Young v Lalic - [2006] NSWSC 18

Reported Decision:
197 FLR 27

New South Wales

Supreme Court

CITATION: Young v Lalic [2006] NSWSC 18
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 10/10/05, 11/10/05, 10/11/05, 11/11/05, 16/12/05

JUDGMENT DATE :
10 February 2006

JUDGMENT OF: Brereton J

DECISION: (1) Declare that the land comprised in Folio Identifier 205/785818 situate at and known as Lot 205, 125 Eagleview Road, Minto Heights, New South Wales, is charged with payment to the plaintiff of the sum of $63,866. ; (2) Give judgment that the defendants pay the plaintiff the sum of $63,866.; (3) Grant liberty to the plaintiff to apply for further orders giving effect to the charge referred to in paragraph (1) in the event that the judgment in paragraph (2) is not paid within 28 days.; (4) Order that the cross-claim be dismissed.; (5) Order that the defendants pay the plaintiff’s costs.; (6) Order that the exhibits may be returned at the expiration of 28 days if no application for leave to appeal has been filed by that date.

CATCHWORDS: TRUSTS – Resulting or Constructive Trust - Tracing – Where recipient of funds does not know of receipt and provider of funds intends to retain beneficial ownership - “Windfall Equity” – EQUITY – ESTOPPEL – General principles – Equitable estoppel - Proprietary estoppel – Elements of proprietary estoppel – Creation by estoppel of subsidiary equitable interest in equitable estate itself arising by estoppel - whether remedy is to satisfy expectation, or charge – INTEREST - appropriate interest rate where constructive trustee unaware of trust property and earns interest at savings bank rate - FAMILY LAW AND CHILD WELFARE – THE FAMILY LAW ACT 1975 (CTH) AND RELATED LEGISLATION – Jurisdiction – Cross-vesting - Where Plaintiff’s claim is in part a matrimonial cause – Whether Supreme Court has jurisdiction in matrimonial causes – held, it does.

LEGISLATION CITED: Commonwealth Constitution, ss 71, 75, 76, 77, 77 (iii)
Contracts Review Act 1980 (NSW)
Corporations Act 1989 (Cth)
Family Law Act 1975 (Cth), ss 4(1), 39, 40, 60G, 63A, 78, 79
Family Law Amendment Act 1987 (Cth)
Judiciary Act 1903 (Cth), ss 78B
Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) ss 4(1), 7(5)(a), 9

CASES CITED: Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 58
Baumgartner v Baumgartner (1987) 164 CLR 137
Black v S Freedman & Co (1910) 12 CLR 105
Buckeridge v Glasse (1841) Cr & Ph 126; 41 ER 438
Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26
Chalmers v Pardoe [1963] 1 WLR 677
Chase Manhattan Bank v Israel-British Bank (London) Limited [1981] Ch 105
Commonwealth v Verwayen (1990) 170 CLR 394
Crabb v Arun District Council [1976] Ch 179
Giumelli v Giumelli (1999) 196 CLR 101
Gould & Gould; Swire Investments Ltd (1993) FLC 92-434
Grainge v Wilberforce (1889) 5 TLR 436
Grundt v Great Boulder Pty Gold Mines Limited (1937) 59 CLR 641
Hamilton v Geraghty (1901) 1 SR (NSW) Eq 81
Head v Teynham (1783) 1 Cox Eq Cas 57; 29 ER 1061
Henderson v Miles (No 2) [2005] NSWSC 867
In re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696
Jennings v Rice [2002] EWCA Civ 159
Lake v Bayliss [1974] 1 WLR 1073; [1974] 1 All ER 1114
Lane v Dighton (1762) Amb 409; 27 ER 274
Luke v Chamberlain [2000] NSWSC 626
Morris v Morris [1982] 1 NSWLR 61
Mulhall v Hartnell (1988) 12 Fam LR 361
Muschinski v Dodds (1985) 160 CLR 583
Nelson v Nelson (1995) 184 CLR 538
New Zealand & Australian Land Co v Watson (1881) 7 QBD 374
Perlman v Perlman (1984) 155 CLR 474
Re Lovett [1966] VR 65
Re Wakim; ex parte McNally (1999) 198 CLR 511; (1999) 163 ALR 270; (1999) 73 ALJR 839; (1999) 24 Fam LR 669
Sapir v Sapir (No 2) (1989) 13 Fam LR 362; FLC 92–047
Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466
Thompson v Palmer (1933) 49 CLR 507
Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387
Warby & Warby (2001) 166 FLR 319; (2001) 28 Fam LR 443; (2000) FLC 93-091
Willmott v Barber (1880) 15 Ch D 96

PARTIES: Tracey Michelle Young (Plaintiff)
Darinka Lalic (First Defendant)
Michael Lalic (Second Defendant)

FILE NUMBER(S): SC 3411/04

COUNSEL: M K Rollinson (Plaintiff)
P G Maiden SC (Defendants) (on 10-11 Oct)
J-J T Loofs (First Defendant) (on 10-11 Nov, 16 Dec)
B C Kasep (Second Defendant) (on 10-11 Nov, 16 Dec)

SOLICITORS: St James Legal Practice (Plaintiff)
Brenton Banfield (First Defendant)
Frontier Law Group (Second Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

10 February 2006

3411/04 Tracey Michelle Young v Darinka Lalic & Anor

JUDGMENT

1 HIS HONOUR: The plaintiff Ms Tracey Michelle Young, at the suggestion of the first defendant Mr Michael Lalic, whom she was soon to marry, deposited into a bank account of her prospective mother-in-law, the second defendant Mrs Darinka Lalic, a sum of $50,000. Ms Young says the deposit was a contribution towards the construction costs of a house to be built for her and Mr Lalic on Mrs Lalic’s land at Eagleview Road, Minto, but Mr Lalic says it was made by Ms Young to conceal it in order to evade child support responsibilities for her child of a previous relationship. The marriage between Ms Young and Mr Lalic broke down after only a few months. Ms Young now seeks to recover the $50,000 and contends that it is charged upon Mrs Lalic’s Minto land; Mr Lalic says that the money has already been repaid; and Mrs Lalic says that she knew nothing of the transaction and so has no liability in respect of it.

2 In these proceedings, Ms Young alleged that there was a contract between herself, Mr Lalic and Mrs Lalic that bound Mrs Lalic to convey the Minto land to Mr Lalic and Ms Young; alternatively, that Mrs Lalic held the Minto land on trust for the benefit of Mr Lalic and Ms Young; and alternatively, that Mrs Lalic was estopped from denying that Ms Young had an equitable interest in the Minto land. Ultimately, her counsel, Mr Rollinson, put her case chiefly on the basis of equitable estoppel, and submitted that the appropriate remedy was a charge for her expenditure.

3 In my judgment, Ms Young is entitled to succeed. In particular:-

Notwithstanding that her claim is, at least in part, a matrimonial cause, this Court has jurisdiction to determine it;
No part of the $50,000 has been repaid to her;
Even if it were accepted that Ms Young deposited the $50,000 only to evade child support and that Mrs Lalic had no knowledge of it, the deposited sum remained beneficially the property of Ms Young’s, and/or it would be unconscionable for Mrs Lalic to retain it for her own benefit;
If it were necessary to resolve the other issues:

o Mrs Lalic knew that Mr Lalic entertained an expectation that she would convey the Minto land to him, and in reliance on that expectation was outlaying money and labour on the construction of a home on it, and she did not disabuse him of that expectation. Mr Lalic acquired an equitable interest in the Minto land, because it would be unconscionable for Mrs Lalic to depart from the expected state of affairs, by refusing to convey the property to Mr Lalic, at least except upon terms that would avoid any detriment to Mr Lalic, which at a minimum would involve a charge for the expenditure and efforts outlaid;

o In turn, Mr Lalic knew that Ms Young entertained an expectation, which he positively encouraged, that Mrs Lalic would convey the Minto land to Mr Lalic and her, and that she was making the deposit into Mrs Lalic’s account on the basis that it would be applied to the costs of construction of a home for them on the Minto land. Ms Young obtained a subsidiary interest in Mr Lalic’s equitable interest, because it would be unconscionable for Mr Lalic to depart from the expected state of affairs, at least except upon terms that would avoid the detriment that Ms Young would otherwise suffer – which, at a minimum, would involve a charge for repayment of the deposited sum.

Background

4 Ms Young and Mr Lalic first met some time between September and November 1998. A year later, they purchased a property at 86 Bolaro Avenue, Greystanes, in the name of Ms Young, for about $237,500 plus costs, to which Ms Young contributed $27,436.50 and Mr Lalic $29,976.62, and $200,000 was borrowed from Westpac. Having resided in a de facto relationship from January 1999, they separated in March 2001, and on or about 10 July 2001 entered into a termination agreement under the Property (Relationships) Act 1984 (NSW). Pursuant to that agreement, the Greystanes property was sold for $342,500, and after repayment of the Westpac mortgage, which had been reduced to about $182,000, and payment of agents’ commission and costs of sale, $27,436.50 was returned to Ms Young, $29,976.62 to Mr Lalic, and the balance (which was about $100,000) was divided equally between them. Ms Young therefore received a total of a little in excess of $75,000.

5 Ms Young and Mr Lalic resumed cohabitation, at 10/17 Blaxland Avenue, Newington, in July or August 2001. Mr Lalic says that, “once burnt, twice shy”, he was at first reluctant to resume the relationship with Ms Young, and Mrs Lalic says that, after the previous breakdown of the relationship, she was distrustful of Ms Young.

6 Ms Young had spent some, but retained at least $50,000, of the proceeds that she had received from the Greystanes property. She says that in August 2001, Mr Lalic suggested that, to prove that she was trustworthy, she pay $50,000 to his mother Mrs Lalic, which sum would be applied towards the costs of building a home for Ms Young and Mr Lalic on Mrs Lalic’s Minto land. Mr Lalic denies that there was any such conversation.

7 On 5 October 2001, Ms Young purchased, from Westpac, a bank cheque in favour of Mrs Lalic for $50,000. She says that at that time Mr Lalic again proposed that they build a house together on the Minto land, which his mother would give to them. Mr Lalic denies any such conversation: he says that Ms Young asked him if she could put $50,000 into his bank account to avoid having to pay her first husband child support, and that he replied that she should make the cheque out in his mother’s name and that he would deposit it into Mrs Lalic’s bank account, and that his mother would not know that it was there. According to him, he said to Ms Young, “My mother will not know the money is in the account and you can have it back in cash when you want it”. But in cross-examination by Mr Rollinson, Mr Lalic said that he had asked his mother if Ms Young could deposit some money into her account, to which his mother had said no and that she wanted nothing to do with it. Mrs Lalic also says that during a visit to her home by her son and Ms Young, Mr Lalic once asked if Ms Young could put some money in her account, and that when Mrs Lalic asked why, Mr Lalic replied that it was because Ms Young’s husband was chasing her for money and she could not have money in her bank, whereupon Mrs Lalic refused the request. Mr Lalic says that he, nonetheless, proceeded with the deposit without his mother’s knowledge or approval.

8 On 8 October 2001, Ms Young’s bank cheque was deposited into a V2 account at the ANZ Bank Liverpool in the name of Mrs Lalic. Mrs Lalic says that she was unaware that the money was to be deposited into her account, and she denies that she was present when it was deposited. Ms Young says that she attended at the bank with Mr Lalic and his mother for the purpose of opening the account and depositing the bank cheque into it, but it is clear from the bank account statements that the V2 account into which the cheque was deposited had been opened some months earlier.

9 Ms Young’s evidence in this respect is demonstrably incorrect, since the V2 account had been opened months earlier, and it is on a highly material matter. Ms Young denied that she had fabricated her version, to which she adhered - despite the documentary evidence that contradicted it, for which she could offer no explanation. However, the probable explanation is that Ms Young has confused occasions. Moneys were, at a later date, transferred from Mrs Lalic’s V2 account into a new cheque account in Mrs Lalic’s name which was used to fund the construction costs: Mr Lalic said that his mother had three or four accounts with the ANZ Bank at Liverpool, investment accounts, savings accounts and cheque accounts, and it was the cheque accounts that were used to pay for the construction of the house; and according to Mrs Lalic, at some stage money was transferred from one account to another, because she needed a cheque book to pay the builders. Ms Young kept a record of expenditure on the project in a notebook, including the date and whether it was by cash or cheque; the cheques were drawn on an account of Mrs Lalic with the ANZ bank, number 5387-08027, which is not the V2 account into which the $50,000 was initially deposited, though it is at the same bank and branch, and it was to this cheque account that the money in the V2 account was probably transferred. The first cheque drawn on the cheque account is numbered 001001 and appears to be dated 2 June 2002 (to Econocycle, for $500), and it is a reasonable inference that the cheque account was opened not long before then. Mrs Lalic is a signatory to that account, and she probably attended at the bank when it was opened. Ms Young may well have confused the occasion of the opening of this cheque account – to which money was to be transferred in order to enable payment of construction costs - with the occasion on which the $50,000 was first deposited to the V2 account. Accordingly, although Ms Young’s evidence was shown in this respect to be inaccurate, I do not regard it as seriously adverse to her credit generally.

10 In or about December 2001, an engineer, Craig Keen, prepared plans for a house on the Minto land. Mr Lalic selected the design. He says that he had agreed with his mother that he would assist her in the construction of the house and the organisation of the various necessary trades. He lodged a development application naming himself as applicant bearing the consent of his mother as owner on or about 9 January 2002. He denied that Ms Young played any part in its preparation; however, Ms Young’s handwriting appears on the application. A supplementary development application, for a septic tank, was lodged on 22 March 2002. It was completed in Ms Young’s handwriting, and names her as applicant. It was accompanied by a letter prepared by Ms Young and signed by Mrs Lalic as owner, consenting to the application. Development approval was granted on 8 April 2002, when a construction certificate was issued. Construction work commenced in or about May 2002. Many of the persons who worked on the project were Mr Lalic’s associates. Ms Young says that at the time when construction work commenced, Mr Lalic again said that his mother would give them the house and land after they married; Mr Lalic denies any such conversation.

11 Although Mr Lalic and Mrs Lalic both denied that Ms Young played any part at all in the preparation, planning and conduct of the construction of the home on the Minto land, their evidence in that respect was demonstrably incorrect. There are too many documents, relevant to the approval process, which bear what is indisputably Ms Young’s handwriting - many of them signed by Mrs Lalic - to permit any other conclusion. Ms Young was obviously involved in preparing the development application for the home, and the additional application in respect of the septic tank; in dealings with Bioseptic in respect of the installation of the septic tank; and in drawing cheques for signature by Mrs Lalic for payment of various related accounts. Ultimately, with reference to photographs, Ms Young identified a fence that she had assisted to erect. The position adopted by Mr and Mrs Lalic in this respect is adverse to their credit generally.

12 In about April 2002, Ms Young and Mr Lalic agreed to marry. Mrs Lalic says that she was strongly opposed to this. Mr Lalic instructed a solicitor, David James Duncomb, to prepare a pre-nuptial agreement, a draft of which was provided to Ms Young. Relevantly, Recital G in that draft was as follows:-

It is anticipated Michael will receive by way of gift from his parents the following:-

(a) the proceeds of sale or in the alternative various real estate properties purchased with the proceeds of sale of a property situate at and known as Lot 7 Illaro Road, Hoxton Park currently owned by his parents;

(b) the property situate at and known as Lot 205 Eagleview Road, Minto Heights upon which Michael is currently attending to construction of a dwelling from income generated by his company Lalic Corp Holdings Pty Limited trading as ‘Metro Motor Traders’;

13 The draft contained a provision to the effect that Mr Lalic, to the exclusion of Ms Young, would retain all real estate transferred to him by his parents or cash sums provided by them, and all inheritances received by him from them.

14 Ms Young sought a number of amendments, without which she refused to sign the agreement, and which she endorsed on the draft in hand. They included (but were not limited to) Recital G(b), which she proposed be amended to read as follows:-

and Tracey

both parties

15 Ms Young says that she and Mr Lalic visited Mrs Lalic at her Hinchinbrook home, and that following a conversation in Serbian between Mrs Lalic and Mr Lalic, Mr Lalic said to her: “My mother was asking about the pre-nuptial agreement and whether you had signed it or not. I told her you had not signed it yet and she said to me that she was worried about the house we were building, and also about the land”. Mrs Lalic is said to have then interjected: “I will put the land in your and Michael’s name once you are married as a wedding present. I only want the pre-nuptial to protect my assets in case you and Michael don’t stay together”. Mrs Lalic denies that there was any such conversation; she says she knew nothing of any prenuptial agreement, and she adds, and Mr Lalic agrees, that she had already advanced substantial sums to him, and was not minded to provide further property to him.

16 Although it was not referred to in the affidavit evidence, it emerged during the hearing that following Ms Young’s request for amendments, Mr Lalic had his solicitors prepare a revised draft of the proposed financial agreement, which Mr Lalic signed, apparently in the presence of Mr Duncombe, who gave the appropriate certificate under Family Law Act, s 90G, on Thursday 4 July 2002, with the marriage to take place on Sunday 7 July. A version of this revised draft was produced in the course of the hearing, which bears a signature in the space provided for the signature of “Tracey Michelle Young”, and which purports to be witnessed by “J Maait”, a solicitor who practices in Parramatta, and whose signature purportedly appears on the appropriate certificate of advice to Ms Young. It was when this document came to the notice of Mr Maiden SC, who at first appeared for both Mr Lalic and Mrs Lalic, that, on the second day of the hearing, the defendants sought an adjournment to permit them to obtain separate representation. During the adjournment, a subpoena was issued to Mr Maait, who attended to answer it on the adjourned hearing. However Mr Kasep, who thereafter appeared for Mr Lalic, did not call Mr Maait, but asked that he be excused.

17 In the revised draft signed by Mr Lalic, Recital G(b) had been amended to read as follows:-

(b) the property situate at and known as Lot 205 Eagleview Road, Minto Heights upon which Michael is currently attending to construction of a dwelling from income generated by his company Lalic Corp Holdings Pty Limited trading as ‘Metro Motor Traders’ and to which Tracey will also be contributing the sum of $50,000.

18 A new operative clause 6 was inserted, which provided as follows:-

6. Michael shall pay to Tracey the sum of $50,000 contributed by her to construction of the dwelling on the property situate at and known as Lot 205 Eagleview Road, Minto.

19 Ms Young recalled having been provided with the revised draft to read, but said that she paid little attention to it. She denied that she had ever signed it. An attempt was at one stage foreshadowed to show that Ms Young’s handwriting appeared on the revised draft financial agreement, and Mrs Lalic claimed to recognise Ms Young’s handwriting on that document. That evidence of Mrs Lalic was plainly incorrect; inspection of the documents and comparison of the handwriting showed clearly that what Mrs Lalic claimed was Ms Young’s handwriting was not; and the foreshadowed submission was ultimately not made. Mrs Lalic’s evidence in this respect is adverse to her credit generally.

20 Mr Lalic gave evidence that he and Ms Young together attended a solicitor’s office in George Street, Parramatta, and that Ms Young entered the solicitor’s room and emerged with the revised draft financial agreement signed and attested, which also cannot be accepted. Ms Young denies ever having consulted Mr Maait, and says that the signature over her name is not hers. The signature is plainly not her ordinary signature. Mr Lalic was able to describe neither where in George Street, Parramatta, the office they allegedly attended was, nor anything else about the office. Despite Mr Lalic’s evidence which, if accepted, would have supported an inference that Ms Young had signed the revised draft financial agreement in the solicitor’s office, it was not submitted on behalf of Mr Lalic that there was in fact a duly executed financial agreement. Mrs Lalic suggested that on occasions Ms Young signed with her left hand in order to disguise her signature, but no suggestion was put to Ms Young that she had done so in this instance. Had she signed the document in Mr Maait’s office, then Mr Maait’s evidence might have cast light on the issue, but, although subpoenaed on behalf of Mr Lalic, he was not called.

21 It is not necessary to rely on any Jones v Dunkel inference which might arise from the failure to call Mr Maait to conclude that the document was not signed by Ms Young, and that the signature which purports to be hers is not hers, but has been forged: there is no direct evidence that she signed it; a comparison of the questioned signature with her signature on other documents supports her denial that she signed it; and although an inference that she did might be supported by Mr Lalic’s version of the visit to a solicitor’s office, his description of the circumstances is so lacking in any detail which might corroborate it that it is unpersuasive – more so in the light of the other matters adverse to his credit to which I refer above and below. [Mr Kasep submitted that it was inappropriate to draw a Jones v Dunkel inference in circumstances where no party contended that there was a valid financial agreement, and in particular Mr Lalic did not propound or rely on any such agreement, and additionally because Mr Maait could not be said to be a witness who Mr Lalic should have been expected to call. Although there was an issue of fact in the proceedings – even if not a material pleaded fact - about execution of the financial agreement, and although, in the light of Mr Lalic’s evidence of the circumstances in which he asserts that the financial agreement was executed, it might well be expected that Mr Maait would be able to corroborate that version if it were true, and that Mr Lalic was in the best position to know what Mr Maait would say if called, I have resolved this issue without resort to any such inference].

22 A copy of the financial agreement was, however, forwarded to Mrs Lalic’s address, where Mr Lalic apparently placed it in her safe. Mrs Lalic says that when the financial agreement was received at her home through the mail, Mr Lalic told her that it was a pre-nuptial agreement with Ms Young, and when she asked why he had done it he said “Mum, in the future you will give me some property. I don’t like Tracey take anything from me”.

23 The draft financial agreement was prepared on Mr Lalic’s instructions and for his (and possibly his mother’s) benefit. He executed the revised version. It was put to Ms Young in cross-examination that it contained the true agreement of the parties, which she denied, but which if admitted would have assisted advancement of a case that she was limited to looking to Mr Lalic for repayment of $50,000, and was not entitled to have recourse to the property, and rebuttal of Ms Young’s case against Mr Lalic’s mother - which was all the more significant when her claim was pressed, as it then was, as one for a half interest in the property. Accordingly, there was some benefit for Mr Lalic in asserting (as he did, at least indirectly, in his oral evidence, by his description of the events at the Parramatta solicitor’s office) that Ms Young had executed the revised draft. The only other person potentially interested in having a prenuptial agreement was his mother. Although Mrs Lalic says that she had nothing to do with the pre-nuptial agreement, it is to say the least curious that once “executed” it was forwarded to her address; and as Mr Lalic at the time had no assets of significance which he might want to “protect” by such an agreement, it is probable that he was under some pressure from his mother to secure his position vis-à-vis Ms Young before the wedding.

24 Mr Lalic and Ms Young were married on 7 July 2002. Ms Young says, but Mrs Lalic denies, that that day, at her Hinchinbrook home, Mrs Lalic said to them: “I am going to give you and Michael the property. I will sign over the land. I am going to investigate the cost to do that”.

25 Between 18 January 2002 and 4 October 2002, moneys totalling about $150,000 were expended by Mr Lalic and Ms Young on construction costs, largely but not exclusively from Mrs Lalic’s cheque account. The sources for these funds included Ms Young’s $50,000, and apparently also other moneys already in Mrs Lalic’s account, and, to some extent, income received by Mr Lalic and Ms Young. Ms Young says that in addition to the payments which were made or reimbursed from Darinka Lalic’s account, she also personally paid from her own pocket $715 to Bioseptic on 22 March 2002; $100 to the Department of Fair Trading on 11 January 2002; $23.40 to Kopy Kolor on 19 April 2002; $78.00 to Kinko’s on 15 January 2002; $30.00 to Kmart on 5 June 2002; and $676.50 to National Hire, on 1 July and 6 November 2002 - a total $1,622.90, all referrable to the construction of the Minto house.

26 Ms Young maintained a record of this expenditure in a notebook, she says with Mr Lalic’s knowledge and encouragement. Mr Lalic denied any knowledge of any such record, and said that the only record was one kept by him in a notebook. He produced a copy of that notebook. However, the entries in his notebook contain certain discrepancies as to the sequence and date of payments. The overwhelmingly probable explanation for those discrepancies is that Mr Lalic’s record was copied from Ms Young’s - since one of the discrepancies in his record appears to be the result of a misreading of an entry in Ms Young’s record: neither Mr Lalic nor his counsel could offer any other explanation. It follows that Mr Lalic’s evidence that he did not know of Ms Young’s record, and that his was the only record, is incorrect, and is adverse to his credit generally; and as I find that he copied his record from Ms Young’s, but presented it as his own original record, it raises questions as to the authenticity and provenance of other, similar, records produced by him.

27 The marriage deteriorated rapidly and the parties separated between late August and early October 2002. Ms Young says that Mr Lalic left in October 2002. He says that she left in late August 2002, to live with one Stephen Carbonaro. In any event, by the end of September 2002 Ms Young was pregnant by Mr Carbonaro, to whom she gave birth to twins on 2 July 2003.

28 Ms Young says that shortly after Mr Lalic left in October 2002, she asked him: “When am I going to get my money back?”, and he replied: “Never”. On 6 February 2003, Ms Young lodged a caveat in respect of the Minto land.

29 On 10 February 2004, solicitors for Ms Young wrote to Mrs Lalic, asserting that Ms Young had provided Mrs Lalic with a bank cheque for $50,000 that had been applied to improvements to the Minto land with Mrs Lalic’s knowledge and agreement. The letter asserted that in May or June 2002 Mrs Lalic had said to Mr Lalic and Ms Young: “I will put the land in your and Michael’s name once you are married as a wedding present”, and on several occasions in following months had said: “I am going to transfer the land into your names”. The letter demanded conveyance of the property to Mr Lalic and Ms Young, or alternatively $420,000 – which was said to be one-half of its then value. Mrs Lalic says that it was following this correspondence that, as a result of inquiries made by her of Mr Lalic, she first learnt that the $50,000 had been deposited to the credit of her account. Although there is some slight evidence from Mrs Lalic that Ms Young told her that she had paid money to her, Mrs Lalic dates this to 11 June 2004; in any event, on Mrs Lalic’s version she made enquiry of her son who told her that it was nonsense, and there is no suggestion that she believed that $50,000 had been deposited to her account, let alone that she had been given that sum, before the demand for repayment was made.

30 Ms Young commenced these proceedings on 11 June 2004. Following the service of a lapsing notice, her caveat was extended by order made on 16 September 2004.

31 A decree nisi for dissolution of the marriage became absolute on 25 February 2005.

The Jurisdictional Question

32 In these proceedings, Ms Young claims an interest in property, which is held legally by Mrs Lalic, but in which she alleges that Mr Lalic also has an equitable interest. Thus Ms Young is seeking, against her former husband Mr Lalic as well as his mother, Mrs Lalic, orders relating to the proprietary interests of each of them in the Minto land. Proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them, being proceedings arising out of the marital relationship, or in relation to concurrent, pending or completed divorce proceedings between those parties, are a matrimonial cause within paragraph (ca)(i) or (ii) of the definition of that term in Family Law Act 1975 (Cth), s 4(1). These proceedings are, at least in part, between the parties to a marriage, they are with respect to property alleged to be of them or either of them (namely, beneficial interests in the Minto land), and they arise out of the marital relationship and/or relate to completed divorce proceedings between them. They are, therefore, at least in part a matrimonial cause.

33 At the pre-trial directions hearing, Mr Rollinson sought leave to amend the statement of claim to invoke Family Law Act, s 78, which confers on courts having jurisdiction under that Act, in proceedings between the parties to a marriage with respect to existing title or rights in respect of property, the power to declare the title or rights, if any, that a party has in respect of the property. As between Ms Young and Mr Lalic, these are proceedings between the parties to a marriage with respect to existing title or rights in respect of property, namely the Minto land, in which Ms Young asserts that they have an equitable interest, in respect of which she seeks a declaration of the rights, if any, that she has. Accordingly, the plaintiff’s claim in these proceedings is, at least against Mr Lalic, properly brought under the Family Law Act, s 78.

34 Since the repeal, in 1988, of sub-s 78(3), the power conferred by the section extends to bind third parties: as the Full Court of the Family Court (Nicholson CJ, Finn and Strickland JJ) said in Warby & Warby (2001) 166 FLR 319; (2001) 28 Fam LR 443; (2000) FLC ¶93-091 (at 88,792):-

Family Law Act

ratio decidendi

Gould & Gould; Swire Investments Ltd

Family Law Act

obiter dicta

35 Accordingly, the whole of Ms Young’s claim, including as against Mrs Lalic, is within s 78. In any event, to the extent that s 78 did not confer power on courts exercising jurisdiction under the Family Law Act to make such declarations in respect of the property of third parties to the marriage so as to bind them, this court would plainly have power to do so.

36 At the outset of the hearing, Mr Maiden SC, who then appeared for both defendants, made an application to the effect that the leave granted at the pre-trial directions hearing to file the amended statement of claim, invoking Family Law Act, s 78, be revoked, and that the proceedings be transferred to the Family Court of Australia. I refused that application, for reasons that I outlined then, but indicated would be explained in the final judgment.

37 In my opinion, this court has, since the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (“the Commonwealth Cross-vesting Act”), all the jurisdiction of the Family Court of Australia in matrimonial causes (subject to a limitation which is irrelevant for present purposes in respect of proceedings under Family Law Act, s 60G).

38 Originally, under Family Law Act, s 39, matrimonial causes could be instituted in the Supreme Court of a State or Territory as well as in the Family Court of Australia [Family Law Act, s 39(1)], and the Supreme Courts were invested with federal jurisdiction with respect to matrimonial causes [Family Law Act, s 39(5)]. However, provision was made for the Governor-General to fix by proclamation a date from which matrimonial causes and other proceedings referred to in s 39(5) may not be instituted in or transferred to the Supreme Court of a State or Territory [Family Law Act, s 40(3)]. A proclamation dated 27 May 1976, published in Gazette 1976, No S86, 1 June 1976, fixed 1 June 1976 as the date on and after which proceedings of certain classes may not be instituted in, inter alia, the Supreme Court of New South Wales, so as effectively to make the jurisdiction of the Family Court in matrimonial causes exclusive from that date, except in relation to causes already pending or related to those already pending. A further proclamation dated 23 November 1983, published in Gazette 1983, No S288, 24 November 1983, fixed 25 November 1983 as the date on and after which proceedings that are the matrimonial causes referred to in s 39(5)(a) or (b), or proceedings referred to in s 39(5)(c), (d) or (e), may not be instituted in, inter alia, the Supreme Court of New South Wales. Its effect was to ensure that the Supreme Courts were divested of any jurisdiction they may have (probably unintentionally) acquired in relation to matrimonial causes within those paragraphs of the definition of matrimonial cause which had been added since the first proclamation, and thus might not have been covered by the first proclamation: see Perlman v Perlman (1984) 155 CLR 474 (per Gibbs CJ). That brought to an end the jurisdiction of this court in matrimonial causes, until the commencement in 1998 of the cross-vesting scheme created by the various Jurisdiction of Courts (Cross-vesting) Acts of 1997 of the various States and the Commonwealth (“the Cross-vesting Acts”).

39 However, the Commonwealth Cross-vesting Act, s 4(1), invests all State Supreme Courts with jurisdiction with respect to civil matters with respect to which the Family Court of Australia has jurisdiction (subject to a limitation in respect of “special federal matters”, of which the only relevant instance is that created by Family Law Act, s 60G). This new investing of State Supreme Courts with jurisdiction superseded the removal of jurisdiction by the proclamations of 1976 and 1983 pursuant to Family Law Act, s 40(3).

40 In Mulhall v Hartnell (1988) 12 Fam LR 361, Young J, as his Honour the Chief Judge then was, held that this court had jurisdiction in respect of the custody of a child in proceedings which, though they had been instituted before the commencement of the Commonwealth Cross-vesting Act, came to be heard after its commencement. Family Law Act, s 63A, which was included in Pt VII by the Family Law Amendment Act 1987 (Cth), made it mandatory to proceed under that Part for an order for custody. His Honour accepted that s 63A had the effect that the jurisdiction of the Supreme Court to deal with parental rights and responsibilities in respect of ex-nuptial children was prima facie excluded, but observed that the Commonwealth Cross-vesting Act, which had since come into force, reinvested the Supreme Court with jurisdiction in cases in which, because of the Family Court’s exclusive jurisdiction, it would not otherwise have had jurisdiction.

41 Although s 63A is not relevant in the present case, the Commonwealth Cross-vesting Act has the same effect in respect of matters that were removed from the jurisdiction of the Supreme Courts not by s 63A but by the proclamations made pursuant to Family Law Act, s 40(3). This is illustrated by the circumstance that in Sapir v Sapir (No 2) (1989) 13 Fam LR 362; FLC ¶92–047 – in which proceedings for property adjustment under Family Law Act, s 79 had been transferred to this Court - Young J also, in exercise of cross-vested jurisdiction, pronounced a decree nisi for dissolution of marriage.

42 It is a misconception that before cross-vested jurisdiction can be exercised, the proceedings must first be “cross-vested” pursuant to some application or order of either Court. The Supreme Courts are simply invested, by the Commonwealth Cross-vesting Act, with the jurisdiction of the Family Court, notwithstanding the previous exclusivity of the jurisdiction of that Court. The invocation of the cross-vested jurisdiction in inappropriate matters is controlled by the power to transfer, contained in s 5 of the Commonwealth Cross-vesting Act, so that if a party commences family law proceedings in the Supreme Court when the Family Court is clearly the appropriate forum, the Supreme Court – although it has jurisdiction to entertain and determine the proceedings - may transfer them to the Family Court.

43 This position is unaffected by the decision of the High Court in Re Wakim; ex parte McNally (1999) 198 CLR 511; (1999) 163 ALR 270; (1999) 73 ALJR 839; (1999) 24 Fam LR 669, in which the High Court held that the Commonwealth Cross-vesting Act, s 9, which purported to confer state jurisdiction on federal courts (and an equivalent provision in the Corporations Act 1989 (Cth)), was invalid. That decision struck down the cross-vesting scheme only in so far as it purported to vest State jurisdiction in federal courts, including the Family Court, but not in so far as it invested State courts with federal jurisdiction. The Commonwealth Cross-vesting Act (and the Commonwealth Corporations Act) purported to confer on each of the Federal Court, the Family Court and the Supreme Courts of the Territories, the jurisdiction conferred on such court by the Commonwealth Cross-vesting Act, and by any state Cross-vesting Act. Each state Cross-vesting Act purported to confer on the Federal Court, the Family Court, the Supreme Court of other States and Territories, and the State Family Court of another State, original and appellate jurisdiction with respect to state matters (other than criminal proceedings). State matters were defined as matters in which the Supreme Court of the State had jurisdiction otherwise than by reason of a law of the Commonwealth or of another State. The respective Corporation Acts made similar provision.

44 The leading judgment in the High Court was that of Gummow and Hayne JJ, with whom Gleeson CJ and Gaudron J concurred. Their Honours held that the effect of the Commonwealth Cross-vesting Act and the Commonwealth Corporations Act was to attempt to confer jurisdiction in State matters on the Federal (and Family) Courts. Their Honours said that while it may be that the parliament of a State could pass a law that provides, in effect, that the courts of another polity (such as another State, or the Commonwealth), within or outside the federation, would have jurisdiction over certain kinds of matter, that law will be of no effect unless the courts of that other polity give it effect. That, in turn, directs attention to what the law of that other polity provides. What gives courts the authority to decide a matter, is the law of the polity of the courts concerned, and not some attempted conferral of jurisdiction on those courts by the legislature of another polity.

45 From the proposition that the Commonwealth parliament may not confer original jurisdiction on the High Court except in relation to a “matter” - because s 76 of the Commonwealth Constitution is the exclusive source of power to confer original jurisdiction on the High Court - it followed that the jurisdiction that may be conferred on a federal court under s 77 of the Commonwealth Constitution was similarly limited to the heads identified in ss 75 and 76, and no other polity could confer jurisdiction on a federal court. Ultimately, their Honours concluded [Re Wakim, [127]], the Commonwealth legislation that purported to confer state jurisdiction on federal courts was invalid - although some of the proceedings before the Court in Re Wakim were held to be within the jurisdiction of the Federal Court on the basis of its accrued jurisdiction [Re Wakim, [134-150]].

46 McHugh J, with whom Callinan J concurred, also held that the Commonwealth Corporations Act and the State Corporations Act, and the Commonwealth Cross Vesting Act and the State Cross Vesting Act, were invalid in so far as they purported to confer on the Federal Court jurisdiction to exercise state judicial power [Re Wakim, [33], [50]].

47 Neither in Re Wakim, nor in Gould v Brown, which preceded it, was it held - or even suggested - that the cross-vesting legislation was invalid or beyond power, in so far as it conferred federal jurisdiction on state courts. Each judgment expressly limited the holding to the operation of the Commonwealth Cross-vesting Act in purporting to confer state jurisdiction on federal courts. The reasoning, as explained above, is unique to the conferral of jurisdiction on Commonwealth, not State, courts. Plainly, the Commonwealth has power to invest State Courts with federal jurisdiction [CommonwealthConstitution, ss 71, 77 (iii)]. The Commonwealth Cross-vesting Act purports to do so, and to that extent has not been held invalid. Accordingly, jurisdiction in matters with respect to which the Family Court has jurisdiction under the Family Law Act is cross-vested, still, in all the state Supreme Courts. All that has been struck down is the conferral of state jurisdiction on Federal Courts, including the Family Court. This means that the jurisdiction of the Family Court remains - as it has been since 1988 - non-exclusive, to the extent that pursuant to the Commonwealth Cross-vesting Act its jurisdiction is also vested in the State Supreme Courts.

48 It follows that this court, as one of the State Supreme Courts, continues to enjoy all the jurisdiction of the Family Court of Australia in matrimonial causes. Accordingly, this court has jurisdiction in these proceedings, in so far as they include a matrimonial cause. And this court is plainly not a clearly inappropriate forum to entertain proceedings between wife, husband and mother-in-law for equitable relief.

49 It was for these reasons that the application for revocation of the leave granted to amend the statement of claim to invoke Family Law Act, s 78, and otherwise to transfer the proceedings to the Family Court, was dismissed. Once consequence of the exercise by this Court of cross-vested jurisdiction, however, is that any appeal from this judgment apparently lies to the Full Court of the Family Court, and not to the Court of Appeal of this Court [Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), s 7(5)(a)].

50 Mr Maiden suggested that the issue of the jurisdiction of this court to entertain matrimonial causes was one that required notification to the Attorneys-General under Judiciary Act 1903 (Cth), s 78B. However, as will be apparent from the foregoing discussion, no question under the Commonwealth Constitution arises. At the highest, the question is one involving construction of the Family Law Act (in particular ss 39 and 40), and the Commonwealth Cross-vesting Act. That is not a question “under the Constitution” such as to require notice under s 78B of the Judiciary Act.

Was the $50,000 repaid?

51 Although, as appears from the factual background above, there was extensive disagreement on factual matters, ultimately only one major factual issue is crucial to the decision: Mr Lalic’s assertion that he repaid the $50,000 to Ms Young.

52 In his original affidavit evidence, Mr Lalic simply asserted that, having told Ms Young at the time when the deposit was first discussed, “My mother will not know the money is in the account and you can have it back in cash when you want it”, he repaid Ms Young in cash payments over a period of time as and when she requested it. In other words, what he described was a proposal simply to “park” the $50,000 in his mother’s account, and to repay Ms Young as and when she requested.

53 In a later affidavit, sworn on 29 September 2005, Mr Lalic says that after an extensive search of his business records, he located a notebook in which he claims to have recorded the repayments to Ms Young, entitled “Tracey’s $50k repayment”, which purports to record the repayment to her of cash totalling $52,000 on numerous occasions between 15 October 2001 and 24 May 2002. A copy of this notebook was annexed to his affidavit, and the original became DX10.

54 The revised draft financial agreement is telling on this issue. Prepared on or about 4 July 2002 – after the repayments had been completed according to Mr Lalic’s notebook - it recites Ms Young’s contribution of $50,000 to the construction project, and records Mr Lalic’s obligation to repay her $50,000. Mr Lalic’s said that the $50,000 referred to in the draft financial was a contemplated further $50,000 yet to be contributed, but this is implausible: not only because of the unlikely coincidence of the amount of $50,000 referred to in the draft agreement with that admittedly already advanced, and because the draft agreement would have imposed an obligation on him to repay it but not on Ms Young to make it, but also because there was no basis for supposing that Ms Young had any way of raising a further $50,000. Mr Lalic suggested that the revised agreement did not sufficiently deal with the contribution of a further $50,000, and the intention was that when Ms Young contributed it, they would organise another agreement acknowledging that the money had been deposited; yet the revised draft sufficiently provided for the repayment by Mr Lalic of the $50,000. He acceded to Mr Loofs’ suggestion that at the time of the negotiations for the financial agreement the $50,000 was sitting in his mother’s V2 account and had sat there for a number of months, which tends to identify the $50,000 referred to in the proposed financial agreement with Ms Young’s original October 2001 advance.

55 Moreover, there is no suggestion that there was any discussion, in the context of negotiation of the financial agreement, about contribution of some amount additional to the original advance: if this was to be a new or further $50,000, one would have expected that it would have been a feature of the argument over the proposed financial agreement and the amendments to it. Mr Lalic said that Ms Young wanted to invest $50,000 towards the house, “But the money was never given so originally the original document had nothing to do with the fifty grand. It wasn’t until the final document which we, sort of, added the fifty grand. In the original document, there was no suggestion of her putting money in”. Yet reference to the $50,000 was not one of the amendments proposed in writing by Ms Young, and Mr Lalic said that Minto was not one of the topics of argument in connection with the proposed financial agreement. He also said that Ms Young had, in the course of their discussions about the financial agreement, said that she was going to lend him $50,000 to go towards “that house or a house” - at first Mr Lalic said that which property the house was to be built on was still under discussion at the time of the negotiations for the financial agreement, but he was then compelled to concede that which property the house was to be built on had been decided when he approached the architect – which was some six months or more earlier.

56 Together, the terms of the revised draft financial agreement – which Mr Lalic executed - and the inconsistencies in his evidence on the topic, point strongly in favour of the view that the $50,000 referred to in it had already been advanced and not repaid, and thus contradict Mr Lalic’s notebook.

57 Mr Lalic says that the “repayments” came out of his company Lidcombe Motors (although he was neither a director nor shareholder at the time), and that there were occasions on which he handed Ms Young some thousands of dollars in cash, out of revenue generated by the business, which he said was his “commission” on the sale of cars. Ms Young does not dispute that on occasion Mr Lalic handed her amounts of cash at the office of Lidcombe Motors, where for a time she was also employed, but denies that they were in repayment of the $50,000 deposit. She says that this occurred in circumstances when he had sold a car and “cashed up the deal” - so that the price was recorded in the books at less than the true selling price, and the difference paid in cash – and the cash was taken to his mother’s place and placed in the safe. Mrs Lalic confirmed that Mr Lalic sometimes had moneys put in her safe.

58 Mr Ibrahim, an associate of Mr Lalic in the motor vehicle sales industry, who until about 2002 was employed by Mr Lalic at Lidcombe Motors, gave evidence that in about October 2001, Mr Lalic told him, “Tracey asked me to invest the money she got from the sale of the house, and now she wants me to pay it back to her”, and that on a number of occasions over a period of some months thereafter he observed Mr Lalic hand Ms Young amounts of cash in the office of Lidcombe Motors. However, Mr Lalic’s version, that the money was simply “parked” in his mother’s account repayable as and when required by Ms Young, is inconsistent with him describing it as an investment and being troubled that she wanted it back. In cross-examination, Mr Ibrahim said that he stopped working for Mr Lalic in late 2001 – so he could not have seen many of the alleged repayments. He denied that the cash which he saw being handed over to Ms Young was from business takings, adding that he knew that it was not work-related money, because on a number of occasions Mr Lalic said that he was handing back money that she had given him – an assertion which had not appeared in his affidavit, although it would have been very relevant to the very matter which his affidavit was intended to prove. Mr Ibrahim’s denial that the cash he saw being handed over was generated by the business is improbable, in the light not only of Ms Young’s but also of Mr Lalic’s evidence that it was sourced in the business.

59 The background related earlier in this judgment reveals important respects in which the evidence of Mr Lalic, and to a lesser extent that of Mrs Lalic, cannot be accepted, and that there are grounds for entertaining significant reservations as to the authenticity and provenance of documents which aid the defendants’ cases and for which Mr Lalic alone can vouch. There was no hint in his earlier affidavit that he had kept any such record as that which became DX10. Although the record is internally inconsistent - in that while it purports to record total repayments of $50,000, in fact they amount to $52,000 – that circumstance, as Mr Kasep for Mr Lalic submitted, is at best equivocal as to the authenticity of the document. However, my conclusion that it is contradicted by the provisions in the revised draft financial agreement, coupled with the significant doubts which attend the authenticity and provenance of documents which aid the defendants’ cases and for which Mr Lalic alone can vouch, means that in the circumstances I am unpersuaded that his notebook is an authentic contemporaneous record.

60 On any view, there were no repayments from the V2 account, nor the cheque account into which the moneys were later transferred. While I accept that Mr Lalic from time to time handed Ms Young amounts of cash at Lidcombe Motors, I do not accept that those payments were referable to repayment of the $50,000 deposit. To the extent that any such payments were made by him to her, they were out of income generated by him during the relationship, and the payment by one party to a relationship to the other of some of the first’s income is not without more to be treated as repayment of a capital contribution made by the other; it is at least equally likely to be a contribution to their ongoing joint living expenses. And if indeed Mr Lalic had repaid those amounts, the $50,000 having been applied to the construction of the house on the Minto property, he would in effect have made himself a creditor or beneficiary of his mother by doing so, yet no such suggestion has ever been advanced. I am not satisfied that any part of the advance of $50,000 has been repaid.

Resulting or constructive trust

61 Once it is determined that the $50,000 has not been repaid, the case can be resolved without necessarily rejecting the defendants’ version as to the circumstances in and basis on which it was deposited in Mrs Lalic’s account, and as to the knowledge – or absence thereof - of Mrs Lalic.

62 If one were to accept Mr Lalic’s version, that the $50,000 was deposited in his mother’s account, without her knowledge, for the purpose of concealing it from Ms Young’s former husband and/or the Child Support Agency, then there is still no suggestion that it was intended to be a gift to Mrs Lalic. On his version it was placed there on the basis that it would be repayable to Ms Young as she might require, and it remained beneficially her property. There was no intention to transfer to Mrs Lalic any beneficial interest in the $50,000.

63 A voluntary recipient of moneys can become a trustee of them for the party beneficially entitled to them, even without knowledge of the receipt or the circumstances which give rise to the trust. In Black v S Freedman & Co (1910) 12 CLR 105, money stolen by an employee and given to his wife was characterised by the High Court as “trust moneys” and its repayment to the employers ordered. Griffith CJ said [at 109] that if the transferee was a volunteer the estate may be followed into his hands whether he had notice of the trust or not. A useful analogy for present purposes is Chase Manhattan Bank v Israel-British Bank (London) Limited [1981] Ch 105, in which the plaintiff bank by error paid the defendant bank a sum of money that it had been instructed to remit to it, twice. Goulding J held that a person who paid money to another under a factual mistake retained equitable property in it, and the conscience of the recipient of the mistaken payment was subjected to a fiduciary obligation to respect that proprietary right, so that the plaintiff was entitled to recover the amount of the mistaken payment by way of tracing. In my opinion, there is no reason why the position should differ in the analogous case of a payment which though not mistaken was made for a limited purpose with the intention that the payer retain beneficial ownership.

64 It may be assumed, for present purposes, that Mrs Lalic received the $50,000 into her account without notice of Ms Young’s equitable claim. Mrs Lalic maintains that she remained completely unaware that the $50,000 was in her account at all, so it cannot be suggested that she expended it in reliance upon any belief that it was hers to spend. In the absence of a relevant change of position, it is not possible to see why Mrs Lalic, as a volunteer, would, in respect of the $50,000, be in a superior position to a recipient with notice of Ms Young’s beneficial interest. Accordingly, Ms Young remained beneficially entitled to the $50,000, and Mrs Lalic held it as a bare trustee.

65 Generally speaking, if trust property is converted in breach of trust into some other form, the property into which it has been converted becomes subject to the trust and is held for the benefit of the persons entitled under the trust [ReLovett [1966] VR 65, 70 (Hudson J)]. In Lake v Bayliss [1974] 1 WLR 1073; [1974] 1 All ER 1114, it was held that where a trustee had given a ring purchased with moneys obtained by the sale of trust property to a friend, who sold the ring and put the proceeds into a savings account, the beneficiary had a right to trace the trust property to the savings account, or earlier to trace the ring to the friend, or earlier to the trustee, or earlier still to the proceeds of sale of the trust property.

66 Thus, in the absence of consideration, Ms Young’s beneficial property can be traced in the hands of the trustee (Mrs Lalic), even though its nature has been changed, so long as it can still be identified [In re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696, 708 (Jessell MR); New Zealand & Australian Land Co v Watson (1881) 7 QBD 374; Buckeridge v Glasse (1841) Cr & Ph 126; 41 ER 438; Lane v Dighton (1762) Amb 409; 27 ER 274; Lake v Bayliss]. The $50,000, together with the other moneys that were in the V2 account, has been transferred to Mrs Lalic’s cheque account and expended upon construction of the house on the Minto land. The $50,000 can therefore be traced into the Minto land.

67 The same result may be reached by a slightly different route, that of the “windfall equity” [cf Henderson v Miles (No 2) [2005] NSWSC 867, [14]-[19]]: in a case where the substratum of a joint relationship or endeavour is removed without attributable blame, and the benefit of money 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 intended that the other party should do so, equity will not permit the other party to assert or retain the relevant benefit to the extent that it would be unconscionable to do so [Muschinski v Dodds (1985) 160 CLR 583, 620 (Deane J); see also Baumgartner v Baumgartner (1987) 164 CLR 137, 147-8; Luke v Chamberlain [2000] NSWSC 626. The term “windfall equity” is the usage of Young CJ in Eq in Henderson v Miles (No 2) [2005] NSWSC 867].

68 Although the “windfall equity” has its origin in joint relationships that fail, its substance is equity’s concern with the conscience of a person who might at law be strictly entitled to retain a benefit that he or she was never in the circumstances intended to enjoy. Although in the present case it might be said that Mrs Lalic was not a party to a relevant joint relationship, the circumstance that she gave no value and did not act to her detriment on the basis that she had the $50,000, places her in an equivalent position.

69 Accordingly, Mrs Lalic having received the $50,000 as a volunteer - and Ms Young having had no intention of transferring a beneficial interest to her - Mrs Lalic held it, and property into which it can be traced, upon trust for Ms Young; alternatively, it is unconscionable for her to retain what would otherwise be the windfall of $50,000. None of this is affected by Ms Young’s purpose being to evade her child support responsibilities, if it was: even in a claim directly to enforce a resulting trust, there is no general rule that equity will refuse to enforce the trust at the suit of the transferor just because the purpose of the transferor in placing title in the name of another was to contravene the policy of a statute [Nelson v Nelson (1995) 184 CLR 538].

70 A case to this effect was not pleaded, and when it was raised in the course of submissions, Mr Loofs fairly objected that in the absence of such an allegation it had not been necessary for Mrs Lalic to adduce evidence of what had happened to the $50,000. Ultimately, however, that objection does not preclude reliance upon this basis for resolution of the case, because:-

It was always part of Ms Young’s case that the $50,000 had been expended on construction costs in respect of the house on the Minto land, and there was evidence to that effect;

As Mrs Lalic denies any knowledge that the $50,000 had been placed in her account at all until she received a letter of demand from Ms Young’s solicitors - from which time she would have been on notice of the claim - it is not possible to see how she could have changed her position to her detriment in the belief that the $50,000 was hers;

In any event, Mr Loofs was offered an adjournment to adduce such evidence, which he responsibly declined, indicating that inquiries had apparently established that no relevant bank records were available.

71 Accordingly, accepting for present purposes Mr Lalic’s version, $50,000 belonging to Ms Young was deposited into Mrs Lalic’s V2 account without any intention that it become the beneficial property of Mrs Lalic, and without consideration, albeit without the knowledge of Mrs Lalic. Together with other moneys in the V2 account, it was transferred to Mrs Lalic’s cheque account, and has now been expended on construction of the home on the Minto land. I do not accept that Ms Young has been repaid. Mrs Lalic holds the $50,000 upon trust for Ms Young; alternatively, it would be unconscionable for Mrs Lalic to retain the $50,000 as a windfall. As the $50,000 can now be traced into the Minto land, Ms Young is entitled to a charge for that amount on the Minto land. In my opinion, therefore, even accepting Mr Lalic’s version of the basis on which the payment was made, and that there was no relevant expectation of acquiring an interest in the property, Ms Young remains beneficially entitled to the $50,000, which can now be traced into the Minto property.

Equitable estoppel

72 However, as that was not the basis on which the case was primarily conducted - although I prefer to found my decision on it - I should address Ms Young’s case as it was primarily put: ultimately, on the basis of equitable estoppel, in respect of which it was submitted that the appropriate remedy was a charge for Ms Young’s expenditure.

73 Equity comes to the relief of a plaintiff who has acted to his or her detriment on the basis of a fundamental assumption in the adoption of which the defendant has played such a part that it would be unfair or unjust if he or she were left free to ignore it, on the footing that it would be unconscionable for the defendant to deny the assumption [Grundt v Great Boulder Pty Gold Mines Limited (1937) 59 CLR 641, 675; Thompson v Palmer (1933) 49 CLR 507, 547; Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 404 (Mason CJ and Wilson J)]. It is essential to an equitable estoppel that the defendant knows or intends that the party who adopts it will act or abstain from acting in reliance on the assumption or expectation [Crabb v Arun District Council [1976] Ch 179, 188; Waltons v Maher, 423 (Brennan J)]. Such knowledge or intention may easily be inferred where the adoption of the assumption or expectation is induced by the making of a promise, but may also be found where the defendant encourages a plaintiff to adhere to an assumption or expectation already formed, or acquiesces in an assumption or expectation when in conscience objection ought to be stated [Waltons v Maher, 423 (Brennan J)]. The unconscionability which attracts the intervention of equity is the defendant’s failure, having induced or acquiesced in the adoption of the assumption or expectation with knowledge that it would be relied on, to fulfil the assumption or expectation or otherwise avoid the detriment which that failure would occasion [Waltons v Maher, 423 (Brennan J)].

74 Numerous judicial and academic attempts have been made over the years to identify the elements of estoppel of this type [see, for example, Fry J’s five probanda in Willmott v Barber (1880) 15 Ch D 96; Brennan J’s six proofs in Waltons v Maher; Priestley JA’s seven propositions in Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466, as modified in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582; and Meagher Gummow and Lehane’s six common factors, in Equity: Doctrines & Remedies, (4th ed., 2002), [17-105]]. At least generally speaking, the matters which a plaintiff must establish to found an equitable estoppel may be characterised as including certain conduct of the plaintiff, certain conduct of the defendant, and certain qualities of the subject matter, which for present purposes may sufficiently be summarised as follows:-

First, as to the conduct of the plaintiff: that the plaintiff acted (or abstained from acting) in reliance upon an assumption or expectation that a particular legal relationship existed or would exist between the plaintiff and the defendant, or that the plaintiff had or would acquire some interest in the defendant’s property;
Secondly, as to the conduct of the defendant: that the defendant induced the plaintiff to adopt the assumption or expectation and encouraged the reliant activities of the plaintiff, or at least failed to deny the assumption or expectation with knowledge that the plaintiff was relying on it to the plaintiff’s potential detriment and that it could be fulfilled only by transfer of the defendant’s property, a diminution of the defendant’s rights or an increase in the defendant’s obligations;
Thirdly, as to the subject matter: that the assumption or expectation in respect of it was one that the defendant could lawfully satisfy.

[See generally, Waltons v Maher, 428-429 (Brennan J); Meagher, Gummow & Lehane, Equity: Doctrines & Remedies, (4th ed., 2002), [17-105]].

75 In this case, as in many, the conduct of the plaintiff and the conduct of the defendants are factually interwoven - Ms Young says that she deposited the $50,000 into Mrs Lalic’s account, and undertook work in connection with building approvals and improvements, upon the expectation that she and Mr Lalic would acquire the Minto land by gift from Mrs Lalic, and that that expectation was induced, and her reliant activity encouraged, by Mrs Lalic and Mr Lalic.

76 Ms Young’s version, that the deposit was made on the basis that it was a contribution to the construction costs, is substantially corroborated by the terms of the amendments which she proposed to the draft financial agreement, and the amendments incorporated in the revised draft financial agreement signed by Mr Lalic. The amendments that she proposed to the first draft would have described her as involved in the construction project; and the revised draft prepared on Mr Lalic’s instructions recites her contribution of $50,000 to the costs of construction. I have previously explained why Mr Lalic’s explanation of the reference to $50,000 in the draft financial agreement as contemplating a further $50,000 yet to be contributed is implausible.

77 The alternative explanation, offered by Mr Lalic, is that the $50,000 was deposited to avoid child support. Ms Young denies this, producing a letter from the Child Support Agency dated 29 November 2000 which records that her former husband had asked the agency to stop collecting maintenance from 9 November 2000. Mr Lalic says that he thinks the former husband reinstituted a claim for child support, and that he saw many letters from the Child Support Agency; however, no documentary evidence was produced of any such correspondence, and it should not have been difficult to obtain relevant evidence, if it existed, by subpoena to the Child Support Agency. Ms Young says that, although she was not paying cash child support, she bore considerable indirect costs, including the costs of contact in Victoria. On balance, the evidence as it stands favours the view that Ms Young did not have a child support “problem” in October 2001.

78 For those reasons – particularly because of the contents of the draft financial agreements - and also for the reasons mentioned elsewhere which cast doubt on Mr Lalic’s credit in other respects, I find that Ms Young deposited the $50,000 into Mrs Lalic’s account in the circumstances described by her: with the encouragement of Mr Lalic, on the basis that it would be applied towards the construction of a home for them on the Minto land, and in reliance upon the expectation - induced by Mr Lalic’s statements to the effect that his mother “will sign the land over into our names” and had told him that his brother “has already got his share of other properties” and that “she would give the rest to me” - that Mrs Lalic would transfer the land to them, or at the very least, implicitly, permit them to occupy the home once built. It follows that Ms Young acted (by making the deposit) in reliance upon an expectation that she would acquire an interest in the Minto land; and Mr Lalic induced her to adopt that expectation and encouraged her reliant activities.

79 However, I am unable to conclude that Mrs Lalic was relevantly implicated in Ms Young’s adoption of the expectation, nor that she encouraged her reliant activity. Save for conversations which took place at about the time of the wedding in July 2002 – too late to be relevant inducement or encouragement in respect of reliant activity which took place in October 2001 - the only basis for attributing notice to Mrs Lalic of Ms Young’s expectation or her reliance on it was the alleged attendance at the Liverpool branch of the ANZ bank to deposit Ms Young’s cheque on 8 October 2001. It having been established that Ms Young was mistaken in the assertion that Mrs Lalic was present at the bank on 8 October 2001, there was nothing else to fix her with knowledge of the expectation or reliant activity, at least until about June 2002, when Ms Young attributes to Mrs Lalic the words “I will put the land in your and Michael’s name once you are married as a wedding present. I only want the pre-nuptial to protect my assets in case you and Michael don’t stay together”. According to Ms Young, this was said in the context that Mr Lalic had just told her that his mother, having been informed that she had not yet signed the pre-nuptial agreement, was worried “about the house we are building, and also about the land”. Even on Ms Young’s version, this was not an unequivocal representation that the land would be transferred to Ms Young and Mr Lalic absolutely, but only one that it would be transferred subject to an acceptable pre-nuptial agreement. Moreover, it took place long after the $50,000 was deposited, and indeed after expenditure on construction works had commenced. It cannot therefore found an estoppel arising from the making of the advance and its expenditure.

80 Mr Rollinson submitted that the representations made earlier – prior to 8 October 2001 - by Mr Lalic to Ms Young, should be regarded as having been made on behalf of Mrs Lalic through the agency of her son. However, there is no direct evidence that Mr Lalic was authorised by his mother to make any such representation, and Mr Lalic’s statements themselves went no further than asserting that his mother “will sign the land over into our names” and had told him that his brother “has already got his share of other properties” and that “she would give the rest to me”. Thus Mr Lalic did not claim at the time to be making the representations on behalf of his mother, let alone profess that his mother had authorised him to do so; rather, he conveyed to Ms Young what he believed his mother would do, and representations that she had made to him, which is not the same as relaying those representations to Ms Young on her behalf, so as to bind her.

81 If, as Ms Young’s version suggests, the pressure for a pre-nuptial agreement came from Mrs Lalic, who wanted a pre-nuptial agreement in order to protect her family’s assets in case of breakdown of the marriage – which, because Mr Lalic had no assets of significance of his own, is probably correct – then, whatever the arrangements between herself and her son, to which I shall come, it is improbable that she authorised or intended Mr Lalic to tell Ms Young, on her behalf, that she would transfer the Minto land to them. I am not prepared to infer that Mrs Lalic authorised her son to make any relevant representation to Ms Young. I do not accept that Mr Lalic made any relevant representation in the capacity of his mother’s agent.

82 Thus although Ms Young’s expectation was one which Mrs Lalic could lawfully satisfy, Mrs Lalic’s conduct was not such as to found an estoppel against her; whereas although Mr Lalic’s conduct could found an estoppel against him, the expectation was one which he could not lawfully satisfy: the Minto land was not his to convey – unless he had himself acquired an equitable interest in it.

83 If a person has acquired an equitable interest by way of proprietary estoppel, that interest is itself capable of conveyance to a third party, and may be enforced by the third party against the original legal owner [Hamilton v Geraghty (1901) 1 SR (NSW) Eq 81; Meagher, Gummow & Lehane, [17-120]]. If such an interest can be conveyed, it can also be held upon trust for a third party, or itself can pass by proprietary estoppel to a third party, who can enforce it directly against the legal owner. This is analogous to the principle that where A holds upon trust for B who holds upon sub-trust for C, A holds in trust for C and B is not a necessary party [Head v Teynham (1783) 1 Cox Eq Cas 57; 29 ER 1061; Grainge v Wilberforce (1889) 5 TLR 436 (Chitty J); Pettit, Equity and the Law of Trusts (6th ed., 1989), p 76; Ford & Lee, Principles of the Law of Trusts, (2nd ed., 1990), [607]]. Thus, if Mrs Lalic - though she did not induce an expectation or encourage reliant conduct on the part of Ms Young so as directly to confer equitable interest by way of estoppel on Ms Young - nonetheless had created such an interest in Mr Lalic, then he could in turn confer by estoppel a subsidiary equitable interest on Ms Young, which she can enforce directly against Mrs Lalic. In other words, if, as against Mrs Lalic, Mr Lalic had acquired an interest by equitable (proprietary) estoppel, then notwithstanding that his conduct cannot be imputed to Mrs Lalic, it can create a subsidiary equitable interest in Ms Young.

84 Although, in reply, Mr Rollinson conceded that there was scant evidence that Mr Lalic had acquired a beneficial interest by estoppel, and that Ms Young could succeed on the estoppel case against Mrs Lalic only if the representations made by Mr Lalic could be imputed to Mrs Lalic, I have concluded, after closely reviewing the evidence, that Mr Lalic had indeed acquired an equitable interest by estoppel.

85 First, Mr Lalic acted (by expending efforts and moneys, including the $50,000 obtained from Ms Young) in reliance upon an expectation that he would acquire Mrs Lalic’s Minto land by gift from her, or at the very least would be permitted to reside indefinitely in the house to be built by him on it. According to Ms Young, Mr Lalic told her that his mother had told him that his brother had already received his share from other properties, and that she would give the rest – including Minto – to him. Although Mr Lalic denies that conversation, Mr Lalic said, in his earlier affidavit evidence, that there was an agreement within his family that the Minto property would eventually be given to him. The draft financial agreements, including the revised version, which was executed by him, record that it was anticipated that he would receive by way of gift from his parents, inter alia, the Minto land.

86 In cross-examination by Mr Loofs, who appeared for Mrs Lalic, when taken to the draft financial agreements and in particular Recital G, Mr Lalic readily agreed to the suggestion that his “anticipation” of receiving the properties referred to was no more than a hope, and said that he and his brother were going to inherit the properties, but that he did not know which one he was to receive and which one his brother was to receive, and so thought he would cover his bases by listing all the properties; and when asked whether he realised in 2001 that there had been no promise by his mother to give him the Minto property, he eventually replied after some hesitation: “I agree that she didn’t promise to give it to me in 2001”. Although he denied that he had represented to Ms Young that he stood to inherit the Minto property, or that his mother had promised that he would receive the Minto property, he acknowledged that he hoped to inherit it, and he confirmed that his brother had indeed received another property from his mother. Mr Lalic denies that his mother ever said anything to him about “signing over the land”; but even on his own version, the “agreement” within the family which he acknowledges would have created an expectation that he would acquire the Minto land.

87 That he had such an expectation is supported by the substantial involvement of Mr Lalic and Ms Young in the construction of the house. Both drafts of the financial agreement record that it was Mr Lalic – not his mother – who was building the house on the Minto land, albeit in the revised version with some assistance from Ms Young. The source of funds was said to be Mr Lalic’s business income – in the revised version, supplemented by Ms Young’s $50,000. The evidence does not reveal any significant participation of Mrs Lalic in the design, planning and conduct of the construction of the home, although it is clear enough that some of the funds used were hers. The project was undertaken under the direction of Mr Lalic assisted by Ms Young. The cost of construction was borne, at least in part, by Mr Lalic. While the possibility that a son will assist a parent out of filial obligation and without expectation of benefit is not impossible, not even Mr Lalic suggested that that was his motivation here. There was no suggestion that this was repayment of any of the advances that his mother had made to him.

88 Mrs Lalic left it to Mr Lalic to choose the house design for the Minto land. This is a curious step, unless Mr Lalic anticipated that he would be living there. Although Mrs Lalic said that when designs for the house were being contemplated it was her intention to live on the farm and that it would cost up to $250,000 to build the house which she would fund from the proceeds of an insurance claim and the sale of another property, she agreed that the plans for the house were prepared by a person found by Mr Lalic, who had asked if he could pick a house for the farm and she agreed that he could do so - because his younger brother had chosen a house for a block at Prestons which he, the brother, had acquired. Mr Lalic also said that originally the house was to be for his mother, but that changed towards completion, when it was too big for her and she decided that she did not want to live there. He agreed to Mr Loofs’ suggestions that he chose a design which suited him because he thought that if he was married he might have a greater chance of persuading his mother to give him the house, and that it was in the back of his mind that, when relations between Ms Young and his mother had improved he would ask her to transfer the house to him, pointing out to her that Ms Young could be trusted because she had deposited $50,000 into Mrs Lalic’s account which had been used for the construction, and that there was a pre-nuptial agreement – although the time never arrived to do so. But the objective facts – that Mr Lalic chose the design and that he was permitted to do so because his brother had selected a design for a house to be built on land which the brother owned – sit uncomfortably with the evidence of Mrs Lalic and Mr Lalic to the effect that there was originally no intention that Mr Lalic occupy, let alone own, the home.

89 So does the circumstance that, although there was a suggestion at one stage that Mrs Lalic was living in the Minto property, in fact she is not, and Mr Lalic is occupying it with his new wife. In his affidavit sworn as recently as 29 September 2005, Mr Lalic said that the Minto property was owned by his mother, “who resides in the house constructed on the property”, and gives his own address as his mother’s home at Hinchinbrook. But in the course of the hearing it emerged that she did not reside in the Minto property, and that Mr Lalic did so with his new wife, having “just moved in”. There is no evidence that Mrs Lalic ever resided there on a permanent basis. Mr Lalic said that when his mother came to the decision that she did not want to live there, she told him and “We were going to lease the house out at one stage. We were thinking of leasing it and I guess I decided to live in it”. That he was able to make that decision bespeaks an assumed entitlement to occupy the home if he wished to do so.

90 Moreover, in evaluating Mr Lalic’s denials of anything more than a mere hope of acquiring an interest in the Minto land, it is to be borne in mind that:-

in the present context, it is in the interests of both Mr Lalic and Mrs Lalic to deny any expectation on his part that he would acquire an interest in Minto;
those denials were adduced through cross-examination by Mr Loofs, on behalf of Mr Lalic’s mother, with whose position Mr Lalic was aligned in the proceedings;
those denials, given at a time when the potential significance of an “expectation” was obvious, are much more likely to be coloured by a perception of their potential significance than his earlier affidavit evidence that there was an arrangement within the family to the effect that he would acquire the Minto land, and the recitals in the draft financial agreements that he anticipated such acquisition.

91 Accordingly, I am satisfied that Mr Lalic had an expectation that the Minto property would be conveyed to him, and that it was in reliance upon that expectation that he selected the design, directed the construction project, engaged his associates to perform work, incurred obligations to pay tradesmen, and expended his efforts and income, and Ms Young’s $50,000, on it.

92 Secondly, Mrs Lalic failed to deny the truth of the expectation with knowledge that Mr Lalic was relying on it to his potential detriment and that it could be fulfilled only by transfer of her property; and encouraged the reliant activities of Mr Lalic.

93 Mr Lalic’s affidavit evidence that there was a family arrangement that he would receive the Minto land – which I have accepted - suggests that, as a necessary party to that arrangement, Mrs Lalic would know that Mr Lalic expected to receive it. Mrs Lalic denied that there was any such agreement or arrangement: she said that she did not propose to transfer land to Mr Lalic, essentially because he had already received significant financial benefits from her which had not been repaid. She denied that she had ever told Mr Lalic that she was going to transfer the house or the property to him, and added that she had given Mr Lalic money for his business, which Ms Young had destroyed; but she acknowledged that she had given property to her younger son. In denying having told Mr Lalic that she was going to give the Minto land to him, she said (emphasis added): “I don’t trust him anymore because he destroyed the business. I give him $100,000. I give him $74,000. I give him $60,000. He destroy everything, and she, Tracey and Michael destroy everything”. Mr Lalic confirmed that his mother had advanced to him sums amounting to $210,000 for his business, none of which had been repaid. This evidence rather conveys a change in Mrs Lalic’s intention as to benefiting Mr Lalic, in the light of his misfortunes, and that though she knew of some prior arrangement or expectation that Mr Lalic would receive land, after the initial breakdown of the relationship between Mr Lalic and Ms Young, and in the light of Mr Lalic’s misfortunes, she no longer felt committed to it.

94 According to Mrs Lalic, when the revised draft financial agreement, bearing the signature of Mr Lalic and the forged signature of Ms Young, was received at her home through the mail, Mr Lalic told her that it was a pre-nuptial agreement with Ms Young, and when asked why, he said “Mum, in the future you will give me some property. I don’t like Tracey take anything from me”. While that version does not specifically refer to the Minto land, and while Mr Lalic denied that he said anything to his mother along the lines that he expected to acquire the Minto property one day, it defies belief that both did not understand that it was the property which Mr Lalic had in mind, since he had already chosen the design, lodged the development application, and commenced the construction of the home on it.

95 Several factors, already mentioned, suggest that Mrs Lalic must have known of Mr Lalic’s expectation and his reliance on it. In particular:-

That she left it to Mr Lalic to choose the house design for the property suggests that she knew he expected to occupy if not own it, and that he would incur liabilities in connection with the design;
That she left it to Mr Lalic and Ms Young to control and supervise the construction project, including her consent to their nomination as applicants for the development approvals, shows that she knew that Mr Lalic would expend efforts and incur obligations to build the house, and suggests that she knew that Mr Lalic expected to be occupying the land when it was completed;
The circumstance that Mr Lalic and his new wife now occupy the Minto property fortifies this conclusion, because it shows that the expectation has indeed eventuated, at least to the extent that Mr Lalic occupies the Minto land with his wife as their home.

96 I accept that, as Mr Rollinson submitted, a proprietary estoppel does not depend upon knowledge of the precise quantum of the detrimental reliance involved, or even the precise nature of that reliance, so long as there is knowledge of reliant activity. Mrs Lalic plainly knew that Mr Lalic would be expending efforts and incurring obligations to effect the construction of the house. For the reasons explained above, I am satisfied, more probably than not, that Mrs Lalic knew that he would be expending those efforts and incurring those obligations in the expectation that the Minto land would one day be his, or at least that he would be permitted to occupy it with his wife as their home.

97 I bear in mind Mr Loofs’ submission that in a complex family situation, in which Mrs Lalic’s trust in her son had been diminished by some unhappy aspects of his history, and she had little trust in her daughter-in-law, apparent inconsistencies in her approach to them are not surprising, but that does not detract from a finding that she knew that Mr Lalic expected to receive the Minto land. It may well be that Mrs Lalic, in the light of Mr Lalic’s misfortunes and her disappointment in him, was wavering or had even changed her mind about giving property to him, but I cannot conceive that Mr Lalic would have continued with the Minto project as he did, had he been told that he should no longer expect to be given it. Indeed, there is no evidence that Mrs Lalic ever told him anything to that effect. I conclude that Mrs Lalic knew that Mr Lalic expected to acquire an interest in the Minto property, and was acting in reliance on that expectation, and that notwithstanding that knowledge she did not deny the truth of that expectation when in good conscience she ought to have done so.

98 Thirdly, Mr Lalic’s expectation was one which Mrs Lalic could lawfully satisfy: she was the legal owner of the Minto land and able to convey it.

99 It follows that, Mr Lalic having expended efforts and moneys on the construction project in reliance upon an expectation of acquiring an interest in the Minto land, and Mrs Lalic knowing of his expectation and reliant activity having failed to dispute it, he would suffer detriment – the lost expenditure and efforts – if Mrs Lalic were to depart from the expected state of affairs, and she should be held estopped from denying that expectation, at least except upon terms which avoid detriment to Mr Lalic.

100 Mr Lalic therefore has an equitable interest in the Minto land, in which, in turn, he can create an equitable interest in Ms Young. In this way, Ms Young’s expectation was one which Mr Lalic could satisfy. Ms Young would suffer detriment – the loss of her $50,000 – if Mr Lalic departs from the state of affairs which he encouraged her to expect in respect of his (equitable) interest in the Minto property, and it would therefore be unconscionable for him to do so, at least except upon terms which would avoid the detriment which Ms Young would otherwise suffer. As explained above, Ms Young’s equity is directly enforceable against Mrs Lalic.

101 There remains controversy as to whether in such a case the prima facie entitlement is to relief based on the assumed or expected state of affairs which the defendant is estopped from denying [Commonwealth v Verwayen (1990) 170 CLR 394, 443 (Deane J)], or is limited to the minimum equity needed to avoid the relevant detriment – which at least in some situations may still require nothing less than satisfaction of the expectation or assumption [Commonwealth v Verwayen, 412 (Mason CJ), 429 (Brennan J), 501 (McHugh J)]. Although there are undoubtedly cases in which it is appropriate to hold a defendant to the assumed state of affairs, and there is a strong case in principle that in an estoppel case [as distinct from a “windfall equity” case, as to which see Henderson v Miles (No 2)] the expectation basis for the equity favours the view that the prima facie entitlement is to satisfaction of the relevant expectation, such a remedy will be declined where it would be disproportionate to the requirements of conscionable behaviour [Giumelli v Giumelli (1999) 196 CLR 101, [48]-[50], [64]; Jennings v Rice [2002] EWCA Civ 159, [50]; Henderson v Miles, [57]-[89]].

102 Here, the matrimonial relationship foundered after a very short time. The construction project was incomplete. Ms Young’s contribution of $50,000 was only a relatively small proportion of the total cost of the land and the building. A result that gave her a half interest in the property – or, more accurately, in Mr Lalic’s equitable interest in the property, would in those circumstances be quite disproportionate. The requirements of conscionable behaviour in this case are satisfied by the return to Ms Young of her contribution, rather than the fulfilment of the expectation on which she relied. The appropriate remedy is a charge for her contribution [Cf Chalmers v Pardoe [1963] 1 WLR 677, 681-2; Morris v Morris [1982] 1 NSWLR 61, 64; Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26, 36-38; Giumelli v Giumelli, [31]].

103 As Mr Lalic does not claim relief in these proceedings, it is unnecessary to consider whether his equity could be satisfied only by holding Mrs Lalic to his expectation, or by a lesser remedy: any lesser remedy would extend at least to a charge for his expenditure, including the expenditure which he funded from Ms Young’s advance.

104 Accordingly, Ms Young is entitled to an equitable charge over the Minto land securing repayment to her of the $50,000.

The additional expenditure

105 Apart from the $50,000 initial contribution, I do not accept that the other expenditure claimed by Ms Young gives rise to any equity. Both she and Mr Lalic were in employment during their relationship, and it appears that he was earning more than she. He was paying the rent for their accommodation, though she may have been paying some of the outgoings. Most of the additional items are of a minor and incidental type. In circumstances where her ability to make those payments has been funded at least in part by his support of her during the relationship and marriage, it does not seem to me that any particular significance attaches to from whose pocket it was that the payment came.

Interest

106 There is a question as to the appropriate rate of interest. The V2 account into which the $50,000 was deposited earned interest at a rate of about 3.7%. Mrs Lalic received that interest, so long as the $50,000 remained in her account. Once it was expended on the property, she benefited from any increase in the value of the property, but there is no evidence as to whether and, if so, to what extent, the value of the property did appreciate. Although Mr Loofs submits that the moneys were not in the V2 account for very long as they were transferred to the cheque account, it seems that the first cheque drawn on the cheque account was not drawn until May or June of 2002. As Mrs Lalic already had some $70,000 in the V2 account before the $50,000 was deposited, the $50,000 meant that she continued to earn interest on the balance for longer than would otherwise have been the case. Weighing these matters with the circumstance that Ms Young will not benefit from any appreciation of the value of the Minto property and against the circumstance that Mrs Lalic, though in effect a trustee, was not knowingly one, the appropriate interest rate, at least until she was on notice of Ms Young’s claim, is the 3.7% which Mrs Lalic received on the V2 account.

107 Once a demand for repayment was made, and Mrs Lalic learnt the circumstances of the making of the deposit, following the letter from St James Legal Practice of 10 February 2004, her conscience was, or ought to have been, affected by an obligation to repay the $50,000. True it is that the demand then made was for a much greater sum, assessed on the basis of making good the expectation of acquiring a half interest, rather than simply the return of $50,000. Nonetheless, although the claim was excessive, it was one that, to the extent of $50,000, ought to have been satisfied. In short, from that point on, not only did Mrs Lalic have no claim to the $50,000, but she ought to have known that to be so. In other words, an obligation to repay the principle sum of $50,000 together with interest at 3.7% crystallised on or about 10 February 2004. Interest at the unpaid judgment rate should apply from that date.

Conclusion

108 Ms Young deposited $50,000 into Mrs Lalic’s V2 account without any intention that it become the beneficial property of Mrs Lalic, and without consideration, even if without the knowledge of Mrs Lalic. Together with other moneys in the V2 account, it was transferred to Mrs Lalic’s cheque account, and has now been expended on construction of the home on the Minto land. No part of the $50,000 has been repaid to Ms Young. Mrs Lalic held the $50,000 (and the interest which it earned) upon trust for Ms Young, and as the sum can be traced into the Minto land, Ms Young is entitled to a charge for that amount on the Minto land. Alternatively, the relationship between the parties having failed, it would be unconscionable for Mrs Lalic to retain the $50,000, or the property into which it can now be traced, free of an obligation to repay it.

109 Alternatively, Mr Lalic assumed or expected that his mother would convey the Minto land to him, and in reliance on that expectation and belief expended efforts, labour and money, including the $50,000 advanced by Ms Young, on the construction of the home on it. Mrs Lalic knew of his expectation and that he was acting in reliance on it, and did not disabuse him of it. In those circumstances it would be unconscionable for her to depart from the expectation and refuse to convey the property, at least except upon terms that would avoid any detriment to Mr Lalic; accordingly Mr Lalic has an equitable interest, which extends at least to a charge for his expenditure, in the Minto land.

110 Ms Young deposited the $50,000 into Mrs Lalic’s account at the suggestion of Mr Lalic, on the basis as between Ms Young and Mr Lalic that it would be applied to the costs of construction of the home on the Minto land, and in reliance upon her expectation that Mrs Lalic would convey the Minto land to Mr Lalic and her. Mr Lalic knew of, and positively encouraged, that expectation and Ms Young’s reliance on it. It would be unconscionable for him, in respect of his equitable interest in the Minto property, to depart from the expected state of affairs, at least except upon terms that would avoid the detriment that Ms Young would otherwise suffer. In the circumstances, given the breakdown of the matrimonial relationship before the venture was completed, and the relativity of Ms Young’s $50,000 contribution to the total costs of acquisition and building of the property, the appropriate remedy is a charge for the $50,000.

111 Apart from the $50,000 initial contribution, the other expenditure claimed by Ms Young gives rise to no equity.

112 The principal sum of $50,000 should bear interest at the rate which it earnt for Mrs Lalic, namely 3.7% per annum, from 8 October 2001 until 8 March 2004, and thereafter at 9%. Interest to March 2004 is $4,470, which increases the total amount to $54,470 as at that date. Interest on that sum at 9% to 8 February 2006 is $9,396. The total amount for which judgment should be given is $63,866.

113 As the contractual basis for relief was not pressed, there is no basis for the cross-claim brought by Mrs Lalic for relief under the Contracts Review Act, and it will be dismissed.

114 My orders are:

(2) Give judgment that the defendants pay the plaintiff the sum of $63,866.

(3) Grant liberty to the plaintiff to apply for further orders giving effect to the charge referred to in paragraph (1) in the event that the judgment in paragraph (2) is not paid within 28 days.

(4) Order that the cross-claim be dismissed.

(5) Order that the defendants pay the plaintiff’s costs.

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15/02/2006 - Coverpage date did not match date that judgment was handed down. - Paragraph(s) N/A

CITATION:	Young v Lalic [2006] NSWSC 18 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	10/10/05, 11/10/05, 10/11/05, 11/11/05, 16/12/05
JUDGMENT DATE :	10 February 2006
JUDGMENT OF:	Brereton J
DECISION:	(1) Declare that the land comprised in Folio Identifier 205/785818 situate at and known as Lot 205, 125 Eagleview Road, Minto Heights, New South Wales, is charged with payment to the plaintiff of the sum of $63,866. ; (2) Give judgment that the defendants pay the plaintiff the sum of $63,866.; (3) Grant liberty to the plaintiff to apply for further orders giving effect to the charge referred to in paragraph (1) in the event that the judgment in paragraph (2) is not paid within 28 days.; (4) Order that the cross-claim be dismissed.; (5) Order that the defendants pay the plaintiff’s costs.; (6) Order that the exhibits may be returned at the expiration of 28 days if no application for leave to appeal has been filed by that date.
CATCHWORDS:	TRUSTS – Resulting or Constructive Trust - Tracing – Where recipient of funds does not know of receipt and provider of funds intends to retain beneficial ownership - “Windfall Equity” – EQUITY – ESTOPPEL – General principles – Equitable estoppel - Proprietary estoppel – Elements of proprietary estoppel – Creation by estoppel of subsidiary equitable interest in equitable estate itself arising by estoppel - whether remedy is to satisfy expectation, or charge – INTEREST - appropriate interest rate where constructive trustee unaware of trust property and earns interest at savings bank rate - FAMILY LAW AND CHILD WELFARE – THE FAMILY LAW ACT 1975 (CTH) AND RELATED LEGISLATION – Jurisdiction – Cross-vesting - Where Plaintiff’s claim is in part a matrimonial cause – Whether Supreme Court has jurisdiction in matrimonial causes – held, it does.
LEGISLATION CITED:	Commonwealth Constitution, ss 71, 75, 76, 77, 77 (iii) Contracts Review Act 1980 (NSW) Corporations Act 1989 (Cth) Family Law Act 1975 (Cth), ss 4(1), 39, 40, 60G, 63A, 78, 79 Family Law Amendment Act 1987 (Cth) Judiciary Act 1903 (Cth), ss 78B Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) ss 4(1), 7(5)(a), 9
CASES CITED:	Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 58 Baumgartner v Baumgartner (1987) 164 CLR 137 Black v S Freedman & Co (1910) 12 CLR 105 Buckeridge v Glasse (1841) Cr & Ph 126; 41 ER 438 Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26 Chalmers v Pardoe [1963] 1 WLR 677 Chase Manhattan Bank v Israel-British Bank (London) Limited [1981] Ch 105 Commonwealth v Verwayen (1990) 170 CLR 394 Crabb v Arun District Council [1976] Ch 179 Giumelli v Giumelli (1999) 196 CLR 101 Gould & Gould; Swire Investments Ltd (1993) FLC 92-434 Grainge v Wilberforce (1889) 5 TLR 436 Grundt v Great Boulder Pty Gold Mines Limited (1937) 59 CLR 641 Hamilton v Geraghty (1901) 1 SR (NSW) Eq 81 Head v Teynham (1783) 1 Cox Eq Cas 57; 29 ER 1061 Henderson v Miles (No 2) [2005] NSWSC 867 In re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 Jennings v Rice [2002] EWCA Civ 159 Lake v Bayliss [1974] 1 WLR 1073; [1974] 1 All ER 1114 Lane v Dighton (1762) Amb 409; 27 ER 274 Luke v Chamberlain [2000] NSWSC 626 Morris v Morris [1982] 1 NSWLR 61 Mulhall v Hartnell (1988) 12 Fam LR 361 Muschinski v Dodds (1985) 160 CLR 583 Nelson v Nelson (1995) 184 CLR 538 New Zealand & Australian Land Co v Watson (1881) 7 QBD 374 Perlman v Perlman (1984) 155 CLR 474 Re Lovett [1966] VR 65 Re Wakim; ex parte McNally (1999) 198 CLR 511; (1999) 163 ALR 270; (1999) 73 ALJR 839; (1999) 24 Fam LR 669 Sapir v Sapir (No 2) (1989) 13 Fam LR 362; FLC 92–047 Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 Thompson v Palmer (1933) 49 CLR 507 Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Warby & Warby (2001) 166 FLR 319; (2001) 28 Fam LR 443; (2000) FLC 93-091 Willmott v Barber (1880) 15 Ch D 96
PARTIES:	Tracey Michelle Young (Plaintiff) Darinka Lalic (First Defendant) Michael Lalic (Second Defendant)
FILE NUMBER(S):	SC 3411/04
COUNSEL:	M K Rollinson (Plaintiff) P G Maiden SC (Defendants) (on 10-11 Oct) J-J T Loofs (First Defendant) (on 10-11 Nov, 16 Dec) B C Kasep (Second Defendant) (on 10-11 Nov, 16 Dec)
SOLICITORS:	St James Legal Practice (Plaintiff) Brenton Banfield (First Defendant) Frontier Law Group (Second Defendant)