Sutherland v Hanna

[2004] NSWSC 900

CITATION:	Sutherland v Hanna [2004] NSWSC 900
HEARING DATE(S):	26/06/04, 29/06/04, 07/09/04, 08/09/04
JUDGMENT DATE:	30 September 2004
JUDGMENT OF:	Gzell J
DECISION:	Declaration that the bankrupt's interests in the properties vest in the trustee of the bankrupt's estate under the Bankruptcy Act 1966 (Cth), s 58 and that the trustee is entitled to be registered as proprietor of them. Cross claimant entitled to no relief under the second further amended cross claim.
CATCHWORDS:	BANKRUPTCY - Proceedings in Connection with Sequestration - Whether trustee of bankrupt's estate entitled to the bankrupt's interests under contracts for the purchase of land exchanged before his discharge and whether entitled to be registered as proprietor of the properties - Whether the bankrupt held the interests as bare trustee for the cross claimant wife of the bankrupt - Whether there was a resulting trust in favour of the cross claimant due to her contributions to the purchase price of the properties - Whether in light of those contributions there was a constructive trust in favour of the cross claimant
LEGISLATION CITED:	Bankruptcy Act 1966 (Cth)
CASES CITED:	Calverley v Green (1984) 155 CLR 242 Napier v Public Trustee (WA) (1981) 55 ALJR 1 Mercier v Mercier [1903] 2 Ch 98 Muschinski v Dodds (1984-1985) 160 CLR 583 Meagher, Gummow, Jacobs' Law of Trusts In Australia (6th edition) , Sydney, Butterworths, 1997
PARTIES :	Roderick Mackay Sutherland as Trustee of the Bankrupt Estate of John Hanna aka John Mhanna - Plaintiff John Hanna aka John Mhanna - First Defendant Eman Kamel Shonoda - Second Defendant
FILE NUMBER(S):	SC 5506/03
COUNSEL:	Mr J T Johnson - Plaintiff Mr V Gray - Defendants
SOLICITORS:	Sally Nash & Co Solicitors - Plaintiff Malcolm Johns & Co Lawyers - 1st & 2nd Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

THUESDAY 30 SEPTEMBER 2004

5506/03 RODERICK MACKAY SUTHERLAND AS TRUSTEE OF THE BANKRUPT ESTATE OF JOHN HANNA v JOHN HANNA aka JOHN MHANNA& ANOR

JUDGMENT

1 The first defendant, John Hanna, became bankrupt. The plaintiff, Roderick Mackay Sutherland, was the trustee of Mr Hanna’s bankrupt estate. While an undischarged bankrupt, Mr Hanna, as purchaser, exchanged contracts for sale of four parcels of land. He subsequently became the registered proprietor of the properties. The second defendant and cross claimant, Eman Kamel Shonoda, the wife of Mr Hanna, said that she and Mr Hanna had agreed that the properties would be hers. She made a cash contribution to the purchase price of the properties far in excess of that of Mr Hanna.

2 Mr Sutherland claimed that Mr Hanna’s interests in the properties vested in him as after-acquired property of the bankrupt and he was entitled to become the registered proprietor of them. Mrs Shonoda claimed that Mr Hanna held his interest in the properties for her absolutely as a constructive trustee or, alternatively, there was a resulting trust in her favour to the extent of the proportion of her contributions to the purchase price of the properties.

The defendants’evidence of their intentions

3 Mrs Shonoda said she sold a property in Castle Hill and wished to invest the proceeds of sale in another property. She and Mr Hanna looked at properties at West Pennant Hills that she initially rejected. They then looked at properties at Kellyville. Mrs Shonoda said she and her husband discussed on a number of occasions how they would pay for two properties at Lucas Circuit, Kellyville and two properties at Victoria Street, West Pennant Hills that they decided to purchase. She said Mr Hanna said that since she was using the proceeds of sale from Castle Hill, the properties should be for her. He said he was older and she would live longer, her health was better than his and she should have the properties as she was the one taking care of the children.

4 Phillip Sheanoda, Mrs Shonoda’s brother, recalled Mr Hanna saying to him:

“I am going to buy two blocks of land in West Pennant Hills and two blocks of land in Kellyville. Eman is the one who is going to pay for it. But she will benefit from it and she will live longer than me. One day, after Eman dies, the kids will get the benefit of the land.”

5 Mrs Shonoda said she instructed her solicitor, John Puleo, that the contracts for the purchase of the West Pennant Hills properties should be in her name or nominee. On 29 November 2000, when the contracts were to be exchanged, Mrs Shonoda said she was in Canberra where her father was hospitalised. Mr Puleo telephoned her and said the properties would not be in her name with which she agreed. The name of the purchaser was changed to John Mhanna before exchange of contracts. Mr Hanna had adopted Mhanna as his surname.

6 The contracts for purchase of the Kellyville properties issued in the name John Mhanna. He had paid the holding deposits of $100 on each property. Mrs Shonoda said she understood that the contracts had to be in the name of the payer of the holding deposits. Those contracts were exchanged on 19 December 2000.

7 Mr Hanna did not settle the contracts on the appointed day and they were terminated. The parties negotiated replacement contracts at higher prices. Those contracts also issued in the name John Mhanna. Mrs Shonoda said by that stage Mr Hanna had arranged finance in his name and she understood it was too late to change the contracts into her name.

8 Some two years later, when Mr Hanna and Mrs Shonoda were negotiating the refinancing of the loan to purchase the properties, she said she discussed with her husband changing the properties into her name but the stamp duty involved dissuaded her from this course.

9 Mr Hanna said one evening in November 2000 he spoke with Mrs Shonoda in Canberra and said contracts needed to be signed. She said the time was not right to talk about the matter. He said did she want him to sign to which Mrs Shonoda said he should do so. That evidence differs from that of Mrs Shonoda.

10 Mr Hanna said that in 2000 he said to Mrs Shonoda: “Whatever we buy will be for you and the children. I will help you develop it but I will not be part of it”. He said Mrs Shonoda agreed.

11 After the sale of Mrs Shonoda’s Castle Hill property, Mr Hanna said he spoke with his wife to he following effect:

“You should use what you get from Orange Grove to buy what you can now. You will not have to settle for about nine months when the plans are registered. The land will increase in value. You amy even re-sell before you have to settle.”

12 Mr Hanna said that his conversation with Mr Sheanoda was to the effect that he was buying land on behalf of Mrs Shonoda so that she could take care of the children. His testimony differs from that of Mr Sheanoda who did not recollect the words to the effect of a purchase on behalf of Mrs Shonoda. In cross examination Mr Sheanoda said that Mr Hanna had not mentioned that the properties were going to be in his name.

The surrounding circumstances

13 Mrs Shonoda’s case was that she was in Canberra attending to her father when the contracts were exchanged and hence the change in the name of the purchaser for the West Pennant Hills properties and the name of her husband as purchaser of the Kellyville properties. Mrs Shonoda witnessed her husband’s signature on at least one of the contracts for the Kellyville properties. In a subsequent affidavit, Mrs Shonoda said that she was occasionally in Sydney during this period.

14 Mr Hanna and Highwatch Pty Ltd, of which Mrs Shonoda was the secretary, were parties to other proceedings in this court against third parties. Mr Hanna swore an affidavit in those proceedings in which he differentiated between properties owned by he and Mrs Shonoda, properties owned by Highwatch and properties owned by him. He listed the West Pennant Hills properties and the Kellyville properties as his. There was no suggestion that he held the properties in trust for Mrs Shonoda.

15 Those proceedings were settled by a deed executed by Mr Hanna and by Mrs Shonoda as secretary of Highwatch. The terms of settlement recorded that the West Pennant Hills properties and the Kellyville properties were owned by Mr Hanna as distinct from other properties identified as owned on the one hand by Highwatch and on the other hand by Mr Hanna and Mrs Shonoda. Again, there was no suggestion that the properties were held by Mr Hanna on trust for Mrs Shonoda.

16 Mr Hanna made two applications to raise funds for the purchase of the West Pennant Hills properties and the Kellyville properties from the Bank of Adelaide. The applications were made in the name Mhanna. They recorded Mr Hanna as a self-employed engineer earning $436,000.00 gross per annum. He earned next to nothing at the relevant time. Listed as an asset was a gift of a term deposit from Mrs Shonoda of $158,000.00.

17 Mrs Shonoda made two statutory declarations in support of the applications for finance. One was in the following terms:

“I Eman Shonoda of 8 Tahlee Cl. Castle Hill in the State of New South Wales do solemnly and sincerely declare as follows:
That the term deposit held by me at St George Bank will be a non-refundable gift to my husband John Mhanna to enable purchase lot 101 & 102 Victoria St. West Pennant Hills.”

The other statutory declaration was in identical terms save that it was stated to be to enable purchase of lots 202 & 203 Lucas Circuit, Kellyville.

18 At the time, Mrs Shonoda held a term deposit of $150,000.00 but it was charged for the benefit of Untie Pty Ltd, a company of which she was a director and shareholder, to support a bank guarantee to Sydney Water. She held a further $8,000.00 deposit that supported a bond to the Housing Commission, again, for the benefit of Untie. Mrs Shonoda made no mention of these securities in her statutory declarations. In the course of her cross examination the following exchange occurred:

“Q: Mrs Shonoda, you intended a lender to have regard to this statutory declaration in considering the loan application being made by your husband?
A: I was assisting my husband by any way I can to get that loan so whatever it takes, I was going to do.”

19 Mrs Shonoda was recorded as owed $150,000.00 by Untie. She withdrew those funds and utilised them in the purchase of the properties at West Pennant Hills and Kellyville.

20 Mrs Shonoda was aware that Mr Hanna was an undischarged bankrupt and that if he borrowed without disclosing his bankruptcy he committed an offence. She was aware that he had adopted the name Mhanna and that he was making applications for finance in that name.

Express Trust

21 The principal submission of counsel for Mr Hanna and Mrs Shonoda was that an express trust was created by the conversations the terms of which were that Mr Hanna was to acquire the four properties as trustee for Mrs Shonoda absolutely.

22 In light of the surrounding circumstances set forth above, I have difficulty in accepting the uncorroborated assertions of Mr Hanna and Mrs Shonoda as to the terms of their conversations. I accept the evidence of Mr Sheanoda as to his conversation with Mr Hanna and reject Mr Hanna’s version where it differs. That conversation is consistent with the assertions in the other proceedings in this court that the properties belonged to Mr Hanna.

23 In my view, that conversation did not constitute or evidence the earlier constitution of an express trust. Nor did Mrs Shonoda’s version of her conversation with her husband in which he said the properties should be for her. That was consistent with the purchaser being Mrs Shonoda and that was the instruction she gave to Mr Puleo and the contracts for the West Pennant Hills properties issued in her name. Mrs Shonoda’s evidence that on the day of exchange Mr Puleo told her the properties would not be in her name is insufficient to constitute an express trust by Mr Hanna.

24 In order to constitute an express trust there must be certainty of intention, subject matter and object (Meagher & Gummow, Jacob’s Law of Trusts in Australia, 6th ed, Butterworths, 1997, Sydney at [501]). In my view the statements made by Mr Hanna were not an unambiguous statement of intention to hold the properties at Kellyville and West Pennant Hills on trust. They were equally consistent with Mr Hanna acquiring the properties in his own right to which Mrs Shonoda would succeed on his death, it being expected that his life expectancy was shorter than hers by reason of his age and health.

25 This is not a case of a declaration of trust made by Mr Hanna subsequent to the exchange of contracts or after the four properties were registered in his name. Mrs Shonoda’s case was that Mr Hanna declared himself to be a trustee of property to be acquired. What was required was his use of such language as would show a sufficiently clear intention that if the Kellyville and West Pennant Hills properties were acquired by him, he would hold them in trust for Mrs Shonoda absolutely.

26 In my judgment Mr Hanna was not constituted a bare trustee for Mrs Shonoda when the contracts executed by him for the four properties were exchanged.

The financing of the properties

27 The total amount paid for the West Pennant Hills properties including stamp duty and legal costs was $560,548.00. Mrs Shonoda contributed $72,816.00 and Mr Hanna contributed $545.04 and subsequently paid the real estate agent’s commission of $14,575.00. The source of payments totalling $1,342.16 was unidentified. $50,000.00 was lent to Mr Hanna by the vendor and the balance of $421,270.34 was raised by a loan to Mr Hanna from the Adelaide Bank.

28 The total purchase price of the Kellyville properties including stamp duty and legal fees was $337,710.00. Mrs Shonoda contributed approximately $73,650.00, Mr Hanna contributed $500.00, approximately $8,800.00 came from the Commonwealth Bank and approximately $255,000.00 was raised by a loan to Mr Hanna from the Adelaide Bank.

29 Mr Hanna and Mrs Shonoda subsequently raised a joint bill facility from the National Australia Bank to re-finance the Adelaide Bank loan. Mrs Shenoda said she made the instalment payments to the Adelaide Bank and subsequently to the National Australia Bank.

Resulting trust

30 It was submitted that since Mrs Shonoda paid the instalments to the Adelaide Bank and to the National Australia Bank and since she had made substantial cash contributions to the purchase of the four properties, the minor amounts contributed by Mr Hanna should be regarded as gifts to his wife and her contributions should give rise to a resulting trust in her favour with respect to the entirety of the four properties.

31 I reject that submission. Mr Hanna was the party bound to discharge the liability to the Adelaide Bank and that liability must be taken into account in determining relative proportions if a resulting trust came into existence by reason of those relative contributions.

32 In Calverley v Green (1984) 155 CLR 242 a property was purchased in the joint names of a man and a woman. Money had been raised on a mortgage under which both parties were jointly and severally liable to make repayments. It was agreed that the man would, in fact, make the repayments under the mortgage and he did so. The parties subsequently parted. It was held that the woman’s obligation under the mortgage constituted a contribution to the purchase price and the arrangement that the man would make the repayments under the mortgage did not establish that he alone provided the whole of the price.

33 There is a presumption that where two persons contribute to the purchase price in unequal shares and the property is purchased in their joint names, the property is held by the purchasers in trust for themselves as tenants in common in the proportions in which they contributed the purchase money (Calverley at 246-247, 255-256).

34 The presumption of a resulting trust is not confined to the circumstance that a property is held by two or more people. It may arise when one person provides the purchase price of property that is conveyed into the name of another (Napier v Public Trustee(WA) (1981) 55 ALJR 1 at 3-4).

35 There is no countervailing assumption of advancement where a wife makes a purchase in the name of her husband (Mercier v Mercier [1903] 2 Ch 98). But the presumption of a resulting trust may be rebutted (Muschinski v Dodds (1984-1985) 160 CLR 583). If the intention of Mrs Shonoda in making the contributions to the purchase price of the properties was that Mr Hanna should own the properties, any presumption of a resulting trust with respect to her contributions is rebutted.

36 The lengths to which Mr Hanna and Mrs Shonoda went to enable funds to be borrowed by Mr Hanna suggests that the properties were to be his. If the properties were to be Mrs Shonoda’s, one would have expected the finance applications to have been made in her name. That approach would have avoided the problems of an undischarged bankrupt making applications for finance. These circumstances coupled with assertions by both parties in the other proceedings that the properties were Mr Hanna’s and the assertions in the statutory declarations that Mrs Shonoda was to make a gift of $158,000.00 to Mr Hanna followed by her contribution of $150,000.00 withdrawn from Untie to the purchase of the properties lead me to the view that the presumption of a resulting trust has been rebutted in this case.

Constructive trust

37 Finally, counsel for Mr Hanna and Mrs Shonoda submitted that a constructive trust arose in favour of Mrs Shonoda on the basis that it would be unconscionable for Mr Hanna to assert his legal entitlement to the properties without recognising Mrs Shonoda’s contributions in line with the decision of the High Court in Muschinski.

38 For the reasons indicted above, I am of the view that it was Mrs Shonoda’s intention to make a gift of her contributions to the purchase price of the properties to her husband and, consequently, there was nothing unconscionable in Mr Hanna maintaining his legal title.

Conclusion

39 In my view Mr Sutherland has made out his case that Mr Hanna’s interests in the West Pennant Hills properties and the Kellyville properties vested in him as after-acquired property divisible amongst Mr Hanna’s creditors in terms of the Bankruptcy Act 1966 (Cth), s 58 and that Mr Sutherland is entitled to be registered as the proprietor of those properties.

40 In my view Mrs Shonoda is not entitled to any relief under her second further amended cross claim.

41 I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.

**********

Last Modified: 10/07/2004