and we would be able to offer more details with an appointment with you.

35. Antoinette forwarded that request, and Ms Oddo’s response, which suggested that there might be ways to avoid capital gains tax on sale and obtain a reduction in stamp duty, to Orlene, who responded:

You did not say that I am retired or what your age is. These are very important as Gifting means that I cannot apply for any govt pension entitlements for 5 years after you have the house.

36. The primary judge said of this response that its significance lay in what Orlene did not say: “she did not challenge Antoinette’s account of the arrangement”.

37. There followed a series of exchanges in late 2016 from Antoinette and Orlene, which were reproduced in full by the primary judge at [77]-[83] as follows, with the emphasis made by his Honour:

77   On 26 November, following a telephone conversation, Antoinette wrote to Orlene expressing concern at the way in which the situation was developing. She continued (emphasis added):

As mentioned to you after speaking with Lisa and referring to the government website, gifting my share from the sale is allowed, legal and what had always been in our agreement, which was well known to all. It does not affect your pension. Your pension is determined by total assets- superannuation, shares, savings and the investment properties you chose to purchase. Do you have any questions for me on this? I am happy to share with you the relevant government links for your reference.

You said that you’ve had other legal advice, please elaborate on what is different to what was provided by Lisa and the government?

To move forward, which we all want and need, could you please send me the statement for total interest paid. You can get this from online banking or by calling and asking the bank to issue an e-statement. I would like to have this by next Monday.

78   Orlene’s response was blunt. She wrote back on the same day (emphasis added):

Anytime you want to put the house up for sale is ok with me. Ask the agent you decide on to call me to sign the sales agreement. I am disgusted with the inference that I am cheating you. Once the house is sold you will receive David’s share and whatever I can legally give you. If this is unacceptable, sorry.

79    Antoinette replied on 27 November identifying issues to be resolved. One of these was: “If you paid the money Brandon gave you into the mortgage, how would this be paid back to him?” Orlene then wrote on 9 December 2016 (emphasis added):

… I am surprised with the ‘If you paid the money Brandon gave you into the mortgage’!

How do you think your mortgage is what it is and that your ‘rent' over the years remained at $1550 a month.

…

My lawyer will be the one who handles the sale.

In respect to my eligibility for a pension, that is my concern. Whatever I can give you without jeopardising my pension will be paid to you in full.

As to how Brandon receives the balance of his money, it will occur prior to settlement. I am ineligible to renegotiate the mortgage.

On settlement David and I will instruct our lawyer to pay in full all monies due to David to be paid to you.

The other monies will be held by my lawyer until the CGT is calculated by the ATO.

The balance will be held until I can be assured by the ATO that I can redirect the amount to you without being penalised.

Any gift in excess of $30,000 over 3 years means that I get no pension for 5 years from the date of that gift.

I reiterate, ask the agent you decide on to call me to arrange for the sales agreement.

There is nothing more I will do until the you decide when and which RE Agent to use.

80   Following some further exchanges, in which Orlene declined to sign any formal contract with Antoinette, Orlene wrote on 6 January 2017:

I will not enter into any further communication with you regarding the sale of the house.

All issues have been discussed at length with you.

Ask any agent you desire, to call me when you decide on a date to sell. I need 2 weeks to have a Contract for Sale completed by my solicitor.

81   By now the relationship between Antoinette and Orlene had broken down into recrimination. On 26 January Orlene responded to an email of Antoinette’s (emphasis added):

Antoinette understand this very clearly

When Stephen [Antoinette’s ex-husband] kicked you and your daughters to the kerb, I got myself into debt and David to his detriment, put his own ambitions aside to help put a roof over your heads.

…

I have REPEATEDLY SAID you will get the 50% share of the proceeds that will be portioned to David and once the full Capital Gains Tax is paid I will give you what I can legally do so.

I WILL NOT put myself in a position that penalises me of any pension entitlements.

…

A REMINDER: If by the end of March 2017 I have not received a call from your preferred real estate agent, I will appoint one myself and put the house up for sale.

82   Antoinette forwarded this email exchange to Annie who in turn, on the same day, attached it to an email to David asking for his help in resolving the dispute. On 30 January David replied (emphasis added):

… I have read all of the correspondence contained within your e-mail. I am aware of the ongoing issues regarding the sale of the property. No one is being evicted.

My understanding is, it was Antoinette that wished to sell the Telopea house in April. The reason for this was her neighbour Mary, is to put her house for sale at this time also and by (hopefully) selling the houses together to a developer a better price may be achieved. …

…

If the sale of the house were to go ahead and be successful, mum cannot merely transfer the proceeds (minus tax demands of the ATO) to Antoinette as this will make mum ineligible for any form of pension payment from the Commonwealth Government for at least 5 years. This does not mean that the proceeds of the sale of the house (minus taxes) would not go to Antoinette; it would just have to be done differently as opposed to a lump sum amount going into her account.

If you have formal legal advice that shows a lump sum from the sale of the house can be placed in Antoinette’s bank account without penalising mum, please forward it to me. The legal opinions I have received so far, state that as far as the Commonwealth Government is concerned, if mum were to do this, it would be tantamount to giving away money that she should use for her living expenses instead of applying for the pension. This even covers giving money to family members.

…

83   Annie responded, arguing that, given that Orlene and David owned several investment properties, the gifting threshold should make no difference. There was no further response from David.

38. The relationship between the sisters became increasingly strained. The primary judge stated at [57]-[59] that in January 2017 Orlene wrote that there would be no further communication between them. In February 2017 both women retained solicitors. A mediation failed and litigation was commenced in August 2019, with a formal demand for possession of the Telopea property being served on 9 December 2019. After the breakdown of the relationship, Antoinette continued to pay the bills for the rates and insurance on the Telopea property, and to make monthly “rent” payments to Orlene.

The reasons of the primary judge

39. It is not necessary to summarise the testimonial evidence of Antoinette and Orlene or the majority of his Honour’s consideration of it. In addition to having regard to the difficulties with their recollection of conversations more than two decades earlier, in accordance with the principles in Watson v Foxman (1995) 49 NSWLR 315; [1995] NSWCA 497, his Honour also formed the view, which was not challenged on appeal, that both women’s evidence suffered deficiencies. Antoinette’s evidence was found to be “generally questionable” and Orlene’s evidence, although it was more reliable on questions such as the sequence of events, was subject to the same difficulties when trying to remember oral conversations. In addition, Orlene was found to have claimed tax deductions to which she was not entitled and had not been fully candid. The result was that when expressing his findings of fact, his Honour commenced with the statement:

Given the comments I have made on the reliability and credibility of both Antoinette and Orlene, objective factors are likely to provide the surest guide to deciding whether Antoinette has made out her case as to the nature of the rearrangement with Orlene.

40. Neither side sought to reinstate the reliability or credibility of either sister.

41. The reasons of the primary judge given in November 2021 thereafter fall into two parts. The first addresses and rejected Orlene’s and David’s contention that their relationship with Antoinette was that of landlord and tenant. The second identifies the basis on which Orlene and David were found be constructive trustees of the Telopea property.

Rejection of the contention that Antoinette was merely a tenant

42. The primary judge reviewed various objectively reliable facts, namely the fact that Antoinette had paid the initial holding component of the deposit, for improvements, repairs, maintenance and outgoings on the property, that she had paid $130,000 off the mortgage in December 2002 and had paid at least $320,000 in monthly payments of “rent” over the period. His Honour stated that although Orlene and David pointed to a shortfall of $47,000 between the Wizard loan repayments and the payments of “rent” received from Antoinette, and said that, even so, “Antoinette contributed far more to reducing the mortgage principal and paying the costs of holding the property than [Orlene and David] did”: at [166]. On that basis, his Honour considered that the claim that Antoinette agreed to rent the Telopea property and nothing more was “inherently unlikely”: at [167].

43. The primary judge said that if Antoinette had been a tenant and nothing more, it was hardly likely that she would have continued with the arrangement for some two decades. His Honour regarded it as significant that she had paid the deposit and for the tiles and other improvements. His Honour regarded the letter from Antoinette’s solicitors of 15 August 2002 as significant, making it plain that months before she received the proceeds from the family court proceedings, she had been minded to pay down the mortgage. That led to the finding at [169] that:

I am satisfied that, although the amount could not of course have been known at the time, it was part of the plan between the parties from the outset that Antoinette would make a capital contribution to paying down the mortgage from her property settlement when she received it.

44. Further, although his Honour shared the view that a claim against her assets by her ex-husband was unlikely to be available, he nonetheless found that was what Antoinette thought at the time. His Honour said of this at [170]:

[w]hat is important is that the wish to conceal the arrangement implies an understanding between the parties that Antoinette was entitled to some sort of proprietary interest in the property.

45. Although noting that the letter post-dated the arrangement between the sisters, his Honour said that it was “relatively contemporaneous” and that “there was nothing to suggest any change in the arrangement between October 2001 and August 2002”.

46. The primary judge also put to one side the evidence of Brandon that he had never been told that the property would be given to Antoinette. His Honour was not satisfied that David’s evidence was based on any firm recollection, and indeed that he had no independent role in the arrangement, but rather acted as a second borrower at his mother’s request, with his mother doing all of the negotiations. The primary judge noted that in 2017 David was content to allow his mother to deal with his share of the property as she wished and without prior reference to him, concluding that “[i]n effect he acted as her nominee throughout”.

47. On that basis, the primary judge rejected Orlene’s and David’s assertion that the arrangement was for Antoinette to pay rent and for outgoings and nothing more. That was squarely challenged by the primary submissions advanced on appeal.

48. His Honour also regarded the correspondence in 2016-2017 as significant and in particular the fact that at no stage did Orlene assert that Antoinette was just a tenant.

49. The primary judge found at [175]:

… I think it is clear on the evidence that David had no independent role in the arrangement. His only involvement in the purchase and the obtaining of finance was to act as a second borrower at his mother’s request. The terms of the arrangement with Antoinette were negotiated by Orlene alone, and without any input from him. Thereafter all he did was to top up the monies required to make the loan repayments, again at his mother’s request. Most significantly, it was clear from the 2017 correspondence that he was content for his mother to deal with his share of the property as she wished and without prior reference to him. In effect he acted as her nominee throughout.

50. This finding was challenged by grounds 5 and 7 of the appeal.

51. His Honour placed little weight on the references to Antoinette “renting” the property, noting that the existence of a legal tenancy was not inconsistent with her having a beneficial interest in the property: at [176]. Further, his Honour said that he did not accept that the reason she described herself as a tenant was because she saw herself as a renter and nothing more. Rather, his Honour considered that she did it because of “the perceived tax advantages from representing the arrangement in that way”: at [177].

52. That led his Honour to the following intermediate finding at [178]:

For these reasons, I reject Orlene and David’s assertion that the arrangement was for Antoinette to pay rent and outgoings, and nothing more. But rejecting this assertion is not necessarily the same thing as accepting Antoinette’s contention that it was agreed that the equity in the property would be held exclusively for her benefit.

The reasons for upholding Antoinette’s claim of constructive trust

53. His Honour was satisfied that “the property was acquired on the basis that it would be used to provide a home for Antoinette, and in return Antoinette agreed to cover the costs of borrowing and the other holding costs such as rates and insurance”: at [190]. His Honour also found at [192], in accordance with Orlene’s evidence, that it was not until 2004 when the proposal to redevelop the property emerged, that Antoinette took the position that she was entitled to all the equity in the property, and that (despite Orlene’s evidence) by 2016 she accepted that Antoinette would get the equity in the property: at [191]. His conclusion at [193] was:

In these circumstances I would not, I think, be justified in inferring that there was before the purchase of the property in 2001 any agreement, express or implied, that Antoinette was entitled to the whole, or some defined share, of the equity in the property. Nor was there any agreement on the terms upon which Antoinette would be able to purchase the property at that stage. There was a mutual understanding that she had an interest in the property, but that interest was not defined.

54. His Honour said at [242]:

On my finding, while the parties agreed that Antoinette would occupy the property and pay the outgoings and interest on the mortgage, there was no agreement about who would get the equity in the property.

55. The primary judge thereafter addressed Orlene’s and David’s submission that there could not be a constructive trust unless the joint intention involved mutual economic benefit to the parties. His Honour noted that “[c]ounsel submitted that on the facts that condition was not satisfied, because there was no evidence of any intent to share the proceeds”. Distinguishing the cases on which counsel had relied as de facto relationships where non-financial contributions had been made, his Honour said at [248]:

In my view there is no reason in principle for any such limitation as contended for by Mr Horowitz. It is not mentioned in Deane J’s formulation of the doctrine in Muschinski. In that formulation, equity’s intervention is explained negatively. Equity acts to prevent one party to the relationship from obtaining an advantage from a legal title acquired by that party in the course of the joint endeavour where it was not agreed that that party would so benefit. So understood, the doctrine is not based on any affirmative intention to share the property.

56. His Honour said that that conclusion accorded with Campbell J’s reasons in West v Mead [2003] NSWSC 161; 13 BPR 24,431 at [62]:

Another aspect of difference between the Baumgartner basis for a constructive trust, and a resulting trust, concerns the role which the intention of the parties plays. The Baumgartner type of constructive trust is imposed to prevent an unconscionable assertion of legal title, in circumstances where the parties had no explicit intention about how the legal title would be held in the circumstances which have arisen. By contrast, the presumption of a resulting trust is one which seeks to give effect to the intention of the parties, by making a presumption about what that intention was ….

57. The primary judge observed that Campbell J’s statement that the principle applied where there was “no explicit intention about how the legal title would be held in the circumstances which have arisen” was both consistent with the expression of principle in Muschinski as well as describing the present case as found by him.

58. The primary judge also drew upon Campbell J’s decision in Anson v Anson [2004] NSWSC 766, summarising it thus:

… the property in question was acquired by three brothers as joint tenants for the purpose of building a family holiday home. Each of the brothers contributed, both in cash and in kind, to the acquisition of the land or the building of the holiday home, or both. Thirty years later, disputes arose about the parties’ entitlements and notice was given severing the joint tenancy. Campbell J found that there had been no agreement between the brothers at the time of acquisition about what was to happen if the joint tenancy was severed. He found (at [42]) that the acquisition and improvement of the property was a joint endeavour of the relevant type, which had come to an end as a result of the severance of the joint tenancy in circumstances where no agreement had been reached by the parties to cover that eventuality.

59. The primary judge addressed Shepherd v Doolan [2005] NSWSC 42 where a joint endeavour constructive trust had been rejected, although a common intention constructive trust had been found, noting that in that case the joint venture (between the deceased and his de facto wife) had not come to a premature end.

60. The primary judge concluded his reasoning that a constructive trust had come into existence as follows at [260]-[261]:

[Deane J] also went to some trouble to explain at 614 that, although a constructive trust is imposed by the court and is remedial in that sense, it reflects entitlements which equity recognises as having arisen out of the events when they happen; in that sense the imposition of the constructive trust is retrospective. This is reflected in the relief awarded in Muschinski which involved effectively taking an account going back to the date of the original agreement. What happens is that, when the contingency not foreseen by the parties occurs, equity intervenes, but it does so by retrospective adjustment of the parties’ rights so as to achieve a just outcome having regard to the parties’ omission to deal with that contingency at the time the property was acquired.

It is not necessary to pursue this question further in the present case. The breakdown of the relationship and the consequent falling of the legal estate into the lap of Orlene and David was not specifically provided for. Arguably this itself satisfies the relevant requirement. If it is necessary to go further and to show that this state of affairs results a disproportionate benefit to Orlene and David, having regard to the parties’ respective contributions, then that is clearly made out. As I have already mentioned, if equity does not intervene, Orlene and David will retain a property with equity of more than $1 million having made an out-of-pocket contribution which, on their own case, was no more than $47,000.

The terms of the constructive trust and the indexation of Antoinette’s capital contribution

61. The primary judge rejected a constructive trust on the terms proposed by Antoinette, which were based on a split reflecting her contributions of $540,000 and those of Orlene and David of $38,500. Orlene’s and David’s counsel had obtained the figure of $540,798.29 by adding the whole of Antoinette’s ancillary costs, the $130,000, her mortgage payments and rates and other outgoings over the 21 years. His Honour said at [272]:

In my view, a division of the equity based on contributions to the loan repayments would ignore an important aspect of the relationship between the parties. At the beginning, over ninety-nine per cent of the total acquisition cost represented monies borrowed in the names of Orlene and David. I do not find it necessary to decide whether David in fact gave up an opportunity to travel to the United Kingdom. On any view, taking on the Wizard loan involved a significant opportunity cost and a significant risk, without which the benefit of the later increase in the property’s value could never have been obtained. In fact, during the first year or so Orlene and David were required to put in extra contributions because Antoinette was unable to. Although their contribution may be small when compared with Antoinette’s total contribution over twenty years, it came at a crucial time.

62. In light of the facts that the present case did not involve the breakdown of a de facto relationship, involved no element of cohabitation, and “[t]he cases in this area frequently refer to it being one where equity is at its most flexible”, his Honour reasoned as follows at [275]-[277]:

To my mind, an order in the Muschinkski form best reflects the rationale for equity’s involvement, namely to deal with a capricious outcome of the breakdown of the relationship between the parties, being an outcome which they did not anticipate in their earlier agreement. In the present case, the parties did not, on my findings, consider how the equity in the Telopea property, if there was to be any, would be shared. In my opinion the fairest way to deal with this is, subject to a point I will make in a moment, to split the equity equally.

Such an equal splitting must, however, take account of timing issues. The largest contribution by either party was Antoinette’s payment of $130,000, which was made almost twenty years ago. As a result of the fact that the loan repayments have largely kept pace with interest, the remainder of the debt is in nominal terms similar to what it was then. But in terms of purchasing power, particularly power in purchasing property, it is massively less.

In Pallant the time value of Mr Morgan’s £1,000 payment was reflected by an allowance of interest in his favour. But in the present case, where the parties’ contributions were made out of after-tax earnings, I think that the appropriate way to adjust the contributions for the purpose of the calculation is to index them so as to produce an indexed capital sum. Given that I am dealing with the acquisition of a residential property, the index used should, if possible, reflect movements in property prices rather than just consumer prices (compare Campbell J in Anson at [44]). I will leave the selection of the appropriate index for further debate, and if necessary evidence, if that is required.

63. In his third judgment, delivered on 9 May 2023, his Honour explained what had occurred in the meantime at [2]:

The parties did not, following delivery of my decision, proceed to have the Court make formal declarations and orders to give effect to the conclusions that I had reached. Nor did they make further submissions on that question. Instead, they embarked themselves on an informal process of conducting the account. The property was sold and as a result of consent orders between the parties some funds were distributed to either side. What now remains is to finalise the distribution of the proceeds. For that purpose, the parties have managed to agree all of the outstanding accounting issues expect for one, which is the subject of this judgment.

64. That outstanding issue was whether Orlene’s and David’s contribution should be indexed.

65. It was common ground that the property having been sold in 2022 for 265% of its original purchase price, that represented a 6.46% compound return and that that should be the indexation rate applied to the figures presented on behalf of Antoinette.

66. However, referring to his Honour’s earlier reasoning on indexation, in his final judgment, his Honour expressed the view that there should be no indexation of the contributions made by Orlene and David. His Honour said:

This reasoning applied to the contributions made by both parties (Antoinette on the one hand and Orlene and David on the other). But Orlene and David had borrowed the monies which they used to purchase the property. The loan was still outstanding and was to be discharged from the proceeds of sale of the Telopea property. Accordingly, I contemplated that only Antoinette’s contribution would be indexed (J2 [278]).

67. Ground 8 challenges the findings that Antoinette’s capital contribution should be indexed. In substance, it maintains that the contributions of both sides should be regarded as approximately equal, with the result that there should be no indexation.

68. The result reached by the primary judge was that from the proceeds of sale, the first step was the repayment of the entirety of the mortgage debt. The second step was the repayment of Antoinette’s capital contribution, which was $494,016 reflecting the effect of compound interest on $160,000 over some 20 years (less the $15,000 redrawn by her in 2006), vastly more than Orlene’s and David’s capital contribution (it is unclear to me how that amount, of $16,522.26, was determined). The third step, after both sides’ capital contributions were returned, was to distribute the balance in equal shares, but to make allowance for payments of interest, expenses and occupation rent.

Ground 1

69. Ground 1 was directed to setting aside the relief ordered by way of constructive trust representing both sides’ contributions to the property. The appellants said that the appropriate remedy for Antoinette was that Orlene and David were required to account to her for her contributions of principal.

Appellants’ submissions

70. The appellants accepted that the principles in decisions which for the most part involved de facto relationships were capable of applying to the joint endeavour claimed by Antoinette. They accepted the statements of principle in Lloyd v Tedesco (2002) 25 WAR 360; [2002] WASCA 63 at [16] and [31]:

But unless the purposes of the provision of a contribution of that kind go further and the court concludes that it is intended to enhance the material wellbeing of both parties, or to provide the contributing party with an interest in specific property, or that it is made upon the basis that that party would have an interest in such property, then it seems to me that equity will not hold to be unconscionable the retention of property in the beneficial ownership of the other party who has directly contributed to the acquisition, maintenance and enhancement of that material wealth or property …

A joint endeavour of this character is one which has the aim of adding to the parties’ material wealth for their mutual benefit rather than being one where the plaintiff simply provides loving care and support to the defendant as a normal incident of a de facto relationship. In that sense it is right to say that the joint endeavour must be one intentionally or deliberately entered into for the purpose of advancing the parties’ mutual material wealth. Only if it bears that character will it be unconscionable to allow the defendant to retain the entirety of the beneficial interest in that wealth. To hold otherwise, and in particular to hold that it would be sufficient if in fact the efforts of the plaintiff advanced the defendant’s capacity to acquire wealth, would, in my opinion, be to commit the error to which Deane J adverted in Muschinski of giving undue rein to the court’s idiosyncratic notions of fairness and justice.

71. The appellants accepted that if the parties agreed that Antionette would have an interest, albeit one which was undefined, in the Telopea property, that would suffice, but challenged the finding by the primary judge that the agreement extended to Antoinette having any interest in the property, and challenged the sufficiency of his Honour’s finding that there was a “mutual understanding” that Antoinette enjoyed any such interest.

72. The appellants emphasised (a) that at the time the Telopea property was acquired, Antoinette did not know whether, or when, she would receive any money from the matrimonial settlement, and if she did receive funds, how much she would receive; and (b) the absence of any agreement or shared understanding as to the nature of the interest she might receive. As it was put:

… it becomes very vague and uncertain how much is she going to get from the Family Court proceedings, how much is she going to contribute. If she contributes $10,000 to the mortgage, is that sufficient to give her a proprietary interest? The real problem is that none of this was actually discussed by the parties, and for his Honour to find … that there was a mutual understanding that she had an interest in the property at the time of acquisition, it’s a further hurdle to leap to say that the parties, in fact, reached a mutual understanding that there was a conditional arrangement that she would obtain an interest in the property, depending on how much she received from the Family Court proceedings, and if she decided to contribute that to the property.

There was simply no discussion about any of that, and in the circumstances, in my submission, his Honour erred to find that there was such an understanding, conditional or otherwise.

73. The appellants then addressed the various matters and inferences upon which the primary judge relied, as follows (I have adopted the order in oral submissions):

1. The fact that Antoinette contributed more to the repayment of principal than did Orlene and David (on which the primary judge relied at [166]) did not indicate one way or the other as to whether the relationship was merely that of landlord and tenant; in the usual case, a tenant’s rent is used to repay a mortgage on a property. Likewise, to say at [167] that “Antoinette effectively under[wrote] the acquisition” did not distinguish Antoinette from many long term tenants.

1. The fact that Antoinette undertook repairs and maintenance was reflected in the express terms of the arrangement, and accordingly did not bear upon whether there was a joint endeavour.

2. Counsel confronted the most unusual aspect of the relationship, namely, the deposit of $130,000 by Antoinette thereby reducing Orlene’s and David’s debt, thus:

So far as the payment of the $130,000 is concerned, because Antionette was obliged to pay the holding costs of the property, the deposit of the $130,000 into the mortgage had the consequence that the monthly interest was reduced; and therefore, the monthly payments that Antionette was required to make under her agreement with Orlene were also reduced. In my submission, although it is an unusual arrangement, it was, in effect, another way for Antionette to uphold her end of the bargain of paying the outgoings and holding costs, and it was merely done by virtue of a deposit to reduce the holding cost so that she had to pay less each month.

One of the things that she did, which is unusual if the $130,000 was considered to be a payment towards a proprietary interest in the property, was that she was then able to withdraw $15,000 of that a few years later in order to purchase herself a car. If the arrangement was that she was to acquire an interest for $130,000, it is unlikely that she would’ve been permitted to then withdraw part of that $130,000, certainly without it affecting the interest that she had in the property.

4. The deposit paid by Antoinette was less than $1,000 and the tiles were $200. Both were said to be de minimis.

5. The appellants submitted that significant weight should be given to the advice in paragraph numbered 3 of the letter from Antoinette’s solicitors (concerning lodging a caveat with the written consent of Orlene and David), which Antoinette did not follow. This was said to contradict an understanding that she was to have an interest in the property.

6. The appellants also said that although the letter implied that Antoinette had an intention to conceal any interest in property from her former husband, it could not indicate any understanding to that effect on Orlene’s part.

7. The appellants maintained that it was necessary to identify a joint endeavour at the time the property was acquired, including in the following exchange based upon the payment of $130,000 ten months after the Telopea property was acquired:

HOROWITZ: … In those circumstances, where there was a large lump sum of money received, some 10 months or so after the original transaction was entered into, and in circumstances where it had not been known how much he would receive, it’s not an indication, the contents of that letter is not an indication that this was the parties’ intention in October 2001 when the property was purchased.

WHITE JA: That might be very significant if the appellant were forced to rely upon a common intention constructive trust where the intention existed at the time of the acquisition of the property, that the claimant would have some beneficial interest in the property. That’s not the basis upon which the judge decided the case.

HOROWITZ: The judge, with respect, did decide the case on that basis as is apparent from para 190 at red 96 where his Honour says, “The question is what finding I can make about the terms of the agreement between Antoinette and Orlene at the time the property was acquired”. His Honour considers there that the relevant time is at the time that the supposed joint venture was entered into.

8. The appellants said that the correspondence in late 2016 and 2017 concerning a gift being made by Orlene to Antoinette merely reflected a proposed act of generosity at that time, rather than an aspect of a joint endeavour. In response to his Honour’s reliance on Orlene’s failure to challenge a statement by Antoinette that “The understanding was that I would be the owner of the property later on, and then that was forwarded to Orlene”, counsel observed that that posited the case that the entirety of the beneficial ownership of the property rested with Antoinette, which his Honour rejected.

9. The appellants pointed to the evidence of Brandon, who was found to have been a reliable witness, and the improbability that a brother who had advanced $140,000 to assist in the acquisition would not know of the joint endeavour found by the primary judge.

10. Substantially the same points were made in relation to the engineer, Mr Breakenridge, although counsel correctly acknowledged it was a matter which carried “slight weight”, and Orlene’s accountant, who gave unchallenged evidence that she was instructed that it was an investment property owned by Orlene and David.

74. Orlene’s and David’s ultimate contention on ground 1 was:

In my submission, when all of those matters are taken into account, and especially the evidence of Mr Loos, it is apparent that there was no mutual understanding, as his Honour put it, between the parties that they both had ownership in the property at the time of its acquisition and, for the reasons that I’ve given, his Honour’s reliance on the letter from Swaab Attorneys, which was the central piece of his Honour's reasoning in reaching that conclusion - his Honour’s reliance, with respect, was misplaced because it neither demonstrated that Antoinette herself believed that she had an interest in the property, nor did it demonstrate that Orlene believed that Antoinette had an interest in the property, let alone that there was a mutual understanding between the two of them.

In those circumstances, it cannot be said that there was a joint endeavour that was intentionally entered into by the parties for the purposes of advancing the parties' mutual material wealth, and as such there was no joint endeavour for the purposes of a constructive trust being imposed. If the agreement was simply what is set out at [190] of his Honour’s judgment … then in my submission the appellants must succeed, and it’s only if his Honour was justified in finding that both parties intended that they each have a proprietary interest in the property at the time that it was purchased that a constructive trust would be imposed.

75. This was because any joint endeavour sufficient to give rise to a constructive trust had to be one, according to the appellants, which was “entered into specifically for the purpose of advancing the parties’ mutual material wealth, so they have to have intended that at the time. It can’t just be a consequence that arises by happenstance out of the arrangement, and there's no evidence that that was the case here”.

Grounds 2, 3 and 4

76. Orlene and David submitted that the primary judge had found that the joint endeavour between the parties was the provision of accommodation to Antoinette in return for Antoinette paying the Property’s outgoings and interest on the mortgage, on which basis the joint endeavour continued for about 20 years. It was said that it was not unconscionable for Orlene and David to retain all of the proceeds of sale of the Property – subject to their obligation to return to Antoinette the amount that she had paid in reduction of the mortgage, because “Antoinette received from the joint endeavour precisely what she bargained for – namely, a place to live in return for paying the holding costs”, and “Antoinette received a benefit from her deposit of $115,000 into the mortgage account in the form of a reduction in the monthly mortgage interest that she was obliged to pay under the terms of the joint endeavour”.

77. Orlene and David also sought to rely upon the principle that before a constructive trust was ordered, the Court must first decide whether there is an appropriate equitable remedy which falls short of the imposition of a trust: Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566; [1998] HCA 59 at [40]-[43] and Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 at [10]. Here, because Antoinette had enjoyed exclusive possession of the Telopea property for 20 years, it was said that “any equity that arose in Antoinette’s favour would have been satisfied by repayment of the sum of [$145,000] that Antoinette paid in reduction of the mortgage: see Morris v Morris [1982] 1 NSWLR 61 at 64”.

78. The notice of appeal identified Antoinette’s payments in reduction of principal in each of grounds 2, 3 and 4 as $115,000. In the absence of a challenge to the finding in relation to the two payments of $15,000 in October and December 2002, I have understood those grounds as referring to $145,000. Orlene and David acknowledged in oral address that these grounds largely stood or fell with ground 1, and submitted by reference to expert evidence that Antoinette had only paid market rent over the entire period.

Applicable principles

79. First, as the primary judge pointed out to counsel in a hearing prior to the trial, claims based on a resulting trust are quite different from claims based on a constructive trust. Where property is purchased in the name of another, the result may be that its legal owner holds on resulting trust for those who paid the purchase price, in proportion to the contribution made by each: Calverley v Green (1984) 155 CLR 242; [1984] HCA 81; Bosanac v Federal Commissioner of Taxation (2022) 275 CLR 37; [2022] HCA 34 at [12], [51], [104]. Antoinette would obtain minimal or no relief on any such claim, despite the fact that her payments substantially funded the mortgage debt, because Orlene and David provided almost the entirety of the purchase price, doing so using money borrowed by them from Wizard. As Mason and Brennan JJ said in Calverley v Green at 257, “[i]t is understandable but erroneous to regard the payment of mortgage instalments as payments for the purchase price of a home”.

80. Secondly, relief based on a constructive trust was potentially capable of yielding a much more favourable outcome to Antoinette than a claim based on a presumed resulting trust. That is because the underlying rationale is quite different. A presumed resulting trust turns on a divergence between the legal title of property and the consideration for which the property is acquired; its exclusive focus is upon what occurred at acquisition. However, a constructive trust is not so confined. As Deane J said in Muschinski v Dodds at 620, in a formulation reproduced and applied by the joint judgment in Baumgartner v Baumgartner at 148:

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.

81. In Baumgartner v Baumgartner at 148, the joint judgment identified:

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.

82. When determining whether an assertion of legal title is unconscionable, regard is had to the entirety of the parties’ conduct, including for example payments servicing or reducing a mortgage debt taken out in order to acquire the property. That is because whether there is an unconscionable assertion of legal right falls to be assessed at the time of the hearing, rather than at the time the jointly owned asset is acquired. That more expansive approach is not confined merely to the quantification of calculating payments made in furtherance of the joint endeavour (such as interest and outgoings and repayments of principal). In Green v Green (1989) 17 NSWLR 343, Gleeson CJ observed that while a number of judgments referred to intention or conduct “on acquisition” of the property, “in a given case the relevant events leading to the finding of an interest in the claimant may occur after acquisition, and beneficial interests may change in the course of the relationship between the parties”: at 355-356.

83. Thirdly, there are a number of other ways in which a plaintiff may claim he or she is entitled to relief by way of constructive trust in circumstances not dissimilar from those in the present litigation. One may be through proprietary estoppel, which was also pleaded in this case, but his Honour did not decide the case on that basis. Another may be through what his Honour referred as a “common intention constructive trust”, but once again his Honour did not decide the case on that basis. In the absence of any notice of contention or submissions on those principles, there is no occasion to say anything further about them, which is the approach taken by the Victorian Court of Appeal in Zekry v Zekry [2020] VSCA 336 at [76] and this Court in Koprivnjak v Koprivnjak [2023] NSWCA 2 at [24]-[25] and Galati v Deans [2023] NSWCA 13 at [57]-[61].

84. Fourthly, the class of case found by the primary judge involves the formation of a joint endeavour, the acquisition or property pursuant to that joint endeavour and its premature termination without fault of either side, leaving one party with a legal interest which was not intended to be enjoyed beneficially. In fact, his Honour’s formulation of those three elements at [231] of the main judgment was cited with evident approbation by this Court in NSW Trustee and Guardian v Togias (2022) 110 NSWLR 86; [2022] NSWCA 225 at [62]. Orlene and David did not dispute the correctness of that formulation of principle.

85. Fifthly, many of the decisions in this area involve contributions which are non-monetary. That is not this case. However, concerning monetary contributions, in Zhang v Metcalf [2020] NSWCA 228 at [60] this Court said that it was “necessary to distinguish between mortgage instalments which include a component of principal and interest”, and endorsed the following passage from West v Mead at [61]:

… But the fact that part of the instalment is a payment of interest means that the beneficial interest in property acquired as a result of paying an instalment is not likely to be equal in value to the amount of the instalment paid. It is the proportions in which contributions to the purchase price are made which matter in determining beneficial ownership, not the absolute amount of such contributions.

86. Sixthly, in many cases the working out of the terms of a constructive trust rely on the maxim that “equality is equity”: see for examples in this Court the decisions of Green v Green at 355 and Galati v Deans at [72]. In the former, Gleeson CJ observed that:

Even in a case where a court can infer an actual intention to share ownership of real estate it is, of course, extremely rare that the parties will be people of such sophistication that they advert to or contemplate some particular form of legal title. Thus the court may have to resort to the application of such principles as that expressed in the maxim “equality is equity”.

87. Baumgartner v Baumgartner explains when a court should depart from equality. A property was acquired by Mr Baumgartner, using his own money and money borrowed by him secured by a mortgage over the property which was in his sole name. The couple pooled their earnings, but it was found that their respective contributions were approximately in the ratio of 55:45. When the relationship broke down, Mr Baumgartner was found to hold the property on constructive trust:

The case is accordingly one in which the parties have pooled their earnings for the purposes of their joint relationship, one of the purposes of that relationship being to secure accommodation for themselves and their child. Their contributions, financial and otherwise, to the acquisition of the land, the building of the house, the purchase of furniture and the making of their home, were on the basis of, and for the purposes of, that joint relationship. In this situation the appellant’s assertion, after the relationship had failed, that the Leumeah property, which was financed in part through the pooled funds, is his sole property, is his property beneficially to the exclusion of any interest at all on the part of the respondent, amounts to unconscionable conduct which attracts the intervention of equity and the imposition of a constructive trust at the suit of the respondent.

88. The joint judgment of Mason CJ, Wilson and Deane JJ in Baumgartner explained the way in which equity favoured equality but nonetheless would depart from equal treatment in certain circumstances. Their Honours said:

The facts that the Leumeah property was acquired and developed as a home for the parties and that, at least indirectly, it was largely financed out of money drawn from the pool of their earnings, this being one of the purposes which the pool was to serve, combine to support an equality of beneficial ownership at least as a starting point. Equity favours equality and, in circumstances where the parties have lived together for years and have pooled their resources and their efforts to create a joint home, there is much to be said for the view that they should share the beneficial ownership equally as tenants in common, subject to adjustment to avoid any injustice which would result if account were not taken of the disparity between the worth of their individual contributions either financially or in kind. The question which has caused us particular difficulty is whether any such adjustment is necessary in the circumstances of the present case to avoid any injustice which would otherwise result by reason of disparity between individual financial contributions. The conclusion to which we have come is that some such adjustment is necessary.

Although the present case is close to the borderline, we do not consider that it is possible to treat the respective financial contributions of the parties as being approximately equal. Even after crediting the respondent with the amount she would have earned during the period of three months during which the respondent was precluded from working by reason of having and caring for their child, it is agreed that the respective contributions were approximately 55 per cent as to the appellant and 45 per cent as to the respondent, that is to say, the appellant contributed almost a quarter more than the respondent. The Court should, where possible, strive to give effect to the notion of practical equality, rather than pursue complicated factual inquiries which will result in relatively insignificant differences in contributions and consequential beneficial interest. We do not think, however, that the difference in the present case can be regarded as relatively insignificant. Nor has it been suggested that the difference in the amount of the financial contributions was offset by the greater worth of the respondent’s contribution in other areas. In these circumstances, though acknowledging that the case is close to the borderline, we consider that the constructive trust to be imposed should declare the beneficial interests of the parties in the proportions 55 per cent to the appellant and 45 per cent to the respondent.

89. Finally, implicit in the element of a “joint endeavour” which has terminated prematurely is the need to identify its scope or content. In Zhang v Metcalf at [57] this Court said:

An essential aspect of the Baumgartner principle is a joint relationship or endeavour, and an asset acquired in the course of, or for the purposes of, that joint relationship or endeavour: Baumgartner at 149. That involves identifying the scope of the joint endeavour, which is a question of fact. The basis for a constructive trust only arises where there is a premature termination of the relationship: Baumgartner at 150; West v Mead at [64].

90. Baumgartner once again illustrates the application of principle. In addition to holding that the beneficial interests of the parties were in the proportion 55:45, the joint judgment held that there should be additional adjustments, including the mortgage instalments paid by Mr Baumgartner and him alone before the commencement of the relationship and after its breakdown, and the value of the furniture acquired with the parties’ pooled assets which the respondent took with her: at 150-151. Those adjustments reflect the fact that the scope of the joint endeavour was that the parties would pool their resources in order to acquire a home which was in the man’s name, and thus adjustments were acquired insofar as payments were made by one party from his own assets, or assets acquired from pooled funds were taken by one party.

91. The same point was made in West v Mead at [59], where Campbell J said that in addition to establishing that there is a joint endeavour:

[i]t is also necessary to identify what the scope of that joint endeavour is. It is a question of fact, for any couple, what the scope of the joint endeavour they are engaging in is. Further, for any couple, the scope of the joint endeavour they are engaged in might change from time to time. If, within the scope of a joint endeavour which lasts for years, an asset is acquired, as a result of contributions both parties have made, and for a purpose of the ongoing joint endeavour of the parties, this gives rise to the presumption that the beneficial interest ought to be shared equally. That presumption can be displaced if one party is able to show that the contributions, both financial and non-financial, to that asset should be regarded as unequal. In practical terms, this way of proceeding will place the onus of attributing a value to non-financial contributions on the person who asserts that the title should be held unequally.

92. That passage was reproduced and applied in Togias at [87] and [102]. As will be seen when addressing ground 8, the identification of the scope of the joint endeavour is also central when identifying the extent to which adjustments are to be made when determining the terms of the constructive trust.

Consideration of grounds 1, 2, 3 and 4

93. The appellants’ submissions were concise, thorough and advanced Orlene’s and David’s case as effectively as it could be, addressing most of the testimonial and documentary evidence which bore upon the creation and history of the joint endeavour to acquire the Telopea property. Even so, I am unpersuaded that the primary judge erred.

94. Given his Honour’s findings of the sisters’ unreliability and credibility, and the unchallenged finding that David’s evidence was not based on a firm recollection of an agreement in which in any event he had no independent role, the starting point was the objective facts. These may be summarised as follows:

1. Orlene, David and Brandon were rallying around their sister in her dispute with her former husband and supporting her need for a home.

2. When the dispute with her former husband was resolved, Antoinette would receive an amount of money, although neither the timing nor the amount could be estimated with certainty.

3. It was certain that Antoinette and her daughters and pets would need a home before Antoinette received money from her divorce.

4. When Antoinette received $233,000 from her settlement with her former husband, she paid $160,000 to Orlene or David to pay down the mortgage debt.

5. From the moment the Telopea property was acquired, Antoinette was making contributions of a capital nature (by way of deposit and improvements).

6. Throughout her occupation of the Telopea property, Antoinette paid outgoings like rates and insurance, and contributed a substantial amount, concededly at least $45,000, by way of capital improvements.

95. True it is that Antoinette paid amounts styled by each sister as “rent”. There was a motive for both sisters to treat those payments in that fashion, because both received a financial benefit from doing so. Undoubtedly that reflected Orlene’s instructions to her accountant, but I see no error in the primary judge considering this as not bearing on the arrangement as between the sisters.

96. Nor is there any reason to give any appreciable weight to what Brandon was not told. Antoinette was unaware of Brandon’s contribution until much later, and so there was no reason for her to tell him. It was not suggested that David had any conversation with Brandon at the time. Although Orlene was aware of both her sister’s and Brandon’s repayment of principal, it seems that she did not tell Brandon of Antoinette’s repayment, for Brandon by his own account did not learn that Antoinette had contributed approximately the same amount as he had until “later”. In those circumstances, very little weight is to be given when determining the existence and scope of the parties’ joint endeavour to what Brandon, who was not a party to it, was not told.

97. As the appellants fairly acknowledged, minimal weight is attributable to Mr Breakenridge not being told of any interest on the part of Antoinette. His interest was professional, rather than familial, and it was the interest of a consultant engineer in a proposal which did not proceed.

98. I do not accept Orlene’s and David’s submission concerning Antoinette’s decision not to follow her solicitor’s advice to lodge a caveat. It seems clear that Orlene and David were behaving altruistically, obtaining a large loan and mortgaging their own property in order to provide a home to their sister and aunt and her children and pets which she could not otherwise afford. It is entirely understandable that Antoinette did not reduce the arrangement to writing nor lodge a caveat against the property.

99. Added to the above are the admissions by Orlene in the 2016-2017 email correspondence that Antoinette had an interest in the property, and Antoinette’s belief recorded in the advice from her solicitors that she had something which she sought (unnecessarily) to conceal from her former husband.

100. All those matters pointed powerfully to the fact that there was an agreement between Orlene and Antoinette that the latter would fund the mortgage and pay down the indebtedness when she could out of the money she received from the settlement with her former husband. That was the finding explicitly made by the primary judge at [169]: “I am satisfied that, although the amount could not of course have been known at the time, it was part of the plan between the parties from the outset that Antoinette would make a capital contribution to paying down the mortgage from her property settlement when she received it”. I am unpersuaded that a basis has been made out for setting it aside.

101. Orlene and David challenge the finding that the agreement extended to providing Antoinette with an interest in specific property. But the payment of a small part of the deposit, some minor improvements at the outset, and the expectation that there would be a substantial repayment of the mortgage debt when Antoinette was able to do so, make it natural to conclude that the agreement extended to an interest in the property. Antoinette’s view that she would have an interest in property which she sought to conceal from her former husband is to the same effect.

102. There was no writing, but this was an arrangement based on ties of family rather than commerce. The other members of Antoinette’s family wanted her and her daughters to have a home. It is far from improbable that Orlene and David should be regarded as having agreed that Antoinette have an interest in the house where she was living given the circumstances summarised above. That interest was undefined, but that does not stand in the way of a constructive trust. To the contrary, the ordinary case of a joint endeavour involving close personal or familial ties will be one where the parties have not specified with any precision the interest each is to enjoy in the property.

103. Orlene and David emphasised that the primary judge found that the only terms of the agreement at the time the Telopea property was acquired was that Orlene and David would acquire it using borrowed funds, and Antoinette would service the loan and other outgoings and live in it. So much may be accepted. But his Honour went on to find that the parties proceeded on the basis that at the time of the acquisition there was a mutual understanding that Antoinette would make a capital contribution when her divorce was finalised. That is sufficient to uphold the conclusion of a joint endeavour an aspect of which extended to a capital contribution by Antoinette. It is not necessary to identify whether, at the time the Telopea property was acquired, Antoinette enjoyed a present interest in the property, or one which was contingent upon the anticipated payment by her of money received when her divorce was resolved. As Gleeson CJ noted in Green v Green, the beneficial interest may change in the course of the parties’ relationship. It is sufficient to proceed on the basis that no later than October – December 2002, when Antoinette paid $160,000 in reduction of the money borrowed by Orlene and David from Wizard, the joint endeavour proceeded on the basis that Antoinette enjoyed an interest in the property.

104. Orlene and David also sought to rely upon a qualification concerning non-financial contributions made in Lloyd v Tedesco, where Murray J said at [16] that

unless the purposes of the provision of a contribution of that kind go further and the court concludes that it is intended to enhance the material wellbeing of both parties, or to provide the contributing party with an interest in specific property, or that it is made upon the basis that that party would have an interest in such property, then it seems to me that equity will not hold to be unconscionable the retention of property in the beneficial ownership of the other party who has directly contributed to the acquisition, maintenance and enhancement of that material wealth or property.

105. However, that qualification is inapplicable to the financial contributions made by Antoinette, notably, the $160,000 paid in the period from October-December 2002 in reduction of the principal owed by Orlene and David. The point of the qualification in Lloyd v Tedesco is to discount the valuable contribution commonly made in such cases in the form of unpaid care and domestic assistance, on the basis that that is attributable to the personal relationship between the parties (who are often de facto partners) and therefore not to be taken as directed to the joint endeavour. But that is not the present case, where the sisters lived separately, and the contributions relied upon were financial, and were made on the basis that Antoinette would have an interest in the Telopea property.

106. As counsel acknowledged, grounds 2, 3 and 4 largely fall away in light of those conclusions. Once it is accepted, as it must, that no later than the end of 2002 when Antoinette paid $160,000 to Orlene in diminution of the principal owed by Orlene and David to Wizard, reflecting a joint endeavour which gave her an interest in the Telopea property, it cannot be concluded that equity would insist only that Orlene and David return $160,000 (in fact $145,000) to her when the joint venture came to an end two decades later.

107. For those reasons, I conclude that grounds 1-4 have not been established.

Grounds 5 and 7 – David’s indefeasible interest

108. These grounds were addressed together. Ground 5 challenged the finding at [175] (which is reproduced in full at [49] above) to the effect that David acted as Orlene’s nominee.

109. Ground 7 maintained that the primary judge should have held that Antoinette had no equitable claim in respect of David’s half share of the Telopea property. This had been put forward in written submissions at trial, to the effect that David as a registered proprietor enjoyed an indefeasible interest subject to any personal equity against him, and because it was not alleged or established that David was a party to any joint endeavour or the agreement which was pleaded, her claim based on a constructive trust against him must fail.

110. The appellants’ written submissions on this point in this Court occupied little more than a page, and also developed the point that, it not having been pleaded that David was Orlene’s agent, or put to him in cross-examination, the finding that he was her nominee with the consequence that his share of the property was subject to a constructive trust was alleged to have been procedurally unfair. However, this ground was withdrawn when the appeal was heard, it having been noted that neither Orlene nor David sought a retrial.

111. Orally, it was said that Orlene accepted that she had no authority to bind David when she wrote on his behalf, including in her email to Antoinette on 9 December 2016: “On settlement David and I will instruct our lawyer to pay in full all monies due to David to be paid to you”. It was said:

… in my submission there’s no basis upon which it could be found that David should be bound by any representations that Orlene made, or any discussions that Orlene had with Antionette, which involved giving away an equitable interest that David has in the property, or any of his proprietary interest. In terms of unconscionability, there’s no unconscionability on David’s part if he was not a party to this arrangement. If he didn’t know about it, he was always under the impression that it was a landlord tenant relationship and it can’t be said that it’s unconscionable for him to keep his 50% share, and that would mean that only Orlene’s share is subject to a joint endeavour constructive trust, and David’s share would remain free of that trust.

112. I do not accept these submissions.

113. The primary judge recorded at [22] that:

Orlene was born in March 1951 and is therefore almost four years younger than Antoinette. Her son, David, is Orlene’s only child. He was born in 1975. Orlene’s husband died when David was three years old; thereafter Orlene brought David up as a single parent. David has always lived with her.

114. David gave evidence that Orlene told him that “Wizard will only lend me the money if I can find someone to be a co-borrower”. The regular repayments to Wizard were made from Orlene’s bank account. David said that he did make two payments totalling $3658 in January and February 2002 into his mother’s account to repay the loan, and that he had mistakenly paid some water rates. He said that he was not a party to discussions concerning Antoinette’s repayment of $130,000, or his uncle Brandon’s deposit of $140,000.

115. The email exchanges mostly between Orlene and Antoinette reproduced above have Orlene purporting to speak on David’s behalf: thus “you will receive David’s share”; “all monies due to David will be paid to you” and “you will get the 50% share of the proceeds that will be portioned to David”. Their effect is that Orlene and Antoinette proceeded on the basis that David would himself have no interest in the land of which he was a joint registered proprietor.

116. Most importantly there is the email from David to his cousin (Antoinette’s daughter), to which the Court’s attention was properly drawn by the appellants’ counsel to correct an erroneous statement by Antoinette’s counsel in response to my question whether there were direct communications from David. On 30 January 2017, he wrote “I have read all of the correspondence contained within your e-mail” and “I am aware of the ongoing issues regarding the sale of the property”. David’s email was substantially reproduced by the primary judge at [82], and also contained the following:

If the sale of the house were to go ahead and be successful, mum cannot merely transfer the proceeds (minus tax demands of the ATO) to Antoinette as this will make mum ineligible for any form of pension payment from the Commonwealth Government for at least 5 years. This does not mean that the proceeds of the sale of the house (minus taxes) would not go to Antoinette; it would just have to be done differently as opposed to a lump sum amount going into her account.

If you have formal legal advice that shows a lump sum from the sale of the house can be placed in Antoinette’s bank account without penalising mum, please forward it to me. The legal opinions I have received so far, state that as far as the Commonwealth Government is concerned, if mum were to do this, it would be tantamount to giving away money that she should use for her living expenses instead of applying for the pension. This even covers giving money to family members. (emphasis given by primary judge)

117. Thus on the face of the email it would appear that (a) David was fully aware of the dispute between his mother and his aunt, (b) if the house were sold, he made no claim for himself or his mother, and (c) he invited his cousin to indicate a way by which the proceeds could be transferred to Antoinette in full without jeopardising his mother’s entitlement to a pension.

118. Orlene and David submitted that what David wrote in 2017 did not establish his knowledge of or participation in a joint venture in 2001. They added that at the time he wrote that email, his evidence was that he “was very ill, and off work, and was focussed on my recovery”. His evidence was that he was suffering from surgical complications from an injury sustained in 2013, and two forms of mental illness the details of which need not be elaborated.

119. Accepting both of those points, I would not interfere with the judge’s finding that David was Orlene’s nominee. For one thing, it is a conclusion which was likely informed by impressions made when David gave evidence: Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55]. For another, it seems to reflect the reality of the situation, where substantial decisions were made by Orlene, and David was admittedly not involved in decisions by Brandon and Antoinette to pay down what was after all his personal indebtedness. Even though David was unwell at the time, he seems fully to have accepted that he had no claim to the Telopea property. That is consistent with Orlene’s emails to her sister where she proceeds on the basis that she has authority to speak for and deal with David’s interest.

120. For those reasons, it has not been established that “nominee” is an inapposite description of David. His name was on the title, but so far as the evidence records, he would act at the direction or Orlene, who made all decisions concerning their ongoing obligations as borrowers and mortgagors. There is no challenge to the evidence that David’s name was only given because Wizard would not otherwise make the loan, and it is not suggested that he made any independent decision concerning the property throughout the entirety of the time he was a registered proprietor. I am unpersuaded that these grounds are made out.

Ground 8 - indexation

121. Ground 8 alleged that the primary judge had erred in indexing Antoinette’s capital contributions in circumstances where:

1. “Antoinette’s capital contributions benefited Antoinette by reducing the amount that Antoinette had to pay in return for her exclusive occupation of the property”; and

2. “The appellants have made capital contributions to the property approximately equal to Antoinette’s in the form of monies borrowed from the bank to finance the acquisition of the property, which capital contributions were not indexed by his Honour”.

122. In his principal judgment, the primary judge concluded that orders based upon the approach taken in Muschinski v Dodds should be applied, namely, that there should be repayment of the parties’ respective contributions and the division of the residue into equal shares. His Honour concluded, as previously noted, that the parties did not consider how the equity in the property, if there was to be any, would be shared, and that in those circumstances the fairest way to deal with this was to split it equally.

122. It will be recalled that his Honour found that Antoinette had contributed $160,000 by way of repayment of principal between October and December 2002, but had received $15,000 in 2006 to purchase a car, and that otherwise had made some payments which reduced the outstanding principal, as had Orlene and David.

123. Orlene and David provided to his Honour a spreadsheet which purported to show the contributions made by each of Antoinette on the one hand and Orlene and David on the other. The argument was advanced as follows. It was said that Orlene’s and David’s capital contribution was approximately equal to that of Antoinette. This could be seen in two ways, although both depended on treating the initial $410,000 borrowed by Orlene and David as their capital contribution. First, at the end of the period (November 2019), the mortgage debt had reduced to some $208,000, while Antoinette’s capital contribution (without any indexation) was shown to be some $193,000, and these amounts were approximately equal. Secondly, if there were to be indexation of Antoinette’s contribution, Orlene and David said that there should also be indexation of the contribution made by Orlene and David, which the table sought to do. It was said that Antoinette’s capital contribution, after indexation, was $495,333.32, while Orlene’s and David’s capital contribution, indexed, was $539,979.61. The appellants’ criticism was that by indexing only Antoinette’s capital contributions, and putting to one side the money lent by Orlene and David to acquire the property entirely, Antoinette was receiving a windfall.

124. The primary judge rejected their argument. As noted at the outset, the materials available to this Court do not enable a precise calculation, because of further adjustments, the appropriateness of which is not challenged on appeal, concerning occupation rent and payment of interest and other expenses as contemplated by his Honour’s orders. But putting those further adjustments to one side, the result reached by the primary judge was that Orlene’s and David’s indebtedness was to be repaid in full (the primary judge recorded this was $232,322 as at 1 June 2021: at [224]), while the orders show that Orlene and David will also receive $200,000 + $16,522.26 + (½ x $246,688.74) or around $340,000, while Antoinette will receive $200,000 + $494,016.66 + (½ x $246,688.74) or around $830,000. That amounts to a division of the “equity” in the property (the net proceeds after repaying the mortgage debt) of around 30% to Orlene and David and 70% to Antoinette.

125. On appeal, Orlene and David reiterated their contention that indexation of Antoinette’s contribution was not called for. Antoinette’s submissions in response were brief. In fact, they were confined to a single paragraph:

The challenge to the indexation of the amount as found by the learned Trial Judge despite the elaborate and with no disrespect intended did not address nor did it identify how or in what circumstance the matter would require anything other than indexation. In view of the finding at [261] which is relied upon to demonstrate the clear unconscionability it is seriously contended by the Appellants that the Respondent should not have her interest as found indexed thereby enabling a retention of a benefit where the property as realised would result in an equity of more $1 million for Orlene and David despite their out-of-pocket contribution which on their own case was no more than $47,000 - [261] RB p15. For this reason alone the argument as developed by the Appellants’ submission clearly must fail as it rightly should and be rejected.

127. Antoinette’s submissions miss the mark. Orlene and David by this ground of their appeal accept that Antoinette is entitled to more than the return of her $145,000, but also to an equal share of the capital appreciation of the Telopea property. The question raised by this ground is whether, in repaying to the participants in the joint endeavour their capital contributions before distributing the capital appreciation, Antoinette should be repaid $145,000 unindexed, or alternatively that amount indexed over 20 years in line with the increase in property values. On no view will this ground if made out result in an entitlement of more than $1 million for Orlene and David.

128. As will be apparent from the treatment of grounds 1-4 above, the most significant aspect of this dispute is the common understanding prior to acquisition of the Telopea property in November 2001 that Antoinette would in the near future receive funds when her divorce was finalised, coupled with the fact that in October and December 2002 when her divorce was finalised, Antoinette did receive funds and paid $160,000 to Orlene in reduction of the principal.

129. Zhang v Metcalf and West v Mead emphasise the significance of identifying the scope of the joint endeavour. In the present case, the essence of the joint endeavour was the acquisition of a home for Antoinette and her daughters and pets, in the name of Orlene and David and using funds borrowed by them, with Antoinette servicing the mortgage and paying other outgoings but on the basis that when in the near future Antoinette received money from the finalisation of her divorce, a deal of that money would be repaid on Orlene’s and David’s loan. The significance of this is that the payment of $160,000 by Antoinette was not some unexpected development for which an adjustment needs to be made. It was an important aspect of Antoinette’s performance of her side of the joint endeavour.

130. The same may be seen by considering a slightly different example. Suppose that one sister fell upon hard times, and her asset-rich sister bought a house for her to live in for $400,000, on the basis that the first sister would pay off a thirty year mortgage and all other outgoings, at the end of which she would have transferred to her the house. Suppose further that the first sister won a lottery in the first year, and repaid her asset-rich sister $160,000, but that after twenty years the relationship broke down, and the principles in Muschinski v Dodds and Baumgartner v Baumgartner were applied to a property which was now worth $1.4 million. In that case the payment of $160,000 – some 40% of the value of the property at the time – is extraneous to the joint endeavour, and requires an adjustment which should incorporate the time-value of money. One way of seeing this is to alter the example somewhat, so that the sister’s lottery win occurs in the fifteenth year, rather than the first year. It is clear to me that if the sister pays her asset-rich sister $160,000 in the fifteenth year, rather than the first year, and the relationship breaks down after twenty years, then a lesser adjustment is required. By the fifteenth year, the property would be worth more than $1,000,000, and the payment of $160,000 reflected a small fraction of its value. Further, the payment of $160,000 in the first year deprived herself of use of that fund over the ensuing 15 years, and meant that the asset-rich sister ceased to be exposed to the full debt over the same period.

131. The point of that example is to explain why, in a case where the repayment of capital was fortuitous and outside the scope of the joint endeavour, there is a significant difference to the repayment occurring in the first as opposed to the fifteenth year, such that it would be wrong to put the timing to one side. In those circumstances, indexation would be appropriate.

132. But that is not the present case. Antoinette’s payment of $160,000 was not fortuitous. It was part of the joint endeavour. Indeed, save for the fact that it was paid at the end of 2002, rather than a year earlier when the property was acquired, it bore the same character as the money borrowed by Orlene and David from Wizard to acquire the property. In the circumstances of this case, it should be treated in the same way as the loan by Orlene and David when applying the principles in Muschinski v Dodds and Baumgartner v Baumgartner.

133. My conclusion that the $160,000 should not be indexed is strengthened by the following consideration. An adjustment is made in a case such as this to the basic approach of equal division following the blameless breakdown of the joint endeavour because one party can make out a case that it is necessary to do so in order to avoid an assertion of legal entitlements which would be unconscionable. The effect of indexation is that the capital appreciation of the Telopea land, which was the result of its acquisition by Orlene and David, the servicing of the loan by Antoinette, and an early contribution by Antoinette of around 40% of its value, is divided approximately 70:30 in favour of Antoinette. That strikes me as a result which is considerably too favourable to Antoinette, and greater than is required in order to prevent the exercise of Orlene’s and David’s legal entitlement from being unconscionable.

134. For those reasons, I would uphold this ground.

135. If all that had occurred, save for the payment of $160,000 pursuant to the joint endeavour, was that Antoinette had serviced the mortgage and paid outgoings, then the result would be that from the proceeds of sale, Orlene’s and David’s indebtedness would be repaid, Antoinette would be repaid $160,000, with the balance divided equally between Antoinette on the one hand and Orlene and David on the other hand. However, the position is a little more complex, because of (a) the $15,000 returned to Antoinette in 2006, and (b) the fact that in the course of making repayments of interest, both sides also repaid relatively small amounts of principal. Two competing considerations are in play. On the one hand, to the extent that those payments reflected withdrawals or payments of principal, then regard should be had to them, in accordance with what was said in Zhang v Metcalf at [60] and West v Mead at [61]. On the other hand, if the upshot is that the parties’ contributions are equal, or approximately equal, there is no occasion for any further adjustment.

136. Although the materials available to this Court do not permit a complete calculation to be made, I have concluded that the appeal can and should be resolved on the basis of approximate equality.

137. First, that was the submission made on behalf of Orlene and David. Orlene’s and David’s submission contended that “the parties’ capital contributions were very similar by the end of the endeavour - $193,614.37 for Antoinette and $208,485.64 for Orlene and David”. It may be seen that that submission reflected a measure of generosity (for Orlene’s and David’s capital contributions exceeded Antoinette’s) coupled with an appreciation that where there was approximate equality, equity would order an equal division. There was no refutation of that submission, or challenge to its correctness, although it really reflects nothing more nor less than the happenstance that, as it happens, Antoinette repaid almost all of the principal amounts of the loan, and the amount outstanding was approximately the same amount.

138. Secondly, that conclusion is corroborated by a consideration of the result which would obtain if Orlene’s and David’s loan were repaid, the $160,000 contributed by Antoinette in October and December 2002 was repaid, and one then asks what contributions to the reduction in capital over the period from November 2001 until December 2019 were made by each side. In order to perform that comparison, it is appropriate to index the $15,000 drawn down by Antoinette in December 2006, because there is a material difference between Antoinette drawing upon the principal debt to buy a car in 2006 as opposed to 2016. The tables provided by Orlene and David at trial, containing calculations the accuracy of which was not disputed, show that with indexation, the total amount repaid by Antoinette over the period was $495,333. From that amount it is necessary to deduct an (indexed) amount of the $160,000 paid in October and December 2002. Some 17 years of indexation upon that early repayment results in 160,000 x 1.0646¹⁷ = $463,756, so that, putting to one side the $160,000, Antoinette’s indexed repayment of principal is $495,333 - $463,756 = $31,576 (this figure is approximate, noting that the $160,000 was paid in three tranches, and the period is not precisely 17 years). Antoinette’s unindexed repayment of principal must be less than that. On the other hand, the same tables show that by November 2019 the loan had reduced to $208,485, which is to say just over $200,000 of principal had been repaid. Antoinette’s contribution to that repayment was an unindexed amount of $145,000 plus whatever repayments of principal were made which produced an indexed amount of $31,576; accordingly, the balance of the reduction in principal is attributable to Orlene and David. If the indexed repayment of principal by Antoinette is $31,576, the unindexed repayments are less than that. Thus the (unindexed) amount of principal which Orlene and David are to be regarded as having repaid is at least $200,000 - $145,000 - $31,576 or at least $23,424.

139. For what it is worth, the rough calculations in the previous paragraph produce a result which is comparable to the amount identified by the primary judge at [224] as a “potential capital contribution to the loan by Orlene”.

140. The result is that, putting to one side the $160,000 paid by Antoinette in October and December 2002, but having regard to the repayments of principal by both sides subsequently as well as Antoinette’s drawing down of a further $15,000, either Orlene and David repaid more principal than Antoinette or else they were roughly equal. In circumstances where Orlene and David are content with an equal division, that is sufficient to determine the terms of the constructive trust.

Conclusion and orders

141. For those reasons, all grounds save for ground 8 should be dismissed, but the appeal must be allowed on that ground. Insofar as the orders made at first instance indexed the payments of $160,000 by Antoinette in October and December 2002, and used that indexation to calculate Antoinette’s capital contribution to the property, those orders should be set aside. The proceeds of sale should be used to repay Orlene’s and David’s debt, and to repay $160,000 to Antoinette, and then divided equally, save for one qualification. The qualification is that allowance must be made for expenses, interest and occupation rent after the breakdown of the joint venture. As noted at the outset, the materials available to this Court do not permit that to occur.

142. The result will be that the amount of Antoinette’s capital contribution, to be repaid to her from the proceeds of sale prior to dividing the balance equally, will be significantly less than as calculated by the primary judge, and the balance to be divided between Antoinette on the one hand and Orlene and David on the other hand will be significantly greater. I note that the further amended notice of appeal seeks an order that Antoinette repay amounts she has received. To the extent that Antoinette has received money from the proceeds of sale reflecting an indexed contribution, she will have to repay those amounts.

143. I turn to costs. Orlene and David have failed on seven of the eight grounds, but have achieved a significant measure of success on the eighth. Taking a broadbrush approach, grounds 5, 6 and 7 (which concerned David) occupied minimal time in the parties’ written and oral submissions, and grounds 1-4 were substantially treated collectively. Of the two main issues argued, Orlene and David failed on the one which would have yielded greater pecuniary success, but succeeded on the other. The appropriate order reflecting the qualified success is that there be no order as to the costs of the appeal, with the intention that each side bear their and her own costs.

144. Although Orlene and David should have succeeded at trial in relation to Antoinette’s $160,000 payments not being indexed, the very large majority of their claim was rightly rejected. So far as I can see, very little of the costs incurred at first instance are attributable to the point concerning indexation which is the extent of Orlene’s and David’s success on appeal. For those reasons, as presently advised, I see no occasion to interfere with the exercise of the discretion as to costs at first instance. If there are matters of which this Court is unaware, or if either side wishes to be heard further as to costs at first instance, application may be made within the time permitted by r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW).

145. I propose these orders:

1. To the extent necessary, grant leave to appeal.

2. Appeal allowed in part.

3. In respect of the orders made on 28 July 2023, set aside part of order 1 namely, “AND the Plaintiff’s contributions shall be indexed at the rate of %6.46 per annum (compounded) from the date on which those contributions were paid until 9 December 2019”, and order 2.

4. Direct the parties to file and serve, within 21 days of today, agreed short minutes of order or, in default of agreement, proposed short minutes of order and short submissions not exceeding 5 pages in support of the orders for which they contend, with a view to this Court making final orders resolving this appeal on the papers.

5. No order as to the costs of the appeal, with the intention that the parties bear their and her own costs.

146. WHITE JA: I agree with Leeming JA.

147. GRIFFITHS AJA: I agree with Leeming JA.

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Decision last updated: 24 May 2024