Category: Resulting Trust

Blog 65. Mother v Daughter. Mother’s caveat based on constructive or resulting trust survives.

Dolan v Dolan & Anor [2022] VSC 543, Ierodiaconou AsJ, (14 September 2022) concerns a dispute between mother and daughter over property of which the daughter was registered proprietor, the mother being held to have a caveatable interest based on a constructive or resulting trust.  The facts were –

  • In about 1998 the first defendant (Christine) and other persons purchased land at Lorne (the parent title) for $105,000 with Christine being registered as to a half interest.   They agreed to subdivide it into two blocks, with her taking one.  She deposed that she contributed $52,500 towards the purchase.  The plaintiff (Shannan), who was Christine’s daughter, deposed that she contributed $20,000 towards the purchase, and it was common ground that Shannan paid Christine $20,000 at about the time of purchase.
  • Due to her age and income Christine could not obtain a loan to fund construction of a house.   However, a Bendigo Bank employee advised that if she transferred her interest in the parent title to Shannan an acceptable loan could be secured in Shannan’s name.  Christine deposed that Shannan accepted her proposal to make this transfer so that Shannan could obtain a loan on Christine’s behalf, but that both before and after subdivision she (Christine) would continue as beneficial owner, and that Shannan also accepted other proposed terms relating to the transfer.  Shannan denied accepting this proposal.  .
  • In 2001 Christine transferred her moiety in the parent title to Shannan, the consideration stated in the Transfer being as “An Agreement to Transfer”.   Following subdivision, one block (the property) was transferred to Shannan, the consideration in that Transfer being stated as “In pursuance of an Agreement between the Transferors for partition of the said land …”, and Shannan in 2003 became registered proprietor of this block.  The bank established a loan account in Shannan’s name with an overdraft limit of $140,000 secured by a mortgage.
  • Christine deposed that the costs for acquisition of the parent title and construction and fit‑out of the house were funded primarily from her personal resources and from the loan account, Shannan only contributing about 7% of overall build costs.   Christine also deposed to making mortgage repayments and that she paid all outgoings including council rates, home insurance, and for maintenance and improvement.  Shannan deposed that the overall build costs were largely drawn down from the loan account, that from 2004 to 2006 she made loan payments, and that Christine did not use her personal resources to fund these costs.
  • Upon completion of the house in 2003/2004 Christine, Shannan, and another family member took up residence.  Shannan left in 2006.  In 2021 Christine caveated on the ground of ‘implied, resulting or constructive trust’.  Shannan applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

Ierodiaconou AsJ dismissed the application, holding –

  1. There was a serious question to be tried that Christine was the beneficiary of a common intention constructive trust (she alleged as to 93% of the equitable title). This was supported by: her deposing to the required common intention or agreement; reference to an agreement in the Transfer (her Honour appears to state in the Transfer to Shannan of the subdivided block, but quaere this is a slip for the Transfer to Shannan from Christine); and Christine’s contribution to loan repayments.  Moreover, it appeared to be common ground that Christine contributed most of the purchase price of the parent title and that for many years she made payments into the mortgage loan account and resided on the property. [69], [71]
  2. There was a serious question to be tried that Christine was the beneficiary of a resulting trust (she alleged as to 65% of the equitable title) arising from her contributions to the purchase price of the parent title and to construction and fit-out.  Disputes about whether there was an agreement on the nature of Christine’s interest in the property, whether the presumption of advancement applied, and whether, as Shannan alleged, Christine was guilty of fraud, could only be resolved at trial. [69], [72], [75]
  3. The balance of convenience favoured maintenance of the caveat because of: Christine’s long residence; her age; evidence of her investing her life savings into the property; the fact that Shannan proposed to sell the property with vacant possession with only $20,000 from the net proceeds being distributed to Christine pending resolution of the dispute; Christine’s claim of a substantial interest in the property; and Christine’s inability to buy another property or rent one in Lorne. Any hardship for Shannan could be met by Christine’s undertaking to maintain mortgage and property expense payments, which would maintain the status quo of many years, and Christine being required within 7 days to commence a proceeding to establish her interest in the property. [76]-[78]
  4. There would be an order for amendment of the caveat to assert Christine’s claim to a 93% interest in the property. [80]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, February 21, 2023

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

 

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

Oz Envision Development Pty Ltd & Anor v Yuan (11 October 2018) [2018] VSC 607 McDonald J.   

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 –

  1. 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]
  2. 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]
  3. 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:

  1. 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.
  2. 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).
  3. 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.