Menezes v Salmon [2009] NSWSC 2 (4 May 2009)

Last Updated: 6 May 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Menezes v Salmon [2009] NSWSC 2


JURISDICTION:
Equity Division

FILE NUMBER(S):
2374/2005

HEARING DATE(S):
02/12/08, 03/12/08
(Submissions completed 04/02/2009)

JUDGMENT DATE:
4 May 2009

PARTIES:
Ralph (also known as Roy) Menezes v Olivia Salmon

JUDGMENT OF:
Macready AsJ

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr J Smith for plaintiff
Mr M Watts for 1st defendant
Mr A Todd for 2nd defendant

SOLICITORS:
Richard Barron for plaintiff
Anthony Buckland for 1st defendant
Brock Partners for 2nd defendant


CATCHWORDS:
Equity. Trusts & Trustees.Express trust created inter vivos. Three properties purchased in the name of another with the purchasers executing a mortgage to secure borrowings. Two properties held to be the subject of an express trust notwithstanding the lack of writing required by s23C of the Conveyancing Act 1919. Third property the subject of a resulting trust in proportion to the contributions.
Contracts. General contractural principles. Illegal and void contracts. Operation of Foreign Acquisitions and Takeovers Act (Commonwealth) 1975. Failure to give notice. Contract not prohibited under Act and held that the failure to give notice did not make contract void.

LEGISLATION CITED:



CASES CITED:


TEXTS CITED:


DECISION:




JUDGMENT:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


Associate Justice Macready

Monday 4 May 2009


2374/05 Ralph (also known as Roy) Menezes v Olivia Assey & Fabian Menezes

JUDGMENT

1 His Honour: These proceedings were commenced by statement of claim filed 12 April 2005 in which the plaintiff seeks declarations as to his ownership of a number of properties. The plaintiff is Ralph Menezes (known as Roy), a citizen of India who gave evidence by way of video link. The first defendant, Olivia Assey, was until August 2001 the de-facto partner of the second defendant, Fabian Menezes, who is the plaintiff’s brother. They were at all relevant times resident in Australia. The second defendant submitted to any orders the Court might make and did not take any further part in the proceedings.

2 The first defendant and the second defendant are the registered proprietors of three properties. Two properties are located in Quakers Hill, one in Farnham Road and one in Cadac Place (the Quakers Hill properties). The third property is in Kurrajong. There are mortgages on all three properties.

3 From about 1994 to August 2001 the defendants lived together in a de-facto relationship. The defendants purchased the three disputed properties in their names and they became registered proprietors of each of the properties. Contracts and mortgages for the Farnham Road property were entered into by the defendants in March 1998. Contracts and mortgages for the Cadac Place property were entered into by the defendants in April 1998. Contracts and mortgages for the Kurrajong property were entered into by the defendants in July 1998.

Background

4 It is the plaintiff’s evidence that he began transferring significant sums of money to his brother from 1994. The plaintiff gave evidence that these sums were a loan for the purpose of buying a house with the first defendant and also for starting a business. Some of the funds were used by the second defendant to purchase jointly with the first defendant two properties; one at Pagoda Crescent, Quakers Hill and one at Ponytail Drive, Parklea.

5 In June 1995, at about the same time as he and the first defendant purchased the property at Ponytail Drive, the second defendant suffered a back injury at work. Owing to the injuries suffered by him in the accident, he ceased working in November 1996 and was unemployed for the remaining duration of his relationship with the first defendant. From time to time the plaintiff sent his brother sums in the amount of $500 in order to assist him with his day to day expenses. The first defendant was at all relevant times in fulltime employment.

6 Up to December 1997 the plaintiff had advanced significant amounts of money to his brother that was used by the second defendant to jointly purchase the Pagoda Crescent and Ponytail Drive properties and a property at Kiama. The proceeds from the ultimate sale of these properties was used to benefit both defendants and no dispute about ownership of these properties arose. The plaintiff’s evidence is that he loaned his brother moneys for the earlier real estate purchases, but not for the purchases of the later Quakers Hill properties and the Kurrajong property. In effect, he says that things changed in 1997- 1998 because of agreements he made with the defendants. He says the properties were to be held in trust for him. This is disputed by the first defendant but it is not disputed by the second defendant.

7 In 1997 and 1998 the plaintiff lived in Dubai where he owned and conducted a printing business. The first defendant and the plaintiff never met each other in person and most of their communications were by fax and email. The second defendant did travel to Dubai on occasions to meet his brother but the first defendant never visited Dubai.

8 When the three properties were purchased in 1998 the defendants were living at a property they had jointly purchased which was in Pagoda Crescent in Quakers Hill.

The Quakers Hill Properties

9 In early December 1997, the plaintiff decided to apply to migrate to and settle in Australia with his family after he retired. He spoke with his brother about this and in early December 1997 the plainitff said they had a conversation to the following effect:

Ralph: "I want to invest in real estate in Australia for my retirement income. Please find a good house in a good locality so I can rent it out. Find out the money required to pay against this house so that the rentals will take care of the mortgage. "

Fabian "Okay, we will have a look around and let you know. "

10 After that conversation, the defendants looked for real estate in New South Wales.

Farnham Place

11 Shortly after this the second defendant rang the plaintiff and, according to the plaintiff, had the following conversation:

“Fabian: Roy, we have seen a house in Quakers Hill at Farnham Place. It is a little old but it is in a good area. The rentals are good. You may have to do slight repairs.

Roy: If you feel it is okay go ahead and book it. I will send the money immediately.

Fabian: The house will cost $150,000.00 approximately. You will pay $75,000.00 inclusive of advances and legals and you will have to borrow $75,000.00 from the bank. We are sending the papers to you to sign and return with the Power of Attorney so that we can act on your behalf as trustees, so that when you come to Australia we can transfer the ownership to you.

Roy: That's fine. You can use what you have to from the moneys I'm sending you which is $AUS85,000.00. With the balance you can open a kitty account so the extra money plus rentals that accumulate can go in."

12 The plaintiff does not suggest that he had any discussion at the time with the second defendant about this matter. The statement of claim pleads that the plaintiff and the second defendant on behalf of himself and the first defendant made an agreement in or about December 1997 to purchase the property at Farnham Road for $150,000 upon trust for the plaintiff on terms that the plaintiff pay $85,000 and the balance of the purchase price to be secured by mortgage and that the defendants would arrange for the property to be tenanted and the rent applied towards the mortgage repayments and outgoings.

13 On 23 December 1997, $85,000 was forwarded to the second defendant from the plaintiff and this was deposited into the defendants joint account on 5 January 1998: Ex.AS, tab 10.

14 The second defendant went to Dubai to visit his brother between February and March 1998. While he was in Dubai the first defendant sent facsimiles addressed to the second defendant [by various names] which bear dates between 4 February 1998 [Ex.J] and 18 February 1998 [Ex.N]. Thereafter, the correspondence was between the first defendant and the plaintiff and his wife.

15 The Farnham Road property was purchased by contract dated 6 March 1998 in which the defendants were the purchasers and the purchase price was $150,000. A mortgage from the Adelaide Bank in the amount of $75,000 was taken out in the names of the defendants. The purchase was completed by a transfer dated 20 April 1998.

16 In her evidence the first defendant suggests that the second defendant contributed $75,000 for Farnham Road which the plaintiff lent him, and the remaining $75,000 was borrowed by the defendants.

17 The property was rented and the rent was paid into a Commonwealth Bank account held by the first and second defendant.

Cadac Place

18 It is pleaded that on or about January 1998 another agreement was made between the plaintiff and the second defendant on behalf of himself and the first defendant to purchase on trust for the plaintiff the Cadac Place property for $154,000. The terms were that the plaintiff would pay a deposit of $81,000 with the balance of the purchase price to be secured by mortgage and the defendants would arrange for the property to be tenanted with the rent to be applied towards the mortgage instalments and outgoings.

19 On 14 January 1998 the plaintiff transferred $81,000 to his brother [Ex.B, p3] and that sum was deposited into the defendants' joint account on 23 January 1998.

20 In a facsimile to the second defendant sent in February 1998 [Ex.M] the first defendant sets out financial details regarding Cadac Place including the price, the amount of the deposit, borrowings, repayments per month and rental incomes. She then says:

"You can discuss this with Roy and Lyn and when you come home you can talk about it."

21 In an undated letter (Exhibit O) addressed from the first defendant to the second defendant there is the following paragraph:

"...refer to the account spreadsheet that I faxed, I mentioned the balance as $84,005 less $1,000 for you leaving a balance of $84,005. After deducting the deposit for Cadac Place of $57,630 there will be a balance of $26,375. Now we have to keep aside approximately $2,000 for Aaron, land rates, water rates and loan application fees. This will leave a balance of $24,375.

The balance Lyn & Roy will have in their account after the purchase of Cadac Place would be $24,375."

22 I would infer that it was sent to the second defendant while he was overseas with his brother.

23 It is submitted by the plaintiff that the reference to money is a reference to the money transferred by the plaintiff to his brother and from there to the defendants account and this indicates that amount was to be used to purchase the Cadac Place property and to pay for all the expenses incidental to that purchase. It is further submitted that the letter indicates that at this time it was intended that the balance of the purchase price would be supplied by a loan taken out in the name of the plaintiff and his wife as evidenced by the following sentence in the second last paragraph of the letter:

"I will be getting the applications in order and will be faxing them for Roy and Lyn to sign and also mailing the originals."

24 The first defendant accepted in her oral evidence that this letter indicated that the money sent by Ralph to Australia was used to purchase Cadac Place including the deposit of $57,000, conveyancing fees, land rates and water rates: T46.34. However, she denied that the intention at the time was for the plaintiff and his wife to take out a loan .

25 In a letter sent by facsimile on 18 February 1998 (Exhibit N) to the second defendant, the first defendant states:

"Well I was up from 1am doing some calculations and thinking of how to get these two homes and not have to waste time with the Foreign Investment Department. I sent a fax to Stuart early this morning so that he could have time to work on it. The only way it can be done is to put the loans in your name. Wages are not a criteria as long as we put 65% of the deposit, which we were putting down even with Roy and Lyn's name on the loan. So I am faxing to you a copy of the application and crosses where you need to sign."

26 It is submitted by the plaintiff that this indicates a change in the way that the purchase of the properties was going to be achieved yet the intention remained that the entire purchase price was to be provided by the plaintiff and his wife.

27 The 18 February 1998 letter continues:

"This is the only way we can do it so please don't change any more plans. The only other way is for Roy and Lyn to buy new property and then register them in their name. All the figures remain the same, the only thing is that the properties will not be in their names."

28 By this time it is plain that the first defendant’s research had led her to understand that the purchase of what is commonly called new urban property by foreign nationals may not be affected by the Foreign Acquisitions and Takeovers Act in contrast to second hand urban property. See s 12A of the Act and regulation 3(e) of the Foreign Acquisitions and Takeovers Regulations.

29 The Cadac Place property was purchased by a contract dated 23 March 1998 for $154,000 with the first and second defendants as purchasers. A mortgage in the names of the defendants was obtained from the Adelaide Bank in the sum of $104,000. This property was also rented and the rent was paid into the defendants Commonwealth Bank account. The contract was completed by a transfer dated 6 May 1998.

30 Several facsimiles were sent by the first defendant to the plaintiff in the period after the Quakers Hill properties were bought setting out financial figures relating to the two properties (see for example Ex P and Ex S). One particular facsimile sent by the first defendant on 25 October 1998 sets out figures relating to Farnham Road and Cadac Place (Ex AE). In respect of Farnham Road the documents stated:

"Price of house $150,000 you paid a deposit of $75,000 and borrowed $75,000."

31 In respect of Cadac Place the following was stated:

"Total price of house $150,000 you put down a deposit of $50,000 and borrowed $104,000."

32 In cross-examination the first defendant sought to explain the document as follows:

“Q Doesn’t that document, in particular those two lines I took you to, suggest that your understanding at 25 October 1998 is that Ralph and Ralph alone had not only paid for a deposit on both Farnham Road and Cadac Place but also were responsible for the borrowings of $75,000 and $104,000 respectively?

A No

Q I suggest to you that is the only reasonable inference available from that document?

A No, this document was made for Fabian and myself, “you” referring to Fabian, and I faxed that document to Ralph.”

33 A much later email from the first defendant to the plaintiff dated 5 October 2000 also states “you owe” in relation to the Farnham Road and Cadac Place properties. This is said to be in response to an earlier email sent by the plaintiff which was not tendered.

34 The first defendant submits the defendants’ intention was to have a beneficial interest in the properties as had occurred with the acquisition of the earlier two properties at Ponytail Drive and Pagoda Crescent. The first defendant submits that there is no evidence that the first defendant discussed or consented to any agreement to hold the properties on trust for the plaintiff.

35 The first defendant also submits that there is no evidence which shows, that at the time she borrowed monies, and mortgaged the properties, she was doing anything other than acting as a beneficial owner and registered proprietor of those properties. The first defendant claims she incurred and paid expenses for these two properties with the knowledge that she alone was responsible for paying the mortgage repayments and there was no agreement or discussion about how she would be indemnified for the liabilities she was responsible for under the mortgage. Further, the first defendant was mixing monies including her wages, profits from the sale of the other properties into the account from which the mortgage repayments were made.

36 The hearing was conducted without any participation by the second defendant. None of his affidavit evidence was tendered and he was not called to give evidence. There was thus no opportunity for him to be cross-examined as to what discussions occurred between him and the first defendant about the basis on which the properties were bought. Plainly there was plenty of opportunity for them to discuss the basis for the purchases including the initial discussions the plaintiff had with his brother. All the Court has is the first defendant’s denials of any such discussions with her partner the second defendant. Therefore the credit of the plaintiff and the first defendant is critical and I will return to this issue later.

37 It is submitted by the plaintiff that the facsimiles preceding the purchase of Cadac Place show that the intention at this time was that the purchase was made for the plaintiff. It is submitted that these contemporaneous documents (Ex N, Ex O and Ex AE) show that the defendants never intended to hold or understood that they held any beneficial interest in the Quakers Hill properties. As such it would be unconscionable for the first defendant to assert legal title over the property.

38 The plaintiff submits that the various facsimiles and emails also indicate that the first defendant had a significant amount of control over the parties money and over the process of acquiring the property which is contrary to her assertion that any agreement regarding ownership of the property and financing of the purchase was primarily between the plaintiff and the second defendant. The plaintiff submits that it appears on the first defendants own evidence that she did everything possible to put the agreement in place and report back to the plaintiff on its progress and by reference to these circumstances the Court can infer the existence of the agreement: Bahr v Nicolay [No 2] [1988] HCA 16; (1988) 164 CLR 604.

The Kurrajong Property

39 It was pleaded in paragraph 7 of the statement of claim that:

“7. By further agreement ("the third agreement") made on or about June 1998 between the plaintiff and the first and second defendants, the first and second defendants agreed to purchase on trust for the plaintiff the property at no.XX Arcadia Road Kurrajong ("the third property") for $420,000.00 on terms including that the plaintiff would pay a deposit of $220,000.00, the balance of the purchase price was to be secured by a mortgage, that the plaintiff would make further advances for stamp duty and legal costs, that the defendants would arrange for the property to be tenanted and the rent applied towards the mortgage installments and outgoings.”

40 In the time preceding the purchase of the Kurrajong property a number of proposals were put forward by the first defendant regarding the way in which a third property be bought.

41 In a letter faxed on 10 June 1998 [Ex T] the first defendant put two proposals for the purchase of a property called “Slopes” which ultimately did not proceed. The first was on the basis that she and the second defendant buy the property and the second on the basis that the plaintiff buy it. The first proposal was dependant on the second defendants compensation claim being successful as the defendants were not otherwise in a financial position to buy the property: see T 67.4. The second proposal put was that if the plaintiff were to buy the property then they would rent out their house at Pagoda Crescent and move into the property and pay rent to the plaintiff.

42 Another facsimile (Ex U) sent in June 1998 put forward another proposal that the defendants sell their Pagoda Crescent property to pay part of the purchase price with the proceeds. The defendant would then move in to the new property and pay the mortgage instead of rental and then when the plaintiff came out to Australia to live, they would move out, the plaintiff and his family would move in and repay the defendants the $80,000.

43 The plaintiff gave evidence that he received a facsimile from the defendants on 18 June 1998 advising him that they had found the property in Kurrajong. Over the following days there were a number of telephone conversations about the property which according to the plaintiff included the following:

“Olivia or Fabian: We met the couple. They have agreed to settle for $420,000.00. The total cost inclusive of stamp duty, Aaron [the Conveyancer] loan application fees, bank charges for settlement will be $439,938.15.

Roy: Okay. I will take this place. It sounds good. A good retirement home. I will arrange to send the money. Please let me know how much I need to send in order to put the house on rent so that the rentals can take care of the monthly mortgage payments. Just like the other houses.

Olivia and Fabian: You need to pay approximately $238,938. The rest can be arranged from the bank.

Roy: I sent a draft for $46,500.00 on 15 June. Please pay $46,000.00 towards the house and keep $500.00 for Fabian's upkeep."

Roy: I have sent a draft of $46,500.00 for Kurrajong. Please pay $46,000.00 towards the house and keep $500.00 for Fabian's upkeep.

Olivia and Fabian: We received the draft and thank you for the $500.00. You are a kind person.”

44 The first defendant disputes the terms of the conversation above and states that if it did occur it would only have been between the second defendant and the plaintiff. She says they had no speaker phone at their home.

45 Another facsimile was sent around this time (Ex. V) from the first defendant to the plaintiff in which she states:

"Just heard from Mortgage Choice and to do the mortgage the same way as we did Farnham Road and Cadac Place you would require a deposit of $205,000. You have sent $45,500. Requiring a further deposit of $160,000."

46 The plaintiff sent two large sums of money around this time: $46,500 on 15 June 1998 and $70,000 on 16 July 1998 (Ex B) and deposits in these amounts show up in the defendants’ joint account on 26 June 1998 and 28 July 1998 respectively (Ex AS, Tab 10).

47 A facsimile sent from the first defendant to the plaintiff on 19 July 1998 sets out a proposal that a second house be built on the Kurrajong property which was a ten acre property. The total cost of the property and associated fees and the cost of building a new house were to be shared equally between the defendants and the plaintiff. The defendants were to get their share of the money from a bank loan, the sale of their home, compensation monies from the second defendant and the first defendant’s superannuation. (Ex 2, Ex3 and Ex 4). It was in these terms:

“Dear Lyn & Roy,

Today we went to see two more properties. On one 10 acres however in the middle of the 10 acres there is a gully & 7 acres are all bush. The house was lovely. The other house was on 16 acres. The house needed a lot of work, at least 80,000.

I prayed to our parents to help us make the right decision. We went back to the Maltese house to have another look. The house has nothing to do, just the cleaning up of the yard. The Maltese man (pop) had a heart attack so unable to do hard work. The light fittings are very good, it has ducted a/c, a fire place & a gas fire. The school bus is at the end of the, road. There is a dam and a bore. There are also mango trees .We have today come to a price after valuing & seeing quite a few properties. There is a lot of potential in this place. The offer on that place have been as high $417000. He wants $420000. We believe this is a good buy. This person put in offers of $400000, $405000 & $417000. The house originally for $449000. Now this is our plan.

The price of the property $420,000 +legals. $15000

To build another property $150,000

$585000

We will both share this thus you have a

Four bedroom house on five acres $292500 & we have a four bedroom house on five acres.

The settlement date is 30/11/98

The bank has approved $ 201000

If you can put down $234000 (Fab's money will come

Through in Jan/Feb then we will sell Pagoda cres & Fab's Money & put down our share of) $297500

By you putting $ 234000

We will as soon as we sell Pagoda cres start building the other house $100,000(sale of Pagoda) & $50,000 of Fab's money.

Thus we will be putting $150,000

To make up to the 234000 I am getting $ 84,000 from my super

Your 234000

Our 234000

468000

Thus we will have a mortgage of $117000 which will be paid off in this manner

If the repayments are roughly $1000 PM. for $117000.

Rentals on the property to be built would obtain $1400 PM.

After paying the mortgage & 1000 the balance $ 400 will be put towards Farnham & Cadac place

Price of house 420,000

Legals 15,000

Now house to be built 150,000

585,000

Half 292,500

Your share 234,000

Our share in (Jan /Feb) 234 000

468,000

Balance 585,000

468 000

117,000

So instead of having a loan of $201,000

In Jan/ Feb we will build & also pay the loan to

Reduce it to $117,000

We promise we will be good neighbors

We play lotto every week should we win 1 mill dollars, then my promise all properties Will be paid in full. Pray hard .­

All our love & God Bless.

Olivia & Fab”

48 There was no response to this fax from the plaintiff until after settlement of the purchase in November 1998 however the plaintiff admitted in cross-examination that the rea it when he received it.

49 Contracts were exchanged for the Kurrajong property on 7 August 1998 and settlement took place on 30 November 1998. The purchase price was $420,000 and the first and second defendants were the purchasers. The defendants obtained a mortgage from the Adelaide Bank for $202,000 which was reduced to $120,000 shortly after by using some of the proceeds from the sale of the Pagoda Crescent and Ponytail Drive properties.

50 The plaintiff forwarded to the second defendant various sums of money around this time namely; $46,500 on 20 August 1998, $46,000 on 31 August 1998 and $28,000 on 21 October 1998.

51 The plaintiff deposed to a telephone conversation around the time of settlement in which he agreed to let the defendants live in the Kurrajong property if they paid the monthly mortgage. There was also said to be an agreement that the defendants would build a second house on the land and move into it when the plaintiff and his family came to Australia. The first defendant disputes this conversation

52 The plaintiff said that in April 1999 he received a telephone call from the first defendant in which she indicated she was having difficulty servicing the Kurrajong mortgage on one income. The plaintiff forwarded a sum of $50,500 to the second defendant on 14 April 1999 and a few days later rang the defendants telling them he had sent the money, $500 for Fabian’s personal expenses and the rest to pay towards the Kurrajong house loan. The plaintiff conceded in cross-examination that he did not know if the amount was actually put toward the Kurrajong mortgage.

53 On 12 August 1999 a further $51,000 was paid into the defendants’ joint account, $1,000 of which was for the second defendant’s expenses and the rest to be paid towards the mortgage against the Cadac Place property. The first defendant disputes she knew of this arrangement.

54 On 18 September 1999 the plaintiff sent a draft for $50,000 which went into the defendants joint account. This was supposedly to build a house on land on the Central Coast.

55 In February 2000 the second defendant told the plaintiff that a considerable amount of money (in the order of $70,000) had been spent on repairs.

56 The second defendant went to Dubai to visit the plaintiff on 23 February 2000 and while there he received a facsimile (Ex AJ) from the first defendant dated 4 March 2000 stating that approximately $25,000 remained in the ‘kitty account’.

57 At this point it seems the second defendant put to the plaintiff that he and the first defendant would stay in the existing Kurrajong house and a new house would be built when the plaintiff came to Australia.

58 In May 2000 the plaintiff suffered a heart attack and was unable to work for a number of months. His business suffered as a result of this.

59 An email of 3 October 2000 (Ex AK) which was sent from the first defendant to the plaintiff’s email address stated:

“Hi Lyn

From your email I understand that Roy wants to find out the price of all the properties including Kurrajong????? Please let me know. Regarding Central Coast the plans are in council awaiting your application for the loan. I will get an agent to price Cadac and Farnham. I will tell you that we should get $550 -600 realistic for Kurrajong. For the Quakers Hill I really cannot tell you off hand. Will find out the price. If all is sold excluding Central Coast roughly you should have $550000 plus Central Coast which is roughly $350000. Please let me know what your intentions are. The interest rates on borrowings are 8% currently and we are waiting for the reserve bank to give us the verdict today of another increase.”

60 Another email (Ex AL) was sent from the first defendant to the plaintiff’s email address on 5 October 2000 which stated:

“Hi Lyn & Roy,

I am sending you the accounts up to date and bank account up to date. We got the money back from Qld Harvey Bay you will see it in the bank statement.

Fabian went to pick up your contacts and he asked me what was happening. I told him that you were querying about what money we have over here of yours and you will make up your mind if you want to go ahead with the building in Central Coast and also if you want to sell properties and get the money to Dubai. I told him that it was only a query and that with the current situation you are in it would be better for the money to be with you there rather than here... Why tie up money when you are in need. If you want to sell Kurrajong and give him his share well so be it. He can buy a smaller place. “

61 The email then sets out the following information:

“Cadac will fetch up to $185-190

You owe $49000

Agents costs will be approx $7000

Solicitors will be approx $1200

The other costs approx $2500

Presuming it sold for $190000 you will have in hand $130000

Farnham will fetch $175000

You owe $72000

Agents Costs will be approx 7000

Solicitors $1200

Other costs $2500

You will have in hand $92000

Central Coast land only $80000

Kurrajong

approx $595000

Agents costs $17850

Solicitors $1200

Other costs $3500

Balance $572450

your share will be $286225

So for the whole lot $ 588225

If you put your money into a managed fund they will manage it for you and will guarantee that your money will triple in five years time. I still suggest Keep Central coast and build on it as it is in your name. Sell Cadac and Farnham and if you want Kurrajong you will have $508225 of which pay off the building for Central coast of $140000 leaving you with $368225. Take this money and use it to ease your burden go and get your health seen to. The money you get from the rental from Central Coast can be invested each month into a managed fund. Or I can send you a chq each month for the rental value.”

62 The plaintiff submits that emails and facsimiles in evidence and the conversations prior to the purchase of the Kurrajong property indicate that the property was intended to be bought in the same way as Farnham Road and Cadac Place, that is the plaintiff would provide the deposit, the defendants would take out a loan in their names to make up the balance but this would be paid off using the rental income. I would reject this submission as even on the face of the email referred to above the plaintiff only had a half interest in Kurrajong.

63 In cross-examination the first defendant denied this was the case and explained the situation thus:

"The proposal with Kurrajong was that Ralph was going to put 50% of the deposit, and the bank would have loaned me the rest. I was going to sell Pagoda Crescent and Ponytail Drive and put it towards the loan and reduce the loan, so we went in shares, we had conversations on the phone.” [T70.5]

64 The first defendant claims that the purchase price for the Kurrajong property was made up of $237,000 from the plaintiff and a loan of $202,000 taken out in the name of the defendants. She conceded in cross-examination that the plaintiff provided $237,000. The first defendant claims that she alone made repayments on the Kurrajong mortgage from December 1998 when the property was settled until she left the second defendant in August 2001 at which time the mortgage was paid from rent. The first defendant also stated that her wages were directly deposited into the joint account from which the mortgage repayments were made. However, in cross examination it was established that for the period from January 1998 to February 2000 her wages did not go into this account. It was suggested by the plaintiff that her wage was not used to pay the mortgages but it was the rental income from the respective properties which did so. (T 78.5). There is also evidence that significant sums of money were transferred from the joint account into the first defendants wages account between January 1998 and September 1999 equalling $12,761 and there were withdrawals from the joint account between April 1999 and May 2000 in excess of $416,011 (see Ex AS, Tab 10 and Annexure 4 of the plaintiff’s submissions). The plaintiff submits that these withdrawals exceed the first defendant's deposits and refute her claim that she paid for any of the mortgages out of her own money.

65 The first defendant, for her part, submits that the plaintiff showed no interest in the mortgage loan account, he never received mortgage account statements and he never knew which amounts went from his brothers account (where the plaintiff transferred his money) into the defendant’s joint account from which the repayments were made. The first defendant also points to various occasions in her affidavit evidence and in cross-examination where the plaintiff refers to the defendants holding a share in the property (see paragraph 42 of the plaintiffs affidavit sworn 14 March 2008 and T 27.35-38).

66 It is submitted by the plaintiff that such an agreement to share the property never existed but if it is accepted the agreement would be that the property be owned in the proportion of the parties contributions in relation to the purchase price. By reference to Ex AK and AL it appears that the understanding in October 2000, at least on the part of the first defendant, was that the defendants held a share in the Kurrajong property.

67 The plaintiff noted that the only record of a large deposit being made against the loan account in the joint names of the defendants for the Kurrajong property is on 16 April 1999 when $75,000 was paid (see Tab 18 of first defendants bundle of documents. It is also noted that $75,000 was withdrawn from the joint account on 14 April 1999 (Ex AS, Tab 10)). On this basis the plaintiff submits that the first defendants interest in the property is 8.82% (if the purchase price was $425,000).

End of the defendants’ relationship

68 The first defendant and the second defendant ended their relationship in August 2001 at which time the first defendant moved out of the Kurrajong property. The second defendant continued to live in the property.

69 In 2005 the plaintiff left Dubai and returned to live in India, as he was unable to obtain a visa to migrate to Australia. The plaintiff gave evidence in cross-examination that he moved from Dubai to India in 2005 because his application for a visa to live in Australia was refused by the Australian Department of Immigration as he submitted a false document purporting to record the death of his mother in law.

70 In April 2005 the plaintiff commenced these proceedings. Between July 1998 and the commencement of these proceedings in April 2005 the plaintiff has not declared any rental income earned from the renting of each of the three disputed properties nor has he filed any Australian income tax returns.

Discussion

71 The plaintiff contends that it was the parties’ intention that the three properties be held by the defendants on trust for the plaintiff. In support of this the plaintiff points to the correspondence between the plaintiff and the first defendant particularly the calculations sent to him that refer to the balance of the ‘kitty account’. The plaintiff states that the only contrary evidence is that the actual loans were taken out in the defendants’ names.

72 The first defendant claims she is entitled to a half share in each of the Farnham Road and Cadac Place properties and a quarter share in the Kurrajong property subject to an obligation that she discharge the mortgages on that property. It is her argument that this is a continuation of the agreement that existed between the parties for the previous seven years and to which the plaintiff acquiesced.

73 The first defendant and her two children lived with the second defendant from 1995 to August 2001. During this time she was in full time employment and the sole income provider. She maintains that she supported the second defendant during this period and monies received from the plaintiff were used to part fund the disputed properties but were not used for the defendants day-to-day expenses or to make the mortgage payments. The first defendant states that she was told that the plaintiff sent money to the second defendant but she was not aware what the second defendant did with the money as she did not have access to his account or bank statements and only knew when money had been transferred into the defendants joint account.

74 The first defendant states mortgage repayments were made using the rental income from the Farnham Road and Cadac Place properties and from her wages. Additionally the proceeds from the sale of Pagoda Crescent (sold in December 1998) and Ponytail Drive (sold in February/ March 1999) were used by the defendants to reduce the mortgage against the Kurrajong property from $202,000 to $120,000.

75 The first defendant also made submissions in relation to the filing of tax returns to rebut the notion that a trust in favour of the plaintiff was created. The first defendant filed tax returns from 1998 onwards declaring a half share of the rent for the Quakers Hill properties. It is submitted that this is consistent with the position the first defendant adopts in these proceedings, namely, that it was intended that she held an interest in the properties. The plaintiff did not file tax returns which is said to show that he did not intend to hold an interest nor did he understand that he held an interest in the properties. There are also other admissions to which the plaintiff refers. These include a letter from the first defendant to her solicitor written shortly after she had separated from Fabian (which was in August 2001): Ex AR. The relevant portion of that letter is:

“Farnham Road, Quakers Hill is in our name jointly and through the Adelaide Bank but is owned by his brother Ralph. I suggest that we contact Ralph and get him to pay the loan off with the proceeds of the sale of Kurrajong and transfer the house into Fabian’s name, as he is power of attorney for his brother Ralph.

Cadac Place, Quakers is the same as above.”

76 In response to the submission on tax returns the plaintiff points to the liability to pay tax imposed by the Income Tax Assessment Act 1936. The plaintiff’s submissions on this point are as follows:

“Section 98(3) provides that a trustee to whom that subsection applies in respect of an amount of net income is to be assessed and is liable to pay tax if the beneficiary is not a company in respect of the amount of net income as if they were the income of an individual and were not subject to any deduction. That subsection applies where the beneficiary is presently entitled to a share of the income of the trust estate, is a non-resident at the end of the year of income, is not a beneficiary in the capacity of a trustee of another trust estate, is not a beneficiary to whom s.97A applies and is not a beneficiary to whom subsection 97(3) applies and the trustee is not liable to pay tax under subsections (1) or (2) of s.98. Subsection (1) and (2) do not apply because there is no legal disability and there is no deeming under subsection 95A(2) because the plaintiff was presently entitled to the income. If on the other hand, he was not presently entitled to the income, then subsection 98(2) did apply and the trustee fell to be assessed and liable to pay tax as if it were the income of an individual and not subject to any deduction. Sections 97A and 97(3) do not apply because there is no farm management deposit and the plaintiff is not a body, association, fund or organisation. These provisions show that the defendants were liable as trustees to pay income tax on the rent received from the properties the same as if they were not trustees.

For that reason, a liability to pay tax in respect of rent income does not lead to the conclusion that the first defendant was the beneficial co-owner of the property; rather, it is entirely inconclusive.”

77 The submission that the filing of tax returns by the first defendant from 1998 onwards, in which a half share in the Quakers Hill properties was declared, does not take account of the fact that the returns filed were individual returns and not trustee returns.

78 Before dealing further with the two Quakers Hill properties it is necessary to consider the credit of the two parties.

79 I found the first defendant an unsatisfactory witness. In cross-examination her explanations for the contemporaneous documents were not credible and had not been put forward in her affidavit evidence. See for example the following:

(a) Exhibit O and the explanation at T47.25.

(b) Exhibit N and the explanation at T48.25.

(c) Exhibit P and the explanation at T50.40.

(d) Exhibit S and the denial at T57.25.

(e) Exhibit AE and the explanation at T58.35, T59.35 and T63.23.

80 The first defendant adopted other positions which were quite untenable. For example, she claimed that her money paid all the mortgages when at times she made no contributions to the mortgage account.

81 In fact I felt such disquiet regarding her evidence that I am reluctant to accept her evidence without corroboration.

82 I also found the plaintiff to be an unsatisfactory witness. In cross-examination he appeared to be evasive and I have a real concern about the veracity of his evidence.

83 The first defendant submits that the plaintiff was evasive when questioned on the sale of his parents’ home and how it was intended the second defendant pay him back the loans made in 1993. This appeared to be the case. The plaintiff conceded in cross-examination that he knowingly prepared and provided a false death certificate to the Australian immigration authority when making an application to migrate to Australia in 2005 and because of this his family’s application was rejected.

84 The plaintiff submits that it was not indicated in cross-examination or in any other way prior to final addresses that the evidence of the plaintiff was to be challenged on the grounds of credit and the first defendant cannot now attack the credit of the plaintiff as a witness. Reference was made to Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (1983) 1 NSWLR 1 at 22-23. The submissions do not address the true effect of the decision. The submission which I have accepted does not to seek to rely upon other material which the witness has not been given an opportunity to address. As I have said I have a real concern about the veracity of the plaintiff.

Express Trust

85 The plaintiff pleads an express trust was created in paragraphs 2, 4 and 7 and further terms of which are set out in paragraph 17 of the statement of claim. They are as follows:

“a. The defendants and each of them would manage each of the properties and ensure payment from the rent moneys of all mortgage instalments, rates, repairs and insurance premiums.

b. The defendants and each of them would transfer each property to the plaintiff upon demand.

c. The defendants and each of them would account to the plaintiff for all expenditure on the purchases and in respect of the income and all outgoings in connection with each property, upon demand.”

86 The existence of a trust is dependent on finding an intention of the parties to create such a trust existed. Formal or technical language is not required to express such intention and it may be inferred that the relevant intention existed by reference to the available evidence. The court may look to the nature of the transaction and the matrix of circumstances to infer the parties intention: Trident General Insurance Co Ltd v McNeice Bros. Pty Ltd [1988] HCA 44; (1988) 165 CLR 107, 121 per Mason J. In Bahr v Nicolay [No. 2] [1988] HCA 16; (1988) 164 CLR 604, Mason CJ and Dawson J said, at 618-619:

“If the inference to be drawn is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred.”

87 In New South Wales a trust created inter vivos must comply with s 23C of the Conveyancing Act 1919:

“23C Instruments required to be in writing

(1) Subject to the provisions of this Act with respect to the creation of interests in land by parol:

(a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by operation of law,

(b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person’s will,

(c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person’s will, or by the person’s agent thereunto lawfully authorised in writing.

(2) This section does not affect the creation or operation of resulting, implied, or constructive trusts.”

88 During the hearing the first defendant disclaimed any reliance on 23C but in written submissions later she raised it. It is necessary to deal with it.

89 The requirement of writing does not apply to resulting, implied or constructive trusts only to express trusts which I will deal with first.

90 The plaintiff refers to the principle set out in D. Heydon and M.J. Leeming, Jacobs Law of Trusts in Australia, 7th Ed, LexisNexis Butterworths Australia, Sydney at [709] that equity considers it fraud for a person whom land is conveyed as a trustee and who knows it was conveyed as such to deny the trust and set up lack of writing in support of the denial. In such cases, parol evidence of the trust may be adduced to establish the trust and a declaration obtained: Rochefoucauld v Boustead [1897] 1 Ch 196 and Last v Rosenfeld (1972) 2 NSWLR 923 at 929-930.

91 The principle applies where a trustee has expended his own money upon the acquisition of the property but upon terms that he acquired the property as trustee for the beneficiary and had a lien for the moneys he had expended. This is very similar to the situation in this case where the purchasers incurred a personal liability on the loans but had agreed for a right of indemnity out of the rental income which was expected to and did cover the mortgage repayments.

Resulting Trust
92 In paragraph 20 of the statement of claim the plaintiff pleads that in the alternative the properties are held on a resulting trust for the plaintiff.

93 A resulting trust will be presumed where, on a purchase, the legal title to property is vested in someone other than the person who is proved to have provided the purchase money. The relevant principles are stated in Calverley v Green (1984) 155 CLR at 246-247:

“Where a person purchases property in the name of another, or in the name of himself and another jointly, the question whether the other person, who provided none of the purchase money, acquires a beneficial interest in the property depends on the intention of the purchaser. However, in such a case, unless there is such a relationship between the purchaser and the other person as gives rise to a presumption of advancement, i.e., a presumption that the purchaser intended to give the other a beneficial interest, it is presumed that the purchaser did not intend the other person to take beneficially. In the absence of evidence to rebut that presumption, there arises a resulting trust in favour of the purchaser. Similarly, if the purchase money is provided by two or more persons jointly, and the property is put into the name of one only, there is, in the absence of any such relationship, presumed to be a resulting trust in favour of the other or others. For the presumption to apply the money must have been provided by the purchaser in his character as such -- not, e.g., as a loan. Consistently with these principles it has been held that if two persons have contributed the purchase money in unequal shares, and the property is purchased in their joint names, there is, again in the absence of a relationship that gives rise to a presumption of advancement, a presumption that the property is held by the purchasers in trust for themselves as tenants in common in the proportions in which they contributed the purchase money: Robinson v. Preston [15], at p. 213; Ingram v. Ingram [16] and Crisp v. Mullings [17] (a decision of the English Court of Appeal). “

94 See also Muschinski v Dodds [1985] HCA 78; (1986) 160 CLR 583 at 589.

95 I will first deal with the two properties at Quakers Hill. It is plain on the evidence that the cash funds for the purchase were provided by the plaintiff. The initial proposal for the purchase was that it would be in the plaintiff’s name but this changed in the time leading up to the purchase because of the problem of obtaining the necessary approvals or running the risk of transaction being disallowed. The contemporaneous documents signed by the first defendant indicate that she was aware that the property was to be purchased for the plaintiff. Subsequent to the purchase there are numerous admissions by her that the property was the plaintiff’s property and it was the plaintiff’s responsibility for the mortgages and notwithstanding the fact that the first defendant and her partner had signed them. Having regard to the contemporaneous documents and the admissions I am not prepared to accept the first defendant when she says that she did not know the circumstances of the monies being forwarded to the second defendant and that she thought they were loans to him by his brother.

96 There are other aspects which have been pointed to by the first defendant such as the terms of the mortgage documents which tend to indicate no trust being agreed upon nor a personal liability being accepted. They are, however, the only documents that would have enabled the transaction to be completed and no doubt the first defendant did not turn her mind to those matters. The income tax returns provide some contrary indication but it seems to me that the admissions and the contemporaneous documents clearly show what was in fact agreed, namely, that the properties were to be held in trust for the plaintiff and that the rental from the properties would be used to repay the mortgages to avoid the defendants having to contribute to them. The maintenance of a ‘kitty account’ over the period and the fact that the first defendant did not have to contribute to the mortgages in order to meet them was a strong point in favour of the conclusion to which I have adverted. In my view, there is an express trust over the Quakers Hill properties arising in favour of the plaintiff.

97 The position in relation to the Kurrajong property is obscured somewhat by the numerous proposals on the manner the property would be owned that were put forward prior to the purchase of the property. What seems clear is that the purchase price for the Kurrajong property was made up of $237,000 from the plaintiff and a loan of $202,000 taken out in the name of the defendants.

98 Earlier in this judgment I have referred to the facsimile of 19 July 1998 from the first defendant to the plaintiff. The text of that facsimile is set out in paragraph 47 above.

99 The parties before me did not put on any evidence of a reply to that facsimile prior to contracts being exchanged on 7 August 1998. Indeed the plaintiff says specifically that he did not say anything to the first defendant before that time. The only evidence of discussion was contained in paragraph 30 of the plaintiff’s affidavit in these terms:

30. At around the time of settlement, I had a telephone conversation with Olivia and Fabian which included words to the following effect:

Olivia: "Hi Roy. We are moving into Kurrajong. When you are ready to come to Australia, we'll move out of the house and build a house on the adjacent five acres. We will be good neighbours, I promise. The house will cost $150,000.00. We will sell Pagoda Crescent and build the house with that money. Will it be okay?

Since they had already moved into Kurrajong, or they were about to move into it I said words to the following effect:­

Roy: Okay. You may stay there as long as you pay the monthly mortgage and when I come down to Australia, you have to move to the adjacent five acres. Otherwise, give it out on rent as the earlier plan."

100 The first defendant in her defence concedes that the plaintiff held one half share in the property and for his part the plaintiff in cross-examination conceded that the first and second defendants held “a share” in the property.

101 The conversation referred to in paragraph 30 of the plaintiff’s affidavit is denied by the first defendant but, given its terms and what in fact happened it is likely that it did occur. By the time of settlement the plaintiff had sent enough money to enable the completion of the purchase with the planned bank mortgage. The second defendant had not received his compensation monies and the defendants had not sold their properties to provide their share of the money or what was necessary to build the additional house on the land at Kurrajong.

102 It would seem to me that it is necessary if there were to be an express trust that the facts sufficient to fix the intention of the parties be determined as at the time contracts were exchanged. It would only be if I was satisfied that they had not decided by that time (by reference to some particular evidence) that I should consider what happened between exchange and settlement. Prior to the exchange there is nothing to suggest that the plaintiff acquiesced in the terms of the proposal suggested in the fax of 19 July 1998.

103 In these circumstances it seems to me that there is not an express trust which I could infer as at the date of exchange of contracts and the matter will need to be looked at in terms of any resulting trust.

104 The situation bears similarities to that in Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 as discussed by Gibbs CJ at 251- 253:

“However, both the presumption of advancement, and the presumption of a resulting trust, may be rebutted by evidence of the actual intention of the purchaser at the time of the purchase: see Charles Marshall Pty Ltd. v Grimsley [47] , at pp. 364-365. Where one person alone has provided the purchase money it is her or his intention alone that has to be ascertained. In the present case however both purchasers contributed the purchase money. The amount of $18,000 borrowed under the mortgage was provided equally by the parties, for it was lent to them jointly, on terms which made them jointly and severally liable for its repayment, and, having thus been borrowed, was applied by them in part payment of the purchase price. Where there are two purchasers, who have contributed unequal proportions, but have taken the purchase in their joint names, the intentions of both are material. Even if the parties had no common intention, the intentions of each may be proved, for the purpose of proving or negating that one intended to make a gift to the other.

...

The presumption of advancement thus being rebutted, it is presumed that the respondent held her one-half interest in the property on a resulting trust in favour of the appellant, the extent of the trust being measured by the proportion of the purchase money which the appellant provided. Since the appellant already has a one-half legal interest in the property, the trust is in respect of so much of his proportionate beneficial interest as exceeds one-half -- to that extent the respondent holds her legal one-half in trust for the appellant, so that the appellant has in all a beneficial interest in the proportion which his contribution bears to the total purchase price. The question, however, then arises whether the respondent holds any greater interest in trust for the appellant -- that depends on whether when she took the legal title she intended to create a further trust in his favour. The evidence does not show that the respondent intended to confer any beneficial interest on the appellant. She may have regarded her signature to the mortgage documents as an empty formality, but if a bystander had asked her whether she intended that the appellant should own the land beneficially, even if he paid nothing under the mortgage, and she were obliged to pay the whole mortgage debt with interest, it is most unlikely that she would have replied in the affirmative. So far as the evidence shows, she formed no intention at all as to the beneficial ownership of the property, and it has not been established that she intended to hold any part of her interest in trust for the appellant.

In other words, the evidence negatives an intention on the part of the appellant to confer a beneficial interest on the respondent and it does not reveal that the respondent had an actual intention that the land should be held beneficially by the appellant in any greater proportion than that in which he had contributed to the purchase price. The appellant may have had an actual intention that he should be beneficially entitled to the whole of the property, but his intention can only affect the question whether a resulting trust arises. In so far as no resulting trust arose in the appellant's favour, a trust could arise in respect of the legal interest of the respondent only if she intended that the appellant should have a beneficial interest greater than that to which the resulting trust entitled him. The result in my opinion is that the evidence is sufficient to rebut a presumption of advancement, but not sufficient to rebut the presumption of a resulting trust.

The extent of the beneficial interests of the respective parties must be determined at the time when the property was purchased and the trust created. The fact that the mortgage debt was repaid by the appellant is therefore not relevant in determining the extent of the interests of the parties in the land, although it may be relevant on an equitable accounting between the parties. The parties each contributed $9,000 of the amount borrowed, and it appears that the remainder of the price, $9,250, was provided by the appellant, although the evidence on that point is unsatisfactory and there is no distinct finding on the question. If the appellant did provide the whole of the deposit, the respondent's proportionate interest in the land was 9,000/27,250. “

105 The plaintiff contributed $237,000 to the purchase price. I accept the first defendant intended to retain a beneficial interest in proportion to the amount she contributed to the property by way of her liability under the mortgage. This proportion is represented by the fraction equal to 101,000/439,000. To the extent that it may be necessary to deal with the second defendant’s interest, on the evidence before me, he would have a similar interest to the first defendant.

Illegality : Foreign Acquisitions and Takeovers Act

106 During the course of the hearing the court raised the question of whether enforcement of a trust might further an illegal purpose in light of the Foreign Acquisitions and Takeovers Act 1975. No illegality or unclean hands has been pleaded against the plaintiff however, in considering the exercise of its discretion, the court must look to whether the enforcement of the trust might further an illegal purpose in light of the Foreign Acquisitions and Takeovers Act.

107 The principles relating to illegality are discussed in Nelson v Nelson (1995) 184 CLR 538 by Deane and Gummow JJ, their Honours said at 564:

“The intersection between the institution of the resulting trust and the principles of illegality is identified by Scott as follows (Scott and Fratcher, Law of Trusts, 4th ed (1989) par 444):

‘Although a resulting trust ordinarily arises where A purchases property and takes title in the name of B, A may be precluded from enforcing the resulting trust because of the illegality of his purpose. If A cannot recover the property, B keeps it and is thereby enriched. The question in each case is whether the policy against the unjust enrichment of the grantee is outweighed by the policy against giving relief to the payor who has entered into an illegal transaction.’

However, where the illegality flows from statute, the matter is not at large in the manner suggested above. Rather it is a question of the impact of the statute itself upon the institution of the resulting trust.”

108 The other member of the majority in Nelson v Nelson, McHugh J said at 612-613:

“First, the sanction imposed should be proportionate to the seriousness of the illegality involved. It is not in accord with contemporaneous notions of justice that the penalty for breaching a law or frustrating its policy should be disproportionate to the seriousness of the breach. The seriousness of the illegality must be judged by reference to the statute whose terms or policy is contravened. It cannot be assessed in a vacuum. The statute must always be the reference point for determining the seriousness of the illegality; otherwise the courts would embark on an assessment of moral turpitude independently of and potentially in conflict with the assessment made by the legislature.

Secondly, the imposition of the civil sanction must further the purpose of the statute and must not impose a further sanction for the unlawful conduct if parliament has indicated that the sanctions imposed by the statute are sufficient to deal with conduct that breaches or evades the operation of the statute and its policies. In most cases, the statute will provide some guidance, express or inferred, as to the policy of the legislature in respect of a transaction that contravenes the statute or its purpose. It is this policy that must guide the courts in determining, consistent with their duty not to condone or encourage breaches of the statute, what the consequences of the illegality will be. Thus, the statute may disclose an intention, explicitly or implicitly, that a transaction contrary to its terms or its policy should be unenforceable. On the other hand, the statute may inferentially disclose an intention that the only sanctions for breach of the statute or its policy are to be those specifically provided for in the legislation.

Accordingly, in my opinion, even if a case does not come within one of the four exceptions to the Holman dictum to which I have referred, courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless:

(a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or

(b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct;

(ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and

(iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies.”

109 See also Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215 at 229-230 and 249-250; Damberg v Damberg [2001] NSWCA 87 at [111]- [117].

110 The Government has the power under the Foreign Acquisitions and Takeovers Act to block proposed foreign purchases of Australian business or real estate where this is determined to be contrary to the national interest. The Act also provides a legislative mechanism for ensuring compliance with the policy.

111 At the relevant time section 21A of the Act provided:

“21A Acquisitions of interests in Australian urban land

(1) In this section:

foreign person means:

(a) a foreign corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest; or

(b) a foreign corporation in which 2 or more persons, each of whom is a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest.

(2) Where the Treasurer is satisfied that:

(a) a foreign person proposes to acquire an interest in Australian urban land; and

(b) the proposed acquisition would be contrary to the national interest;

the Treasurer may make an order prohibiting the proposed acquisition.

...

(4) Where a foreign person has acquired an interest in Australian urban land and the Treasurer is satisfied that the acquisition is contrary to the national interest, the Treasurer may make an order directing the foreign person to dispose of that interest within a specified period to any person or persons approved in writing by the Treasurer.”

112 Section 21A of the Foreign Acquisitions and Takeovers Act is given an extended operation by s 4(6) of the Act. That is achieved by expanding the definition of ‘foreign person’. Section 4(6) is in the following terms:

“(6) Without prejudice to its effect apart from this subsection, this Act also has, by force of this subsection, the effect it would have if references in section 21A to a foreign person were references to:

(a) a natural person not ordinarily resident in Australia;

(b) a corporation (other than a foreign corporation) in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest;

(c) a corporation (other than a foreign corporation) in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest;

(d) the trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest; or

(e) the trustee of a trust estate in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest.”

113 There is some discussion of the relevant statutory provisions in the Federal Court decision of Wight v Honourable Chris Pearce, MP, Parliamentary Secretary to the Treasurer [2007] FCA 26 at [10] to [22]. His Honour, Besanko J, noted at [13] that the drafting technique whereby s 21A is given an extended operation by s 4(6) is similar to that used in the Trade Practices Act 1974 (Cth) and was considered by the High Court in R v Australian Industrial Court; Ex parte CLM Holdings Pty Ltd [1906] HCA 94; (1977) 136 CLR 235.

114 Section 26A of the Act provides:

“26A Compulsory notification of certain section 21A transactions

(1) In this section, person to whom this section applies means:

(a) a natural person not ordinarily resident in Australia;

(b) a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest;

(c) a corporation in which 2 or more persons, each of whom is a natural person not ordinarily resident in Australia or a foreign corporation hold an aggregate substantial interest;

(d) the trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest; or

(e) the trustee of a trust estate in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest.

(2) Where a person to whom this section applies:

(a) enters into an agreement by virtue of which he or she acquires an interest in Australian urban land and did not, before entering into the agreement, furnish to the Treasurer a notice stating his or her intention to enter into that agreement; or

(b) having furnished a notice to the Treasurer stating his or her intention to enter into an agreement by virtue of which he or she is to acquire an interest in Australian urban land, enters into that agreement before:

(i) the end of 40 days after the day on which the notice was received by the Treasurer; or

(ii) the day on which advice is given that the Commonwealth Government does not object to the person entering into that agreement (whether or not the advice is subject to conditions imposed under subsection 25(1A));

whichever first occurs;

the person is guilty of an offence and is punishable, on conviction, by:

(c) if the person is a natural person—a fine not exceeding $50,000 or imprisonment for a period not exceeding 2 years, or both; or

(d) if the person is a corporation—a fine not exceeding $250,000.

(3) Where:

(a) a person enters into an agreement by virtue of which he or she acquires an interest in Australian urban land; and

(b) the provisions of the agreement that relate to the acquisition of the interest do not become binding until the fulfilment of a condition or conditions set out in the agreement;

the person shall not be taken, for the purposes of subsection (2), to have entered into the agreement until the time when those provisions become binding.”

115 The provisions do not make it illegal for a natural person not ordinarily resident in Australia to enter into a contract to acquire an interest in urban residential land. The provisions do however provide penalties for failing to furnish to the Treasurer a notice stating intention to enter into such an agreement.

116 The plaintiff submits the imposition of a trust in favor of the plaintiff would not be inconsistent with the policy of the Act. It is accepted by the plaintiff that if he is successful he must notify the Treasurer of the acquisition of an interest in the property. The powers of the Treasurer to prohibit, order disposal and impose a penalty may then arise, which the plaintiff submits, will allow the policy of the Act to be met rather than avoided.

117 It is further submitted by the plaintiff that the inability of the plaintiff to enjoy his beneficial interest would not be an appropriate adjunct to the scheme for which the Act provides: see Nelson v Nelson (1995) 184 CLR 538 at 570 per Deane and Gummow JJ.

118 I would agree with plaintiff’s submissions that by refusing the plaintiff his beneficial interest the Court would be imposing a further sanction where the parliament has indicated that the sanctions imposed by the statute are sufficient to deal with conduct that breaches or evades the operation of the statute and its policies.

Further submissions

119 The first defendant submits that by allowing the defendants to become the registered proprietors and allowing them to undertake borrowings in their names, the plaintiff acquiesced to the proposal in the facsimile of 19 July 1998, (or alternatively he is estopped from denying the proposal) that a second house be built on the Kurrajong property and that the costs be shared between the defendants and the plaintiff. Similarly it is submitted that the plaintiff acquiesced when the first defendant used her own money from the sales of the Pagoda Crescent (in early 1999) and Ponytail Drive properties to reduce the Kurrajong mortgage. The first defendant submits that given this conduct, the plaintiff would not now be entitled to the declarative relief he seeks.

120 So far as estoppel is concerned the current formulation of the Australian position is said in Meagher, Gummow and Lehane Equity Doctrines and Remedies 4th ed (2002) to be encapsulated in the judgment of Brennan J in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387. At 428 he said:

"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the [1988] HCA 7; (1987) 164 CLR 387 at 429 defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs. “

121 The authors point out that the statement should be understood as holding, particularly in cases involving an assumption about a state of affairs, that reasonable notice of an intended departure from the assumption may avoid any sufficient detriment. See Commonwealth v Verwayen (1990) 170 CLR 394 Deane J at 442.

122 Questions of inducement by the first defendant in this case would be a live issue and perhaps the continued payment of funds to enable settlement may be an appropriate area. Questions of reliance and the plaintiff’s knowledge of this are also live issues in the circumstances of this case.

123 Acquiescence and estoppel were not pleaded by the first defendant nor was any factual enquiry made on these necessary elements during the course of the hearing. Accordingly, the plaintiff submits he would now suffer prejudice if the first defendant were able to rely on these principles as his evidence did not address these issues and no cross-examination of the first defendant was directed to these issues.

124 In reply, the first defendant seeks leave to amend her defence to raise these issues and she suggested that the issue of acquiescence and estoppel only became fully apparent after the plaintiff was cross-examined. It is said that by granting leave to the first defendant to amend her defence and then permitting the plaintiff to put on further evidence prejudice could be avoided. In my view the issue would have been readily apparent on the material in the plaintiff’s affidavit in chief in 2007. In addition, the plaintiff is in India and he may need to be cross-examined again by video link. The first defendant would also have to be cross-examined. Having regard to the time when the point became apparent and the need to effectively dispose of these proceedings, I refuse the application to amend.

S 66G Orders

125 The first defendant’s submissions, made after the hearing, seek an order that the properties be sold pursuant to s 66G of the Conveyancing Act 1919. However there is no cross-claim seeking this relief and that matter will have to be dealt with in separate proceedings if there is no agreement between the parties.

126 I direct the parties to being in short minutes to reflect my judgment.

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LAST UPDATED:
4 May 2009