Miner and Gilchrist and Anor
[2008] FamCA 917
•3 October 2008
FAMILY COURT OF AUSTRALIA
| MINER & GILCHRIST AND ANOR | [2008] FamCA 917 |
| FAMILY LAW – PROPERTY – Transfer of proceedings from Supreme Court of New South Wales – Jurisdiction to hear the claim not contested - Whether a constructive trust – Equitable tracing |
| Family Law Act 1975 (Cth) |
| Barnes v Addy (1874) LR 9 Ch App 244 Brandy v Stapleton (1952) 88 CLR 322 Commonwealth Bank of Australia v Saleh [2007] NSWSC 903 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Foskett v McKeown [2001] 1 AC 102 James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 Kak Loui Chan v Zacharia (1984) 154 CLR 178 Muschinski v Dodds [1986] 160 CLR 583 Re Diplock [1948] Ch 465 Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 Re Oatway [1903] 2 Ch 356 Re Tilley’s Will Trusts; Burgin v Croad [1967] Ch 1179; [1967] 2 All ER 303; [1967] 2 WLR 1533 |
| PLAINTIFF: | Mr Miner |
| 1st RESPONDENT: | Mr Gilchrist |
| 2nd RESPONDENT: | Mrs Gilchrist |
| FILE NUMBER: | PAF | 856 | of | 2005 |
| DATE DELIVERED: | 3 October 2008 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Parramatta |
| JUDGMENT OF: | Justice Le Poer Trench |
| HEARING DATE: | 15-16 November 2007 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Maiden SC |
| SOLICITOR FOR THE APPLICANT: | Williamson Solicitors |
| COUNSEL FOR THE 1ST RESPONDENT: | Mr Hodgson |
| SOLICITOR FOR THE 1ST RESPONDENT: | Watson Stafford |
| COUNSEL FOR THE 2ND RESPONDENT: | Mr Schroeder |
| SOLICITOR FOR THE 2ND RESPONDENT: | Matthews Dooley & Gibson |
Orders
A declaration that the husband held a one half interest in the property situated at M upon trust for Mr Miner from no later than the last day of December 1997 until the sale of the property on 15 August 2003. Thereafter the husband held the sum of $334,078 upon trust for Mr Miner.
A declaration that the husband and wife (and each of them) held the proceeds of $277,651 from the sale of the M property upon trust for Mr Miner.
A declaration that the husband and the wife are indebted to Mr Miner in the sum of $277,651 together with interest calculated under the Civil Procedure Act 2005 (NSW) from 15 August 2005 until judgment.
A declaration that the husband is indebted to Mr Miner in the additional sum of $56,427 together with interest calculated under the Civil Procedure Act 2005 (NSW) from 15 August 2005 until judgment.
In partial satisfaction of their liability to Mr Miner the parties cause the amount standing to their credit in the controlled money account held by the wife’s solicitors, Matthews Dooley & Gibson, and being the balance of the proceeds of sale of the property at B to be paid forthwith to Mr Miner.
The Court notes that the plaintiff Mr Miner subject to the question of costs which he is yet to consider does not propose to pursue the parties for any further money which may be owing to him after payment of the funds currently held by the parties in the controlled money account being the remaining proceeds from the sale of the B property.
The proceedings between the husband and the wife under section 79 of the Family Law Act 1975 (Cth) be listed for further mention before me at a time arranged by the legal representatives for the husband and the wife with my Associate.
IT IS NOTED that publication of this judgment under the pseudonym Miner & Gilchrist is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT PARRAMATTA |
FILE NUMBER: PAF 856 of 2005
| MR MINER |
Plaintiff
And
| MR GILCHRIST |
1st Respondent
And
| MRS GILCHRIST |
2nd Respondent
REASONS FOR JUDGMENT
Introduction
This case is an extraordinary case in the sense that the parties agreed to transfer to this court for determination a Supreme Court of NSW (Equity Division) action between the plaintiff in those proceedings Mr Miner and the defendants being Mr Gilchrist (the husband) and Mrs Gilchrist (the wife). It is necessary to determine this action as a precursor to hearing the section 79 proceedings between the parties to the marriage as the outcome will determine the pool of net assets (if any) to be divided between the husband and the wife.
The action requires a determination of whether the husband and/ or the husband and the wife held any interest in the property at M (hereafter referred to as the “M property”) or the proceeds of the sale of that property upon trust for Mr Miner.
It is common ground that there are no funds left in any identifiable fund flowing directly from the sale of the M property and the fund which the plaintiff seeks to attach court orders to is the fund held following the sale of a property at B (hereafter referred to as the “B property”). That property was, prior to its sale in 2003, owned jointly by the husband and the wife. The amount remaining from the sale of that property is about $190,000 and is held in a controlled money account by the wife’s solicitors, Matthews Dooley & Gibson, on behalf of the husband and the wife pending the determination of the plaintiff’s claim.
The case was heard at Parramatta on 15 and 16 November 2007. At the conclusion of the hearing further directions were made relating to the provision of submissions. The submissions were to be provided to the court by 14 December 2007. In fact the last event occurred on 10 March 2008 when the court was advised that the husband would not be providing submissions in relation to the Supreme Court proceedings.
At the time I commenced to hear and determine the dispute between Mr Miner and the husband and wife, there were other issues before the court including an application for an adjournment of the property proceedings pending the outcome of the wife’s personal injuries action. The husband did not oppose the action pursued by Mr Miner. His affidavit evidence was relied upon in part by Mr Miner; however, that affidavit was otherwise before the court in relation to the section 79 application and in particular, his application for an adjournment of the section 79 proceedings until the outcome of “damages for personal injuries” proceedings were concluded by the wife. He was cross-examined on material outside that relied upon by Mr Miner.
The Statement of Claim
The parties agreed that the Supreme Court Statement of Claim filed by Mr Miner on 19 July 2006 should be treated as if it was an application in this Court. Likewise the Defence to that Statement of Claim should be treated as if it was a Response filed in this Court. The Statement of Claim seeks:
1. An order for a declaration that the plaintiff held an interest in the land known as [M property], in the state of New South Wales and comprised in folio identifier […] (the [M property]), arising under an agreement between the plaintiff ([Mr Miner]), as purchaser, and the first defendant (the husband), as vendor, effected on or about December 1997 (the [M] agreement).
2. A declaration that the first defendant held his interest in the [M] property in trust for the plaintiff and the first defendant in equal shares.
3. A declaration that the defendant’s (and each of them) hold the proceeds of sale of the [M] property in trust for the plaintiff and the first defendant in equal proportions, pursuant to the [M] agreement and a further agreement between the plaintiff and the defendant’s, made on or about the 15th August 2003.
4. An order that the defendant’s (the husband and the wife) (or any of each of them) pay to the plaintiff the sum of $334,000 together with interest under the Civil Procedures Act 2005 (NSW) from 15 August 2003 until judgment, at the rate prescribed in schedule 5 to the Uniform Civil Procedures Rules 2005 (NSW).
Further orders were sought.
The Statement of Claim then sets out the basis upon which the claim is made. In a narrative form, the following emerges.
Mr Miner is the uncle of the husband in the proceedings.
In about 1993 the husband and his former partner, Ms L, purchased a property at M for about $175,000. In January 1996 the husband and Ms L separated.
In about September 1997 the husband and Ms L agreed to the husband acquiring her interest in the property at M for $120,000.
In December 1997 the husband paid out Ms L her $120,000 using funds provided by Mr Miner.
Mr Miner alleges that in December 1996 (1997 was incorrectly referred to) he and the husband entered into an agreement where the husband agreed to hold his interest in the M property in trust for Mr Miner and himself in equal proportions in consideration of Mr Miner advancing the sum of $135,000. The agreement was an oral agreement. The sum of $135,000 was paid by Mr Miner to the husband in December 1996.
The terms of the agreement were that in the event of the M property being sold Mr Miner would receive 50 per cent of the sale price, less the selling expenses. It was further a term of the agreement that the husband could buy out Mr Miner’s interest in the property at 50 per cent of the then current market value at any time prior to a sale of the property. In the evidence before the court it was also claimed by the husband that he was to be able to charge his half of the equity in the property for the purpose of raising funds for his own purposes. The evidence of the husband further claims that the husband was to meet all the outgoings on the property and had the right to occupy the property.
In May 2000 the husband and wife married. They were at that time living in the M property.
It is Mr Miner’s case that the wife in these proceedings was aware of the agreement between himself and the husband as to the ownership of the M property.
In about the middle of 2003, the husband and wife separated. At about that time the husband told Mr Miner that he proposed to sell the property at M. He said that the property required some improvements prior to sale and that following the sale, Mr Miner would be paid his half share of the proceeds. Accordingly, Mr Miner provided a further $8,000 to the husband to prepare the property for sale.
On or about 15 August 2003 settlement of the sale of the M property was affected. The property was sold for $690,000. Mr Miner was advised by the wife of the sale. In the course of that conversation Mr Miner alleges that the wife made it clear she was aware of the agreement between Mr Miner and the husband about the title to the property. She informed Mr Miner that she had no intention of making a claim against his half share of the M property.
Mr Miner says there were subsequent telephone conversations between the wife and him where she confirmed those earlier statements.
Mr Miner claims that on or about 15 August 2003 he and the husband made a further agreement in relation to Mr Miner’s entitlement from the sale of the M property. He says that he agreed to postpone the receipt of his half share until after the property at B was sold. This was a property from which the wife conducted a business.
The B property was sold on 15 October 2003 and from the sale proceeds $440,000 remained. This sum is now about $190,000.
The husband does not oppose the orders sought by Mr Miner. In the Supreme Court proceedings he filed no defence. In those same proceedings, the wife did file a defence. Her case is that the $120,000 used to pay out Ms L in fact came from funds borrowed from Aussie Home Loans. She denies that Mr Miner ever acquired an interest in the M property.
Importantly, the wife admits that she advised Mr Miner of the sale of the M property a few days after the sale had been affected. However, she denies the matters pleaded against her by Mr Miner as to the contents of telephone conversations between Mr Miner and herself following the sale of the property. Mr Miner had alleged that she had confirmed her knowledge of the agreement between himself and the husband about the title of the M property and that she had insisted he should demand payment of his share of the proceeds of the M property. The wife denies that there was a further agreement between the husband and Mr Miner in relation to the postponing of the payment of Mr Miner’s interest from the M property until the sale of the B property. Should it be established that there was a trust, she then says that Mr Miner’s interest should be satisfied out of the husband’s property.
Jurisdiction to Determine the Statement of Claim
There was no argument put that the Court does not have jurisdiction to hear and determine the case between Mr Miner and the parties to the section 79 application before this Court. All agreed that it was impossible to have the Court determine the section 79 applications without first determining this dispute. The determination of the Miner dispute was necessary for the purpose of determining what property might be available for distribution between the parties to the section 79 proceedings.
On 5 September 2007 the Court noted the agreement of the parties to transfer to the Family Court the proceedings between the parties in the Supreme Court of NSW for the purpose of having those proceedings determined on 15 and 16 November 2007 in this Court. The proceedings were so transferred.
Background Facts
There is no dispute between the parties as to the facts of the initial purchase of the M property by the husband. The M property was purchased by the husband and his then de facto partner, Ms L, in January 1993 for $175,000. This property was secured with a mortgage to the National Australia Bank. The husband and Ms L resided in a demountable cottage until their separation in or about January 1996.
Upon separation, it was agreed between the husband and Ms L that the husband would pay to Ms L the amount of $120 000 which represented the then half share value of the property. The husband approached his uncle, Mr Miner, for the amount of $135,000. On 2 December 1996 the sum of $135,000 was transferred by Mr Miner from the National Australia Bank account of Mr Miner and Mrs Miner to the husband’s bank account. (See exhibits P1 & P2).
There is some dispute as to the intended purpose of those funds. It is variously submitted that the remainder after payment to Ms L of $120,000, constituting $15,000, was to effect improvements on the M property; or alternatively, for the payment of legal costs. However, in any event, it is agreed that $120,000 of those funds were paid to Ms L.
Upon payment to Ms L of the $120,000 she transferred her one half interest in the M property to the husband.
The husband and Mr Miner contend that there existed an agreement between them the terms of which were that, if and when the M property was sold, Mr Miner was entitled to one half of the net sale price after sale costs. Alternatively, upon payment to Mr Miner of one half of the current market value of the M property, the husband could at any time become the sole owner of the property. In the interim, the husband was to meet all incidental costs and outgoings on the property for the duration of his residence. There is no documentation of this agreement or any other agreement between the husband and Mr Miner.
The husband asserts that he and Mr Miner intended to execute a document formalising the agreement. He claims that the transfer of title to his name as sole owner was only intended to avoid the payment of stamp duty on the transfer of the property. However, for various reasons a deed of transfer was never signed and the husband and Mr Miner relied upon the verbal agreement.
After the transfer of title to his sole name, the husband continued to reside at the M property. He and the wife commenced cohabitation at the M property in about March 1999, and married in May 2000.
The husband and Mr Miner both contend that the wife was aware of the agreement between them with respect to the M property. The husband claims that he had disclosed Mr Miner’s half ownership to the wife at the beginning of their relationship and following. The husband claims that he did not referred to the transfer of moneys as a loan, but said words to the effect: “[Mr Miner] is a half owner of the property.”
Whilst Mr Miner agrees that there was no direct communication between himself and the wife in relation to this arrangement, he denies that she was entirely ignorant of it.
The wife denies any knowledge of a financial agreement between the husband and Mr Miner in respect of the M property. She asserts that during cohabitation she was only aware that “[Mr Miner] loaned the money to pay out [Ms L] (referring to his previous defacto partner Ms L)”. She claims that it was only after the commencement of the proceedings that she became aware of the amount of the loan, and only at this time was it suggested to her that Mr Miner claimed an interest in the M property.
The wife asserts that between the time of commencement of cohabitation and the wedding, she met Mr Miner on about two occasions. On neither occasion was there discussion of the M property or of any financial connection or relationship between the Plaintiff and the Respondents in relation to the ownership of the property.
However, Mr Miner claims that on the husband and wife’s wedding day, the wife said to him, “Thanks for all the help you have given [the husband]”. Mr Miner understood that comment as acknowledgement of the payment of $135,000 to the husband for the M property.
Subsequent to the wedding, the wife asserts that she telephoned the Miners to thank Mr Miner for taking wedding photographs but cannot recall whether she spoke to Mr Miner or Mrs Miner.
The wife concedes that she did speak to Mr Miner at a family gathering in late 2001 or early 2002, but on that occasion again there was no discussion pertaining to the M property or any financial arrangements between Mr Miner and the husband. The wife asserts that this was the final meeting between herself and Mr Miner.
By the end of 2001 the Gilchrists had accrued substantial debts on mortgages against their M property, an investment property at K (hereafter “the K property”) and the B property. Substantial debts were also incurred by the husband’s business, “Y Business”, and the wife’s business. The Gilchrists’ marriage was also undergoing some difficulty.
The wife asserts that on or about 27 May 2003 the husband proposed the sale of the M property in order to “make a fresh start.” However, the husband claims that the wife agreed to the sale of both the M and B properties in order to pay off their debts. In any event, it is common ground that both the M and B properties were listed for sale simultaneously.
In preparation for the impending sale of the M property, the husband says he telephoned Mr Miner to request $8000 to improve the property by erecting a shed. The husband recalls that he stated to Mr Miner, “After the property is sold, we will pay you your half share.” Mr Miner provided a cheque for $8000 to the husband on 9 June 2003. The husband had told Mr Miner he would contribute an equal amount. The husband recalls that Mr Miner said words to the effect, “I’m happy to give you the money because I know it will help improve the property and make it easier to sell and therefore I’ll receive my half of the proceeds sooner.” The wife denies having any knowledge of the claim that Mr Miner paid for half the cost of the shed until the commencement of the proceedings (See exhibits P2 and P4).
The M property was listed for sale in June 2003. The wife claims that her only involvement in the sale was to facilitate inspections of the property for the purposes of sale.
On 11 July 2003, the husband and wife separated.
After separation, the B property was listed for sale and was sold on 15 October 2003.
On 15 August 2003, a cheque in the sum of $256,130.39 was deposited into the CBA Business Cheque Account of the husband. This represented the proceeds of sale from the M property.
The wife asserts that she did not receive any benefit from the proceeds of the sale, nor was she aware of the details of the disposal of the sale proceeds of the M property.
The husband says that the proceeds of the M property were used to pay off the business debts accrued by both the husband and the wife. He says that after these debts were paid there were insufficient funds to then pay Mr Miner his half share of the proceeds.
All of the parties agree that various telephone conversations took place between them at or after the time of the deposit of the proceeds of sale of the M property. However, there is substantial disagreement as to what was discussed on those occasions.
The husband says that at some time after settlement of the M property he spoke to the wife and the effect of the conversation was as follows:
[The husband]: “We have to pay [Mr Miner] his money but we’ve used some of it to clear our business debts. We will need to use some of the settlement money from [B property] to help pay [Mr Miner] what he is owed. You can then have the rest of the money from [B property], which could be up to $100,000.”
[The wife]:“OK, there’s no other way to do it. That’s obviously what we have to do.”
Subsequent to that conversation, the husband then says he telephone Mr Miner and said the following:
[The husband]: “I’m sorry, [the wife] and I don’t have enough left after payment of our debts to give you your half share of $334,000.00. We have out [B] property for sale and [the wife] has agreed that we will use the proceeds of the sale to make up the remainder of the $334,000.00.”
[Mr Miner]:“That’s fine.”
The wife recalls a different conversation with the husband after settlement of the M property in which the following was discussed:
[The wife]:“What’s happened to the money from [M property]?”
[The husband]: “Once all the debt is paid and the mortgage is paid there won’t be anything left. Maybe there will be $10,000 and you might get $5,000.”
[The wife]:“I’ll keep the money from [B property] when it’s sold.”
[The husband]: “No. I’ve got to pay [Mr Miner] out.”
[The wife]:“You’re not touching [B property]. Why didn’t you pay out [Mr Miner] from [M property]?”
[The husband]: “There wasn’t enough after all the debt.”
Immediately after this conversation, the wife says she telephoned Ms L requesting details of any payment made by the husband to her. Ms L provided no such information.
The wife asserts that she then spoke to Mrs Miner on the telephone. The wife says that she was provided with the information that the Miners paid $135,000 in 1997. Calling back later that day and speaking to Mr Miner, the wife recalls the conversation:
[The wife]:“[M property] has sold and I didn’t get a cent out of it. [The husband] got all money.”
[Mr Miner]:“I didn’t even know that it had been sold or how much it had been sold for.”
[The wife]:“I assumed [the husband] would have paid you any money that he owed you out of [M property] but he says that he didn’t and that he wants to pay you out of the money that I get for the [B] property. That’s my money. I used some money from my car accident to buy that property, I don’t mean to be a bitch but you’re not getting your hands on any of that. You’ll have to sort it out with [the husband].”
The wife asserts that this was her final communication with Mr and Mrs Miner. She asserts that following this conversation the husband told her not to talk to any of his family members again after being informed that she had spoken to Mr Miner.
Mr Miner recalls two telephone conversations with the wife. In the first, in August or September 2003, Mr Miner claims that she telephoned him after speaking to Mrs Miner. The conversation between the wife and Mr Miner is recalled by him to have been as follows:
[The wife]: “Sorry to call you at home”
[Mr Miner]: “I am sorry to hear about your split with [the husband]”
[The wife]: “Did you know [the husband] has sold the house at [M]?”
[Mr Miner]: “No, I did not. I did not even know he had put it up for sale”
[The wife]: “He got $690,000 for it and half of it is yours. I am not going to make any claim on it at all. The [M] business happened before I was on the scene. You are entitled to the money.”
After this conversation, Mr Miner says that he telephoned the husband. Mr Miner recounts the following conversation:
[Mr Miner]:“I hear you have sold the [M] property”
[the husband]: “Yes. I got $690,000 for it. However because [the wife] and I have split I cannot tell you when you will get your money. The whole thing is a mess and it needs to be unravelled. I will give you what I can when it is sorted out.”
[Mr Miner]:“How long will that be?’
[The husband]: “I cannot tell you that now. [The wife] is being difficult. I cannot get the documents I need. It’s a real mess. We have to sell [B property] but I do not know what we will get for it or how much is owing. Either way you are my first priority and you will be paid off first.”
Mr Miner contends that the wife telephoned him again a fortnight later. The conversation is recounted by Mr Miner:
[The wife]:“Have you spoken to [the husband] yet”
[Mr Miner]:“Yes I have”
[The wife]:“Have you got your money yet”
[Mr Miner]:“No. [The husband] told me it is tied up with the [the wife’s business] and other things”
[The wife]:“That is not true. I told you I would not make any claim on it. [B property] is a separate matter. I told you to get your half for [M property] from [the husband]. I repeat I will not make any claim against the [M property] money.”
Mr Miner further recalls that the wife concluded the conversation with the comment, “[The husband] has got the money for [M property]. He has the cheque. Make sure you get your half.”
Credit
Mr Miner
Mr Miner gave his evidence in a straightforward and apparently honest manner. There was nothing about the way in which he gave his evidence, both oral and in affidavit form, or its content which lead me to suspect he was being otherwise than honest. He made concessions where appropriate and his answers were sensible and unemotional. He readily conceded that his recollection may be effected by the passage of time, however, he was confident that the gist of his evidence was correct.
Mrs Miner
Mrs Miner, like her husband, gave her evidence in an apparently honest manner. There was nothing about the way in which she gave her evidence, both oral and in affidavit form, or its content which lead me to suspect she was being otherwise than honest. She was definite in her evidence. She asserted a good and accurate recollection of the relevant events. She was in all respects a convincing witness.
Mr Glover
Mr Glover gave his evidence in a straightforward and apparently honest manner. There was nothing about the way in which he gave his evidence, both oral and in affidavit form, or its content which lead me to suspect he was being otherwise than honest. He gave his evidence in a definite manner. He readily stated if he could not recall events.
The husband’s mother
The husband’s mother is the sister of Mr Miner. She gave her evidence in an apparently honest manner.
The Husband
The husband gave his evidence in an apparently honest manner. There was nothing about the way in which he gave his evidence, both oral and in affidavit form, or its content which lead me to suspect he was being otherwise than honest. He appeared to have a good recollection of the relevant facts. He answered questions readily, did not attempt to avoid the question asked, and did not use the opportunity in the witness box to speak critically of the wife. He was not overtly emotional. He did not appear angry or distracted in any way. He appeared to have a good recollection of the financial circumstances of the parties throughout the relationship between them.
Whilst I am critical of the way in which he dealt with Mr Miner’s money and his claimed interest in the M property, I find nothing adverse to conclude about his honesty with the Court.
The Wife
It was necessary for me to warn the wife of the consequences to her credit of failing to answer the question which was asked of her. Notwithstanding such warning the wife continued to avoid answering questions. On a number of occasions she framed answers around a statement of “When [the husband] left the boys and me”. She appeared to have little knowledge of the financial dealings of the parties during the course of the marriage.
I found the wife an unreliable witness. She gave oral evidence about a conversation she alleged she had with Mr Miner which differed markedly from the conversation she deposed to in her affidavit material. Her memory did not appear to be good even about every day events such as who paid for the expenses of the family. She had a poor memory about the success or otherwise of her business. Whilst asserting that she had paid for particular outgoings for the family, she appeared to have little understanding that on the income disclosed in her tax returns she could not realistically have been able to do so.
The Evidence
The oral evidence of the plaintiff
Mr Miner gave oral evidence.
In relation to the advance of $135,000 by Mr Miner to the husband, he was asked whether he kept any notes of any conversation at the time between himself and the husband. He said no. He said that the husband told him he would speak to Mr Glover (the husband’s solicitor) and a document would be prepared. Mr Miner said he agreed to that proposal and he expected it to happen. He said thereafter he did not remind the husband about this document. He took the husband at his word that at some stage a document would be prepared.
Mr Miner told me that he had purchased one property prior to the transaction with the husband.
Mr Miner said he was aware that following the provision of the funds by him to the husband the property then stood in the husband’s sole name. He was aware that the husband could mortgage the property without reference to him. He said it did not concern him. He was not aware that on 19 December 1997 the husband had arranged a mortgage over the M property to Aussie Home Loans.
Annexure C to the husband’s affidavit was drawn to Mr Miner’s attention. He agreed that the documentation suggested that the $120,000 paid to the husband’s former partner, Ms L, was funded by borrowings from by Aussie Home Loans. He confirmed that the husband had told him that he required the $120,000 to pay Ms L and an additional $15,000 for legal costs. He was never advised by the husband that the former partner had, in fact, been paid out with funds borrowed from Aussie Home Loans.
It was put to Mr Miner that in December 1997 a mortgage to the National Australia Bank was discharged with a payment of $87,000. Mr Miner was unaware of that fact.
The contents of paragraph 8 of the husband’s affidavit filed 22 January 2007 was read to Mr Miner. It was pointed out that the husband’s evidence was that the additional $15,000 (over and above the $120,000 required to pay out Ms L) was to be used for improvements. The $15,000 provided by Mr Miner was to be matched with a further $15,000 provided by the husband. The husband was to be permitted to charge his interest in the property for the purpose of raising the $15,000.
Mr Miner, in answer to the information provided in that paragraph, said the contents may be correct. He said it was hard for him to remember that time. He had no recollection of the husband telling him that he was going to mortgage his half of the property. Mr Miner had not asked for an accounting after he had provided the $135,000.
Mr Miner was asked whether he thought at the time of the husband and wife’s marriage he ought to have been pushing for documentation to be provided at that time. He answered, “I do now but at the time [the wife’s] comment “Thank you for helping [the husband]” could only refer to the advance. I had not done anything else.”
Mr Miner said he had not been advised by the husband that he had further encumbered the M property.
It was put to Mr Miner that the transaction in fact was in the nature of a generous member of the family providing a loan. Mr Miner replied, “No. It was very specific. I was acquiring a half interest in the property.”
So far as the interest in the property was concerned, Mr Miner asserted that the interest was to be his and his wife’s. He had understood that Mr Glover had prepared a document.
Mr Miner was asked about the contents of paragraph 12 of the husband’s affidavit. In that paragraph, the husband says,
“Because of capital gains tax, [Mr Miner] was considering giving his half interest in the [M] property to his two children. Several suggestions for a suitable trust deed were made by Richard Glover, however for various reasons including [Mr Miner’s] travel commitments with his job, no final decision was reached and a deed was never signed. [Mr Miner] and I continued upon the basis of our verbal agreement.”
Mr Miner said he could not remember such event.
Mr Miner denied that the prospect of payment of capital gains tax had entered into his consideration at all in relation to their property being transferred into his name. In relation to stamp duty he said he had presumed “we would pay stamp duty.”
Mr Miner said he had not completed any land tax returns for M property nor had he claimed any expenses as tax deductions in respect of M property.
In the husband’s affidavit of 22 January 2007 he annexes a letter dated 19 December 1997 from his solicitor, Mr Glover, to himself. This evidences that $140,000 was borrowed from Aussie Home Loans and of that sum, $120,000 was paid to his former partner, Ms L. In order to provide security to Aussie Home Loans, it was necessary to discharge a liability to the National Australia Bank of $87.466.05. It was noted that the husband had transferred funds totalling $68,043.05 from other accounts to the loan account with the National Australia Bank shortly before the settlement on 19 December 1997, leaving a balance of $19,423 to be paid from the advance provided by Aussie Home Loans.
Mr Miner was asked about his knowledge in respect of the husband increasing the liability charged on the M property on 15 May 2000. He had no such knowledge. He agreed an increase in the loan would reduce the equity in the property.
Mr Miner agreed that following the advance of his funds of $135,000 to the husband he took a “hands off approach”. He said that the only payment that he provided after the initial payment was the amount of $8000. That was for a shed about which the husband had spoken to him in a conversation which did not include the wife.
Mr Miner confirmed he had not been told that the property was sold prior to his telephone conversation with the wife. He was told by the husband that there were problems in the marriage and there might be a sale. He understood that at some time in the future it would be sold.
Mr Miner said that he had not been told that the sum of only $256,130 was received by the husband following the sale of the property. He understood that the property had been sold for $690,000. He confirmed that he had rung the husband following the conversation with the wife who informed him the property had been sold. He said the husband had told him that the property had been sold.
Part of a conversation set out in paragraph 16 of the wife’s affidavit sworn 11 January 2007 was put to Mr Miner. This paragraph is referred to earlier in these reasons. It was put that the wife had said to Mr Miner in a telephone conversation:
“I assumed [the husband] would have paid you any money that he owed you out of [M property] but he says that he didn’t and that he wants to pay you out of the money that I get for the [B] property. That’s my money. I used some money from my car accident to buy that property, I don’t mean to be a bitch but you’re not getting your hands on any of it. You’ll have to sort it out with [the husband].”
Mr Miner replied, “Absolutely not. It is so strong, I believe I would have remembered. I remember her being distressed. I remember her being very decent in saying I should get half.”
Following the commencement of the Family Law proceedings, Mr Miner then instructed solicitors to act on his behalf. It was at that time that he first turned his mind to the conversations that he says took place between he and the wife.
The husband’s affidavit evidence
The husband filed an affidavit on 22 January 2007. He said that following the break up of his relationship with Ms L he approached his uncle, Mr Miner, to enquire if he was interested in purchasing a half share of the M property. He said the valuation of the property at the time was $240,000. He said that Mr Miner had agreed to pay half the valuation and another $15,000 for improvements. It was agreed that the husband was to contribute $15,000 to the improvements as well. The husband was to be allowed to obtain a mortgage over his half of the property. The husband was to occupy the property and was to pay all of the running costs, rates, taxes and outgoings, repairs and maintenance of the property.
The husband says that the agreement between he and Mr Miner was that if the property was sold, Mr Miner was to receive 50% of the sale price less selling costs. Alternatively, at any time the husband was to have the right to acquire Mr Miner’s 50% interest in the property at current market value.
In paragraph 10 of his affidavit the husband says that in December 1997 he received $135,000 transferred directly from Mr Miner’s National Australia Bank account to his account at the same bank. The exhibits show that the money was in fact received in December 1996. The husband paid $120,000 to Ms L. Annexed and marked C to the affidavit is a letter from Glover & Glover confirming the payment. That letter is dated 19 December 1997, approximately 12 months after the husband received the funds from Mr Miner. The husband says that the property was never transferred into Mr Miner’s name because there would be stamp duty payable on the transfer, whereas the transfer directly to the husband was stamp duty exempt. It was not put to Mr Miner that there was any such agreement about avoiding the payment of stamp duty.
The husband confirms that it was his intention to have a formal agreement drawn up between he and Mr Miner evidencing the title to the property was to be held equally between them. The husband suggests that at one stage Mr Miner was considering the transfer of his share to his two children because of capital gains tax implications. Mr Miner has no recollection of such discussions.
The husband states that he told the wife at the beginning of the relationship between the two of them that Mr Miner had acquired a half interest in the property at M following the husband’s separation from Ms L. The husband claims that his friends and family were made aware by him that the property at M was half owned by Mr Miner.
In August 1998 the husband, the wife and a partner, Mr G, purchased a property at K for $180,000. The wife advanced the deposit to enable the purchase.
In August 1998 the wife purchased a Toyota Land Cruiser for $28,500 which was to be used in the project. In November that year the wife paid $18,000 by way of deposit on the property. With the assistance of the husband’s sister agreeing to be a mortgagor, $162,000 was raised as a loan from Aussie Home Loans to complete the purchase of the property. The wife was present at a meeting held at the husband’s sister’s house to discuss the project and sign the documents. A house was acquired for relocation to the property. The property was cleaned up and a site excavated for the building to be erected. The cost was about $30,000. The house was renovated, extended and painted. A driveway was constructed. The surrounds of the house were landscaped. The husband and his employee provided much of the work involved in the landscaping on the site.
Between October 1998 and January 1999 the wife contributed $57,282.
In order to complete the project, the husband borrowed a further $88,000 secured against the M property. Of that sum, he repaid the wife $20,000.
The land at K was sold in July 2001. The partner, Mr G, withdrew from the project. The husband committed workers from Y business to work on the K property at a cost to him of $35,568.
In August 2000 the husband obtained an approval to increase the original loan on K property by another $85,000. This loan was used to meet business debts associated with his company Y Business Pty Ltd.
The sale of K property took place in 2001. The loans on K property of $162,000 and $85,000 were paid out. The loan of $88,000 borrowed against the M property was not paid out. The husband received a balance of $177,721 after all expenses were paid.
The sale price of the property was $440,000. Aussie Home Loans (Perpetual Trustees Australia Ltd) were paid $244,314. The husband received $146,921. The deposit was received by the husband in a net sum of $30,800. That made the total receipts by the husband from that sale of $177,721.
In March 1999 the wife spoke to the husband about an opportunity to lease a cottage at B where she had done her business training. The husband and wife had just become engaged at that time and the wife had moved in to reside with the husband in the M house. The husband carried out some repairs to the property. He carried out resurfacing of the car park and driveway. All of the work was charged to the husband’s business, Y Business. The husband was paying the rent on the cottage.
In September 2000 the wife spoke to the husband about acquiring the property at B that her business was operating from. The wife obtained a further advance of $100,000 from GIO against her motor vehicle damages award. Of that sum, the wife gave $37,000 to the husband to pay expenses on the K project and also her business.
The purchase price of the B property was $330,000. A deposit of 10% was paid. $301,114 was needed to complete the purchase. Aussie Home Loans provided an amount of $262,291 towards the advance. $38,822 was to be provided by the husband and/or the wife. The wife borrowed $44,000 from relatives in order to complete the purchase. It appears that the balance of the $100,000 she had obtained as an advance from GIO in October 2000 had been applied towards the running expenses of the wife’s business.
In December 2000 the parties’ son was born. This had a considerable impact on the wife’s capacity to work in the business. In June 2001 the husband and wife negotiated with Aussie Home Loans to refinance their debt so that there were two loans, one for $151,177 and the second for $134,729. It is unclear on the evidence what security was provided for these loans and where they fit with the other advances which had been obtained in relation to the K property, the B property and the M property. All of the monies received by the husband from the sale of the K property were used to meet current liabilities of the business, Y Business. There were insufficient funds to meet loans of $88,000 and $66,000 which had been taken out to finance K property. The loans had been raised against the property at M.
The husband and wife’s second child was born in December 2002. This added to the financial difficulties of the husband and wife. The husband says the wife’s business was running at a loss. The mortgage on the B property was not being paid. The husband gave the wife a cheque for $1600 on 27 June 2003 and $16,500 on 7 July 2003 to pay debts associated with the wife’s business.
The husband says that in 2003 he and the wife agreed that the M property would be sold. As referred to earlier in these reasons, the husband says that the wife agreed that Mr Miner was to receive his half share and all the debts would be paid. He further says that the wife agreed to sell the B property and Glover & Glover solicitors were instructed to draft contracts for the sale of both properties. This all occurred in June 2003.
It was at that time, in about mid 2003, that the husband spoke to Mr Miner. He told him of the impending sale of the properties and sought a further advance of $8000 to build a shed and make other improvements to the M property before it was put on the market.
When the contracts were exchanged on the sale of M property, the husband extended his business overdraft of $50,000 to $100,000. The overdraft was to be payable on settlement of the M property. The monies were used to meet debt, including debt relating to the wife’s business.
Of the two properties, the M property sold first and settlement took place on 15 August 2003. Following the sale of M property, the husband paid Aussie Home Loans (Perpetual Trustees Australia Ltd) $278,606. He received a cheque for $256,130 together with the balance of a 5% deposit. The balance was $15,525.
The husband says that following the sale of the M property, he had a conversation with the wife to the following effect:
“We have to pay [Mr Miner] his money but we’ve used some of it to clear our business debts. We will need to use some of the settlement money from [B property] to help pay [Mr Miner] what he is owed. You can then have the rest of the money from [B property], which could be up to $100,000.”
The husband says the wife said, “Ok there’s no other way to do it. That’s obviously what we have to do.”
The husband then says he spoke to Mr Miner. He said to him, “I’m sorry, [the wife] and I don’t have enough left after payment of our debts to give you your half share of $334,000. We have our [B] property for sale and [the wife] has agreed that we will use the proceeds of the sale to make up the remained of the $334,000.”
These conversations have also been outlined earlier in these reasons.
The property at B was sold in October 2003 for $440,000. This was much less than had been expected. From the sale proceeds, $265,978 was paid to Aussie Mortgages Ltd. $148,830 was paid to the parties. They were also entitled to a further $8400, being the balance of the deposit.
The net amount received from both the M and the B property sales was $428,885.
The husband repaid the wife’s family $44,500 which had been borrowed by her to enable the purchase of the B property.
The husband’s case is that the wife’s business was not viable. The husband provided funds for the support of that business. Between September 1998 and December 2003, the husband paid a total of $66,182 in expenses associated with the business. It was also in addition to the $44,500 that had been repaid to the wife’s family.
$157,145 was held by Matthews Dooley Gibson, solicitors, in trust following the sale of the B property. This sum remains available. It has now grown with interest to a fund of about $190,000.
The evidence of Mrs Miner
On 7 February 2007 Mrs Miner, the plaintiff’s wife, swore an affidavit. This affidavit responded to the affidavit of the wife sworn 11 January 2007. She deposed to a conversation taking place between herself and the wife in about August or September 2003. The thrust of the conversation was that the wife wished to talk to Mr Miner. There were other telephone calls that followed, the contents of which are not relevant to the determination before me.
Mrs Miner was required for cross-examination. Mrs Miner was asked when she was required to first recall the conversations referred to in her affidavit. She replied, “a week or two before the affidavit was signed.” She had not made a note of the conversations at the time. Paragraph 15 of the wife’s affidavit filed 12 January 2007 was put to Mrs Miner. She denied the conversation put to her.
The evidence of Richard Glover
Mr Richard Glover, solicitor, swore an affidavit on 17 October 2007. He said that in November 1996 he received instructions from the husband to act for him in relation to the breakdown of his relationship with Ms L.
On 21 November 1996 Mr Glover met with the husband and the husband’s mother. He annexed the file notes to his affidavit. He said both file notes referred to Mr Miner. The relevant part of the note is as follows:
“[The husband] has agreed to pay [Ms L] $120,000. [The husband] may ultimately decide to transfer $50,000 to [the husband’s mother’s] brother, [Mr Miner] (RJG advised of the stamp duty implications). [Mr Miner’s] suggestion is that the property be transferred into the names of his infant children and held through a trust (whether this aspect of the transaction proceeds needs further consideration)”
Although the note referred to $50,000 “to [the husband’s mother’s] brother, [Mr Miner]” it appears that it should have been “50%”.
Mr Glover says that settlement between the husband and Ms L took place in December 1997.
Mr Glover recalled that somewhere during 1997 he had asked the husband how the settlement monies to be paid to Ms L were to be financed. He says that the husband informed him that Mr Miner would be providing the monies in return for a 50% share in the property.
Mr Glover has recollection of speaking with Mr Miner about the M property during the time of the transaction. He can find no note of the discussion.
The notes of Mr Glover showed that there was a mortgage of $105,000 owing to the National Australia Bank prior to the settlement payment to Ms L of $120,000.
Annexure F to Mr Glover’s affidavit is a copy of a letter written by him to the husband dated 19 December 1997. This shows an advance of $140,000 from Aussie Home Loans to discharge a mortgage to the National Australia Bank. Of this sum, $120,000 was paid to Johanna in accordance with the agreement.
Mr Glover says that shortly after 15 August 2001 he had a telephone discussion with the husband who provided instructions to prepare a will. The notes taken in that instruction were annexed to the affidavit. On that note, the following clearly appears: “NB Uncle [Mr Miner] owns 50% of the property.” This was under the heading “[M property]”.
On 10 September 2001 Mr Glover again had a telephone attendance on the husband. He made a note which was annexed to his affidavit. The note appears to read as follows: “T/F [the husband]: advance from [Mr Miner] of $135,000 was utilised by him to pay out [Ms L] $120,000 in September 1997. Agreed that [Mr Miner] would become entitled to 50% of the market value of property.”
On 9 November 2001 Mr Glover forwarded to the husband a will to be executed by him if satisfactory. Paragraph 7 of that will is in the following terms:
“For the purpose of this my will and the administration of my estate by my trustees I DECLARE AND ACKNOWLEDGE that my property at [M] is held in trust by me as to 50% share thereof for my uncle [MR MINER] and I DIRECT my trustees in implementing the terms of this my will to proceed upon the basis that my said uncle is absolutely entitled to a 50% share of the market value of such property.”
In September 2005 Mr Glover took instructions from Mr Miner to seek to protect his interest in the investment in the M property. As a result of negotiations not giving rise to a settlement a Statement of Claim in the Equity Division of the Supreme Court of New South Wales was filed on behalf of Mr Miner.
Mr Glover gave oral evidence. He was asked about his instructions in relation to the property at M. He referred to his notes and said it indicates that during the conference there was a discussion of a transfer of 50% of the property to Mr Miner. He confirmed that the reference to $50,000 in the note was a mistake and should have been 50%.
Mr Glover confirmed that at the time of the instructions he advised the husband that the agreement between he and Mr Miner needed to be in writing.
Mr Glover was asked about his conversation with Mr Miner. He said that he had one conversation with Mr Miner about the M property. He said, “I recollect I told him of the stamp duty implications and also if it was to be held in trust the stamp duty implications of that.” He confirmed that he had told Mr Miner the arrangement needed to be in writing.
Mr Glover confirmed that there was a further conversation with the wife on 19 September 2003 in relation to the B property. He said that the wife had told him that “the loan of [Mr Miner] is to [the husband] only and has nothing to do with her”.
The evidence of Mrs Gilchrist (Snr)
On 9 January 2007 Mrs Gilchrist (Snr) swore an affidavit. She is the mother of the husband and the sister of the plaintiff in these proceedings.
The husband’s mother said that when the husband and Ms L separated in 1997 she asked her brother, Mr Miner, whether he would be interested in purchasing Ms L’s half share in the property at M. She says, “he agreed to [the husband’s] proposition, and in December 1997 he paid to [the husband] $120,000 plus $15,000 for improvements to the property.”
The husband’s mother says that in January 1998 she attended a barbeque at the M house. During that visit she spoke to the wife. In response to a proposition put to her by the wife that “[the husband] has done very well for himself, with his own business and this property” the husband’s mother said, “[the husband] does not own this property. My brother owns half of it and [the husband’s] half is mortgaged.” She says that the wife replied, “Yes, [the husband] did tell me about [Mr Miner].”
She was required for cross examination. She confirmed that she had first been asked to recall the events of 1997 deposed to in her affidavit in December 2006. She prepared a written draft of her statement. She spoke to her son about it. She showed her son the draft. He did not recommend any changes. It was put to her that there was no conversation between herself and the wife as deposed to in her affidavit. She said there was such a conversation.
The husband’s mother was asked whether the wife had responded in any way to the information provided to her by the witness that Mr Miner owned half of the M property. Her answer was, “she said something about knowing about [Mr Miner]. I can’t remember the exact words.”
The husband’s mother agreed that she did not like the wife but she hastened to add that would not provoke her into being untruthful.
The oral evidence of the husband
The husband gave oral evidence. The husband was asked what he said to Mr Miner about acquiring an interest in the M property. He said, “I offered him an investment. I spoke about the northwest development. I said I intended to do some improvements at a cost of about $30,000 and so I suggested $135,000.” He said he instructed Mr Glover that he and Mr Miner had an agreement to “split [M property] down the middle.” He said he told Mr Glover that Mr Miner was to receive a half interest in the M property. He was asked whether he had instructed Mr Glover to prepare anything in writing in respect of Mr Miner’s share. He said, “I instructed him to make a will for me but the reason was that Mr [Miner] had not decided how he wanted to hold the property.” He agreed that Mr Glover had reminded him on a couple of occasions that the agreement with Mr Miner needed to be in writing. He was asked whether he approached Mr Miner and asked him about what he wanted to do in relation to the agreement. He said, “No I didn’t. My mother relayed to me that paperwork needed to be taken care of. I spoke to Mr Glover and he said to do the will.”
The husband confirmed that the money from Mr Miner went into a secure account in December 1996 and it was not until the end of 1997 that he made the payment to his former partner.
The husband confirmed that he did not tell Mr Miner that he had borrowed $140,000 from Aussie Home Loans at the time that he paid off the loan to the National Australia Bank and paid out his former partner.
He denied that he had deliberately kept Mr Miner in the dark. It was put to him that he had spent $60,000 of Mr Miner’s money by September 2007. He said that he did not know. He said that the $87,466 necessary to pay out National Australia Bank in December 1997 was paid out from monies which had been provided by Mr Miner. He agreed that part of the monies had come from Aussie Home Loans. He agreed that he had not told Mr Miner that he had mortgaged the property as a whole rather than his half share. He further agreed that Mr Miner had not been told that the husband had mortgaged the property for $140,000 to Aussie Home Loans.
The husband agreed that he had borrowed a further $88,000 secured against the M property to fund the K project. He agreed that this brought the loan to $226,000. There was no discussion with Mr Miner about this loan. The husband said the $226,000 still represented less than half the value of the property.
The husband agreed that in 2000 he further mortgaged the M property to the Commonwealth Bank. This was for an overdraft. Again, he did not speak to Mr Miner about this loan. He agreed that the Commonwealth Bank was paid out $102,000 from the sale of the M property.
The husband was asked why he did not pay out the Commonwealth Bank from the sale proceeds of the K property. He said the money was needed to purchase the B property.
In 2002 the husband agreed that he increased the mortgage on the M property by $66,000 to pay out his sister. That money was not discharged from the sale of the K property.
The husband conceded that between October 1998 and January 1999 the wife contributed $57,282 towards the K project. In addition she had purchased the Toyota Land Cruiser for $28,500. He agreed that the money had come from her personal injuries payout.
The husband agreed that in October 2000 the wife provided him with an additional $20,000 to put towards the K project and in November 2000 a further $10,000 to put towards that project. In December 2000 there was a contribution of $6500, in May 2001 $500 and in November 2001 $5000. The total contribution by the wife was $127,782. The husband agreed that figure sounded correct.
The husband agreed that in 2000 he arranged for his sister borrow a further $85,000 to put into the K project. It was put to the husband that from the $177,721 he received from the sale of K property he could have used those funds to discharge the two remaining loans on M property of $88,000 and $66,000. He said he could not. The moneys were used to pay debts on Aussie Y business. The husband said the expenses were associated with the K project.
In relation to the $177,000 from the sale of K property the husband said the first $50,000 went to repay the wife’s parents, who had advanced funds to buy the business premises at B. The husband agreed that following the sale of K property and the discharge of his debts his business did not recover. He said he and the wife had decided, based on the debts they each had, that they needed to sell a property. The husband asked for the B property to be sold. Eventually he said they agreed to sell both properties. The husband agreed that his affidavit did not say that the wife had agreed to the sale of B property and the funds to be paid to Mr Miner. In fact, at paragraph 77 of his affidavit (referred to earlier in these reasons) the husband deposes that he did advise the wife, amongst other things, that “We will need to use some of the settlement money from [B property] to help pay [Mr Miner] what he is owed” to which the wife replied, “Ok, there’s no other way to do it. That’s obviously what we have to do.” He said that was the arrangement. Both properties were on the market at the same time. M property sold first and the debts were paid out of that property. Mr Miner was to be paid out of the B property.
The husband agreed that he had not told Mr Miner when contracts were exchanged on the sale of M property, nor did he tell him when the sale was settled. He said the reason was that both properties were being sold to meet all debts, including payment to Mr Miner. He had told Mr v he was going to sell the property.
He agreed that after he had ascertained that the wife had spoken to Mr Miner following the sale of M property he told her not contact him again.
The husband said that he received $256,130 as the sale proceeds from M property. He agreed that represented an opportunity for him to pay that amount of money to Mr Miner. The husband said that he paid out $230,000 in debts of both the husband and the wife’s. The husband denied that at the time of the sale of M property and/or the exchange of the B property that he knew there would not be sufficient funds to pay out Mr Miner.
The husband agreed that when he swore his affidavit on 22 January 2007 he did not set out how he expended the $256,000 received from the sale of M property. He said, however, that the wife’s solicitors had subpoenaed from him the materials at an earlier time that provided that information. He agreed in his affidavit of 25 September 2007 he disclosed how he applied the proceeds from M property. He agreed that all of the funds went into meeting debts of Y Business.
Under questions from Mr Miner’s counsel the husband was asked what discussions took place between he and the wife in relation to the payment of debts. He said, “the wife came home from work with a list of debts. I said [B property] was not paying its own way. The agreement we had was that [B property] had to pay its own way. It was not paying its own way. She said she had debts she could not pay. I suggested that we sell the [B] property and pay out the debts.” He said there were later conversations where she refused to sell B property and later agreed when he said he had to sell M property.
The oral evidence of the wife
The wife gave oral evidence. She was cross examined by Mr Miner’s counsel. The wife agreed that the husband was responsible for paying the bills that came into the house. She was asked about the K project. She was asked whether her limited involvement in the project allowed her to understand whether there is a profit or loss. She said there was a loss. She said she did not receive any money from the sale of K property and she did not report a loss in her tax return.
The wife agreed that both the B and the M property were listed for sale together. She agreed to that process. She signed the agreement with the real estate agent engaged to sell the M property. She agreed that at the time the properties were listed for sale she was prepared to accept a sale of either property as the first sale. She agreed that the mortgage for the B property was in default before the property was listed for sale. The wife said she agreed to the sale of the B property although she was attached to it because she realised that her business was hopeless.
The wife agreed that prior to listing the two properties for sale she gave the husband a list of the debts she had. She did not discuss the debts he owed. She agreed that the husband could have set out details of the assets he had in that discussion.
It was put to the wife that prior to listing the two properties at M and B for sale she knew that Mr Miner had an interest in the M property. She said, “Not at all. Not an interest.” She said she understood there was a loan from Mr Miner to the husband. It was put to her that at the time of the discussion of the sale of the properties between herself and the husband she understood that part of the proceeds of either property would go to Mr Miner. She denied that.
The wife agreed that during the whole of the time she operated the business at the B property she did not lodge a tax return. At a subsequent time she had her tax returns prepared. It was put to her that the tax returns showed she earned very little. She said she did not know. It was put to her that in 2003 her taxable income was $2500. She said it could be. In 2002, her taxable income was just over $2500. She replied, “Yes.” It was put that in the earlier years the maximum she earned was $8000 and she agreed that was so.
It was put to the wife that at the time she was operating the business she was unable to support herself. She denied that. It was put that she was dependent on the husband for her support. She denied that.
The wife was shown a copy of her 2003 tax year return showing an income of $2406. She agreed that her income for the 2001 tax year was $5587 and her income for the 2000 tax year was $12,967. She further agreed that after 30 June 2000 there were considerable periods of time where she was hospitalised. As a result, her ability to work was limited. She denied that consequently, she was dependent on the husband to pay all outgoings for the children and the household.
It was put to the wife that by mid 2003 she and the husband had accumulated substantial debt. She said she did not know what debt the husband had. It was put to the wife that the husband paid debts of each of the parties from the sale proceeds of M property. She said she did not know what he had paid.
It was put to the wife that she left the M property by July 2003. She said, “Yes. Because [the husband] had walked out on the boys and I.” The wife gave a similar answer to a number of questions which indicated to me that she was very focussed on a view she had that the husband had deserted the family.
It was put to the wife that at the meeting between she and the husband where it was agreed the properties would be sold the husband set out the debts that he owed. She denied that.
The wife was questioned about details surrounding the sale of the B property. It was put to her that she was aware of a valuation in relation to the B property prior to the sale. She said that she was not aware of it and that the husband had dealt with the sales of each of the properties. She was asked whether she was denying she had knowledge of the valuation, to which she replied, “No I don’t remember it.” She was asked, “Do you remember the reserve price?” This question was asked three times. On each occasion the wife responded, “I don’t remember.” She agreed that she did attend the auction of the B property. She was asked whether she gave the auctioneer a reserve price. She was asked twice without giving an answer. Eventually she said that she had not provided instructions for the reserve price. It was put to her that she thought the property would sell for between $570,000 and $580,000. She said, “I didn’t know. [The husband] wanted to sell both properties.” It was put to her that the property at B was sold because the wife could not afford to keep the property. She replied, “No.” It was put to her that she believed the property was hers. She said, “I paid the deposit.”
It was put to the wife that when the B property was sold for $440,000 she came to the view that she would not get any money if Mr Miner was paid. She denied this.
The wife was asked about paragraph 13 of her affidavit sworn on 11 January 2007. She was asked if the conversation reported between she and the husband was correct. She said yes.
Summarised, the conversation at paragraph 13 reads as follows:
[Wife]:“What’s happened to the money from [M property]?”
[Husband]:“Once all the debt is paid and the mortgage is paid there won’t be anything left. Maybe there will be $10,000 and you might get $5,000.”
[Wife]:“I’ll keep the money from [B property] when it’s sold.”
[Husband]:“No. I’ve got to pay [Mr Miner] out.”
[Wife]:“You’re not touching [B property]. Why didn’t you pay [Mr Miner] out from [M property]?”
[Husband]:“There wasn’t enough after all the debt.”
The wife was asked when the conversation took place as reported in paragraph 13 of her affidavit. She said she could not remember. She said it was after separation. She agreed that the conversation took place before the sale of B property. The following proposition was put to the wife: “Before the completion of the sale of [B property] you knew that money was to be used to pay Mr [Miner] from the proceeds?” The wife replied, “Yes because [the husband] had used the funds from [M property].”
It was put, “You knew all the proceeds of the sale given to [the husband] following completion of sale of the [M property] property were Mr [Miner’s] funds didn’t you?” The wife replied, “No I didn’t know that.” I noted at the time she was asked that question the wife appeared to have great difficulty in answering the question.
The wife denied that she had a conversation with the husband’s mother about money owed by the husband to Mr Miner. The wife claimed that she first became aware of the financial relationship between the husband and Mr Miner on the way back from the sale of the B property. The wife was asked a number of questions about this answer by both Mr Miner’s counsel and myself. She said that she was aware that Mr Miner had signed an affidavit. She agreed that she had a conversation with Mr Miner in about August or September 2003. She agreed that this was before the completion of the B property sale. She agreed she had told Mr Miner that the M property had been sold for $690,000. It was put to her that she told Mr Miner that half the proceeds of the sale were his. She denied that. She said, “I said [the husband] wants the money from [B property] to pay you out. I hope you don’t think I’m a bitch but you will have to speak to [the husband] about that.” It was put to the wife that she said to Mr Miner, “[M property] was sold for $690,000, half of it is yours.” She replied, “Parts of it I said to Mr [Miner].” She was asked, “Did you say “I am not going to make any claim on it at all”?” She replied, “I do not recall the exact words.” She did not deny that she had said that. It was put to the wife that she said, “You are entitled to the money.” She said, “No I said “If you lent any money to [the husband] it happened before I met [the husband].”” It should be noted that this last alleged conversation is not consistent with the evidence provided by the wife in her affidavit material.
It was put to the wife that when she completed her affidavit she was of the view that the money remaining in the trust account following the sale of B property was hers. She said, “Yes I would have got nothing for anything of the three properties after contributing $220,000.”
It was put to the wife that at no stage ever did anyone use the term “loan” in relation to Mr Miner and the husband in any conversation with the wife. She denied this. She denied that her version of the conversation between herself and Mrs Miner was incorrect. She denied that her version of the conversation between herself and Mr Miner was incorrect. It was put to the wife that following the sale of M property, she, the husband and the children were living off Mr Miner’s money. She denied that.
The wife was asked about the notice from Aussie Home Loans in relation to default in respect of the B property loan. She did not remember the notice, however she agreed that the business had been closed down and that she was therefore unable to meet the mortgage.
The wife was asked whether it was her case that during the time she and the husband cohabited she knew nothing of the monies provided by Mr Miner to the husband. She said yes. The following was then put to her: “But paragraph 8 of your own affidavit sworn the 11th of January 2007 says exactly the opposite to that proposition.” She replied, “It is incorrect.”
Conclusion on the evidence
Having had an opportunity to observe each of the witnesses and hear their evidence I have no confidence that the wife is truthful or accurate in the evidence that she has provided to the Court. I suspect that some of the wife’s evidence is deliberately untruthful, particularly that relating to her knowledge of the interest in Mr Miner in the M property. With respect to the wife, it seems clear that she has undergone a considerable number of medical procedures which were severe and there is a suggestion in the husband’s evidence of the wife becoming dependant upon prescribed drugs, particularly painkillers and it may well be, if that information is correct, that her memory has significantly suffered as a result of that process. However, in fairness to the wife it should be noted that she denies this allegation.
In the result I do accept the evidence of the husband, Mr Miner, Mrs Miner and the husband’s mother.
Further evidence of the husband relied upon by the plaintiff
Mr Miner relied upon paragraphs 2 and 3 of the husband’s affidavit sworn 25 September 2007 and filed 3 October 2007. In those paragraphs, the husband sets out how he spent the $256,130, being the proceeds from the sale of the M property.
Conclusion
I make the following findings of fact.
In about early 1996 the husband and his partner Ms L separated. They had an informal agreement that the husband would acquire Ms L’s interest in the property at M for $120,000.
At about that time, the husband spoke to Mr Miner about the possibility of his investing in the M property. An agreement was struck which included the following:
a)Mr Miner would pay the husband $135,000. In exchange for that payment, one half interest in the property at M would be transferred to Mr Miner. The husband would also contribute a further $15,000 towards improvements and he would use $15,000 of the monies provided by Mr Miner towards improvements on the property
b)The husband would have occupation of the property and in exchange for that, would meet all of the outgoings associated with the property.
c)Mr Miner’s interest in the property would be unencumbered. The husband was permitted to borrow against his half interest in the property. The borrowings would not exceed one half of the market value of the property at any particular time.
Although the monies were paid from Mr Miner to the husband in December 2006, the husband did not secure the interest of Ms L in the property until the end of 1997.
At the time of acquiring Ms L’s interest in the property the husband borrowed from Aussie Home Loans (Perpetual Trustees Australia Ltd) $140,000. About $87,466 was used to discharge a mortgage against the property to National Australia Bank at the time of the advance from Aussie Home Loans.
In about June 2003 the husband told Mr Miner that he was proposing to sell the M property after effecting some minor improvements to it including the erection of a shed.
In about June 2003 Mr Miner paid $8000 to the husband, being one half of the cost for a garage to be erected on the M property.
In January 1998 the wife was informed by the husband’s mother that Mr Miner owned one half of the property at M and that the husband’s half share of the property was mortgaged. At that time, the wife acknowledged that she had been previously given information about Mr Miner’s involvement in the M property by the husband. Thereafter the wife knew at all relevant times that Mr Miner owned one half of the equity in the M property.
At some time, probably about the middle of 2003, the husband and wife agreed to place both the M and the B property on the market for sale. At that time, the parties had considerable debt and the husband’s business was not generating sufficient income to meet all of their debts as they fell due. It was agreed between the parties that the sale proceeds would be used to pay their debts and pay out Mr Miner for his interest in the M property.
As an accident of fate, the M property sale completed prior to the completion of the B property sale. The sale proceeds received by the husband from M property consisted of $334,078 of funds that were Mr Miner’s entitlements.
The husband informed Mr Miner following the completion of the M property that his entitlements were to be paid out of the sale of the B property.
The husband used all of the proceeds of the sale of the M property to satisfy debts of the husband and the wife.
When the husband and wife agreed to sell both B and M property, it was agreed that the proceeds would first be applied to meet the debts and then Mr Miner was to be paid out of the balance, irrespective of which property settled first.
The B property was sold for less than the parties anticipated at the time they expended all of the funds from the sale of M property.
For whatever reason, the agreement between the husband and Mr Miner was never formalised in writing. The closest attempt came with the preparation of a will for the husband in 2001 which acknowledged the interest of Mr Miner in the M property.
The Submissions
The submissions of the plaintiff
The submissions on behalf of Mr Miner call for the Court to find the existence of a trust between the husband and Mr Miner, being a constructive trust arising out of the transactions between the two men.
It was submitted that during the course of the relationship between the husband and the wife, their financial circumstances had become so intertwined as to become impossible to dissect. The husband has made contributions towards the support of the wife and the children. The husband has made contributions towards the B property. The husband’s business made contributions towards the K project. As such, the proceeds of the sale of the M property which were used to meet “debts” could not be said to be debts particularly of one party as opposed to the other.
It was pure fate that saw the sale of the M property conclude before the sale of the B property. Had the B property settled first, then the funds available from that sale would have been used to meet the parties’ joint debts. That would have left the proceeds of sale of M property as being paid into a trust account.
The submissions of the wife
It was submitted that the husband was not a credible witness. It was submitted that he gave his evidence in an arrogant and self-serving way; that his evidence disclosed a history of financial deception and non-disclosure to Mr Miner. The particulars of those submissions were set out in detail in the written submissions provided by the wife.
I agree with the submissions to the extent that it is suggested that the husband has not been completely open and frank with Mr Miner about the husband’s dealing with the M property, particularly the use of the property as security for loans obtained by the husband. I do accept that the husband justified his action on the basis that he was doing nothing more than charging his equity in the property. I do think however, given the relationship between the husband and Mr Miner, that something more was required on the part of the husband. I am left with the uncomfortable feeling that the husband saw Mr Miner as a man of wealth who was disinterested in what was happening with his investment in the M property. To that extent it seems to me that the husband must be seen as abusing that relationship.
By the same token, it should be recognised that Mr Miner has acted imprudently in allowing the husband to remain as the sole registered proprietor of the M property without any documentation of the legal status of Mr Miner in respect of that M property. Mr Miner’s actions have allowed the wife to be able to at least claim to have no knowledge of his interest in the M property prior to its sale.
I otherwise reject the submissions made on behalf of the wife in relation to the credit of the husband. In so doing, I recognise the effort put into the submissions by counsel for the wife and acknowledge that no stone has been left unturned in these submissions in relation to the question of credit.
I would also like to say at this stage that I believe the husband prioritised his own financial circumstances to those of Mr and Mrs Miner by not applying the balance of the proceeds of the sale of M property directly in payment of Mr Miner’s interest. He could clearly have done so but chose not to.
The submissions of the husband
The husband relied upon the submissions of the plaintiff Mr Miner.
The Relevant Law
Constructive Trusts
In regard to constructive trusts, Gray and Edgeworth[1] note;
The constructive trust arises independently, not only of documentary formalities, but also of an express arrangement between the parties. Rather it is imposed on the parties on the basis of their conduct to prevent unconscionable behaviour.
i)[1] Gray J and Edgeworth B. Property Law in New South Wales (Butterworths: Sydney, 2003) at p219.
A constructive trust can be imposed in any situation where equity calls for the imposition of a trust upon the legal owner of a property; hence it can be imposed irrespective of agreement or intention by the parties: Muschinski v Dodds [1986] 160 CLR 583 at 617. In Muschinski v Dodds (supra) Deane J stated that situations which give rise to a constructive trust are not confined to cases in which there is some pre-existing fiduciary relationship or where there is intention or agreement (at p614):
“Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.”
The traditional rule in Barnes v Addy (1874) LR 9 Ch App 244 is to be used to decide any third party liability and was stated by Lord Selbourne LC at 251–2 as follows:
“Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.”
In Barnes v Addy (supra) the court held that a trust can be created where the defendant, although not expressly appointed as trustee, assumes such a duty by a lawful transaction which is independent of and followed by a breach of trust that is not impeached by the plaintiff. The constructive trust arises on the basis that to enable the owner to assert their own beneficial interests in the property while at the same time deny the beneficial interest of another would be unconscionable.
One of the primary circumstances where a constructive trust will arise is where a person assists in a breach of trust: Barnes v Addy (supra). This means that a person who is neither a trustee nor a fiduciary can be liable as a constructive trustee if they: (i) receive trust property into their possession; or (ii) knowingly assist the trustee to commit a breach of the trust or fiduciary duty. In regard to the knowledge requirement, the categories identified by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [174] are:
·actual knowledge of the breach;
·wilfully shutting one's eyes to the obvious;
·wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make; and
·knowledge of circumstances which would indicate to an honest and reasonable man that there had been a breach.
According to the High Court decision (Barwick CJ, Gibbs and Stephen JJ; McTiernan J dissenting) in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 a party that is found to be a constructive trustee can be ordered by the Court to:
·transfer the property subject to the constructive trust to the beneficiaries; and/or
·hold the property on a constructive trust declared or imposed by the court on behalf of the beneficiaries; and/or
·account for the value of any profit or benefit obtained from the property subject to the constructive trust.
In Kak Loui Chan v Zacharia (1984) 154 CLR 178 Deane J opined (at 199);
“Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee (see Keith Henry & Co. Pty. Ltd. v. Stuart Walker & Co. Pty. Ltd. [1958] HCA 33; (1958) 100 CLR 342, at p 350).”
Findings
I find that there is a constructive trust between Mr Miner and the husband. The terms of the trust are that on receipt of the $135,000 the husband was to secure the interest of his former partner in the M property and thereafter hold the interest upon trust for Mr Miner The husband was to have the right to acquire Mr Miner’s interest in the M property for its market value at any time prior to the sale of the property. Upon the sale of the property Mr Miner was to be paid 50% of the sale proceeds following deduction of usual sale expenses.
The husband was to have the right to occupy the M property and was to meet all of the rates and taxes levied against the property.
The husband was to be able to charge his half interest in the property.
As set out earlier I find that the wife was aware of the interest of Mr Miner in the M property prior to its sale in 2003. The husband and wife had by that time intertwined their financial affairs to such an extent that it was no longer possible to say that one of the marriage partners did not have any interest in the property which stood in the other’s name. I accept the evidence of the husband that a significant reason for the downturn in the success of his business Y Business was the provision of the resources of that business in finalising the K project. That was a project in which the wife had a financial interest. I also accept the husband’s evidence that he had contributed significant financial resources generated by his business or through borrowings to the support of the family constituted by the wife, their children and himself. I also accept he had contributed funds to the repayment of debt to the wife’s family arising out of the purchase of the B property. Further, I accept that the husband had contributed both directly and indirectly to the wife’s business.
I find that the husband did breach the conditions of the trust by charging his half interest in the M property with debts greater than 50% of the net sale proceeds of the property. I also find that the husband has breached the trust by not paying to Mr Miner the sale proceeds remaining after the discharge of mortgages on the property and the sale expenses. All of the funds which remained following settlement were the property of Mr Miner and should have been paid to him at that time.
As a consequence of the above findings against the wife in terms of her knowledge of the interest of Mr Miner in the M property; her knowledge of the fact that the completion of M property sale occurred prior to the sale of the B property; and her knowledge of the intention of the husband to use the sale proceeds of the M property to pay out debts of the parties; I find the wife became a trustee for Mr Miner along with the husband of Mr Miner’s entitlement in the proceeds from the sale of the M property. I find this trust arises in the manner described in the High Court decision in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (supra). Consistent with the decision in that case I find that the wife “wilfully shut her eyes” to the obvious breach of the trust; she wilfully and recklessly failed to make inquiries as an honest and reasonable person would make; and she had knowledge of circumstances which would indicate to an honest and reasonable person that there had been a breach of the trust existing between the husband and Mr Miner.
I find that the time when the wife should be found to have become a trustee for Mr Miner, as determined above, should be restricted to a time not before the time of the agreement between the husband and the wife to sell both of the properties at M and B and certainly by the time the proceeds of the sale of the M property were received by the husband. Although I have found that the wife did have knowledge of the interest of Mr Miner at a time prior to the sale of the M property and that there must have been breaches of the trust by the husband borrowing funds from secured mortgagees which at settlement exceeded one half of the value of the property, I do not conclude that it would have been obvious to the wife at a time prior to the agreement between she and the husband to sell both properties that there was a probability that Mr Miner’s interest in the sale proceeds of M property may be misappropriated by the parties to meet other debts.
The consequence of the above findings is that the husband and the wife become jointly and severally liable for the payment to Mr Miner of his interest in the proceeds of the sale of the M property. As such the fund remaining from the sale of their B property ought to be immediately available to meet the liability of the trustees to Mr Miner. In these circumstances it seems to me that the submissions of the parties addressing the question of equitable tracing assume some reduced importance; however, I will address the topic of equitable tracing as this may still be useful in the context of this case.
Equitable Tracing
The relevant law of equitable tracing
Purpose of tracing
The purpose of tracing in equity is to provide a mechanism for a plaintiff to establish a right to an equitable interest in property that existed prior to any claim exerted by a third party in the particular instance.[2]
ii)[2] Dal Pont G and Chalmers D. Equity and Trusts in Australia (4th ed) (Sydney: Lawbook Co, 2007) at p1021.
In Foskett v McKeown [2001] 1 AC 102 at 128 Millet LJ stated the following regarding the tracing process;
It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property…It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. But it does not effect or establish his claim.
The requirements for equitable tracing to be undertaken
In the case of Re Diplock [1948] Ch 465 the English Court of Appeal outlined the circumstances the plaintiff must establish for tracing in equity. These requirements opined in Re Diplock (supra) are conveniently outlined by Dal Pont and Cockburn[3] and are as follows:
·proof of breach of a fiduciary duty (such as a misappropriation of trust monies by the trustee);
·a clear succession to the property contrary to the relationship that gave rise to the fiduciary duty;
·that the property that is the subject of the claim remain identifiable and has not been dissipated, notwithstanding that the form of the property may have changed or that the subject property has been mixed with other property; and
·that the legal estate of the property has not been acquired by a bona fide purchaser for value without notice.
iii)[3] See Dal Pont G. and Cockburn T. Equity and Trusts in Principle (2nd ed) (Sydney: Lawbook Co, 2008) at 460.
The mere fact that the trust property may have been intermingled or intertwined with the money or property of the trustee does not inhibit the undertaking of the equitable tracing exercise: Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696; see also Commonwealth Bank of Australia v Saleh [2007] NSWSC 903. However, equitable tracing operates on the assumption that there is a “continued existence of the money either as a separate fund or as part of a mixed fund or as latent in property acquired by means of such a fund”: Re Diplock (supra) at 521.
Applying the above to the matter under consideration I have found that the wife became a trustee for Mr Miner in relation to the net sale proceeds of the M property. Thus when those funds were used to pay debts of the parties then there was a breach of that trust.
The presumption of Hallett’s Case and mixing of trust and other monies
The general presumption stated in Re Hallett’s Estate; Knatchbull v Hallett (supra) is that if trust monies are paid into a fund composed of both trust money and the trustee’s money and the trustee subsequently withdraws money from that fund, the trustee will be presumed to be acting honestly and withdrawing his or her own money first.
However, there is no presumption that the trustee is drawing his or her own funds first from a mixed fund where the beneficiary’s claim is against the property purchased with those drawings: Re Tilley’s Will Trusts; Burgin v Croad [1967] Ch 1179; [1967] 2 All ER 303; [1967] 2 WLR 1533; Commonwealth Bank of Australia v Saleh [2007] NSWSC 903.
The lowest intermediate balance rule
Equitable tracing limits the beneficiary’s “claim to the lowest balance held in the account the subject of the claim between the date of wrongful deposit and the date the claim was made. This limitation is overridden only if it can be inferred that the trustee had an intention to replenish funds to the depleted trust (the lowest intermediate balance rule): James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62.” The beneficiary may be able to recover more than the minimum intermediate balance provided the withdrawn funds can be traced.[4] Therefore, in the matter of Re Oatway [1903] 2 Ch 356 the trustee had paid in 3000 pounds of trust money to his own account and then proceeded to withdraw 2000 pounds for the purposes of buying shares. Over time the remaining funds in the account were gradually dissipated. The trustee argued that because the shares were purchased with the first portion of monies withdrawn from the account he was entitled to ownership. Joyce J rejected this argument, finding that the funds that were withdrawn to purchase the shares were traceable.
iv)[4] Dal Pont G and Chalmers D. Equity and trusts in Australia (4th ed) (Sydney: Lawbook Co, 2007) at p1030.
In the matter of Brandy v Stapleton (1952) 88 CLR 322 the majority (Dixon CJ and Fullagar J) of the High Court held that the presumption is not overridden by the fact that the trust is composed of property other than money and the fact that the trust may have been intermingled with other property to the point that it cannot be untangled or severed.
In the present case under consideration it was the stated intention of the husband to replenish the “trust fund” with the proceeds of the sale of the B property. That fact I accept was conveyed to the wife by the husband.
Redress for the beneficiary following the finding of a breach: A constructive trust
In general a breach of a fiduciary duty, such as the trustee using trust monies inappropriately for the purposes of accruing property in their own name, enables the beneficiary to elect either to assert beneficial ownership of the proceeds of the breach via a constructive trust or bring a personal claim for breach against the trustee. [5]
v)[5] Dal Pont G. and Cockburn T. Equity and Trusts in Principle (2nd ed) (Sydney: Lawbook Co, 2008) at p461.
If the trustee wrongfully disposes of property under trust and the trustee subsequently purchases other property, the beneficiary has a right to hold that property as security for the amount of monies used from the trust to purchase the property; if the subsequent property has been purchased with mixed money the beneficiary is entitled to an equitable charge on the property to the amount of trust money used for the purchase: Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 at 709 per Jessel MR; Brady v Stapleton (1952) 88 CLR 322 at 337 per Dixon CJ and Fullager J.
Conclusion on equitable tracing
It seems to me that the funds which were really the property of Mr Miner, arising from the sale of the M property, can be traced to the fund now left following the sale of the B property. This is not a strict tracing as the evidence does not support a finding that any of the proceeds of M were invested into the B property. However, the breach of the trust which I have found existed at the time the husband and wife agreed to sell both properties. This would, in itself, give rise to tracing being available to attach to the parties’ available property. This would be available in the sense that the beneficiary of a breached trust is entitled to look to the trustee to make good any loss, if necessary from the trustee’s own property. Further, the stated intention of the husband (and by inference the wife) to reimburse the trust fund from the sale proceeds of the B property would exempt the fund from the operation of the “lowest intermediate balance rule”.
Conclusion
I need to say that I believe, based on the evidence before me, that the husband has acted appallingly towards the interests of his uncle Mr Miner. He has clearly ignored his obligations as a trustee by using the funds from the sale of M property to meet pressing debts of himself and the wife. I am also concerned by an entry in the husband’s bank statements which suggests that $50,000 of the sale proceeds were withdrawn in cash shortly after a safety deposit box was rented from the bank. No question was addressed to the husband about this during the hearing before me.
I should also note that Mr Miner has acted imprudently with $135,000 (together with a further $8,000) of the assets of himself and his wife. To a large part the situation which caused this case to have to be heard could have been avoided had he acted prudently at the time of the original advance of $135,000 and required the trust to be properly recorded.
One of the matters raised during the hearing was that the money which was used to acquire the interest of the husband’s former partner in the M property did not directly flow from Mr Miner to that person. The evidence shows that the husband received the $135,000 from Mr Miner in December 1996. However, it was not until December 1997 that his former partner was paid out. At that time the husband borrowed about $140,000 from Aussie Home Loans and it was largely from that source that the payment of $120,000 was made.
I conclude the fact that Mr Miner’s money cannot be directly traced to the payment to the husband’s former partner does not detract from the creation of the trust. The money was paid by Mr Miner to the husband to acquire a half interest in the M property and that is what the husband was contracted to provide. By acquiring the interest of his partner in the property at the conclusion of 1997 the husband had, in my view, completed his part of the bargain. The trust was created in December 1996 when the husband received the $135,000 from Mr Miner. The money was not his to do with as he liked. It was a payment for the acquisition of a half interest in a property which was specified.
Orders of the Court
A declaration of trust should be made in terms of the husband holding one half of the sale proceeds of the M property upon trust for Mr Miner. The amount I find to be $334,078. This figure is calculated having regard to the settlement letter from Glover & Glover, solicitors to the husband, dated 15 August 2003. That shows the balance available from the sale, after deduction of the deposit, of $655,500. The husband’s affidavit of 25 September 2007 shows that the balance of deposit received by him was $15,525. The only expenses which should be deducted from the sale proceeds in order to ascertain Mr Miner’s entitlements are the real estate agent’s commission (already deducted from the deposit later accounted to the husband in the sum of $15,525) and the solicitor’s charges on sale of $2,868.70. That would then leave a sum of $668,156, half of which is the sum of $334,078.
Given that the husband had already encumbered the M property at the time he acquired the interest of his former partner and for the other reasons stated herein, I conclude that the wife’s liability as trustee should only relate to the net proceeds of sale of the M property after the mortgages were cleared. That sum is $271,655. The figure is calculated by adding the amount paid to the husband by Glover & Glover on settlement of the sale together with the balance of the deposit received by the husband.
Mr Miner is entitled to interest on the money which should have been paid to him and that interest will run from 15th August 2003 (the date the husband received $256,130 into his bank account) on all of the entitlement of Mr Miner.
An order should be made for the balance of the proceeds from the sale of the B property to be paid to Mr Miner.
Just prior to delivering judgement in this case I called for further submissions by the parties on two points which I felt they had not addressed earlier. I asked that they address the following topics:
(a)If I accept the evidence of Mr Miner and his witnesses based upon the decision of Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89, why should I not find that at the date of the sale of the M property the wife was also a trustee with the husband in relation to the interest of Mr Miner in that property?
(b)If the effect of the declaration orders of the Court is that funds now remaining from the sale of the B property (about $190,000) should be paid to Mr Miner, would Mr Miner be proposing to pursue the husband and wife for the balance of money which may now be owing to him?
The husband submitted that the evidence supported the conclusion that the wife was a trustee with the husband of the M property immediately before the sale of the property and that it flows there from that she remained a trustee with the husband of all of the sale proceeds of that property which were properly Mr Miner’s.
Mr Miner submitted that there is no issue that the funds following the sale of the M property were paid into the joint account of the husband and the wife. The evidence contained in the affidavit of the husband however does not identify the account into which the funds were paid as a joint account of the parties. The affidavit by the husband describes the account as “my account”.
It is submitted by Mr Miner that if the evidence of Mr Miner and his witnesses are accepted then the wife must be found to be a third party and therefore became at the very least the agent/fiduciary of Mr Miner.
Mr Miner submits that the wife should be determined to be a trustee with the husband of the funds of Mr Miner arising from the sale of the M property.
In relation to the second question Mr Miner says that subject to reserving his position in relation to the question of costs, he would not be pursuing the husband and the wife for the balance of any money found to be owing to him once the fund in the trust controlled monies account of about $190,000 had been received by him.
The wife provided further submissions on the two topics. She says that the topic one raises for consideration a matter which was never pleaded by the Plaintiff Mr Miner. She says that the Statement of Claim sought a declaration as against the wife only in respect of the sale proceeds of the M property. That point is a valid point but nonetheless still raises the issue raised in relation to the High Court authority as it applies to the proceeds of the sale of the M property. It seems to me to be of little assistance to the wife in this case that I might find that her obligations as a trustee only arose upon receipt by the husband of the sale proceeds of that property.
The husband’s application for adjournment of the section 79 proceedings
Given my decision in relation to the claim against the husband and the wife by Mr Miner, I propose to call for further submissions from the husband and the wife in relation to the adjournment of the section 79 proceedings.
When the matter was last before me there was still some uncertainty as to when the wife’s damages for personal injuries proceedings would be concluded. I would need to be provided with further evidence as to when that might occur.
I will order that the section 79 proceedings be listed for further mention before me at a time to be arranged by the legal representatives for the husband and the wife with my Associate.
I certify that the preceding two hundred and fifty three (253) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Le Poer Trench.
Associate:
Date: 3 October 2008
Key Legal Topics
Areas of Law
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Equity & Trusts
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Family Law
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Civil Procedure
Legal Concepts
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Constructive Trust
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Costs
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Remedies
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Jurisdiction
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