Zink v Official Receiver
[2002] FCA 523
•19 APRIL 2002
FEDERAL COURT OF AUSTRALIA
Zink v Official Receiver [2002] FCA 523
GARRY HERBERT ZINK v OFFICIAL RECEIVER
N 7974 OF 2000
EMMETT J
19 APRIL 2002
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7974 OF 2000
BETWEEN:
GARRY HERBERT ZINK & TONI ZINK
APPLICANTSAND:
OFFICIAL RECEIVER
FIRST RESPONDENTTHE OFFICIAL TRUSTEE IN BANKRUPTCY
SECOND RESPONDENTTHE OFFICIAL TRUSTEE IN BANKRUPTCY
CROSS APPLICANTGARRY HERBERT ZINK & TONI ZINK
CROSS RESPONDENTS
JUDGE:
EMMETT J
DATE OF ORDER:
19 APRIL 2002
WHERE MADE:
SYDNEY
THE COURT DECLARES THAT:
1.the Notice issued under Section 139ZQ of the Bankruptcy Act 1996 (Cth) dated 26 October 2000 by George Lionel Caddy, the Official Receiver for the Bankruptcy District of the State of New South Wales is valid;
2.the payment of $101,974.18 by Laurence Richard Cox and Elizabeth Ostler Hynd Cox to the Applicants on or about 9 June 1995 is void against the Official Trustee in Bankruptcy; and
3.the property at 21 Kerry Avenue, Elemore Vale, being the land comprised in folio identifier 11/237253, is from the date hereof charged with the payment to the Official Trustee in Bankruptcy of $101,974.18 plus interest in the sum of $15,430.22.
THE COURT ORDERS THAT:
1. the application be dismissed;
2.judgment for the Official Trustee in Bankruptcy be entered against the Applicants in the sum of $117,404.40 (being $101,974.18 plus interest on that sum pursuant to Section 51A of the Federal Court Act from 7 November 2000 (the date of service of the said Notice) to 17 April 2002 (526 days) at 10.5 percent per annum);
3.the Applicants pay the costs of the Respondent and Cross Applicant, including any reserved costs, other than the costs of, and incidental to, the hearings before Justice Katz on 25 June 2001 and 9 July 2001; and
4.the Registrar issue a certificate pursuant to s 10(2) of the Federal Proceedings (Costs) Act to each of the parties in respect of the costs of, and incidental to, the hearings before Justice Katz on 25 June 2001 and 9 July 2001.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7974 OF 2000
BETWEEN:
GARRY HERBERT ZINK & TONI ZINK
APPLICANTSAND:
OFFICIAL RECEIVER
FIRST RESPONDENTTHE OFFICIAL TRUSTEE IN BANKRUPTCY
SECOND RESPONDENTTHE OFFICIAL TRUSTEE IN BANKRUPTCY
CROSS APPLICANTGARRY HERBERT ZINK & TONI ZINK
CROSS RESPONDENTS
JUDGE:
EMMETT J
DATE:
19 APRIL 2002
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The applicants, Garry Herbert Zink and Toni Zink (“Mr and Mrs Zink”) are registered proprietors of an estate in fee simple in a parcel of land situated at 21 Kerry Avenue, Elmore Vale, New South Wales, being the land comprised in folio identifier 11/237253 (“the Kerry Avenue Property”). The second respondent, the Official Trustee in Bankruptcy (“the Trustee”), is the trustee of the bankrupt estates of Laurence Richard Cox (“Laurence Cox”) and Elizabeth Ostler Hynd Cox (“Elizabeth Cox”).
Laurence and Elizabeth Cox were made bankrupt by the acceptance of a debtor’s petition under s 57 of the Bankruptcy Act 1966 (Cth) (“the Act”), which was presented on 3 June 1996. The Petition was accepted on that day by the first respondent, the Official Receiver. The Trustee has filed a cross claim against Mr and Mrs Zink.
The claim by Mr and Mrs Zink and the cross claim both relate to beneficial ownership of a sum of $101,974.18, which represented part of the proceeds of the sale of the property situated at 20 Glover Street, Belmont, being the land comprised in folio identifier 14/13588 (“the Glover Street Property”). The sum of $101,974.18 was applied in part payment of the purchase price that was payable by Mr and Mrs Zink in connection with their acquisition of the Kerry Street Property.
THE PROCEEDINGS
In early November 2000, a written notice under s 139ZQ of the Act (“the Notice”) was given to Mr and Mrs Zink by the Official Receiver. The Notice required Mr and Mrs Zink to pay to the Trustee the sum of $101,974.18 within 28 days after service of the Notice upon Mr and Mrs Zink. By their application, which was filed on 4 December 2000, Mr and Mrs Zink seek an order setting aside the Notice pursuant to s 139ZS of the Act. The Trustee, by his cross claim, which was filed on 14 February 2001, claims, amongst other relief, judgment against Mr and Mrs Zink in the sum of $101,974.18 plus interest from 1 July 1995.
Section 139ZQ(1) of the Act provides that if a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3 of the Act, the Official Receiver may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received. Under s 139ZQ(3), such a notice may require the amount to be paid within a period set out in the notice. Under s 139ZQ(8) an amount payable by a person to the trustee under s 139ZQ is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction.
Under s 139ZR, if a notice under s 139ZQ is given to a person in respect of any property, the property is charged with the liability of the person to make payments to the trustee as required by the notice. Section 139ZR(6) gives the trustee power to sell any property over which a charge exists under s 139ZR(1). Section 139ZT(1) makes it an offence for a person to fail to comply with a notice under s 139ZQ.
However, by the operation of s 139ZS(1), if the Court, on application by a person to whom a notice has been given under s 139ZQ, is satisfied that Subdivision J of Division 4B of Part VI of the Act, which contains ss 139ZQ to 139ZT, does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice. When such an order is made, the notice is taken not to have been given.
The language of Subdivision J is curious. It is unclear whether, in an application under s 139ZS(1), the truth of the alleged facts and circumstances set out in the notice can be put in issue – see for example Re Pearson; Ex parte Wansley (1993) 46 FCR 55. However, the problems that potentially arise from the language of Subdivision J are avoided in the present case by the cross claim. In addition to seeking judgment in the sum of $101,974.18, the Trustee seeks a declaration that the provision of the sum of $101,974.18 to Mr and Mrs Zink by Laurence and Elizabeth Cox in connection with the purchase of the Kerry Avenue Property was a void disposition pursuant to Division 3 of Part VI of the Act. The cross claim also includes prayers for a declaration that the Kerry Avenue Property is held on trust for the Trustee. The Trustee relies on ss 120 and 121 of the Act in support of declarations that the provision of the sum of $101, 974.18 was a void disposition.
Section 120(1) of the Act relevantly provides that a settlement of property, if the settlor becomes a bankrupt and the settlement came into operation within two years before the commencement of the bankruptcy, is void against the Trustee in Bankruptcy. Under s 120(8) “settlement of property” includes any disposition of property. Section 121(1) of the Act relevantly provides that a disposition of property with intent to defraud creditors, not being a disposition for valuable consideration in favour of a person who acted in good faith, is, if the person making the disposition subsequently becomes a bankrupt, void as against the Trustee in Bankruptcy. Both ss 120 and 121 are contained in Division 3 of Part VI of the Act.
The question for determination by the Court turns on the circumstances in which the bankrupts became the registered proprietors of the Glover Street Property. Mr and Mrs Zink contend that the bankrupts held the Glover Street Property on trust for Veronica Cox, who was the mother of Laurence Cox. Accordingly, the proceeds of the sale of the Glover Street Property belonged to Veronica Cox. The Trustee, on the other hand, contends that the Glover Street Property was held beneficially by Laurence Cox and Elizabeth Cox and that the proceeds of sale belonged to them.
WITNESSES
The only witnesses called on behalf of Mr and Mrs Zink were Toni Zink, one of the applicants; and Elizabeth Cox, one of the bankrupts. Garry Zink was in court for part of the hearing and was clearly able to give evidence. Laurence Cox was not in court. However, he had travelled down to Sydney with his wife Elizabeth Cox. A letter from Laurence Cox’s general medical practitioner in Newcastle was tendered without objection. The letter says that Mr Cox has a number of serious, ongoing medical problems, including a severe anxiety and depressive trait, for which he is seeing a psychiatrist and is on medication. The letter says that, despite that, Mr Cox has difficulty with bowel control when under stress and that Mr Cox would be unable to attend court in Sydney because of that disability. The medical practitioner also expressed the opinion in the letter that Mr Cox was not medically well enough to give instructions to draft an affidavit and that cross examination on such an affidavit would “certainly be inappropriate”. There was no application for arrangements to be made to accommodate Mr Cox’s disabilities. There was no evidence from the psychiatrist. There was no evidence from the psychiatrist. I would conclude that in those circumstances the evidence of Laurence Cox would not necessarily have assisted the applicants.
Mr and Mrs Cox were represented and advised by solicitors in connection with the transactions that give rise to the dispute. Those solicitors are presently acting for Mr and Mrs Zink in this proceeding. No evidence was given by any of the solicitors who were involved in the transactions. I consider that the absence of evidence from any of the solicitors advising in connection with the transactions is highly significant. I assume that they were unable to give evidence that could be helpful to the case advanced on behalf of Mr and Mrs Zink.
I was not favourably impressed by Mrs Zink or Elizabeth Cox. The recollection of Mrs Cox was very hazy as to details. The significant facts relate to statements attributed to Veronica Cox as to her intention in transferring the Glover Street Property to Laurence and Elizabeth Cox. It is significant that there is no contemporaneous corroboration of the evidence of Elizabeth Cox and Mrs Zink concerning statements alleged to have been made by Veronica Cox.
FACTUAL BACKGROUND
Veronica Cox and her husband acquired the Glover Street Property in 1942. Following the death of her husband, Veronica Cox became the sole registered proprietor on 10 August 1986. On the same day a mortgage dated 9 July 1986 in favour of Australia and New Zealand Banking Group Ltd (“ANZ”) was registered. The mortgage was expressed to be in consideration of accommodation given by ANZ to Laurence and Elizabeth Cox. Accommodation was subsequently granted to Laurence and Elizabeth Cox by ANZ on the security of that mortgage. It is clear that, from an early stage, Veronica Cox was prepared to mortgage her property for the benefit of Laurence and Elizabeth Cox
On 28 November 1986, a judgment was entered in the Supreme Court of New South Wales against Laurence and Elizabeth Cox. The liability in respect of which judgment was entered, and the amount, are not clear. However, on 31 March 1987, the Supreme Court ordered that Geoffrey Edwards & Co, the solicitors who were then acting for Laurence and Elizabeth Cox, pay to the judgment creditors the sum of $194,605.98 then held in trust on behalf of Laurence Cox. That amount did not satisfy the judgment, since a writ of execution was issued by the Supreme Court of New South Wales on 31 May 1995 for the amount then payable under the judgment, namely $38,021.49.
The question before the Court concerns the circumstances in which Laurence and Elizabth Cox became registered proprietors of the Glover Street Property. By a transfer dated 11 February 1992, Veronica Cox transferred the Glover Street Property to Laurence and Elizabeth Cox in consideration of the sum of $1. The circumstances surrounding the transfer are obscure, notwithstanding the critical significance that attaches to the transfer.
In an affidavit sworn on 1 December 2000, Elizabeth Cox said that in approximately 1991-1992 she observed that the Glover Street Property was “in a sad state of repair” and that facilities were no longer adequate for Veronica Cox. She said that the problems included:
· inadequate roofing;
· an outside toilet; and
· need of painting.
She said that Veronica Cox, being a pensioner, could not obtain a bank loan to perform the necessary repairs and renovations.
In oral evidence, Elizabeth Cox said that, at an unidentified time prior to the transfer, Veronica Cox told her that she could not borrow money to carry out repairs because she was “on the pension”. Elizabeth Cox said that at that time she spoke to Messrs Ross Whitelaw and John McDonald, solicitors in the firm of Whitelaw McDonald, who presently act for Mr and Mrs Zink. She also spoke to the manager of the Hamilton branch of Westpac Banking Corporation (“Westpac”), Mr Bruce Muddle. She was told by both that the only way that she could get money to carry out repairs to the Glover Street Property was “through having a property”. She and Laurence Cox then spoke to Veronica Cox. They told Veronica Cox that the only way they could borrow money for repairs would be to have use of the Glover Street Property. Elizabeth Cox said that Veronica Cox responded along the following lines:
“You use my property… Have to be put in your names so that you can use it but this is always my house. Regardless of whatever happens this house is always mine.”
Elizabeth Cox says that that she and her husband took Veronica Cox to see Ross Whitelaw and John McDonald. She said that Messrs Whitelaw and McDonald “done everything for us”. It is curious if Mr McDonald or Mr Whitelaw gave advice that it was necessary to transfer ownership of the house in order to borrow money for repairs. I have already referred to the fact that Veronica Cox had given a mortgage to ANZ to secure advances to Laurence and Elizabeth Cox.
I find it hard to accept that in those circumstances Mr McDonald and Mr Whitelaw gave advice along the lines suggested by Elizabeth Cox. That is a reason why I would regard her evidence as unreliable. On the other hand, I accept that if such a conversation took place, the Trustee’s claim would fail. Whether because the Glover Street Property was held on an express, a constructive or a resulting trust does not much matter. However, the Trustee points to other significant matters that are inconsistent with acceptance of that evidence.
On 3 December 1991, Veronica Cox executed a general power of attorney in favour of Laurence Cox. That was prepared by Whitelaw McDonald. On 23 December 1991, Whitelaw McDonald sent a memorandum of fees to Veronica Cox under cover of a letter of that date. The letter went on to say:
“RE: Transfer of Property to L. Cox and Betty Cox
Please telephone John McDonald’s secretary, Vonda, upon receipt of this letter and advise where the deeds to your property are located. In addition, please ask Laurie to forthwith attend upon Lake Macquarie Council and enquire as to whether they will allow him to build what he proposed without necessarily sub-dividing your land into 2 parts. Would you please arrange for Laurie to telephone us to advise us of the result of his enquiry, and further, would you telephone us to advise us from what place the deeds may be collected and delivered to us.”
There is no suggestion in that letter that the Glover Street Property was being transferred to Laurence and Elizabeth Cox simply to enable them to borrow money to carry out repairs and maintenance. The inference to be drawn from the letter is that there was a proposal for building some edifice that may or may not require subdivision approval. The letter was apparently sent by Mr McDonald and there is every reason to conclude that Mr McDonald may have been able to give some relevant evidence about the discussion that he had with Veronica Cox at the time. He did not do so.
Mrs Zink, in her affidavit sworn on 1 December 2000, said that in the early to mid-1990s she recalled having several conversations with Veronica Cox about the Glover Street Property. Mrs Zink said that Veronica Cox said words to the effect:
“I don’t want to favour any of my sons and when I die I want you to have the house.
……
I am very concerned about showing favour to any of my sons and I am adamant that my house will not will not go to any of them as I do not want any conflict between them after I pass away.”
Veronica Cox had five sons but only saw two on a regular basis.
Mrs Zink could not be more precise in her evidence as to when the statements attributed to Veronica Cox were alleged to have been said. The most she could say was that it was in the first half of the 1990s. Mrs Zink said that she had no knowledge of the transfer of the Glover Street Property to her parents.
According to an internal memorandum of Westpac dated 7 February 1992, Laurence and Elizabeth Cox applied at that time for personal finance in the sum of $35,500. The purpose recorded in the memorandum was to refinance indebtedness to ANZ in the sum of $23,500 and the purchase of keyboards in the sum of $12,000. The security was to be the Glover Street Property. It is significant that no mention was made of carrying out repairs or maintenance to the Glover Street Property as the purpose for the borrowing.
On 10 February 1992, Whitelaw McDonald sent to Westpac a copy of the Certificate of Title relating to the Glover Street Property and said in their covering letter:
“The property will be transferred from Veronica May Cox to Laurence Richard Cox and Elizabeth Ostler Hynd Cox. Please let us have a list of your requirements.”
The transfer of the Glover Street Property from Veronica Cox to Laurence and Elizabeth Cox was apparently signed on the following day. Their signatures on the transfer were witnessed by an employee of Whitelaw McDonald. On 17 February 1992, they also executed a mortgage of the Glover Street Property in favour of Westpac to secure all indebtedness of Laurence and Elizabeth Cox to Westpac. Once again the observation can be made the Mr McDonald or Mr Whitelaw would be in a position to cast some light on the circumstances relating to the execution of a completely unqualified transfer.
On 24 February 1992, Westpac made advances to Laurence and Elizabeth Cox. Two term loans were made. Term Loan No. 1 was for the sum of $24,500. Term Loan No. 2 was for the sum of $12,000. Those amounts correspond generally with the amounts referred to in the internal Westpac memorandum of 7 February 1992. On 24 February 1992, the sum of $24,356.74 was advanced under Term Loan No. 1 to repay the amount owing to ANZ plus ANZ’s solicitor’s costs. Term Loan No. 2 in the sum of $12,000 was applied in payment of the sum of $9,265.38 owing to Diners Club International, as to $1,873 to “MLC” and as to the balance by credit to the joint savings account with Westpac of Laurence and Elizabeth Cox. As at January 1992 Laurence Cox owed in excess of $8,000 to Diners Club International. I draw the inference that the payment to Diners Club International was in satisfaction of that indebtedness.
It is apparent that no part of the advances made on 24 February 1992 was applied for the purpose of repairs or maintenance of the Glover Street Property. However, on 15 April 1992, Laurence Cox wrote to Newcastle City Council saying:
“Mrs Veronica May Cox has passed the home at above address to me a few months ago… We need to move the H.W.S. at the end of the bath to an outside point near the laundry. We wish to put a W.C. in its place and tile around that area…”
On 23 April 1992, Mr Muddle, the manager of Westpac at Hamilton, wrote to Laurence and Elizabeth Cox confirming terms and conditions of a “Westpac Housing Loan” of $4,000. The purpose was said to be “renovations and painting” of the Glover Street Property. Security was to be “existing mortgage by yourselves over 20 Glover Street, Belmont”.
There was no evidence concerning the circumstances in which an application was made for such a loan. However, it was apparently advanced on 22 April 1992, the day before the date of the letter. On that day, an entry in a Westpac statement in respect of the savings account of Laurence and Elizabeth Cox records a deposit of $4,000. That amount was effectively dispersed by withdrawals from that account over the following two weeks. Elizabeth Cox could give no evidence as to the nature of the expenditure involved. An inference may be open, however, that the expenditure was for the purpose of renovating and painting the Glover Street Property. On the other hand, by letter of 27 April 1992 to Laurence Cox, Newcastle City Council indicated that it would not be necessary to submit a formal application for approval for the installation of a W.C. as proposed but that the requirements of Hunter Water Corporation would need to be observed prior to commencing installation. That suggests that no renovations had begun at that stage.
On 29 July 1992, statements of liquidated claim were filed in the Local Court at Newcastle against both Laurence Cox and Elizabeth Cox. The plaintiffs were a firm of solicitors carrying on practice as “Bruce O’Sullivan & Co.”. Claims were made in the sums of $6,293.61 and $4,702.18 respectively against Laurence Cox and Elizabeth Cox. Geoffrey Edwards & Co. Solicitors were retained to act for Laurence and Elizabeth Cox and, on 18 September 1992, they forwarded a notice of grounds of defence to Bruce O’Sullivan & Co. The claims apparently related to fees owing by Laurence and Elizabeth Cox to Bruce O’Sullivan & Co. The proceedings remained on foot for some time and judgment was ultimately entered for the plaintiffs on 7 April 1994. In the meantime, however, the matters came before the Local Court on numerous occasions but were adjourned from time to time. The proceedings will be mentioned again later.
On 5 August 1992 and 6 October 1992, the Manager of the Hamilton branch of Westpac wrote to Laurence and Elizabeth Cox pointing out that Term Loan No. 2 stood at amounts in excess of the approved limits at those times. No explanation has been offered as to what steps, if any, were taken to rectify the position. Repayments to Term Loan No. 2 were to be debited from an account of Bowbear Pty Ltd. There is no evidence as to the relationship between Bowbear Pty Ltd and Laurence and Elizabeth Cox. There is certainly no suggestion that that company had any connection with Veronica Cox.
On 12 March 1993, Veronica Cox made a will. By the will, the sum of $10,000 was to be applied in paying debts, funeral and testamentary expenses and duties and taxes and the balance was to be applied to such of her sons, including Laurence Cox, as survived her in equal shares. The residue was to go to Laurence and Elizabeth Cox absolutely. No mention was made of the Glover Street Property. That is not consistent with the proposition that Veronica Cox retained beneficial ownership of the Glover Street Property and intended that it would go to Mrs Zink.
On 14 May 1993, a further loan was advanced by Westpac to Laurence and Elizabeth Cox on the security of the Glover Street Property. An offer of 10 May 1993 indicated that the purpose of the proposed loan was “to cover existing housing and term loan plus cladding to home”. In the event, the sum of $10,577.70 was advanced on 14 May 1993 and was applied in repaying the balance owing of Term Loan No. 1 and in crediting the joint savings account of Laurence and Elizabeth Cox on 14 May 1993. By the end of June most of that sum had been disbursed. Once again, there has been no evidence as to the purpose of that disbursement. There is no evidence to indicate that any part of it was expended on “cladding to home”.
On 8 September 1993, Laurence and Elizabeth Cox consulted Whitelaw McDonald for 1¼ hours. A file was opened in which Laurence and Elizabeth Cox were named as clients. The name of the file was “Deed of Agreement”. As a consequence, Mr McDonald prepared a deed and a mortgage. He submitted those to Mr Whitelaw for “your second opinion”.
The draft deed was a declaration of trust between Veronica Cox on the one hand and Laurence and Elizabeth Cox on the other. The draft declaration of trust recited that Veronica Cox desired to transfer the Glover Street Property to Laurence and Elizabeth Cox “upon her death”. It recited that she had caused the Glover Street Property to be conveyed to Laurence and Elizabeth Cox subject to an agreement between them that the property would be held in trust during the remainder of Veronica Cox’s life, subject to Elizabeth and Laurence Cox continuing to care for and to tend to her needs to her satisfaction. Upon her death the property was to become beneficially owned by Laurence and Elizabeth Cox. The operative part of the draft included covenants by Elizabeth and Laurence Cox to cause to be prepared and executed a registrable transfer of the Glover Street Property and to execute a mortgage in favour of Veronica Cox. The operative provisions also included a confirmation that Laurence and Elizabeth Cox had not accrued any interest in the Glover Street Property “by virtue of the mortgage to [Westpac] or by virtue of [the Glover Street Property] being registered in the names of [Laurence and Elizabeth Cox]”. The form of mortgage showed Veronica Cox as mortgagor and Laurence and Elizabeth Cox as mortgagee.
There is an undated handwritten note on the solicitor’s file addressed to Mr McDonald apparently by Mr Whitelaw saying “you need some mtge conditions and amts”. That is consistent with the form of the draft mortgage, which contains no reference to any conditions or amount secured. I draw the inference that the note was made on or shortly after 8 September 1993.
Nothing appears to have happened further in relation to the proposal at that stage since, on 28 September 1993, Mr McDonald wrote to Laurence and Elizabeth Cox saying:
“We confirm:
1. The declaration of trust and mortgages are no longer required.
2.We note our costs with respect to preparation of same and matters incidental thereto as set out in the attached which have been reduced to you. Please let us have cheque in payment at your earliest convenience.”
The memorandum of fees in the sum of $285 was paid by Laurence and Elizabeth Cox on 11 November 1993.
I draw an inference that the discussions that took place on 8 September 1993 were prompted by the imminence of a hearing of the proceeding in the Local Court brought by Bruce O’Sullivan & Co and a concern that the Glover Street Property may have been exposed to execution if judgment were obtained in the Local Court proceedings. That proceeding was apparently fixed for hearing on 17 September 1993. However, on that day it was adjourned, ultimately, to 27 January 1994. It is significant that the fee note was addressed to Laurence and Elizabeth Cox and there is not evidence, at that stage, of any consultation with Veronica Cox.
On 13 January 1994, Elizabeth Cox telephoned Mr McDonald. A note in the file of Whitelaw McDonald records that she left the following message:
“To remind you re Belmont house if they have to go to court for Bruce O’Sullivan next week.”
At that stage the proceeding was fixed for hearing on 7 January 1994, Geoffrey Edwards & Co were acting on behalf of Elizabeth and Laurence Cox in relation to the proceedings in the Local Court. On 21 January 1994, Whitelaw McDonald sent to Geoffrey Edwards & Co copies of the draft mortgage and draft declaration of trust. The letter said:
“Mr and Mrs Cox have spoken to me concerning their property at Belmont.
I enclose copies of the following:
1. Mortgage.
2. Draft Declaration of Trust.
I would be grateful if you could telephone me personally to discuss the suitability of same and the circumstances of the matter for which you act on behalf of Mr and Mrs Cox.”
There is no evidence of any response to that letter. However, the letter confirms the inference that a purpose of preparing the draft documents was related to the proceedings involving Bruce O’Sullivan & Co. Indeed, the draft declaration of trust recites a concern about that proceeding.
In any event, amendments were made to the draft declaration of trust and the draft mortgage. A memorandum on the file of Whitelaw McDonald records that on 24 January 1994 an hour was spent amending the “Deed and Transfer”. The memorandum also records the following:
“Attending Laurence and Elizabeth in office. Signing documents. They have taken both documents will travel to Nelson Bay tomorrow and have Veronica sign same where indicated with an “X” and return to this office to Raquel or Vonda.”
Elizabeth Cox had no recollection of any such attendance. However, I conclude that the formal declaration of trust and mortgage, amended by some person within Whitelaw McDonald’s firm, were given to Laurence and Elizabeth Cox on 24 January 1994.
On 27 January 1994, the hearing of the Local Court proceedings was adjourned to 7 April 1994.
On 25 February 1994, a new term loan from Westpac to Laurence and Elizabeth Cox was completed in the sum of $10,000. The purpose of that loan was to assist in the purchase of materials and costumes for a stage show on behalf of Jason Cox and his fiancee, Ms Lovett. Jason Cox is the son of Elizabeth and Laurence Cox. The loan was secured by the mortgage over the Glover Street Property.
On 7 April 1994, judgment was entered in the Local Court proceedings in favour of Bruce O’Sullivan & Co against Elizabeth Cox in the sum of $6,175.66 and Laurence Cox in the sum of $8,168.10. At that stage, the declaration of trust and mortgage had not been returned to Whitelaw McDonald. On 22 April 1994, a telephone call was made from Whitelaw McDonald’s office to Elizabeth Cox who said that she had found the documents and would drop them into Whitelaw McDonald’s office. There is no evidence as to when the documents were returned but it is apparent that they were.
On 16 May 1994, Mr McDonald sent a memorandum to Mr Whitelaw saying:
“See my declaration of trust. It was returned to me recently by a client dated 24.1.94. I propose to attach duty stamps. I believe the duty on the deed is $20. Please confirm and return to me. I understand full duty must be paid on the mortgage.”
That memorandum is typed. Endorsed on the memorandum in handwriting is the following:
“Yes. Need ltr from mtgee stating how much. Also annexure… setting this out + details of rpmt or interest free.”
There is another handwritten note saying “Pls draft caveat”. Once again, there was no evidence as to the circumstances in which those notes were brought into existence.
However, by that time, a form of declaration of trust and mortgage had been signed by Veronica Cox and Laurence and Elizabeth Cox. The signatures of each of those parties on the declaration of trust and of Veronica Cox on the mortgage were witnessed by Pamela M. Lovett. The signature of Elizabeth and Laurence Cox on the mortgage was witnessed by Raquel Mace. The reference to the name Raquel on one of the internal memoranda indicates that she was an employee of Whitelaw McDonald. The form of declaration of trust as signed is dated 24 January 1994. The date was typed at the time of preparation. The same date appears on the mortgage, although the date was handwritten in a blank space for that purpose.
The declaration of trust as signed varied in some respects from the draft that had been produced in September 1993. The variations are of a drafting character rather than of substance. However, the amendment to the mortgage was significant. Laurence and Elizabeth Cox were the mortgagor and Veronica Cox was the mortgagee. The mortgage document is a printed form. Some of the printed form is deleted. The net effect of the deletions is that the mortgagor mortgages the Glover Street Property to the mortgagee “and covenants with the mortgagee”. However, covenants are referred to on the face of the document. On the other hand, there is an annexure to the form of mortgage, although the annexure is not signed. The annexure contains the following covenants:
“1.The mortgagors shall observe the provisions of memorandum Q8600000 lfiled in the Land Titles Office.
2.The mortgagor shall pay to the mortgagee all monies advanced by the mortgagee to the mortgagors plus interest thereon at the rate of 10 per cent per annum upon demand.”
There is no evidence as to any advance having been made by Veronica Cox to Laurence and Elizabeth Cox, nor was there any evidence as to the contents of memorandum Q8600000.
At that stage the title particulars had not been included in the mortgage. So much can be inferred from another internal memorandum of Whitelaw McDonald of 16 May 1994 asking “Vonda” to “type on mortgage the title particulars”. The title particulars were not ascertained until 25 May 1994 when they were obtained from Westpac.
On 20 June 1994, execution was attempted at the Glover Street Property by way of enforcement of the judgments in favour of Bruce O’Sullivan & Co. On 18 July 1994, execution was attempted once again at the Glover Street Property. In the meantime, on 13 July 1994, Laurence Cox applied for leave to pay the judgment debt by instalments. That application was refused.
It appears that, on 4 August 1994, there was a mediation involving Elizabeth and Laurence Cox. So much is to be gleaned from a file note of Whitelaw McDonald of that date, recording a telephone call from Elizabeth Cox as follows:
“A John Miller went with them this morning – they didn’t see Tony Hognow [from Geoffrey Edwards & Co] at all and have never seen John Miller before.
Betty is trying to ring Tony Hognow tomorrow – he was too busy to speak to her today.
Mr Miller felt the mediator had made up his mind before he listened to their side of things.
He feels they will put a caveat on the property.”
The intent of the memorandum is not entirely clear. I draw the inference that Mr Miller was suggesting that the judgment creditors would register a writ of execution in respect of the Glover Street Property. In any event, on 11 August 1994, Whitelaw McDonald sent, for registration, a form of caveat, which was lodged on 15 August 1994. The caveator was Veronica Cox and the property was the Glover Street Property. The interest claimed was as “beneficiary” under the declaration of trust of 24 January 1994.
On 16 September 1994, Elizabeth Cox telephoned Whitelaw McDonald saying that she had to go to court for the Bruce O’Sullivan & Co matter on 29 September 1994. She asked if it would be best if “the house and contents insurance”, which was due the following Friday, was transferred back into the name of Veronica Cox. The making of such an inquiry in the context of a further hearing of the proceeding in the Local Court suggests a concern related to the possible execution against the Glover Street Property by way of enforcement of the judgment.
On 26 September 1994, a further advance of $5,000 was made by Westpac to Laurence and Elizabeth Cox. The advance was credited to their joint savings account, which at that stage was overdrawn. The advance was made pursuant to an offer made on 22 September 1994 to lend the sum of $5,000 “to assist you with sundry accounts”. The advance was to be secured by the mortgage over the Glover Street Property. The balance of the joint account was reduced to approximately $500 by the first week of September 1994. Again, there was no evidence as to the disbursement of that sum.
In the meantime, on 28 September 1994, Geoffrey Edwards & Co asked Whitelaw McDonald for a copy of the declaration of trust and caveat, which were provided on the same day. The reason for that request is not clear. It may have something to do with an application for renewal of a writ of execution in respect of the Local Court proceedings on 7 September 1994.
On 13 December 1994, Whitelaw McDonald sent a fee note to Laurence and Elizabeth Cox in respect of the preparation of the caveat and correspondence with Geoffrey Edwards & Co. It is significant that the fee note was addressed to Laurence and Elizabeth Cox rather than to Veronica Cox.
On 11 January 1995 Laurence and Elizabeth Cox consulted Mr McDonald once again in relation to the declaration of trust. There was no direct evidence as to the purpose of the consultation. However, on the same day, Whitelaw McDonald wrote to the bailiff referring to the writ of execution referrable to the Glover Street Property. The letter said:
“We act on behalf of Veronica May Cox.
We are instructed the property is held by Laurence Richard Cox and Elizabeth Ostler Hynd Cox as Trustee only for our client Veronica May Cox.
It would appear, noting the Writ of Execution referred to above, that a Bailiff’s Interpleader is required. Would you please confirm by return that you have effected the said Interpleader Summons.”
On the same day, Whitelaw McDonald wrote to Veronica Cox. That appears to have been the first occasion on which they had had any direct written communication with Veronica Cox in connection with the Glover Street Property. The letter said as follows:
“In accordance with the instructions which you had given to us when the Declaration of Trust and Mortgage documents were prepared together with Caveat we confirm that documents have now been received whereby a Writ of Execution has been registered upon your property known as No. 20 Glover Street, Belmont.
We confirm your instructions that your property is held in trust for you by your son Laurence Richard Cox and your daughter-in-law Elizabeth Ostler Hynd Cox.
We confirm, in accordance with your instructions, that we are to defend any proceedings which would jeopardise your interest in the property and, in consequence, we have written to The Bailiff advising of your interest and requesting that a Bailiff’s Interpleader be effected.
If you have not heard from us further at the expiration of twenty-one (21) days from the date hereof please contact John McDonald as it may then be necessary that further proceedings be undertaken on your behalf by us.
Please confirm the above is in order by signing the foot of this letter and returning to us.”
Veronica Cox signed the document and returned it to Whitelaw McDonald.
On 27 January 1995, Whitelaw McDonald sent a copy of the caveat to the bailiff, apparently as a result of a telephone request. On 6 April 1995, Whitelaw McDonald sent a fee note to Laurence and Elizabeth Cox in connection with the discussions relating to the bailiff. The fee note refers to discussions with Veronica Cox on 9 January 1995 although there is no evidence of those discussions. It is significant that the fee note was addressed again to Laurence and Elizabeth Cox rather than to Veronica Cox.
In the meantime, negotiations continued between Elizabeth and Laurence Cox on the one hand and Bruce O’Sullivan & Co on the other through Geoffrey Edwards & Co. On 14 March 1995, Geoffrey Edwards & Co wrote to Whitelaw McDonald concerning an offer of settlement of $9,000. The letter enclosed a further letter from Bruce O’Sullivan & Co raising the question of the amount that was still outstanding from the judgment of the Supreme Court of 26 November 1986. Elizabeth Cox told Mr McDonald on 28 March 1995 that Bruce O’Sullivan & Co would not accept $10,000 and wanted $13,000 within fourteen days. On 19 April 1995 Whitelaw McDonald responded to the earlier letter from Bruce O’Sullivan & Co, indicating that Laurence and Elizabeth Cox did not acknowledge that any amount was still owing under the Supreme Court judgment.
In circumstances that are not clear from the evidence given by Elizabeth Cox and Mrs Zink, Laurence and Elizabeth Cox entered into a contract for the sale of the Glover Street Property on 17 March 1995. The price was $139,000. Elizabeth Cox said in her affidavit that in March 1995 Mr Malcolm MacLeod from Raine & Horne said, in relation to the Glover Street Property:
“I won’t even place the house on the market as I am aware of several building companies that would be most interested in a property of this size.”
That apparently led to the contract for sale of 17 March 1995.
On 21 April 1995, Mr and Mrs Zink approached Greater Building Society Ltd for a loan of $45,000. The purpose was to purchase the Kerry Avenue Property. Mr and Mrs Zink were referred to Greater Building Society by Mr Whitelaw. A note in an internal file of Greater Building Society Ltd records the following:
“Mrs Zink recently inherited money ($101,000) which she would like to put into purchasing an investment property. The rent received on the property would cover the loan. They have built a new home in New Lambton Heights which they are currently paying off to NPBS…”
Approval of the proposed borrowing was recommended.
It is apparent that Mrs Zink was not entirely frank with Greater Building Society Ltd in saying that she had recently inherited the sum of $101,000. At that stage she did not have any such sum. There had been no settlement of the sale of the Glover Street property. On the other hand, it is clear that somebody had made a calculation of the amount that was likely to be available from the proceeds of sale of the Glover Street property.
Settlement of the sale of the Glover Street Property took place on 9 June 1995. The balance of the purchase price payable, after deduction of the deposit of $13,900 was $124,516.80. Cheques were paid by the purchaser, at the direction of Laurence and Elizabeth Cox, as follows:
· Whitelaw McDonald - $1,355;
· Westpac - $21,187.62; and
· Veronica May Cox - $101,974.18.
The sum of $21,187.62 payable to Westpac was applied in reduction of four accounts including Laurence and Elizabeth Cox’s joint account in the sum of $1,712.64 and the loan account of 14 May 1993 (home loan account 280294) in the sum of $8,257.12. A further sum of $2,605.68 was applied in reduction of an account of Bowbear Pty Ltd. There is no evidence as to the ownership of a fourth Westpac account, which was reduced by the sum of $8,492.18. I draw the inference that it was an account of Laurence and Elizabeth Cox or a member of their family. There is no evidence to suggest that it was an account of Veronica Cox.
Raine & Horne, the agents involved in the sale, forwarded a cheque for the sum of $9,900, being the balance of the deposit after deduction of their commission, to Whitelaw McDonald. Laurence Cox collected that cheque from Whitelaw McDonald. There was no evidence as to what happened to the cheque. There is no reason to assume that it was delivered to Veronica Cox.
Elizabeth Cox said that when Veronica Cox received the cheque in the sum of $101,974.18 she said:
“Because of the conflict between by sons, I do not want to take sides. I want my granddaughter, Toni, to have the money.”
The cheque was delivered to Mrs Zink at about the time of completion of the sale of the Glover Street Property. She said that Veronica Cox had endorsed the back of the cheque to make it payable to Mrs Zink. Mrs Zink deposited the cheque to the credit of an account in the joint names of Mr and Mrs Zink with Greater Building Society Ltd on 14 June 1995.
On the same day, a cheque was drawn on that account payable to “Kell Lewis – Nationwide Realty”, in the sum of $12,500. On the same day, Mr and Mrs Zink entered into an agreement for the purchase of the Kerry Avenue Property for the sum of $133,000. On 20 June 1995, a further cheque in the sum of $3,149, payable to the Office of State Revenue, was drawn on the account. I draw the inference that that was stamp duty payable on the contract of the purchase of the Kerry Avenue Property and that the earlier cheque was in payment of the deposit on the Kerry Avenue Property.
Settlement of the contract for the purchase of the Kerry Avenue Property took place on 28 July 1995. The balance of the purchase price was paid:
·from the Greater Building Society Ltd account as to the sum of $76,963.36;
·by way of advance from Greater Building Society Ltd as to the sum of $45,000.
A transfer from the vendor of the Kerry Avenue Property to Mr and Mrs Zink dated 28 July 1995 records receipt of consideration in the sum of $133,000. A mortgage was also executed in favour of Greater Building Society Ltd on 28 July 1995 by Mr and Mrs Zink.
RESOLUTION OF THE ISSUE
The history of borrowing by Laurence and Elizabeth Zink on the security of the Glover Street Property for their own private purposes is not consistent with the proposition that the Glover Street Property was held by them as bare trustees for Veronica Cox. Certainly, the mortgage to ANZ was given by Veronica Cox in 1986 to secure accommodation to Laurence and Elizabeth Cox. However, the circumstances in which that mortgage was executed have not been the subject of evidence. I would expect that arrangements would have been put in place that fixed the amount of accommodation to be secured by the mortgage. On the other hand, there has been no suggestion that Veronica Cox was ever consulted in relation to the subsequent advances and loans made by Westpac to Laurence and Elizabeth Cox on the security of the Glover Street Property. The only evidence given by Elizabeth Cox on the subject is that the purpose of the transfer was to enable monies to be borrowed for carrying out repairs and renovations. Clearly monies were borrowed on the security of the property for other purposes.
The inconsistency between the recitals of the declaration of trust and the statements attributed by Elizabeth Cox to Veronica Cox cast doubt on the credibility of the latter. One of the recitals makes it clear that Veronica Cox desired to transfer the Glover Street Property to Laurence and Elizabeth Cox upon her death. That is inconsistent with the statement that the property was to be hers at all times. Another recital refers to an agreement that the Glover Street Property would be held in trust by Laurence and Elizabeth Cox for Veronica Cox during the remainder of her life and upon her death would become beneficially owned by Laurence and Elizabeth Cox. The recitals also refer to the borrowing of monies from Westpac “in order to effect renovation” to the Glover Street Property, and that the making of repayments by Laurence and Elizabeth Cox was in no way to afford them “to accrue an interest in” the Glover Street Property.
The declaration of trust also referred to an arrangement relating to the preparation of a memorandum of mortgage to evidence and secure the interest in the Glover Street Property of Veronica Cox. The mortgage that was prepared did nothing along those lines. It purported to secure, if anything, monies advanced by Veronica Cox to Laurence and Elizabeth Cox. There was no evidence of any such advance.
The provisions of the declaration of trust give rise to an inference, which I draw, that it was designed to afford an answer to the enforcement of any judgment obtained by Bruce O’Sullivan & Co against Laurence and Elizabeth Cox. It is a curious document and its language and the language of the mortgage apparently executed at about the same time demonstrate considerable lack of clear thinking on the part of the authors of the documents. That of itself suggests that the document did not reflect an arrangement that had been made on or prior to 11 February 1992. The circumstances surrounding the preparation of the declaration of trust cast considerable doubt on the evidence of Elizabeth Cox concerning the statements that she attributed to Veronica Cox.
Another relevant consideration is that Laurence and Elizabeth Cox currently reside at the Glover Street property. They have expended their own moneys on maintenance and repairs and have paid rates and taxes. That conduct is consistent with the belief on their part that they are beneficial owners of the property. Another curious matter in relation to the Kerry Street property is the existence of an undated lease from Mr and Mrs Zink to Laurence and Elizabeth Cox for 99 years commencing on 9 January 1997 for rent consisting of $1 per annum, together with the payment of all outgoings in respect of the Kerry Avenue property. No explanation was given as to the circumstance in which an unusual arrangement was made.
I draw the inference that the Kerry Street property was purchased in the name of Mr and Mrs Zink with the intention that it would be treated as beneficially held for Laurence and Elizabeth Cox. That would support a conclusion that they regarded themselves as the beneficial owner of the proceeds of the sale of the Glover Street property.
CONCLUSION
I consider, on the balance of probabilities, that is more likely than not that the Glover Street Property was transferred by Veronica Cox to Laurence and Elizabeth Cox with the intention that beneficial ownership should pass. It is possible that there was some discussion whereby Veronica Cox would be permitted to continue to live in the Glover Street Property during her lifetime. Such an arrangement, however, would not be inconsistent with the passing of beneficial ownership to Laurence and Elizabeth Cox. It follows, in my opinion, that the proceeds of sale of the Glover Street Property, in so far as they were represented by the cheque in the sum of $101,974.14 belonged to Laurence and Elizabeth Cox. The parties would accept, therefore, that declarations along the lines sought in the Trustee’s cross claim should be made.
I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 19 April 2002
Counsel for the Applicant: Mr B. Sharpe Solicitor for the Applicant: Whitelaw McDonald Counsel for the Respondent: Mr A. Spencer Solicitor for the Respondent: Sally Nash & Co Date of Hearing: 16, 17 & 19 April 2002 Date of Judgment: 19 April 2002
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