Stankovic v Stankovic

[2008] NSWSC 475

CITATION:	Stankovic v Stankovic [2008] NSWSC 475
HEARING DATE(S):	25, 27, 28 March, 5 May 2008
JUDGMENT DATE :	16 May 2008
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
DECISION:	1) Declare that first defendant David Stankovic was liable to indemnify plaintiff Milovan Stankovic and second defendant Milka Stankovic in respect of all liability which they might have under line of credit and subject thereto was beneficially entitled to the property and the proceeds of its sale. (2) Order that funds in court to credit of proceedings together with accrued interest be paid out to first defendant. (3) Judgment that plaintiff pay first defendant $49,055.38. (4) Order that plaintiff pay first defendant’s costs.
CATCHWORDS:	ACCOUNTS AND INQUIRIES – on dissolution of alleged joint venture for development of property – where order for accounts made by consent on limited basis without resolving entitlement issue – where plaintiff belatedly contends that original order should be reopen to provide for wider obligation to account – whether appropriate to reopen original order – where property purchased in name of first defendant (son) with funds borrowed in name of plaintiff (father) second defendant (wife) and son – whether presumption of resulting trust rebutted - whether common intention that property was to be beneficially the son’s – where father agreed to provide security for loan upon certain conditions – where condition breached – whether father entitled to appropriate profits of venture - whether father entitled to draw on loan for his own separate benefit – extent of father’s liability to account for such drawings.
CATEGORY:	Principal judgment
CASES CITED:	Stankovic v Stankovic [2007] NSWSC 814 Stankovic v Stankovic [2008] NSWSC 425
PARTIES:	Milovan Stankovic (plaintiff) David Stankovic (first defendant) Milka Stankovic (second defendant) Sasha Stankovic (third defendant) Arthur Samyia (fourth defendant) Jennifer Samyia (fifth defendant)
FILE NUMBER(S):	SC 5100/05
COUNSEL:	Ms N Obrart (plaintiff) (25, 27, 28 March) Mr Milovan Stankovic (plaintiff) (in person 5 May) Mr David Stankovic (first defendant) (in person)
SOLICITORS:	Kent Attorneys (plaintiff) (25, 27, 28 March)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Friday, 16 May 2008

5100/05 Milovan Stankovic v David Stankovic & 4 ors

JUDGMENT

1 HIS HONOUR: On 28 July 2000, 2 Tea Tree Way, Kellyville was transferred by the NSW Land & Housing Corporation to the first defendant David Stankovic for a price of $173,000. Subsequently, a house was constructed on the property. The purchase and development of 2 Tea Tree Way was funded, initially, by a line of credit with a limit of $430,000 provided by Suncorp-Metway jointly to David, his father the plaintiff Milovan Stankovic and his mother the second defendant Milka Stankovic, and secured on Lot B President Road, Kellyville, of which Milovan and Milka were the registered proprietors (I refer to the parties by their first names for convenience, because it is the easiest and clearest way of identifying them, and without intending any disrespect). Later, in October 2003, the line of credit was topped up with $230,000 borrowed by David from RAMS on the security of 2 Tea Tree Way. Funds drawn from the Suncorp-Metway line of credit were applied to the acquisition and construction costs of 2 Tea Tree Way. However, David also applied funds drawn from that source in payments to a company Craftwork Carpentry Pty Ltd (of which David and his brother the third defendant Sasha Stankovic were directors and shareholders), to the construction of another property at Bella Vista (which David and Sasha were developing in partnership with the fourth defendant Arthur Samyia and the fifth defendant Jennifer Samyia), to advances to Sasha, and on personal expenditure of David. Milovan applied some funds drawn by him from the Suncorp-Metway line of credit to his own separate benefit.

2 2 Tea Tree Way was sold in July 2004 for $690,000. The proceeds were applied to discharge the RAMS loan (about $270,000) and to reduce the Suncorp-Metway line of credit (about $395,000), after which about $57,000 then remained outstanding on the line of credit. But in September 2004, David redrew $370,000 from the Suncorp-Metway line of credit and transferred it to Craftwork Carpentry, which in turn applied it to the Bella Vista development.

3 Save for a sum of $17,000 advanced by him when there were insufficient available funds in the Suncorp-Metway line of credit to continue the 2 Tea Tree Way development, Milovan has made no financial contribution to the acquisition or improvement of 2 Tea Tree Way, nor to the repayment of the Suncorp-Metway line of credit. However, on or about 13 July 2005, Milovan lodged a caveat in respect of the Bella Vista property, claiming an “equitable estate due to application of the caveator’s funds to the land owned by the registered proprietor – alternatively an accounting for those moneys”, pursuant to “a verbal agreement” said to have been made in 2000 and August 2004 between Milovan, David and Mr Samyia, and by virtue of the facts that “in about 2000 Milovan Stankovic and David Stankovic agreed to develop land and raise finance for that purpose. David Stankovic applied moneys from the development to a further development on the land owned by the registered proprietor”. The registered proprietors, Mr and Mrs Samyia, procured the issue of a lapsing notice, and by summons filed on 22 September 2005, Milovan instituted these proceedings, claiming an extension of the caveat, and – relevantly for present purposes – an accounting of the proceeds of sale of 2 Tea Tree Way, of the moneys allegedly paid from the proceeds of its sale to Milka and Sasha, and of the moneys received by the Samyias and applied by them to the Bella Vista property, and a declaration that David was beneficially entitled to an interest in the Bella Vista property and in turn held that beneficial interest upon a sub-trust for Milovan.

4 On 17 October 2005, orders were made, by consent, that (1) David, Sasha and the Samyias proceed with due diligence to complete construction of the home on the Bella Vista property; (2) the Samyias then proceed with due diligence to sell it; (3) the Samyias apply the net proceeds of sale, after payment of the costs and expenses of sale, (a) first in discharge of an existing mortgage to the Commonwealth Bank over the Bella Vista property, (b) secondly in discharge of the full amount owing to Suncorp-Metway in respect of the line of credit secured on President Road, and (c) thirdly (but subject to order 4) in payment of the amounts contributed to the construction of the Bella Vista property by David, Sasha and the Samyias and in payment of the profit to be received by each of them from the sale; and (4) the Samyias pay the amount otherwise payable to David in accordance with (3)(c) into court pending the taking of an account in accordance with order 5, which was as follows:

5. An account be taken by an Associate Judge between the plaintiff [Milovan] and the first defendant [David] in respect of:
(a) the disposition of all monies [sic] obtained for the purpose of the development of a dwelling upon [2 Tea Tree Way]; and
(b) the disposition of the proceeds of sale of the said property.

5 The balance of the summons – including Milovan’s claims in respect of Bella Vista – was dismissed. The Court noted the agreement of the parties that, for the purpose of order 3(c), the amount contributed to the construction of the Bella Vista property by David was $57,613.86 – which corresponded with the balance outstanding of the amounts originally drawn down from the Suncorp-Metway line of credit, after reduction from the proceeds of 2 Tea Tree Way and before the redraw for the purposes of Bella Vista. As has subsequently become apparent, however, the orders of 17 October 2005 did not resolve what appears to be the fundamental issue, namely whether Milovan or David was entitled to the proceeds of 2 Tea Tree Way: Milovan contends that he was entitled to the proceeds of 2 Tea Tree Way after repayment of the line of credit; while David contends that he was entitled to those proceeds (“the entitlement issue”).

6 The Bella Vista property was ultimately sold in July 2006, and the Suncorp-Metway line of credit discharged in full from the proceeds. The sum of $57,000 approximately was paid into court – no further sum on account of profit entitlement has been paid in, David says because there were no profits. It is common ground that all funds borrowed for the purpose of the development of 2 Tea Tree Way have now been repaid, from the proceeds of 2 Tea Tree Way and ultimately also from the proceeds of the Bella Vista property. It is also common ground that upon sale of 2 Tea Tree Way, there was no surplus available for distribution, all the proceeds being applied to reduction of debt. And it is further common ground that the $17,000 advanced by Milovan has not been repaid to him.

7 The proceedings thereafter had an unhappy procedural history. Directions in connection with the taking of accounts were made – first on 11 November 2005, by consent but without admission by David that he was liable to provide the accounts directed, or to pay any amount to Milovan in consequence of the dealings the subject of the accounts, or to pay any of the costs incurred. The directions were in the usual form, requiring David to serve his verified account, in an appropriate form, granting liberty to each party to examine the other on interrogatories, providing for Milovan to serve his surcharges, falsifications and objections, for vouching to be done out of court and adjourning the proceedings for the purpose of fixing a date to proceed on the enquiry. Much of the subsequent history is summarised in my judgment of 4 July 2007 on Milovan’s (successful) application to vacate the hearing, which had been appointed to commence on 12 July for 2 days [Stankovic v Stankovic [2007] NSWSC 814]. As I then indicated, it had taken many months and required many indulgences for David to file his affidavit of accounts. Milovan belatedly filed an affidavit purporting to set out his objections, and appeared unrepresented – as did David – to seek an adjournment, claiming that poor health had prevented him from issuing subpoenas that he said were necessary. I made further directions to prepare the matter for hearing, indicating that if they were not complied with, the parties were at risk of the proceedings being dismissed or proceeding by default.

8 The situation had not improved by 31 August 2007, save that Milovan had secured legal representation. I extended time for compliance with the earlier directions. A further extension was granted to Milovan on 9 November. On 14 December 2007, Milovan’s affidavit of objections, surcharges and falsifications sworn 13 December 2007 was filed, and I set the matter down for hearing on 25 March 2008 for two days, and made directions for the service of any further affidavits by either party by 8 February. No such further evidence was served. On 14 February 2008, I granted leave to Milovan to administer interrogatories – despite his not having taken advantage of previous opportunities to do so – and afforded him yet another opportunity to issue subpoenas. On 4 March, I extended time for the interrogatories to be answered, and David belatedly answered them.

9 The hearing commenced before me on 25 March and continued on 27 and 28 March. For reasons explained in my judgment of 28 March [Stankovic v Stankovic [2008] NSWSC 425], despite the rather egregious defaults, I took a liberal approach to the reception of late evidence in the hope that it would facilitate the expeditious and final resolution of this unhappy family dispute; but in the light of Milovan’s insistence, by his counsel, that he should have an opportunity to investigate by subpoena the extensive material produced on the first day of the hearing without prior notice by David – which on its face appeared to provide convincing support for his case that payments to Craftwork Carpentry had been by way of reimbursement for expenses paid by Craftwork in connection with the development of 2 Tea Tree Way – I acceded to Milovan’s counsel’s opposition to my proposal that I proceed there and then to resolve the entitlement issue, and instead adjourned the hearing, part-heard, to resume on 5 May. At Milovan’s counsel’s request, I appointed yet another date for return of subpoenas in the meantime.

Application to re-open original orders

10 I have had to record the procedural history of the matter, to that extent, to provide the context for the events of 5 May, when Milovan’s counsel announced that Milovan had, ten minutes earlier, terminated her retainer and that of her instructing solicitor. Milovan sought to explain that he had terminated the retainer of his lawyers, first because they had not issued subpoenas to the various payees of cheques drawn on the Craftwork Carpentry account to permit him to verify that payments had been made as alleged by David; and secondly because he wished to apply to have the consent orders of 17 October 2005 re-opened on the basis that they had been made “corruptly” – in that they were said to have been arranged by his former solicitor (not the solicitor who was acting for him up to 5 May), without his authority or consent.

11 Although Milovan made no formal application for an adjournment, I gave consideration to whether I should entertain that course. I indicated that, in light of the history of the matter, I proposed to proceed with the hearing. I had, in the course of the proceedings to that point, both before and during the hearing, repeatedly indicated that the proceedings had to be brought to a head and determined, and could not be left to linger on any longer, and that any party who defaulted was at risk of suffering the consequences. Moreover, so far as affording yet another opportunity to issue subpoenas was concerned, specific appointments for return of subpoenas to be issued on behalf of Milovan had been made in directions made on 13 June 2007 (subpoenas may be made returnable on 4 July 2007), 4 July 2007 (appoint 1 August 2007 for return of subpoenas), 31 August 2007 (appoint 20 September 2007 for return of subpoenas), 14 February 2008 (appoint 27 February for return of subpoenas), 4 March 2008 (adjourn subpoena to 14 March 2008), 14 March 2008 (adjourn subpoena to 25 March), and 28 March (appoint 21 April for return of subpoenas). It could not seriously be suggested that Milovan had not been afforded more than ample opportunity to obtain documents on subpoena. Insofar as it might be said that this was not so in relation to the investigation of the material produced belatedly by David on 25 March, the appointment for 21 April was specifically for that purpose. Milovan says that his lawyers declined to issue subpoenas to all the payees because it would be too expensive. In the light of other material available, to which I shall come, it seems to me that if indeed they took that course, that was a responsible forensic judgment in the circumstances. Milovan contends that the payments to Craftwork were in fact a means of hiding profits on 2 Tea Tree Way, but other material points strongly against this. The other material to which I refer is comprised in the Craftwork Carpentry cheque butts (DX06) which identify the payments made by Craftwork Carpentry, and the suppliers’ invoices to Craftwork (DX18), an examination of which corroborates most (just under $50,000) though not all of the cheque butts (which total just over $70,000). Examination of the invoices – many of which correspond not only in dollars and cents with the cheque butts, but bear “PAID” stamps and are cross-referenced to the cheque numbers – reveals that payments were made by Craftwork as David contends.

12 Further, even if the payments to Craftwork were not shown to be reimbursement for payments by Craftwork in connection with 2 Tea Tree Way, that would only have practical significance – given that the whole of the Suncorp-Metway line of credit has since been repaid from the proceeds of 2 Tea Tree Way and Bella Vista – if Milovan was entitled, in whole or in part, to the proceeds of sale. If David alone is entitled, then the circumstance – if it be the case – that some of the loan moneys were applied for some separate purpose of his, would make no difference to Milovan’s position. Accordingly, any need to investigate further the application by Craftwork of the funds paid to it from the Suncorp-Metway line of credit does not justify deferring determination of the entitlement issue, and if that issue is determined against Milovan, further investigation would be irrelevant.

13 As to the application to re-open the orders of 17 October 2005, Milovan’s purpose was to make a claim in respect of (1) the profits from Bella Vista, and (2) losses incurred by him in respect of a proposed development of President Avenue. As has been mentioned, the Bella Vista development was funded, in part, with some $370,000 redrawn by David from the Suncorp-Metway line of credit in September 2004. It appears uncontroversial that this was done, initially, without Milovan’s agreement; but it is also uncontroversial that the line of credit has been repaid, from the proceeds of Bella Vista. Milovan wishes to contend that David “stole” these moneys, and to claim an interest in the “profit” on Bella Vista. Such a case would require, at the least, that Milovan establish that David was not entitled to use the line of credit for the purpose of funding the Bella Vista development. While I will consider this when I come to the entitlement issue below, nonetheless if one assumes that Milovan has a triable case on that issue, the question remains whether the orders of 17 October 2005, which by consent dismissed Milovan’s claims in respect of Bella Vista, could or should be set aside. Those orders were final orders, and, though not made after a contested hearing, were made with the intent of disposing of that part of the case. They involved and affected persons other than the remaining parties, and in particular the Samyias. They required certain action to be taken (in respect of completion and sale of Bella Vista), which has now been performed. There has been no hint, until 5 May 2008, of any suggestion that they should be reopened. Milovan accepted that it was always intended that the line of credit remain available, after completion of 2 Tea Tree Way, for a further development, the profits of which, on any version, were to be David’s. Milovan made no contribution to the development of Bella Vista. The intent and effect of the consent orders was to excise the Samyias and Bella Vista from the dispute, and to limit the on-going dispute to 2 Tea Tree Way, recognising that Bella Vista would be treated as entirely to David’s account – save that any return of contribution or profit he derived from it would be preserved to satisfy any claim that Milovan might have in respect of 2 Tea Tree Way. This was a practical solution to the problem, which enabled the litigation in respect of Bella Vista, involving the Samyias, to be concluded, and the dispute limited to 2 Tea Tree Way.

14 As to President Avenue, Milovan foreshadowed that he wished to bring a claim in respect of losses that he claims to have suffered by reason of the Suncorp-Metway line of credit not remaining in place and available for him to draw against to fund the development of President Avenue. He says that as a result he has been unable to develop President Avenue. Until 5 May, there had not been the slightest suggestion, in the proceedings or in the more contemporaneous correspondence between solicitors prior to proceedings, that the line of credit was intended to be available to fund a development by Milovan of President Avenue. Indeed, such a suggestion would have been contrary to the thrust of Milovan’s case, that (initially) the line of credit was obtained at David’s request to fund his proposed development of 2 Tea Tree Way, the profits of which were to be David’s; and (subsequently) that though the profits of 2 Tea Tree Way were to be Milovan’s, the line of credit would then be used to fund a subsequent development of another property by David. Although Milovan had suggested that the amount of the line of credit facility obtained exceeded the anticipated costs of the 2 Tea Tree Way project in order to provide some capacity for Milovan to draw on it for his own purposes, that is implausible: as (initially, on any view) David was to be entitled to the proceeds of 2 Tea Tree Way after repayment of the line of credit, it would enable Milovan to deplete David’s profits by his personal expenditure. Even on Milovan’s version, if he became entitled to the profits from 2 Tea Tree Way, he at least accepted that the line of credit was then to be used to fund another development for David’s benefit. There is no room for funding development of Milovan’s President Avenue property in this scheme. And if I were to accept David’s version of the arrangements in respect of the line of credit and 2 Tea Tree Way, there would be no scope for Milovan drawing on the line of credit for purposes of his own – including development of President Avenue.

15 Milovan says that the orders of 17 October 2005 were negotiated and concluded by his then solicitor without his authority. If so, it would be extraordinary that this complaint had not been raised in the two-and-a-half years that have since passed. It is true that the consent orders appear to have been signed only by the lawyers on each side and not by Milovan personally, but that is of course quite unexceptional. The contemporaneous correspondence between the solicitors indicates nothing but vigorous pursuit by his solicitor of Milovan’s position and interests. As I have foreshadowed, save that they did not resolve the entitlement issue, the orders of 17 October 2005 represented a sensible and practical solution to the problem that then presented itself, enabling the Bella Vista property to be completed, the line of credit repaid, the Samyias extracted from the litigation, and a fund preserved to satisfy the competing claims of Milovan and David to the profits of 2 Tea Tree Way. I am quite unprepared to act on this very belated assertion that the orders were made without Milovan’s true consent, let alone “corruptly”, as he put it.

16 Accordingly, even if it were open on this hearing to re-open and set aside the orders of 17 October 2005, it would be entirely inappropriate to do so.

The entitlement issue

17 As has been foreshadowed, while the orders of 17 October 2005 provided for the taking of an account in respect of the disposition of all moneys obtained for the purpose of the development of 2 Tea Tree Way, and the proceeds of its sale, they did not address the entitlement issue. David contends that he was entitled to the net proceeds of 2 Tea Tree Way, and thus that Milovan’s expenditure of funds for his own purposes has reduced what ought to have been available to David. Milovan’s response is that he was entitled to the net proceeds of 2 Tea Tree Way, and incidentally to expend moneys from the line of credit on his own personal expenditure if he wished, and that expenditure on Bella Vista was unrelated to Tea Tree Way and unauthorised. In essence, he contends that the effect of David’s using funds from the line of credit for purposes other than the development of 2 Tea Tree Way was to reduce (and indeed extinguish) the surplus that ought to have been available on its sale for his benefit. In addition, Milovan claims the return of the $17,000 that he contributed. As which party is liable to account to the other is dependent upon who is entitled to the proceeds of 2 Tea Tree Way, the entitlement issue must be resolved in these proceedings.

18 Milovan’s evidence was to the effect that, after an initial proposal by David that a company be established, in which Milovan was to have 49% of the shares, to buy land and build houses using President Road as security to raise funds – which he rejected on the basis that if his home was to be security he wanted to have control of the money – Milka, David and a finance broker had a conversation with him at President Road to the following effect:

David: Can you help me. We can borrow money secured against President Road. We can buy a block of land, build a house, sell it and then keep on doing the same again, one by one?
Milovan: That is alright with me provided you agree to my conditions. First, I must control the money because of what happened before with Sasha. Second, you have to finish your training to get a builder’s licence. Third, you have to stop smoking. And fourth, Milka and I are to have just the one bank account. I do not want any more of her secret accounts where she puts money that I do not know about.
David: I agree.

19 Milovan says that a few weeks later Milka approached him and said: “Let’s go to the bank”; they did so and opened a joint account, into which her wages were thereafter banked. A short time later David approached him and said: “Now all your conditions are satisfied, we can go ahead with the plan”. David, Sasha and Milovan then looked for land – although Sasha was not involved in the arrangements, he wanted to buy land for his own purposes – and eventually they found two adjacent blocks at Kellyville, 2 Tea Tree Way and 4 Tea Tree Way. Milovan says that he and David together purchased 2 Tea Tree Way in David’s name for $173,000, and obtained a line of credit from Suncorp-Metway for $430,000, secured on President Road.

20 In the course of cross-examination, Milovan said that the rationale of the arrangement was “to help [David] stand on his own”, and that “if the agreement was kept, [David] would have the profit, but if the agreement was not kept, [he] would be out of it”. When pressed by David as to whether it was part of the agreement that the profit [from 2 Tea Tree Way] was for David, he repeatedly answered to the effect “No, if you did not keep the agreement. If the agreement was kept, you will have the profit 100%”. Milovan’s belief was that once the agreement was breached the profit was his to keep. But when asked whether that understanding was made clear from the outset, he answered “No, only from the breach”.

21 Milovan says that, after construction commenced, disagreements emerged between David and him. He contended that David was not adhering to the “conditions”: he withdrew $50,000 from the line of credit for his own purposes (although it was repaid to the line of credit almost immediately); and did not complete his training for a builder’s licence. (Although there was an allegation that he did not comply with the “no smoking” condition, I am unpersuaded of this; similarly, although it was submitted, with reference to an answer given by Milka in cross-examination, that she retained a separate account into which her wages were paid, I think her answer was simply imprecise, in that what she referred to as “her” account was in fact the joint account, opened as a result of the arrangements, into which her wages were paid, and from which Milovan retained $10,000 upon separation). As a result Milovan, who held the chequebooks, caused work to stop – and works remained suspended for between a year (on Milovan’s version) and 23 months (on David’s version).

22 Milovan says that towards the end of the period of suspension of works, there were further discussions between him and David, in which Milovan proposed that construction recommence, that he would retain the profit from 2 Tea Tree Way and use it to build a house at President Road, and that the line of credit would remain in place so that David could use it to fund the purchase and development of a second block of land and a home on it, and that David would retain the profit from that second block. Milovan says that David agreed and that they shook hands and kissed on the balcony at the front of the first floor of 2 Tea Tree Way. Construction recommenced. In his evidence in chief, Milovan (expanding on his affidavit) said that prior to the recommencement of works, he told David that if David completed the construction using the $80,000 in the line of credit, Milovan would retain the profit of 2 Tea Tree Way to build a house in President Road, but they would then buy a second block of land for David to develop for his own profit. Why Milovan would agree to David having the profits of the proposed second property but not the first, when he was not adhering to Milovan’s conditions, was not explained. Later, in his cross-examination, Milovan gave this evidence:

HIS HONOUR

Q. Why did you agree to the construction recommencing?
(No answer.)

FIRST DEFENDANT

Q. It is a simple question.
A. I agree to construction recommence. This purpose that was sitting for a year or two, I don't know, and they come, both of them, they come to me to tell me that they was worry that this house been deteriorating and we will lose our property and they wanted to complete the – complete, the money – complete the house.

Q. Did you say property in Eastwood?
A. Did I said in Eastwood. If I said, I mean property in Kellyville.

Q. Which property?
A. That's why you came, my reason.

HIS HONOUR

Q. Forget about why he came, why did you agree?
A. The house to continue, the house to be continue to be finish.

Q. Why? You told me a few minutes ago you didn't think it was deteriorating at all. Why did you agree?
A. Because I want house also to be finish, to be completed.

Q. Why?
A. Why, to not to stay any longer like that.

Q. What was in it for to you for the house to be completed?
A. What was it?

Q. What benefit was to you for the house to be completed?
A. Well, the benefit there that we finish that house to develop the next project, was to build a house in Kellyville and develop a property in Kellyville.

Q. And that profit of the next house was going to be David's. What is the benefit to you of the first house to be completed?
A. The profit was still mine at this stage – to go to David, but when they stop, when they stop the second time again, when reconstruct the garage, that time was change that he will not get the profit. He breach the, even the last agreement that I reconstruct the garage, and I have a drawing of the design, and they did not follow the Council, the Council approval .

23 If Milovan was to be entitled to the profits, there was of course every reason to recommence works, but he did not advance that as a reason. The sense of the last answer above is that David was still to be entitled to the profits when works recommenced, but somehow lost that entitlement as a result of some later supposed default.

24 David denied that the profits of 2 Tea Tree Way were to be split equally between himself and Milovan, saying “That was never the agreement between myself, Milovan, Milka my mother were to be guarantors of the loan. All proceeds, all losses from the sales of 2 Tea Tree Way were solely for myself”. He maintained that the original arrangement was not in the nature of a partnership, but that Milovan and Milka were merely guarantors, and that any profits (and losses) were to his account alone.

25 David agreed that, prior to the recommencement of works on 2 Tea Tree Way, there were further conversations between him and Milovan. But he denied that during those conversations Milovan said that he would only agree to continue with 2 Tea Tree Way if he was to have all of the profits from it, and he denied that Milovan said that while he would take the profits from 2 Tea Tree Way, the line of credit would be used to fund a subsequent development from which David was to receive the profits. He agreed that Milovan said something to the effect that the current balance in the Suncorp-Metway line of credit – then about $80,000 – was to be used to complete 2 Tea Tree Way.

26 Milka’s evidence was that in a conversation at President Road between Milovan, David and herself, David asked if they could guarantee him as he wanted to go into business to buy and build a house, and Milovan responded: “I don’t want any profits, that’s all for you because we got enough” – a reference to the five acres at President Road. In cross-examination, when asked what conversations she observed in relation to the control that Milovan sought to exercise in relation to 2 Tea Tree Way, Milka said: “From the beginning that was David’s project, he [Milovan] was only guarantor, but he wanted to be in financial control. Later he just – David had a girlfriend at the time, he wanted David to finish with his girlfriend. Then he wanted us to open a joint account which is like, like I said yesterday – on Tuesday sorry, only my wages going in. He had a separate pension going into the Commonwealth Bank and my wages was going into the ANZ bank, that was it”. She said that Milovan had not initially insisted that he be in financial control of the development, but subsequently did so. She agreed that Milovan had stipulated, as one condition on which he would participate in the development, that David give up smoking (but she added that he did not smoke), and another was that David obtain a builder’s licence (to which she added that David was going to tech college at the time). She agreed that the four “conditions” – Milovan to have financial control, David to obtain a builder’s licence, David to stop smoking and Milka to have her funds in a joint account with Milovan – were identified before the development of 2 Tea Tree Way commenced. And she agreed that David heard the conditions stated, and that Milovan never relented from them. But when it was suggested that they had discussed leaving the line of credit open so that “they would carry out a series of developments” using the line of credit, she said: “There is only David’s project. It was only as a guarantor for – no partnership, nothing of this. This was only for David because he [Milovan] always stated ‘we got enough, we have got five acres in Kellyville’. This was David, business for David”.

27 Milka agreed that after works ceased, there were subsequent discussions between Milovan and David, in which Milovan said that he was unhappy because his four conditions had not been met. But she denied any knowledge of his then saying to David that he would now continue only if he (Milovan) were to receive all the profits of 2 Tea Tree Way, and maintained that Milovan consistently said: “David I got plenty for us, we have five acres, I am a millionaire. … This was business to carry on for the future”.

28 Sasha gave evidence that, in the initial discussions, Milovan had said: “David, this business is for you. I have got five acres in Kellyville, they are worth $10 million, I don’t need the money”. He said that such conversations took place on many occasions. Although he sought to say several times that Milovan had agreed that he would “go guarantor with Milka”, he added that it was “really hard” to recall the exact words, and could not specifically recall use of the word “guarantee” or “guarantor”. His best recollection was that David said to Milovan something to the effect: “You and mum can lend me the money using the property at Lot B President Road as collateral and the money from 2 Tea Tree will come to me”, to which Milovan responded: “Yes, but because of your age I want to be the financial controller and have the overview of the project. I want to make sure that the money is being spent towards the project”. It is of some significance that, in an affidavit sworn on 13 October 2005, when it was not so apparent as it now is that entitlement to the profits of 2 Tea Tree Way was the central issue, Sasha attributed to David a conversation in which David related the terms of the arrangements, including: “He is only going to be the financial controller – the profit from the house is for me”.

29 From the above, a substantial amount of common ground can be derived. First, the idea of raising funds on the security of President Road for the acquisition and development of a property was David’s, supported by Milka (who by then was estranged from Milovan). Secondly, the rationale was to help David get established. Thirdly, all agree that initially, the profits from 2 Tea Tree Way were to be David’s. Fourthly, Milovan specified a number of conditions for his agreement, to which David (and Milka) assented. Fifthly, after works had commenced, Milovan formed the opinion that David was not complying with the conditions, with the result that works were suspended (because Milovan, who controlled the cheque books, would not release funds). Sixthly, further discussions then took place as to the basis upon which works might resume, and culminated in their resumption.

30 The line of credit was in the name of all three – Milovan, Milka and David. Absent more, the use of funds drawn on that line of credit for the acquisition or improvement of 2 Tea Tree Way would have given rise to a resulting trust in equal one third shares between them. However, there is more. First, there is the circumstance that David was the son of Milka and Milovan, which would attract the presumption of advancement. Secondly, there are the arrangements made between them, which establish an actual intent – which will prevail over the presumed intent of a resulting trust or advancement – that the profits would be David’s. Milovan’s explanation – that the property was put in David’s name because David wanted to ensure that Milovan had no rights to stop him if he did “something wrong” in the construction and use of the line of credit – is unconvincing, given Milovan’s initial retention of the cheque books and his role as financial controller. In the context of the rationale of the agreement being to help give David a start, the acquisition of the property in David’s name is far more consistent with the presumption of advancement that would otherwise apply.

31 I conclude that 2 Tea Tree Way was beneficially the property of David. I am satisfied that the actual intention of the parties was that David be entitled to the proceeds of 2 Tea Tree Way, but that he was liable to indemnify Milovan and Milka in respect of the Suncorp-Metway line of credit. I am also satisfied that Milovan’s role as financial controller did not entitle him to draw on the line of credit for his own separate purposes, so as practically to reduce the profit to which David would otherwise be entitled: such an entitlement would be fundamentally inconsistent with David’s entitlement to the property and profits, because it would place his entitlement entirely at the whim of Milovan’s personal expenditure. Milovan suggested that more than was necessary to fund the development of 2 Tea Tree Way was borrowed, in order to provide additional funds for his own use, including on the redevelopment of President Avenue, but no version of the relevant conversations included any reference to any such proposal, and I am unpersuaded to accept it.

32 In the written submissions prepared on behalf of Milovan by his counsel before her retainer was terminated, it was argued that the conditions were breached, in that David made unauthorised drawings on the line of credit (in particular, the $50,000) and failed to obtain his builder’s licence, and that Milka maintained her own separate ANZ account. Milovan would add that David continued to smoke.

33 I do not accept that David breached any condition by drawing the $50,000, which was almost immediately returned. It is not essential to the concept of Milovan being the ‘financial controller’ that David would be unable to draw on the line of credit. I also do not accept that Milka maintained her own separate bank account – although it is true that there is a passage in her cross-examination which could be interpreted as a concession to that effect, overall the evidence is plain that after the arrangements were made her wages were deposited into a joint account – from which Milovan withdrew $10,000 upon separation – in place of her former separate account. Nor does the evidence establish, on the probabilities, that David smoked. However, David conceded that he ceased the builder’s licence course for a period during the construction of 2 Tea Tree Way, although he later resumed it part-time, and cessation of the course, even for a period, is inconsistent with his undertaking to complete the course. In that respect, there was a breach of the condition.

34 What are the consequences? Even if, as David submits, Milovan’s true motivation for suspending works was his displeasure at David’s then relationship with a non-Serbian girl, if there was a ground available for suspending works he was entitled to act on it, even if it was not the dominant reason for his decision to do so. If Milovan was entitled to treat the breach of the “condition” as repudiatory, he may have been entitled to withhold further financial support, and to withdraw the security he had provided for the Suncorp-Metway line of credit. But that does not mean that somehow he became beneficially entitled to 2 Tea Tree Way or its proceeds. The original arrangements contained no express reference to Milovan becoming entitled to the property or the profits in the event of David breaching any of the conditions. Milovan’s version of the conversation contained no such reference. That reinforces his concession in cross-examination, referred to above, to the effect that liability to forfeit the profits was not made clear at the outset, but only subsequently when the conditions were (allegedly) breached.

35 A change in the beneficial entitlements could conceivably have been effected by subsequent arrangements between the parties – for example, as a result of the conversations in connection with resumption of works. However, Milovan’s evidence, set out above, that even at this stage the profits were to be David’s in the first instance, detracts from acceptance of his version. Moreover, when the parties resorted to lawyers in October 2004, Milovan’s claim was directed to obtaining the return to the Suncorp-Metway line of credit of the moneys which David had taken and paid to Craftwork Carpentry to fund the Bella Vista development. In the course of that correspondence, on 5 November 2004 Milovan’s then solicitors wrote to David’s then solicitors relevantly as follows:

As you are aware in circumstances where funds have been misdirected in a partnership arrangement, an aggrieved partner has the right to approach the court to seek an accounting be carried out. At this stage our client does not seek to claim profit from the project merely the return of the moneys drawn in the sum of $430,000 and also a reimbursement of the $17,000 which our client has further injected into the project . Furthermore he requires the return of his tools which were appropriated by David and which are being used on the Bella Vista Waters project.

36 Milovan’s attempts to explain away that statement were unconvincing. In cross-examination, he gave this evidence:

Q. Now, I'm going to show you your affidavit of 21 September 2005, and at page 26 of that affidavit there's a letter from Kartounis & Co to Sheathers & Associates dated 5 November 2004, and I want you to read to yourself the fourth paragraph of that letter commencing "as you are aware". I'll just put a highlight on the part I want you to read (shown). So just read that to yourself.
A. (Witness complied.)

…

Q. You've read that?
A. Yeah.

Q. Now, in that letter your solicitor says that at that stage you were not claiming a profit. You see that?
A. Yeah, I read that, yeah.

Q. Now, did you at some stage change your mind about that and decide to claim a profit?
A. What I said this time of this, when he was writing, he was asking me also the profit of the property to whom to do, and I said I agree if the condition are kept, David to have profit of the property.

Q. At some stage after 5 October 2004 did you change your mind and decide to claim a profit?
A. Yes, when they withdraw – when they withdraw the whole amount second time from Suncorp loan and we put case in the court that I'm – I wanted to have everything, profit interest and everything.

Q. But that withdrawal had already taken place before 5 October 2004; it took place in about August or September 2004.
A. I can't – I can't remember. I know that I talked to him and I know that we mentioned $17,000, and this is when they took the money only. That's a genuine one, that I wanted to have a profit and everything towards me.

37 And in his final oral submissions in reply, he said:

PLAINTIFF: I forgot, the last time in my affidavit there was letter from Kartounis in my affidavit – after I – after your Honour give me that to read. I read that, it was my signature there, and I say it is there, you know, but I never have that letter with me anywhere and I said to my solicitor outside straight away I said that piece of paper was only for Kartounis, that was not a letter to be put in my affidavit, that was letter when I have – when Kartounis was asked for me when I just ask them to return the money and not to go to the Court so but Hodges find that inside, I signed that letter for them just to return the money and if they return that money, your Honour, $430,000 plus 40 plus 17 that 30 and $30,000 and 17 will be in the money when they return it. I don't know that I'm clear or not.

38 Next, it was at the time of this conversation that the cheque books were handed over by Milovan to David, who thereafter controlled the cheque books (except occasionally when replacement cheque books were forwarded by the bank to Milovan’s address). The handing over of control of the cheque books to David is hardly consistent with Milovan being beneficially entitled to the profits of the project. Milovan said that they were handed over on David’s insistence that his occasional unavailability due to illness or absence interfered with progressing the works, but this makes no sense if it were Milovan who was beneficially entitled.

39 Then, it is manifestly clear that (save for the advances of $17,000 which on any view are repayable to him), Milovan made no financial contribution to 2 Tea Tree Way, and bore and has borne no responsibility (as between the parties) for servicing the line of credit, let alone the RAMS loan. To the extent that interest on the line of credit had to be serviced, it was serviced by David, via Craftwork Carpentry.

40 Finally, the property of course remained, as it had always been, in David’s name.

41 I do not accept that there was any change to the beneficial entitlements as a result of discussions at about the time of recommencement of works. There is an inherent unlikelihood about David having assented to a change in the arrangements in respect of 2 Tea Tree Way to his disadvantage, effectively ceding to Milovan his entitlement to any profit, yet bearing the burden of funding it – including himself obtaining the additional finance from RAMS, working on the building project without remuneration, all while the property remained in his own name, and Milovan made no financial contribution and remained in receipt of a pension.

42 Accordingly, David remained beneficially entitled to 2 Tea Tree Way, and its proceeds upon sale, but was liable to indemnify his co-borrowers in respect of the line of credit. As David has repaid the line of credit from the proceeds of 2 Tea Tree Way and subsequently Bella Vista, he has performed his obligation of indemnifying Milovan in respect of the line of credit. Moreover, in doing so he has also repaid the amounts drawn by from the line of credit for Milovan’s separate purposes unrelated to 2 Tea Tree Way, and Milovan should therefore reimburse David for the amounts of those (unrelated) drawings. That will require closer examination of David’s account, to which I shall in due course come.

Disposition of proceeds of sale of 2 Tea Tree Way

43 David’s account of the disposition of the proceeds of sale of 2 Tea Tree Way attributed $25,000 to agents’ commission, advertising and legal costs and expenses of sale, $270,000 to discharge of the RAMS loan including interest, and $395,000 to reduction of the Suncorp line of credit. Milovan produced a settlement sheet, which shows $25,184 paid for agents’ commission and selling costs, $936.44 for conveyancing adjustments on sale, $267,544.34 paid to RAMS, and two cheques totalling $396,977.88 paid to Suncorp.

44 Milovan’s version is established by contemporaneous documents and I prefer it as the more accurate version, although I am unpersuaded that anything turns on the differences, since, far from establishing that there were any net proceeds available, on both versions the proceeds were insufficient to extinguish the whole of the related borrowings, leaving about $57,000 outstanding on the Suncorp-Metway line of credit.

The $17,000

45 David acknowledges that the two advances made by Milovan of $10,000 and $7,000 respectively were repayable to his father, although he suggested that he should not have to repay them to Milovan – because, at the time of their separation, Milovan took, from the joint account with Milka, about $10,000, representing her accumulated savings from her wages – but would be happy to give the money to his mother. However, whatever might be the rights and wrongs of those dealings between Milovan and Milka, it is not open to David to refuse on that basis to repay moneys owed by him to Milovan. David is liable to reimburse to Milovan the sum of $17,000.

Disposition of moneys obtained for development of 2 Tea Tree Way

46 David’s account of the disposition of all moneys obtained for the purpose of the development of 2 Tea Tree Way proceeded on the basis, which was not disputed, that what was in issue was the moneys drawn from the Suncorp-Metway line of credit. His account appears to itemise every cheque drawn on the line of credit. It does not itemise interest and other bank charges, but there was no suggestion that it omitted any relevant expenditure. He accounted for expenditure totalling $640,619, allocated to the following categories:

· to the purchase of 2 Tea Tree Way and its construction, $255,945, plus $183,000 for the original purchase price which was debited without a cheque being drawn;

· to the construction of the Bella Vista property, $59,527.71;

· to unrelated personal expenses of Milovan, including rates for President Road, $53,460.96;

· to unrelated personal expenses of David, $4,738.00;

· to moneys paid to Craftwork Carpentry, allegedly for construction of 2 Tea Tree Way, $70,362.04;

· to construction of the balcony at 2 Tea Tree Way, allegedly insisted upon by Milovan, $1,125.00;

· to advances to Sasha, since repaid to David, $5,460.70;

· to advances to Sasha, not repaid, $2,500.00;

· to a car for Milka, $4,500.00.

47 As David has repaid the line of credit, in circumstances where he was beneficially entitled to the profits, and Milovan has been indemnified in respect of the line of credit, it is unnecessary to consider those items in the account which relate to payments made or allegedly made for David’s separate purposes unrelated to 2 Tea Tree Way. Even assuming that all were resolved adversely to David (as unrelated to 2 Tea Tree Way), they have been repaid from the profits to which he was entitled; accordingly there is no occasion to scrutinise more closely those payments.

48 It remains to consider, therefore, those items of expenditure from the line of credit by Milovan which are alleged to have been for his separate purposes, and which might therefore have diminished David’s beneficial entitlement – because, to the extent that such expenditure is established, Milovan would be liable to account to David. David’s account identified expenditure totalling $58,027.27 in this category. Milovan agreed that he had drawn funds on the line of credit for his own separate benefit, estimating that the amount so drawn was between $35,000 and $70,000. In David’s account, these items represent charges by David against Milovan, which Milovan disputes; accordingly Milovan’s objections to them are in the nature of falsifications, and on them David bears the onus of proof. However, there is no question that the expenditures in question were made by Milovan – the relevant cheques were signed by Milovan, and he does not dispute that he made the expenditure. Where there is an issue, it is as to the application by Milovan of the payments in question. And as it was Milovan who made the questioned payments, he is in a superior position to explain their application, so that in the absence of an acceptable explanation by him, it will not take much for David to discharge the onus that he bears.

49 Milovan was taken in cross-examination to each of the relevant items, and conceded that items totalling $33,911.01 (cheques 23, 27, 35, 36, 45, 816, 823, 733, 734, 79, 80, 81, 86, 89, 90, 92, 95, 99, 100, 101, 106, 107, 109, 176, 217 and 218) were for his separate purposes, unrelated to the development of 2 Tea Tree Way. The charges against Milovan in respect of those items will therefore be allowed.

50 Of the remaining items, cheques 21, 26, 42, 47, 822, 731, 76, 77, 83, 84, 87, 91, 97, 98, 102, 103, 104, 105, 110, 111, 113 and 219 – totalling $17,044.50 – were in respect of purchases of timber, usually at auction. Milovan contended, and David disputed, that these purchases were of timber for internal works at 2 Tea Tree Way. There is a strong circumstantial case that they were unrelated to 2 Tea Tree Way: almost all of them were incurred after the suspension of works in or about July 2001, by which time the timber frame had been completed. Milovan’s only basis for asserting that this expenditure was for the property was that he had written “timber” or “wood” on the cheque butt; cross-examination established that a considerable portion was used on Sasha’s house at 4 Tea Tree Way; and Milovan conceded that some of the timber he purchased was delivered to his President Road property. Given that almost all of the purchases took place while work on 2 Tea Tree Way was suspended, Milovan’s concession that not all the timber purchased by him was used on the property, and his inability to identify any particular payment that was applied to 2 Tea Tree Way, more probably than not most of these purchases were unrelated to 2 Tea Tree Way. However, David in effect acknowledged that up to $3,000 might have been spent on additional timber for 2 Tea Tree Way. I will therefore allow these charges against Milovan to the extent of $14,044.50, and disallow $3,000.

51 A further $1,125 (cheques 666817, 665732, and 120) – said to relate to construction of the balcony at 2 Tea Tree Way insisted upon by Milovan but not desired by David – was nonetheless a contribution to David’s property from which David has ultimately benefited, and not for Milovan’s separate purposes. Those charges will be disallowed.

52 Other items (cheques 45, 735, 798, 93, 94, 96, 108, 112, and 113), totalling $5,144, were for unspecified auction expenses which Milovan was unable to allocate to any particular purpose, though he said that they might have been for timber for 2 Tea Tree Way. As Milovan cannot identify what was the purpose of each of those expenditures by him, and there is nothing to suggest any connection with 2 Tea Tree Way, I conclude that David has justified these charges against Milovan, which will be allowed.

53 Cheque 817 ($150.00) was for architect’s fees in relation to alterations to the property on the insistence of Milovan, to which David said he did not agree. I am unpersuaded that, given Milovan’s role as financial controller, this should be regarded as an unauthorised expenditure related to the project, and that charge against Milovan will be disallowed.

54 Cheque 82 ($509) was for the supply of fences for 2 Tea Tree Way and was expenditure related to the project. Cheque 85 ($143.76) was for the telephone connection at 2 Tea Tree Way, and was expenditure related to the project. Those charges against Milovan will be disallowed.

55 It follows that Milovan is liable to account to David for the sum of $53,099.51 applied to Milovan’s unrelated personal expenses.

Conclusion

56 My conclusions may be summarised as follows.

57 Even if it were open on this hearing to re-open and set aside the orders of 17 October 2005, it would be entirely inappropriate to do so.

58 2 Tea Tree Way was beneficially the property of David. The actual intention of the parties was that David be entitled to the proceeds of 2 Tea Tree Way, but that he be liable to indemnify Milovan and Milka in respect of the Suncorp-Metway line of credit. Milovan was not entitled to draw on the line of credit for his own separate purposes, so as practically to reduce the profit to which David would otherwise be entitled.

59 If David breached one of Milovan’s conditions, and Milovan was entitled to treat the breach as repudiatory, he may have been entitled to withhold further financial support, and to withdraw the security he had provided for the Suncorp-Metway line of credit, but that did not mean that somehow he became beneficially entitled to 2 Tea Tree Way or its proceeds. There was no change to the beneficial entitlements as a result of discussions at about the time of recommencement of works, and David remained beneficially entitled to 2 Tea Tree Way, and its proceeds upon sale, but was liable to indemnify his co-borrowers in respect of the line of credit.

60 As David was entitled beneficially to the proceeds of 2 Tea Tree Way, subject to indemnifying Milovan in respect of the line of credit, he was also entitled to apply proceeds from 2 Tea Tree Way to Bella Vista, and to retain (free of any claim of Milovan) his share of the proceeds of Bella Vista. As David has repaid the line of credit from the proceeds of 2 Tea Tree Way and subsequently Bella Vista, he has performed his obligation of indemnifying Milovan in respect of the line of credit. In repaying the line of credit, David has also repaid the amounts drawn from the line of credit for Milovan’s separate purposes unrelated to 2 Tea Tree Way, and Milovan is therefore liable to reimburse David for the amounts of those (unrelated) drawings.

61 David is liable to reimburse to Milovan the sum of $17,000 advanced by Milovan.

62 Milovan is liable to account to David for the sum of $53,099.51 expended by Milovan from the line of credit for his own personal purposes, which David has repaid.

63 Accordingly, the moneys paid into court to the credit of these proceedings, which represented David’s contribution to Bella Vista, should be paid out to David, with accrued interest. When the $17,000 and the $53,099.51 are set-off, Milovan is liable to David for $36,099.51. About $10,000 of this was incurred in late 2004, but the rest had been incurred by May 2002 and some of it earlier. I will allow interest for four years from May 2004 at 9%, which amounts to $12,998.87. There will therefore be judgment for $49,055.38.

64 My orders are:

1. Declare that the first defendant David Stankovic was liable to indemnify the plaintiff Milovan Stankovic and the second defendant Milka Stankovic in respect of all liability which they might have under Suncorp-Metway line of credit XXX XXX XXX and subject thereto was beneficially entitled to the property situate at and known as 2 Tea Tree Way, Kellyville and the proceeds of its sale.

2. Order that the funds in court to the credit of these proceedings together with accrued interest be paid out to the first defendant.

3. Give judgment that the plaintiff pay the first defendant the sum of $49,055.38.

65 The first defendant has succeeded on the entitlement issue; on obtaining payment out to himself of the funds paid into court; and in obtaining an order for the payment of moneys against the plaintiff. In those circumstances, the plaintiff should pay the first defendant’s costs.

66 I order that the plaintiff pay the first defendant’s costs.

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