1648/08 AUSTRALIAN BUILDING & TECHNICAL SOLUTIONS PTY LIMITED V JOHN BOUMELHEM
4017/08 BORAL AUSTRALIA LIMITED V JOHN BOUMELHEM
4401/08 MICHAEL BOUMELHEM V MICHAEL JONES & ORS
JUDGMENT
1 These matters were before me for hearing on an expedited basis, orders having earlier been made by the Registrar for the three matters to be heard together and for evidence in each proceeding to be evidence in the other proceedings.
2 The application for expedition was made by the plaintiffs in proceedings 4401/08 on the basis that judgment had been obtained by Perpetual Trustees Australia Limited ("Perpetual") as mortgagee in possession of property the subject of these proceedings ("the Dundas property") and that Perpetual had indicated that it was not prepared to defer exercising its rights in relation to the Dundas property until such time as the proceedings might otherwise be heard and determined in the ordinary course.
3 Of the three matters, the proceeding which logically needs to be determined first is 4401/08 - a claim brought by Michael and Elane Boumelhem ("the Boumelhems"), by statement of claim filed 15 December 2008, seeking relief by way of the declaration of a constructive trust as to a half share in the Dundas property (said to arise under the principles outlined in Baumgartner v Baumgartner (1987) 164 CLR 137 or alternatively on the basis of an equitable estoppel founded in a common intention or assumption as to the future acquisition of ownership of the Dundas property); or alternatively a claim for a declaration that the Dundas property is held on a resulting trust (on the principles set out in Calverley v Green (1984) 155 CLR 242 at 246, 258-259 and summarised in Buffrey v Buffrey [2006] NSWSC 1349 at [14]), by reference to the Boumelhems' contribution towards the acquisition of the Dundas property by the fourth defendant, their son John Boumelhem.
4 On 25 August 2008, John Boumelhem having filed a debtor's petition, the first defendant was appointed Trustee in Bankruptcy in respect of his bankrupt estate. Orders were obtained shortly prior to this hearing by the respective plaintiffs in each of the three proceedings (see Exs E, D2/1 and D3/2 respectively) from the Federal Court granting leave for these applications to be brought for orders against the Trustee in Bankruptcy. The Trustee in Bankruptcy has filed a submitting appearance in these proceedings.
5 Amongst John Boumelhem's creditors are the second defendant (Australian Building and Technology Solutions Pty Limited ("ABTS")) and the third defendant (Boral Australian Gypsum Limited ("Boral")), each of whom seeks a declaration that it has an equitable interest, inter alia, in the Dundas property, by way of equitable charge to secure debts arising under personal guarantees given by John Boumelhem in his capacity as director of Jayvue Pty Limited and Jayvue (Qld) Pty Limited, respectively.
6 The second and third sets of proceedings (proceedings 1648/08 and 4017/08) were instituted by ABTS and Boral, respectively, against John Boumelhem before he became bankrupt. In those proceedings the relief originally claimed included orders to enforce contracts entered into by John Boumelhem to execute mortgages in favour of ABTS and Boral, respectively. Given the bankruptcy of John Boumelhem, orders for specific performance are no longer sought. As between themselves, the priority of ABTS and Boral's respective claimed equitable interests has been agreed. Each properly concedes that the interest it claims under its unregistered equitable charge or charges, ranks in priority after that of Perpetual.
Facts
7 The Boumelhems live in a property at Concord ("the Concord property"), which is, and has been for over 30 years, their family home.
8 The Boumelhems have seven children. They are pensioners.
9 In about December 1997, the fourth of their children, John Boumelhem, sought assistance from the Boumelhems to obtain a loan in order to acquire or carry on a café business. At that stage, the Concord property was subject to a mortgage of approximately $16,000. The Boumelhems agreed to assist their son by increasing the mortgage over their Concord property. Michael Boumelhem, in cross-examination, said he agreed so to assist his son because his son was 17 and he did not want his son to be on the street (T 26).
10 To satisfy the lender's requirements, the Boumelhems transferred a 1% interest in the Concord property to John Boumelhem and, together with their son, they granted a mortgage over the Concord property to St George Bank securing a loan of $55,000 which John Boumelhem used for the purpose of the café business. It is said that no consideration for the transfer of the 1% interest was in fact paid by John Boumelhem, although the transfer (Ex A to Michael Boumelhem's affidavit of 25 August 2008) nominated the consideration for the transfer as being $5,500.
11 John Boumelhem's café business was not a success and in about 2002 the Boumelhems consented to an increased mortgage over the Concord property presumably to cover his losses. In her affidavit, Elane Boumelhem said that the family all helped to pay off the increased mortgage. As at 2004, it appears that the St George Bank mortgage over the Concord property secured an outstanding loan of approximately $153,359.00.
12 In April 2004, John Boumelhem commenced a plaster boarding business. He incorporated both Jayvue Pty Limited and Jayvue (Qld) Pty Limited for the purposes of carrying on that business in both New South Wales and Queensland. He says that this business was successful in the first few years (and certainly it would seem that the business was regarded by ABTS/Boral as sufficiently creditworthy as at 2005/2006 for them to allow considerable trading debts to accrue). John Boumelhem said in cross-examination that he had been ordering supplies from Boral since 2000.
13 On 11 October 2004, John Boumelhem entered into a Contract for the Sale of Land pursuant to which he purchased in his name, as sole registered proprietor, the Dundas property for the sum of $425,000.
14 The circumstances in which John Boumelhem acquired the Dundas property are critical to the Boumelhems' claim.
15 John Boumelhem says that in 2004 he entered into an arrangement or agreement with his parents pursuant to which they would refinance the existing St George Bank loan over the Concord property; he would borrow the funds necessary to acquire the Dundas property (to be secured over the Dundas property); and his parents would assist him in the development of two duplexes on the Dundas property, on completion of which the land would be subdivided and title to one of the properties would be transferred into his parents' name, so that they would then be in a position to move into one duplex as their family home and sell the Concord property (and in so doing discharge the refinanced St George Bank loan over that property) and he would move into the other. In the meantime, John Boumelhem was to have the responsibility of meeting the repayments due on both loans.
16 Michael Boumelhem swore an affidavit (on 25 August 2008) in which he gave a similar account to that of his son (affidavit sworn 11 March 2009) of the conversation said to have given rise to the alleged arrangement. He was adamant in the witness box that the agreement was that he (and his wife) would give his son money and his son was to build two houses and transfer one to the Boumelhems. However, it was apparent from his evidence in cross-examination that Michael Boumelhem has little, if any, present recollection of the actual conversations he had with his son at the time; all he now being able do was to assert what he understood was the outcome of those conversations.
17 Elane Boumelhem deposed to a conversation with her husband in late 2004 in which he spoke of giving their son the money to build two houses at a property in Dundas and said that their son would give one of the houses to them (para 15, affidavit 17 December 2008). Mrs Boumelhem seemed to feel she had no real choice but to accede to her husband's and son's wishes in this regard. Reliance is placed by the defendants on Mrs Boumelhem's description of events. She said, "I agreed to lend John some money" (paragraph 17 of her affidavit). I doubt that much (if any) weight can be placed on Mrs Boumelhem's description of the basis on which she agreed to provide money to her son, as there is nothing to suggest she had an understanding of its legal characterisation. Her description of the relevant events is consistent with an understanding that money would be advanced or provided to her son and that she and her husband would in due course move into a duplex to be built on the land (and that her son would take care of any interest payments on the money so provided) as opposed to an arrangement whereby the Boumelhems would make a loan to their son or make an outright gift of the money.
18 It is not disputed that, in connection with the purchase of the Dundas property, John Boumelhem borrowed the sum of $340,000 from Perpetual, which loan was secured by a mortgage registered on the title of the Dundas property. John Boumelhem says that he paid the deposit on the Contract for Sale of Land (that being, not 10%, as stated on the cover page of the contract, but 5% of the purchase price - $21,250) (but that he later reimbursed himself for that amount out of a loan redraw facility made available to him by his parents) and that he advanced the sum of $319,359.77 out of the moneys obtained from Perpetual in order to complete the purchase. Stamp duty and conveyancing costs associated with the purchase (totalling $18,495.23) were also apparently paid by John Boumelhem from the moneys advanced by Perpetual. Settlement occurred on 6 December 2004.
19 The balance of the purchase moneys due on the settlement of the Dundas property ($84,140.23) appears to have been paid from moneys obtained from the refinancing of the St George Bank loan. Prior to completion of the purchase of the Dundas property, the sum of $450,000 was borrowed from Adelaide Bank Limited and, as security for those moneys, a mortgage was given to Adelaide Bank Limited (by the Boumelhem and their son) over the Concord property. Of that $450,000, the sum of $153,359 was applied to discharge the indebtedness to St George Bank (which held the then existing mortgage over the Concord property); the sum of $84,140.23 was paid (as would appear from the purchase settlement sheet) to or at the direction of the vendors of the Dundas property (by way of a direction to pay "Mobius 01"); and the remainder of approximately $209,090 was held in a loan redraw facility account with the Adelaide Bank to which John Boumelhem had access.
20 The loan agreement with Adelaide Bank was not in evidence but there were in evidence various Australia First Mortgage loan account statements addressed to John Boumelhem and Michael Boumelhem, at a different Dundas address at which John Boumelhem was then living (Ex A pp 52-56). The accounts at pp 54-56 of Exhibit A, include under the heading "Loan Details" the notation "Account Title Mr John Boumelhem, Michael and Elane Boumelhem", the Mortgage Property Address as the Concord property, and the statement "Credit and administration provided by Adelaide Bank Limited". From this, I infer that the $450,000 loan was one made jointly to the Boumelhems and their son. It was secured by a mortgage over the Concord property, title to which was held as to 99% by the Boumelhems as between themselves by way of joint tenancy and as to 1% by John Boumelhem, as tenant in common in unequal shares with his parents. This becomes relevant when determining (if that be necessary) the precise monetary contribution made by the Boumelhems to the purchase price for the Dundas property.
21 As noted earlier, the Dundas property was acquired by John Boumelhem as sole registered proprietor. His evidence in the witness box was that it was done this way to protect his father's pension entitlements and because this was better when seeking finance for the loans (T 41). Michael Boumelhem's evidence was that he did not put the property in his name "because we thought after we build the two duplexes we will get [sic] go to the council to get them approved and then I will take one under my name" (T 24). When pressed as to why he did not take one in his name straight away (leaving aside the difficulty inherent in such a suggestion given that the land at that time, as now, was not subdivided), his response was: "Because that's what, I didn't know this would happen. That is what we talked about. Just after it's finished we will just take one each" (T 25).
22 No caveat was lodged by the Boumelhems in respect of any claimed equitable interest of the kind now asserted (and, when asked, Michael Boumelhem's evidence was that he did not know what a caveat was - although he said he knew through his son that "they", presumably the defendants, had a caveat on the properties (T 25)).
23 John Boumelhem obtained development approval from Parramatta City Council on 20 May 2005 to demolish the existing dwelling on the Dundas property and to construct two duplexes. This is one of two critical facts relied upon by Senior Counsel for the Boumelhems (Mr Willmott SC) as evidencing the arrangements which were in place with their son at the time of acquisition of the Dundas property; the other being the source of the funds for the acquisition and construction of the works.
24 Michael Boumelhem is a retired builder. In his affidavit he deposed to the supervision by him, on an almost daily basis, of the construction work on the Dundas property which commenced in April 2006. There was no challenge to this evidence on cross-examination. John Boumelhem (and his family) moved into one of the duplexes in February 2007, though the building work had not been completed at that time.
25 John Boumelhem deposes to the payment by him of construction costs for the duplexes in the order of $360,000 out of sums provided by him both by way credit card finance and by way of withdrawal from his parents' loan redraw facility (the latter withdrawals totalling $129,000 as identified by John Boumelhem by reference to the bank statements). Exhibit JB-6 to John Boumelhem's affidavit was tendered as an aide memoire of the drawdowns he asserts were made from the Adelaide Bank loan. As to the drawdowns from January 2005 totalling $129,000, these seem consistent with the steps likely to have been required to be taken in early 2005 for the commencement of preparation of the development application (lodged in early 2005 and approved in May 2005)) (being drawdowns of $10,000 on 21 January 2005, $15,000 on 8 February 2005 and $24,000 on 30 March 2005) and later towards the costs of commencement of construction in June 2006 (being the drawdowns of $50,000 in April 2006 and $30,000 in May 2006).
26 There was some cross-examination of John Boumelhem as to a payment or payments made by him in late 2006 to discharge a debt then owing to Boral (as a consequence of which an earlier Boral caveat was said to have been withdrawn). However, none of the drawdowns on the loan redraw facility claimed to have been by way of contribution to the costs of construction appears to have been made at the time of repayment of the Boral debt as at late 2006 and there is nothing to suggest any of these drawdowns were otherwise referable to John Boumelhem's plasterboard business or a payment to either of the defendants.
27 The actual construction costs to date are estimated by John Boumelhem as being $360,000, some $150,000 more than he says had originally been anticipated.
28 I did not understand there to be any sustained challenge to the assertion by John Boumelhem that the $129,000 in redrawn loan funds represented contributions to the development/construction costs for the Dundas property.
29 John Boumelhem also says that he reimbursed himself for the payment of the deposit out of the redraw facility, although there is no direct evidence of this. There was a loan redraw under the facility of $29,000 on 22 December 2004. It is this drawdown which John Boumelhem says related to reimbursement of the lesser deposit.
30 The evidence of both John Boumelhem and his father was that the arrangement between them was that each would contribute $450,000 to the joint endeavour or project, that being comprised of the acquisition and subsequent development of the Dundas property. However, the balancing exercise only comes to a 50:50 contribution if the sum of approximately $153,000 initially paid to discharge the St George Bank loan (which largely, if not wholly, represented John Boumelhem's indebtedness in respect of the unsuccessful café venture) is treated as part of the overall Dundas property project costs. If this sum were to be excluded, then on the figures as calculated by Counsel for ABTS (Mr Loughnan) the respective contributions of the parties to the project or venture (at their highest) would be in the ratio of about 70:30 (John:his parents).
31 In September 2007, John Boumelhem procured the refinancing of the Adelaide Bank loan by AMP Bank Limited. At the same time he increased the indebtedness secured by the mortgage over the Concord property by some $350,000 to $800,000. The money so obtained was, according to John Boumelhem, put into his companies (which by then were in some financial difficulty) (paragraph 32 of affidavit of 11 March 2009 and Ex B p 22). John Boumelhem admits that he arranged the increase in the Concord mortgage by the fraudulent application of his father's signature on the AMP documentation. (On the application of John Boumelhem, I gave a certificate under s 128 of the Evidence Act 1995 in relation to his evidence in this regard.)
32 The AMP loan documentation was admittedly signed by Elane Boumelhem. However, it is not disputed that Mrs Boumelhem does not read or speak English. By her affidavit she has sworn that she did not understand at the time that she was doing anything more than signing documents for there to be a change of lender in respect of the loan. Mrs Boumelhem was not cross-examined and I accept her evidence in this regard. Michael Boumelhem also does not read English. He says he speaks broken English. He required the assistance of an interpreter throughout the course of his cross-examination. On the face of the AMP mortgage documentation his purported signature bears no resemblance to the signature appearing on the documents which he admittedly did sign. I accept Michael Boumelhem's evidence that he did not know anything at all about the increase in the mortgage documentation (or that his son had actually changed lenders, although he was aware of his son's proposal to do the latter), until some time about six months after this had occurred.
33 By March 2008, it was apparent to John Boumelhem that he was in serious financial difficulty. His evidence is that at this stage he told his parents that they should take steps to make sure that they protected the money they had put into the Dundas property (or, as Michael Boumelhem says he said, "to confirm" they had put money into the Dundas property). However, at this stage it appears that neither Mr nor Mrs Boumelhem was aware of the additional sum of about $350,000 which John Boumelhem had (admittedly fraudulently) procured under the AMP mortgage.
34 On 27 March 2008, a Deed of Charge was executed by the Boumelhems and others (including John Boumelhem and his brother-in-law, Mr John Touma). It appears that John Boumelhem arranged the meeting with solicitors (Consolidated Lawyers) at which the Deed was signed. At the same time, one or more caveats was signed by members of the Boumelhem family and relations.
35 The Deed of Charge recites the assistance of the "Lenders" (including the Boumelhems) in the business of the "Borrower" (John Boumelhem) by the provision of a loan in the sum of $400,000 collectively. It recites specific loans made by Michael Boumelhem of $200,000 and by Elane Boumelhem of $100,000. It records an intention by the Borrower to grant a charge over the Dundas property to secure those loans. The "business" of the Borrower is not defined.
36 Mr and Mrs Boumelhem say that they did not understand the documents they had signed and that the Deed was not translated or explained to them, although in cross-examination Michael Boumelhem accepted that he had been told something about the documents (he could not remember what) in Arabic by a woman who was present on that occasion. According to John Boumelhem this woman was a solicitor, but Michael Boumelhem says he does not know whether she was a solicitor. It was Michael Boumelhem's understanding that the document was to protect his and his wife's "interest in Dundas". As noted earlier, the Boumelhems say, and I accept, that at the time they signed the Deed they were unaware of the increase in the mortgage over the Concord property.
37 The Deed of Charge is a curious document in a number of respects. It is inconsistent with the initial financial arrangements (even assuming for the moment that they were by way of a loan) since there is no suggestion on the evidence before me that there was any separate division in respect of the overall amount provided by the parents. Nor is it easy to see where the figure of $300,000 comes from if it relates to those initial finance arrangements (given that the Adelaide Bank loan was for $450,000) unless the $300,000 is a rounding up of the sum of $84,000 plus the redraw facility of $209,000. It seems to be John Boumelhem's evidence (I say "seems" because it was somewhat confusing) that the $300,000 referred to in the Deed of Charge related to the amount by which the mortgage had (unbeknownst to his parents) been increased in 2007 (though even then the sum of $300,000 does not accord with the actual additional borrowing of $350,000 and in any event there is no suggestion that this additional money was in any way put "into" the Dundas property). If the Deed was intended to confirm the basis on which the original $450,000 loan was applied, it failed dismally.
38 I consider later the submissions made in relation to the significance I should draw from the fact that the parties were willing to sign the Deed of Charge.
39 As to the position of ABTS and Boral, each had entered into credit supply agreements with companies associated with John Boumelhem. In each case, John Boumelhem signed a personal guarantee (with ABTS on 19 June 2006 and with Boral on 10 August 2008) pursuant to which he agreed to create an equitable charge in respect of any obligations arising under the guarantee. Both ABTS and Boral lodged caveats over the Dundas property: AD 635197 (Ex JB10 to John Boumelhem's affidavit of 11 March 2009) and AD 604 044k (Ex JB16 to John Boumelhem's affidavit of 11 March 2009)) the caveats were lodged by ABTS on or about 19 April 2007 and by Boral on or about 29 November 2007. (I understand it is now agreed between ABTS and Boral that, in fact, Boral had earlier lodged a caveat in respect of a prior charge in respect of which it now also claims an equitable interest.)
40 Mr Willmott submits that on a true construction of the respective Application for Credit and the Guarantee and Indemnity agreements, these operate to charge only that part of John Boumelhem's equitable interest in the Dundas property and not any part of the property that he holds on a constructive or resulting trust for his parents.
41 On 25 August 2008, four days before the proceedings brought by ABTS and Boral were respectively listed for hearing (on their application to perfect their respective securities), John Boumelhem voluntarily entered into bankruptcy.
42 The building of the duplexes remains unfinished and no subdivision has been effected of the Dundas property. John Boumelhem has estimated another $80,000 to $100,000 would be necessary to complete construction. As noted earlier, Perpetual has obtained judgment as mortgagee and I was informed it proposes shortly to exercise its power of sale as first mortgagee in respect of the Dundas property.
43 It is submitted for the Boumelhems that their equity prevails over the unregistered equitable interests of ABTS and Boral, respectively.
44 The defendants accept that there is some evidence that the registered proprietors of the Concord property (including John Boumelhem as a 1% holder of an interest in the property) advanced moneys towards the purchase price of the Dundas property. However, they submit that the highest the evidence rises is that 99% of the sum of $84,140.23 was advanced by the Boumelhems for the acquisition of the Dundas property (being, on my calculations, approximately 18.78% of the purchase price including stamp duty and conveyancing costs), or if the court accepts that John Boumelhem reimbursed himself for the deposit and that that sum should stand to the credit of the Boumelhems as a contribution to the acquisition, rather than as a loan advanced to John Boumelhem or something else, that the Boumelhems' actual contribution to the purchase price, at its highest, was $105,390.23.