19. Foreign money invested in property – whether trust created or mere loan – caveat removed but sale monies paid into trust.

The facts were –

In or about 2012 the defendant transferred$5.01 m. to enable the first plaintiff to acquire two properties.
One property was subdivided into three units.
In 2016 a deed of arrangement was entered into between the first plaintiff and the defendant whereby funds from the sale of this land were to be paid to the second plaintiff to enable it to undertake property development.
Contracts of sale of the three units for a total of $2,665,000 were entered into.
The defendant caveated over both properties claiming that the advance of monies gave rise to a caveatable interest pursuant to an implied or resulting trust.

The plaintiffs alleged that the funds were merely a loan and so gave rise to no caveatable interest.

The defendant, who was a Chinese National, deposed that:

the purpose of the payment was to invest $5 m. in Australia, this being required for the purpose of seeking Australian residency;
the director of the first plaintiff was so appointed because he held the required residency status for directorship of a company in Australia which the defendant did not;
there was no discussion as to a loan including as to interest and that his intention was “that the money I paid to the First Plaintiff meant that the properties purchased by the First Plaintiff were my properties”.

McDonald J held –

There was a serious question to be tried that a caveatable interest existed based on a resulting trust. There was no written loan agreement or evidence of a verbal loan agreement, and this absence was consistent with the terms of the deed. Financial evidence of a loan, produced by the plaintiffs, in particular unaudited balance sheets of some weight, was nonetheless inconclusive. [8], [10]-[11], [13], [17]
However, the balance of convenience favoured removal of the caveats because they were having a significant adverse effect upon the first plaintiff’s business, were preventing completion of the contracts, and were affecting the rights of the innocent purchasers. [17]-[19]
Nonetheless, the proceeds of sale would not be distributed in accordance with the deed but would be paid into trust or an interest bearing account (in the solicitors’ names) pending trial. The argument that this was contrary to the implementation of the deed was overcome by the first defendant’s allegations that he, being illiterate in English, had been induced to execute the deed by fraudulent misrepresentation by the director of the first plaintiff about its terms. [20]-[21], [23], [25]

Comment:

From a non-legal aspect this case is a manifestation of the common phenomenon of foreign money being advanced to buy Australian property on terms not clearly documented.
His Honour did not spell out the law of resulting trusts, but where property is put into the name of a non-contributor, or one of a number of contributors,to the purchase price, it is generally presumed to be held by the registered proprietor on trust for the contributors in proportion to their contributions, eg:Piroshenko v Grojsman [2010] VSC 240 (in which the claim failed on the facts).
However, money lent for the purpose of being applied towards the purchase price of land does not, on being so applied, entitle the lender to an estate or interest in the land, unless the parties intended that the lender should have security for the loan: Simons v David Benge Motors Pty Ltd [1974] VR 585.