Sacks v Klein
[2011] VSC 451
•13 September 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7512 of 2009
| WAYNE SACKS (As administrator of the Estate of Michael Klein, Deceased) | Plaintiff |
| v | |
| DAVID KLEIN | Defendant |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14, 15, 16 and 17 June 2011 | |
DATE OF JUDGMENT: | 13 September 2011 | |
CASE MAY BE CITED AS: | Sacks v Klein | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 451 | |
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PROPERTY – Agreement by two brothers to purchase property as joint tenants – Property purchased as an investment – Income and expenditure shared equally – Whether brothers purchased the property as joint undertaking for profit – Death of one brother – Whether property owned in equity as tenants in common – Transfer of Land Act 1958 (Vic), s 33(4) – Delehunt v Carmody (1986) 161 CLR 464.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr I G Waller SC Mr P S Noonan | Batten Sacks Harvey Bruce Lawyers |
| For the Defendant | Mr A T Schlicht | Russell Kennedy Lawyers |
TABLE OF CONTENTS
Relevant legal principles: Equity favours tenancies in common.............................................. 7
Did the brothers purchase the flat as partners or participants in a joint undertaking?...... 10
Did the brothers purchase the flat with the intention of owning it ‘as joint tenants’?....... 12
Did the brothers nevertheless intend to divide their interests in the flat equally?............. 23
HIS HONOUR:
Michael and David Klein were brothers, born in Melbourne. In December 1994 when Michael was aged 29 years and David 30 years, they purchased a residential flat in East St Kilda as an investment. They were registered as joint proprietors of the flat.
At the time of the purchase, Michael and his newly-wed wife were living in Tel Aviv, Israel. David, who was recently separated from his first wife and in the process of divorce proceedings, lived in Melbourne.
On 26 December 2005, following a short illness, Michael died in Jerusalem, Israel. He left a widow, Danielle Klein, and four young sons. In these circumstances, as the surviving joint tenant, David claims that he became entitled to be registered as the sole proprietor of the flat. He lodged a survivorship application and was duly registered as sole proprietor. Further, at that time, the mortgage over the flat was repaid in full, with moneys advanced by the brothers’ father, Tom Klein. It is not clear if that advance was by way of gift or loan. Tom Klein has reserved his position on that issue; I infer until the result of this proceeding is known.
The plaintiff, Wayne Sacks, is a solicitor. He is the administrator of Michael’s estate. As Michael left no will, his sole heir is his wife Danielle.
In this proceeding, the plaintiff seeks a declaration that David holds the flat on trust for himself and the plaintiff as tenants in common in equal shares.
The trial was bitterly fought, with allegations that family members have concocted evidence to suit their respective cases. From the evidence as a whole, it was obvious that David’s harsh attitude to his sister-in-law was driven by his father Tom, who did not give evidence. It is regrettable that a family dispute of this kind could not be resolved by sensible and compassionate agreement; thus avoiding the expenditure of legal costs of a disproportionate amount to the value of the flat and cementing the current family acrimony. Of course, the Court was not privy to all of the discussions between the parties and the wider family, and cannot attribute blame as to why a sensible compromise has not been reached. In the absence of agreement, the Court must resolve the issues between the parties as best it can on the available evidence.
To understand the issues for determination, it is necessary to recount David’s evidence as to the circumstances surrounding the purchase of the flat.
The origin of the purchase lay in inheritances of about $50,000 received by each brother. David considered that he could use part of his inheritance to purchase an investment property on a negatively geared basis. In these circumstances, David identified the flat and signed a contract note to purchase it in his own name ‘and/or nominee’.
David initially intended to purchase the flat in his own name. However, as his brother Michael was not then working in Israel and had no investments other than his inheritance which was placed in a term deposit account in Australia, he telephoned Michael and invited him to participate equally in an investment in the flat. Michael readily agreed:
… I said to him that I have just signed the contract on a property and I'm definitely going to be purchasing it because the vendor has now accepted, I'm buying it for a long-term investment and I said to him I'm interested to know as to whether you'd like to join me in this. I said all up it's probably going to cost something in the region of about $90,000, I'll have no problems whatsoever raising $60,000 in the form of a mortgage, so I assume that our contribution will be something in the order of around $15,000 each, although that said I said to him that I was going to ask my father still whether he'd be interested to kick anything in to help us.
What did Michael say to that? It was almost an immediate response and he said to me that sounds fine.
David then proceeded to arrange the purchase of the flat. At the time, he already held Michael’s power of attorney, and was managing his term deposit and other affairs in Australia. David gave the following evidence as to the steps involved in completing the purchase of the flat.
First, David gave evidence that he approached a family friend who knew both brothers and lived nearby, Dassi Herszberg, who conducted a low cost conveyancing service called ‘Cheapest Conveyancing Company’; that he told Ms Herszberg that both he and his brother were to be purchasers of the flat; that Ms Herszberg then raised the issue of the form of proposed ownership; and that Ms Herszberg explained to him that the brothers could become registered as either joint tenants or tenants in common. David gave evidence that Ms Herszberg explained the difference between joint tenancy and tenancy in common in the following terms during their conversation:
What did she say in respect of that? --- She explained to me that there are two forms in which the property can be registered. She said to me that there's a concept of joint tenants and tenants in common. She explained to me that the bottom line difference between the two was that in the case of joint tenants then if one of the parties were to die that the property would automatically fall to the other irrespective of any will or other instructions or any laws of inheritance, it would automatically fall to them. Whereas in the case of tenants in common that if one were to pass away that their share would fall to their estate and follow the regular laws of inheritance and wills and whatever else.
From Ms Herszberg’s invoice, it would appear that this conversation took place on 13 December 1994 at the latest.
Second, David gave evidence that, as a result of Ms Herszberg’s advice, he telephoned Michael in Israel; he explained Ms Herszberg’s advice concerning the difference between joint tenancy and tenancy in common; and he suggested they both think about the issue and then speak ‘within the next day or two and we’ll make a final decision’.
Third, David gave evidence that his consideration of the issue led him to prefer a joint tenancy; that he telephoned Michael a day or so later and told him of his preference and his reasons for it; and that Michael agreed to proceed with the purchase as joint tenants by saying ‘that sounds fine by me’. David’s evidence as to this critical conversation was as follows:
What then happened? --- I called him back, it would have been probably about a day later, and I said to him that I've given it quite some thought and that my preference is that we should register the property as joint tenants, and the reason for that is because if one of us were to - if either of us were to die I didn't want that any third parties should be involved, and that as such that if the - that if either of us were to die would want that the property simply go to the other.
…
… and he said to me that sounds fine by me.
Fourth, David’s evidence as to his reasons for preferring a joint tenancy was as follows:
Why did you come to that preference? --- Considering my own personal situation that I was still waiting for a divorce to come through and appreciating the fact that a third party could potentially cause problems I didn't want a situation where if either one of us were to pass away that there could end up being problems and acrimony and that, with another third party involved. As far as I was concerned this was a family venture, I was doing it as a long-term investment for both myself and for Michael, and I didn't want a situation that anybody else would ultimately be involved.
So does that mean that you were concerned that if something was to happen to you in the near term that your separated wife could not have any claim? --- That was a part of the consideration. The other part of the consideration though was simply the fact that I appreciated the fact that you can end up in situations like this and, in addition, simply the fact that third parties in general one could end up in nasty situations, and therefore I didn't want to - I didn't want to put myself into a situation, or put Michael into a situation, where we end up having (indistinct) third parties.
Third parties being? … your successors and assigns either chosen or by operation of law? --- That's correct, Your Honour.
…
Family members in all probability? --- Yes but it could also be family members who were going to cause problems down the track as well.
Fifth, David gave evidence that he then contacted Ms Herszberg and told her that he and Michael had decided to purchase the flat as joint tenants; that in response she asked for written instructions to that effect; that she dictated to him the form of instructions she required; and that he hand-wrote instructions in that form and delivered the instructions to her at her home around the corner from him. The handwritten instructions were not in evidence as Ms Herzberg has ceased her conveyancing business and the relevant file has been discarded.
Sixth, David gave evidence that he then received in the mail two letters from Ms Herszberg dated 14 December 1994. The first letter appears to be a standard form letter to conveyancing clients. It includes the following relevant statements:
4.If there is more than one person purchasing, do you wish to purchase the property in equal shares or in some other shares?
If you propose to purchase the property in equal shares, do you wish to purchase as ‘tenants in common’ or as ‘joint tenants’? Basically, the difference is as follows:
a.As tenants in common, you each have a half share in the property which each of you can deal with separately as part of your estate in the event of the death of one of you. On the death of one of you, that person’s share of the property would form part of his or her estate and would be dealt with according to the terms of that person’s will.
b.As joint tenants, the share of the deceased proprietor automatically becomes the property of the survivor.
Please advise us as soon as possible as to which of these alternatives you wish to adopt.
The second letter dated 14 December 1994 enclosed the transfer of land, a nomination form and statutory declaration concerning that nomination. The nomination form was addressed to the vendor and nominated Michael ‘as additional purchaser to take a transfer of the property with [David] as joint tenant.’[1]
[1]Emphasis added.
David’s surname was misspelt in the signature portion of the nomination form (‘Klien’ not ‘Klein’). Accordingly, David said that this caused him to request an amended nomination form, which was sent to him by Ms Herszberg under cover of a further letter dated 15 December 1994.
Seventh, David gave evidence that he then couriered the transfer of land and a fresh power of attorney to Michael in Israel for signature, and that Michael signed those documents and returned them to him by courier.
Eighth, David gave evidence that he then went about raising the funds to settle the purchase. In summary, he arranged for each brother to contribute $14,000 (a total of $28,000), for their father, Tom Klein, to contribute $6,000, and for the balance of the price, stamp duty and acquisition costs to be funded by a $60,000 mortgage loan from an external lender. The $60,000 loan was delayed, so in the meantime David arranged to fund that amount from the term deposit containing his and Michael’s combined inheritances.[2]
[2]Following the advance of the mortgage loan, the remainder of the two inheritances were placed in separate term deposit accounts for each of the brothers.
Ms Herszberg gave evidence. She could not recall anything of note, only that she remembered acting for the brothers on the purchase of the flat. However, she did have some relevant evidence to give. She said that she would only have prepared a nomination form specifying that Michael was purchasing the flat as a joint tenant with David if she had been instructed to that effect.
Following settlement of the purchase, Michael left all aspects of the investment to David. David arranged for the flat to be leased, to be maintained and, where necessary, arranged for renovations. He performed all of the management tasks usually performed by a landlord or agent. Michael had no involvement. Further, although David kept meticulous accounts and records of the investment, ensuring equality of treatment for him and Michael at all times, he said that Michael never asked about the flat in their regular brotherly telephone conversations and that he never provided Michael with an accounting for the investment.
The flat was negatively geared at all relevant times. To the extent that the rental income was insufficient to cover mortgage payments and other outgoings, the difference was paid from the term deposits containing the respective inheritances of the brothers. David arranged for all of Michael’s contributions, acting under his power of attorney.
Relevant legal principles: Equity favours tenancies in common
The relevant legal principles to be applied may be summarised as follows:
(1) Where property is conveyed to two or more persons who are named as transferees without further specification as to whether they are to hold the title as joint tenants or tenants in common, they are deemed by operation of s 33(4) of the Transfer of Land Act 1958 (Vic) to hold the legal estate as joint tenants. However, s 33(4) of the Act does not preclude the operation of equity.
(2) Unless there is evidence to indicate the transferees held a different intention, equity will follow the law.[3] However, equity favours tenancies in common as a form of concurrent ownership, ‘probably to give effect to the maxim “equity is equality” ’.[4] In equity, even slight circumstances are enough to indicate the parties did not intend to hold property as joint tenants. As stated by Gibbs CJ in Delehunt v Carmody:
[3] Delehunt v Carmody (1986) 161 CLR 464, 471- 472.
[4]Ibid, 470.
…slight circumstances would have been enough to indicate that it was intended that there should not be a joint tenancy. Equity had a dislike for joint tenancies, because their effect was to make the ultimate ownership of the property depend on the chance of survivorship, and, in the words of Snell’s Principles of Equity, 28th ed. (1982), at p. 37: ‘There is here no equality except, perhaps, an equality of chance.’[5]
[5]Ibid, 473.
(3) Therefore, irrespective of the position on the certificate of title, equity may intervene to impose a tenancy in common.
(4) Prima facie, the provision of purchase money in equal shares is consistent with an intention to hold property as joint tenants.[6] However, even if the parties provide purchase money in equal shares, equity will presume the parties intended to hold the beneficial interest as tenants in common in circumstances where:
[6]Ibid, 471.
…a mortgage is made to them jointly, or where the persons to whom the property is conveyed acquire it as partners or as participants in a joint undertaking; these are not rigid categories.[7]
[7]Ibid, 471.
(5) The application of the equitable presumption is not confined to formal business structures. As stated by Mandie J in Xenou v Katsaras:[8]
[8](2002) 7 VR 335.
…The right of survivorship has no place among merchants. A joint business venture or undertaking ‘of a more informal kind lacking the system and continuity or pursuit of profit of a business would still give rise to equities leaning towards a tenancy in common of the beneficial interest ‘.[9]
[9]Ibid, [68] (citations omitted).
(6) The equitable presumption may be rebutted by evidence of a common intention by the co-owners to acquire the property as joint tenants.[10] The common intention must be actual and not presumed.[11] If there is ambiguity as to the existence of a common intention:
[10]Calverley v Green (1984) 155 CLR 242, 246-7, 258-9.
[11]Gissing v Gissing [1971] AC 880, 900F.
… the Court very properly leans to the construction which creates a tenancy in common in preference to a joint tenancy.[12]
[12]Wormald v Wooley [1903] 2 Ch 206, 211.
Further, a proved common intention to acquire a property ‘as joint tenants’ is not conclusive.[13]
[13]Rentoul v Rentoul [1944] VLR 205; Re Leaver [1997] 1 Qd R 55 (‘equally as a joint tenant’).
(7) The distinguishing characteristic of a tenancy in common is the holding of distinct, yet undivided, shares in land. In contrast, joint tenants have a full unity of interest.[14] If the parties describe their interests in words which suggest distinct shares are to be held, their words prevent the creation of a joint tenancy.[15] In Robertson v Frazer,[16] Lord Hatherley LC stated that the evidentiary threshold to establish such a division is easily met:
… anything which in the slightest degree indicates an intention to divide the property must be held to abrogate the idea of a joint tenancy and to create a tenancy in common.[17]
[14] Nullagine InvestmentsPty ltd v Western Australian Club Inc (1993) 177 CLR 635, 643-644 per Brennan J.
[15] Robertson v Fraser (1871) LR 6 Ch A pp 696.
[16]Ibid.
[17]Ibid, 699.
On the basis of these legal principles, the parties identified the following issues for determination:
(1) Did the brothers acquire the flat as partners or participants in a joint undertaking?
If so, and notwithstanding the resulting equitable presumption that a tenancy in common was intended:
(2) Did the brothers purchase the flat with the intention of doing so as joint tenants?
If so:
(3) Did the brothers nevertheless intend to divide their interests in the flat equally?
Did the brothers purchase the flat as partners or participants in a joint undertaking?
Counsel for the defendant submitted that the purchase, co-ownership and letting of the flat by the brothers did not constitute a joint undertaking. Reliance was placed upon the combination of the following matters:
(1) The flat was initially purchased by David Klein in his own name and with the intention of acquiring it himself, albeit that the contract of sale was in his name ‘or nominee’.
(2) David invited Michael to share in the purchase ‘for altruistic reasons only’, because Michael had no proper form of income in Israel and he thought that joining him in the purchase of the flat ‘would form a nice long-term investment that would be helpful for both him and for me’.
(3) David paid the initial deposit from his personal account.
(4) The equal contributions made by the brothers were each paid from inheritances received from their paternal grandfather.
(5) The application for mortgage finance was based solely on David’s income and ability to service the mortgage, as Michael had no proper form of regular income.
(6) David was capable of proceeding with the purchase on his own.
(7) David and Michael’s father, Thomas Klein, contributed $6,000 towards the purchase.
(8) David conducted all of the management services relevant to the flat without charge to Michael, including obtaining the finance, finding tenants, collecting rent, paying the mortgage, preparing accounts of the investment, handling maintenance and outgoings for the flat and organising renovations. In contrast, Michael had no involvement with the management of the flat.
(9) David arranged for the flat to be renovated at a cost of approximately $10,000. That amount was paid out of his own personal line of credit secured on the mortgage over his home. Later, however, David arranged for that amount to be repaid to him on a progressive basis from the rental income, with the intention of restoring equality between the brothers in respect of their investment in the flat.
I reject the submission that the combination of these matters justifies a finding that there was no joint undertaking. The clear evidence is that the brothers purchased the flat as a shared investment. The mortgage loan was made to them jointly and severally. In David’s own words, he thought that co-ownership of the flat by the brothers ‘would form a nice long-term investment that would be helpful both for him and for me.’ The fact that it was David’s idea to invest in the flat is not to the point. He chose to invite Michael to participate in a joint purchase of the flat with the express purpose of long-term profit being made by each of them. The fact that David could have proceeded with the investment on his own is irrelevant. As is the fact that David chose to manage the investment without involvement from Michael.
In colloquial terms, Michael was a ‘silent partner’ who had contributed one-half of the purchase consideration, was liable for one-half of the mortgage loan and other debts relating to the flat and was entitled (at least while he was alive) to one-half of the rental income and one-half of the proceeds of any sale of the flat. As I am satisfied that the flat was acquired and held by the brothers as a joint undertaking, expressly intended as an investment for their mutual benefit, it is unnecessary to consider whether they were partners in the legal sense.[18]
[18]By s 6(1) of the Partnership Act 1958 (Vic), the fact that persons are co-owners of property, either as joint tenants or tenants in common, does not of itself create a partnership. Nor, by s 6(2), does the sharing of gross returns from co-owned property.
Did the brothers purchase the flat with the intention of owning it ‘as joint tenants’?
A joint undertaking having been established, the equitable presumption of tenancy in common is applicable. It is for the defendant to rebut the presumption by evidence. That evidence must be clear and cogent, for three reasons.
First, because equity’s dislike of joint tenancies (especially in a commercial setting such as the present) requires only a slight indication of intention to divide the property to abrogate an intention to establish a joint tenancy.
Second, because the requisite intention is to be found in conversations between two proprietors, one of whom has since died and is unable to give evidence. There is therefore a special need for convincing proof. As Wilcox J observed in Clune v Collins Angus & Robertson Publishers Pty Ltd:[19]
…it is trite to say that evidence of conversations between a living witness and a dead person should be scrutinised with particular care, especially where there was no occasion for the dead person to record his version of them before his death. Of course, that is not to say that such evidence cannot be true; it obviously may. But it does mean that any matter adversely affecting the credit of the witness has special importance; the witness cannot be refuted in the usual way.[20]
[19](1992) 25 IPR 246.
[20](1992) 25 IPR 246, 253; See also Plunkett v Bull (1915) 19 CLR 544; Varma v Varma [2010] NSWSC 786.
Third, because there has been a significant lapse of time since these conversations occurred, and that raises concerns about the potential effect of the passage of time on memory. There is an obvious need for caution regarding an interested party’s evidence of conversations that occurred 16 years ago. As stated by McCelland CJ (in Equity) in Watson v Foxman:[21]
…human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.[22]
[21](1995) NSWLR 315.
[22](1995) NSWLR 315 per McCelland CJ in Eq, 318. See also, Varma v Varma [2010] NSWSC 786, [418]-[426] where cases to similar effect are collated.
The plaintiff contends that David’s evidence of specific agreement with Michael to purchase the flat as joint tenants should be rejected because, taking the evidence and probabilities as a whole, David is revealed as either a dishonest witness who has manufactured a version of events to suit his interests, or a witness who, with the passage of time, has reconstructed relevant events to suit his case; in all probability at the urging of his father, Tom Klein.
If the Court lacks the necessary satisfaction that David’s evidence can be relied upon, the presumption of tenancy in common will not be displaced. However, if David’s evidence is accepted as truthful, complete and accurate, the plaintiff contends that the evidence as a whole provides a significant indication that the brothers nevertheless intended to divide their interests in the flat equally.
I will deal first with the veracity and reliability of David’s evidence. At the outset, I record that some of the evidence relied upon by the plaintiff in support of his contention that David’s evidence should not be accepted are wholly collateral to the central issue for determination. This evidence was objected to. However, given the fact that Michael is deceased, I allowed the plaintiff to lead evidence on these collateral matters, as it may be that, in combination, they may assist the Court to determine the veracity and reliability of David as a witness; or may in some way inform the probabilities as to the critical factual issue when considered in the light of the evidence as a whole.
I record there was nothing about David’s demeanour on the central issue which has influenced my assessment of his evidence. Nor was there anything about Danielle’s demeanour which requires comment. However, they each gave evidence in the context of an acrimonious family dispute; and some degree of reconstruction is likely to have affected their evidence about the events following Michael’s death.
I proceed to consider the plaintiff’s submissions.
First, it was submitted that David’s evidence of the content of his conversations with Michael, is improbable, because his chronology of the conversations does not fit with some objectively established dates and times.
As appears above, David’s evidence as to the sequence of the relevant conversations concerning the form of co-ownership of the flat with Michael was as follows:
(1) The first conversation was with Ms Herszberg. She explained the difference between joint tenancy and tenancy in common and sought instructions.
(2) The second conversation was with Michael in Tel Aviv. David telephoned him, explained Ms Herszberg’s advice and suggested that they speak again, ‘within the next day or two’ and decide how to proceed.
(3) The third conversation was also between David and Michael. David again called Michael in Tel Aviv and expressed his preference for a joint tenancy, to which Michael agreed.
(4) The fourth conversation was between David and Ms Herszberg. David telephoned her and said that he and Michael had decided to purchase the flat as joint tenants. In response, Ms Herszberg asked for written instructions in a particular form.
(5) David then prepared handwritten instructions as required by Ms Herszberg, and hand delivered those instructions to her home.
(6) Following those events, Ms Herszberg prepared a letter to David dated 14 December 1994 which enclosed, among other things, a nomination form nominating Michael ‘as additional purchaser to take a transfer of the property with [David] as joint tenant’. Ms Herszberg gave evidence that she would only have prepared a nomination form specifying that Michael was purchasing the flat as a joint tenant with David if she had been instructed to that effect.
It was submitted on behalf of the plaintiff that it was improbable that all of these steps could have taken place during the objectively established time between the first conversation, in which Ms Herszberg advised David as to the essential difference between joint tenancy and tenancy in common, and Ms Herszberg preparing the nomination form on the basis of David’s alleged handwritten instruction. This submission was based upon the contention that the evidence established that the first conversation took place during business hours in Melbourne on 13 December 1994 and that the nomination form was prepared by Ms Herszberg on the next day, 14 December 1994, and posted to David. It was submitted, even if the first conversation occurred in the early morning of 13 December 1994, then it was unlikely that each of the sequential steps took place by the end of the following business day on 14 December 1994. Reliance was placed upon the fact that Melbourne was at the time nine hours ahead of Tel Aviv where Michael was then living. Accordingly, even if the first conversation occurred in the early morning of 13 December 1994, and David immediately telephoned Michael and the second conversation occurred at that time, the third conversation must have taken place approximately 24 hours later, because otherwise David would have been calling Michael after midnight in Tel Aviv.
I do not accept the plaintiff’s submissions in this regard. The sequence of events could have taken place within the available time. David said that the third conversation took place ‘probably about a day later’ following the second conversation. On the hypothesis put forward, he would have had a full business day to think about the issue and a night to sleep on it. Further, I am not satisfied that the first conversation necessarily occurred on 13 December 1994. Although that is the day noted on Ms Herszberg’s invoice, and she appeared to accept that this was the day she probably ‘opened the file’, she may well have opened the file on the day following the first conversation. For example, she could have spoken with David on the afternoon of 12 December 1994 and not opened the file until the next day. Whether or not that be so, there was in any event sufficient time for the sequence of events to take place as David has recounted them.
The sequence of events has support in Danielle’s evidence, that she recalls a few conversations between David and Michael before a decision was made to purchase the flat, and Ms Herszberg’s evidence, that she would not have prepared the nomination form as she did in the absence of instructions. That evidence also provides objective support to David’s evidence that this issue was discussed with Michael on or prior to him instructing Ms Herszberg that he and Michael wished to purchase the flat as joint tenants.
Second, the plaintiff contends that it is objectively improbable that Michael would have agreed to a joint tenancy in circumstances where he was recently married and had a family in prospect. I do not accept that submission. Although a decision by Michael to proceed by way of joint tenancy made no real sense for him, there was an objectively plausible reason for David to suggest that form of ownership, given his own marital situation. Further, taking the evidence as a whole, it is apparent that Michael paid little attention to his financial affairs, and was prepared to trust David and rely upon his advice. It is likely that he simply did not give the form of ownership the degree of consideration which it required.
Third, the plaintiff contends that David’s evidence concerning family discussions held in Jerusalem following Michael’s death demonstrates that David’s evidence about discussions with Michael concerning joint tenancy is a fabrication or reconstruction. David’s evidence in that regard was as follows:
(1) In his evidence in chief, David gave a lengthy answer concerning discussions involving him, Tom Klein and Danielle’s father. In the context of discussions about the establishment of a trust for Michael’s family, David said:
I made mention of the various investments that I was holding on behalf of Michael that - and suggested that should go into it. I also made mention that I had a flat with Michael and that there's currently a mortgage on the flat. However, once the mortgage is paid out that I would very much like that income from the flat, half the income from the flat should also go into - into this trust.[23]
[23]Emphasis added.
(2) In cross-examination, David accepted that, during this conversation, he said words to the effect that he ‘had a half share property with Michael’ and that he ‘intended for half of the income from that flat to go into Michael’s family’.
(3) It was put to David that his evidence was inconsistent with him having a clear agreement with Michael that the flat was to be held as joint tenants, and with him intending to take the whole of the property as the surviving joint tenant. It was put that, if that was David’s state of mind at the time, he would have mentioned it during these discussions and made it clear to Danielle’s father that he was entitled to the flat absolutely upon Michael’s death.
(4) David’s response to this line of cross-examination was consistent. He maintained that he was at all times well aware of his entitlement as a surviving joint tenant to the whole of the property, but said he deliberately refrained from mentioning this fact during the course of these discussions because he did not want ‘to create any unnecessary friction’ or ‘inflame matters’.
(5) It was also put to David in cross-examination that his intention to pay half of the income from the flat into a trust for Michael’s family was inconsistent with him having agreed with Michael upon a joint tenancy, or with him believing at the time of this conversation that he had an entitlement to the whole of the flat as the surviving joint tenant. David’s consistent response was that he was expressing this intention because he ‘always thought’ that he had ‘a moral obligation’ to provide half of the income from the flat ‘towards Michael’s family’s needs.’ As to the suggestion that he had still done nothing to effectuate that intention, David said that he was ‘not willing to do anything with a gun to [his] head’, referring to this legal proceeding and the claims preceding it.
I do not accept that this aspect of David’s evidence supports a submission that he has concocted his evidence about the discussions with his brother. It is objectively reasonable and probable that David did not want to create unnecessary friction, or inflame the matters, in circumstances where there was no firm agreement between the two families as to how to proceed with a trust to establish an income for Michael’s family. This is particularly so where David was under the influence of his father, an obviously controlling man who was only prepared to assist Michael’s family on his terms. As to David’s belief that he ‘always thought’ that he had ‘a moral obligation’ to use the income from the flat to provide for Michael’s family, that matter is highly relevant to the issue considered below, as to whether the brothers intended to divide their interests in the flat equally.
Fourth, it was submitted on behalf of the plaintiff that David’s evidence was unreliable about the timing of his conversations with Michael. Reliance was placed upon the fact that David’s pleaded case was that the conversations occurred in January 1995, whereas the late discovery of the correspondence from Ms Herzberg in December 1994 caused him to alter his evidence in this respect. Counsel for the plaintiff acknowledged that a discrepancy of this kind would not ordinarily affect the reliability or credibility of evidence of recollection, but contended that it was significant in this case because, when armed with the contemporaneous correspondence, David then gave evidence he recalled Ms Herzberg raising the ownership issue as one of urgency given the impending holiday period. It was submitted that this evidence indicates that David’s evidence was based upon reconstruction from documents, not recollection. I do not accept these submissions. The documents which were previously available to David when his pleading was drawn indicated that the most likely timing of the conversations was January 1995. The later discovery of Ms Herzberg’s correspondence may well have prompted David to recall the urgency relating to the impending Christmas holiday period.
Fifth, the plaintiff places particular reliance upon an alleged telephone conversation between Danielle and David in late June or July 2005, during which Danielle contends David told her ‘that he had recently found out’ that the flat had been purchased as joint tenants, and of the legal ramifications of that form of ownership. If that evidence were to be accepted, it would cast significant doubt upon David’s evidence that he and his brother agreed to a joint tenancy, and discussed the ramifications of joint tenancy on the death of one brother.
There was much evidence and submission concerning this conversation. By reference to telephone records, Danielle contended that the conversation is likely to have occurred on 10 July 2006. However, other contemporaneous records relating to David’s attendance at work on that day indicate that he could not have been at home on 10 July when the telephone records indicate a call from Danielle to David’s home. On this basis, David denied that he spoke with Danielle on that day. Moreover, David denied that any conversation to the effect alleged occurred at any time.
On the other hand, Danielle gave convincing evidence about the circumstances leading up to the conversation. In summary, she said, with support from contemporaneous documents, that she first learned that David was claiming an entitlement to be registered as the sole proprietor of the flat in late June 2006, following enquiries by an Israeli solicitor who discovered that David had made a successful survivorship application and become registered as the sole proprietor. Given the difficulties which Danielle had previously encountered in obtaining full information concerning Michael’s assets in Australia, she was understandably annoyed and suspicious. This provided the catalyst for her to speak with David.
Danielle’s evidence of this telephone call was as follows:
I asked him why he'd removed Michael's name from the property and how could he do such a thing if there was no probate yet. I said to him I understood that so long as there is probate surely, if a man if he dies, all his assets are frozen, and then he told me that he had recently found out that the way he had purchased the apartment was as joint proprietors and I asked him to explain what that meant, so he explained to me the difference between joint proprietors and tenants in common, and when he explained it I said to him, ‘Is it your intention to steal your nephew's - you know, inheritance from their father?’ And he said to me, ‘No that's not the case’ and that he would share this investment with us on a - the same basis as the original investment had been made, as half half.
You say that he said he recently found out that he was a joint ? Yes. He said he did not know and that he had asked a friend who was a lawyer to explain it to him.
Did he say how recently? No. He said he'd only found out after Michael had died.
I do not accept David’s denial that there was any conversation at this time between him and Danielle concerning the basis on which the flat was owned. Nor am I persuaded that I should accept all of Danielle’s account of this conversation. Taking the evidence as a whole, I accept Danielle’s evidence that there was a conversation with David in which she forcefully and pointedly asked him whether it was his intention to steal his nephews’ inheritance. I find also that it is likely that David repeated his intention, based upon his consistent understanding of his moral obligation, to share the flat with Michael’s surviving family in some way. Such a statement would have been consistent with his statements in Jerusalem following his brother’s death, discussed above.
Viewing the objective probabilities as a whole, I find also that David made a statement to Danielle to the effect that the survivorship application had been made by him on advice after Michael’s death. However, I do not accept that David is likely to have said in this conversation that he had only recently found out about the significance of having purchased the flat with Michael as joint proprietors. It is likely that Danielle misunderstood David’s explanation about receiving advice as to the mechanics of a survivorship application. Given that Danielle was justifiably outraged that she had not been told about the survivorship application earlier, I find that she has reconstructed this aspect of the conversation to accord with her suspicions about underhand dealings by David and his father in connection with her late husband’s assets and trust entitlements.
Sixth, it was submitted on behalf of the plaintiff that there was a lack of objective evidence to corroborate David’s version of events. Reliance was placed upon the fact that neither David nor Michael told their respective wives prior to Michael’s death of any agreement between them to purchase the property as joint tenants, so as to avoid sharing it with ‘third parties’ such as their wives. This is hardly surprising and does not support the plaintiff’s submission.
Further, reliance was placed upon the fact that David had the opportunity to send documents to Michael in Israel concerning the effect of joint tenancy, such as Ms Herzberg’s correspondence and the nomination form, and to have Michael acknowledge in writing that he understood the effect of agreeing to purchase the flat as joint tenants. I accept that it would have been prudent for David to have taken this course, and that he had an opportunity to do so. However, the investment in the flat was driven by David and Michael simply placed his trust in him. As David was doing all of the work, it is understandable that he simply provided the essential documents to Michael for signature in Israel. This factor does not cause me to doubt the general effect of David’s evidence.
Seventh, in a similar vein, it was submitted on behalf of the plaintiff that David’s evidence of a careful and considered conversation with Michael concerning the form of their joint ownership of the flat is inconsistent with other conduct by David towards Michael. Reliance was placed upon the fact that David did not involve Michael in any decisions concerning the flat once it was purchased. This factor does not support the plaintiff’s submission.
Eighth, the plaintiff relies upon a telephone conversation between Danielle on the one hand and David and his wife Miriam on the other, in December 2007. During the course of that conversation, Miriam said words to the effect that David made the survivorship application because ‘that was the way [the flat] was set up’. Further, Miriam said words to the effect that the survivorship application had been made on advice from the Titles Office. It was submitted that this evidence is consistent with David not realising the legal effect of joint tenancy until after Michael’s death, and then acting to exploit the situation based on advice from the Titles Office. I reject that submission. The evidence is consistent with an agreement between the brothers to purchase as joint tenants, and David seeking to obtain advice from the Titles Office as to the mechanical way to make a survivorship application.
More importantly, reliance was placed upon another aspect of this conversation. It was common ground that Miriam told Danielle that, once the rental income had paid off all borrowings, one-half of the rent would be placed in a bank account ‘for Michael’s heirs’. The reference to paying off borrowings was not a reference to the mortgage debt, which had already been repaid, but a reference to an amount of $10,000 advanced by David from his own funds to complete renovations to the flat, which had not then been repaid in full from rental income. I do not accept that a statement to this effect is inconsistent with David’s evidence, or should lead me to reject it. Indeed, it is consistent with David’s evidence that he always felt a strong moral obligation to share the flat with Michael’s family if he pre-deceased him. As appears below, this evidence is also relevant to an assessment of the common intention of the brothers to divide their interests in the flat.
Ninth, the plaintiff relied upon a number of other factors which it was submitted should lead the Court to reject David’s evidence as to the agreement with Michael to purchase the flat as joint tenants. These matters included the improbability of two young brothers giving careful consideration to what would happen in the event one of them died, the considerable influence of Tom Klein over his son David, some variance between matters put by David’s counsel to Danielle in cross-examination and David’s evidence concerning discussions in Jerusalem, David’s failure to effectuate his acknowledged moral obligation to provide for Michael’s children in the years since his brother’s death, Tom Klein’s attempts to deprive Michael’s estate of Michael’s entitlements under family trusts, Tom Klein’s initial concealment of those entitlements and David’s non-disclosure of information as to Michael’s assets (including failing to disclose the survivorship application when it was made).
I have considered all of the evidence carefully. I have taken into account the lengthy lapse of time between the critical conversations in December 1994 and the trial more than 16 years later. I have taken into account the fact that Michael is deceased and the Court can only hear from David as to the content of the conversations. Although there is some weight in the numerous matters advanced on behalf of the plaintiff in an endeavour to challenge David’s credit and the reliability of his recollection, I am not satisfied that I should reject David’s evidence. His evidence was given in a direct and consistent manner. It is not objectively unreasonable or improbable. To the contrary, the only objective evidence supports David’s version of events. I refer in that regard to Ms Herzberg’s correspondence, the nomination form, Ms Herzberg’s evidence that she would not have prepared a nomination form specifying that Michael was a nominated purchaser as joint tenant without instructions and the objective likelihood that Michael simply followed David’s advice and wishes in circumstances where he had invited him to participate in the joint purchase of the flat.
Accordingly, I find that the brothers agreed to be registered as joint tenants of the flat. I turn to consider whether, notwithstanding this agreement, the brothers nevertheless intended to divide their interests in the flat equally.
Did the brothers nevertheless intend to divide their interests in the flat equally?
As the above statement of the applicable legal principles demonstrates, the brothers’ agreement to register their interests in the flat ‘as joint tenants’, and their registration as owners in that capacity, does not necessarily exclude equity’s preference for a tenancy in common where there is evidence, even slight evidence, to indicate an intention to divide the property between the joint tenants.
It was submitted on behalf of the plaintiff that this is such a case. I accept that submission. I find that the brothers had a common intention to divide the property between them during their joint lifetime, as equal participants in a joint undertaking. I find also that each brother believed he was under a strong moral obligation to share the flat with the family of the other brother in the event that one pre-deceased the other prior to sale of the flat. My reasons follow.
First, the flat was purchased as an investment for the benefit of each brother equally.
Second, consistent with the brothers’ intention at the time of the purchase, David meticulously ensured that the income and expenses of the flat were shared equally between him and his brother. At times, this involved David acting pursuant to his power of attorney to move funds from Michael’s bank accounts to ensure precise equality. Later, when David used his own funds to renovate the flat, he took steps to restore equality, by repaying himself from the rental income.
Third, David said that he ‘always thought that [he] had a moral obligation’ to share the income from the flat with ‘Michael’s family’; and after Michael’s death said he would do so on a number of occasions. David said that this moral obligation was based on the implicit trust he and Michael had in each other. I infer that Michael considered himself at all times to be under a similar moral obligation in the event that David pre-deceased him. In short, I infer that the brothers had an understanding that the surviving brother would share the income of the flat with the deceased brother’s family; or at least with his children in the event that the surviving widow was viewed as a mere ‘third party’, such as an estranged but not yet divorced wife.
These factors combine to indicate that the brothers intended to divide the property equally between them. In equity, that intention prevented the creation of a joint tenancy. The plaintiff’s claim therefore succeeds.
I will hear the parties as to the form of orders, and as to costs.
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