Re: David James Lofthouse
[2013] VSC 341
•28 June 2013
| Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2013 1436
| IN THE MATTER of an application by David James Lofthouse and Terry Grant Van Der Velde (Trustee in Bankruptcy of Aron Shkolyar) for payment out of orders for monies held with the Senior Master’s Clerk. | Plaintiff |
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JUDGE: | Derham AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21 June 2013 | |
DATE OF JUDGMENT: | 28 June 2013 | |
CASE MAY BE CITED AS: | Re: David James Lofthouse and Anor | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 341 | |
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FUNDS IN COURT – Funds in court derive from proceeds of sale of bankrupt’s property -Application for payment out by Trustee of bankrupt estate – Members of family of bankrupt claim interest in the fund through loans made to bankrupt to develop the property - Constructive trust – Proprietary estoppel – Equitable charge - Whether common intention constructive trust – Whether mere loans – No common intention constructive trust or other relief appropriate in the circumstances – Trustee of bankrupt estate entitled to payment out – Family members claims rejected.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Isles | Livaditas & Co |
| For the claimants | Michelle Shkolyar, Anneta Shkolyar and Nina Krikoun. Appeared in person No appearance by Alexander Shkolyar or Natalia Chkoliar |
HIS HONOUR:
Introduction
By originating motion filed 22 March 2013 the plaintiffs, David James Lofthouse and Terry Grant Van Der Velde (“the Trustees”), as trustees in bankruptcy of Aron Shkolyar (“Aron” or “the Bankrupt”) apply for an order that monies, paid into Court by Katherine Moorehouse-Perks on 21 September 2012 in Account No. 75992, be paid out to them.
The competing claimants are members of the immediate and extended family of Aron Shkolyar. They are Aron’s daughter, Michelle Shkolyar (“Michelle”), his former wife, Anneta Shkolyar (“Anneta”), his son Alexander Shkolyar (“Alexander”) and his sister-in-law Natalia Chkoliar (his brothers ex-wife) (“Natalia”). They claim that they too are entitled to payment out of the monies paid into court. When I refer to them collectively, I shall call them the “Shkolyar Claimants”.
Background facts
On 4 April 2012 a bankruptcy notice[1] was issued by Peter Arapoglou against Aron Shkolyar for $99,450.30 arising out of an order made by the Victorian Civil and Administrative Tribunal (“VCAT”) on 29 November 2011, which was subsequently registered in the Magistrates’ Court at Melbourne.
[1]Proceeding No. BN1992/2012.
The bankruptcy notice was served on Aron Shkolyar on 5 April 2012 and on 1 July 2012 a Creditors Petition[2] was filed by Peter Arapoglou on the basis that Aron Shkolyar failed to pay the debt, failed to make an arrangement for payment of the debt and failed to make an application in relation to the bankruptcy notice. A sequestration order was subsequently made against the estate of Aron Shkolyar on 21 August 2012 and it was noted that the date of the act of bankruptcy was 26 April 2012. David James Lofthouse and Terry Grant Van Der Velde were appointed as the Bankrupt’s trustees.
[2]Proceeding No. NLG824/2012.
On 21 September 2012, the trustees were advised by the Senior Master’s Clerk that there had been paid into the Court the sum of $76,172.98 invested in the name of Aron Shkolyar. These monies were surplus funds after the sale of a property owned by the Bankrupt at Unit 3, 29 Newlyn Street Caulfield, Victoria (“the Property”). They were paid into Court pursuant to s 69 of the Trustee Act 1958. The Property was one of three units built on the land at 29 Newlyn Street, Caulfield, by the Bankrupt.
Katherine Moorehouse-Perks is a solicitor. The trustees put her trust account ledger in evidence and it shows that the monies paid into court were wholly derived from the sale of the Property.
At the time of the payment of the monies into court, Katherine Moorehouse-Perks provided the Senior Master with the following information:
(a) the monies came from the surplus, after secured creditors were paid, of a sale of land;
(b) there are competing claims to the monies (which was the occasion for the payment of them into court);
(c) Aron Shkolyar was registered proprietor of the Property and he claims, with his beneficiaries, that he is entitled to the surplus as trustee for Michelle Shkolyar, Alexis Shkolyar, Anneta Shkolyar, Natasha (a relative) and Clara (a friend), who each were entitled to share in the surplus by reason of constructive and/or resulting trusts;
(d) the competing claimants are the Trustees;
(e) the issue between the claimants is likely to be: was the surplus sale proceeds payable to Aron Shkolyar only in his capacity as a trustee for his beneficiaries or was it payable to him absolutely, in which case it is payable to his Trustee in bankruptcy.
With that letter, there was an affidavit of Katherine Moorehouse-Perks[3] setting out some details of the claims made Michelle Shkolyar, Alexis Shkolyar, Anneta Shkolyar and Natasha and Clara.
[3]The version of this affidavit exhibited to the affidavit in support of the Originating Motion by Mr Lofthouse (exhibit DJL-05) was unsworn. An inspection of the Senior Mater’s Funds in Court file reveals that it was sworn on 21 September 2012.
The notification of claims to the Trustees were as follows:
(a) In the case of Michelle’s, she emailed the Trustees on behalf of all the Shkolyar Claimants. She described all of them as lenders to the Bankrupt for the development of the Property, and that “each of us loaned Aron Shkolyar money on the promise and condition that upon the sale of the property it would be returned with interest”;[4]
[4]Exhibit “DJL-06” to the Lofthouse Affidavit
(b) In the case of Anneta[5] and Michelle,[6] the moneys were advanced to the Bankrupt “on the strength of the promise that post sale of the property, they would be repaid with interest”;
(c) In the case of Alexander,[7] they were monies “I provided to the Bankrupt on the strength of the promise that it would be used to develop the land, 29 Newlyn St Caulfield only, and that I would be repaid with interest this money upon any sale of this land”;
(d) In the case of Nina Krikoun, on behalf of Natalia Chkoliar,[8] the money was advanced to the Bankrupt “under an agreement that it would be exclusively used to develop the land, 29 Newlyn St, Caulfield, and that it would be repaid with interest upon the sale of the land;
[5]Exhibit “DJL-08” to the Lofthouse Affidavit
[6]Exhibit “DJL-09” to the Lofthouse Affidavit
[7]Exhibit “DJL-10” to the Lofthouse Affidavit
[8]Exhibit “DJL-11” to the Lofthouse Affidavit
10. In consequence of these details and in consequence of approaches made by Michelle Shkolyar, the daughter of Aron Shkolyar, to the trustees, they were all notified of the claim made by the Trustees to the payment out of the monies in court.
11. The Shkolyar Claimants responded to the trustees’ application, attended court and in accordance with orders made subsequently filed affidavits to support their claims. These affidavits were ordered to stand as their evidence in chief.[9]
[9]Order 21 May 2013.
12. By way of further background, the Trustees put into evidence a freezing order made by Senior Member R. Walker in VCAT proceeding D395/2010 on 23 August 2011, which prevented Aron Shkolyar from removing or disposing of an amount up to an unencumbered value of $205,000, and ordering him to file an affidavit setting out to the best of his ability all his assets in Australia, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of his interest in the assets (Order 7).[10]
[10]Exhibit DJL-12 to the affidavit of David James Lofthouse sworn 21 March 2013 (“the Lofthouse affidavit”).
13. Mr Aron Shkolyar swore an affidavit on 1 September 2011. That affidavit identified the Property, together with another unit in the development of which the Property is part, as assets, subject to encumbrances to the Australia and New Zealand Banking Group Limited (“ANZ Bank”) and NCF Financial Services (“NCF”). He also identified, in respect of the Property, sundry creditors were owed $10,000 for utilities and legal expense, et cetera. There was no mention in that affidavit of any alleged debts owed by him to the Shkolyar claimants, nor did he give any evidence as to the contributions allegedly provided by those claimants to the development of the properties.
14. The trustees also gave evidence of an oral examination of Aron Shkolyar undertaken at the suit of Peter Arapoglou in consequence of the failure of Aron Shkolyar to meet the orders for payment of monies. In the course of that examination as to his income, property, assets, debts and other liabilities, Aron Shkolyar stated he owned the property at Unit 3/29 Newlyn Street Caulfield, that it was mortgaged to the ANZ Bank and to NCF, but there was no mention of any debts owed or any security interest held by any of the Shkolyar claimants in the property.
The claims of the Shkolyar Claimants
15. Aron has made an affidavit, sworn on 8 May 2013, in support of the claims made by the Shkolyar Claimants. It is said to have been prepared by Michelle. In summary, his evidence is:
(a) between 2004 and late 2011 he was subdividing and developing property at 29 Newlyn Street, Caulfield, Victoria;
(b) the original purchase price of that property was about $940,000;
(c) the development included demolishing an old house and subdividing the land into three lots and constructing three townhouses on it costing about $900,000;
(d) due to both illness and the global financial crisis happening, he found himself financially unable to complete the project and asked for the following contributions from members of his family:
(i) Alexander Shkolyar - $30,000 to the Glen Eira City Council for an empty lot fee and $25,000 for slabs/foundation of the property;
(ii) Anneta Shkolyar - $11,000 for the demolition of the original property and $22,979.75 for parquetry and installation of kitchens in Unit 1 and 2 of the property;
(iii) Natalia Shkolyar via Nina Krikoun to pay $21,000 for painting inside Units 1 and 2 of the property;
(iv) Michelle Shkolyar - $15,500 for the architect and plans for the buildings and $8,962.60 for the kitchen appliances in all three units
(e) at no time was the money contributed intended as a gift;
(f) “whilst not documented at the time, there was an understanding that having contributed to the development of the property, thereby increasing its value, all persons who contributed would be entitled to an interest in the increase in value, proportionate to the extent to which the increase is attributable to their contribution”(“the Understanding”);
(g) the development brought about an increase in value of approximately $1,560,000, namely from the $940,000 being the original purchase price to $2,500,000 being the total proceeds from the sale of the three lots.
16. He then set out what he calculated to be each of those contributors’ share in the increase in the value as follows:
(a) Anneta’s share of the increase is calculated as follows: $33,979.75/$900,000 x $1,560,000 = $58,898.23
(b) Alexander’s share of the increase is calculated as follows: $55,000/$900,000 x $1,560,000 = $95,333.33;
(c) Michelle’s share of the increase is calculated as follows: $24,462.60/$900,000 x $1,560,000 = $42,401.84;
(d) Natalia’s share of the increase is calculated as follows: $21,000/$900,000 x $1,560,000 = $36,400.
17. Anneta swore an affidavit on 8 May 2013 and, again, it is said to have been prepared by Michelle. She is the former wife of Aron and has been separated from him since 2006. Otherwise, her affidavit is remarkably like the affidavit of Aron, following the same form and using essentially the same words to describe the ‘Understanding’ and applying the same formula for the calculation for her share of the increased value in the development. In truth it adds nothing to the affidavit of Aron.
18. Alexander also swore an affidavit on 7 May 2013 and again it is prepared by Michelle. He is the son of Aron. His affidavit follows the same formula and wording as Aron’s affidavit, using essentially the same words to describe the ‘Understanding’, and calculates his share of the increase in the value of the development in the same way.
19. Natalia swore an affidavit on 2 May 2013. She deposes that her claim to the proceeds from the sale of the property is outlined in the affidavit of her sister, Nina Krikoun. Her affidavit was also prepared by Michelle.
20. Nina Krikoun swore an affidavit on 2 May 2013. It too was prepared by Michelle. She is the sister of Natalia Chkoliar. She deposes:
(a) that since mid-2010 until early 2011 she held in trust for Natalia the sum of $21,000. These monies were the difference between the proceeds of the sale of her sister’s previous residence and the purchase price of her new, and current, residence;
(b) in January 2011 she was requested by Natalia to transfer that amount of money to Aron. She made enquiries as to the nature of the proposed transaction and satisfied herself that it was a reasonable arrangement and transferred the sum to Aron’s bank account in three instalments of $15,000, $5,000 and $1,000 on 17 January, 22 February and 23 February 2011, respectively;
(c) Natalia was married to Aron’s brother, but has remained on friendly terms with Aron and his former wife, Anneta;
(d) at the time of the payments made by Nina Krikoun on behalf of Natalia, Aron was subdividing and development the property and had run into financial difficulties;
21. Then follows a paragraphs using essentially the same words to describe the ‘Understanding’, saying that the transfer was not intended to be a gift and details of the claim based upon increase in the value of the property in the same manner as is the subject of Aron’s affidavit.
22. Michelle swore her affidavit on 9 May 2013. She is the daughter of Aron. She sets out the same evidence as her father, using essentially the same words to describe the ‘Understanding’, but is limited to the contribution she alleges she made to the development of the property.
23. The Trustees did not seek to cross-examine the Shkolyar Claimants on their affidavits.
Applicable Law
The moneys in Court were paid in under s 69 of the Trustee Act 1958 on the basis that Aron was trustee of the funds for the Skolyar Claimants or they were his absolutely and thus were a part of the bankrupt estate to which the Trustees were entitled by virtue of s 58 of the Bankruptcy Act 1966.
25. The only basis for the Shkolyar Claimants to have an entitlement to the funds in Court is if they had an interest in the Property from which they are derived, otherwise they must prove with the Bankrupt’s other creditors in his bankruptcy.
26. The Shkolyar Claimants were unrepresented. They had received some guidance from Katherine Moorehouse-Perks in notifying their claims to the Trustees, and some further advice in drawing the affidavits in consequence of my suggestion, at a directions hearing, that they should obtain legal advice. They were not able to articulate the basis of their claims.
27. It seems to me there are three possible ways in which they may claim an interest in the Property, and therefore in the Fund, in the circumstances of this case:
(a) A constructive trust based on an unconscionable denial of their beneficial interests;
(b) A proprietary estoppel;
(c) An equitable charge.
Constructive Trust
28. There is a great deal of law on the subject of constructive trusts. Not all of it, by any means, is capable of applying to the facts of this case. What follows is a selection of the relevant principles.
29. A constructive trust may be imposed upon a legal entitlement to property the in order to prevent a person from asserting or exercising his or her legal right in respect of that property in circumstances where the particular assertion or exercise of it would constitute unconscionable conduct.[11] In this case, the ‘legal entitlement’ is the legal ownership of the Bankrupt in the Property from which the funds in Court is derived.
[11]Muschinski v Dodds (1985) 160 CLR 583 at 620, 623
30. In Baumgartner, the majority (Mason CJ, Wilson and Deane JJ) referred to the result reached by Deane J in Muschinski v Dodds (1985) 160 CLR 583 as an application of the general equitable principle which restores to a party contributions which he or she has made to a joint venture which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them. Their Honours cited what Deane J had said in Muschinski (at 620):
… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do: cf Atwood v Maude [1858] LR 3 Ch App 369 at pp 374-375 and per Jessel MR, Lyon v Tweddell (1881) 17 Ch D 529 at 531). (my emphasis)
31. The constructive trust based on unconscionable conduct has been most commonly imposed in the context of the breakdown of a de facto relationship where the legal interests in property are not commensurate with the respective parties' contributions to the property or relationship,[12] but the principle applies more generally.[13]
[12]Muschinski v Dodds (1985) 160 CLR 583; Baumgartner v Baumgartner (1987) 164 CLR 137; see also Cressy vJohnson (2009) VSC 52 at [183] – [202] per Kaye J.
[13]Halsbury’s Laws of Australia, online edition, paragraph [430-620] (as at 20 April 2012)
32. A constructive trust will be imposed where the substratum of a joint relationship or endeavour ends, as is the case with a Bankruptcy of one of the participants,[14] without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances where it would be unconscionable for that other party to retain a benefit with respect to the relevant property not commensurate with his or her contribution.[15] The unconscionability criterion dictates that a constructive trust may be imposed even if this is contrary to the express or implied intention of either or both of the parties.[16]
[14]Halsbury’s Laws of Australia, online edition, paragraph [430-620] (as at 20 April 2012); Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460 at [91]-[100] per Ward J
[15]Muschinski v Dodds (1985) 160 CLR 583 at 620 per Deane J (see also at 599 per Mason J); Baumgartner v Baumgartner (1987) 164 CLR 137 at 149-50; per Mason CJ, Wilson and Deane JJ; National Australia Bank Ltd v Maher [1995] 1 VR 318 at 321 per Fullagar J, CA(VIC); Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460; at [107] per Ward J; See Halsbury’s Laws of Australia, online edition, paragraph [430-620] (as at 20 April 2012);
[16]Koh v Chan (1997) 139 FLR 410 at 428-9 per Murray J, SC(WA). See, also Kais v Turvey (1994) 11 WAR 357; SC(WA), Full Court; See Halsbury’s Laws of Australia, online edition, paragraph [430-620] (as at 20 April 2012);
33. The contributions which the court may take into account in determining the scope of constructive trusteeship extend beyond financial contributions to the purchase price of the property in issue.[17] The contributions need not necessarily have been made directly to the acquisition or improvement of the property in issue,[18] but it is not sufficient that one person has merely benefited from the contributions of another; those contributions must be linked, albeit indirectly, to the purchase, maintenance and improvement of the property.[19]
[17]Baumgartner v Baumgartner (1987) 164 CLR 137
[18]Green v Green (1989) 17 NSWLR 343 at 369; per Mahoney JA, CA(NSW); Lloyd v Tedesco (2002) 25 WAR 360 at 364; [2002] WASCA 63; per Murray J; See Halsbury’s Laws of Australia, online edition, paragraph [430-630] (as at 20 April 2012);
[19]Engwirda v Engwirda [2000] QCA 61; at [23]-[30]; Lloyd v Tedesco (2002) 25 WAR 360 at 365, 379-80; [2002] WASCA 63; per Murray J; Cressy v Johnson [2009] VSC 52; at [197]-[200] per Kaye J.
34. The necessity that there be unconscionable conduct means that a constructive trust will not be imposed on the ground of mere fairness,[20] as Brennan J said in Muschinski v Dodds:[21]
"... There is no jurisdiction in an Australian court of equity to declare an owner of property to be a trustee of that property for another merely on the ground that, having regard to all the circumstances, it would be fair so to declare. ... The flexible remedy of the constructive trust is not so formless as to place proprietary rights in the discretionary disposition of a court acting according to vague notions of what is fair."
[20]Muschinski v Dodds (1985) 160 CLR 583 at 594-5 per Gibbs CJ, at 608 per Brennan J, at 615-16 per Deane J; See Halsbury’s Laws of Australia, online edition, paragraph [430-635] (as at 20 April 2012);
[21](1985) 160 CLR 583 at 608
35. This is not to deny the relevance of notions of fairness and justice to the traditional equitable notion of unconscionable conduct.[22] The unconscionability of a refusal to recognise an equitable interest can arise not merely from events occurring at the time of acquisition but from subsequent events.[23]
[22]Muschinski v Dodds (1985) 160 CLR 583 at 616; 62 ALR 429; BC8501051 per Deane J; See Halsbury’s Laws of Australia, online edition, paragraph [430-635] (as at 20 April 2012);
[23]Green v Green (1989) 17 NSWLR 343 at 353, 355; per Gleeson CJ.
Common Intention Constructive Trust
36. Although the High Court of Australia has authoritatively stated that the basis of constructive trusteeship in cases of contributions to property or a relationship rests in unconscionable conduct, Australian courts continue to entertain arguments, usually as an alternative to the argument based on unconscionable conduct, based on the previous approach of imposing a constructive trust according to the actual or inferred (but not imputed) common intention of the parties.[24] The relevant common intention may be derived from the evidence of express agreement or the making of admissions, or it can be inferred from, for example, the making of contributions to the cost of property, or meeting expenses in maintaining it.[25] The latter highlights that a common intention constructive trust may arise from an agreement or common intention arising after acquisition of the relevant property.[26]
[24]See for example Green v Green (1989) 17 NSWLR 343; per Gleeson CJ, CA(NSW);
[25]Allen v Snyder [1977] 2 NSWLR 685 at 690-1 per Glass JA, at 698 per Samuels JA; CA(NSW); Vedejs v Public Trustee [1985] VR 569 at 572-3 per Nicholson J; Shepherd v Doolan [2005] NSWSC 42; at [37], [38] per White J; Williams v Parris [2008] All ER (D) 235.
[26]Director of Public Prosecutions v Ali (No 2) [2010] VSC 503; at [75] per Hargrave J. see generally See Halsbury’s Laws of Australia, online edition, paragraph [430-640] (as at 20 April 2012);
37. Even with the proof of the requisite intention, equity will not intervene by means of constructive trusteeship in the absence of detriment or material disadvantage to the claimant such that it would be fraud on the claimant for the other party to assert that the claimant has no beneficial interest in the property.[27] Disappointed expectation is not of itself sufficient to constitute detriment for this purpose.[28]
[27]Ogilvie v Ryan [1976] 2 NSWLR 504; Hohol v Hohol [1981] VR 221 at 225; per O'Bryan J; Cooke v Cooke [1987] VR 625; Higgins v Wingfield [1987] VR 689 at 694-6 per McGarvie J; Loone v Tasmanian Trustees Ltd 1987 Tas R 146; Green v Green (1989) 17 NSWLR 343 at 354-6; per Gleeson CJ, CA(NSW);
[28]Higgins v Wingfield [1987] VR 689
38. The requirements of a common intention or a common assumption as to a state of affairs, and reliance upon that intention or assumption to one's detriment, serve to characterise this form of 'constructive trust' as a form of proprietary estoppel.[29]
[29]Higgins v Wingfield [1987] VR 689 at 695-6 per McGarvie J; Austin v Keele (1987) 10 NSWLR 283 at 290; Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460; at [111]-[118] per Ward J.
Proprietary Estoppel
39. Prima facie, the expenditure of money by a person on someone else’s land does not of itself entitle the person paying the money to acquire a proprietary interest in that land: Pettit v Pettit.[30] The exception to this principle is to be established by the line of cases following on from Dillwyn v Llewellyn[31] and Ramsden v Dyson.[32]
[30][1970] AC 777.
[31](1862) 45 ER 1285.
[32][1866] LR 1 HL 129.
40. Proprietary estoppel can prevent the owner of an interest in property (in this case the Bankrupt and his successors the Trustees) from asserting his rights against another party whom he has allowed or encouraged to deal with that interest, or act in relation to that property, as if the latter had rights to the property.[33]
[33]See Generally Professor G E Dal Pont, Equity and Trusts in Australia, 5th Ed., at [10.60].
41. The forms of proprietary estoppel that could potentially apply on the facts of this case are estoppel by encouragement or estoppel by acquiescence. Estoppel by encouragement follows from the leading case of Dillwyn v Llewellyn[34] and turns on the owner encouraging expenditure by some representation (usually an assurance or promise) that the claimant would receive an interest in the land by way of a benefit in return. Estoppel by acquiescence arises where the owner by acquiescence induces the expenditure by the claimant in the expectation that an interest in the property will be conferred.
[34](1862) 4 De GF & J 517; 45 ER 1285.
42. In Ramsden v Dyson, for example, equity bound the owner of the property in circumstances where the owner induced another to expect that an interest in that property would be conferred upon him if he paid monies towards the construction of the house on the property.
Equitable Charge
43. Other approaches that have been adopted to recognise a beneficial interests in property arising from contributions to the property include the imposition of an equitable charge or lien representing the quantum of the relevant contribution. This approach is informed by the basic equitable remedial principle of the minimum equity to do justice.[35]
[35]Sirtes v Pryer [2005] NSWSC 1082; at [12]-[14] per Burchett AJ; See Halsbury’s Laws of Australia, online edition, paragraph [430-650] (as at 20 April 2012);
Trustees’ Submissions
44. The trustees rely upon the affidavit of David James Lofthouse (sworn 21 March 2013) and the affidavit of Rachael Hsiao Bey Chew (sworn 17 May 2013). The trustees apply, as I have said, for payment out to them for the benefit of all creditors of the bankrupt the moneys standing to the credit of the bankrupt in the Senior Master’s Fund.
45. The trustees contended that the evidence in support of the supposed claim by the Shkolyar claimants that a constructive trust should be imposed in their favour was both inadmissible and of no probative value. In particular, the words that I have described as the Understanding, which were substantially the same in each of the Shkolyar claimants affidavit, referred to a time, without identifying any time; referred to an understanding without identifying the persons who have the understanding or providing any objective facts upon which the understanding is based; refers to the subjective intent of the persons, whoever they may be, without giving the substance of any conversations that might have given rise to any understanding; does not depose to a necessary ingredient that the claimants would have an interest in the property referrable to the moneys advanced and is proforma and repetitive which undermines any credibility of the deponent.
46. All the clauses refer to a right to share in the increase in value of the Property in proportion to the extent to which the increase is attributable to their contribution. There are considerable difficulties in the interpretation of this aspect of the understanding. Some of the claimants contributed to works to be undertaken on other units in the development and not in relation to the property. Even this formulation indicates some form of profit share arrangement as opposed to an interest in the land. Reference was made by the Trustees to Shepherd v Houston[36] where the Full Court of the Supreme Court of South Australia rejected a claim for a profit share as giving rise to an interest in land.
[36][1927] SASR 144.
47. The trustees further submitted that there was no evidence of any joint venture or endeavour to attract the principle enunciated in Muschinski v Dodds (supra).
48. The trustees also pointed to the discomformity between the material contained in the notification of claims made to the trustees as exhibited to the affidavit of Mr Lofthouse. In each case what was claimed was that the moneys were loaned to the bankrupt on the promise and condition that upon the sale of the property it would be returned with interest, or words to that effect.
49. In the end, the basis upon which the Shkolyar claimants assert that they have an interest in the Property is that they have expended money on construction costs. The trustees submitted that equity would not come to the claimants’ assistance in respect of their claim of unconscionable conduct and unjust enrichment. It was submitted that equity would follow the law and that each claimant has a legal right to claim the return of the money as a debt and there was no need for equitable intervention.
50. There was no evidence of any inducement made by the bankrupt in reliance upon which the claimants advanced the moneys. There was thus no basis for any proprietary or other equitable estoppel to operate.
51. It was further submitted by the trustees that it is incumbent upon the claimants to establish how the moneys advanced translated into a proprietary interest in the Property and thus in the moneys in Court. In each of the affidavits in support of their claims, the claimants gave evidence of having advanced sums for the development of the three lot subdivision and it is not evident what appropriate proportion of those funds is attributable to the development of the Property. The moneys standing to the credit of the bankrupt in the Funds in Court arises entirely from the sale of the Property after the payment of secured interests, including registered mortgages over the Property. Those payments had, of course, priority over any equitable interest claimed under the principles of indefeasibility operating under the Transfer of Land Act 1958. It is impossible to identify in the way in which the Shkolyar claimants seek to do a proportionate interest in the Property arising from their advances.
Application of the Principles
52. Before a constructive trust can be imposed, it is necessary to establish:[37]
[37]West v Mead, [2003] NSWSC 161 per Campbell J; Op cit Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460; at [50]-[53] per Ward J.
(a) a joint relationship or endeavour, in which expenditure is shared for the common benefit in the course of and for the purposes of which an asset is acquired. The scope of the joint venture in which the parties were engaging may be of relevance and as Deane J in Muschinski considered, may change from time to time;
(b) the substratum of that joint relationship or endeavour, must have been removed or the joint endeavour prematurely terminated “without attributable blame”;
(c) the requisite element of unconscionability - it would be unconscionable for the benefit of those monetary and non-monetary contributions to be retained by the other party to the joint endeavour.
Decision –no constructive trust, proprietary estoppel or equitable charge
53. The proper characterisation of the relationship between each of the Shkolyar Claimants and the Bankrupt, in relation to the Property, is that of debtor and creditor, for the following reasons:
(a) The notification of claims to the Trustees is expressed in terms that point strongly to there being no more than a debt:
(i) In the case of Michelle’s email on behalf of all the Shkolyar Claimants, she described all of them as lenders to the Bankrupt for the development of the Property, and that “each of us loaned Aron Shkolyar money on the promise and condition that upon the sale of the property it would be returned with interest”;[38]
[38]Exhibit “DJL-06” to the Lofthouse Affidavit
(i) In the case of Anneta[39] and Michelle[40] the moneys were advanced to the Bankrupt “on the strength of the promise that post sale of the property, they would be repaid with interest”;
[39]Exhibit “DJL-08” to the Lofthouse Affidavit
[40]Exhibit “DJL-09” to the Lofthouse Affidavit
(i) In the case of Alexander,[41] they were monies “I provided to the Bankrupt on the strength of the promise that it would be used to develop the land, 29 Newlyn St Caulfield only, and that I would be repaid with interest this money upon any sale of this land”;
[41]Exhibit “DJL-10” to the Lofthouse Affidavit
(i) In the case of Nina Krikoun, on behalf of Natalia Chkoliar,[42] the money was advanced to the Bankrupt “under an agreement that it would be exclusively used to develop the land, 29 Newlyn St, Caulfield, and that it would be repaid with interest upon the sale of the land;
[42]Exhibit “DJL-11” to the Lofthouse Affidavit
(b) there was no evidence of any joint venture or endeavour to attract the principle enunciated in Muschinski v Dodds (supra);
(c) Such evidence as there was to support the imposition of a constructive trust was an extremely dubious character. Although the Trustees did not seek to have the paragraphs in the Shkolyars’ affidavits concerning the Understanding struck out, they did submit with considerable force that this evidence was inadmissible and – if admissible – of no probative value. I agree. At best the Understanding was a piece of reconstruction. It is without detail of the conversations, there are no objective facts upon which the understanding is based, it refers to the subjective intent of the persons deposing to it without reference to when the understanding was reached and between whom. If I were to accept it in the face of the prior inconsistent statements referred to in paragraph (a) above, I would still be left without a solid foundation for the imposition of any trust.
(d) At best, the Understanding is calculated to attract the imposition of a constructive trust based upon the common intention of the Shkolyar Claimants and the Bankrupt. The wording of the Understanding appears likely to have been devised by an advisor for that purpose. Michelle said from the Bar Table that it was included after advice was received about the affidavits to be filed. When the evidence of the Understanding and its genesis is viewed against the evidence of the prior basis of the claims, it becomes apparent that it is not representative of the facts as they occurred;
(e) True it is that the Understanding needs to be viewed together with the fact that contributions were made to the construction costs of the Property and the other units on the land. Even then, however, the evidence is entirely unsatisfactory. In her submissions to me on her own behalf, and on behalf of the other Shkolyar Claimants, Michelle conceded that if there were a conversation with her father about the basis on which the funds were advance it would have been that they would be repaid with interest when the Property was sold. Even then, she stated in her submissions from the Bar table that she contemplated living in the Property with her family for an indefinite period and that there was no fixed or certain sale of the Property in contemplation;
(f) If there were an established joint relationship or endeavour, there appears no ‘attributable blame’ for its failure. But, I can see no solid foundation for an inference that there was such a relationship or endeavour to sustain the imposition of a constructive trust.
(g) If there were such a relationship or endeavour, it seems to me that it would be unconscionable for the Bankrupt, and therefore his Trustees, to deny the Shkolyar claimants an interest in the land which the Bankrupt developed, as a whole. To translate this into an interest in the Property in proportion to the increase in value, without taking into account a complex accounting exercise involving the cost of construction, the financing costs, including the holding costs, the sale proceeds form the other units and possibly a variety of other factors and costs not adverted to in the evidence or submissions, seems to me to be doing the very thing the High Court has warned against; that is, awarding the Shkolyar Claimants an interest based on a constructive trust on the basis of ‘vague notions of what is fair’. And worse, without a proper factual basis for determining what interest they are truly entitled to, in what property and in what relative proportions.
54. For these reasons, I conclude that the Shkolyar claimants are not entitled to shares in the funds in court on the basis of a constructive trust in the Property from which those funds are derived.
55. There is no evidence to sustain any proprietary estoppel, for similar reasons. There is no evidence that the Shkloyar Claimants were induced to make their loans on the basis that they would receive an interest in the Property. Similarly, there is no basis to conclude that an equitable charge is the minimum equity to do justice.
56. Accordingly, there will be orders for the payment out of the moneys in Court to the Trustees.
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