Trustees of the Property of J.D. Cummins v Cummins & Anor

[2005] HCATrans 370

[2005] HCATrans 370

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S320 of 2004

B e t w e e n -

THE TRUSTEES OF THE PROPERTY OF JOHN DANIEL CUMMINS A BANKRUPT

Applicant

and

MARY ELIZABETH CUMMINS

First Respondent

AYMCOPIC PTY LIMITED

Second Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 27 MAY 2005, AT 12.16 PM

Copyright in the High Court of Australia

MR B.A.J. COLES, QC:   May it please the Court, I appear with MR C.R.C. NEWLINDS, SC, for the applicant.  (instructed by Clayton Utz)

MR P.L.G. BRERETON, SC:  May it please the Court, I appear with my learned friend, MR M.A. ASHHURST, for the respondent.  (instructed by Russell & Company)

GLEESON CJ:   Mr Coles and Mr Brereton, I have known Mr John Cummins for many years.  I simply mention that, I do not regard it as disqualifying me. 

CALLINAN J:   I, too, have made his acquaintance but I probably am less acquainted with him than any other Judge down here.

MR COLES:   We do not suggest that would impede either of your Honours disposing of the application.

GLEESON CJ:   Yes, go ahead, Mr Coles.

MR COLES:   May it please the Court.  Your Honours, the transactions which the Trustees sought to impugn in 1987, and by those transactions the bankrupt disposed firstly of his half interest in a valuable residential property; secondly, of all of his shareholding in his chambers in Counsel’s Chambers in Phillip Street, Sydney and thirdly, he intended, although he did not effectuate, the disposal of units held in a trust which owned another set of chambers in Parramatta.

GLEESON CJ:   There is a subsidiary issue, is there not, as to the extent of his beneficial interest in the house?

MR COLES:   Yes.

CALLINAN J:   Mr Brereton’s client’s contribution, I think, was not resolved, is that right?

MR COLES:   Yes, I can deal with that point now, your Honour.  It is, in our respectful submission, in a short compass and, of course, only falls for consideration if your Honours are inclined to grant special leave on the main purpose point.

Shortly, we say what is agitated there, your Honour, is a very straightforward and practical question.  The parties there, your Honours will recall from the judgment, were married in 1964.  They acquired a succession of real estate in joint tenancy over time.  The trial judge found, and it was not disturbed by the Full Court, that the bankrupt and his wife were committed to a matrimonial relationship.  The Hunters Hill property was the matrimonial home by the time of the disposal of the bankrupt’s interest in it for about 17 years and continued to be so for some time thereafter.

The transaction involved an agreement – this is an important feature.  When the bankrupt came to effectuate the transaction in concert with the disponee in 1987, what he transferred was one complete half full beneficial interest for a purchase price calculated at precisely 50 per cent of the externally determined value of $205,000.  As perhaps the majority of the Federal Court might have thought he might have disposed of, he did not dispose of the difference between what was said, on a fine arithmetic calculation, to be the difference between 100 per cent interest in the property and what was found, after close analysis of ancient facts, to be a 76.3 per cent or, as the trial judge opined might be the case, a 65.8 per cent.

In other words, your Honour, we say that it was wholly artificial for the majority to be upholding, contrary to the reasoned and carefully expressed conclusions of the trial judge, a view of things that said that one brought into play the presumption of advancement or presumption of a resulting trust, more accurately, by raking over relatively early facts concerning minute detail of actual or ‑ ‑ ‑

CALLINAN J:   The Trustees only seek access to half, is that right?

MR COLES:   Yes, that is right.  The Trustee said he had a full beneficial interest in one half because, after all, that is what, by his own act, he purported to transfer to his wife.

CALLINAN J:   Even if his contributions may have been greater ‑ ‑ ‑

MR COLES:   Or hers may have been.  She alleged her contributions were greater.  We said, and we claim substance in it, that you look at the reality of what happened if you are really surveying all of the affairs to see whether a supposed presumption of resulting trust is rebutted and the most powerful rebuttal was to be found in two things:  one, the longstanding endurance of the matrimonial relationship where the subject matter was a jointly held matrimonial property and, secondly, of course, the stark fact that he did not transfer to her some 24 point something per cent reflective of her supposed arithmetic interest but he transferred, for apparently full value, a 50 per cent interest and we say those facts, all taken together, readily, as the primary judge had no difficulty concluding, and he analysed all the cases that bore on the matter, those facts plainly rebutted the presumption of a resulting trust.  But, as I say, that is a subsidiary point I have to acknowledge, your Honour ‑ ‑ ‑

GLEESON CJ:   Now, on the main issue in the Federal Court, two judges went one way and two judges went the other.  Maybe we would be assisted to hear from Mr Brereton.  Yes, Mr Brereton.

MR BRERETON:   That two judges went one way, and the two that constituted the majority in the Full Court on a Warren v Coombes appeal which depended entirely on inferences to be drawn from documents and turned in no way on oral evidence or demeanour, demonstrates no more than that where, as the present applicants did, a party chooses to adduce but scant evidence in proof of a claim, judges may legitimately differ as to what inferences can be drawn from that scant evidence and as to how wide the chasms are that can be linked, and as to whether that scant evidence is sufficient or not to raise a case to answer. 

GLEESON CJ:   I suppose the strength of your position is in the identification of the issue that appears on page 95 in paragraph 2 of the reasons of the majority.

MR BRERETON:   Yes.  What I was going to put to your Honours almost immediately was that the majority was fully conscious of the very slight onus which the applicants bore.  At 95, line 45, which your Honour has just identified; at 114, line 30 their Honours referred specifically to Michael v Thompson and the need for a very slight degree of proof being sufficient to shift the burden.  Their Honours again, at 116, about line 20 referred to:

the respondents needed to adduce some evidence (albeit slight) ‑ ‑ ‑

GLEESON CJ:   At the time these transactions took place, for how many years had Mr Cummins been in default in lodging income tax returns?

MR BRERETON:   About 30, I think, your Honour.  The difference between all of the judges turned on no question of principle at any stage.  The difference between them turned on the extent to which they were prepared to draw inferences from the limited evidence that the Trustees chose to put before the court.  Justice Sackville, at first instance, explained at page 46 of the application book, line 25, the essence of the reasoning which led his Honour to draw a conclusion adverse to my client’s. 

Your Honours will see from the first two bullet points, indeed from four of the five bullet points, that his Honour focused on the inference that there would have been substantial liabilities to the Tax Commissioner and that the bankrupt had not retained sufficient assets to meet those liabilities.  That is essentially the first and the fourth of the bullet points.  But right at the heart of the primary judge’s reasoning was the focus on the supposed liability to the Commissioner and the unavailability or the non‑retention of sufficient assets to meet that supposed liability.  In the Full Court, the majority carefully analysed that reasoning, particularly at page 113 ‑ ‑ ‑

CALLINAN J:   How could a barrister, who had not lodged a return for 45 years, have not had, at all times, in the forefront of his mind that at some stage he would be caught out?  A barrister in active practice earning, no doubt, a considerable amount of money, a senior counsel, how could he otherwise believe than that at some stage he was going to be caught out and saddled with a huge liability including interest and penalties?

MR BRERETON:   In at least these ways:  first, that, even assuming that there was taxable income – and I will come back to answer that in a moment – but even assuming that on balance there was taxable income, it is very easy for people who have after one year not put in a tax return innocently, and then not got round to it a second year, to leave their hands firmly planted in the sand and to think after 30 years that it is never going to catch up with them.

CALLINAN J:   I think that is absolute nonsense.  They are relying upon bureaucratic incompetence or inertia or sheer luck.

MR BRERETON:   The second is that there is nothing to say that a man, for example, who has an interest in horses and who might go to the races, might not lose money and have taxable losses equivalent to the taxable income that he earns from another source.

GLEESON CJ:   I was going to ask you that.  Was there any evidence about whether that aspect of Mr Cummins’ activities was treated as producing assessable income and allowable deductions?

MR BRERETON:   I think not, your Honour. 

GLEESON CJ:   As you know, for some people it does and for some people it does not.

MR BRERETON:   Yes, it depends, I think, on the level to which it is engaged in.  There was no evidence, certainly for the years up to 1992.  My recollection is that from 1992 to 2000, when there were tax returns, that income or losses from racing was not claimed or disclosed so I do not think it was treated as taxable.  So those are some of the answers to that but even ‑ ‑ ‑

CALLINAN J:   I do not think they are satisfactory answers.  I am making that clear, Mr Brereton.  I do not regard them as answers at all.  The man is a senior counsel.  He is obviously earning money, and you tell me he thinks he is going to get away with it forever.  The only way he was going to get away with it was by dying.

MR BRERETON:   I do not tell your Honour anything.  What I put to your Honour is that there was no evidence which established on any sort of basis that he had any tax liabilities or any other ‑ ‑ ‑

CALLINAN J:   Was there evidence that his wife or anybody else was supporting him, providing his clothing and an occasional lunch in the city, perhaps?

MR BRERETON:   There was ample evidence that his wife was a person of independent wealth and had contributed substantially to the accumulation of the assets and that she derived that from independent sources.

CALLINAN J:   What about the rent for his chambers?  Who was paying that?  Was there evidence about that?

MR BRERETON:   The Trustee chose to adduce no evidence as to that.

CALLINAN J:   It would be an irresistible inference that somebody was paying, is that not right?

MR BRERETON:   No, because he owned shares in chambers so he was not paying the rent.

GLEESON CJ:   The rent for shares in Counsel’s Chambers Limited was very low.  It was on a sort of maintenance basis but what did happen, as a result of the transfer of the shares in Counsel’s Chambers Limited – was it to a trust?

MR BRERETON:   It was, your Honour.

GLEESON CJ:    ‑ ‑ ‑ would have been that the trust would have been then able to charge a commercial rent and, if he had been a taxpayer, he would have been able to get an allowable deduction for the rent that he paid to the trust. 

MR BRERETON:   Had he been paying tax he would have been, your Honour, but there is no suggestion that that happened. 

CALLINAN J:   You do not need to get a tax deduction if you are not paying any.

MR BRERETON:   That is so, your Honour.  What your Honour is putting to me, with respect, is very much what the minority judge in the Full Court, Justice Tamberlin, said when his Honour came to deal with these issues – if I can go towards the end of the application book at page 154.

At about line 10, his Honour summarises what the primary judge had been satisfied of; just after line 25 comes to one of the challenges that was made to those findings; at line 40 comes back to what the primary judge had set out and then, including one of the several occasions on which the primary judge had reversed the onus and suggested that there was some onus cast on the respondents to account for things, at line 50, says “it beggars belief to suggest” and so on.  The sure point is that beggaring belief, in a case of this sort, is no answer to proof, albeit the very slight proof, the very slight evidence, that the majority would said to be required.

However scandalous the underlying circumstances might be, to whatever extent they have attracted criticism in the press, and to whatever extent they have brought disgrace upon parts of the profession, that is beside the point as to whether, in a case against Mrs Cummins, an iota of evidence was adduced from which the relevant main purpose of Mr Cummins could be proved against her so as to deprive her of her house and that is what the Trustees simply failed to do on the careful analysis of the two judges who constituted the majority in a Warren v Coombes appeal.  What the Trustee is now seeking and what, with respect, your Honour Justice Callinan is engaging on is an examination of the facts, what inferences ‑ ‑ ‑

CALLINAN J:   I am drawing inferences from the facts; that is what I am doing.  Appeal courts do that every day.  That is what the Full Federal Court did.

MR BRERETON:   Intermediate courts of appeal do that every day and that is exactly ‑ ‑ ‑

CALLINAN J:   And they do not have a monopoly on it.  This Court can draw them too, Mr Brereton.

MR BRERETON:   There is no doubt that in an appropriate case this Court can but, in my submission, this case gives rise to no question of principle which raises that issue.  All it reflects is a difference between judges on how wide a chasm the limited evidence, the scant evidence as all accepted, put before the court, permitted.

More importantly than that, the majority, in analysing the process of reasoning of the trial judge, demonstrated where the trial judge had fallen into error in drawing the inferences which the trial judge drew.  Going back to page 113, their Honours set out there, at lines 15 and following, the important parts or essential parts of the reasoning of the trial judge.  Not only do they, on that material, reach a different conclusion and say they would not have drawn those inferences, their Honours go further and identify that there were logical defects and inescapable defects in the reasoning which led the trial judge to that conclusion, legal defects.  For example, at page 114, commencing at about line 35, having again identified the very slight degree of proof that would have been required, go on to say, at line 40:

his Honour erred by shifting the onus of proof away from the respondents –

the present applicants -

when he said . . . 

‘There is nothing to indicate that the assets connected with his practice were paid for otherwise than out of the Bankrupt’s professional earnings.’

That, as it were, called on my clients to explain how they were paid for rather than calling on some limited proof from the Trustee that they came out of taxable earnings.  At 115, lines 12 to 35, their Honours identified that there was, in fact, some evidence supportive of contrary inferences in favour of my clients and that is the material set out at paragraphs 95 and 96.  At the end of paragraph 96, at about line 40, their Honours again identify that his Honour had stood the question of onus on its head tending:

to nullify the whole point of a “no case” submission, that is, to test whether an applicant has proved its case. 

GLEESON CJ:   Mr Brereton, the majority in the Full Court of the Federal Court, at the top of page 113, lines 9 and 10, and then on the middle of page 114, paragraph 92 seem to attach substantial, indeed decisive, importance to the absence of any available inference that Mr Cummins had ever had any taxable income.

MR BRERETON:   Yes.

GLEESON CJ:   In that respect did they pay any attention to the practical conditions necessary to qualify a person for appointment as senior counsel?

MR BRERETON:   The trial judge had taken judicial notice, with my assent, that appointment as senior counsel was a recognition of professional competency.

GLEESON CJ:   And standing.

MR BRERETON:   I think the words ‑ ‑ ‑

GLEESON CJ:   Did the evidence show in what year Mr Cummins took silk?

MR BRERETON:   Yes, 1981, six years before these transactions.  The Full Court acknowledged that, and deals with that issue, at page 116, if I can take your Honour to that, paragraphs 99 and 100, and says:

It might well be expected that, on average, a barrister who had been in practice for 22 years, including six years as senior counsel, would have enjoyed a large taxable income.  But, in our opinion, the respondents needed to adduce some evidence (albeit slight) of the likely level of taxable income which this particular barrister enjoyed, i.e. did he fit the stereotype average?

If, for example, the respondents had attempted to tender survey evidence of all the silks at the Sydney Bar to prove what they had earned, that would have been rejected as inadmissible proof of Mr Cummins’ financial position.

CALLINAN J:   Mr Brereton, could I ask you this question and I ask it because I really do not know.

MR BRERETON:   Certainly.

CALLINAN J:   Do you have to put in an income tax return – you do, do you not – even if your deductions annihilate all of your income?

MR BRERETON:   I think the position is, and someone will correct me in a moment if I get this wrong ‑ ‑ ‑

CALLINAN J:   It is a matter of law so there is no reason why you cannot tell me if you know.

MR BRERETON:   If you have a group certificate my understanding is you have to put in a return whether or not you have a taxable income.  Absent that, my understanding is, if you do not have a taxable income, after deductions, you do not have to lodge a return.

CALLINAN J:   I would like to know the answer.  I am not saying you are wrong about that.  I would like to be directed to the legislation.

MR BRERETON:   That accords with the understanding of those who instruct me, but I do not profess to know the Tax Act better than vaguely and I certainly do not know it backwards.  What their Honours there did was to say that, yes, there was this concession, if you like, that his appointment was recognition of his professional attainments and expertise, but that does not prove that he had a taxable income in any of the relevant years without at least some, albeit slight, evidence that he did.

Returning to how the majority analysed and disposed of the trial judge’s reasoning, at 118, line 40, their Honours identified yet another respect in which the trial judge had “reversed the onus of proof” and, in effect, called upon my clients to adduce evidence supportive of an alternative explanation rather than requiring the applicants to prove it.  So in three places such defects were identified.  Then, at four places:  page 115, line 38; 116, line 42; 118, line 42 and 120, line 35, the Full Court identified where the trial judge had speculated without evidence.  At 115, line 12, which I have already taken your Honours to, and 119, line 30, their Honours went to the evidence to show that there was evidence supportive and consistent with some of the alternative inferences for which my clients contended.  Justice Tamberlin engaged in no such exercise and provided no answer to that analysis.  The trial judge’s inferential process of reasoning was exposed as unsound by the majority and the dissenting judge did not answer that exposure.

Can I deal shortly with the subsidiary question.  The subsidiary question only arises if the applicants succeed on the main question and it too ‑ ‑ ‑

GLEESON CJ:   If there were a grant of special leave would you need to file a notice of contention to raise that subsidiary question?

MR BRERETON:   No, we succeeded on it.  We succeeded on the subsidiary question below and, as I understand it, the position would be that unless the applicants overturned the Full Court on the subsidiary question ‑ ‑ ‑

GLEESON CJ:   You would hold the benefit of that.

MR BRERETON:    ‑ ‑ ‑ we would be entitled to 75 per cent as opposed to 50 per cent.

CALLINAN J:   Mr Brereton, given the evidence referred to at page 43, paragraph 127, why was it not an open inference, having regard to his net average income of $204,000 five or six years later, or however long later it was, he would at least have been earning net taxable income at the time of the transfers?  You do not mean to suggest he just got lucky from 1992 to 1997 and suddenly he was briefed, he had never been briefed before and he was making an income.

MR BRERETON:   Economic conditions changes, the practices of barristers in personal injuries in New South Wales during the 1980s changed radically and there were boom years with the close down on the final run-off years of the common law before the statutory schemes came in when personal injuries barristers made a killing, so to speak.

CALLINAN J:   He did get lucky between 1992 and 1997.  Is that what you are suggesting?

MR BRERETON:   If one calls adverse changes in the law, in that respect, luck, then that can be put.  But, as the majority in the Full Court, in my submission, thought that it was not permissible to rationalise backwards from the situation five years down the track as to what the situation would have been at the earlier time and I seek leave to just complete this point.

It is not enough, your Honour, to find that he had a tax liability.  There has to be superimposed on that a finding that he did not retain sufficient other assets to meet that liability.  There is evidence summarised from the Full Court, at page 119, 30 that, at the end of various financial years he had cash on hand of $150,000, $168,000, $200,000.  No one knows what other assets he did or did not have.  There was no evidence excluding the hypothesis that he retained sufficient assets to meet whatever innominate and indescribable tax liability he did.

GLEESON CJ:   Thank you, Mr Brereton.  In this matter there will be a grant of special leave to appeal. 

We will adjourn until 1.45 pm.

AT 12.43 PM THE MATTER WAS CONCLUDED