Weston v McAuley
[2017] FCCA 1
•23 February 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| WESTON v McAULEY | [2017] FCCA 1 |
| Catchwords: EQUITY – Claimed presumption of a trust in favour of the bankrupt – rebuttal of the presumption by evidence or the presumption of advancement. |
| Legislation: Bankruptcy Act 1966 (Cth) Family Law Act 1975 (Cth), s.79 |
| Cases cited: Baumgartner v Baumgarnter (1987) 164 CLR 137 Sharkey v Nissi [2015] NSWSC 1266 Thwaites v Ryan [1984] VR 65 |
| Applicant: | PAUL WESTON |
| Respondent: | DIANNE MCAULEY |
| File Number: | SYG 2182 of 2015 |
| Judgment of: | Judge Driver |
| Hearing date: | 28 November 2016 |
| Delivered at: | Sydney |
| Delivered on: | 23 February 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr R Marshall SC, with Ms I Hoskinson |
| Solicitors for the Applicant: | Mills Oakley |
| Counsel for the Respondent: | Mr D Cook SC, with Mr S Lipp |
| Solicitors for the Respondent: | DPR Legal |
ORDERS
The application as amended on 19 April 2016 is dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2182 of 2015
| PAUL WESTON |
Applicant
And
| DIANNE McAULEY |
Respondent
REASONS FOR JUDGMENT
Introduction and background
The applicant is Paul Weston (trustee), who is the trustee of the bankrupt estate of John McDonald McAuley (bankrupt), the husband of the respondent, Dianne McAuley. By his amended application and amended statement of claim filed on 19 April 2016, the trustee sought relief in relation to two separate sums. The first sum, $385,578 is the amount equal to half the proceeds of the sale of a property at 11 Westminster Drive, Castle Hill, New South Wales (property), which was the former matrimonial home of the bankrupt and Mrs McAuley. The trustee claims that that sum vests in him as trustee of the bankrupt estate.
The trustee also sought a second sum, $185,625, which represents what the trustee contended was Mrs McAuley’s required contribution to the payment of mortgage instalments on a home loan over the property. The trustee had claimed that Mrs McAuley had paid nothing on the loan but that claim was abandoned at the trial of this matter.
There remains a single issue to resolve which is the proper characterisation of the proprietary interest in the former matrimonial home and accordingly, the entitlement of the parties to the proceeds of the sale of it. The trustee claims that the bankrupt estate has an equitable interest in 50 per cent of those proceeds of sale. The trustee’s position is based on the fact of a long standing marriage, the bankrupt’s contribution to the purchase price of the property, the asserted mutual intention of the married couple and the decision of the High Court in Trustees of Cummins v Cummins[1] (Cummins) and other similar “marriage” cases.
[1] (2006) 227 CLR 278
Mrs McAuley relies upon an amended defence filed on 16 November 2016. She asserts that she is entitled to 100 per cent of the proceeds of the sale of the property or, alternatively, (and probably more realistically) that she is entitled to her legal interest on title as a tenant in common with a 95 per cent share.
The present proceedings were stimulated by the trustee’s discovery that the proceeds of the sale of the property had not been retained in a solicitor’s trust account pending resolution of the claims as between him and Mrs McAuley but had been disbursed. The trustee received an amount equal to the net proceeds of the bankrupt’s five per cent share in the property but the proceeds of sale paid to Mrs McAuley had substantially been spent before the trustee was able to obtain a freezing order. Mrs McAuley, in these proceedings, gave an undertaking to retain the remaining proceeds of sale held in her superannuation fund, subject to orders of the Court permitting her to withdraw funds to pay for her defence of these proceedings. At the time of the trial of this matter, about $310,000 remained in the superannuation account.
The background to this matter is as follows.
The couple married about 52 years ago. They remain married and living together. They had children including two sons (the eldest son, Lachlan McDonald McAuley is a solicitor in NSW. He was also a witness in these proceedings).
The bankrupt worked in his own accounting practice. Mrs McAuley appears to have raised the children and performed domestic duties. She says she also worked assisting in her husband’s business. Tax returns show she declared income in the exact amount of the then tax free threshold (i.e $5,400pa). She says this was “salary sacrificed” and was not actually paid to her.
The McAuleys purchased and lived in several homes during their marriage. They used to live in a house in Shellbank Avenue, Cremorne. Mrs McAuley says that house was in her name. It was sold in about 1988. Mrs McAuley blames this sale on a failed hotel business venture of the bankrupt. She says it was a forced sale in the sense that it was sold to prevent a mortgagee sale. The McAuleys moved into rental accommodation on the upper north shore.
In 1998 the McAuleys purchased the property.
The ownership of the property was recorded on title as 95 per cent to Mrs McAuley and five per cent to the bankrupt.
The property was sold by the McAuleys in June 2014, with the consent of the trustee and the pressing mortgagee, the National Australia Bank (Bank).
The trustee consented to the sale of the property upon the condition or understanding that the proceeds of sale would be placed in the trust account of Ledlin Partners, a firm of solicitors who had apparently represented to the Bank’s lawyers, Gadens, and the trustee that they acted for the couple.
However, the contract for sale for the property was in fact drafted by Lachlan McAuley. He acted for the couple as vendors on the sale. The trustee was unaware of this. Lachlan McAuley received the proceeds of sale on completion.
On 13 June 2014 the bankrupt sent the trustee a cheque for $42,842.00, such amount representing five per cent of the net proceeds of sale of the property.
The balance of the proceeds of sale of the property were paid from Lachlan McAuley’s trust account to Mrs McAuley.
Mrs McAuley says she then spent the greater part of the proceeds of sale. All that was left being the $330,000.00 of the proceeds paid into her superannuation fund with Zurich Australia.
Relevance of equitable interest
The couple remain together and married. There have been no proceedings for property settlement taken between them under s.79 of the Family Law Act1975 (Cth) (Family Law Act).
In the absence of s.79 Family Law Act proceedings brought between the bankrupt and Mrs McAuley there is no scope for the trustee to be heard in the Family Court or this Court on the adjustment of property rights under the Family Law Act as between the couple.
In the absence of property proceedings under the Family Law Act, the general law of property applies to assets owned or held by Mrs McAuley and the bankrupt. That includes the application of equitable principles and the provisions of the Bankruptcy Act1966 (Cth)[2].
[2] There is no claim made under ss.120 and 121 of Bankruptcy Act
The proceeds from the sale of the home were $854,848.43. That amount was deposited into Lachlan McAuley’s trust account. From there they were eventually disbursed as follows:
a)$812,006.00 to Mrs McAuley on 7 May 2014;
b)$42,842.43 to the trustee on 13 June 2014.
The trustee’s claim is that the bankrupt estate is entitled to 50 per cent of $854,848.43. This would require Mrs McAuley to pay the trustee $384,581.85, taking into account the proceeds of sale already received by the trustee.
The evidence and submissions
In addition to his amended application and the pleadings, the trustee relies upon his affidavit made and filed on 1 December 2015. Exhibited to that affidavit is a substantial folder of documents described as the “applicant’s tender bundle”. I also received a second folder of subpoenaed documents. The trustee was not required for cross-examination.
Mrs McAuley relies upon her affidavit made and filed on 4 August 2016 and the affidavit of Lachlan McAuley made on 3 August 2016 and filed the following day. Both were required for cross-examination.
In addition to the tender bundles, I also received the following exhibits:
·A1 – affidavit of David Rydon, made on 02.02.2016, Annexures – folder;
·A2 – affidavit of Dianne McAuley, made on 17.03.2016, Annexures – folder;
·A3 – letter to Paul Weston, 10.12.2016;
·R1 – Homeside Mortgage statement, 01.09.2000;
·R2 – Homeside Lending statement, 29.09.2007;
·R3 – Homeside Peak Performance Equity Mortgage statement, 11.01.2008;
·R4 – letter to Chris Swanson from John McAuley, 13.07.2011;
·R5 – letter to Chris Swanson from John McAuley, 07.02.2011.
Counsel for the parties made pre-hearing written submissions and also provided helpful oral and written submissions at the trial of the matter. I have been assisted by those submissions.
Consideration
The trustee’s contentions
The trustee’s case is based upon the following propositions.
Under the general law the Courts favour special treatment for the matrimonial home. This was confirmed by the High Court in Cummins as follows at [71] and [72]:
The present case concerns the traditional matrimonial relationship. Here, the following view expressed in the present edition of Professor Scott's work respecting beneficial ownership of the matrimonial home should be accepted, The Law Of Trusts, 4th Ed (1989) , vol 5, [454] ,p239:
It is often a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labor to the various expenses of the household. It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase.
To that may be added the statement in the same work, ibid at [443] pp197 - 198:
Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one-half interest in the property, regardless of the amounts contributed by them. (footnote omitted)
That reasoning applies with added force in the present case where the title was taken in the joint names of the spouses. There is no occasion for equity to fasten upon the registered interest held by the joint tenants a trust obligation representing differently proportionate interests as tenants in common. The subsistence of the matrimonial relationship, as Mason and Brennan JJ emphasised in Calverley v Green, supports the choice of joint tenancy with the prospect of survivorship. That answers one of the two concerns of equity, indicated by Deane J in Corin v Patton, which founds a presumed intention in favour of tenancy in common. The range of financial considerations and accidental circumstances in the matrimonial relationship referred to by Professor Scott answers the second concern of equity, namely the disproportion between quantum of beneficial ownership and contribution to the acquisition of the matrimonial home. (footnotes omitted)
In Calverley v Green[3], Mason and Brennan JJ said:
[3] (1984) 155 CLR 242 at 258–259
As both parties contributed to the purchase price, there could not be a resulting trust in favour of the defendant alone. It follows that the Court of Appeal was right to allow the appeal from Rath J. Then the Court of Appeal went on to hold that the legal estate prevailed unless there were an express trust created in favour of the defendant when the parties acquired the legal estate in the Baulkham Hills property. That was too large a step to take, for it was necessary to consider another equitable presumption which arises from the unequal contribution of the purchase price and which governs the present case unless some opposing presumption displaces it or the other facts of the case rebut or qualify it. Unless an equitable presumption of a trust is displaced by a counter-presumption or it is rebutted or qualified by evidence of the intention of the party paying the purchase price or of the common intention of the parties who contribute that price, the presumption determines the conclusion to be reached: Stewart Dawson & Co. (Vict.) Pty.Ltd. v. Federal Commissioner of Taxation [1933] HCA 4; (1933) 48 CLR 683, at pp 689-691; Carkeek v. Tate-Jones [1971] VicRp 84; (1971) VR 691, at pp 695-696. Once it was found that both parties had contributed to the purchase price, the conclusion had to conform to the relevant equitable presumption unless it was displaced, rebutted or qualified. When two or more purchasers contribute to the purchase of property and the property is conveyed to them as joint tenants the equitable presumption is that they hold the legal estate in trust for themselves as tenants in common in shares proportionate to their contributions unless their contributions are equal: Notes to Lake v. Gibson [1667] EngR 103; (1729) 1 Eq Ca Abr 291 (21 ER 1052) and Lake v. Craddock [1732] EngR 132; (1732) 3 P Wms 158 (24 ER 1011) in White & Tudor's Leading Cases in Equity, 9th ed. (1928), vol.2, p 882; Rigden v. Vallier [1751] EngR 7; (1751) 3 Atk 731, at p 735 [1751] EngR 7; (26 ER 1219, at p 1221); Robinson v. Preston (1858) 4 K & J 505, at p 510 [1858] EngR 426; (70 ER 211, at p 213); Aveling v. Knipe [1815] EngR 947; (1815) 19 Ves Jun 441, at pp 444-445 [1815] EngR 947; (34 ER 580, at p 582); Hill v. Hill (1874) 8 IR Eq 140.
This is the basic presumption, though it may be displaced in appropriate cases by the presumption of advancement or, perhaps, qualified by an inference of the kind espoused by Lord Upjohn in Pettitt v. Pettitt [1969] UKHL 5; (1970) AC 777. His Lordship said (at p 815):
... where both spouses contribute to the acquisition of a property, then my own view (of course in the absence of evidence) is that they intended to be joint beneficial owners and this is so whether the purchase be in the joint names or in the name of one. This is the result of an application of the presumption of resulting trust. Even if the property be put in the sole name of the wife, I would not myself treat that as a circumstance of evidence enabling the wife to claim an advancement to her, for it is against
all the probabilities of the case unless the husband's contribution is very small.In some instances, the drawing of such an inference might work to the disadvantage of a wife who holds a legal interest in property greater than a joint tenancy and who would otherwise be entitled to rely upon the presumption of advancement to assert as large a beneficial interest as the legal interest which she holds. It is not necessary now to consider whether the founding of a joint beneficial tenancy in husband and wife upon their inferred intention “is the result of an application of the presumption of resulting trust”. What is presently material is whether it is appropriate to draw the inference that the parties intended that they should have beneficially a joint tenancy in the Baulkham Hills property - an interest corresponding with the interest vested in them at law.
It may be conceded that Lord Upjohn's inference reflects the notion that both spouses may contribute to the purchase of assets during the marriage (as they often do nowadays) and that they would wish those assets to be enjoyed together during their joint lives and to be enjoyed by the survivor when they are separated by death. Such an inference is appropriate only as between parties to a lifetime relationship (like the presumption of advancement of a wife: Carkeek v. Tate-Jones, at pp 695-696). The exclusive union for life which is undertaken by both spouses to a valid marriage, though defeasible and oftentimes defeated, remains the foundation of the legal institution of marriage (Hyde v. Hyde and Woodmansee (1866) LR 1 P & D 130, at p 133; Khan v. Khan [1963] VicRp 32; (1963) VR 203, at p 204) though it is no necessary element of the relationship of de facto husband and wife. The term “de facto husband and wife” embraces a wide variety of heterosexual relationships; it is a term obfuscatory of any legal principle except in distinguishing the relationship from that of husband and wife. It would be wrong to apply either the presumption of advancement or Lord Upjohn's inference to a relationship devoid of the legal characteristic which warrants a special rule affecting the beneficial ownership of property by the parties to a marriage. The presumption could not arise nor the inference be drawn in favour of the plaintiff in this case, which must be decided in the light of the basic presumption. Therefore it is unnecessary now to decide whether Lord Upjohn's inference should qualify the presumption of advancement in favour of a wife, but it can be said that the antiquity of the presumption of advancement does not preclude the elevation of such an inference to the level of a presumption to be applied where the absence of the spouses' common intention leaves room for its operation. The doctrines of equity are not ossified in history (cf. Wirth v. Wirth [1956] HCA 71; (1956) 98 CLR 228, at p 238).
“Marriage cases” prior to Cummins v Cummins
The High Court decisions in Cummins and Calverley v Green are an extension of a long list of English and Australian “marriage cases”. The effect of these authorities was helpfully considered in Thwaites v Ryan[4] by Fullagar J at page 92:
It seems to me that the true justification of the marriage cases is that they are cases where the husband during wedlock, de facto or de jure, or in contemplation of that relationship, acquired the property subject to a trust in favour of the wife although the bounds of the trust were set by some agreement express or implied. The real step that the courts took, it can now I think be said, was to find this ultimate fact (the acceptance of the property ab initio subject to the trust) from far less forceful evidentiary facts than had hitherto ever been required, and the thing that justified a course so beneficient, if that be the word, was the relationship of husband and wife. If the property was acquired by the husband “for the purposes of the marriage relationship”, as it were, then the Court would require only very little more in order to find that it was acquired by the husband upon trust for himself and his wife. It is true that much of the ex post facto justification that has been put forward in dicta of the highest authority in England treats the trust which is ultimately enforced as an implied or constructive or resulting trust, but such dicta, if correct, does not in my view ultimately detract from the analysis which appeals to me. Constructive or not, the trust existed as the trustee took the property. To set up the statute would be to steal what was in equity never his.
[4] [1984] VR 65
His Honour continued at page 93:
There is of course another ingredient, as well as common intention at acquisition, in the marriage cases, and this ingredient is the marriage relationship itself. The step which the courts in England took was to draw the conclusion of an acceptance upon trust, rather than an acceptance absolutely, where it would not be drawn outside the marriage relationship. It seems that this was in part because property is often acquired for the purposes of the relationship itself, and perhaps also because, not only are children the spoilt darlings of the law, but the law will exert itself to favour and foster familial and protective surroundings in which they can spend their tender years, and thus the marriage relationship itself. Thus a statement by a husband, or even a fiancé who is later married, that “I am acquiring the land for both of us”, though meaning at the time perhaps no more than “I am acquiring this land for a matrimonial home”, could be treated with very little more evidence as importing that the land was acquired for the purposes of the matrimonial relationship in which both the parties were bound.
At page 94 his Honour stated:
In my respectful view the reasoning of the Court behind the paras.(4) and (5) in the headnote to Ogilvie v Ryan [1976] 2 NSWLR 504, at p. 505 would appear to be somewhat too widely stated. For myself, I would think that the key to that case is contained in the third paragraph of the headnote, at ([1976] 2 NSWLR) p. 505. The land in question was acquired by Ogilvie in 1969 pursuant to an agreement, between him and the lady (who had both been on the closest and most affectionate terms for 14 years and who had “lived together as man and wife”) that it should be acquired for the benefit of the two of them, for the purposes of their relationship, as the home in which they would both live for the rest of their joint lives. In my opinion the land was acquired upon trust for the legal acquirer and the lady for the purposes of their relationship.
In a similar way, in McMahon v McMahon[5] Marks J provided the following observations in relation to cases regarding “common intention” in marriage cases:
For the purposes of my decision on these applications the following propositions appear conceivably to be relevant to the wife's burden of establishing that the husband holds his legal interest in any one or more of the subject properties on trust for her as well as himself:
(a)A constructive trust will arise if it would be a fraud for the husband to assert exclusive beneficial interest. Such a trust will be imposed, without regard to the intention of the parties, in order to satisfy the demands of justice and good conscience.
(b)A trust (in circumstances incapable of giving rise to a constructive trust) will arise to give effect to a common intention of the parties. That common intention may be inferred from the conduct of the parties. But what is to be enforced is an actual intention, inferred as a matter of fact, not an imputed intention which the parties never had but would have had, if they had applied their minds to it.
(c)By appropriate evidence, it may be proved that a common intention arose after the property had been acquired.
(d)A relevant common intention may be inferred from conduct, although it has not been the subject of any express communication between the parties.
[5] [1979] VR 239
What are the implications of the marriage cases in the present case?
The trustee submits that the following propositions arise from the cases which are relevant to the present circumstances:
a)in the case of a matrimonial home, it may well be purely accidental whether the purchase price comes from the husband or the wife – where both are contributing money (or labour) to the various expenses of the household (see the extract from Professor Scott’s work in Cummins);
b)a contribution to the purchase of the matrimonial home is not limited to the actual cash used to purchase the property and may be in the form of labour or the payment of other family expenses (see the extract from Professor Scott’s work in Cummins);
c)where both spouses contribute to the purchase price, but the title is taken in only one of their names, it may be inferred that it was intended that each of the spouses should have a one-half interest in the property, regardless of the amounts contributed by them (see the extract from Professor Scott’s work in Cummins);
d)50/50 ownership may be inferred even if, in strictly monetary terms, one spouse pays a greater proportion of the cash purchase price;
e)a focus of the inquiry is on intention – the common intention for the spouses to jointly enjoy and “own” the property. That is, the focus is on the acquisition of the property for the benefit of both of them, for the purposes of their relationship, as the home in which they will both live;
f)when considering intention, in the case of marriage, the courts require a lower level of evidentiary support to find joint ownership (Thwaites v Ryan, per Fullagar J, and see generally Cummins);.
g)it may be proved that a common intention arose after the property had been acquired – which may be inferred from conduct.
In the present case, the trustee submits that the bankrupt contributed to the purchase price of the property in these ways:
a)by contributing as joint borrower under the home loan; and
b)by contributing in the form considered by the High Court in Cummins, namely in the form of householder labour and spending funds on household expenses.
The trustee submits that either of those two ways is sufficient to constitute a “contribution” to the acquisition of the matrimonial home, as considered by the High Court in Cummins. Further:
a)the element of “common intention” is satisfied in the present case. The evidence is that there was an intention for the property to be the matrimonial home of the couple, to be enjoyed jointly both of them and their family;
b)immediately following the purchase of the property, the couple moved into it and lived there for over a decade.
Mrs McAuley says in her affidavit that the couple agreed to place the title mostly in her name (95 per cent) to prevent the bankrupt having the ability to offer or pledge the home as security for his business ventures. The trustee submits that this “superficial” device does not detract from the common intention that the property they both paid for was intended to be the matrimonial home, nor the true or underlying intention that both would have an equal (or joint) interest in it.
Net proceeds from the sale of the property
Interest in joint property continues to joint interest in cash proceeds
The trustee submits that the bankrupt and Mrs McAuley should be found to hold the home for each other as joint tenants. When they sold the home, that joint tenancy continued in the form of a joint interest in the net proceeds of sale.
The authority given for this is the judgment of Ward J (as her Honour then was) in Scott v Scott[6]:
In Abela v Public Trustee [1983] 1 NSWLR 308 at 314, Rath J considered the ways in which a joint tenancy may be terminated, those including by agreement between the joint tenants and by a course of conduct unequivocally evincing an intention to treat their interests as severed. The mere sale to a third party of their joint interest in the land does not itself sever the joint tenancy. Rather, it is converted into a joint interest in the sale proceeds.
Reliance was placed in this regard by Counsel for Mrs Scott (Mr Armfield) on the decision of Myers J in Re Debney [1960] SR (NSW) 471 and Young CJ in Eq as he then was, in Re Commonwealth Bank [2009] NSWSC 81. In Re Debney, Myers J held that the making of an order under s 66G of the Conveyancing Act 1919 did not sever the parties’ joint tenancy. Similarly, in Re Commonwealth Bank, a mortgagee sale did not sever the joint interest in the sale proceeds. In order to effect such a severance, there must have been either an agreement to sever (such as an agreement to sell and to divide the proceeds) or unequivocal conduct referable to a mutual intention of the parties not to continue the joint tenancy). Mr Armfield also referred to Nielson-Jones v Feddon [1935] 1 Ch R 222 as illustration of the proposition that mere sale, not accompanied either by actual agreement or by conduct of an unequivocal nature by both parties, does not lead to severance.
Accordingly, absent proof of an agreement or conduct evincing a common intention to sever their joint tenancy, on the sale of the Soldiers Point property the joint interest of the deceased and Mrs Scott in the land would have been converted into a joint interest in the sale proceeds (see, for example, Re Allingham [1932] VLR 469 where the unilateral conduct of the husband in paying the whole of the deposit into a separate bank account did not sever the joint tenancy).
[6] [2009] NSWSC 567 at [59]-[61]
Mrs McAuley’s contentions
Mrs McAuley defends this case on the following basis.
The legal title in the property vests in the bankrupt, now in his trustee, as to five per cent and Mrs McAuley 95 per cent.
The trustee contends that the equitable interest vests equally between him and Mrs McAuley, such that Mrs McAuley holds 45 per cent of the legal interest in the property on trust for him.
The basis for this contention is said to be the Cummins principle and the other so-called “marriage cases”.
On the basis of those cases, the trustee maintains that since the bankrupt contributed to the purchase price of the matrimonial home, through contributing as a joint borrower under the mortgage and, more contentiously, through his “householder labour and spending funds on household expenses”, is it to be inferred that the parties intended to have equal ownership of the matrimonial home.
The trustee’s contentions are said to be flawed both as a matter of principle and on the facts.
The starting point in exposing the flaws is a proper analysis of the legal principles contended for by the trustee.
Mrs McAuley submits that the Court can put aside reliance upon the so-called “marriage cases”. As Fullagar J explained in Thwaites v Ryan[7], those cases demonstrated a generous approach by the courts to find evidence of a trust in favour of a wife where the husband was the legal owner of the property of a share in the matrimonial home, and that such a trust arose from the outset.
[7] at 92
That approach is said to offer the trustee no assistance in this case against a wife.
What the trustee really relies upon is the Cummins principle.
What exactly the Cummins principle is, and how it affects other traditional equitable trust principles, and in particular the presumption of advancement, is by no means clear[8].
[8] Trust, Third Parties and the Family Home: Six years since Cummins and the confusion still reigns, L. Sarmas; Melbourne University Law Review Vol 36:216
Mrs McAuley submits that, at its highest, the Cummins principle is that, in the case of matrimonial homes where both husband and wife contributed to the purchase price, the starting point in determining equitable interests is not the legal interest (as per Murphy J, dissenting, in Calverley v Green[9]), nor the presumptions of equity – i.e. resulting trusts and advancement (being the traditional approach adopted by the plurality in Calverley v Green) but that each intended to have a one-half interest in the property[10].
[9] at 265
[10] Cummins at [71]
That was a radical departure from previous principle and the only reasoning behind that departure appears to be the endorsement of Professor Scott’s textbook[11].
[11] a proper understanding of the facts in Cummins and the purpose to which Professor Scott’s view was put in deciding that case may explain the High Court’s reasoning
But assuming that this was the effect of the High Court’s decision, and as subsequent cases have shown, it is not clear what the effect of the High Court’s decision is, in particular as to whether it intended to abrogate the long-established presumption of advancement in the arena of the matrimonial home, it is important to bear in mind that all that the principle stands for is that, as a starting point, it is to be inferred that joint ownership was intended.
Cummins and the other cases in this area do not suggest that the inferred intention of the husband and wife prevails over their actual intention.
The presumption of a resulting trust, the presumption of advancement and the Cummins principle are all tools that the Court can apply to infer an intention when there is not clear evidence of the parties’ actual intentions.
Ordinarily, the Court’s inference of intention is embraced by the party in whose favour it operates, such that the inference strengthens evidentiary gaps in the alleged actual intentions. For example, a wife owning the legal interest will readily argue that the husband intended to gift her the house as a defence where he paid for the house; a person who has paid for a property put in the name of a friend will readily argue that the friend held the property on a resulting trust for that person.
In the facts of this case, the Court must determine the intention of the bankrupt and Mrs McAuley at the time that the matrimonial home was acquired (or, if a constructive trust is contended for, at a subsequent time).
The trustee, understandably, seizes upon the Cummins principle to claim an inferred intention that they intended to own a half-share each.
However, the trustee is met with evidence from Mrs McAuley that displaces that inference.
Mrs McAuley explains that her husband and she expressly agreed that her ownership in the matrimonial home was to be absolute.
If that evidence is accepted, the trustee’s claim will fail.
Resolution of the competing claims
The legal principles
I accept the trustee’s submission that, unlike all other assets of a marriage, the matrimonial home has a special place in equity for equality between long term married couples. As the trustee notes in his closing submissions, this is a recurring theme in the marriage cases referred to above. In particular, in Calverley v Green, Mason and Brennan JJ refer with approval to Lord Upjohn’s inference of a joint resulting trust in Pettitt v Pettitt[12]. I also accept the trustee’s submission that the High Court in Cummins overrode the presumption of a resulting trust in favour of the wife in that case that ordinarily would have arisen because of her greater contribution to the acquisition of the matrimonial home. The High Court did so after adopting Professor Scott’s passage as a statement of principle. I accept that I would be bound to follow Cummins unless it can be distinguished.
[12] [1970] AC 777
In my opinion, however, Cummins can be distinguished on two bases, first in respect of the presumption of advancement and secondly on the basis of the actual intention of the parties in this case. First, in relation to the presumption of advancement I accept the submission of Mrs McAuley that the High Court’s judgment in Calverley v Green remains relevant. I refer in particular to the principle set out at page 246-247:
Where a person purchases property in the name of another, or in the name of himself and another jointly, the question whether the other person, who provided none of the purchase money, acquires a beneficial interest in the property depends on the intention of the purchaser. However, in such a case, unless there is such a relationship between the purchaser and the other person as gives rise to a presumption of advancement, ie, a presumption that the purchaser intended to give the other a beneficial interest, it is presumed that the purchaser did not intend the other person to take beneficially. In the absence of evidence to rebut that presumption, there arises a resulting trust in favour of the purchaser. Similarly, if the purchase money is provided by two or more persons jointly and the property is put into the name of one only, there is, in the absence of any such relationship, presumed to be a resulting trust in favour of the other or others. For the presumption to apply the money must have been provided by the purchaser in his character as such — not, for example, as a loan. Consistently with these principles it has been held that if two persons have contributed the purchase money in unequal shares, and the property is purchased in their joint names, there is, again in the absence of a relationship that gives rise to a presumption of advancement, a presumption that 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: Robinson v Preston (1858) 4 K & J 505 at 510 ; 70 ER 211 at 213 ; Ingram v Ingram [1941] VLR 95 and Crisp v Mullings [1976] EGD 730 (a decision of the English Court of Appeal).
As I have indicated, the general rule that in the situations mentioned it is presumed that a resulting trust arises in favour of the purchaser, or in favour of two purchasers in the proportions in which they contributed the purchase money, is subject to the exception created by the presumption of advancement. “It is called a presumption of advancement but it is rather the absence of any reason for assuming that a trust arose or in other words that the equitable right is not at home with the legal title”: Martin v Martin (1959) 110 CLR 297 at 303 ; in other words, it is “no more than a circumstance of evidence which may rebut the presumption of resulting trust”: Pettitt v Pettitt [1970] AC 777 at 814 ; [1969] 2 All ER 385 . The presumption arises when a husband makes a purchase in the name of his wife, or a father in the name of his child or other person to whom he stands in loco parentis. (counsel’s emphasis retained)
I accept Mrs McAuley’s submission that there are two important principles to draw from the High Court’s judgment: first, it is only in the absence of evidence that an inference of a resulting trust arises; and, secondly, the inference does not arise if the presumption of advancement applies.
I accept, further, the following submissions by Mrs McAuley as to the relevant principles to be applied. According to long established principles, if a wife contributes more than a husband to purchase a property, a resulting trust can arise in the absence of any evidence that it was a gift by her to him. If, however, a husband contributes more than a wife, a resulting trust cannot arise because the presumption of advancement applies such that, in the absence of evidence, it is presumed that the husband gifted the money to the wife.
Before turning to the Cummins case and considering whether the High Court changed these long-established principles, it is necessary to consider one further potentially confusing principle and that is the constructive trust.
Outside the context of a marriage (or even a de facto relationship), a legal owner of the property might encourage a non-owner of the property to spend money on improving or maintaining the property on the basis that the non-owner would have an interest in the property, such that it would be unconscionable to allow the legal owner to deny an equitable interest in the property to the other person. In those circumstances, a court can declare that the legal owner of the property holds the property on a constructive trust for himself and that other party.
That principle has been applied in the context of marriage relationships as well as de facto relationships, an example being Baumgartner v Baumgarnter[13] where the plurality held:
In Muschinski v Dodds a man and woman who had lived together for three years decided to buy a property on which to erect a prefabricated house and to restore a cottage. The woman was to provide $20,000 from the sale of her house and the man was to pay the cost of construction and improvement from $9000 he would receive on the finalisation of his divorce and from loans. The property was conveyed to them as tenants-in-common. Although some improvements were made by the man, the erection of the house did not proceed and the parties separated. The woman contributed $25,259.45 and the man $2549.77 to the purchase and improvement of the property. This court declared that the parties held their respective legal interests upon trust to repay to each his or her respective contribution and as to the residue for them both in equal shares.
Deane J (with whom Mason J agreed) reached this result by applying the general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them. His Honour said (CLR at 620; ALR at 455): “… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do: cf Atwood v Maude (1868) LR 3 Ch App 369 at 374-5 and per Jessel MR, Lyon v Tweddell (1881) 17 Ch D 529 at 531 .”
[13] (1987) 164 CLR 137
Given that the relationship between the bankrupt and Mrs McAuley has not broken down, there is no need to consider a constructive trust and the trustee has not put his case on this basis (and so the Court need not concern itself with the so-called “marriage cases” which assist a wife who is not on title in the face of a divorce).
Applying the above principles to this case, the starting point is therefore that, since the presumption of advancement applies, any over-contribution by the bankrupt is to be presumed to be a gift to Mrs McAuley.
The trustee resists that starting point by relying upon the Cummins decision, which requires specific attention. I prefer the submissions of Mrs McAuley on the interpretation of that decision.
Cummins v Cummins
The starting point in understanding Cummins is that it was not a case where the presumption of advancement arose.
The High Court made it clear from the outset of its reasoning that it was not dealing with the presumption of advancement: the High Court started its reasoning at [55] by recording that the generally accepted principles in this field were as set out by it in Calverley v Green and noted that the presumption of advancement did not arise against a wife, only a husband.
That is important because the trustee appears to rely upon [71] and [72] of Cummins to establish, in effect, that the High Court abolished the presumption of advancement.
The presumption of advancement did not arise because on the facts of the Cummins case, the wife contributed more than her bankrupt husband: her contributions were 76.3 per cent of the purchase price[14].
[14] at [14]
The property was jointly owned by the husband and his wife but the wife contended for a resulting trust in her favour (which she could, given the principles set out above) and this gave rise to the “resulting trust issue” identified by the High Court[15].
[15] at [43]
Mrs Cummins lost in her attempt to have a resulting trust declared for two reasons.
The High Court commenced its determination of that issue with the question posed at [57]: what was there to conclude at the relevant time that the face of the register did not represent the full state of the ownership of the matrimonial property and that the ownership as joint tenants was at odds with and subjected to the beneficial ownership established by trust law?
The first reason the Court found for answering that question in the negative was that the parties had acquired the property by way of a joint tenancy rather than tenants in common[16]. The Court concluded that it was unrealistic to suggest that the solicitor for Mr and Mrs Cummins had not advised them of the significance of taking title as joint tenants rather than as tenants in common[17]; in other words, if Mrs Cummins had intended to own more of the property than her husband, she would not have taken a joint tenancy.
[16] at [59]
[17] at [73]
The second reason was what Professor Scott, an American academic had said, as quoted by the High Court at [71]. Professor Scott point out the obvious fact that it was purely accidental, in a marriage where both husband and wife had purchased the matrimonial home, whose money went to paying the purchase price and whose money paid the groceries and other household expenses.
On the basis of what Professor Scott had said, which the High Court agreed with, there was no room to infer a resulting trust simply because Mrs Cummins happened to use more of her money to purchase the property than her husband, particularly, as the High Court noted at [72], where the title had been taken in the joint names of the spouses (and not, as in this case, as tenants in common).
Accordingly, the High Court did not abolish the presumption of advancement (which, if it had, one would have expected more than what was said in [71]).
I further accept the following submissions by Mrs McAuley in relation to the presumption of advancement.
The presumption of advancement starts with the Court presuming that any over payment of the purchase price by the bankrupt was intended to be a gift.
That presumption could be rebutted by evidence to show that it was not intended as a gift.
The evidence to rebut the presumption is not evidence of some unexpressed intention of the bankrupt: if a donor, having made a gift, and having expressly said that he was doing so, could revoke the gift by claiming that, notwithstanding what he told the donee, he had an unexpressed contrary intention, it would be a curious thing.
The NSW Court of Appeal explained the position in Neilson v Letch (No 2)[18] at [25]-[28]:
[18] [2006] NSWCA 254
Where two or more persons have contributed the purchase money in unequal shares and the property is purchased in joint names, there is, in the absence of a relationship that gives rise to a presumption of advancement, a presumption that 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 (Trustees of the Property of Cummins (a bankrupt) v Cummins [2006] HCA 6 at 224 ALR 280, 80 ALJR 589 at [55]). Calverley held that the presumption of advancement does not apply to a de facto relationship.
The resulting trust that is presumed in the circumstances referred to in the previous paragraph is itself capable of being displaced by evidence showing that the parties had a common intention to share an equal interest in the property and/or that the party making the disproportionate contribution intended that the parties would have an equal interest in the property notwithstanding. As an American judge (Lamm J) stated in Mackowik v Kansas City St J & C B R Co 94 SW 256, 262 (1906) :
Presumptions … may be looked on as the bats of the law, flitting in the twilight, but disappearing in the sunshine of actual facts.
Lord Upjohn said in Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 at 313:
In reality the so-called presumption of a resulting trust is no more than a long stop to provide the answer when the relevant facts and circumstances fail to yield a solution.
Evidence of the intention of the relevant party or parties may be drawn from contemporaneous statements of intention, subsequent admissions or inferred from the “facts as to subsequent dealings and of surrounding circumstances of the transaction” (Cummins at [65]). In Calverley, Mason and Brennan JJ (at 261) cited with approval Lord Diplock’s statement in Gissing v Gissing [1971] AC 886 at 906:
As in so many branches of English law in which legal rights and obligations depend upon the intentions of the parties to a transaction, the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party. On the other hand, he is not bound by any inference which the other party draws as to his intention unless that inference is one which can reasonably be drawn from his words or conduct. (counsel’s emphasis retained)
Recently, Robb J in Sharkey v Nissi[19] explained:
[19] [2015] NSWSC 1266 at [373]–[376]
I have already set out above an extract from the judgment of Mason P in Nielsen v Letch (No 2) at [28], where his Honour referred to the citation by Mason and Brennan JJ (as their Honours then were) in Calverley v Green (at 261), with approval, of Lord Diplock’s statement in Gissing v Gissing [1971] AC 886 at 906 that “ … the relevant intention of each party is the intention which was reasonably understood by the other to be manifested by that other party’s words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party“.
In Anderson v McPherson (No 2) [2012] WASC 19 ; (2012) 8 ASTLR 321 Edelman J said:
[155] The presumption of resulting trust can be rebutted by evidence which shows that the intention of Bruce and Carol at the time of the purchase of the Anstey Road property was that Troy and Stephannie would be entitled to the use and enjoyment of their legal title for their own benefit: Calverley v Green (251) (Gibbs CJ), (269) (Deane J).
[156] The references to “intention” in the paragraph above, and generally in this judgment, are references to objective, or manifest, intention. As I have explained at [98], the intention is not a subjective, uncommunicated intention but it “is to be inferred from what the parties do or say: Calverley v Green (261) (Mason & Brennan JJ), (270) (Deane J).
Further, in Ryan v Ryan [2012] NSWSC 636 Ward J (as her Honour then was) said:
[75] As to the possibility in the present case that the presumption of resulting trust might be rebutted by evidence as to the objective intentions of the parties at the time of the acquisition of the property, in Calverley v Green, Deane J noted that “[r]egardless of whether the circumstances are such as to bring the case into one of the categories of advancement, evidence of the relationship — both legal and factual — between the parties will always be admissible” and went on to say:
More importantly, the subsequent judgment of Dixon CJ, McTiernan, Fullagar and Windeyer JJ in Martin (at 303–5) accepted, as correct, statements of Stuart VC and Cussen J to the effect that, in a case where the subjective intention of a person is relevant, the evidence of that person of his intention at the time of the purchase is admissible notwithstanding that “it must in every case be liable to observations which tend to diminish its weight” (see also Devoy v Devoy(1857) 3 Sm & G 403 at 406 ; 65 ER 713 at 714; Fowkes v Pascoe (1875) 10 Ch App 343 at 349).
[76] In Anderson, Edelman J noted at [98] that the intention to be discerned in a resulting trust is an objective, manifest intention (not an unexpressed subjective intention) referring to Calverley v Green; Byrnes v Kendle [2011] HCA 26 ; (2011) 243 CLR 253; and Re Vandervell’s Trusts (No 2)[1974] Ch 269 at 294.
These authorities establish that the relevant intention of the purchaser in Mr Sharkey’s position is “an objective, manifest intention (not an unexpressed subjective intention)”. (counsel’s emphasis retained)
Assessment of the evidence
It is necessary to consider what the evidence discloses of the intention of the bankrupt and Mrs McAuley at the time the property was purchased in 1998. In that connection, it is instructive to consider the prior history of the couple in the purchase of various properties during the course of the marriage. The bankrupt and Mrs McAuley were married in about 1965. In 1973 they acquired land in Lindfield as joint tenants. Three years later the bankrupt acquired a property at Killara in his own name and the couple lived in it. In 1986 the bankrupt inherited land at Pagewood. In January 1987 Mrs McAuley purchased the house at Cremorne which became the family home. The property was purchased wholly in her name. This occurred prior to the disposal of the property at Pagewood and prior to the purchase of further land by the bankrupt in his own name at Gloucester. What can be seen from this history is that the couple purchased land at various times in joint names or singularly. That history supports an inference that the couple intended that they both should benefit from the properties collectively but does not support an inference that the couple intended any particular property would benefit both of them equally.
The Cremorne property was sold by the mortgagee in June 1992. Although this property was solely in Mrs McAuley’s name, she had unwisely permitted her husband to pledge it in support of his unsuccessful business ventures and neither she nor the bankrupt obtained any benefit from the sale.
Mrs McAuley gave evidence, which I accept, that she regarded the Cremorne property as security for her future because of previous strains in the marriage. That may be so but she acted inconsistently in permitted her husband to use that property as security for his business activities. The bankrupt may have been a good accountant but he was a poor businessman. He acted in the manner of Mr Micawber. For her part, Mrs McAuley attempted, not very successfully, to follow the maxim of the long suffering Mrs Micawber: experientia docet. With the benefit of hindsight, Mrs McAuley was foolish to facilitate his activities. The bankrupt avoided bankruptcy in 1992 by entering into a Part X agreement with his creditors. Mrs McAuley conceded under cross-examination that she was aware of this.
This brings us to the purchase of the property now in issue. The principles, which I have accepted, establish as a starting point the presumption that the bankrupt gifted any over contribution to the purchase price of the property to Mrs McAuley. The affidavit evidence of her and her son supported that presumption and they resisted attacks upon their credibility under cross-examination. Mrs McAuley gave evidence of several conversations with her husband which established a mutual intention that the property was to be hers completely. In short, having lost her entire investment previously, Mrs McAuley wanted to secure her future.
That intention could not be completely secured because of the insistence of the bank that the bankrupt be on the title. Mrs McAuley conceded under cross-examination that she had discussed with the bankrupt in 1997-1998 the need for a bank loan to purchase a property and of the bank’s requirements for a mortgage security over the property selected for both the home finance and a business overdraft to support the business activities of the bankrupt. Both the home loan and the overdraft were approved by the bank on 2 November 1998.
In my view, the concessions made by Mrs McAuley under cross-examination do not establish that she and the bankrupt abandoned their mutual intention that the property should be Mrs McAuley’s. There was a partial retreat, to the extent of five per cent, and, generally, Mrs McAuley and her husband accepted that the advancement of Mrs McAuley would be burdened both as to the five per cent legal title in favour of the bankrupt and the business overdraft. Mrs McAuley’s reluctant acceptance of the bankrupt’s interest in the property weakened but did not eliminate the presumption of her advancement. Further, the mutual intention of Mrs McAuley and the bankrupt, though modified, did not in essence change. The property was to be Mrs McAuley’s alone to the maximum extent permitted by the bank in the provision of its mortgage and business finance.
The trustee sought to reduce the weight of the evidence of the intentions of Mrs McAuley and the bankrupt on the basis that the bankrupt did not give evidence. There is, however, no property in a witness and either party could have called him. Both appeared reluctant to do so, possibly due to uncertainty about what he would say. In my view no inference should be drawn from that absence of evidence but, if an inference were to be drawn, it would be that the bankrupt’s evidence would not have assisted either party.
I find that, in contrast to the outcome in Cummins, there was no resulting trust in favour of the bankrupt and Mrs McAuley was entitled to retain 95 per cent of the net proceeds of the sale of the property.
The trustee is aggrieved not just about the outcome of the sale of the property but also the process by which the proceeds of the sale found their way into the hands of Mrs McAuley and were substantially spent in short order. In these proceedings, however, the trustee is suing to alter the outcome and does not claim any final relief because of the process. That process was opaque. The trustee had consented to the sale of the property on the understanding or condition that the proceeds of the sale would be held in a solicitor’s trust account while any competing claims to the proceeds were resolved. That did not happen because, unbeknownst to the trustee, Lachlan McAuley acted on the sale for the bankrupt and his mother and disbursed the proceeds of the sale to them from his trust account. Lachlan McAuley was cross-examined at some length about his role in the transaction. I accept his evidence that he was unaware of his father’s bankruptcy at the time he agreed to act and, on becoming aware, he was extremely angry and ceased to act for his father. He was not prevented from continuing to act for his mother and one can readily understand the moral pressure he felt to continue to assist her. When he was made aware of the trustee’s concern about the proceeds of the sale of the property, he acted on express instructions from his mother to disburse the proceeds of the sale.
In my opinion, Lachlan McAuley was entitled (and probably obliged) to act on those instructions. He had not given any undertaking to the trustee to retain the proceeds of the sale. Neither had the bankrupt or Mrs McAuley. The trustee was understandably surprised and concerned on learning that the proceeds of the sale had been disbursed and Mrs McAuley was no doubt anxious to get her hands on what she regarded as her entitlement before the trustee intervened to attempt to stop her, but I do not draw any adverse conclusion about the role played by Lachlan McAuley.
Conclusions
Having found that Mrs McAuley was entitled to receive 95 per cent of the net proceeds of the sale of the property, it follows that the claim by the trustee must fail. I will order that his application as amended be dismissed.
I will hear the parties as to costs.
I certify that the preceding one hundred (100) paragraphs are a true copy of the reasons for judgment of Judge Driver
Date: 23 February 2017
0