SCE Building Constructions Pty Ltd (in liq) v Saad

[2003] NSWSC 796

CITATION:	SCE Building Constructions Pty Ltd (in liq) v Saad & Ors [2003] NSWSC 796
HEARING DATE(S):	31/07/03, 1/08/03
JUDGMENT DATE:	8 September 2003
JUDGMENT OF:	Gzell J
DECISION:	Declaration of resulting trusts and orders for transfer of land and net proceeds of sale
CATCHWORDS:	EQUITY - Equitable Doctrines and Presumptions - Resulting trust presumption - Presumption of advancement - Directors of company in liquidation - Land registered in names of directors - Whether purchase price paid by company - Whether resulting trust presumption arose - Whether presumption rebutted
CASES CITED:	Dyer v Dyer (1788) 2 Cox 92 (30 ER 42) Napier v Public Trustee (WA) (1981) 55 ALJR 1 Calverley v Green (1984) 155 CLR 242 Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 Bateman TV Ltd v Bateman [1971] NZLR 453 Muschinski v Dodds (1984-1985) 160 CLR 583 Meagher and Gummow, Jacobs' Law of Trusts in Australia, 6th ed, Butterworths, Sydney, 1997 Ford and Lee, Principles of the Law of Trusts, 3rd ed, LBC Information Services, Sydney, 1996
PARTIES :	SCE Building Constructions Pty Ltd (in liq) - Cross Claimant Saad Saad - 1st Cross Defendant Nadia Saad - 2nd Cross Defendant Danny John Arraj - 3rd Cross Defendant Magney Mortgages Ltd - 4th Cross Defendant
FILE NUMBER(S):	SC 4903/01
COUNSEL:	Mr R A Parsons - Cross Claimant Mr Abdul Karim - 1st Cross Defendant
SOLICITORS:	Nash O'Neil Tomko Layers - Cross Claimant Sandroussi & Associates - 1st Cross Defendant Ian Bullock Partners - 2nd Cross Defendant Riley Gray-Spencer - 3rd Cross Defendant Magney & Rhodes - 4th Cross Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

MONDAY 8 SEPTEMBER 2003

4903/01 SCE BUILDING CONSTRUCTIONS PTY LTD (IN LIQUIDATION) v SAAD & ORS

JUDGMENT

1 By cross claim, SCE Building Constructions Pty Ltd (in liquidation) sought declarations that it was the beneficial owner of strata units at 14-16 Tintern Avenue, Carlingford, Sydney, sought the transfer of strata units 11 and 18 and sought the proceeds of sale of units 1, 8 and 17 after the discharge of mortgages over them.

2 The first cross defendant, Saad Saad, and his former wife, Nadia Saad, the second cross defendant, were the initial registered proprietors of the strata units as joint tenants. As a result of proceedings in the Family Court of Australia, the first cross defendant’s interest in unit 11 was transferred to the second cross defendant, who remains on the title as its registered proprietor.

3 The third cross defendant, Danny John Arraj, was a former solicitor for the first cross defendant. The fourth cross defendant, Magney Mortgages Ltd, holds the balance of the proceeds of sale of some of the strata units in question.

4 Each of the second to fourth cross defendants has entered an appearance submitting to the making of all orders sought by the cross claimant save as to costs.

5 The first and second cross defendants were the directors of the cross claimant. John Vouris was appointed voluntary administrator of the cross claimant in January 2000 and was appointed liquidator in February 2000. He and his staff conducted an investigation of the cross claimant’s property and affairs. It carried on the business of home unit development and construction.

6 The Carlingford land was bought by the first and second cross defendants as joint tenants for $870,000. The cross claimant entered into a building construction contract with the first and second cross defendants to construct the strata units for $4,050,000 which included the land cost to be paid back on completion of the job. Profits were to be divided equally between the first and second cross defendants on the one hand and the cross claimant on the other.

7 The ledger accounts of the cross claimant showed the $870,000 purchase price for the Carlingford land as a partnership interest. That interest was made up of four items in the ledger account. The first and second items, in amounts of $26,100 and $60,900, equalled 10% of the purchase price. Those amounts accorded with cheques written on the cross claimant’s bank account with St George Bank on 29 July 1996 and 28 August 1996. The third item of $720,000 was shown as an Advance Bank loan. The final amount of $63,000 was credited to the directors’ loan account.

8 From information provided to him by the first cross defendant, Mr Vouris concluded that the $63,000 contributed by the first and second cross defendants was derived from the sale of a strata unit at 11-13 Broe Avenue, East Hills, Sydney.

9 The cross claimant had developed and sold home units at 1 Junction Street, Harris Park, Sydney. The development commenced in November 1994 and was completed in October 1995. The land was bought in the name of the cross claimant. Net proceeds of sale after discharge of loans was applied to the purchase of the East Hills land. That land was registered in the names of the first and second cross defendants.

10 It was not in issue that net proceeds of sale of the East Hills units were used to purchase the Carlingford land again, in the names of the first and second cross defendants. What was in issue was whether the net proceeds of the East Hills project belonged to the first and second cross defendants and the amount they contributed to the purchase of the Carlingford land. It was not in issue that the costs of the development of the Carlingford project were paid by the cross claimant.

11 The first cross defendant claimed that he had borrowed $400,000-$500,000 in his name for the Harris Park project.

12 Correspondence dated October 1994 suggests that Elliot & Tuthill (Mortgages) Pty Ltd held a mortgage over property at 13 Warne Crescent, Beverly Hills, Sydney securing a loan to the first and second cross defendants and a mortgage over the Harris Park property securing a loan to the cross claimant. The correspondence suggests that the mortgage over the cross claimant’s property was discharged upon the assumption of the loan by the first and second cross defendants resulting in an increase in their loan secured over the Beverly Hills property to $465,000.

13 What was not revealed was the extent of the debt of the cross claimant comprised in the $465,000. The first cross defendant maintained that borrowings from Elliot & Tuthill were in his own name and not in the name of the company. In the end that was the case, but there was an initial borrowing by the cross claimant as well as a borrowing by the first and second cross defendants.

14 The first cross defendant said he borrowed $150,000 from St George Bank for the Harris Park project. There was a loan application approved at $150,000 in January 1994 for a period of one year. That approval was subject to attached conditions that were not in evidence. The first cross defendant said he borrowed a further $60,000 from Victoria in his name and a further $50,000 from Nabil Hob in his name.

15 The first cross defendant said that his accountant, Luigi Iacullo, who was also the accountant for the cross claimant, was given all the information and documentation in relation to the projects.

16 The ledger accounts of the cross claimant made available to Mr Vouris showed that contributions made to the cross claimant by the first and second cross defendants were credited to the directors’ loan account and amounts paid by the cross claimant to or for the benefit of the first and second cross defendants were debited to that account.

17 As at 30 June 1995, the directors’ loan account stood at a credit balance of $568,289 according to the balance sheet annexed to the cross claimant’s income tax return for the year ended 30 June 1996. That account clearly acknowledged significant net contributions by the first and second cross defendants to, or for the benefit of, the cross claimant. No evidence was led, nor was Mr Vouris cross examined, to suggest that the directors’ loan account at 30 June 1995 did not reflect all the contributions made for the cross claimant by the first and second cross defendants. The first cross defendant maintained that all borrowings had been made by him personally for the benefit of the cross claimant but no attempt was made to relate this assertion to movements in the directors’ loan account.

18 The East Hills project started in March 1996 and was completed in February 1997. The first cross defendant said the cost of the land was $410,000 of which he put in $200,000 which he said was left over from the sale of properties at Condell Park and Beverly Hills.

19 Trust statements of the solicitors acting in the purchase of the East Hills land showed that the purchases were settled in April and May 1996 with funds of the cross claimant totalling $134,174.78. In addition, deposits totalling $19,000 had earlier been paid from the bank account of the cross claimant. Development costs were financed by the cross claimant under a facility of $798,000 from Advance Bank and from the cross claimant’s St George Bank cheque account.

20 The first and second cross defendants did not have a cheque account. The only cheque account was that of the cross claimant. Moneys drawn for personal purposes were debited to the directors’ loan account. The accountant provided for a salary of $50,000 per annum but the first cross defendant said he only drew about $500 a week for personal expenses and left about $25,000 of wages in the company. However, as at 30 June 1996, the balance sheet attached to the cross claimant’s income tax return for that year revealed that the directors’ loan account had dropped by $399,828 to $168,461. Again, evidence was not led to suggest that this balance was understated. Nor was any such suggestion put to Mr Vouris.

21 The ledger accounts of the cross claimant for the year ended 30 June 1997 were made available to Mr Vouris. The directors’ loan account for that year commenced with the balance shown in the balance sheet accompanying the cross claimant’s income tax return for the previous year. It showed withdrawals for payments debited to that account and a number of credits including the $63,000 attributed to the first and second cross defendants as their contribution towards the purchase price of the Carlingford land.

22 An attack was made on the accuracy of the source of funding for the purchase of that land. The ledger accounts showed $720,000 as part of the partnership interest in the Carlingford project and a corresponding liability of $720,000 to the Advance Bank.

23 On 1 April 1997 the bank approved a facility to the cross claimant of $580,000 for a six month period with $550,000 to assist in the purchase of the Carlingford land and $30,000 for capitalisation of interest. It was put to Mr Vouris that the accounts had attributed the borrowing of $720,000 to the Carlingford land purchase that should have been attributed to the East Hills facility of $798,000.

24 Mr Vouris responded that there may well have been borrowings in excess of the facility limit of $550,000 and that the ledger accounts clearly attributed the advance of $720,000 to the Carlingford land. Indeed, the ledger account for the Advance Bank for the year ended 30 June 1997 showed a series of reductions of the loan on account of the sale of East Hills units. The final entry in the ledger was a further loan of $720,000.

25 The first cross defendant claimed that the source of funds for the Carlingford land should acknowledge an amount of $328,000 from him. The argument was that the purchase price was $870,000, the Advance Bank loan was limited to $550,000 and the difference should be attributed to him. The first cross defendant was unable to explain the discrepancy of $8,000 in this calculation.

26 I reject the contention. It ignores the fact that a deposit of 10% of the purchase price was paid by the cross claimant from its bank account and it ignores the fact that a new liability of $720,000 was acknowledged in the books of account. While there was no evidence led from Advance Bank as to any additional funding by it over the facility limit of $550,000, in the absence of any evidence to the contrary, the clear inference is that this occurred.

27 There was no evidence led by the first defendant that the movements in the directors’ loan account during 1997 were misstated. The balance as at 30 June 1997 of $93,937.73 continued a trend of declining levels of support by the directors. That trend continued in 1998. A balance sheet of the cross claimant as at 30 June 1998 showed the directors’ loan account at $39,999.20. That trend is consistent with the profits of the cross claimant from project to project being utilised to reduce the large contributions made by the first and second cross defendants prior to 30 June 1995.

28 In the absence of any detailed challenge to the way in which the first cross defendant’s accountant dealt with the utilisation of the cross claimant’s bank account for both business and personal purposes, the evidence leads me to the conclusion that all but $63,000 of the entire cost of the acquisition and development of the Carlingford land was paid for by the cross claimant from its moneys or moneys borrowed by it.

29 The cross claimant argued that the strata units in the Carlingford project were held on a resulting trust for it. A rebuttable presumption of a resulting trust arises where, on a purchase of property, it is vested in someone other than the person who provided the purchase price. The classic statement of the principle is that of Lord Chief Baron Eyre in Dyer v Dyer (1788) 2 Cox 92 at 93 (30 ER 42 at 43):

“The clear result of all the cases, without a single exception, is, that the trust of a legal estate, whether freehold, copyhold, or leasehold; whether taken in the names of the purchasers and others jointly, or in the name of others without that of the purchaser; whether in one name or several; whether jointly or successive , results to the man who advances the purchase-money. This is a general proposition supported by all the cases, and there is nothing to contradict it; and it goes on a strict analogy to the rule of the common law, that where a feoffment is made without consideration, the use results to the feoffor.”

30 In this case the entire purchase price for the Carlingford land and of the development of the strata units was provided by the cross claimant. Full credit was given to the first and second cross defendants for the $63,000 by its credit to the directors’ loan account with the cross claimant. The cross claimant thereby acknowledged its indebtedness to the directors for the $63,000. The proof of debt lodged by the first cross defendant was an acknowledgment by him that the cross claimant was indebted to him for portion of the purchase price of the Carlingford land: an acknowledgment that the cross claimant was the sole purchaser of the property.

31 There is another rebuttable presumption, that of advancement. If one person pays for property and it is transferred to another person to whom the purchaser has an obligation of support, it will be presumed that the purchaser intended the transferee to take beneficially. In Napier v Public Trustee(WA) (1981) 55 ALJR 1 at 3, Aickin J said:

“The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be. This proposition is subject to the exception that in the case of transfers to wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis ) there is a presumption of advancement so that the beneficial as well as the legal interest will pass. Each of the presumptions may be rebutted by evidence.”

32 In Calverley v Green (1984) 155 CLR 242 at 266, Deane J observed that the law embodying the presumptions had been said by the High Court to be so clear that it could no longer be the subject of argument, citing the judgment of the court in Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 364.

33 The presumption of advancement does not arise with respect to transferees to whom the purchaser is not under an obligation to support. Thus, unless the purchaser is in loco parentis to the transferee, the presumption does not arise where the purchase is taken in the name of a sister, a nephew, a son-in-law, or a grandchild (Meagher and Gummow, Jacobs’ Law of Trusts in Australia, 6th ed, Butterworths, Sydney, 1997, par 1212 and the cases there cited).

34 In Ford and Lee, Principles of the Law of Trusts, 3rd ed, LBC Information Services, Sydney, 1996, par 21060 it is pointed out that in the case of the purchaser and transferee, the resulting trust is a rebuttable presumption against an intention of donation in favour of strangers and that:

“The common statement that a resulting trust is presumed telescopes two ideas. First, there is a presumption that the transferor or purchaser lacked donative intention. Given that presumed absence of intention there is then a trust by the operation of law. That trust is no less automatic than the resulting trust which arises where an express trust fails to dispose of the full beneficial interest. It would tend to clarity of thought for the first of these ideas to be called the presumption of non-advancement: the transferor or purchaser is presumed to lack intention to advance the stranger. The merging of the two ideas causes no inconvenience where there is a transfer of title to a stranger but can create confusion where the transferee is not a stranger.”

35 In this case the transferees were the directors of the cross claimant. The cross claimant was under no obligation to support its directors. They were strangers in the context of the presumption of advancement. There is, in consequence, a rebuttable presumption that the first and second cross defendants held their title in trust for the cross claimant.

36 As is pointed out in Jacobs at par 1216, a court will be slow to find evidence sufficient to rebut the presumption of resulting trust and establish a gift where the alleged donor was one to whom the alleged donee owed a fiduciary duty which would appear to be broken by the transaction.

37 In Bateman TV Ltd v Bateman [1971] NZLR 453, company directors traded in company motor vehicles and paid a small amount of cash for new vehicles taken in their names under hire purchase agreements, the payments under which were made by a related company and charged to the company of which they were the directors. It was held that resulting trusts arose in favour of the company. An eleventh hour attempt to debit their loan accounts (already in debit) for the purchase price of the vehicles failed, the Court of Appeal holding that the accounting entries did not terminate the trust.

38 The first cross defendant regarded the cross claimant as merely a name. In answer to the question whether the cross claimant had at its disposal for the development of the Carlingford project a bank facility of more than $3,000,000, he said:

“I am the one who borrowed the money in my name, but in the name of the company. The company just name, security for me. But I would own my house where I live, whatever, even my son’s house, everything secure for the loan. So the name of the company just name secure for the loan. So one-person guarantor, a person guarantor for the company, so the company means just name.”

39 When it was put to the first cross defendant that the 10% deposit for the acquisition of the East Hills land was paid out of the company’s bank account the following exchange took place:

“Q: The 10 per cent was paid by the company out of its bank account?

A: Yes because all my company, in the company.
Q: All the company monies?
A: My money.
Q: And the company’s money went to the company accounts?
A: My money goes to company account so all my money.”

40 It was submitted on behalf of the first cross defendant that the use of the company bank account for mixed purposes was an honest mistake and a resulting trust in favour of the cross claimant could not arise for honest mistake. It was submitted that otherwise, the cross claimant would gain a windfall and be unjustly enriched.

41 I do not understand those submissions. The presumptions which govern my decision are those with respect to a resulting trust and advancement as indicated above.

42 I was referred to Muschinski v Dodds (1984-1985) 160 CLR 583. That was a case in which the presumption of resulting trust was rebutted. An unmarried couple purchased land for which they were jointly and severally liable. They intended to renovate a cottage and buy a prefabricated house for erection on the land. The woman paid the purchase price and agreed to include the man on the title if he undertook to renovate the cottage and pay for the prefabricated house.

43 The parties separated before the renovations were made and before the prefabricated house was acquired. While the presumption of resulting trust arising from the woman’s payment of the purchase price was rebutted, it was held that the parties held their respective legal interests as tenants in common upon trust after payment of any joint debts, to repay to each the contributions made and to hold the residue in equal shares.

44 Those facts are far removed from the instant circumstances. The first and second cross defendants contributed to the acquisition of the Harris Park land. Those contributions were recognised in a loan account maintained by the cross claimant. The net proceeds of the Harris Park project were invested in the East Hills project and thence in the Carlingford project. Drawings by the first and second cross defendants for their personal use were charged to their loan account by the cross claimant resulting in a steady decline in the amount owed by the cross claimant to the first and second cross defendants. $63,000 contributed by the first and second cross defendants to the Carlingford project was recognised as a debt due by the cross claimant to them by credit to their loan account.

45 This was not a situation of joint contribution to the purchase price of property. There was an acknowledgement of a loan of $63,000 from the first and second cross defendants to the cross claimant and a purchase of the land by the cross claimant. There was no obligation of support by the cross claimant of the first and second cross defendants and the presumption of a resulting trust arises. The evidence led by the first cross defendant does not, in my view, establish a basis for rebuttal of that presumption.

46 It was pointed out that loans were raised on security over property owned by the first and second cross defendants and a company controlled by their son. But that does not, in my view, constitute the first or second cross defendants or their son’s company as contributors to the purchase price for the land or constitute a basis for rebuttal of the presumption of resulting trust.

47 In my view the cross claimant has established that the strata units held by the first and second cross defendants were held in trust for it.

48 The intervention of the order of the Family Court of Australia that the first cross defendant transfer his interest in unit 11 of the Carlingford development to the second cross defendant does not appear to be an impediment to the orders sought by the cross claimant. The second cross defendant has the benefit of an indemnity from the first cross defendant with respect to the Carlingford project. She has entered an appearance in these proceedings submitting to the making of all orders sought by the cross claimant, save for costs.

49 I will make a declaration that the cross claimant has a beneficial interest as owner in unit 11 of the Carlingford development and that the second cross defendant holds it on trust for the cross claimant. I will make orders for the transfer of the unit to the cross claimant. I will hear the parties as to the appropriate orders to be made reflecting these reasons.

50 So far as the proceeds of sale of strata units in the Carlingford development are concerned, I invite submissions on the effect of the construction contract for the Carlingford project which provided that the profit be divided equally between the cross claimant and the first and second cross defendants.

51 On one view of the matter, since the first and second cross defendants had no beneficial interest in the Carlingford land, the agreement to share profits was ineffective.

52 I will also hear the parties on costs.

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Last Modified: 09/09/2003