Donaldson v Freeson [1934] HCA 13; (1934) 51 CLR 598 (23 May 1934)

Donaldson and Another Plaintiffs, Appellants; and Freeson and Another Defendants, Respondents.

The plaintiff Margaret Jarden Donaldson is the registered proprietor of certain land described in a certificate of title vol. 3083 fol. 89. She acquired it by transfer from one Spencer Smith, but mortgaged it to him to secure the balance of the purchase money due. The defendant Freeson obtained a judgment against Margaret Jarden Donaldson for about £400, and issued a writ of fieri facias out of the Supreme Court for the purpose of enforcing this judgment. The sheriff, pursuant to this writ, sold the land and executed a memorandum of transfer, dated in July 1932, of the land to Freeson, which was subsequently lodged with the Registrar-General for registration. The plaintiff Margaret Jarden Donaldson and her husband, Stuart James Donaldson, then commenced an action in which they asserted that the plaintiff Margaret Jarden Donaldson held the land as trustee for her husband, and had never had any beneficial estate, right, title or interest in it, and claimed an injunction against Freeson and the Registrar-General of New South Wales from registering the transfer from the sheriff to Freeson. The action was tried before Long Innes J., and according to evidence which he accepted the land was purchased by Stuart James Donaldson, who found all the purchase money that was paid, and it was transferred into the name of his wife at his request.

If, said the learned Judge, these facts stood alone, the presumption would be that the land was transferred to the wife as an advancement or gift to her. But, upon the evidence given before him by both the husband and the wife, and after a careful investigation of the whole circumstances of the case, the learned Judge thus stated his conclusion: "On a review of the whole case, without shutting my eyes to the fact that I regard the plaintiff Mr. Donaldson, as a very unsatisfactory witness, and that I am also extremely doubtful as to how much importance, if any, should be attached to Mrs. Donaldson's evidence—although in fairness to her I think I should say that there was nothing in her demeanour which caused me to doubt her veracity—on a review of the whole of the evidence, including the undisputed facts and the probabilities and improbabilities of the transaction, I have come to the conclusion that the plaintiffs have made out their case, and that the property was placed into the name of Mrs. Donaldson merely as trustee for her husband, and that she never had any beneficial interest therein." A perpetual injunction was thereupon granted restraining the registration of the transfer from the sheriff to Freeson. But upon appeal to the Full Court of the Supreme Court this injunction was discharged and the suit dismissed.

A Court of appeal must no doubt act on its own conclusions of fact as well as of law, not disregarding the judgment of the trial Judge, but not shrinking from overruling it if of opinion that it is wrong. A Court of appeal must necessarily be guided by the finding of the trial Judge as to the credibility of witnesses, whom he saw and heard, and whom it did not. In the present case, the plaintiffs were examined and cross-examined before the trial Judge, and their credibility turns upon their manner and demeanour and the impression they made upon him. It would be unsafe and wrong, in our opinion, for any Court which had not seen and heard them to reverse his finding. The learned Judges in the Supreme Court did not actually dissent from the finding of the learned Judge, though they inferred a fraudulent scheme between husband and wife which the trial Judge had not found. But they reversed his order on another ground, namely that Donaldson, the husband, stood by and allowed his wife to represent herself as the owner of the property to Freeson, to Freeson's prejudice. "He allowed his wife," said Davidson J. speaking for the Court, "in the moratorium proceedings to hold herself out as the owner of the land, and by so doing permitted Mr. Freeson to be forced into the position of expending money on the continuance of his execution proceedings. It seems to me Mr. Donaldson thereby elected in any event not to recall his partial gift, but to be bound by the facts he adopted1(1933) 33 S.R. (N.S.W.), at p. 468; 50 W.N. (N.S.W.), at p. 196.." The moratorium proceedings were an application by Mrs. Donaldson for the postponement of payment of the amount of the judgment against her. It was dismissed. The basis of the application was that Mrs. Donaldson owned the land and that the realization of her assets under a writ of fieri facias would deprive her of the sole means of subsistence which she, her husband and her son possessed. Donaldson knew of this application, and assisted in its prosecution. Assuming that Donaldson was under a duty to speak and assert his title at the time of the moratorium proceedings (see Ewart on Estoppel (1900), p. 26), the position of Freeson in law was not changed as a result of those proceedings: he had his judgment, and was in the same position as before to enforce it, and suffered no detriment. So soon as the sheriff proceeded with the execution of the writ of fieri facias, Donaldson, through his solicitor, gave notice to the sheriff's officer that "the property subject to the writ is held by Mrs. M. J. Donaldson as trustee for S. J. Donaldson absolutely." Freeson does not himself venture to state that he would have changed his course of conduct had Donaldson stated that his wife was a trustee for him. He is in fact now proceeding, though Donaldson makes that statement on oath. The moratorium proceedings affected the credibility of the story told by the Donaldsons that the property was transferred into the name of the wife n trust for her husband, but if that story be accepted as true, those proceedings create no estoppel or election contrary to the real rights of the parties.

Another contention insisted upon before us was that the transfer from the husband to the wife was for an illegal purpose, namely for the purpose of defeating the husband's creditors, or, as the learned Judges in the Supreme Court said, "so that, if he were attacked by creditors he could say it was hers, whilst if she became the object of attack he would claim that there was a trust for himself"[2]. The trial Judge found that the property was put in the name of the wife for the purpose of deceiving the Commissioner of Taxation and evading payment of income tax. But whichever intention be attributed to Donaldson, he is not, in seeking to protect or recover his property, carrying out any illegal transaction. No creditors have been defrauded, and no illegal purpose has ever been carried into effect. Everyone is in the same position as before the transfer was made (Perpetual Executors and Trustees Association of Australia Ltd. v. Wright[3]). In any case there is not any evidence that the wife was a party to the suggested scheme, and mere motive in the husband is of no importance if the wife honestly adopted the trust.

The points made in the Supreme Court were not taken before the trial Judge nor in the notice of appeal to that Court. "The conduct of a cause at the trial is governed by, and the questions asked of the witnesses are directed to, the points then suggested. And ... no care is exercised in the elucidation of facts not material to them" (The Tasmania[4]). A Court can itself take notice of an illegal purpose in any transaction, and if necessary refuse the plaintiff relief, but the illegality should be beyond dispute or question. In the present case, it is possible that the plaintiffs might have elucidated their position and the reasons of the transfer, had the questions of estoppel, election or illegality been raised.

But for the reasons already given, the appeal should be allowed, the judgment of the Supreme Court reversed, and that of Long Innes J. restored. The appellants must have the costs here and in the Supreme Court on the appeal from Long Innes J.

The appellants are husband and wife. The wife was unsuccessful in an action at law against the respondent Freeson, and on 19th June 1929 he obtained judgment against her for his costs of the action. Subsequently Mrs. Donaldson became the registered proprietor in fee simple under the provisions of the Real Property Act of New South Wales of certain lands with a house thereon, situate at Wingham in New South Wales. On 25th February 1932 Freeson issued a writ of fieri facias to obtain satisfaction of his judgment, and on 15th July 1932, Mrs. Donaldson's right, title and interest in the property was sold to him by the sheriff. Freeson proceeded to register the memorandum of transfer of the property, but the appellants instituted a suit in the Supreme Court in its equitable jurisdiction in which they claimed an injunction restraining Freeson and the Registrar-General, from registering the transfer, on the ground that the wife was a trustee of the property for her husband, and that she had no beneficial interest therein. The respondent Freeson resisted the appellants' claim on the ground that the wife was the beneficial owner of the property. The evidence in the suit showed that the property was purchased from Spencer Smith for the sum of £630, the transaction commencing in July 1931 and concluding in December 1931. The property was transferred into the name of Mrs. Donaldson and a mortgage was given in her name to the vendor to secure an unpaid balance of the purchase money. Long Innes J. who heard the suit made the following finding: "On a review of the whole case, without shutting my eyes to the fact that I regard the plaintiff Mr. Donaldson as a very unsatisfactory witness, and that I am also extremely doubtful as to how much importance, if any, should be attached to Mrs. Donaldson's evidence—although in fairness to her I think I should say that there was nothing in her demeanour which caused me to doubt her veracity—on a review of the whole of the evidence, including the undisputed facts and the probabilities and improbabilities of the transaction, I have come to the conclusion that the plaintiffs have made out their case, and that the property was placed into the name of Mrs. Donaldson merely as a trustee for her husband, and that she never had any beneficial interest therein."

A decree was made whereby the respondents were restrained from proceeding to register the transfer of the property to Freeson. He appealed to the Full Court of the Supreme Court which discharged the decree on grounds not taken at the hearing of the suit. But the Full Court did not disagree with the above-mentioned finding of the learned primary Judge.

In his argument before us Mr. Teece submitted that the finding of Long Innes J. should be set aside on the ground that the proper inference from the evidence was that the wife was the purchaser of the property. It is, as the learned Judge found, and the Full Court affirmed, beyond question that the purchase price of the property was partially discharged out of moneys belonging to the husband, although the receipts for such moneys were, it is true, given in the wife's name. In support of this submission Mr. Teece mainly relied upon the evidence of the vendor's wife and son, which tended to show that Mrs. Donaldson carried out the negotiations and purchased the property for herself. There was no written contract. Long Innes J. did not reject this evidence as untrustworthy, but gave reasons, not inconsistent with it, for the conclusion that Mrs. Donaldson did not purchase the property on her own behalf. His Honor said that if Mrs. Donaldson so conducted herself as to appear to be the purchaser, the disapproval which Mrs. Smith, the vendor's wife, so emphatically expressed of any dealing between her husband and Donaldson, would be sufficient to account for the deception which was practised by the Donaldsons as to the identity of the real purchaser. The conclusion that Mrs. Donaldson was the principal would involve the assumption that her husband made either a gift or a loan to her of the moneys which were paid on account of the purchase price. Mrs. Donaldson was at that time heavily in debt and had no assets. The learned Judge who had the advantage of hearing her and her husband give evidence said:—"Under the circumstances which existed at that time, to the knowledge of Mr. Donaldson, it would seem to be extremely improbable that a gentleman of his astuteness would have made a gift of this nature to his wife. He might, however, have been willing to give her a chance of getting on her feet, so to speak, by making a loan to her provided he was secured; but, as Mr. May suggests, it seems to me that it is extremely improbable that he would have hazarded his loan without taking security." In my opinion, the finding that the husband was the purchaser should not be disturbed. He spent £130 on remodelling the premises, paid the interest on the mortgage, and instructed the solicitor who acted for both vendor and purchaser to put the transfer from the vendor and the mortgage to him in Mrs. Donaldson's name. These facts point strongly to the conclusion that the husband was the purchaser.

When Freeson issued execution to obtain satisfaction of his judgment against Mrs. Donaldson she applied for a stay of execution under the Moratorium Act 1930-1931. She deposed, in one of her affidavits which she filed in support of this application, that the sum of £350 which was paid in partial discharge of the price of the property now in question, was "supplied by Mr. Donaldson" and was "still owing to him." Mr. Teece relied also upon this sworn statement and the general purport of the affidavits to prove that Mrs. Donaldson was in fact the purchaser of the property. Long Innes J. formed the opinion that Mrs. Donaldson was a "mere dummy or tool in the hands of Mr. Donaldson," and there is no doubt that the husband was aware of the contents of these affidavits at the time when they were sworn by the wife. The appellants were cross-examined on these matters at the hearing of the suit. But the learned Judge was not prepared to allow these admissions of the wife, made, as it would appear, with the concurrence of the husband, to prevail against other facts in the case which strongly tended to show that the husband was the purchaser of the property. I agree in that conclusion.

The appeal must, therefore, be decided upon the basis that Donaldson was the purchaser and that he had the property conveyed into his wife's name. The principles of law which are applicable were stated by Cussen J. in Davies v. National Trustees Executors and Agency Co. of Australasia[5]:—"Where a husband or father (as the case may be) purchases property in the name of his wife or child, and is proved to have paid the purchase money in the character of a purchaser, a prima facie but rebuttable presumption arises that the wife or child takes by way of advancement—that is to say, takes beneficially. Evidence may be given to rebut this presumption and to show that the husband or father did not intend the wife or child to take by way of advancement, and on the other hand evidence may, where necessary, be given to support the presumption. If on the whole of the evidence the Court is satisfied that the husband or father did not intend at the time of the purchase that his wife or child should take by way of advancement, the rule of law is that there is a resulting trust for the husband or father. Similar rules apply where a transfer or assurance of property is made without consideration by a husband or father to a wife or child. It has been suggested in some cases that the presumption in favour of advancement is stronger in the case of a transfer than it is in the case of a purchase; but, although this may be so in some circumstances, I think that no substantial distinction applicable universally can be drawn. On the assumptions which were made for the purposes of the argument, the only question of fact which becomes really important is—Has the presumption of advancement been rebutted? And that can be stated still more precisely in this form—On the whole of the evidence is it shown that the purchases or transfers referred to in the pleadings were not intended at the respective times they were made to be by way of advancement, or was the intention of William John Davies at the time of each such transaction that it should not be by way of advancement?" This statement was described by Dixon J. in Stewart Dawson & Co. (Victoria) Pty. Ltd. v. Federal Commissioner of Taxation[6] as "perhaps the best modern statement of the whole doctrine."

It is not contended by the appellants or the respondent that either the learned primary Judge's or the Full Court's statement of the doctrine affords any ground for dispute. But Mr. Teece submits that, assuming that the husband was in fact the purchaser, the evidence does not justify the finding that he did not advance the wife, and that there was a resulting trust in his favour. The learned Judges of the Full Court made a searching criticism of Donaldson's credibility, but they did not disagree with the finding that the husband did not intend to give the property to the wife for her benefit. Long Innes J. refused Donaldson his costs of the suit and ordered him to pay the costs of the Registrar-General because he was of opinion that he had manufactured certain evidence to assist his case. But his Honor did not take the view that the whole of Donaldson's evidence should be disbelieved. Without recapitulating the evidence in detail, Donaldson's evidence was in certain material respects corroborated by the evidence of the solicitor who acted on the sale and purchase of the property, and the reason which Donaldson gave for putting the property in his wife's name was accepted by the learned primary Judge, before whom he was cross-examined. His Honor said: "A question which I have to consider is why he did it on this particular occasion, and he says —I won't say frankly, but he says, and I accept his evidence in that respect—that he did it with the intention of deceiving the Commissioner of Taxation and of evading the payment of income tax which he thought might be claimed in respect apparently of the income which might be derived from this particular investment."

The property was converted into two semi-detached cottages after it was purchased. The Donaldsons occupied one part of the building and let the other part. In the evidence as to the contemporaneous declarations made by the husband there is ample evidence to support the finding that the husband did not intend to advance the wife, but to make her his dummy in the transaction. The learned Judge also took into consideration the probabilities of the case. In Fowkes v. Pascoe[7], where the question was whether the presumption of a resulting trust was rebutted—the converse of the present case—Sir G. Mellish said:—"Now, the Master of the Rolls appears to have thought that because the presumption that it was a trust and not a gift must prevail if there were no evidence to rebut the presumption, therefore when there was evidence to rebut the presumption he ought not to consider the probability or improbability of the circumstances of the case, and whether the presumption was really true or not, but ought to decide the case on the ground that the evidence of Pascoe and his wife taken alone was not satisfactory. But, in my opinion, where there is once evidence to rebut the presumption, the Court is put in the same position as a jury would be, and then we cannot give such influence to the presumption in point of law as to disregard the circumstances of the investment, and to say that neither the circumstances nor the evidence are sufficient to rebut the presumption2(1875) 10 Ch. App., at p. 352.." The finding that the presumption of advancement was rebutted by the evidence should not, in my opinion, be disturbed.

Donaldson denied that he had the property conveyed to his wife as a dummy for him with the object of defeating his creditors and the provisions of the Bankruptcy Act. Long Innes J. accepted Donaldson's statement that his object in the present case was to evade income tax. But the Full Court adopted the view that Donaldson's object was to defraud creditors. That intention, too, as the Full Court said, was inconsistent with a gift. It held, however, that the appellants' suit should be dismissed on two grounds. The first was that the Court would not lend its aid to enable Donaldson's scheme to defraud creditors to be carried out. There is no evidence that either the illegal purposes of evading income tax or of defrauding creditors has been wholly or partially carried out. The cases of Payne v. McDonald[9] and Perpetual Executors and Trustees Association of Australia Ltd. v. Wright[10] are decisive against the validity of the first ground. But Gascoigne v. Gascoigne[11], would appear to be inconsistent with these decisions. In the present case, the suit was not brought to enforce either the illegal trust found by Long Innes J. or that found by the Full Court. It is true that, for the purpose of proving that the property was conveyed to the wife with the intention that she should be a trustee and not a beneficial owner, it was necessary for Donaldson to confess that he intended to carry out an illegal purpose. His statement of this illegal purpose is evidentiary, but is not the foundation of the suit. (Cf. Press v. Mathers[12].) In Taylor v. Bowers[13], Cockburn C.J., delivering the judgment of the Court (Cockburn C.J., Mellor and Quain JJ.), cited with approval the following passage in the judgment of Bramwell J. in Bone v. Eckless[14]:—"Clearly an authority to pay over money for an illegal purpose may be revoked before the money is paid over. In Hastelow v. Jackson7(1828) [1828] EngR 59; 8 B. & C. 221; 108 E.R. 1026. that proposition of law was laid down, although there the plaintiff had to prove as part of his case that he had entered into an illegal contract; he did not, however, seek to recover upon it ... The law is in favour of undoing or defeating an illegal purpose, and is therefore in favour of the recovery of the money before the illegal purpose is fulfilled, not afterwards."

On appeal, Grove J. said:—"If that be the case, then the plaintiff is not setting up his own fraud in order to make a title, but he is repudiating the fraud and setting up his own prior rightful claim as owner of the goods. No doubt he is admitting that the goods got into Alcock's hands through his, the plaintiff's, own sham transfer for the fraudulent purpose of deceiving the creditors, but is not setting up that fraudulent purpose in order to get the goods, but, on the contrary, he is setting it aside"[16]. (See also Symes v. Hughes[17], per Lord Romilly M.R. Cf. Wilkinson v. Sporting Life Publications Ltd.[18].) Here there is no proof of any violation of the income tax laws. (Cf. Commissioner of Stamp Duties (Q.) v. Jolliffe[19], per Isaacs J. This was a dissenting judgment. But in that case there was a definite and accomplished breach of the statute).

The Full Court rested its judgment mainly on a second ground, namely, that Donaldson was estopped from asserting his equitable right to the property because he allowed his wife in the proceedings under the Moratorium Act to hold herself out as the owner of the land, and by so doing permitted the respondent to be forced into the position of expending money on the continuance of the execution proceedings. The Court held that Donaldson's acquiescence should be deemed to be a fraud on Freeson within the meaning of the rule laid down in Willmot v. Barber[20], and that all the elements necessary for the application of the rule were present. Referring particularly to the last of the conditions enumerated by Fry J.[21], the evidence does not justify the conclusion that Donaldson encouraged Freeson in expending money in proceeding with the execution after the unsuccessful application under the Moratorium Act, either directly or by abstaining from asserting his equitable interest. Freeson took his chance that the wife was the beneficial as well as the legal owner of the property. There was no representation by or on behalf of Donaldson that he had an equitable interest which he would not assert, or that the legal ownership of the wife was not saddled with an equity. The question really is whether Donaldson is estopped by acquiescing in an assertion by the wife of a right inconsistent with his right. There is, in my opinion, no evidence of any acquiescence on the part of Donaldson leading to the assumption which Freeson made, that the wife was not a trustee of the legal estate. (Cf. Thompson v. Palmer[22] and Richardson v. Federal Commissioner of Taxation[23].)

Appeal allowed. Order of Supreme Court of New South Wales in Full Court discharged. Order of Long Innes J. restored. Respondent to pay costs of this appeal and of appeal to Supreme Court of New South Wales in Full Court.

[1] (1933) 33 S.R. (N.S.W.), at p. 468; 50 W.N. (N.S.W.), at p. 196.

[2] (1933) 33 S.R. (N.S.W.), at p. 468; 50 W.N. (N.S.W.), at p. 196.

[3] [1917] HCA 27; (1917) 23 C.L.R. 185.

[4] (1890) 15 App. Cas. 223, at p. 225.

[5] (1912) V.L.R. 397, at pp. 401, 402.

[6] [1933] HCA 4; (1933) 48 C.L.R. 683, at p. 690.

[7] (1875) 10 Ch. App. 343.

[8] (1875) 10 Ch. App., at p. 352.

[9] [1908] HCA 40; (1908) 6 C.L.R. 208.

[10] [1917] HCA 27; (1917) 23 C.L.R. 185, at pp. 193, 194, 197, 198.

[11] (1918) 1 K.B. 223.

[12] (1927) V.L.R. 326; (1927) A.L.R. 197, at p. 201.

[13] (1876) 1 Q.B.D. 291, at pp. 295, 296.

[14] (1860) 29 L.J. (Ex.) 438, at p. 440; [1860] EngR 855; 5 H. & N. 925, at p. 928; [1860] EngR 855; 157 E.R. 1450, at p. 1452.

[15] [1828] EngR 59; (1828) 8 B. & C. 221; 108 E.R. 1026.

[16] (1876) 1 Q.B.D., at p. 301.

[17] (1870) L.R. 9 Eq. 475, at p. 479.

[18] [1933] HCA 46; (1933) 49 C.L.R. 365.

[19] [1920] HCA 45; (1920) 28 C.L.R. 178, at p. 192.

[20] (1880) 15 Ch. D. 96, at pp. 105, 106; (1881) 17 Ch. D. 772.

[21] (1880) 15 Ch. D., at pp. 105, 106.

[22] [1933] HCA 61; (1933) 49 C.L.R. 507.

[23] [1932] HCA 67; (1932) 48 C.L.R. 192, at pp. 205, 206.

High Court of Australia

Donaldson v Freeson [1934] HCA 13; (1934) 51 CLR 598 (23 May 1934)

HIGH COURT OF AUSTRALIA