Category: Constructive trust – Muschinski v Dodds/Baumgartner

Blog 71. Caveat based on alleged Baumgartner constructive trust fails.

Sandich v Fasoulis & Anor [2023] VSC 65 (17 February 2023), John Dixon J.

  • The plaintiff, Ms Sandich, and her former husband were registered proprietors of a property in Kew.  The first defendant, Mr Fasoulis, married Ms Sandich in 2017 but they later separated.
  • Mr Fasoulis deposed that –
    • At the start of their marriage Ms Sandich solely occupied the Kew property and he shared his time between it and his property in Murrumbeena with his children.
    • The financial burden of supporting her and his children and running two households, quickly became untenable and he fell into serious financial difficulty.   He sold property including the Murrumbeena property and used the proceeds to pay debts including debts of Ms Sandich.
    • He and his children then moved to the Kew property until its sale by Family Court order, the contract of sale being dated 27 July 2022 and due for settlement on 20 February 2023.  He financially assisted in preparing the property for sale, undertaking substantial refurbishments costing an estimated $20,000, Ms Sandich having no money.
    • On 6 February 2023 Mr Fasoulis commenced family law proceedings against Ms Sandich seeking financial orders pursuant to s. 79(1) of of the Family Law Act.  The next day he through a solicitor lodged a caveat claiming an ‘Implied, resulting or constructive trust,’ the estate or interest claimed being a ‘freehold estate‘ and the prohibition on dealings being ‘absolutely.’
  • Ms Sandich applied under the Transfer of Land Act s. s. 90(3) for removal of the caveat.
  • Mr Fasoulis argued that there was a serious question to be tried that he was a beneficiary of a constructive trust based on Baumgartner v Baumgartner (1987) 164 CLR 137.  He deposed that: he discussed with Ms Sandich the benefit of undertaking substantial refurbishment of the Kew property so as to realise its maximum value; they discussed that getting the highest sale price would benefit both of them financially; and for this reason his funds were invested in the Kew property.  He did not depose that she said, or agreed, that such expenditure would entitle him to an interest in the property.

John Dixon J. ordered removal of the caveat with costs –

  1. The first defendant had not established a serious question to be tried of a caveatable interest because –
    1. The grounds of claim could not be made out against the joint-registered proprietor Ms Sandich’s former husband. There was no evidence that he was party to a joint endeavour or relationship. [21], [30]
    2. The claim was overstated in the form of a trust affecting the whole freehold estate. [30]
    3. There was no joint relationship or endeavour for improvement of the Kew property.  The first defendant had only contributed some $20,000 to tidying up the property for sale, which did not improve the property nor was a significant amount, in return for a promise that he be repaid out of the sale proceeds.  There was no evidence of any specific discussion or agreement that he would have any interest in the property.  He had conflated what he alleged to be contributions to the marriage with what he described as an agreement that he finance the cost of preparing the property for sale on the basis that he would be repaid out of the proceeds of sale. [20], [22], [24]-[26], [28], [30]
    4. If there was any pooling of resources to the parties’ common benefit it was in the circumstances of the marriage and not in relation to the improvement of the Kew property. [28]
    5. There was no unconscionability in not recognising that the first defendant had an equitable interest in the property, particularly where he contended that his expenditure was on the basis of a promise that he be repaid. [26]
  2. Claims under the Family Law Act s. 79 did not create caveatable interests in any land that may be part of the matrimonial assets. [27]
  3. Although the caveat was lodged as a bargaining chip in the Family Law proceedings the circumstances were not such as to warrant an order for indemnity costs against the caveator. [34], [37], [39], [42]

Philip H. Barton
Owen Dixon Chambers West
Tuesday, April 4, 2023

38. Removal of caveats by courts exercising Family Law jurisdiction

Comment. 

To non – Family Lawyers, including me, one approaches the topic of this Blog as approaching a rumoured mystery.  However on examination the jurisdiction of the Family Court and Federal Circuit Court to remove a caveat is considerable.  As the cases below show the jurisdiction is exercisable not only where one party to a marriage caveats over the other’s property, but also where one party to a marriage caveats over the property of someone joined as a party to a proceeding (typically a second respondent), and even over non – party caveators with notice of it who had not intervened, the Registrar of Titles also not being a party. This removal under the TLA s. 90(3) of a caveat lodged by a non-party is unique to Family Law. 

Examples of courts exercising Family Law jurisdiction ordering removal of caveats appear to date at least from Bowe & Bateman [2012] FamCA 392 where the court issued a mandatory injunction requiring removal of a caveat.  Then in Auricchio & Auricchio and Ors (No. 2) [2014] FamCA 240 Forrest J. followed Bowe but also held that the court could have ordered removal of a caveat under the Queensland equivalent of the TLA s. 90(3). 

This Blog deals with recent Victorian cases of removal of the following caveats – 

Green & Walls [2019] FamCA 76 – caveat by Husband thwarting performance of Family Court order. 

Tailor & Tailor [2019] FamCA 383 – caveat by Wife over property owned by Husband from before marriage.  Also a reminder of the basic proposition that an application under s. 79 of the Family Law Act for alteration of property interests was not a caveatable interest – see also Hermiz v Yousif  [2019] VSC 160 (Blog 22). 

Siebel & Siebel & Anor [2019] FCCA 3367 – caveat by Husband over property owned by second respondent (son). 

Skye & Saidel and Anor [2020] FamCA 18 – caveats by non-parties over land owned by the second respondent who was the Wife’s mother. 

Green & Walls [2019] FamCA 76, (22 February 2019), Cronin J.

·        In 2014 the Husband lodged a caveat over property claiming an interest on the basis of an “implied, resulting or constructive trust”.

·     Final property orders were made in 2016 in which the Wife was required to “discharge and refinance” the mortgage over that property, thereby releasing the Husband from the mortgage, and so she would be sole registered proprietor.  Contemporaneously with the refinance the Husband was required to withdraw the caveat.  If she could not obtain this release she was required to sell the property.  There was no order indicating that the parties held any property upon trust for the purposes of the completion of their obligations under the orders.

·      Because the Husband did not comply with a particular payment order the Wife was forced to put the property on the market, requiring removal of the caveat. 

Cronin J directed the Registrar of Titles to remove the caveat.  Because the orders of the Family Court were still executory it was still seized of the matter and had power to direct the removal of the caveat arising from its accrued jurisdiction [14]-[15].  More particularly – 

(a)   The claim for removal came within the “scope of the controversy” which is “identifiable independent of the proceedings… brought for its determination”.  The scope was not limited to matters “incidental” to that which attracted federal jurisdiction in the first place but was here incidental to the completion of the obligations under the 2016 orders; [22]

(b)    What was required to be identified was whether or not the claim which might otherwise appear to be outside of the Family Court’s usual jurisdiction was essential for the determination of the federal claim.  Here, the federal claim was determined in 2016 but the efficacy of the order as an exercise of the power of the Commonwealth depended upon the caveat issue being determined; [23]

(c)    The court had power either as a court of competent jurisdiction (within the definition in s. 4 of the Transfer of Land Act) or as part of its determination of the federal claim.  The use of the State law was essential, or an integral element of the controversy between the husband and the wife about the alteration of property interests.  Accordingly the exercise of power in s. 90 was within the jurisdiction of the court. [24], [26]

Tailor & Tailor [2019] FamCA 383, (2 July 2019), McEvoy J.

·      In February 2019 the Wife caveated over property which the Husband had owned from long before the marriage.

·      In May 2019 she filed an Initiating Application seeking final orders for the adjustment of property interests.  A few days later he filed an Application seeking orders including that the Wife forthwith remove the caveat.  This order was made upon the Husband’s undertaking not to sell, dispose of, or encumber the property without notice.  His Honour held –

1.   An application pursuant to s. 79 of the Family Law Act for alteration of property interests was not a caveatable interest. 

2.   Applying Auricchio & Auricchio and Ors (No. 2), if a party had lodged a caveat on a property the subject of litigation in the Family Court, an application for the removal of that caveat was properly to be regarded as arising out of a common substratum of facts and formed part of a single justiciable controversy.  It accordingly fell within the jurisdiction of that court which could require the party to remove the caveat by the issue of a mandatory injunction in these terms pursuant to the Family Law Act s 114.

Siebel & Siebel & Anor [2019] FCCA 3367, (21 November 2019), Judge Blake

·     The Applicant Husband advanced a sum to his son towards purchase of a property.  The son became registered proprietor. 

·    In 2017 the Husband lodged a caveat on the basis of an implied, resulting or constructive trust.  In 2018 he applied under s. 79 of the Family Law Act for a just and equitable division of property of the marriage.  As the Applicant asserted that the property should be transferred to him and the Wife and then be available for distribution between them as part of the asset pool of the marriage his son was joined as second respondent. 

·     The Federal Circuit Court held that the advance of money was an unconditional gift and so that no trust existed, but that even if there had been evidence of a resulting trust the presumption of advancement applied in favour of the son.  Accordingly the property was not part of the asset pool.

·     His Honour also ordered that the Husband withdraw the caveat failing which the Registrar of Titles was directed pursuant to s. 90(3) of the Transfer of Land Act to remove the caveat.  His Honour followed the reasoning of Cronin J. in Green & Walls:
the substance of the dispute before the Court concerned the ownership of the property and the efficacy of the orders made as an exercise of the Commonwealth power depended upon the caveat issue being determined.

Skye & Saidel and Anor [2020] FamCA 18, (17 January 2020), Macmillan J. 

·       In 2011 the second respondent, who was the mother of the Wife, provided the moneys for purchase of a property of which they and the Husband became joint registered proprietors. 

·       In 2014 D Pty Ltd lodged a caveat over the property on the basis of a Credit Account Application and guarantee for the supply of materials for a business, which was signed by the Husband in his capacity as a director – the Husband had agreed to charge his interest in any real estate in which he had a beneficial interest. 

·      In 2018 a second caveat was lodged by the liquidator of that company on the basis of an equitable mortgage given by the Husband over his interest in the property in settlement of proceedings by the liquidator against the company and the Husband. 

·     In 2018 the Wife filed an Initiating Application against the Husband seeking orders for property settlement.  The orders eventually sought included an order that she and the Husband transfer their interests in the property to her mother who was formally joined as second respondent.  In an Amended Response the second respondent sought a declaration pursuant to s. 78 of the Family Law Act as to the legal and beneficial ownership of the property and consequential orders.  The Wife sought a similar declaration. 

MacMillan J was satisfied that the caveators had been given notice of the proceedings, were aware of the orders sought and had elected not to intervene in the proceedings.

Her Honour held – 

1.    Although the second respondent was not a party to the marriage, where there was a single justiciable controversy the Family Court could exercise its accrued jurisdiction to make the orders the second named respondent sought: the Court could not determine the proceedings pursuant to s. 79 of the Family Law Act without first determining the husband and wife’s legal and equitable interests in the land.  Also s. 78 provided a proper judicial basis for the making of a declaration binding the parties to this proceeding so long as the proceedings in which the declaration was to be made was, as in this case, a matrimonial cause. [25]. 

2.    As the Husband and Wife held their interest in the land on a resulting trust or on a Muschinski v Dodds constructive trust for the mother the declaration sought would be made.  [27]-[31]

3.    If the Husband had an interest in the land he could charge or mortgage it without notice to the other registered proprietors.  However, as the Husband did not hold his interest in the property beneficially he had no interest to mortgage or charge which could sustain the caveats. [42], [45]

2.    Exercising the court’s power arising under the accrued jurisdiction the Registrar of Titles would be directed under the Transfer of Land Act s. 90(3) to remove the caveats. [53], [54], [56]

 

Philip H. Barton

Owen Dixon Chambers West

2 June 2020

 

 

 

37. Caveat claiming resulting implied or constructive trust removed – No prima facie case – Difference between “prima facie case” and “serious question to be tried” tests – Circumstances in which hearsay admissible on application under TLA s. 90(3).

SMAV Nominees Pty Ltd v Bakal Enterprises Pty Ltd [2020] VSC 203 (24 April 2020), Derham AsJ

Comment.   This case is interesting for the following reasons –

1.   It considers the circumstances in which hearsay is admissible on an application to remove a caveat under the Transfer of Land Act s. 90(3).  See also Blog 11.

2.     Derham AsJ considers whether the caveator has to show, as to the existence of its asserted legal or equitable rights in the land, on the one hand a prima facie case or on the other hand a serious question to be tried.  His Honour states that the first is the correct test (as previously stated in Blog 1) and indeed states (at [64]) that the first test requires a higher standard than the second, citing the decision of Warren CJ in Piroshenko v Grojsman [2010] VSC 240; (2010) 27 VR 489.  It is, however, difficult to find any case in which a court holds that a caveator met one and not the other test (in this case Derham AsJ finds that caveator failed both), and indeed in Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd [2015] FCA 888 at [33] (not a caveat case) Edelman J stated that the difference between the two tests is one of language not of substance.

3.   Although his Honour simply ordered that the caveator pay the plaintiff’s costs of the application he reserved liberty to apply in relation to his proposed orders.  It was ominous that he also found that the caveat had been used as a bargaining chip as this may foreshadow indemnity costs – see Blog 35 and previous Blogs on costs. 

The facts were –

·      In October and November 2017 the plaintiff’s sole director Mavroudis loaned Sabawi a total of $200,000.

·     In April 2018 Mavroudis was introduced to 294 Pound Road Hampton Park (“the property”) by Sabawi, whom he believed to be a licensed real estate agent.   On 13 April he signed a “Letter of Offer Expression of Interest” and paid a holding deposit of $10,000 to one of the vendors at the direction of Sabawi.

·    On or about 17 April 2018 Sabawi asked Mavroudis for his bank account details so that he could repay the loan of $200,000.  Mavroudis did this.  Sabawi subsequently advised Mavroudis that he had repaid the $200,000 to his account.  Mavroudis received the $200,000 into his account on 18 April 2018, recorded in his bank statement as “Inward Telegraphic Transfer 180490”.   

·   On 7 July 2018 Sabawi presented the contract of sale to Mavroudis for signing with the purchaser named as “294 Pound Road Pty Ltd” and the vendor’s estate agent named as a particular company formed by the two of them other than for the purpose of selling real estate.  Mavroudis signed only after insisting that the document be altered to show the plaintiff as purchaser and the sale as being by private treaty.   The plaintiff became registered proprietor. 

·  On 23 August 2019, the solicitors for the plaintiff and Mavroudis received a letter of demand from the then solicitors for the first defendant (“Bakal Enterprises”) demanding repayment of $200,000.  Among other things the letter alleged that, following discussion with an unnamed mutual friend, Bakal Enterprises had paid $200,000 into Mavroudis’s account on 18 April 2018 as a contribution towards a development on the property, which had fallen over.  Shortly before this letter Mavroudis received a telephone call to similar effect from, he gathered, Bakal, who was Bakal Enterprises’ sole director.

·        On 27 August 2019 the plaintiff’s solicitors responded, stating that Mavroudis’ first knowledge of these allegations was in this telephone call and refuting them.  On 16 September 2019 the then solicitors for Bakal Enterprises responded confirming that the mutual friend was Sabawi, enclosing a receipt so as to corroborate the statement that Bakal Enterprises and not Sabawi had made the $200,000 payment, and demanding its repayment. 

·     The plaintiff heard nothing further until receiving notice that Bakal Enterprises through its new solicitors Madgwicks had caveated on 10 February 2020 claiming a freehold interest in the property on the basis of a resulting implied or constructive trust.

·     The plaintiff’s solicitors demanded removal of the caveat and stated  that the $200,000 had been repayment of a loan by Sabawi.  On 27 and 28 February Madgwicks and the plaintiff’s solicitors communicated, in the course of which:

·       Madgwicks stated that Sabawi denied the loan, maintaining that the caveator had an interest in the land arising from the contribution of $200,000 towards its purchase;

·   the plaintiff’s solicitors provided documentary evidence of the $200,000 loan to Sabawi, foreshadowed caveat removal proceedings, reiterated Mavroudis’ previous account of the facts, and stated that: the plaintiff had purchased the property with its own funds and financial assistance from Mavroudis’s father; a planning permit for a subdivision of the property was imminent; the plaintiff had a very interested buyer once it could sell with plans and permits but that this was impeded by the caveat. 

·        On or about 5 March Bakal and Sabawi conferred with Madgwicks. On 12 March Madgwicks wrote to the plaintiff’s solicitors stating, after reiterating its instructions about the $200,000 payment, that Sabawi had instructed it that Mavroudis inappropriately altered the name of the purchaser in the contract of sale from 294 Pound Road Pty Ltd (to be incorporated between Mavroudis and Sabawi) to the plaintiff’s name and “[we] are informed by Mr Sabawi that this change was made under false pretences and without adequate payment to Mr Sabawi, who was instrumental in facilitating the sale in the first place …. Mr Sabawi is currently attending to swearing a statutory declaration confirming the above…”.

The plaintiff applied under s. 90(3) of the Transfer of Land Act for removal of the caveat.  Before the caveator filed any evidence Madgwicks offered in return for withdrawal of the caveat that $300,000 be held in trust pending determination of the dispute.

The material before the court included –

·      an affidavit by the caveator’s solicitor which stated that a statutory declaration was being prepared by Sabawi;

·       an affidavit by Bakal.  This affidavit exhibited a statutory declaration, inferred by his Honour to have been prepared by Madgwicks, said to have been made by Sabawi, containing Sabawi’s evidence including disputing Mavroudis’ account of the facts.   Bakal asserted that Sabawi had not sworn an affidavit because of the social distancing measures required in the COVID-19 pandemic. The statutory declaration omitted reference to the false pretences allegation contained in Madgwicks’ letter of 12 March.  It included that: in March 2018 Sabawi told Mavroudis that he was getting a friend to pay the deposit for the purchase; that after the $200,000 payment, Mavroudis acknowledged to Sabawi that the plaintiff had received the money; and he informed Mavroudis at the time of payment that the money was sent to him from Bakal for the purposes of the purchase.

·        Bakal’s affidavit contained a rendition of financial and property dealings between Sabawi and Bakal, with repetition of statements allegedly made by Sabawi about Mavroudis.  Bakal deposed –

·        that he did not know Mavroudis personally and other than the transfer of the $200,000 he had not had any relationship or dealings with him or his entities;

·        (partly denied by Mavroudis) as to an alleged involvement in this transfer of $200,000, garnished with further complex dealings.  He deposed that: on or about 18 April 2018, he transferred $200,000 to the plaintiff by electronic fund transfer, without contact between the plaintiff (or Mavroudis) and Bakal Enterprises (or Bakal); the details of who and when to pay were provided by Sabawi to him.  The reference on the payment produced by Bakal was “Deposit Pound Road”.  

·        affidavits by Mavroudis in which he deposed that when he signed the contract of sale he did not know, or know of, the caveator or anyone associated with it, and that he had not entered into any agreement, either personally or through any agent, with the caveator or any other party in relation to the property.  Mavroudis deposed that there was no truth in the account in the statutory declaration. 

The plaintiff submitted that the statutory declaration was inefficacious for non- compliance with the Oaths and Affirmations Act 2018 in its execution and witnessing. 

Derham AsJ held –

1.     Sabawi could have sworn an affidavit deposing to the matters in his statutory declaration.   The inconsistencies between the statutory declaration and matters raised in correspondence, in particular in the Madgwicks letter of 12 March, were relevant to an assessment of the strength of the caveator’s claim.  [27]-[28]

2.     However, regardless of the efficacy of that statutory declaration under the Oaths and Affirmations Act, the material in it was admissible because –

(a)     Under r. 43.03(2) of the Supreme Court (General Civil Procedure) Rules 2015, on an interlocutory application an affidavit may contain a statement of fact based on information and belief if the grounds were set out.  This included the identification of the supplier of the information, ie its source.  Nonetheless, the Court had a discretion to admit an affidavit non-compliant in this regard;

(b)     Section 75 of the Evidence Act 2008 provided that in an interlocutory proceeding the hearsay rule did not apply to evidence if the party who adduced it also adduced evidence of its source.  The source must be identified by name;

(c)     If Bakal’s affidavit had related the material in the statutory declaration as what he had been told by Sabawi it would have been admissible, this application being interlocutory and the source being disclosed. [51]-[56]

3.     His Honour set out the law on caveats in conventional terms, which, as this law is set out in Blog 1, it is unnecessary to repeat except in one regard.   His Honour noted that: the caveator bore the onus of establishing a prima facie case to be tried, ie a probability on the evidence that the caveator will be found to have the asserted legal or equitable rights or interest in the land, not that it was more probable than not that at trial it (his Honour states “the plaintiff” but this appears to be a slip) would succeed; and that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in accordance with their normal proprietary rights;

this test was often used interchangeably with whether the caveator established a serious question to be tried, but the prima facie case test was to be preferred;

the “prima facie case” test required a higher standard that the “serious question to be tried” test.  [30]-[33], [64]

4.     Where two people provided the purchase money for a property jointly, but the property was put into the name of one of them only, the property was, in the absence of a relationship giving rise to a presumption of advancement, presumed to be held on resulting trust in favour of the unregistered party in proportion to their contribution. [57]

5.     The caveator had not established a prima facie case or even, if it had been applicable, satisfied the serious question to be tried test, because Mavroudis gave evidence that he believed the payment of $200,000 was repayment of a debt and the evidence to the contrary was at best contained in Sabawi’s statutory declaration, which was of little weight, ambiguous and contrived.   Insofar as it purported to ascribe knowledge to Mavroudis of the purpose of the payment, it did not support a resulting trust claim: there was no identification of the supposed beneficiary of the trust beyond “a friend” and the ambiguous statement that the money was sent to the plaintiff by Bakal for the purpose of purchasing the property.  That might indicate that the beneficiary was to be Sabawi or Bakal.   The only objective evidence supporting the caveator’s claim was the payment of $200,000 itself and the record that Bakal produced that it related to “Pound Road”.   However, there was no evidentiary link between the payment of $200,000 and the payment of the deposit nearly three months later. [58]-[65], [76]

6.     For the same reasons there was also no prima facie case of a Muschinski v Dodds constructive trust.  There was no evidence of consensus between the caveator and the registered proprietor which could give rise to a joint endeavour. [66]-[69]

7.    There was no suggestion that the existence of a claim for restitution gave rise to any equitable interest in the property. [70], [76]

8.     The caveat had been used as a bargaining chip to obtain payment of $200,000.  Although there were many cases in which a caveat dispute was resolved as proposed by the caveator’s solicitors, with the addition of a mechanism for the resolution of the dispute sometimes involving the caveator commencing a proceeding, the registered proprietor was entitled to deal with its property as it saw fit without being restrained by the injunctive effect of the caveat unless the caveator established a proper basis for the caveat. [73]-[76]

9.     The caveator was ordered to pay the plaintiff’s costs of the application.  His Honour however reserved liberty to apply in relation to his proposed orders. [77]

Philip H. Barton

Owen Dixon Chambers West

26 May 2020

 

36. Arguable case of constructive trust but caveat removed on balance of convenience due to conflict with pre-existing orders of Family Court – Undertaking as to damages should have been offered – Harvey v Emery & Ors [2020] VSC 153 (2 April 2020), John Dixon J.

 

Comment.  This case is a good example of an arguable, but not strongly so, interest in the land being trumped by the balance of convenience – John Dixon J. engages in a careful balancing exercise against the background of existing Family Court orders.  Several further general principles emerge –

1.     Non-parties to a marriage claiming an interest in land the subject of Family Court proceedings should expeditiously intervene in those proceedings.

2.    An undertaking as to damages is not commonly required as the price of maintenance of a caveat.  Boensch v Pascoe [2019] HCA 49 at [113] (Blog 29) explains how caveats differ from interlocutory injunctions in this respect.  However, John Dixon J. states an exception, being that such an undertaking is invariably required when a caveat was not removed in circumstances where third party rights would be detrimentally affected. 

3.   The case illustrates that a registered proprietor taking the s. 89A procedure can subsequently take the s. 90(3) procedure.

In Harvey v Emery & Ors [2020] VSC 153 the facts were – 

•  The plaintiff was married to Daniel Emery who was the son of the defendants. In about early 2018 the plaintiff and Daniel entered a contract to acquire a property as their family home for $950,000. They agreed that it would be acquired solely in her name to protect it from his creditors. The price comprised: her contribution of $200,000; an advance by the defendants to her of $200,000; the balance by bank finance secured by first mortgage. The plaintiff became sole registered proprietor.

•  As noted by the judge, it could only be determined at a subsequent trial whether this advance (and any subsequent claimed expenditure) by the defendants was: a loan, and whether to the plaintiff or Daniel or both, and for what purpose, or; an equity contribution in the context of a broader joint enterprise to which the defendants were parties, with the ultimate purpose of providing accommodation to the plaintiff, Daniel, their children and the defendants.  Related to this, were the defendants either chargees or beneficiaries of a resulting or constructive trust?

•  After settlement of the sale the plaintiff briefly resided at the property, vacating due to conflict in the relationship with Daniel that led to its breakdown.  Daniel remained in possession of the property for a period before being placed in custody for undisclosed reasons.

•  In proceedings between the plaintiff and Daniel the Family Court made consent orders in March 2019 including to the effect that – 

•  the plaintiff would transfer the title to the property to him on him refinancing the bank loan to discharge her mortgage and release her from the debt obligation, and on payment by him of $200,000 into her solicitors’ trust account;  

•  if Daniel was unable to refinance the property was to be sold with net proceeds broadly being disbursed in varying proportions between the plaintiff and Daniel after payment of costs and discharge of the mortgage;

•  The parties held their respective interests in the property on trust, with Daniel having the sole right of occupancy and sole liability for mortgage payments and outgoings.  

•  Daniel was unable to refinance and so could not comply with this order, leading to further Family Court orders in October 2019 including – 

•  that plaintiff recover possession of the property to effect its sale, in accordance with the March orders, and Daniel was restrained from caveating or from encumbering the land;  

•  directions for the conduct of the sale and for the distribution of the proceeds. The direction in respect of the priority of distribution of the proceeds was in substance: (a) – (d) payment of the costs and expenses of sale and for discharge of the mortgage; (e) payment to the plaintiff in reduction of the amounts due to her pursuant to the March orders with interest; (f) payment of any remainder to Daniel in reduction of the amounts due to him pursuant to the March orders; a further order relating to the balance owing in respect of a truck and other minor orders.   

•  The defendants were not party to the Family Court proceedings and did not seek to intervene. The settlement of the Family Court proceedings assumed that the whole of the beneficial interest in the property was matrimonial property.

•  In November 2019 the defendants caveated claiming a freehold estate absolutely prohibiting all dealings on the grounds of an implied, resulting or constructive trust.

•  The plaintiff applied under s. 89A of the Transfer of Land Act for removal of the caveat.  In response the defendants commenced a Supreme Court proceeding against her seeking a declaration that the property was held on trust for them as to an amount equivalent both to the above advance of $200,000 and to $120,000 expended on renovations (“the trust proceeding”).

The plaintiff applied pursuant to s. 90(3) to remove the caveat.  Daniel was not a party to either proceeding although he appeared to be a necessary party to the trust proceeding.  He apparently expressed a strong interest in retaining ownership of the property.  The defendants alleged that after the plaintiff had vacated the property, but with her acquiescence, they invested labour and expended approximately $120,000 in renovations and improvements and to enhance its value, in furtherance of a joint endeavour to acquire and improve an extended family home.  The plaintiff disputed this.

John Dixon J. held –

1.   If the allegations in the trust proceeding were proved, the defendants’ beneficial interest ought to have been excluded from the matrimonial property available for division in the settlement reached between the plaintiff and Daniel. [15]

2.  If the defendants’ contentions were correct, they had been adversely affected by the Family Court’s orders. They could enliven the Family Court proceedings, either by applying to intervene and seek a rehearing or by appeal. There was potential for conflict between the resolution of the trust proceeding and the execution of the orders of the Family Court. There were compelling reasons to cross-vest the trust proceeding to the Family Court to be dealt with in conjunction with a reopening of the property settlement orders. This application under s. 90(3) was not the appropriate forum for determination of issues between the parties. [25]-[27]

3.  The defendants had demonstrated some probability that they may be found to have an equitable right or interest in the land as asserted in the caveat, ie a freehold estate in the land based on a joint endeavour giving rise to a constructive trust. And if the renovation expenditure was added the defendants’ percentage claim to the beneficial interest would correspondingly increase. However, although there was a serious question for trial of such a constructive trust the claim did not appear to be strong. It was more probable that the defendants would establish an equitable lien or charge limited to the initial $200,000 advanced, this not being the interest claimed in the caveat. [4], [13], [28], [31], [32], [43], [45]

4.  A relationship existed between the strength of the case establishing a serious question to be tried and the extent to which the caveator must establish that the balance of convenience favoured maintenance of the caveat. Because the constructive trust claim was not strong the balance of convenience obligation fell more heavily on the caveators. There were significant negative practical consequences for the plaintiff if the caveat was maintained, being –

(a) Frustration of the sale ordered by the Family Court, in circumstances where none of the material facts affecting that order were, or since had been, placed before that court at the material time;

(b) The plaintiff would breach the contract of sale, affecting the purchaser’s rights in a manner with adverse consequences for the plaintiff, which could culminate in her reopening the Family Court proceedings to adjust the value of the pool of matrimonial assets underlying their resolution;

(c) Other than belatedly, the defendants had not offered any undertaking as to damages, notwithstanding that this undertaking was invariably required when a caveat was not removed in circumstances where third party rights would be detrimentally affected. Having regard to the belatedness of the offer it was not deserving of weight in the absence of evidence of its worth;

    There was insufficient evidence that the plaintiff had sold at an undervalue, and if the property market was falling the sale should proceed. [5], [33], [39], [45]-[52]

5.  The course that carried the lower risk of injustice, if it should turn out that his Honour was wrong, was to order that the caveat be removed on the following conditions –

a) amendment of the trust proceeding and it being transferred to the Family Court;

(b) relief of the plaintiff of the obligation to comply forthwith with the orders of the Family Court, and in lieu order that the proceeds of sale be distributed in accordance with paragraphs 7(a) – 7(f) of the order of October 2019 and that the balance remaining be deposited into an interest bearing account and not be disbursed save by further order of the Family Court. [53]-[59]

 Philip H. Barton

Owen Dixon Chambers West

19 May 2020

 

22. Caveats based on trusts alleged to arise in the domestic context – Muschinski v Dodds trust? Sale of land subject to caveat with requirement of retention of net proceeds to meet caveator’s future claim – Requirement in case of conflict of testimony that caveat be removed unless caveator commenced proceeding to establish interest – Power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on trusts – Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest though court order under that Act could have that effect – Comparison of procedures under TLA s. 90(3) and s. 89A – Indemnity costs against client and reserved against solicitor who lodged caveat.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

 

Karan is a case of a son with a caveatable interest in his parents’ property based on a Muschinski v Dodds constructive trust.

McRae is a dispute between real or alleged domestic partners concerning two properties, involving a Muschinski v Dodds constructive trust, with analysis by Derham AsJ of: (1) the balance of convenience where despite a caveatable interest it is necessary that a property be sold, and; in the case of a property not being sold, the law that, where a caveator has established a prima facie case but there is a conflict of testimony, the caveat would not be removed outright but may be ordered to be removed unless within a certain time a proceeding is issued to establish the caveator’s title.

Hermiz is a groundless claim for a Muschinski v Dodds constructive trust by the mother of a registered proprietor’s child, which also: ventilated why the TLA s. 90(3) procedure should be taken rather than that under s. 89A, and; attracted an order for indemnity costs against the caveator and reserved the caveating solicitor’s liability also to pay them.  This case reiterates that the power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on the principles of constructive trusts; and that the Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

The facts were –

  • Mrs Karan was the registered proprietor of a residential property. Her son Theo was registered proprietor of a neighbouring property where his parents and then his mother lived for many years.
  • She died, as administrator of her estate her other son Frank desired to sell the property, but Theo had caveated claiming an equitable estate in fee simple on the ground of an implied or constructive trust.
  • Frank applied under the Transfer of Land Act (TLA) s. 90(3) to remove the caveat. Theo was agreeable provided part of the sale proceeds was held in trust pending determination of his claim.
  • Theo alleged in substance:
    • residence in the property since 1988;
    • that Frank had used both properties to raise funds for business ventures on the basis of being responsible for the mortgage repayments which he subsequently ceased making leaving Theo to make some repayments;
    • payment of rates and outgoings including insurance;
    • expenditure on repairs, renovations and extensions;
    • in summary, total contributions of over $200,000.

Daly AsJ:

  1. Referred to a “Baumgartner constructive trust” (based on the High Court case of Baumgartner v Baumgartner (1987) 164 CLR 137, also known as a Muschinski v Dodds constructive trust, based on the High Court case of that name: (1984) 160 CLR 583)). The elements of this trust are that a constructive trust for the holding of a beneficial interest in land in particular shares may arise regardless of agreement or intention where:

(a)   A relationship or joint endeavour has broken down without any blame attributable to any party to it;

(b)   There has been a financial contribution by one or both parties to the relationship or to the joint endeavour;

(c)   In these circumstances, and in all the circumstances, it would be unconscionable for one party to the relationship or joint endeavour to retain a benefit greater than that party’s contribution. [7]

  1. Held that Theo had established a serious question to be tried that such a trust existed from before 2012, on the basis of arguments that:

(a)   he and their parents were involved in a joint endeavour whereby he made contributions to the property, which enabled him and his family to live rent free at the property, and enabled his parents to live rent free at his property;

(b)   they all pooled their resources to facilitate the joint endeavour;

(c)   the joint endeavour ended without blame upon the death of the parents; and

(d)   it would be unconscionable for the estate to retain the benefit of his contributions. [8], [14], [16]

  1. Ordered removal of the caveat on condition that all or part of the net sale proceeds be retained to meet any claim by Theo, who was also required to commence a proceeding to pursue his claim within a specified time. [3(k)], [18]-[20]

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

The chronology was –

  • The plaintiff (Zachary) was the registered proprietor of a property at Albion acquired in 2004 and of a property at Lara acquired in 2013, each encumbered by the same mortgage.
  • In January 2019 the defendant (Rachel) caveated over each piece of land claiming an interest in the land “as chargee” under an implied, resulting or constructive trust.
  • In March 2019 Zachary entered into a contract to sell the Albion property to be settled in May 2019.
  • He applied for removal of the caveats under the TLA s. 90(3).
  • He alleged that:
    • in 2012 she gave birth to their twins, but he had never lived with her as a couple in a de facto relationship and there was no agreement between them sufficient to give rise to a constructive trust;
    • until recently the children lived with her during the week and with him every weekend;
    • in January 2019 she had attempted to kill him leading to an intervention order.
  • Rachel alleged that:
    • they had resided in a ‘full emotional and sexual’ committed de facto relationship between 2002 and 2019 and were publicly known as such;
    • they pooled their income for joint expenses;
    • the properties were acquired during the course of the relationship;
    • she made financial contributions to their purchase and development;
    • Zachary always ‘indicated’ to her that she had an interest in both properties and was entitled to a half share of them;
    • his evidence as to residence with the children was incorrect and that she had not assaulted him.

Derham AsJ held:

  1. The estate or interest claimed as chargee was likely to be the result of a legal error. [3]
  2. If Rachel’s testimony was accepted there was a sensible basis for, and a sufficient probability of, finding that there was a Muschinski v Dodds constructive trust over both properties to the extent of her having an equitable estate in fee simple as a co-tenant with Zachary. This basis was: her direct contributions to the acquisition of the Albion property; her contributions to the maintenance and mortgage payments of both properties. [17]-[19]
  3. Accordingly, while it was neither necessary or appropriate to determine disputed questions of fact, Rachel had a sufficient likelihood of success justifying the practical effect of maintaining the caveat over the Albion property or of requiring deployment of most of the net sale proceeds in reducing the mortgage. [13], [20]
  4. The interaction between the strength of the caveator’s case and the balance of convenience was such that the lowest risk of injustice, whatever the outcome of the disputes, lay in removal of the caveat at settlement on the proviso that the net proceeds of the sale were (after payment of certain credit card debts – see below) applied to reduce the mortgage (Zachary also undertaking not to withdraw loan monies under the mortgage). This outcome preserved most of the benefit of Rachel’s caveatable interest.  To withhold this protection would do her irreparable harm if she succeeded in establishing her claimed interests, while to grant it would not greatly injure Zachary if her claims failed. [4], [21], [22], [24]
  5. However, certain of Zachary’s credit card debts were first to be paid out of the sale proceeds because most were incurred during the relationship alleged by Rachel and some had been incurred in completing the Lara property and so would ultimately benefit Rachel if her constructive trust claim succeeded. [4], [23]
  6. As regards the Lara property, it was clearly established law that where a caveator established a prima facie case but there was a conflict of testimony the court would not order outright removal of the caveat but may order removal unless steps were taken to establish the caveator’s title within a certain time. Accordingly the caveat would be ordered to be removed unless the caveator commenced proceedings to establish her title within a month. [5], [25], [26]
  7. Having regard to offers made by each side before the hearing, which were each to some extent appropriate, the defendant was ordered to pay the plaintiff’s costs fixed at $1,400, being disbursements incurred in issuing the originating process and paying the search fees incurred in putting forward exhibits to his affidavit in support. [27]

 

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

The chronology was –

  • In 1998 the plaintiff (Hermiz) and the first defendant (Yousif) were sexually intimate leading to the birth of a child.  They ceased their relationship at about this time and Hermiz had never met the child.
  • Hermiz paid child support.  Yousif never provided him with any financial support.
  • Hermiz married his wife Dina in 2004.  In 2010 they purchased a residential property, became registered proprietors and subsequently cohabited there.
  • Yousif made no contribution to the property, or to any other asset owned by Hermiz, he made no promise about the property or declaration of trust or like arrangement concerning it, and no court order related to it.
  • In December 2018 Hermiz and Dina entered into a contract to sell the land with settlement due in February 2019.
  • In January 2019 Yousif lodged a caveat claiming an interest in the land pursuant to a court order under the Family Law Act.  There was no order giving such an interest.  The caveat was voluntarily removed.
  • On 1 February 2019 Yousif via a firm of solicitors lodged the caveat the subject of this proceeding claiming a freehold estate on the basis of an implied, resulting or constructive trust.  Hermiz’s solicitors wrote to Yousif’s solicitors expounding the absence of basis for the caveat and forshadowing an application for damages and indemnity costs.
  • Hermiz and Dina could not complete the sale, but gave the purchaser possession under a licence and also remained liable to keep up mortgage repayments.
  • Hermiz applied under the TLA s. 90(3) to remove the caveat.
  • Two days before the Supreme Court hearing Yousif filed an application in the Federal Circuit Court for a property order, in particular for an order that the net proceeds of sale of this property be held in trust pending final orders, supported by an affidavit including allegations referred to in 1 below.

Derham AsJ held:

  1. Yousif had not discharged the burden of establishing a serious question to be tried (in the sense of a prima facie case) of the interest in land claimed in the caveat.  There was insufficient evidence of a Muschinski v Dodds constructive trust: her allegation of cooking, cleaning and supporting Hermiz financially whilst he studied for his Australian medical qualification more than a decade before purchase of the land did not reveal that it is or would be unconscionable for him to deny her an interest in the land. [32]-[37], [40], [41]
  2. On the dissolution of marriage or the breakdown of a de facto or domestic relationship, the scope of the Federal Circuit Court’s power to alter property interests was determined by legislation, in this case the Family Law Act s. 90SM, rather than by the principles of constructive trusts.  The Family Law Act did not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect. [38], [39]
  3. The balance of convenience was also against Yousif. [42]
  4. Hermiz was justified in applying under the TLA s. 90(3) as opposed to using the administrative procedure in s. 89A. The very reason for the summary procedure under s. 90(3) was to enable an application that avoided the delay involved under s. 89A. [44], [45]
  5. Indemnity costs would be awarded against Yousif because: the nominated basis of resulting, implied or constructive trust for lodging the caveat was without merit, and; she was using the caveat process as a bargaining chip. [52], [53]
  6. Leave would be reserved to Hermiz to claim costs against the solicitors who lodged the caveat. [54]

14. Caveats lodged over NSW land based on Muschinski v Dodds constructive trust – Under Real Property Act 1900 (NSW) s. 74K(2) caveat not to be extended unless caveator’s claim has or may have substance – claim without substance

D’Agostino v Zandata Pty Ltd and Ors [2018] VSC 115 (15 March 2018) McMillan J. 

This case is novel for a Victorian court, being an application of NSW law, but the caveat would equally have been removed under Victorian law.

A man died survived by various family members including his de facto partner and the plaintiff who was her son.  The deceased was a director of and held controlling interests in the three defendant companies.  The plaintiff lodged caveats with the NSW Registrar-General over land owned by the companies, claiming an interest in each under a constructive trust.  The Registrar-General served lapsing notices requiring the caveator to apply for order extending the caveats.  He applied to the NSW Supreme Court for an order under s. 74K(2) of the Real Property Act 1900 (NSW) which provided that the court may, if satisfied that the caveator’s claim has or may have substance, extend the caveat.  The proceeding was cross-vested to Victoria. 

 The caveator alleged that over a period of 38 years he acted to his detriment in reliance on the encouragement of the deceased by contributing to the acquisition, maintenance and/or improvement of the properties, and this encouraged an expectation that he and his mother would eventually own those properties. 

 McMillan J held –

1.     The application was to be determined in accordance with the law of New South Wales.  An application for the extension of the operation of a caveat was treated as analogous to an application for injunctive relief. Her Honour cited conventional authorities. [20], [22]  

2.   A constructive trust claim may form the basis for a caveatable interest in real property.  The plaintiff relied on a trust of the type enunciated by the High Court in Muschinski v Dodds.  There was however no sufficient prima facie case giving rise to a serious question to be tried that there was a constructive trust here.  There was substance in the defendants’ submission that even at their highest the promises were not to the effect stated nor did the plaintiff rely on them as alleged.  Further, the properties were owned by the companies and there was not allegation that the deceased made any representation as an officer or representative of the companies. [26], [27], [36]-[39]  

3.      The balance of convenience was also against extension of the caveats.  There was no immediate risk of dissipation of the land.  The injury caused to the plaintiff by non-extension did not outweigh the injury the defendants would suffer through extension. [48] 

4.      The lower risk of injustice was for the operation of the caveats not to be extended. [49]