Official Receiver v Frith

[1999] FCA 576

FEDERAL COURT OF AUSTRALIA

Official Receiver v Frith [1999] FCA 576

OFFICIAL RECEIVER for and on behalf of the OFFICIAL TRUSTEE in Bankruptcy v FRITH

SG 7124 OF 1998

MANSFIELD J
ADELAIDE
7 MAY 1999

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 7124 OF 1998

BETWEEN:	OFFICIAL RECEIVER for and on behalf of the OFFICIAL TRUSTEE in bankruptcy Applicant
AND:	JENNIFER ANNE FRITH Respondent
JUDGE:	MANSFIELD J
DATE OF ORDER:	7 MAY 1999
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1.The application is dismissed.

2.        The applicant pay to the respondent her costs of the application to be taxed.

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

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 7124 OF 1998

BETWEEN:	OFFICIAL RECEIVER for and on behalf of the OFFICIAL TRUSTEE in bankruptcy Applicant
AND:	JENNIFER ANNE FRITH Respondent

JUDGE:	MANSFIELD J
DATE:	7 MAY 1999
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1. Jennifer Anne Frith (“Mrs Frith”) became bankrupt on 25 March 1994.  The Official Trustee in Bankruptcy (“Official Trustee”) is the trustee of her bankrupt estate.  At the time of her bankruptcy, Mrs Frith was registered as the proprietor of the property situated at 47 Durham Street Ballarat in the State of Victoria, being the whole of the land comprised and described in (Victorian) Crown Land Grant Register Book Volume 9619 Folio 616 (“the Property”). When Mrs Frith became bankrupt, the Official Trustee lodged a caveat over the Property.  He has been unable to realise the Property for the benefit of the creditors because Mrs Frith claims that she holds the Property on trust for her daughters Michelle Jennifer Lewis (“Michelle Lewis”) and Angela Kay Lewis (“Angela Lewis”).  Where it is convenient to do so, I will refer to Michelle Lewis and Angela Lewis as the “daughters”.

2. Official Trustee now seeks a declaration that the Property is property divisible amongst creditors of the bankrupt estate of the respondent.  The daughters were served with the proceedings and have participated in the hearing.

3. Mrs Frith married Peter Leslie Lewis (“Mr Lewis”) on 7 September 1974.  The daughters are the children of that marriage.  Michelle Lewis was born on 8 August 1976 and Angela Lewis on 27 March 1978.  The marriage broke up in about August 1987, and it was dissolved on 13 April 1989.  On 12 December 1990, consent orders were made in the Family Court of Australia concerning the property settlement between Mrs Frith and Mr Lewis.

4. On 6 January 1990, Mrs Frith married Rodney Graeme Frith (“Mr Frith”).  They separated in May 1993 and that marriage was dissolved in November 1994.

5. The Property was purchased on 21 October 1988 for $89,000.  I accept the evidence that Mrs Frith and the daughters had been living in a unit since about August 1987, and were not content in that accommodation.  Mrs Frith approached Mr Lewis to assist in purchasing the Property in order to procure alternative and better accommodation for herself and their daughters.  They lived in the Property until about January 1991.

6. The critical question is whether the Property was purchased in her name but subject to a trust in favour of the daughters.  No document declaring or evidencing such a trust was executed at the time the Property was purchased.  In December 1993, in consultation with Mr Lewis, she signed a document entitled “Deed of Trust” (“the Deed”) which was then dated 20 October 1988.  The terms of the Deed are as follows:

   I JENNIFER ANNE LEWIS of 115 Lonsdale Street, Ballarat in the State of Victoria, being the Registered Proprietor of [the Property] hereby acknowledge that I hold such Title and property as Trustee for my daughters MICHELLE JENNIFER LEWIS and ANGELA KAY LEWIS. I have purchased such property for investment for their benefit welfare and advancement in life in the future, and hereby agree that upon the said ANGELA KAY LEWIS attaining the age of eighteen (18) years, that I will on request, sign a Transfer of the property to my daughters as Tenants-In-Common in equal shares.

7. A trust exists where a person holds property for or on behalf of another.  In this case, Mrs Frith alleges that an express trust was created in terms now contained in the Deed.  The essential requirements for an express trust are that there is property of a kind which can be the subject of a trust; that there has been a declaration of trust by a person legally competent to create a trust; that the objects of the trust property are certain and that its terms are certain so that the trust is administratively workable.  There is no dispute that the relevant certainties exist in relation to the claimed trust.  The dispute is a factual one, namely whether the trust was created at all.

8. Both Mrs Frith and Mr Lewis gave evidence that, at the time the Property was purchased, they each intended that the Property be purchased in trust for the children, to vest when they had each reached eighteen years of age.  At the time of its purchase, Michelle Lewis was twelve and Angela Lewis was ten.  They were challenged on that evidence in cross-examination.  It is common ground that the resolution of the case depends upon whether I accept their evidence.

9. Official Trustee has identified two dealings with the Property which, I accept, are inconsistent with the existence of a trust created over the Property in favour of the daughters.  The first is that, when the property settlement occurred, the claims by Mrs Frith and by Mr Lewis each expressly referred to the Property as an asset in the name of Mrs Frith and apparently available to be taken into account.  Those documents did not refer to the Property being subject to any trust in favour of the daughters.  Moreover, the consent orders made on 12 December 1990 treated the Property as an asset available to be dealt with by them.  One term of the property settlement was that Mrs Frith pay to Mr Lewis $20,000 by 11 February 1991, and it provided that Mr Lewis could apply to sell the Property to pay that sum if it was not paid on time.

10. Subject to that provision it also provided that:

    “each party be solely entitled to the exclusion of the other to all other property (including the wife’s properties situate at and known as 47 Durham Street Ballarat more particularly described in Certificate of Title Volume 9619 Folio 616 … in the possession of such party as at the date of these orders …”

11. The second is that Mrs Frith mortgaged the Property to Westpac Banking Corporation by mortgage registered on 22 March 1991 to secure an advance ostensibly to her for $61,000.  That mortgage had $9,045 outstanding at 17 December 1993, when it was discharged.

12. In addition, Official Trustee has identified other matters which, it is contended, point to the Property being owned by Mrs Frith in her own right. The Property was registered in her name. The Deed was executed in December 1993, only a few months before Mrs Frith’s bankruptcy. At about that time, Mrs Frith had been counselled by a social worker to ensure the Property was “secure” for her daughters. Both Mrs Frith and Mr Lewis, at examinations conducted under ss 81 and 77C of the Bankruptcy Act 1966 (“the Act”), gave evidence as to the time when and the circumstances in which the Deed was executed which was inconsistent with their evidence in this case.  There were also other features of their evidence upon which the Official Trustee relied.

13. Notwithstanding the forceful contentions of Official Trustee, I accept the evidence of Mrs Frith and Mr Lewis that the Property was purchased in the name of Mrs Frith on trust for the daughters, to vest in them absolutely on 27 March 1996 when Angela Lewis, the younger of the daughters, turned eighteen.

14. I was impressed by the evidence of both Mrs Frith and Mr Lewis.  I thought they were each frank and open, and responded to the issues with which they were confronted in cross-examination with candour and with what I regard as cogent explanations for the two transactions – the terms of the property settlement and the granting of the mortgage – which were inconsistent with the existence of the trust.

15. On the basis of the evidence of Mrs Frith and Mr Lewis, I find that the Property was purchased after their separation by agreement between them.  Mrs Frith approached Mr Lewis to procure his agreement to do so, involving use of funds jointly owned by them but largely under the day to day control of Mrs Frith.  It was then expected that Mrs Frith and the daughters would live in the Property whilst the daughters grew up, but Mrs Frith’s remarriage changed that expectation.  I also find that Mr Lewis agreed to the purchase of the Property only upon the basis that it be held in trust for the daughters, until the younger reached eighteen, and that Mrs Frith readily accepted that proposal.  There was from that point no issue between them about the matter.  Mrs Frith proceeded to buy the Property, and to pay for it from the jointly owned funds, upon the basis that it was subject to that trust.  At the time, they did not seek any advice about formally recording the trust.  It is, in my judgment, entirely understandable that Mr Lewis would seek to procure such an arrangement after the failure of the marriage, where he clearly continued to be concerned for the interests of his daughters.

16. Both Mrs Frith and Mr Lewis explained that the documents filed in the Family Court of Australia did not refer to the trust because they did not need to do so.  The pro forma documents on which their respective assets were specified did not draw attention to trust property, and as Mr Lewis said:  they (and the daughters) knew all along who the Property was intended for.  They presented a remarkably coincidental set of responses in cross-examination on matters of detail about their thought processes, but that coincidence is, in my view, reflective of a truthful and reliable record of their deliberations at the time rather than a recently invented response to anticipated cross-examination.  They were not people of such sophistication that they would have been able to “cook up” such responses to the level of detail to which the firm but fair cross-examination exposed them.  Mr Lewis said that he wanted a house to live in and $20,000 from the property settlement, and that is what he got.  Both he and Mrs Frith were confident she could pay the $20,000 within the time specified, so neither was concerned that in fact the Property would be sold for that purpose, or that their respective legal advisers incorporated it into the consent minutes in the terms that were recorded.

17. I also accept Mrs Frith’s evidence that she granted the mortgage over the Property to secure advances to be made to Mr Frith for his business purposes, and in circumstances where she was fearful of him.  Contemporaneous documents show that the funds were in fact provided for the purchase of certain industrial property at Beaumont Drive, Delacombe where Mr Frith carried on his business.  That mortgage was discharged in January 1994, soon after the Deed, and at a time when Mrs Frith was aware that Mr Frith was in financial difficulties.  It was also in that context that she had been advised to make sure that the Property was secure for her daughters.  In my view, it is significant that Mr Lewis and the daughters then contributed the funds necessary for the discharge of the mortgage.  If the Property was owned absolutely there would be no special reason why Mr Lewis should then contribute towards the discharge of the mortgage.

18. I have not overlooked the possibility that it was only at that time that the idea of the Property being held in trust for the daughters arose.  Apart from my assessment of the creditworthiness of Mrs Frith and Mr Lewis on that topic, it is also significant that from April 1991, when the Property was leased (after Mrs Frith and the daughters had ceased to live there) the rental was applied to the bank accounts of the daughters.  The evidence shows that from that time, the various letting agents were instructed to, and did pay the net rental proceeds from the Property to the daughters either into a joint account, or later into their separate accounts.  I have taken into account, in giving weight to that evidence, that from about March 1992 to about August 1994 the statements from the letting agents do not expressly indicate the application of the net rental funds, but the banking records of the daughters show that for the entire period they did receive the net rental (in the case of Angela Lewis, there was a gap in the records presented into evidence between September 1993 and December 1995).  Each of the daughters gave evidence, which was not seriously challenged, to that effect.  I accept their evidence.  I have also taken into account the evidence that Mrs Frith was in the habit of opening and operating bank accounts in names of members of her family, including the daughters; about the end of 1990 she had at least thirteen accounts of which five only were in her own name.  However, because the daughters gave evidence, which I accept, that they each in fact received the benefit of the rental from April 1991, I do not think that the practice of Mrs Frith of using the names of family members for certain of her own banked monies discolours the picture which their receipt of those payments paints.

19. I also accept that the timing of the creation of the Deed was prompted by Mrs Frith’s awareness of the pressure by Mr Frith’s business creditors in relation to his debts, rather than out of any concern that her own assets should be removed from the reach of her own creditors.  In the light of my principal factual finding that the Property was held by her in trust from the time of its purchase, the timing issue does not matter too much.  However, it is appropriate that I record that I accept her evidence that she realised that she was or might be jointly responsible for his debts, and that she herself might be or become bankrupt, only in about February 1994 when claims for his business debts were made directly against her.  In December 1993, when Mrs Frith discussed the Property with Mr Lewis, he was concerned only that somehow Mr Frith could “get his hands on” the Property to pay his debts.  Mr Lewis therefore arranged for the Deed to be prepared and executed to ensure that the daughters’ interest in the Property was protected.  As I have found, that was an interest created by an express trust made in October 1988 when the Property was purchased.  I accept also that he dated the Deed 20 October 1988 simply because that was the date the Property was purchased in trust for the daughters.  He was pressed in cross-examination about his reason for backdating the Deed, but his manner of response as well as his response indicated to me that he was an uncomplicated person simply doing what he considered to be proper to give effect to an earlier transaction.  Neither Mr Lewis nor Mrs Frith explained in any convincing way how they honestly could have been mistaken about the timing and circumstances of execution of the Deed in their respective examinations.  They each said in those examinations that that occurred at Mr Lewis’ house and not at solicitors’ offices in Ballarat, and that a Mr O’Brien was present when they now accept that he was not; they each now say that evidence was wrong.  Despite those inconsistencies for reasons I have given, I accept their evidence given in this proceeding.

20. Although it is clear that Official Trustee had good reason to doubt the existence of the trust asserted by Mrs Frith, I find that the Property, when purchased in the name of Mrs Frith, was held in her name but subject to the trust claimed in favour of her daughters to vest absolutely when the younger daughter Angela Lewis attained the age of eighteen years.  Accordingly, the Property is not part of the bankrupt estate of Mrs Frith.  The application is dismissed.  It was not contended that costs should not follow the event, so Official Trustee should pay to Mrs Frith her costs of the application to be taxed.

I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate:

Dated:             7 May 1999

Counsel for the Applicant:	Mr D Howard
Solicitors for the Applicant:	Martirovs & Co
Respondent appears in person
Dates of Hearing:	19 & 20 April 1999
Date of Judgment:	7 May 1999