Nelson & Anor v Nelson & Ors (S101-94 SLA

[1994] HCATrans 144

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
              Sydney        No S101 of 1994

B e t w e e n -

BETTIE JUNE NELSON and PETER
  JOHN NELSON

Applicants

and

ELIZABETH ANNE NELSON

First Respondent

RUSSELL HODGE, STEPHEN LANCKEN,
  STEPHEN FULLER, SHARON BOWLES,
  MICHELE WORNER, ANTHONY HATZIS,
  trading as OWEN HODGE & SONS with
  FORREST DUFTY & CO

Second Respondents

Second Respondent
  Application for special leave to
  appeal

MASON CJ
GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 9 DECEMBER 1994, AT 12.14 PM

Copyright in the High Court of Australia

____________________

MR C.C. WATERSTREET:   If the Court pleases, I appear for the applicant.  (instructed by Lane & Lane)

MR B.A. COLES, QC:   I appear for the respondents, if Your Honours please.  (instructed by Owen Hodge & Son)

MASON CJ:   Mr Waterstreet.

MR WATERSTREET:   The nub of the issue and the primary question, we say, as thrown up by this case which would require special leave and, in due course, consideration is this:  in cases of illegality, is there a single unifying principle - a new golden rule as it is called in one of the articles attached to the list - a uniform analytical model applying to the resolution of problems arising out of the formation of contracts or trusts which we say that the approach overall should be consistent, be it a contract or an approach, or, on the other hand, is the principle this, that there is just a general prohibition on the enforcement of actions tainted by illegality subject to a limited number of discrete exceptions?

The unsatisfactory application of conflicting views in the law in respect of illegality and its consequences is illustrated by comparing this case before Your Honours with the case of Weston v Beaufils, a case in the Federal Court.  In the Federal Court case a used-car salesman who, over a period of 10 years had understated his income by $1 million, on his own admission, and used it to buy 20 properties put into others’ names, was held to be able to enforce a trust over those properties but - - -

McHUGH J:   You seem to be attempting to categorise this but does not this case call into question the whole doctrine of the illegality in relation to trusts?  Why should there be, it might be argued, a rule for tort and a rule - - -

MR WATERSTREET:   Exactly.  That is exactly the point I was attempting to elucidate.  In other words, the case was mounted before the Court of Appeal on illegality.  The court said, “We note it” and did not deal with it.  We would say that this is a case that throws up for decision the concept of illegality and its consequences regardless of whether it is a trust or contract.

McHUGH J:   The bank robber on the way to the bank robbery, if he is involved in a motor car accident, can still recover damages.

MR WATERSTREET:   Exactly.  And I was going to go on in this case where the elderly widow who paid for the house, owned no other property, was held unable to enforce a trust over that property against trustees who were her children who admitted her beneficial interest because she obtained a concessional loan as a war widow to which she may not have been entitled.  So that the result of the purported - - -

GAUDRON J:   On another property altogether.

MR WATERSTREET:   Yes.  So that even the trustee children denied their beneficial interest in the proceeds of the property but the Court of Appeal’s decision was to deny the beneficiary, elderly widow, her entitlement to them.  I take on board what Your Honour has said in relation to that and that is the very point that I was going to come to, namely, that there is one principle, regardless of contract or trust, and that that was a matter that the Court of Appeal just did not address.  It went off, following a decision in this Court in Martin, a case referred to on the list, and did not follow what we say is the principle set out in Yango, albeit a contract case but a principle consistent with an overall policy in tune with other decisions of this Court involving restitution, unjust enrichment and that sort of matter.

Can I just go, perhaps, to what illustrates the problem?  It is the decision of the Court of Appeal at page 88 of the application book.  I do not think it could be put better than the way it was put by the leading judgment at page 88 of the application book where Justice Sheller seems to take on board the dissenting judgment of Lord Goff in Tinsley.  He says:

However at 132 Lord Goff, who dissented, referred to Holman v Johnson where Lord Mansfield CJ said:  “No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.”  Lord Goff pointed out that the principle is not a principle of justice.  It is a principle of policy, whose application is indiscriminate and so can lead to unfair consequences as between the parties to litigation.

We say that passage illustrates the divergence with the Yango principle and the misapplication or the application in this case of what are discrete pockets of exceptions that may be applied and have been applied in trust for other reasons.

McHUGH J:   So, do you say that the trust could only fail or be unenforceable in this case if the Defence Services Homes Act itself evinces an intention?

MR WATERSTREET:   Yes, exactly, and it does not.  Curiously enough, the court below did not deal with what may be the consequences of illegality.  In dealing with the legislation, they did not deal with the statutory framework which dealt with the consequence.  Perhaps if I could just go to that now and just divert for a moment.  The legislation itself, I think, was on the list and at the time, although the legislation changed from the time of the purchase of Bent Street - Bent Street was purchased in the names of the two children - two years later an application was made for the War Service home loan with a false statement for $25,000 out of the total purchase price of something near $200,000, and the law changed in respect of the Defence Service Homes Act but not, we would say, significantly.

If I could just go to the legislation as it then was, that is, at the time of the false statement - perhaps is a significant time.  Section 18 which was referred to by the court below sets out - it is clear that the Act entitles widows and other persons to apply for concessional rates in respect of a limited amount by virtue of their status.  Section 18 - I think Your Honours have the reprint.

MASON CJ:   Yes, we have it.

MR WATERSTREET:   Section 18:

Subject to this section, the Secretary shall not issue a certificate of entitlement in relation to subsidy on an advance that a person may seek from the Bank unless satisfied that:

(a) the person is an eligible person, or the husband or wife of an eligible person -

that is not relevant, but:

(b) the person:

(i) is neither the owner of any dwelling‑house.....

other than -

that -

in respect of which the advance is payable.

And that is the relevant issue in this case.  But, significantly, we say is the consequences - and in this case it is accepted, of course, and was found by the trial judge - that there was a false statement.  If one goes to section 26, the legislature spells out clearly what will happen if there is a false statement, namely:

Where the Commonwealth is paying subsidy on a subsidised advance to a person and the Secretary is satisfied that:

(a) a certificate.....was issued to the person as a result of a false statement -

or (b), she was not entitled - and I interpolate the words:

when a certificate of entitlement in relation to the advance was issued.....

the Secretary may, by notice of cancellation given to the person, cancel the subsidy -

So, there is a discretion in the Secretary, despite the false statement and despite, more importantly, ineligibility to disregard the false statement or the ineligibility.  Section 29, the recovery of the subsidy, shows that where a person who was not entitled to the subsidy or has made a false statement, then the Secretary may require, by notice, repayment.

Section 30 equally is important:

The Secretary may, on behalf of the Commonwealth.....

(a) write off an amount that a person has been required to pay.....under section 29;

(b) waive the right of the Commonwealth to recover ‑

the whole of that amount, or (c).  So, in this case there is part of the scheme which significantly, we would submit, was not even mentioned in the Court of Appeal’s decision at all when dealing with the War Service Loan legislation.  Application book, pages 84‑86, deals with section 18 but does not go to the sections that deal with the consequences of illegality. 

Now, if I could just take that ball for a moment.  That illustrates how out of line with the reasoning in Yango that the Court of Appeal was.  Where Yango clearly spells out that in determining third category cases that the primary question is the scope and intent of the legislation.  Other questions such as the quality of the parties, the interests of third parties, unjust enrichment, undue entitlements - here, the scheme allows for even a discretionary waiver and so it is clear that the Court of Appeal did not address the question of illegality in a way consistent with Yango because it did not even seek to enumerate the legislative consequences of breach. 

One might say that the legislative consequences of breach are diminished when one sees

that the court has failed to enforce a trust because of a breach that can be waived.  I pause to go to that because it was important.  Because the undenied facts in this are that Bent Street was wholly purchased with funds of the applicant. 

Secondly, Kidman Lane, which was the second property, was purchased by a bridging loan secured by a mortgage over Bent Street.  Thirdly, the court below found Bent Street was put into the children’s names for an illegal purpose, to circumvent the illegality of the War Service Loan legislation but it might be important to note that the measure of the illegality, one of the matters that Yango says should be addressed, was the difference in the subsidy of $25,000 as against a purchase price of near to $200,000.  So that if one applied Yango the irresistible conclusion may very well be of enforcement of this trust.  Fourthly, the court found no intention by any parties that the children have any beneficial interest in Bent Street.

If I could just take Your Honours to the application book in the judgment because the curious anomaly that arises out of the Court of Appeal’s decision is that Miss Nelson - - -

MASON CJ:   Mr Waterstreet, we need not trouble you further on this point at this stage.  You are, of course, challenging the presumption of advancement.

MR WATERSTREET:   Yes, we are.

MASON CJ:   Its application in this case and you say it is rebutted.

MR WATERSTREET:   Yes, we are.

MASON CJ:   Yes, Mr Coles, what do you have to say in opposition to this application?

MR COLES:   There are four substantial matters I would like to put shortly.  Dealing with the illegality point first:  in my submission, if one seeks to invoke the Yango type of analysis, the question of whether one simply looks to see whether the Defence Service Homes Act evinces an intention to prevent recovery is merely a question which calls into play the first two considerations which Yango identifies.  The third consideration, that is to say, whether otherwise the principle of ex turpi causa applies is not called into play by any question of whether the particular statute under consideration evinces that intention.

This is a third category Yango situation.  Indeed, with respect, if the only question is whether the particular Act, in this case the Defence Service Homes Act evinces the intention claimed then, really, the third category is sterilised or rendered otiose, in my submission.

The particular position here is simply the operation of the ex turpi causa principle which operates, in my submission  - or is well accepted as operating wherever there is conduct which was entered into for the purposes of evading the operation of the statute.  That is so simply because of the court’s reluctance to participate as an instrument in offering an inducement to crime or removing a restraint on it.

McHUGH J:   But it is not an absolute rule, is it?  Do not the cases divide up on whether or not it was the future possibility or - - -

MR COLES:   Yes, at one time you find a number of areas.  The obvious one is, of course, where the illegal purpose is not consummated or the person with that purpose recants.  A second area, I suppose, is where, as Yango itself illustrates, there is a discernible wider public policy such as, for example, in that case the interests of the depositors in seeing that the bank was able to recover the money in suit.

McHUGH J:   Can I tell you one difficulty I have with the theory of the Court of Appeal decision.  When did this trust become illegal?  At the moment of the conveyance?  Supposing she never went on with the application?

MR COLES:   It was illegal from the moment of the - well, she was debarred from the moment of the formation of the dishonest intention.

McHUGH J:   So, she could never repent.

MR COLES:   Yes, she could, subject to - in other words, it was a defeasible disability.  The cases make clear - Martin v Martin is the best example - that you can repent at any time before you brought the unlawful purpose into execution.  Thereafter, repentance is impossible.  It is academic here because, on any view, the unlawful purpose was effectuated.

McHUGH J:   Supposing she had applied and the application had been rejected?

MR COLES:   Fine.  She never effectuated the unlawful purpose.  But it is plain law, in our respectful submission - the passage in Martin v Martin to which reference has been made clearly demonstrates this - that once the purpose is effected, then repentance is no longer available.  Therefore, that particular exception is unavailable.

Another point in connection with the illegality matter, of course, is that it is not as inherent perhaps in some suggestions in my learned friend’s submission - there is perhaps a favour.  The operation of the principle is not in the realm of discretion.  Where it operates, it operates.  The court is not given a discretion in its application.  The next feature of it is that where it operates it inherently may operate disproportionately or unfairly.  That is a recognised attendant consequence.  Martin v Martin, again, is a good example.  If the claimant there had in fact effectuated his unlawful purpose which was suggested to be to put property in his wife’s name to avoid land tax, the amount of land tax he would have avoided would have been trivial.  Yet, the property would have been lost.  Similarly, here, in our respectful submission, it is unavailing for the applicant to draw attention to the disparity between, on the one hand, the amount of the Defence Service Home loan or the interest subsidy on it and the property on the other.

The next proposition, in our respectful submission, is also valid and disabling here on any view where there is illegality.  On the best view available, if you have to, in fact, rely on it in your cause of action, in the claim, then the court cannot countenance the claim.  In this case, as a matter of fact, the applicant did in fact rely on her illegality.  She had to in three ways:  she relied on it because she brought a claim based on an express trust and that required evidence of it; she brought a claim seeking to rebut the operation of a presumption, and even on the new English theory of these things, the Tinsley v Milligan case, to seek to rebut a presumption of advancement - or such an attempt will fail because you simply must disclose in that event the illegality; and thirdly, and foresically, in this case, Your Honours, she had to explain her illegality because she had made an admission.  The admission was that she had no interest in any other property.  She made that admission when she made her application to the Defence Service Fund.  So, foresically, she had to repel the admission that she made which was inconsistent with her claim to that beneficial ownership.

So, again, on that basis, she had to put forward and rely upon her illegal purpose, and it is not to the point that one - in short, one does not, in my submission, enter into fine areas of speculation or gradation as to the degree of importance publicly of the statute.  It is not the statute itself that is important.  What is important is the actual situation involved in the endeavour to evade its operation.

So, in my submission, those principles are entirely well established and inasmuch as the Court of Appeal applied them, they could not be said to have fallen into any error.

There are some other matters, Your Honours, which are controversial in the case.  The second area to which I would move really focuses upon what is said to be the concession made by the respondent or an admission that there was a trust established in her mother’s favour without any need to have recourse to any relevant presumption or the like.

Firstly, Your Honours, it is disputed, in fact, that the respondent made any such concession or admission.  There was no finding to that effect by the Master or the Court of Appeal.  On page 44 or 45, I think, Your Honours, there is a recording of a concession by the Master to the effect - - -

MR WATERSTREET:   Page 49.

MR COLES:   Yes, 49, I am indebted to my friend - to the effect only - this is at line 5 - that Elizabeth made admissions:

as to the beneficial interest which her mother had in Kidman Lane.

The Master then drew certain conclusions from that so far as her having an interest in the proceeds of the sale of Bent Street are concerned.  But as the Master elsewhere records, on half a dozen claimed - for example, at the top of page 45, the Master records that it is Elizabeth’s first claim:

that she is beneficially entitled to a half share of Bent Street -

so it is, with respect, not a sustainable contention that the plaintiff was able to prove her case by any admission in her favour of an unequivocal or an unambiguous kind.

Thirdly, any such concession would have been irrelevant any way, for two reasons.  The two reasons are these:  in my submission, it is well established that in any event it is the intention of the payer, not the payee or the recipient, that is to say, the mother’s intention for the purposes of this exercise, not Elizabeth’s intention, so that that does not enter into the consideration of things.  But in any event, more importantly, the operation of the illegality principle does assume, any way, that the claimant has made out her claim or his claim to recovery on the basis of a resulting trust or has rebutted the presumption of advancement, if that is what is required.  It assumes in his favour the establishment of the trust but denies recognition of it or denies recovery, even though the trust abstractly continues to subsist because of the illegality principle.

So much is again plain, in our respectful submission, from this Court’s decision in Martin, again, in the passage to which Their Honours in the court below referred and, likewise, in the decision of this Court in Donaldson to which Their Honours also referred.

The third matter which was raised in my learned friend’s submissions with which we would wish to deal is the proposition that the presumption of advancement does not exist so far as the relevant relationship between the parties is concerned.  In our respectful submission, for the reasons already put, that hardly does matter.  But in this case, Your Honours, it is not uncontroversial by any means that the mother was the sole provider of the funds.  There was a live issue, one understands, before the Master who heard the matter at first instance, as to the beneficial ownership of the fund entirely in the events that happened, and the events were quite remarkable. 

Your Honours will recall that the father who was jointly interested in the funds at the time the bank cheque was drawn died between the time of the bank cheque being drawn and the purchase being completed.  The result of that, of course, was there had already been taken from or debited to the joint bank account the funds necessary to purchase the bank cheque.  In that sense, the cheque was available for the disposition of the intending registered proprietors in order to satisfy their obligations as purchasers under the contract.

So there is a serious contention or it is seriously put in contention, Your Honours, and has been in contention, although it was not a matter that needed to agitate the Court of Appeal, that the funds were truly solely the funds of the mother alone and not the mother and the father.  That is important as a matter of evidence in the case because if it be the owner of the funds intention that is relevant, then the evidence, we suggest, would point to a possible basis for a finding of a disparate intention on the part of the father.  One, indeed, consistent or more consistent with an intention of advancement in a conditional sense.

Finally, it is put, Your Honours, that there is scope for the Court considering the matter in the context of restitutionary principles.  In my submission, Your Honours, that is not a matter that has ever been the basis for the conduct of the applicant’s case.  In as much as it would seem to put on the respondents an onus of showing why restitution should not be made, then it would be, in our respectful submission, an inappropriate burden to place on a respondent in this Court, when the issue comes before the Court for the first time.

In short, the case is one which turns largely on its own facts and the decision of the court below is not obviously wrong and is, indeed, in our respectful submission, in conformity with general principle including, in our respectful submission, in conformity with decisions of this Court.

It is not irrelevant that the result of the decision is by no means unfair.  There are matters said in the applicant’s outline of submissions which suggest that this is, for other reasons, an unfair decision.  But unlike many cases of the kind which this case typifies, unlike many cases, Your Honours, where the result of the application of the disabling circumstances, the result of acknowledging the operation of the illegality has been simply to deny somebody who paid the entire fund of moneys recovery of them, and to unjustly enrich the recipient, that is not a correct description of this case in any event because one result, fortuitously, of this case is that it does enable some recourse to the respondent who was a person who had contributed to a family property improvement scheme, I suppose one would say - to afford the opportunity to recover moneys to which she was, on any view, entitled but which, for various reasons, including the operation of a statute of limitations, it was held she was disabled from seeking or retaining.

Lastly, Your Honours, it is of course to be borne in mind that the subject-matter at issue was a relatively modest one and there is much to be said for bringing the matter finally to an end so that the members of the family involved may peacefully get on with their affairs without the continued spectre of litigation blighting their lives.  For those reasons then, in our respectful submission, the application should be dismissed.

MASON CJ:   Thank you, Mr Coles.

There will be a grant of special leave in this case.

The Court will adjourn sine die.

AT 12.43 PM THE MATTER WAS ADJOURNED SINE DIE