Fedorow and Ors v Federow [2009] ACTSC 92 (11 August 2009)

Last Updated: 1 September 2009

FEDOROW & ORS v FEDOROW
[2009] ACTSC 92 (11 AUGUST 2009)

EQUITY – trusts – son purchasing government house as joint tenant with father – father previously sole tenant under tenancy agreement – father unaware of effect of joint tenancy – no intention that property pass to son on death by survivorship – declaration that son holds deceased father’s half-interest on trust for beneficiaries of father’s estate

Calverley v Green [1984] HCA 81; (1984) 155 CLR 242

No. SC 475 of 2006

Judge: Master Harper
Supreme Court of the ACT
Date: 11 August 2009

IN THE SUPREME COURT OF THE )
) No. SC 475 of 2006
AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: ALAN MICHAEL FEDOROW

First Plaintiff

GENADY FEDOROW

Second Plaintiff

VICTOR FEDOROW Third Plaintiff

AND:

PETER FEDOROW

Defendant

ORDER

Judge: Master Harper
Date: 11 August 2009
Place: Canberra

THE COURT DECLARES THAT:

From 8 July 1995 the defendant was a trustee as to a one-half share as a tenant in common of block 12 section 25 O’Connor being the land comprised in volume 538 folio 16 for himself and the three plaintiffs as tenants in common in equal shares.

1. This is a dispute between four brothers. Their parents, now deceased, migrated to Australia from Russia more than half a century ago, and settled in Canberra.
2. There are four brothers in the Fedorow family: Alan (originally Anatoly), George (originally Genady), Victor and Peter (originally Piotr). They are the sons of the late Michael and Anna Fedorow. They are now in their sixties and seventies.
The proceedings
3. Proceedings were instituted by Alan, George and Victor against Peter. Subsequently Peter commenced proceedings against his brothers seeking declaratory relief and the removal of caveats.
4. Alan, George and Victor seek declaratory relief against Peter, with consequential orders. Alan and George Fedorow started the proceedings through solicitors. Victor Fedorow started his own action, unrepresented. The actions have since been consolidated.
5. As the action proceeded towards trial, the first and third plaintiffs, Alan and Victor, were represented by a firm of solicitors, whilst the second plaintiff George was represented by the Legal Aid Office (ACT). The action went to trial with the same counsel representing the three plaintiffs, against the fourth brother Peter Fedorow as defendant.
The facts
6. The determination of this action requires findings of fact about events which occurred many years ago. There is some assistance from contemporaneous documents. Each of the four brothers has given evidence of their recollections. I have been able to observe the demeanour of each of the brothers in the witness box, and I can say at the outset that I formed the impression that each of them was doing his best to recall the events. While recognising that each of them has something to gain or lose depending on the outcome of the proceedings, I found all of them to be honest and genuine. Where there remain conflicts of evidence, I am inclined to attribute these to the perspective from which different people will perceive and recall the same event, and to the frailties of human memory.
7. I shall commence by setting out those aspects of the factual background which are not in dispute. In doing so I shall refer to the members of the family by the Anglicised first names they adopted after arriving in Australia.
8. The father, Michael Fedorow, was born in Russia in 1909, and died in the family home in O’Connor on 8 July 1995. The mother, Anna, was born in Russia in 1913 and died in October 1986 at the then home of one of her sons, Peter, at Burra, near Canberra but in New South Wales.
9. The four sons of Michael and Anna were all born in Russia, in an area near St Petersburg (then Leningrad) where their father worked as a farm labourer. George was born in 1935, Alan in 1937, Peter in 1939 and Victor in 1941. George is now 74, Alan 72, Peter 70 and Victor 68.
10. The family migrated to Australia in 1950. They lived in migrant accommodation near Albury and later Cowra before moving to Canberra in 1952. During that year they were allocated a government house at 11 Coolibah Crescent, O’Connor on a rental basis. Tenancy documents were signed, Michael Fedorow being the tenant, and the family moved in in July 1952.
11. The family lived in the house until 2007 when it was sold.
12. Michael Fedorow worked as a labourer with the Department of the Interior of the Commonwealth, which was in those years responsible for the administration of the Australian Capital Territory. He worked initially with the Roads and Bridges section of the Department and subsequently with the Parks and Gardens section.
13. Canberra was still quite a small place in 1952, and O’Connor was an outer northern suburb. Michael Fedorow kept a dairy cow in a paddock close to the house. The family planted fruit trees and a vegetable garden and kept chickens and ducks. They were close to self-sufficient and sometimes sold excess produce. Nevertheless life was frugal and there was never much spare money.
14. George became a painter after completing an apprenticeship. He left home to get married in 1963 but returned in 1972 after separating from his wife and generally seems to have lived at the O’Connor house thereafter until it was sold.
15. Alan became a boilermaker. Early in 1964 he married and left home. Ultimately his marriage failed. In early 1996, after his father’s death, he returned to the house and lived there with George until it was sold.
16. The third brother, Peter, married in about 1961 and left home. Peter became a carpet layer and started a successful business at Fyshwick with a number of employees and contract layers. The business expanded to surrounding areas including Cooma and the south coast of New South Wales. Peter separated from his second wife and moved back to the house at O’Connor where he lived with George and Alan for about six months. This was some time between 1999 and 2003, well after the death of both of the parents. At some point Peter bought a house in Blackall Avenue, Queanbeyan, where he was living when these proceedings were instituted in June 2006. During 2005 he suffered a stroke. I was unable to detect any particular symptoms by way of aftermath of the stroke while he was in the witness box but as I had not seen him before his stroke I am unable to form a view as to whether he may have presented differently prior to the stroke. I note that in an affidavit sworn in May 2008 Peter Fedorow gave his address, without any explanation, as an address at Pascoe Vale South, Victoria. He swore a further affidavit in August 2008 giving an address at Forster on the mid-north coast of New South Wales and this was the address he gave when giving oral evidence.
17. The youngest brother, Victor, qualified and worked as an insurance agent. He married and left home in June 1964, the last of the brothers to do so. He remained in the Canberra region until 1989 when he moved to Queensland. He moved back to Canberra at the end of 1999 with his family. He was by then a disability pensioner.
18. In May 1962, Michael Fedorow asked the Housing Branch of the Department of the Interior to provide him with a valuation of the property, presumably because he was thinking about buying it. He was provided with a valuation and informed that he was entitled to purchase the house by paying a deposit of 10 percent of the valuation, followed by monthly instalments over a period of forty years. The instalments at that time would have been rather less than the rent. Mr Fedorow did not proceed with the purchase: I expect that the required deposit would have been quite a significant amount to him at that time. It is very doubtful, having regard to the other evidence, that he would have had access to the amount of money required.
19. He asked for a further valuation in February 1965, but again decided not to proceed with the purchase.
20. In 1973 a further valuation was conducted. A standard form of application to purchase a government house from the Commonwealth was completed and signed by Mr Fedorow on 14 June 1972. The form included a section worded “mortgage documents should be drawn up in the following names:”. It is apparent that this was initially completed with the names Anna Fedorow and Michael Fedorow. At some point the name Anna was deleted and replaced with the name Peter Fedorow.
21. In accordance with the procedure in place at the time, the form then went to the chief valuer’s office. The valuation was not completed until 2 March 1973 when a valuation of $10,400.00 was recorded. Interestingly the valuer estimated the remaining life of the house at thirty-five years, a period of time which has now elapsed although my understanding is that the house is still standing and occupied.
22. The form then went to another section of the Department where calculations were set out as to the deposit payable ($520.00) leaving $9,880.00 to be secured by mortgage and paid off at 6.25 percent interest over thirty five years, by monthly repayments of $58.00. This part of the form was completed on 5 March 1973.
23. On 8 March 1973 a letter was sent to Mr Michael Fedorow by the Commissioner for Housing within what had become the Department of the Capital Territory, offering to sell the house to him for $10,400.00 on a deposit of $520.00 with the balance payable over thirty five years as set out in the calculations.
24. On 6 April 1973 the calculations were amended in an attachment to the form, showing a deposit of $6,000.00 leaving $4,400.00 to be paid over fifteen years at $37.73 per month.
25. On 20 September 1973 the Commissioner sent a letter addressed to Mr and Mrs M Fedorow, asking for “the full names to be written into the Crown lease and mortgage”. The letter pointed out that if their son’s name appeared on the lease as a join tenant, he would not be eligible for a government housing loan in the future. On 10 October 1973 Peter Fedorow replied to this letter, saying “please make contract out in the names of Peter Fedorow and Michael Fedorow”.
26. A Crown lease and mortgage were prepared and Michael and Peter Fedorow attended the office of the leasing section of the Department on 17 July 1974 to sign those documents. The lease was formally granted on that date, for a term of ninety nine years commencing on 6 April 1973.
27. On 6 April 1973 a receipt was created, evidencing payment of $5,995.80 ($6,000.00 deposit less a valuation fee of $4.20) from M. Fedorow. The receipt does not record the manner of payment.
28. The monthly repayments were approximately the same as the rent.
29. Michael Fedorow retired at the age of 65, in August 1974. By that time George had moved back to live at home with his parents.
30. In January 1986, Peter asked the Department for a payout figure for the mortgage. The amount then owing was $1,025.08. In mid-1986 Anna Fedorow, who was unwell, moved to Peter and his wife’s home at Burra, where she died in October 1986. In September 1987 Peter Fedorow asked again for a mortgage payout figure. The payout by then was down to $402.78, and Peter paid this amount on 2 October 1987, and obtained possession of the Crown lease and discharge of mortgage, which was registered on 9 October 1987. Peter paid some, and perhaps all, of the mortgage repayments from 1985 until the discharge.
31. In November 1996, after Michael Fedorow’s death but before the lodgement of a notice of death, Victor Fedorow lodged a caveat on the title. He withdrew the caveat in May 1999 at Peter’s request. At some time after that, a notice of death must have been lodged, and Peter Fedorow was thereafter recorded as the sole registered proprietor. On 1 August 2003, a mortgage over the O’Connor property in favour of Adelaide Bank Limited was registered. In April 2006 Alan Fedorow lodged a caveat when he became aware that Peter was intending to sell the house.
32. On 30 June 2006, Marshall J ordered by consent that Alan’s caveat be removed, that Alan and George vacate the house on settlement and that the net proceeds of the sale be invested pending the making of final orders in the action. On 29 September 2006 the orders were varied to provide for Alan and George to vacate by 30 November 2006.
33. It is not clear from the evidence precisely when contracts were exchanged or when settlement took place, but it is apparent that Peter contracted to sell the house through a firm of estate agents to an arms-length purchaser for $420,000.00 in the second half of 2006, and that settlement had taken place by the end of the year. Peter deposed, in an affidavit of 20 June 2006 in support of his application for removal of the caveats, that he had a loan from Adelaide Bank with a then balance of $312,347.00, secured by a mortgage over his Queanbeyan house and the house at O’Connor. The loan was repaid on settlement leaving a net balance of about $90,000 which I understand has been invested pending my decision. I infer that since that settlement Peter’s house at Queanbeyan has been unencumbered.
The oral evidence
34. Each of the brothers gave oral evidence.
35. George Fedorow was vague about dates and conceded that his memory was no longer particularly reliable. He had set out conversations in his affidavit. Because directions had been made that evidence-in-chief was to be on affidavit, I did not have the benefit of observing and listening to him giving evidence-in-chief without leading questions. Whilst I accept that he was probably living at the house with his parents at the time of the purchase in 1973, his evidence throws very little light on the events of that time.
36. Alan Fedorow’s evidence was brief and uncontroversial.
37. Victor Fedorow gave evidence about a conversation he had with his father, at a time when he stayed at Victor’s house in Queensland while recuperating after a period in hospital. This was apparently not long before his father’s death. Victor told him that he had seen a rates notice for the O’Connor property addressed to his father and also to Peter. Victor told him that that this meant that the house had been bought in both names. He said that this meant that when his father died the house would go to Peter, whereas he had been under the impression that the intention was that it would go to the four sons. His father replied that Peter had told him that the house would go to the four sons after his death.
38. Victor was not cross-examined about this conversation, but I have some difficulty with it. I think it likely that Victor was surprised to see Peter’s name on the rate notice and that he talked to his father about it. It seems to me a little unlikely that Victor would have realised, just from the rate notice, that his father and Peter had bought the house as joint tenants so that Peter would become the sole owner of the house on his father’s death. By the time Victor was giving his evidence, he was well aware that it had been a joint tenancy and that Peter had become the sole registered proprietor. Nevertheless, on balance, I am inclined to accept that some such conversation took place and that the father reassured Victor that the house was to go to the four brothers on his death.
39. Peter Fedorow’s evidence was that during the period leading up to the purchase of the house by his father and himself, he had wanted to buy the house in his own name. He talked to his father about it and to staff of the Department. He was told that he would not be permitted to buy the house himself. He said that his father had not had enough money to buy the house. Peter paid a deposit of $6,000.00 so that his father could continue to pay the same amount by way of mortgage repayment as he had been paying in rent.
40. Peter had said in his affidavit that he and his father had agreed to buy the house as joint owners. Peter was asked in chief about the conversation with his father. Peter summarised this by saying that he would be the owner of the house after his father’s death.
41. Peter was cross-examined about his father’s bank records. He effectively administered the estate, although there was no will and no application for letters of administration. After payment of funeral and other expenses there was an amount of $18,000.00 for distribution, which Peter distributed to the four brothers equally. He used the cheque account of his company, Warran Nominees Proprietary Limited, for the purpose of collection and distribution of the money.
42. Peter’s evidence was that he notified the pension authorities of his father’s death. Notwithstanding the notification, the pension amount continued to be paid into his father’s savings account. Peter said that he rang the pension people several times. It is apparent that Peter continued to operate on his father’s savings account for a lengthy period after the death. His answers to questions about particular large withdrawals was not entirely satisfactory, but must be seen in the context of the fact that he was being asked about events of some fifteen years earlier and that he had had a stroke in the interim. It seems to me that the balance in the account ultimately built up by May 1999 to an amount of more than $17,000.00, and that this must have eventually been refunded to Centrelink. Although Peter seems to have mixed his father’s money with his own or his company’s money, and to have been a little cavalier with record-keeping, I was not left by the end of the cross-examination with any level of satisfaction that he had behaved improperly or used his father’s money for his own purposes. Nor did the cross-examination affect his credit adversely, in my assessment. As I have said earlier in these reasons, I thought that he was doing his best to give truthful evidence based on his recollection of events. I did not find his evidence particularly reliable, partly because the events took place so much earlier, partly because of his stroke, and perhaps partly because of a natural human tendency to recall past events in a way which is favourable to one’s own interests.
43. He was cross-examined about his visits to the Department of the Capital Territory in 1973, in relation to the purchase of the house. He said that having been told that he could not buy the house in his own name, he took his father in with him and they signed some papers. Staff in the Department calculated for him the deposit that would have to be paid to reduce the mortgage repayments to an amount equal to the rent. It had been council staff who had suggested the deposit of $6,000.00. Peter said that he could not remember where the $6,000.00 had come from, but was sure that he had paid it by cheque. He had not told his father in Russian precisely what was happening, and his father did not speak or understand English in any more than a rudimentary fashion.
44. At the conclusion of the cross-examination, I asked Peter Fedorow whether he knew the difference between buying a property as joint tenants and buying the same property in any other way. I asked him whether he knew what the meaning of joint tenants was. He replied in the negative. I asked him whether he saw a solicitor or got any legal advice at the time of the purchase, and again he said that he did not.
Findings
45. Although there was much evidence given about later years, the crucial events in this case were those which took place leading up to and at the time of the purchase of the property.
46. I am satisfied that the father, Michael Fedorow, had no independent legal or other advice and relied entirely on Peter Fedorow to protect his interests at that time.
47. I have some difficulty with the changes in the calculations about deposit and repayments between 5 March and 6 April 1973. On the original calculations, the monthly repayments would have been $58.00 over thirty-five years. On the substituted calculations, the monthly repayment was $37.73 over fifteen years. I cannot immediately see why the period needed to be reduced. If the monthly payments had been brought down to $37.73, to equate with the then rent, but the repayment period left at thirty-five years, the deposit would have been considerably less than the $6,000.00 which was paid.
48. I am nevertheless satisfied that the changes were made at Peter’s request, in order to reduce the repayments to the same amount as the rent.
49. I am satisfied that neither Michael nor Peter understood at the time of the purchase the difference between a joint tenancy and a tenancy in common, or appreciated that upon the death of a joint tenant, that tenant’s interest would pass to the survivor, as opposed to forming part of the estate of the deceased.
50. I am satisfied that Peter intended that the property would be purchased as to half each by himself and his father. I accept that he would have bought the whole property himself if he had been permitted to. It was unquestionably a bargain, bearing in mind that its title would be restricted for four years, so that it could not be sold without first being offered back to the Commonwealth, but that after the restriction period, it could be sold on the open market.
51. I cannot be sure where the $6,000.00 deposit came from. Peter’s evidence is that it was his money, but he is unable to produce any records. Peter was a successful businessman by 1973 while his father was a labourer on a modest wage. I am satisfied that his father could not have had $6,000.00 in funds in 1973. He may have had some money which he put towards the deposit. I accept that the bulk of the deposit came from Peter’s funds.
52. Even if I was satisfied that Peter had paid the whole $6,000.00 deposit from his own funds, I would nevertheless hold that he and his father should be treated as having each had a half interest in the property. There are two reasons for this. The first is that the title was placed in their joint names so that Peter, even though he probably did not appreciate the effect of a joint tenancy, must be taken to have appreciated that the title was to be in the names of himself and his father in equal shares. The second reason is that the very fact that the father was a party to the mortgage must lead to a finding that the father made a significant contribution to the purchase: Calverley v Green [1984] HCA 81; (1984) 155 CLR 242. In fact the father made a greater contribution: the opportunity to purchase the house on favourable terms was available only by reason of the father’s existing tenancy.
53. I am satisfied that Michael Fedorow did not realise at the time, if indeed he ever realised, that the effect of the purchase as joint tenants was that his interest in the property would pass by operation of law to Peter on his death. I am satisfied that none of the other brothers realised that, either, until after their father had died.
54. I think it more likely than not that by 1985, Peter had become aware of the effect of his holding the property as a joint tenant with his father, and of the doctrine of survivorship. That would explain his willingness to make the mortgage repayments from then, including the final payment which resulted in the discharge of the mortgage. I think it likely that by then Peter realised that he had gained the benefit of the joint tenancy contrary to the intention of his father at the time of the purchase. In the circumstances it would be unconscionable for Peter to be given credit from his brothers for any of these payments.
Conclusion
55. In the circumstances, Peter should not be permitted to take advantage of an outcome his father never intended. From the date of his father’s death, a trust should be imposed upon Peter in respect of his father’s half-interest in the property. He should be treated as having been a trustee for the four brothers equally.
56. The subject matter of the trust, the interest in the house, has now been disposed of. In the circumstances the most practical means of dealing with the situation is to treat the four brothers as having been entitled to half of the net proceeds of the sale. The sale price was $420,000.00. Half of that amount, after deduction of agent’s commission and solicitors’ costs on the sale, should be treated as held by Peter in trust for the four brothers. Each of the three plaintiffs is entitled to one-quarter of the net amount, with interest calculated at the prescribed rate from the date of completion of the sale. In the absence of evidence as to the date of settlement the court could be expected to calculate interest from the date when the transfer to the purchasers was registered, a date readily ascertainable on search.
57. I informed counsel at the end of the hearing that I would provide an opportunity for submissions as to the appropriate orders to be made following publication of my reasons. If counsel for the plaintiffs considered it adequate, I could simply enter judgment for each of the plaintiffs for the appropriate amount. Counsel for the plaintiffs may wish to argue that as the proceeds of sale were applied in part to pay off Peter’s loan, which had been secured against both the O’Connor and the Queanbeyan property, the Queanbeyan property should be subjected to a trust or charge.
58. At this point I shall simply declare that on and from the date of his father’s death, Peter held the O’Connor property, as to half, for himself, and as to the other half, as trustee for the persons entitled to his late father’s estate on intestacy, that is the three plaintiffs and the defendant in equal shares, with the two half-interests in the property being held as a tenancy in common in equal shares.
59. I shall hear counsel for the parties as to other orders and as to costs.

I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Associate:

Date: 11 August 2009

Counsel for the plaintiffs: Mr RJ Arthur
Solicitors for the first and third plaintiffs: Trinity Law
Solicitors for the second plaintiff: Legal Aid Office (ACT)
Counsel for the defendant: Mr RG Thomas
Solicitors for the defendant: Trevor Barker & Associates
Date of hearing: 23, 24, 25 September 2008
Date of judgment: 11 August 2009