Pascoe v Boensch
[2007] FMCA 2038
•6 December 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PASCOE v BOENSCH & ANOR (No.6) | [2007] FMCA 2038 |
| BANKRUPTCY – Declaration of trust – where equitable property – whether principles in Milroy v Lord apply – whether imperfect gift – whether Jones v Dunkel inference. |
| Bankruptcy Act 1966, ss.120, 121 Conveyancing Act 1919, s.23C(1)(b) |
| Dalton v Ellis; Estate of Bristow (2005) 65 NSWLR 134 Jacobs’ Law of Trusts in Australia (7th ed, Heydon and Leeming, 2006) |
| Applicant: | SCOTT DARREN PASCOE |
| First Respondent: | FRANZ BOENSCH |
| Second Respondent: | SABINE BOENSCH |
| File Number: | SYG 1995 of 2006 |
| Judgment of: | Raphael FM |
| Hearing dates: | 20 & 21 November 2007 |
| Date of Last Submission: | 20 & 21 November 2007 |
| Delivered at: | Sydney |
| Delivered on: | 6 December 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Johnson |
| Solicitors for the Applicant: | McLean & Associates |
| Counsel for the Respondent: | Mr M Heath |
| Solicitors for the Respondent: | Wright Commercial Lawyers |
| Solicitors for the Second Respondent: | Shanahan Tudhope |
ORDERS
The answer to the preliminary question outlined in the orders of 6 September 2007 is “Yes”.
Applicant to pay the first respondent’s costs of the preliminary question.
Parties to contact my associate to obtain a date for further directions.
The second respondent and the trustee may make written submissions on the second respondent’s costs within 7 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1995 of 2006
| SCOTT DARREN PASCOE |
Applicant
And
| FRANZ BOENSCH |
First Respondent
| SABINE BOENSCH |
Second Respondent
REASONS FOR JUDGMENT
These long-running proceedings have been brought by the Bankruptcy Trustee of Mr Franz Boensch for the purposes of having transferred to him the legal title in property at 255 Victoria Road, Rydalmere, New South Wales, currently held by the respondents as joint tenants under Volume 7366 Folio 5 in the certificate of title. Although this describes the legal ownership of the land, the fact is that the equitable ownership of the land is held by Mr Boensch solely. Pursuant to orders of the Family Court Mr Boensch paid Mrs Boensch $50,000.00, and Mrs Boensch provided Mr Boensch with a transfer free of encumbrances of her interest in the property on 9 June 1999. That transfer has never been registered. Mr Boensch claims that he holds the land as trustee for his two children pursuant to a Memorandum of Trust in the terms set out below executed on 23 August 1999:
“This is a memorandum of trust created for the benefit of Boensch family with the most important purpose to provide secure means of support to the children of the marriage Dominic Boensch and Stefanie Boensch, after the divorce of their parents.
The trust property is the land and buildings at 255 Victoria Rd, Rydalmere NSW.
Sabine Boensch will cause her share of ownership of that land to be transferred to Franz Boensch for him to hold the whole of land in trust as described above.
In due course Franz Boensch will arrange with a solicitor or accountant to prepare a detailed trust document, professionally drafted to give best protection to the children and to ensure favourable tax treatment of income earned by the trust.
Dated: 23 August 1999
________________________ ________________________
signature signature
(Franz Boensch) (Sabine Boensch)Witnessed by:
Justice of the Peace 23/8/99
Leon Michael PARSONS”The preliminary question which I have been asked to answer is:
“Does the Memorandum of Trust constitute a valid declaration of trust or otherwise create or recognize the creation of a valid interest in the property identified as the land and buildings at 255 Victoria Road Rydalmere?”
Narrative
The evidence of Mr Boensch found in his affidavits and oral testimony is that he and his wife agreed in about 1998 to settle their domestic affairs on the basis that Mr Boensch would pay his wife $50,000.00 for the transfer of her moiety in the property and a release from her obligations under the mortgage. The two children of the couple would be brought up jointly by them with both parties contributing to their upkeep and education and without any orders being made as to child support by either one or the other parent. Mr Boensch was advised by a Ms Carolyn Munt, a solicitor at this time. She signed as solicitor for the transferee the document of transfer that was provided by the wife. That instrument of transfer was submitted to the Office of State Revenue for stamping and was noted as “no duty payable” because it was a transfer pursuant to orders of the Family Court of Australia.
Mr Boensch says that when he received the transfer he attended at the Commonwealth Bank to arrange for the production of the title deeds so that the transfer could be effected, but the bank told him that this could not happen unless he refinanced the property with them. He went twice to the bank. Once he saw a teller or other junior officer and once he saw a more senior officer, but on both occasions the response was the same. Mr Boensch is self employed and he did not think that he would be able to satisfy the bank’s requirements to refinance the property, even though he continued to pay the mortgage by himself and there has been no suggestion that his wife’s obligations under it have ever been called upon.
At around the time Mr Boensch received the transfer from his wife he heard a program on the radio about the rights of de facto partners. He says that he became concerned that if he took up with a partner she might have a claim upon the property which would deprive his children of their inheritance. He determined to protect the property for the benefit of his children. He did not seek the advice of a solicitor although he had used one in the matrimonial proceedings. Instead he spoke to an acquaintance, Mr Reeves. Mr Reeves introduced Mr Boensch to a friend of his who, he said, knew something about trusts and Mr Boensch had a meeting with the friend and told him of his concerns. The friend agreed to prepare a document that would protect Mr Boensch. He did so. It is the document reproduced in these reasons above. He suggested to Mr Boensch that his wife also sign the document, possibly because Mr Boensch had told him that Mrs Boensch had provided a transfer but that it was not registered.
Between 1999 and December 2003, Mr Boensch made some attempts to refinance the loan for the purposes of carrying out development upon the land. He utilised a finance broker, a Mr Meers. If the property had been refinanced it would have been transferred into Mr Boensch’s name but it was not refinanced. In 2003 Mr Boensch had a dispute with a Mr Michael Costin who on 27 July 2003 obtained a judgment against Mr Boensch in the sum of $31,113.31. On 4 September 2003 Mr Costin made an application to record a writ on the title of the property. On 21 November 2003 Mr Boensch sought advice from a solicitor, Mr Leong, in relation to the validity of the Memorandum of Trust. He received advice from Mr Leong which resulted on 18 March 2004 in the creation of a Deed of Trust in which Franz and Sabine Boensch were settlors and Franz Boensch was the trustee. The Deed of Trust purported to confirm the Memorandum of Trust of 23 August 1999. I am not concerned with the effect of this transaction, save to the extent that it is agreed by all parties that if the Memorandum of Trust of 23 August 1999 does not constitute a valid gift of the property by way of trust then the confirmatory documents have no efficacy. If I should find that the Memorandum of Trust of 23 August 1999 did validly create a trust in favour of the Boensch children then I will have to hear and determine the question of whether or not the transaction was invalid by virtue of ss.120 or 121 of the Bankruptcy Act 1966 (the “Act”).
The trustee places some significance upon the fact that there appears to be no direct reference to the existence of the trust in Mr Boensch’s dealings prior to his attending at the offices of Mr Leong although there is thereafter. There was produced in evidence a memorandum produced by Mr Peter Meers, the finance consultant, prepared on 18 December 2002 seeking a property investment loan in respect of the property. The proposed borrower is noted as “Mr Franz Boensch and others”. Another document prepared by Mr Meers in September 2003 seeking a loan notes that:
“The owner plans to retain the complex as a retirement asset”.
Mr Boensch was asked about this statement in cross-examination and said that it was perfectly consistent with the trust arrangement because he had hoped that his children would be keeping him in his retirement from, inter alia, the income from the developed land. In some accounts described as “trading profit and loss statement for the years 2001-2004” of Workshop 255, Mr Boensch’s business, there appears as an expense “rates”, which would indicate that Mr Boensch sought to set off against his own business income the council rates which were paid on the property. This would not form a taxable deduction if the property was actually owned by the trust.
There is no evidence that Mr Boensch was in any financial difficulty until the dispute with Mr Costin and no other explanation for entering into the memorandum document has been provided other than the one put forward by Mr Boensch. I listened to the evidence given by Mr Boensch and to his cross examination. There was no suggestion put to him that the document might have been prepared as a defensive gesture not to be utilised unless the events which he spoke of fearing had occurred. In the absence of such a suggestion from the trustee and without any other evidence of a motive I am unable to accept Mr Johnson’s submission that the document is a sham. As Young CJ in equity said in Dalton v Ellis; Estate of Bristow (2005) 65 NSWLR 134 at [15]:
“A transaction will only gain the description of a sham if all parties to it share a common intention that it will not create the legal rights and obligations that it appears to; Snook v London and West Riding Investments Limited (1967) 2QB 786 at [802]. There is no material from which the court could conclude that the document was a sham. It was prepared by solicitors and duly signed and delivered. The first defendant always appeared to have regarded it as important; the document has been preserved for many years. It is difficult to see what the deed was meant to be disguising, who was intended to be deceived by it or what purpose such a deception could have.
Although in this case the Deed was not prepared by a solicitor, it was clearly prepared by someone who had some understanding of the purpose and effect of a trust. It was duly signed and delivered. Mr Boensch always appeared to have regarded it as important and he preserved it for many years. It is difficult to see what the Deed was disguising and if the only person to be “deceived” by it was a potential de facto partner then this was no deception; it was the very reason for the creation of the document.
The real question in issue, then, is whether this Memorandum of Trust in all circumstances was a completed gift of the beneficial interest in the land to the Boensch children to be held on trust for them by Mr Boensch.
At the time Mr Boensch asked his acquaintance to prepare the Memorandum of Trust he was the legal owner of a moiety in the land and the equitable owner of the whole of it. His rights as equitable owner were inviolable. They were not the subject of the gift; they had been bought and paid for. They were reflected in a deed of transfer duly stamped and were the subject of court orders. Mrs Boensch remained the legal owner of her moiety which she held on a bare trust for Mr Boensch.
Discussion
In considering whether or not what occurred in this case constituted an incomplete gift, three matters will be considered shortly.
1. A declaration of trust can be made over equitable property
Dixon J (McTiernan J agreeing) in Comptroller of Stamps (Victoria) v Howard-Smith (1936) 54 CLR 614 at 621-2 outlined that a voluntary disposition of an equitable interest may occur by way of declaration of trust:
“A voluntary disposition of an equitable interest may take one of at least three forms. It may consist of an expression or indication of intention on the part of the donor that he shall hold the equitable interest vested in him upon trust for the persons intended to benefit. In that case he retains the title to the equitable interest, but constitutes himself a trustee thereof, and, by his declaration, imposes upon himself an obligation to hold it for the benefit of others, namely, the donees”.
This is further supported by Windeyer J in Norman v FCT (1963) 109 CLR 9 (with whom Dixon CJ was not disposed to disagree on this point at [3]) at [13]:
“If the interest to be assigned is a creature of equity, such as the beneficial interest of a cestui que trust, then, apart from any statutory provisions, an assignment of it can, of course, only be effected in equity; for the common law does not know it. Any present assignment of such an interest, that is to say of a chose in equity, is therefore necessarily an equitable assignment. Such an assignment can be by way of gift; and, except that writing is required by s. 9 of the Statute of Frauds, no formality is necessary beyond a clear expression of an intention to make an immediate disposition. In short, there is no reason at all why a person should not give away any beneficial interest that is his: the classic statement is that of Knight Bruce L.J. in Kekewich v. Manning (1851) 1 De G M & G 176 (42 ER 519); see too In re McArdle (dec'd) (2). It is, of course, necessary that the transaction should take the form of, and be intended as, an immediate transfer of the beneficial interest of the assignor, as distinct from an agreement to assign it. The distinction is critical, for consideration is always necessary to attract the support of equity to a transaction that is a contract rather than a conveyance. The judgment of Stuart V.C. in Voyle v. Hughes (1854) 2 Sm & G 18 (65 ER 283), puts all this clearly (at p31)” [emphasis added].
As outlined in Jacobs’ Law of Trusts in Australia (7th ed, Heydon and Leeming, 2006), in such cases, the principle in Milroy v Lord [1861-73] All ER Rep 783 does not apply:
“[622] The second principal mode by which a trust may be constituted is by declaration. What is required is a statement, intended to be final and binding, that property owned by the settler is thereafter held on trust for another. The requisite intention has earlier been described. No consideration is required. Because the trust property is already owned by the trustee, the principles in Milroy v Lord do not apply; indeed, that is the force of Milroy v Lord.” [emphasis added]
At [620], the learned authors state that the first proposition of Milroy v Lord, as outlined by Turner LJ at 789:
“If it is intended to take effect by transfer, the Court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust”
is still of relevance to the assignment of equitable interests.
2. A declaration of trust can be made over an equitable interest in land
The learned authors of Jacobs’ Law of Trusts in Australia indicate that a trust may be declared over an equitable interest in realty or personalty:
[2402] An equitable interest in realty or personalty may be trust property and the beneficiary under the existing trust may declare himself or herself a trustee of the equitable interest, or may transfer it to trustees upon trust for another.”
For a trust to be declared over an equitable interest in land, the only requirement is that the declaration must meet the requirement of writing outlined in s.23C(1)(b) Conveyancing Act 1919:
“[623] The declaration must be manifested in writing signed by the person making the declaration if the trust property is land or any interest in land.”
See also Equity: Doctrines and Remedies (4th ed, Meagher, Gummow and Lehane, Butterworths, 2002) at [6-185] where the learned authors state:
“Except to the extent to which statute requires writing, no particular formality is required: merely a sufficiently clear manifestation, on the donor’s part, of an intention to constitute himself trustee of the property for the donee: see, for example, Commr of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 and Paul v Constance [1977] 1 All ER 185.”
3. Milroy v Lord
Milroy v Lord is the seminal case upon incomplete gifts. It involved a transfer of shares; personalty rather than realty. The shares stood in the donor’s name before and at the time of his executing a voluntary deed poll in favour of Mr Lord which transferred fifty shares to Mr Lord to hold in trust for the plaintiff, the donor’s niece. No transfer of the shares in the books of the relevant company ever took place. The court held that the gift to Mr Lord was incomplete and the trust could not be enforced. Knight-Bruce LJ held at 788:
“I am of opinion, that, according to our law, the instrument of April 2, 1852, was not sufficient to constitute, and did not constitute, Mr Medley a trustee of the bank shares; and in saying this I do not forget the design appearing on the face of it, that Mr Lord should become a trustee under it for the purpose it mentions. Nor do I think that, voluntary as that instrument was, it contained a contract specifically enforceable against Mr Medley or his estate – a transaction, or intended transaction, left by him imperfect and incomplete. He might have completed or perfected it by transfer;”
At 789, Turner LJ articulated the law related to voluntary settlements which has been accepted to this day:
“I take the law of this court to be well settled, that, in order to render a voluntary settlement valid and effectual the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property, and render the settlement binding upon himself. He may, of course, do this by actually transferring the property to the persons for whom he intends to provide, and the provisions will then be effectual; and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes; and if the property be personal, the trust may, as I apprehend, be declared either in writing or by parol. But in order to render the settlement binding, one or other of these modes must, as I understand the law of this court, be resorted to, for there in no equity in this court to protect an imperfect gift.”
Turner LJ’s statement was explained by Mason CJ and McHugh J in Corin v Patton (1990) 92 ALR 1 at 7:
“Two propositions emerged from the observations of Turner LJ. First, the donor must have done everything necessary to be done, according to the nature of the property, in order to transfer the property and render the gift binding. Secondly, if the gift was intended to have been effectuated by one means, the court will not give effect to it by another means.”
Corin v Patton was complicated by the fact that the transaction involved the severance of a joint tenancy and the purported gift of property from Mrs Patton to a trustee to hold for Mrs Patton. The gift was never completed because, although she signed a transfer, Mrs Patton took no action to procure the production of the certificate of title so as to enable the transfer to be registered, and it had not been registered at the time of her death.
Milroy v Lord, as well as Corin v Patton, were considered by the Federal Court in Marchesi v Apostolou [2007] FCA 986, a case in which a bankrupt was held not to have made an effective gift of land to a trustee because the donor had not done everything necessary to be done to transfer the registered title. Although there were certain factual differences, the same issue exercised the court in both Marchesi v Apostolou and Corin v Patton; namely, the donor had done all that was necessary to place the vesting of the legal title within the control of the donee and beyond the recall or intervention of the donor. In both those cases the donee was a third party trustee.
As I understand it, Mr Johnson’s case for the trustee of Mr Boensch is that the gift is imperfect because Mr Boensch was not the registered owner of the property at the time of the memorandum. He could have been, but for reasons of his own he was not. The property still remained in the legal ownership of himself and his wife. This analysis seems to me to ignore the ratio of the relevant cases, which is that equity will not step in to assist where there is a possibility that a gift can be revoked. Milroy v Lord is authority for the fact that a declaration of trust by a legal owner is not a revocable gift. I do not see any impediment to this being the same for an equitable owner. Whilst Mr Boensch was not the legal owner of the whole of the property, the Memorandum of Trust was signed by his wife as well as himself. The joint legal owners made the declaration. Mrs Boensch could not resile from her arrangement with Mr Boensch; neither equity nor law would permit it. It was an arrangement made pursuant to an Order of a Superior Court of Record. Mr Boensch was entitled at law to make the declaration for himself and he made it. There is nothing for equity to do in order to complete this gift. It does not have to create a trust of the property because one has already been created. It is the bare trust upon which Mrs Boensch holds her moiety for Mr Boensch. Equity would have had to create a trust of the property in Marchesi v Apostolou and in Corin v Patton in order to bridge the gap between the donor and the donee but Mr Boensch is also the donee by virtue of the memorandum of trust and thus the case falls within the methods of perfection of a gift set out by Turner LJ in Milroy v Lord.
The trustee sought to argue that the evidence indicated that Mr Boensch did not really intend to create a trust by the memorandum document. He points to the fact that no steps were taken to prepare the deeds of trust until after Mr Boensch fell into financial difficulties. He points out that Mr Meers was not called to give evidence even though he was the person who was responsible for attempting to raise finance on the property and suggests that no evidence that Mr Meers could have given would have assisted Mr Boensch. The trustee notes that there is no reference to the trust in the pre-2004 applications for finance. Saying that Mr Boensch did not intend the document to be a declaration of trust is no different from saying that it is a sham. I am not sure that a Jones v Dunkel (1959) 101 CLR 298 inference would be drawn against Mr Boensch in this case by the non-production of Mr Meers. He was not involved in the creation of the Memorandum. What is the inference that Mr Meers’ evidence would rebut? What are the special facts that require an answer: State Bank of New South Wales v Brown [2001] NSWCA 223? It is to be remembered that one of the finance documents refers to “Mr Boensch and others” (possibly the beneficiaries) and that Mr Boensch gave a response to the reference in another document to the use of the property for retirement purposes. Mr Boensch is undoubtedly the equitable owner of the land and certainly the legal owner of a moiety in it. The documents do no more than describe him as ‘owner’. I do not think that the application of the rule in Jones v Dunkel is appropriate in this case and even if it was it would not supplant the view I have expressed that the memorandum document was not a sham.
One matter that has not received a lot of attention is whether the Memorandum of Trust was a trust in favour of the children alone. It could be said that the wording is ambivalent. It could have allowed for the creation of a discretionary trust of which both Mr Boensch and his children were potential beneficiaries. Given the date the trust was created this might not prove important for the purposes of the Act, but again no questions suggestive of this approach were put directly to Mr Boensch and the gravamen of his evidence was that the children alone were the beneficiaries. I am prepared to accept that evidence in the circumstances.
In the light of the findings which I have made here, the answer to the preliminary question is:
“Yes”.
I order that the trustee pay the respondent’s costs of the preliminary question. I request that the parties contact my associate for the purposes of obtaining a date on which further directions can be given in this matter.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 6 December 2007
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