Ruhe v Patel
[2015] ACTSC 169
•29 June 2015
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Ruhe v Patel |
Citation: | [2015] ACTSC 169 |
Hearing Date(s): | 29 June 2015 |
DecisionDate: | 29 June 2015 |
Before: | Refshauge J |
Decision: | 1. Caveat No. 1973342 lodged by Kenneth Stewart Sellers and Alice Fay Ruhe on 19 May 2015 be extended until 4:00 pm on 3 July 2015 or other order. 2. The Applicant serve a copy of the Originating Application, Affidavit in Support of the Originating Application and this Order on the Respondent by 1 July 2015. 3. The proceedings be adjourned to 3 July 2015 at 9:00 am. |
Category: | Principal Judgment |
Catchwords: | PROPERTY – Caveat – Bankruptcy – Application to extend the caveat – Description of the interest in the caveat – Trust – Constructive Trust – Resulting trust – Presumption of advancement – Injunction restraining dispersal of the funds |
Legislation Cited: | Bankruptcy Act 1966 (Cth), ss 55 Land Titles Act 1925 (ACT), ss 104, 106 |
Cases Cited: | Andara Homes Pty Limited v Tai [2014] ACTSC 38 Bacon v O’Dea (1989) 25 FCR 495 |
Texts Cited: | Stephen Colbran and Sheryl Jackson, Caveats (FT L & Tax: South Melbourne, 1996) Professor Austin Scott wrote in Scott On Trust (1989), 4TH ed, vol 5, §462-4 Samantha Hepburn, Principles of Equity and Trusts, (Federation Press: Sydney, 2009) 4th ed |
Parties: | Alice Ruhe (Applicant) Lynette Margaret Patel (Respondent) |
Representation: | Counsel Mr C W Painter (Applicant) No appearance (Respondent) |
| Solicitors Snedden Hall & Gallop (Applicant) No appearance (Respondent) | |
File Number(s): | SC 229 of 2015 |
REFSHAUGE J:
On 14 May 2014, Dr Chandrashekhar Patel was made bankrupt when the Official Receiver accepted Dr Patel’s Debtor’s Petition presented to him under s 55(1) of the Bankruptcy Act 1966 (Cth). Dr Patel thereupon became bankrupt under s 55(4)(a) of that Act.
On 1 December 2014 the applicant, Alice Fay Ruhe, was appointed jointly with Kenneth Stewart Sellers as trustees of the bankrupt estate of Dr Patel.
Dr Patel lives at a house at 67 Stonehaven Crescent, Deakin, the Crown Lease for which property has been granted to his wife, Lynette Margaret Patel, the respondent.
A caveat dated 19 May 2015 has been registered in respect of the property, which was lodged by the caveators, Ms Ruhe and Mr Sellers as trustees. On 18 June 2015, they received a notice from the Registrar General that an instrument had been lodged for registration and that, unless a court order was obtained within 14 days from that date, the caveat will temporarily lapse, to allow registration of that instrument. See s 106 of the Land Titles Act 1925 (ACT).
Accordingly, an application has now been made by the applicant as one of the trustees and as caveator to extend the caveat.
The claim
The interest described in the caveat is as follows:
Kenneth Stewart Sellers and Alice Fay Ruhe, as trustees in bankruptcy of the estate of Chandrashekhar Patel, are beneficial owners, pursuant to a constructive trust arising through payments made by Chandrashekhar Patel on behalf of the RP [I assume that means registered proprietor] to the Commonwealth Bank of Australia for the acquisition of an interest in the land.
Under s 55(2) of the Bankruptcy Act, a debtor must file a statement of affairs with the Official Receiver before the Debtor’s Petition is accepted.
In the statement of affairs filed by Dr Patel, he disclosed debts of $1,721,362.21, including two debts of $1,175,662.60 and $50,329.75 to Bendigo Bank.
What was said to be the application for one of those loans was said to be annexed to the affidavit. What was, however, annexed to the affidavit was an application for a loan of $225,000 from Great Southern Finance Pty Limited. I was told at the hearing when questioning this discrepancy that Great Southern Finance Pty Limited was the promoter of an agricultural scheme and it subsequently went into liquidation. Bendigo Bank purchased the assets and took on the loans so that, ultimately, the loan to Dr Patel was, in fact, granted by Bendigo Bank.
The figures are not easily made consistent but I am prepared to accept that there is a very substantial debt to Bendigo Bank.
The application form is important, however, because in that application Dr Patel, as the sole applicant without a guarantor, claimed that one of the assets he owned was the property at 67 Stonehaven Crescent, Deakin and that he paid a housing loan payment of $1750 per month to Perpetual Trustees (not the Commonwealth Bank of Australia as referred to at [6] above).
Ms Ruhe claims that Ms Patel’s income, disclosed in part A of the statement of affairs, but which, by virtue of s 55(11) of the Bankruptcy Act, must not be made available to the public, is insufficient to have purchased the property and maintained the housing loan payments.
Accordingly, it is claimed that the payments by Dr Patel of the housing loan would at least mean he would have an interest in the property, which is said to be as a constructive trustee, which interest would, on the bankruptcy, vest in the trustees of his bankrupt estate, including Ms Ruhe.
There is, I think, no doubt that a constructive trust is an interest that is sufficient as a caveatable interest. That appears from what Marks J said in McMahon v McMahon [1979] VR 239 at 243-4. It Is also clear from the decision of McKenzie J in Re Jonton Pty Limited [1992] 2 Qd R 105 that, where a constructive trust is relied on as the interest said to support the right to caveat, that interest arises at the time when it would have been recognised by a court, even if the court would retrospectively impose it.
I pause to note that, curiously, a number of authorities said in Stephen Colbran and Sheryl Jackson, Caveats (FT L & Tax: South Melbourne, 1996) at 238; [5.79.6], to justify the proposition that a constructive trust is a caveatable interest are, in fact, examples (and express examples) not of constructive trusts but of resulting trusts. See Cwalinski v Cwalinski [1958] Tas SR 56 at 57; Taddeo v Taddeo and Catalano (1977) 19 SASR 347 at 365, 367.
These latter cases provide adequate authority to show that a resulting trust is a caveatable interest. There can be no doubt of that proposition, affirmed in cases such as Official Trustee in Bankruptcy v P and R Alvaro Enterprises Pty Limited (1993) ANZ Conv R 26 at 27; Davies v Messner (1975) 12 SASR 333; Inre Belfield, Deceased (1894) 12 NZLR 596 at 597; Inre Peychars’ Caveat [1954] NZLR 285 and Spicerv Far South Coast Regional Aboriginal Land Council (Unreported, Supreme Court of New South Wales, Needham J, 1264 of 1980, 18 October 1989) at p 14.
Description of the interest in the caveat
Section 104(6) of the Land Titles Act requires certain information in a caveat; it is in the following terms:
Every caveat shall state the name and address of the caveator and shall contain a sufficient description to identify the land and the interest therein claimed by the caveator, and except in the case of caveats lodged by order of the court or by the registrar‑general, as in this Act provided, shall be signed by the caveator or by his or her legal practitioner, or agent in the ACT.
The caveat does state the name and address of the caveator and a sufficient description of the land. It was signed by the caveators’ legal practitioner. The only question is the description of “interest therein claimed by the caveator”. The description of the interest is set out above (at [6]).
Two issues arise. Is the description an accurate description of the interest claimed and is the information provided sufficient? I shall address each of these in turn.
(a) Is the description of the claimed interest accurate?
The interest is described as a constructive trust. The facts said to support this are set out above (at [9]-[13]). In my view, they do not support a finding that the applicant has, by devolution through the bankruptcy, an interest by way of a constructive trust at this stage. What has been described by the facts is a resulting trust. Lord Browne‑Wilkinson described a resulting trust in Westdeutsche Landerbank Girozentrale v Islington London Borough Council [1996] AC 669 at 708 as follows:
Under existing law a resulting trust arises in two sets of circumstances. (A) where A makes a voluntary payment to B or pays, wholly or in part, for the purchase of property which is vested either in B alone or in the joint names of A and B there is a presumption that A did not intend to make a gift to B. The money or property is held on trust for A if he is the sole provider of the money, or in the case of a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted, either by the counter‑presumption of advancement or by direct evidence of A’s intention to make an outright transfer. See Underhill and Hayton, Law of Trusts and Trustees, pp 317 et seq; Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, 312 et seq.; In re Vandervell’s Trusts (No 2) [1979] Ch. 269, 288 et seq
This is what is sometimes called a “purchase money resulting trust”. I do not need to consider the other circumstance which describes a resulting trust.
The leading Australian case on this form of resulting trust is Calverley v Green (1984) 155 CLR 242.
Here, the only basis on which Ms Ruhe can claim, by devolution, the interest in the land she claims in the caveat is if there is a presumption that the payment of the loan payments made by Dr Patel were not an outright gift to the respondent but that Dr Patel intended to retain an equitable interest in the property. If this is so, then there will be a resulting trust. In contradistinction, a constructive trust does not depend on an intention – actual or presumed – and as such differs from an express or resulting trust.
As Professor Austin Scott wrote in Scott On Trust (1989), 4TH ed, vol 5, §462-4, in a passage quoted with approval by the High Court in Giumelli v Giumelli (1999) 196 CLR 101 at 111; [2]:
The court construes the circumstances in the sense that it explains or interprets them. It does not construct them.
There is no simple formula to describe a constructive trust, however, and it is largely identified by certain characteristics. In Beatty v Guggenheim Exploration Co (1990) 225 NY 380 at 386, Cardozo J described it in the following way:
Constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not, in good conscience, retain the beneficial interest equity converts him into a trustee.
The leading Australian description of the constructive trustee was stated by Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 613-4, as follows:
Like express and implied trusts, the constructive trust developed as a remedial relationship superimposed upon common law rights, by order of the Chancery Court. It differs from those other forms of trust, however, in that it arises regardless of intention...Viewed in its modern context the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention, and subsequently protects, to preclude the retention or assertion of beneficial on ownership of property to the extent that such retention or assertion would be contrary to equitable principle.
Finally, as Gibbs CJ said in Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 at 378:
There are two clear categories of constructive trust, those involving profits made by fiduciaries and those created by intermeddling of strangers.
Ordinarily a constructive trust will be imposed by a court, though it is clear that this is not necessary before the interest in equity can be recognised. See Commonwealth v Davis Samuel Pty Limited (No 7) (2013) 95 ACSR 258 at 502; [1798]. The court can, and will, recognise the prior existence of the constructive trust: Parsons v McBain (2001) 109 FCR 120 at 125-6; [13].
That, however, is what is usually termed an “institutional” constructive trust and not a “remedial” constructive trust. As to the difference, see the helpful discussion in Samantha Hepburn, Principles of Equity and Trusts, (Federation Press: Sydney, 2009) 4th ed, 557-9; [38.2].
It there were to be a constructive trust here it seems likely to be a remedial trust for it would not arise until there was some action taken by Ms Patel that is inconsistent with her obligations as a resulting trustee. If the constructive trust in this case is remedial, it is difficult to see how the interest can arise until the remedy has been obtained, and that does not appear to have occurred. See the discussion in Lydon v Ryding [2002] WASC 308; Ford and Marshall (as administrators of the estate of Marshall) v Marshall [2003] WASC 116. No court order imposing the trust was mentioned in the evidence.
It seems to me, accordingly, that the interest that the facts allege by Ms Ruhe show is not a constructive trust, but a resulting trust. As Finn J cautioned in Kralfly Pty Ltd v McVeigh (Unreported, Federal Court of Australia, Finn J, VG 703 at 1995, 8 September 1995), the distinction between resulting and constructive trusts should not be blurred.
Thus, the reference to a constructive trust would appear to be an inaccurate description of the interest of Ms Ruhe as caveator at this stage as any trust created would seem to be a resulting trust. That would mean that the description of the interest in the caveat is not correct.
That raises two issues. The creation of the resulting trust depends upon a presumption that Dr Patel intended to retain a beneficial interest in the property to which he was providing the purchase price, or some of it. That presumption, however, may be rebutted by evidence that, for example, the payments were a gift or a loan. Indeed there is a growing judicial view that the presumption itself is being weakened by changes in social conditions. See Nelson v Nelson (1995) 184 CLR 538 at 601, per McHugh J.
Further, where the person in whose name the property is purchased is a close relative, such as the wife of the provider of funds, there arises a presumption of advancement that the husband, or other provider of the funds, has made a gift. See Calverley v Green at 266. This presumption, as with others, may be rebutted by evidence: Napier v the Public Trustee (Western Australia) (1980) 32 ALR 153 at 158. See also Police & Nurses Credit Society Limited v Weber [2003] WASC 45 at [65]; Draper v The Official Trustee in Bankruptcy (2006) 156 FCR 53 at 72; [79].
Thus, the interest is not so certain as the facts may suggest. Nevertheless, these latter matters do not, in my view, justify a refusal to extend the caveat as they are matters that go centrally to the issue of whether the claim will ultimately be successful, rather than whether there is a case for an extension of the caveat. I will deal with that below.
Having determined these matters, however, there may be a basis on which the claim by Ms Ruhe, that she is a beneficiary under constructive trust, is maintainable.
It may be that, if there were evidence that Ms Patel was intending, by the sale, not only to receive the proceeds, but also to dissipate them and not to account for them to the trustees of Dr Patel’s bankrupt estate, that would be a breach of her duty as a trustee of a resulting trust. Even an assertion that Ms Patel is entitled to these proceeds may be unconscionable conduct, which may attract the intervention of equity: Baumgartner v Baumgartner (1987) 164 CLR 137 at 149. That breach may justify those trustees approaching the court for an order imposing a constructive trust on the proceeds. As noted above (at [28]), an equitable interest may well be created prior to any such court order.
These facts, however, have not been placed before the Court at this stage such as to justify the interest claimed in the caveat. I have, therefore, grave doubts about whether Ms Ruhe and Mr Sellers have a caveatable interest.
(b) Is the description adequate
The approach to the description of the interest claimed in the caveat has changed over the years. In earlier cases, such as Cwalinski v Cwalinski, the courts took a narrow view of the precision required. More recently, a more relaxed approach has been taken. See, for example, Ultra Marine Pty Limited v Misson (1981) ANZ Conv R 229. Indeed, in Official Trustee in Bankruptcy v Pand R Alvaro Enterprises Pty Limited (1992) 111 FLR 47, a caveat where the interest was a “purchase money resulting trust”, but not so described, though the facts were set out without reference to either a resulting (or constructive) trust, the caveat was held to be good with a sufficient description of the interest.
In any event, the nature of the interest here claimed was specified, namely as a constructive trust. That satisfies the issue here, subject to whether it is an accurate description of the trust actually created.
A more controversial issue is the question of whether the quantum of the claim must be stated. Failure to do so was a source of further complaint in relation to the adequacy of the description of the interest in the caveat in Cwalinski v Cwalinski and which complaint was upheld.
That approach has not been followed in Tasmania. See Smith v Longden (1997) 7 Tas R 194 at 197. It is not followed in this jurisdiction (see Gasiunas v Meinhold (1964) 6 FLR 182 at 185-6) and appears to have been rejected in Leros Pty Limited v Terara Pty Limited (1992) 174 CLR 407 at 422-3.
Accordingly, it seems to me that it is not required in this jurisdiction to specify the amount of the interest claimed. Indeed, it would be difficult to do so where Ms Ruhe does not know how much Dr Patel has provided of the purchase price.
Thus, the formal requirement for the validity of the caveat has been met, subject to the interest being the interest that was actually specified.
Procedural matters
Unlike s 74K(3) of the Real Property Act 1900 (NSW), there is no requirement in this Territory that an applicant for an extension of a caveat, under s 106 of the Land Titles Act, serve any other interested party.
Such applications are, in this jurisdiction, commonly made ex parte, as, for example, in Andara Homes Pty Limited v Tai [2014] ACTSC 38. This is, perhaps, unsurprising given the similarity between such an application and the application for an interlocutory injunction, as explained in GR8 Constructions Pty Limited v O’Donnell [2011] ACTSC 92 at [24]-[29]. Such injunctions are commonly sought ex parte.
In this case there was no evidence that the respondent had been served and, indeed, I was told that she had not been.
Ordinarily an undertaking as to damages will be required as “the price” for the extension of the caveat. In these circumstances where the evidence is that there has been a sale of the subject property, the settlement of which appears to be overdue, there may well be some damages suffered by the respondent if it is found that the caveat was improperly lodged and not supportable. I shall, accordingly, require an undertaking as to damages.
The proceedings that the applicant has commenced do not seek or otherwise provide for a determination of the interest of the trustees in the land. That is not required by the legislation but is generally required by the courts. That is to say, the court rarely extends a caveat indefinitely. As Cooper J pointed out in In re Christie (1904) 24 NZLR 558 at 559:
It has been decided in many cases that upon such an application such as this the court ought not to determine the rights of the parties but ought to leave the question at issue to be settled in an action. An order extending the time indefinitely or until the further of the court is tantamount to a determination by the court that a prima facie case for lodging a caveat exists and would throw upon the person claiming under the registered proprietor the onus of applying to have such a caveat removed. This would, in my opinion, be contrary to the provisions of the Act.
See also Re Little; Ex parte Thorne’s Bankstown Estate Limited (1929) 29 SR(NSW) 401 at 404; Vandyke v Vandyke (1976) 12 ALR 621 at 640-1; and Bacon v O’Dea (1989) 25 FCR 495 at 507.
Thus, any order I make should require Ms Ruhe to commence and proceed with an appropriate action to determine her claim. If such proceedings are not commenced as required by the order, then the caveat will lapse and costs will be ordered against Ms Ruhe: Ex parte Murphy (1894) 10 WN (NSW) 120.
Consideration
Given the concerns that I have about the nature of the interest claimed as the caveatable interest, it seems to me that I should consider a short extension of the caveat so that it does not lapse, but so that Ms Ruhe can provide sufficient information to satisfy me that there is such an interest. See Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 at 532.
This approach is supported by the general approach of the court that a caveat will not generally be removed pending trial unless it is “patently clear” that the interest in the land sought to be protected cannot be made out: Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129 at 141; Official Trustee in Bankruptcy (as trustee for the property of James) v James [2001] WASC 66 at [1].
There is also a further dimension to this. The interests of Ms Ruhe and Mr Sellers may be better protected by an injunction requiring Ms Patel to retain the proceeds of the sale from dispersal prior to a determination of the interest that they have in the funds. After all, their interest as trustees of the bankrupt estate of Dr Patel are, in broad terms, to take charge of Dr Patel’s assets and apply them for the benefit of his creditors and, if there is any surplus, for the benefit of Dr Patel. See Mannigel v Aitken (1983) 77 FLR 406 at 408-9. That will ordinarily require the realisation of all the assets. This asset has now been realised.
Unless there is any question about whether the sale is an arm’s length sale and for a fair value, the interest of the trustees would be adequately protected if the net proceeds of the sale were preserved for the benefit of the creditors. As a result, an injunction restraining dispersal of the funds may be sufficient for these purposes; see, for example, Kralfly Pty Limited v McVeigh. Indeed, the practice in South Australia was formerly that a caveat was only extended for so long as was necessary for the caveator to obtain an interlocutory injunction: Galvasteel Pty Ltd v Monterey Building Pty Ltd (1974) 10 SASR 176 at 184. While this is no longer the uniform practice (see Whallin v Bailbart Investments Pty Limited (1987) 47 SASR 198 at 203-4), it may be appropriate in this case, especially where there is a real doubt about the correct description of the interests of the caveator set out in the caveat, which puts at risk whether the court should in fact extend the caveat.
I will extend Caveat number 1973342, lodged by Kenneth Stewart Sellers and Alice Fay Ruhe on 19 May 2015, until 4:00pm on 3 July 2015 or other order.
| I certify that the preceding fifty-six [56] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Refshauge. Associate: Date: 6 July 2015 |
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