Potts v Potts
[2023] NSWSC 1344
•08 November 2023
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: Potts v Potts [2023] NSWSC 1344 Hearing dates: 30 October – 1 November 2023 Date of orders: 08 November 2023 Decision date: 08 November 2023 Jurisdiction: Equity - Real Property List Before: Elkaim AJ Decision: 1. The court makes a declaration that the second plaintiff, the first defendant and the second defendant hold the property situated at 91 xxxxxxxxxxxxxx (being the land comprising Lot xxxxxxxxxxx) on trust for the first plaintiff.
2. The defendants are to pay the plaintiffs’ costs of the proceedings.
3. The parties have leave to request any consequential orders arising from Order (1) or to vary the above costs order.
Catchwords: REAL PROPERTY – declaration sought for transfer of legal ownership of property to first plaintiff – property purchased with money held on trust for first plaintiff – trust created by siblings to protect first plaintiff from his gambling habits – beneficial ownership of the property – issue arising from prospective sale of the property
Cases Cited: Calverley v Green (1984) 155 CLR 242; [1984] HCA 81
Category: Principal judgment Parties: David Potts (First Plaintiff)
Susan Cooper (Second Plaintiff)
Rowena Potts (First Defendant)
Janette Potts (Second Defendant)Representation: Counsel:
Solicitors:
Mr D Robertson (Plaintiffs)
Mr C Cassimatis (Defendants)
RSO Lawyers Pty Ltd (Plaintiff)
Blue Print Law (Defendants)
File Number(s): 2023/119750
JUDGMENT
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There are two plaintiffs and two defendants. They are all each other’s siblings.
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The primary dispute is the ownership of a property in Fernbank Creek, a suburb of Port Macquarie. I will refer to the property as No 91.
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The registered owners of the property are all of the parties other than the first plaintiff.
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Despite not being a registered owner, the first plaintiff asserts that he is the equitable owner of the property. He says that is the case because he has paid for the property both through an original part payment of the price and through the subsequent repayment of loans which funded the balance.
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The primary purpose of the proceedings is for the first plaintiff to obtain a declaration to this effect together with a transfer of the legal title to him. The plaintiffs have posed some alternatives in case he does not achieve this objective.
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For convenience, and without any disrespect, I will henceforth refer to the parties by their first names.
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At the present time, David (the first plaintiff) is 74 years of age. Susan (the second plaintiff) is 67. Janette (the second defendant) is 55 and Rowena (the first defendant) is 52.
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Mr Bruce Potts, the father of the parties, died in 2007. He operated a farming property called Wongalee. His will left the property to his four children in equal shares. After Mr Potts’s death, the farming enterprise continued. The income generated by the farm was deposited into an ANZ bank account (“the Wongalee account”). At various times each of the siblings borrowed monies from this account.
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Wongalee was eventually sold in June 2014. David’s net share of the proceeds was $126,430.
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The siblings had a paternal aunt, Mrs Minna Joan Robinson (Mrs Robinson). Mrs Robinson died on 9 October 2011. She left a will dated 8 February 2011. It was the last of a number of wills she had made in the years before her death. Mrs Robinson had no children. The beneficiaries to her assorted wills were generally a combination of two or more of the parties.
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In Mrs Robinson’s final will, Rowena is the executrix, but she is not a beneficiary. David is also not a beneficiary. The whole estate, subject to some minor specific gifts which I will henceforth ignore, goes to Susan and Janette. The estate had a value of just over $1 million.
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Despite the terms of the will, there is no dispute that Mrs Robinson’s estate was agreed by the parties to be split into four equal portions. Each sister received a quarter. Their portions were distributed to them, subject to adjustments arising from monies owing either to Mrs Robinson during her life or to her estate. Each quarter share had a starting point of $250,000.
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David did not directly receive any portion. His quarter was placed in a Commonwealth Bank of Australia (CBA) account held by Rowena but on trust for David. This was done to protect his share from dissipation by him in furtherance of his gambling addiction.
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The difference between the plaintiffs and the defendants is essentially as follows: the plaintiffs say that David’s share was given to him without qualification, subject only to being held on trust for him, for his protection.
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The defendants, on the other hand, say that David’s share was not unqualified, rather it remained belonging to the three sisters but was to be used for David’s benefit as long as he was alive. This position is of course only held by two of the sisters, the defendants. Susan supports David’s assertion that the monies deposited into the trust account were not only for his benefit but were also owned by him.
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It was central to the defendants’ argument that any gift to David from Mrs Robinson’s estate would have been inconsistent with her wishes. These wishes were primarily derived from a note found at her home after her death and a letter she wrote to David on 19 August 2002 calling upon him to repay a loan she had made to him of $10,000.
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Notwithstanding a letter in response, on 24 September 2002, and asserted attempts to repay the loan, it was never repaid and remained outstanding as at the date of Mrs Robinson’s last will and when she passed away.
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I will return below to the reasons why I think the defendants’ argument, arising from this issue, fails.
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No 91 was purchased at the end of 2013. The price was $287,000. Subject to a mathematical discrepancy of $4,399 (which I cannot explain), the evidence suggests the source of the purchase price was as follows:
a deposit of $10,000 which came from the Wongalee account but was later repaid from the CBA trust account;
$141,000 from the CBA trust account;
$73,010 from David’s share of the Wongalee account;
$47,000 from Susan’s share of the Wongalee account; and
$20,389 from Rowena.
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The monies listed in sub paragraphs (c), (d) and (e) of the previous paragraph were all repaid through a loan from Liberty Financial in 2014. All repayments of this loan were made by David. The loan was later refinanced with a further loan from the National Australia Bank (NAB). Again, all repayments were made by David.
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The parties agreed that at the present time the amount still owing to the NAB was $124,649.25.
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It is a notable feature of No 91 that the next-door property (No 89) is the residence of Rowena and her partner, Mr Daynon Adam. The siblings got on well until 2021, when tensions seem to have arisen after flooding in the area. Their relationship deteriorated. David and Mr Adam came to blows and there were complaints about information leaks to the local council concerning an unauthorised swimming pool on Rowena’s property.
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Despite her unwillingness to concede the point in evidence, Janette clearly took sides with Rowena, and Susan with David. In relation to the council, Janette suspected that Susan had been responsible for the information given to the council. At one stage Janette remonstrated with Susan stating:
“Are you fucking serious? You were asked multiple times by both Rowena and myself, to stop! This is none of your fucking business, however, you continued to call and make a fuss. Why?”
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The defendants concede the following:
there is not a single contemporaneous document supporting the defendants’ contentions about the ownership of the fourth quarter of Mrs Robinson’s estate;
there were no conversations with David telling him of his limited rights in respect of No 91, in particular that the property was owned by the three sisters;
three quarters of Ms Robinson’s estate, after adjustments for borrowings by the individual siblings, was distributed equally between the three sisters;
the fourth quarter (or part of it) was deposited in an account entitled “Rowena Lisa Potts ITF David Potts.” In addition, a further $126,430 was deposited on 19 June 2014 (from his father’s estate). The significance of the latter deposit is that Rowena continued to supervise these funds even though there was no suggestion that they were not David’s funds;
the part payment of $151,000 ($10,000 deposit on 18 November 2013 plus $141,000 on 10 December 2013) plus $8,555 stamp duty made for the purchase of the property at No 91 came from the monies deposited into the account identified in the previous subparagraph;
the contributions made by other persons (in effect by Susan) to the purchase of the property were repaid through the Liberty Funds;
all loan payments were made by David;
all improvements to the property, which required expenditure, were paid for by David; and
all unpaid labour in in respect of work on the property was performed by David.
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All of the parties, plus Mr Adam, were cross-examined on their affidavits. There were aspects of the evidence of each witness which gave me reason to doubt their evidence. Nevertheless, I was particularly impressed by the evidence of Susan, which despite some concerns, expressed below, seemed to best describe the events behind the dispute. It is to be noted that the stance taken by Susan is significantly to her detriment in that it effectively surrenders any claim to a one third share of No 91 or its proceeds of sale.
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I had a distinct impression that following the falling out between Rowena and Janette on the one hand and Susan and David on the other hand, that Rowena and Janette took the view that they would not cooperate with any of David’s aspirations.
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Susan was the first witness to give oral evidence. Generally, her evidence was straightforward and believable. She was adamant that the intent all along had been for David’s share to be his entirely, subject only to the protection afforded to him by his sisters in their endeavours to not let him spend his money on gambling.
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Susan explained that over some 40 years, Ms Robinson had frequently changed her will leaving one or more siblings out of the will. She said the attitude adopted by the siblings was that “it doesn’t matter what the will says, we will split it four ways.” It was suggested to her that this approach was inconsistent with, and perhaps even inappropriate, before Ms Robinson had died. I do not agree. Clearly the siblings had an expectation that they would receive benefits under Ms Robinson’s will and they were simply discussing the future in case one or more of them was omitted as a beneficiary.
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There were two matters in Susan’s evidence which caused me concern. Firstly, she gave evidence that, she thought that David was fully entitled to the proceeds of the sale of No 91 and that her worries about his gambling were no longer a relevant issue. This is contrary to her affidavit evidence, where, in March 2022, she agrees with Rowena that “He still needs us to look after his money for him”. Although this sentiment does not influence the question of whether David was the beneficial owner of the property, it does somewhat contradict her evidence that his gambling problem was over.
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Secondly, and more importantly, was her evidence about her completion of a rental assistance application on David’s behalf in order to obtain a rental benefit from Centrelink. The application lists Susan as the landlord and David as the tenant. The intent is to obtain a benefit from Centrelink which Susan said was the source of repayments of the loan over the property.
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Susan denied any wrongdoing in this enterprise, suggesting that it was not uncommon for the same person to be both a landlord and tenant. She quoted the example of a person forming a separate entity (a company) which would then be a party to the lease while the person was the other party. This is not the case here.
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The defendants suggested that the listing of David as a tenant was consistent with him being a tenant and not the owner of the property. The consistency certainly exists, but I do not think it is such as to lead to a conclusion that he could not also be the beneficial owner. I think the tenancy application is more an indication of a possible subterfuge to obtain a benefit than an indication of true ownership.
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David’s dealings with Centrelink loomed larger in his cross-examination. He was asked a number of questions about forms he had filled in and which had been produced by Centrelink pursuant to a Freedom of Information application (Exhibit 1). David was taken to a number of entries to demonstrate that his completion of the forms was done on the basis of him being no more than a tenant at No 91.
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David conceded that his answers in the forms were incorrect but implied that they were necessary in order for him to obtain rental assistance and had been a product of conversations with a Centrelink “complex assessment officer”.
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I think the question and answer that most highlighted David’s quest for “cash above fact” is question 53 of his form completed on 31 July 2014. The question asks: “Which of the following best describes where you live?” A number of alternatives are then given, the first of which is: “In a home which is owned by a private company or a private trust that you have an interest in.” This alternative might be seen as best describing the status that the plaintiffs assert in this litigation.
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David did not however tick the box for the first alternative. Rather, he marked the answer which states: “In a place where you (and/or your partner) pay private rent (this includes site or mooring fees).”
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I think David’s intent was to obtain rental assistance. I do not think his answers are an indication of a considered legal status. Nevertheless, his preparedness to give incorrect answers in the form made me treat his evidence generally with a good deal of caution.
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Finally, on the subject of the Centrelink forms I am satisfied that it was probably Susan’s idea. On 30 January 2014 she wrote to Janette:
“When David eventually moves into the house & and it is [sic: in] our names he will be able to claim rental assistance as well as the pension, when it goes to his name he will not be able to do this.”
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Janette was the first of the defendants’ witnesses. Like the witnesses before, her evidence contained notable imperfections.
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Janette saw the history of the distribution of Mrs Robinson’s estate in this way: she and her sisters each received a quarter, but the fourth quarter did not go to David. Rather it was retained, in equal shares, by the three sisters, to provide David with his needs and to protect him from his gambling habits.
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Janette said No 91 was put into the names of the sisters to ensure that David had a place to live for his lifetime. This necessarily meant that if he changed his residence then, if otherwise possible, the sisters would again purchase the new residence in their names. This could continue for the whole of David’s lifetime.
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But the position I have just outlined is not what Janette told her lawyers in January 2023. In a letter dated 19 January 2023 (Exhibit E) her lawyers expressed her (and Rowena’s) position as follows:
“19. Having regard to the above, our clients are inclined to proceed with the sale of the Property, however, the net sale proceeds (after discharge of the NAB mortgage, less the payment of the sale costs and subject to paragraph 20 below) must be equally distributed amongst the Sisters, being the sole and beneficial owners of the Property. Of course, on the sale of the Property, Mr Potts’ tenancy will end.”
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Another area where I doubted the credibility of Janette’s evidence arose in respect of borrowings from Mrs Robinson before her death. In an email sent on 7 January 2012, after the parties had spent some time together in Port Douglas, Susan wrote to her siblings outlining what she had understood the agreement that was reached during their meetings to be. It is clear from this email that a sum of $25,000 is recorded as having been borrowed by Janette from Mrs Robinson. Not only did Janette never challenge this assertion, but she also did not challenge the agreement as recorded in the email. I do not accept Janette’s evidence that she could not remember if she had borrowed money from Mrs Robinson and I do not accept her suggestion that she would not have responded to the email because it was just Susan’s view.
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On 20 March 2022 Janette sent a text to Susan. It included:
“Up to him now to do what he wants and to spend his money how he wants. He can enjoy the rest of his life.”
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Janette denied this text message said what it apparently plainly states; namely that the proceeds of the sale of No 91 were the property of David to spend as he wished. She said she was referring only to a refund of money David had spent on the property. I do not accept her denial. I think it was made up to try and defeat the plain import of the message.
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Rowena gave evidence. Although perhaps initially giving an impression of an uncompromising character, it soon emerged that she was anxious and perhaps not as controlling as the evidence might have suggested. This is certainly not a criticism of Rowena, simply an observation.
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Rowena, like Janette, stuck doggedly to her version of the ownership of No 91. However, there are a number of indicators to contradict her (and Janette’s) certainty.
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Rowena also rejected Susan’s email of 7 January 2012 as reflecting any agreement between the parties. Rowena could not remember if she had responded to the email and was unable to check because of an unavailability of her email history.
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What is telling however is that Rowena then acted effectively in accordance with the asserted agreement. Her spreadsheets have a four-way split with a starting point of $250,000 to each sibling before borrowings from Mrs Robinson or her estate are taken into account.
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Assuming the fourth quarter of the funds distributed from Mrs Robinson’s account was not owned by the three sisters, none of the sisters contributed any money to the purchase of No 91, or to its maintenance or to any of the mortgages over the property.
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The account at the CBA was opened on 29 July 2013 and is titled Rowena Lisa Potts in trust for David Potts. $173,780.90 was deposited into this account. $141,000 was debited from the account on 10 December 2013 and used to fund the purchase of No 91. Prior to this date about $16,000 was paid out for the benefit of David.
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According to the defendants, and put stridently by Janette in her oral evidence, the three sisters were the owners of the monies that went into the CBA account. Yet, on no occasion did Rowena seek the permission of her sisters, who supposedly were the owners of the funds in the bank account, to approve the expenditure. The monies were seemingly simply paid at the request of David.
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It was never suggested, and it would have been surprising, that David’s interest in the funds was extinguished when No 91 was purchased.
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Further, in relation to the CBA trust account, rent received from the tenant in occupation when No 91 was bought and for some time thereafter, was paid into the CBA trust account. If the sisters were the owners, the rent should have gone to them.
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When David received the $126,400 from the sale of Wongalee, the money went into the CBA trust account without any suggestion that David was not fully entitled to this amount. On Janette’s evidence the account would then have taken on a hybrid identity as being part owned by the sisters and part owned by David.
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The spreadsheets prepared by Rowena under the heading of “Estimate Distribution” all treat David in the same manner as his sisters, namely that he is to receive $250,000 subject to minor alteration.
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The email from Rowena to David on 12 June 2013 has the subject as “Your Estate Balance”. It then goes on:
“I did this really quick but need to spend more time to make the excel sheet make more sense.
Your available funds right now are:-
173,856 Current balance
56,000 truck, if sold less commissions etc
15666 money owed by Sue
$245,522 available once truck sold and Sue pays borrowed money.
I have attached excel sheet and bank statement from end of Dec 2012.”
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The references to “your estate balance” and “your available funds” are entirely inconsistent with David not being entitled to the sums set out in the email.
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Further, and very significantly, neither Rowena nor Janette could point to any conversation with David or document addressed to him, in which there is a statement to the effect that any of the monies or property derived from the monies are not to be owned by him. It beggars belief that if the defendants’ position is correct, that David had never been given any document or been directly told that he was not receiving a quarter share of Mrs Robinson’s estate.
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Notably, in January 2014, it was even contemplated that David’s name might appear on the title to No 91 in substitution for Rowena. This proposal was to prevent another person making a claim on the property arising from a debt being claimed from Rowena.
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Rowena wrote a text message on 18 June 2022 in which she stated:
“Other thing I just wanted to mention for when you a hv conversation with David - blaming having to sell up on a family fallout is such a cop out and offensive.
Like I said today he can’t afford to stay here even if thing s were ok. He had to spend money on a drive way regardless which left him with no money.
He’s getting free money to go and live his life and enjoy retirement.”
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Like Janette’s text message of 20 March 2022, this text message is completely at odds with the case being advanced by Rowena and Janette.
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The statutory declaration (Exhibit A) signed by Rowena on 21 April 2021 is a direct statement of ownership of No 91 by David. Rowena said in response to the document that she had been under a great deal of stress due to recent flooding and David had been harassing her to sign the document. She had not read it properly. The impression I had of Rowena was that she was a much more careful person who is unlikely to have not read a document that she was about to declare as being true.
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In relation to capital gains tax, Susan sought advice from her accountant. The accountant effectively said that the tax would be payable unless an exception to the main residence exemption could be found. Such an exception could be:
“Where the occupier of the property is absolutely entitled to the property as against the trustee.”
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Armed with this advice Susan asked Rowena to see if there were any documents to substantiate a trust. Rowena wrote to Susan, by email, on 1 September 2022 stating, inter alia:
“I hv ordered statements from 2013 when cba account opened and checked emails. Not much discussion of trust.”
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This response is surprising against the background of Rowena being adamant that no trust existed.
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The final witness in the case was Mr Adam. He has been Rowena’s partner since 2005 and is a co-owner of No 89. He said he had originally had a close relationship with David, but this started to deteriorate from about 2017 when he observed David to be abusive of Rowena.
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On the subject of being abusive, Mr Adam said that he regretted the text message that he sent to Susan on 14 October 2022. The message states:
“Sue you fat C_T!!!!
This day forward I am done with you Don’t ever come to my house again Good luck selling House Hahahaha”
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I accept that Mr Adam does regret his words, but I also accept that he was displaying an intent to make the sale of No 91 difficult for David.
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The majority of Mr Adam’s evidence was derived from conversations he overheard between Rowena and her sisters and did not assist me in the resolution of the matter.
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The defendants submitted that the best David could do was to be seen as the beneficiary of a remedial constructive trust, or a resulting trust, arising from his capital contributions to No 91. It was accepted that he had paid about $70,000 in repairs and maintenance to the property. However, he had also received about $300 per month in recent rental assistance and he had not paid any rent. Therefore, submitted the defendants, he was “well ahead.”
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Mr Adam glibly said that the mortgage payments had been paid by “Centrelink.” The defendants submitted that their payments, to the extent that they only addressed interest, were not contributions for the purpose of the trust because they had not increased the value of the property.
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Mr Adam was correct to the extent that the rental assistance was applied to the mortgage payments, but the defendants are not correct to say that the payments of interest only did not affect the value of the property. No doubt if David had not made the payments, the lender would have foreclosed upon the loan, leaving the property with a substantially greater debt and an equally lesser equity.
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This mortgage point is in any event not relevant, because the constructive trust envisaged by the defendants, does not cater for the original source of the purchase price having emanated from David’s share of Mrs Robinson’s estate and his inheritance from his father.
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I will now return to the issue I highlighted above concerning the note found in Mrs Robinson’s house and the asserted inconsistency between a gift to David and the monies being limited to his protection and assistance.
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The note is in the strongest terms:
“Like father, like son - both crooks. When you asked me to loan you ten thousand dollars, I expected you to pay it back by the end of May 02. It is now Sept 02 & unfortunately you have turned out just like your rotten father & I’m stupid for not twigging earlier your mother must be twirling around in her grave - although you probably ripped her off too! Tammy was lucky, she escaped relatively unscathed.
I could say I hope you rot in hell - but that is far too good for you & your common thief father – thieves never prosper & with you both owning Taralga”
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The content of the note suggests it was written in September 2002. This is consistent with the letter sent by Mrs Robinson to David on August 19, 2002:
“David
When I loaned you ten thousand dollars you asked me to loan you for six months, I expected you to repay me this loan by the end of May this year.
By the end of this month, the loan will be three months overdue. I have a lot of medical/hospital expenses and I need this money. Please be good enough to repay me this ten thousand dollars by September 1, 2002.
Joan Robinson”
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It is immediately notable that the tenor of the letter is considerably more “polite” than the note. There is no evidence to suggest the note was ever sent to David and it seems to be a musing of Mrs Robinson as she lamented David’s failure to repay the loan.
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David responded to Mrs Robinson’s letter on 24 September 2002 stating his shame at failing to repay the loan and promising:
“… I will repay you, when able. I will send you a start on the [sic: principal] & continue until the balance is paid. …”
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Notwithstanding his stated commitment, David never sent “a start” and he never made any instalments. He said in evidence that the money had been borrowed for a short-term investment in shares. He gave no detail and I suspect the money was gambled away, although perhaps it was a gamble on a risky share investment.
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The defendants submitted that David was deliberately left out of Mrs Robinson’s will because of her anger and disappointment at his failure to repay the loan. It then followed, said the defendants, that not giving the one quarter share to David was consistent with Mrs Robinson’s wishes. The argument has these problems:
if the money was to be used for David’s benefit it was equally inconsistent with Mrs Robinson’s wishes;
while I accept that there may have been a specific reason for Rowena not being a beneficiary, the distribution of the estate was nevertheless inconsistent with the terms of the will;
almost 10 years had elapsed between the loan and the final will. There is no evidence of any continuing demands being made by Mrs Robinson for repayment. It is simply unknown whether she harboured the same sentiments about David when the will was made;
there were conversations from time to time which suggested that whatever the terms of Mrs Robinson’s will might have been, the siblings agreed to split the estate equally. For example, in 2003 Susan said to Rowena: “It does not matter that Joan has taken David out of the will, as in the end we will divide her estate in 4 as that’s only fair”. Susan said that Rowena agreed; and
after Mrs Robinson’s last will was made Rowena said to David: “Joan asked me ‘You are going to include David in my will, aren’t you?’ I told her ‘yes, I was’. Joan seemed to accept that.” This and the conversation in the preceding subparagraph were denied by Rowena. I prefer the evidence of the plaintiffs over that of Rowena on this topic because it accords with my view of the comparative reliability of their respective evidence.
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In summary I am satisfied of the following:
following the death of Mrs Robinson, the parties agreed that her estate, subject to individual loans and borrowings, would be split equally between the four siblings;
the creation of a trust account for David’s share and the purchase of No 91 in the names of the sisters were devices intended to protect David from his gambling habits. They were not intended to, and did not reflect, any beneficial ownership of these assets;
David has, either through direct payment or through the Liberty Financial and NAB loans, paid all monies associated with the purchase, maintenance, and upkeep of No 91;
the nature of the trust is similar to that stated in Calverley v Green (1984) 155 CLR 242 at 266-267 per Deane J:
“There are three presumptions of equity which are here relevant. The first is that which was applied by Rath J. at first instance in this case but was held by the Court of Appeal to be irrelevant upon a proper appreciation of the facts. Worded in terms that are appropriate for present purposes, it is: where a person pays the purchase price of property and causes it to be transferred to another or to another and himself jointly, the property is presumed to be held by the transferee or transferees upon trust for the person who provided the purchase money. The second can properly be seen as complementary of the first. It is: where two or more persons advance the purchase price of property in different shares, it is presumed that the person or persons to whom the legal title is transferred holds or hold the property upon resulting trust in favour of those who provided the purchase price in the shares in which they provided it.” (Emphasis added).
David should indemnify his sisters in respect of any amount owing under any loan facility in their names and for any amount which might be payable by way of capital gains tax if No 91 is sold.
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As to final orders, the plaintiffs requested that if I found in their favour I should only make Order 1 as set out in the statement of claim, with the parties thereafter to confer on appropriate consequential orders.
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I make the following orders:
The court makes a declaration that the second plaintiff, the first defendant and the second defendant hold the property situated at 91 xxxxxxxxxxx (being the land comprising Lot xxxxxxxxxxxx) on trust for the first plaintiff.
The defendants are to pay the plaintiffs’ costs of the proceedings.
The parties have leave to request any consequential orders arising from Order (1) or to vary the above costs order.
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Amendments
15 November 2023 - Jurisdiction amended to Equity - Real Property List
Decision last updated: 15 November 2023
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